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 June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-13219
Ocwen Financial Corporation
---------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0039856
--------- ------------
(State or other jurisdiction (I.R.S. Employer
Of incorporation or organization) Identification No.)
1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 682-8000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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 [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ].
Number of shares of Common Stock, $0.01 par value, outstanding as of August 5,
2004: 63,296,552 shares.
OCWEN FINANCIAL CORPORATION
FORM 10-Q
INDEX
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements (Unaudited)............. 3
Consolidated Statements of Financial Condition at
June 30, 2004 and December 31, 2003.............................. 3
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2004 and 2003.......................... 4
Consolidated Statements of Comprehensive Income (Loss) for
the Three and Six Months Ended June 30, 2004 and 2003 ........... 5
Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 2004.................... 6
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2004 and 2003.............................. 7
Notes to Consolidated Financial Statements........................ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 45
Item 4. Controls and Procedures........................................... 48
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 49
Item 6. Exhibits and Reports on Form 8-K.................................. 49
Signature................................................................. 51
2
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS (Unaudited)
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
June 30, December 31,
2004 2003
------------ ------------
Assets
Cash and amounts due from depository institutions ........ $ 282,099 $ 215,764
Interest earning deposits ................................ 7 324
Trading securities, at fair value
U.S. government and sponsored enterprise securities .... 4,652 6,679
Subordinates and residuals ............................. 42,280 42,841
Real estate .............................................. 68,080 103,943
Affordable housing properties ............................ 8,198 7,410
Loans, net ............................................... 11,520 28,098
Match funded assets ...................................... 132,775 130,087
Premises and equipment, net .............................. 41,633 41,944
Advances on loans and loans serviced for others .......... 337,320 374,769
Mortgage servicing rights ................................ 136,174 166,495
Receivables .............................................. 74,291 88,157
Other assets ............................................. 50,140 33,607
------------ ------------
Total assets ........................................... $ 1,189,169 $ 1,240,118
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits ............................................... $ 455,669 $ 446,388
Escrow deposits ........................................ 138,661 116,444
Bonds - match funded agreements ........................ 117,745 115,394
Lines of credit and other secured borrowings ........... 50,582 150,384
Notes and debentures ................................... 56,249 56,249
Accrued interest payable ............................... 4,099 4,789
Accrued expenses, payables and other liabilities ....... 27,871 31,926
------------ ------------
Total liabilities .................................... 850,876 921,574
------------ ------------
Minority interest in subsidiaries ........................ 1,294 1,286
Commitments and Contingencies (Note 8)
Stockholders' equity
Common stock, $.01 per value; 200,000,000 shares
authorized; 68,201,948 and 67,467,220 shares
issued and outstanding at June 30, 2004 and
December 31, 2003, respectively ....................... 682 675
Additional paid-in capital ............................. 230,440 225,559
Retained earnings ...................................... 106,263 90,409
Accumulated other comprehensive income (loss),
net of taxes .......................................... (386) 615
------------ ------------
Total stockholders' equity ............................. 336,999 317,258
------------ ------------
Total liabilities and stockholders' equity ........... $ 1,189,169 $ 1,240,118
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Six Months
--------------------------- ---------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ---------------------------------------------------------------------- ------------ ------------ ------------ ------------
Revenue
Servicing and related fees ......................................... $ 38,602 $ 32,224 $ 80,723 $ 66,052
Vendor management fees ............................................. 13,654 7,458 26,827 13,999
Gain (loss) on trading and match funded securities, net ............ 2,503 3,188 1,860 2,765
Valuation gains (losses) on real estate ............................ (1,974) (6,308) (3,825) (6,009)
Gain (loss) on sales of real estate ................................ 81 13 (460) 92
Operating income (losses) from real estate ......................... 565 1,421 573 2,192
Gain (loss) on debt repurchases .................................... -- (4) -- (4)
Other income ....................................................... 4,984 1,409 11,604 2,697
------------ ------------ ------------ ------------
Non-interest revenue ............................................. 58,415 39,401 117,302 81,784
------------ ------------ ------------ ------------
Interest income .................................................... 5,962 6,998 10,567 13,755
Interest expense ................................................... 7,096 9,404 14,898 18,731
------------ ------------ ------------ ------------
Net interest income (expense) before provision for loan losses ... (1,134) (2,406) (4,331) (4,976)
Provision for loan losses .......................................... (287) (3,250) (819) (3,085)
------------ ------------ ------------ ------------
Net interest income (expense) after provision for loan losses .... (847) 844 (3,512) (1,891)
------------ ------------ ------------ ------------
Total revenue .................................................. 57,568 40,245 113,790 79,893
------------ ------------ ------------ ------------
Non-interest expense
Compensation and employee benefits ................................. 20,897 17,130 42,930 34,838
Occupancy and equipment ............................................ 4,021 2,685 8,018 5,515
Technology and communication costs ................................. 6,616 4,497 13,285 8,994
Loan expenses ...................................................... 7,460 3,465 15,387 7,000
Loss (gain) on investments in affordable housing properties ........ (41) (56) (79) 314
Professional services and regulatory fees .......................... 7,316 4,060 13,141 19,344
Other operating expenses ........................................... 2,199 2,554 5,256 4,850
------------ ------------ ------------ ------------
Non-interest expense ............................................. 48,468 34,335 97,938 80,855
------------ ------------ ------------ ------------
Distributions on Capital Securities ................................ -- 1,529 -- 3,059
------------ ------------ ------------ ------------
Income (loss) before minority interest and income taxes ............ 9,100 4,381 15,852 (4,021)
Minority interest in net income (loss) of subsidiaries ............. (47) (73) (68) (336)
Income tax expense ................................................. 55 305 66 612
------------ ------------ ------------ ------------
Net income (loss) ................................................ $ 9,092 $ 4,149 $ 15,854 $ (4,297)
============ ============ ============ ============
Earnings (loss) per share
Basic .............................................................. $ 0.13 $ 0.06 $ 0.23 $ (0.06)
Diluted ............................................................ $ 0.13 $ 0.06 $ 0.23 $ (0.06)
Weighted average common shares outstanding
Basic .............................................................. 68,160,020 67,240,155 67,961,217 67,289,964
Diluted ............................................................ 69,534,999 68,372,204 69,314,392 67,289,964
The accompanying notes are an integral part of these
consolidated financial statements.
4
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
Three Months Six Months
---------------------- ----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------------- --------- --------- --------- ---------
Net income (loss).......................................... $ 9,092 $ 4,149 $ 15,854 $ (4,297)
Other comprehensive income (loss), net of taxes:
Change in unrealized foreign currency translation
adjustment arising during the period (1).................. (954) 297 (1,001) 515
--------- --------- --------- ---------
Comprehensive income (loss)................................ $ 8,138 $ 4,446 $ 14,853 $ (3,782)
========= ========= ========= =========
(1) Net of tax benefit (expense) of $(560) and $(174) for the three months
ended June 30, 2004 and 2003, respectively, and $588 and $(302) for the
six months ended June 30, 2004 and 2003, respectively.
The accompanying notes are an integral part of these
consolidated financial statements.
5
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Dollars in thousands)
Accumulated
Other
Common Stock Additional Comprehensive
----------------------- Paid-in Retained Income (loss),
Shares Amount Capital Earnings Net of Taxes Total
---------- ---------- ---------- ---------- -------------- ----------
Balances at December 31, 2003 ............ 67,467,220 $ 675 $ 225,559 $ 90,409 $ 615 $ 317,258
Net income ............................... -- -- -- 15,854 -- 15,854
Issuance of restricted common stock to
directors and employees ................. 211,394 2 687 -- -- 689
Exercise of common stock options ......... 523,334 5 4,194 -- -- 4,199
Other comprehensive loss, net of taxes
Change in unrealized foreign
currency translation adjustment ....... -- -- -- -- (1,001) (1,001)
---------- ---------- ---------- ---------- -------------- ----------
Balances at June 30, 2004 ................ 68,201,948 $ 682 $ 230,440 $ 106,263 $ (386) $ 336,999
========== ========== ========== ========== ============== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
6
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the six months ended June 30, 2004 2003
- ----------------------------------------------------------------------------------- ---------- ----------
Cash flows from operating activities
Net income (loss) ................................................................. $ 15,854 $ (4,297)
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Net cash provided by trading activities ......................................... 5,887 17,917
Premium amortization (discount accretion) on securities, net .................... (2,122) 733
Amortization of servicing rights ................................................ 48,669 43,405
Depreciation and other amortization ............................................. 7,067 7,034
Provision for loan losses ....................................................... (819) (3,085)
Valuation (gains) losses on real estate ......................................... 3,825 6,009
(Gain) loss on trading and match funded securities .............................. (1,860) (2,765)
(Gain) loss on sale of real estate .............................................. 460 (566)
(Gain) loss on investments in affordable housing properties ..................... (79) 314
(Gain) loss on repurchase of debt ............................................... -- 4
(Increase) decrease in advances and match funded advances on loans and loans
serviced for others ........................................................... 36,559 (38,403)
(Increase) decrease in receivables and other assets, net ........................ (5,634) (4,032)
Increase (decrease) in accrued expense, interest payable and
other liabilities, net ........................................................ (4,745) (88)
---------- ----------
Net cash provided (used) by operating activities .................................. 103,062 22,180
---------- ----------
Cash flows from investing activities
Principal payments received on match funded loans ............................... 5,031 5,656
Acquisitions of match funded loans .............................................. (7,119) --
Proceeds from sale of affordable housing properties ............................. 327 2,340
Purchase of mortgage servicing rights ........................................... (18,348) (52,583)
Proceeds from sale of loans ..................................................... -- 24,047
Principal payments received on loans ............................................ 29,521 27,166
Purchases, originations and funded commitments of loans, net .................... (15,975) (6,225)
Capital improvements to real estate ............................................. -- (4,019)
Proceeds from sale of real estate ............................................... 18,910 9,190
Additions to premises and equipment ............................................. (5,755) (4,837)
---------- ----------
Net cash provided (used) by investing activities .................................. 6,592 735
---------- ----------
Cash flows from financing activities
Increase (decrease) in deposits and escrow deposits ............................. 31,498 (14,190)
Proceeds from (repayment of) lines of credit and other secured borrowings, net .. (79,802) 78,652
Proceeds from (repayment of) bonds - match funded agreements, net ............... 2,351 (16,961)
Repurchase and repayment of notes and subordinated debentures ................... -- (439)
Exercise of common stock options ................................................ 2,317 11
Repurchase of common stock ...................................................... -- (2,235)
---------- ----------
Net cash provided (used) by financing activities .................................. (43,636) 44,838
---------- ----------
Net increase (decrease) in cash and cash equivalents .............................. 66,018 67,753
Cash and cash equivalents at beginning of period .................................. 216,088 192,247
---------- ----------
Cash and cash equivalents at end of period ........................................ $ 282,106 $ 260,000
========== ==========
Cash and cash equivalents at end of period
Cash and amounts due from depository institutions ............................... $ 282,099 $ 65,836
Interest-earning deposits ....................................................... 7 124,164
Federal funds sold and repurchase agreements .................................... -- 70,000
---------- ----------
$ 282,106 $ 260,000
========== ==========
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest ........................................................................ $ 15,588 $ 19,639
========== ==========
Income tax refunds (payments) ................................................... $ 47,809 $ (585)
========== ==========
Supplemental schedule of non-cash investing and financing activities
Assumption of line of credit by purchaser of real estate ........................ $ 20,000 $ --
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
7
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in conformity with the instructions to Form 10-Q and Article
10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly,
they do not include all of the information and footnotes required by U.S.
generally accepted accounting principles ("GAAP") for complete financial
statements. Ocwen Financial Corporation's ("OCN") interim consolidated financial
statements include the accounts of OCN and its subsidiaries. OCN owns directly
and indirectly all of the outstanding common and preferred stock of its primary
subsidiaries, Ocwen Federal Bank FSB (the "Bank"), Investors Mortgage Insurance
Holding Company, Ocwen Technology Xchange, Inc. ("OTX"), Ocwen Asset Investment
Corp. ("OAC") and Ocwen Financial Solutions, Private Limited ("India"). OCN also
owns 70% of Global Servicing Solutions, LLC ("GSS") with the remaining 30%
minority interest held by ML IBK Positions, Inc. ("Merrill Lynch"). We have
eliminated all significant intercompany transactions and balances in
consolidation.
In our opinion, the accompanying unaudited financial statements contain
all adjustments, consisting only of normal recurring accruals, necessary for a
fair statement of our financial condition at June 30, 2004 and December 31,
2003, the results of our operations for the three and six months ended June 30,
2004 and 2003, our comprehensive income (loss) for the three and six months
ended June 30, 2004 and 2003, our changes in stockholders' equity for the six
months ended June 30, 2004 and our cash flows for the six months ended June 30,
2004 and 2003. The results of operations and other data for the three and six
months ended June 30, 2004 are not necessarily indicative of the results that
may be expected for any other interim periods or the entire year ending December
31, 2004. The unaudited consolidated financial statements presented herein
should be read in conjunction with the audited consolidated financial statements
and related notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2003. Certain reclassifications have been made to the
prior periods' interim consolidated financial statements to conform to the June
30, 2004 presentation.
In preparing the consolidated financial statements, we are required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the dates of the statements of financial condition and revenues
and expenses for the periods covered. Material estimates that are particularly
significant in the near or medium term relate to our determination of allowances
for loans, servicing advances, and receivables, as well as our valuation of
securities, real estate, affordable housing properties, servicing rights,
intangibles and deferred tax assets. Actual results could differ from those
estimates and assumptions.
NOTE 2 CURRENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). This interpretation
provides guidance with respect to the identification of variable interest
entities and when assets, liabilities, noncontrolling interests and the results
of operations of a variable interest entity need to be included in a company's
consolidated financial statements. The Interpretation requires consolidation by
business enterprises of variable interest entities in certain cases. The factors
to be considered in making this determination include the adequacy of the equity
of the entity and the nature of the risks, rights and rewards of the equity
investors in the entity. The Interpretation applied immediately to variable
interest entities created after January 31, 2003 and to variable interest
entities in which an enterprise obtains an interest after that date. Due to
significant implementation concerns, the FASB modified the wording of FIN 46 and
issued FIN 46R in December of 2003. FIN 46R deferred the effective date for the
provisions of FIN 46 to entities other than Special Purpose Entities ("SPEs")
until financial statements are issued for periods ending after March 15, 2004.
SPEs are subject to the provisions of either FIN 46 or FIN 46R as of December
15, 2003. This Interpretation does not have a material impact on our financial
statements.
NOTE 3 COMPANY OBLIGATED, MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY
In August 1997, Ocwen Capital Trust ("OCT") issued $125,000 of 10.875%
Capital Securities (the "Capital Securities"). OCT invested the proceeds from
issuance of the Capital Securities in 10.875% Junior Subordinated Debentures
issued by OCN. The Junior Subordinated Debentures, which represent the sole
assets of OCT, will mature on August 1, 2027. Prior to our adoption of SFAS No.
150 on July 1, 2003, we presented the Capital Securities in a separate caption
between liabilities and stockholders' equity in or consolidated statement of
financial condition as "Company-obligated, mandatorily redeemable securities of
subsidiary trust holding solely Junior Subordinated Debentures of the Company",
and distributions on the Capital Securities were reported in a separate caption
immediately following non-interest expense in our consolidated statement of
operations. Effective with our adoption of SFAS No. 150, the Capital Securities
are presented as a liability in the consolidated statement of financial
condition as a component of notes and debentures. At the
8
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
same time, we began reporting distributions of the Capital Securities as a
component of interest expense in the consolidated statement of operations.
Holders of the Capital securities are entitled to receive cumulative
cash distributions accruing from the date of original issuance and payable
semiannually in arrears on February 1 and August 1 of each year, commencing on
February 1, 1998, at an annual rate of 10.875% of the liquidation amount of $1
per Capital Security. OCN guarantees payment of distributions out of moneys held
by OCT, and payments on liquidation of OCT or the redemption of Capital
Securities, to the extent OCT has funds available. If Ocwen Financial
Corporation does not make principal or interest payments on the Junior
Subordinated Debentures, OCT will not have sufficient funds to make
distributions on the Capital Securities, in which event the guarantee shall not
apply to such distributions until OCT has sufficient funds available therefore.
Distributions on Capital Securities amounted to $1,529 in both the second
quarter of 2004 and 2003 ($3,059 for the year to date periods). Accumulated
distributions payable on the Capital Securities amounted to $2,549 at both June
30, 2004 and December 31, 2003 and are included in accrued interest payable.
We have the right to defer payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 10 consecutive semiannual periods with respect to each deferral
period, provided that no extension period may extend beyond the stated maturity
of the Junior Subordinated Debentures. Upon the termination of any such
extension period and the payment of all amounts then due on any interest payment
date, we may elect to begin a new extension period. Accordingly, there could be
multiple extension periods of varying lengths throughout the term of the Junior
Subordinated Debentures. If we defer interest payments on the Junior
Subordinated Debentures, distributions on the Capital Securities will also be
deferred, and we may not, nor may any of our subsidiaries, (i) declare or pay
and dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, their capital stock of (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities that rank pari passu with or junior to the Junior
Subordinated Debentures. During an extension period, interest on the Junior
Subordinated Debentures will continue to accrue at the rate of 10.875% per
annum, compounded semiannually.
We may redeem the Junior Subordinated Debentures before maturity at our
option, subject to the receipt of any necessary prior regulatory approval, (i)
in whole or in part on or after August 1, 2007, at a redemption price equal to
105.438% of the principal amount or (ii) at any time, in whole (but not in
part), upon the occurrence and continuation of a special event (defined as a tax
event, regulatory capital event or an investment company event) at a redemption
price equal to the greater of (a) 100% of the principal amount thereof or (b)
the sum of the present values of the principal amount and premium payable with
respect to an optional redemption of such Junior Subordinated Debentures on
August 1, 2007, together with scheduled payments of interest from the prepayment
date to August 1, 2007, discounted to the prepayment date on a semiannual basis
at the adjusted Treasury rate plus accrued interest thereon to the date of
prepayment. The Capital Securities are subject to mandatory redemption, in whole
or in part, upon repayment of the Junior Subordinated Debentures at maturity or
their earlier redemption, in an amount equal to the amount of the related Junior
Subordinated Debentures maturing or being redeemed and at a redemption price
equal to the redemption price of the Junior Subordinated Debentures, plus
accumulated and unpaid distributions thereon to the date of redemption.
For financial reporting purposes, we treat OCT as a subsidiary and,
accordingly, the accounts of OCT are included in our consolidated financial
statements. We eliminate intercompany balances and transactions with OCT,
including the balance of Junior Subordinated Debentures outstanding, in our
consolidated financial statements.
9
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
NOTE 4 FOREIGN CURRENCY EXCHANGE RATE RISK MANAGEMENT
We have entered into foreign currency derivatives to hedge our
investments in foreign subsidiaries that own residual interests backed by
residential loans originated in the UK ("UK residuals") and a shopping center
located in Halifax, Nova Scotia (the "Nova Scotia Shopping Center"). It is our
policy to periodically adjust the amount of foreign currency derivative
contracts we have entered into in response to changes in our investments in
these assets. Currency futures are commitments to either purchase or sell
foreign currency at a future date for a specified price. We have determined that
the local currency of our investment in UK residuals and the Nova Scotia
Shopping Center is the functional currency. Our foreign currency derivative
financial instruments qualify for hedge accounting. Accordingly, we include the
gains or losses in the net unrealized foreign currency translation in
accumulated other comprehensive income in stockholders' equity. The following
table sets forth the terms and values of these foreign currency financial
instruments at June 30, 2004 and December 31, 2003:
Position Maturity Notional Amount Strike Rate Fair Value
-------- ---------- ---------------- ----------- -----------
June 30, 2004
- -----------------------------------
Canadian Dollar currency futures... Short Sept. 2004 C$ 13,000 0.7414 $ (104)
British Pound currency futures..... Short Sept. 2004 (pound) 17,500 1.8242 323
-----------
$ 219
===========
December 31, 2003
- -----------------------------------
Canadian Dollar currency futures... Short June 2004 C$ 10,000 0.7660 $ (34)
British Pound currency futures..... Short June 2004 (pound) 16,500 1.7292 (737)
-----------
$ (771)
===========
Because foreign currency futures contracts are exchange traded, holders
of these instruments look to the exchange for performance under these contracts
and not the entity holding the offsetting futures contract, thereby minimizing
the risk of nonperformance under these contracts. The notional principal amount
does not represent our exposure to credit loss.
NOTE 5 REGULATORY REQUIREMENTS
The Bank, as a federal savings bank organized under the Home Owners'
Loan Act, and OCN, as a registered savings and loan holding company under the
Act, are subject to extensive federal and state regulation under the Act and
other federal and state laws, as described on pages 11 through 14 under the
Regulation section of Part I in our Annual Report on Form 10-K for the year
ended December 31, 2003. Our primary regulatory authority is the U.S. Office of
Thrift Supervision ("OTS"). As such, the OTS periodically conducts an
examination of the Bank and its business practices.
On April 19, 2004, the Bank and the OTS entered into a Supervisory
Agreement (the "Agreement"). The Agreement memorializes various loan servicing
and customer service practices, some of which the Bank had previously adopted
and some of which it has implemented on a going-forward basis. Under the
Agreement, the Bank will continue to maintain and further develop its Office of
Consumer Ombudsman, an initiative implemented effective January 1, 2004. The
Agreement acknowledges that the Bank no longer assesses delinquent borrowers
attorneys' fees for issuing notices of default. Beginning with the effective
date of the Agreement, the Bank will no longer charge delinquent borrowers a fee
for providing forbearance plans in lieu of foreclosures. The Agreement also
establishes the procedures to be followed to determine whether appropriate
hazard insurance is in place before placing insurance on behalf of the borrower.
Those procedures include some already implemented by the Bank, as well as new
requirements, including that the second notice shall be sent to borrowers by
certified mail. The Bank will not place the borrower's loan in default, assess
fees or initiate foreclosure proceedings solely due to the borrower's nonpayment
of insurance premiums. The Agreement also provides that the Bank agrees "to
utilize best efforts" to provide borrowers or their agents pay-off quotes within
five business days and sets forth new guidelines regarding documentation of
charges on such pay-off quotes.
The Bank also is required to meet a number of deadlines and submit
reports relating to its implementation of the Agreement. While we do not expect
that compliance with the Agreement will have a material adverse impact on our
financial condition, results of operations or cash flows, we do not know whether
the OTS or other regulatory agencies will seek to implement additional measures
relating to the Bank's servicing practices, including with respect to the
matters that are the subject of the Agreement. Accordingly, there can be no
assurance that any such measures, if implemented, would not have a material
adverse effect on our financial condition, results of operations or cash flows.
10
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
and the regulations promulgated thereunder established certain minimum levels of
regulatory capital for savings institutions subject to regulation by the OTS. As
a federally chartered savings bank regulated by the OTS, the bank must follow
specific capital guidelines stipulated by the OTS. These guidelines involve
quantitative measures of the Bank's assets, liabilities and certain off-balance
sheet items. An institution that fails to comply with its regulatory capital
requirements must obtain OTS approval of a capital plan and can be subject to a
capital directive and certain restrictions on its operations.
At June 30, 2004, the Bank was "well capitalized" under the prompt
corrective action regulations adopted by the OTS pursuant to the Federal Deposit
Insurance Corporation Improvement Act of 1991. To be categorized as "well
capitalized", the Bank must maintain minimum core capital, Tier 1 risk-based
capital and risk-based capital ratios as set forth in the following table. The
Bank's capital amounts and classification are subject to review by federal
regulators regarding components, risk-weightings and other factors. There are no
conditions or events since June 30, 2004 that we believe have changed the Bank's
category.
Since 1997, the Bank has committed to the OTS to maintain a core capital
(leverage) ratio and a total risk-based capital ratio of at least 9.00% and
13.00%, respectively. The Bank continues to be in compliance with this
commitment as well as with the regulatory capital requirements of general
applicability (as indicated in the table below). In addition during 2002, we
committed to maintain our investment in mortgage servicing rights at
approximately 50% of stockholders' equity on a consolidated basis and 60% of
core capital (before any deduction thereto for mortgage servicing rights) at the
Bank. On a consolidated basis, our investment in mortgage servicing rights is
below the committed level and represented 40% of stockholder's equity at June
30, 2004. At the Bank, mortgage servicing rights are also below the committed
level, amounting to 53% of core capital at June 30, 2004.
11
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
The following table summarized the Bank's actual and required regulatory
capital at June 30, 2004:
To be Well Capitalized Committed
Minimum for Capital for Prompt Corrective Capital
Actual Adequacy Purposes Action Provisions Requirements
------------------- ------------------- ---------------------- ------------
Ratio Amount Ratio Amount Ratio Amount Ratio
------- ---------- ------- --------- -------- ---------- ------------
Shareholders' equity, and ratio to total
assets ................................... 19.08% $ 191,559
Disallowed mortgage servicing rights....... (8,876)
Disallowed deferred tax assets............. (21,295)
Non-includable subsidiary.................. (807)
Intangible assets (1)...................... (3,239)
----------
Tier 1 (core) capital and ratio to
adjusted total assets..................... 16.22% 157,342 4.00% $ 38,795 5.00% $ 48,494 9.00%
Non-mortgage servicing rights.............. (1,419)
----------
Tangible capital and ratio to tangible
assets.................................... 16.10% $ 155,923 1.50% $ 14,527
==========
Tier 1 capital and ratio to risk-weighted
assets.................................... 24.38% $ 157,342 6.00% $ 38,725
Tier 2 capital - Allowance for loan losses. 4,660
Real estate required to be deducted (2).... (44,000)
----------
Total risk-based capital and ratio to
risk-weighted assets...................... 18.28% $ 118,002 8.00% $ 51,633 10.00% $ 64,541 13.00%
==========
Total regulatory assets.................... $1,004,015
==========
Adjusted total assets...................... $ 969,873
==========
Tangible assets............................ $ 968,454
==========
Risk-weighted assets....................... $ 645,410
==========
(1) Unamortized balance of computer software.
(2) Retail shopping mall, which we originally acquired in satisfaction of a
debt and have held in excess of five years.
12
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
NOTE 6 NET INTEREST INCOME (EXPENSE) BEFORE PROVISION FOR LOAN LOSSES
Three Months Six Months
--------------------- ---------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- --------- --------- --------- ---------
Interest income:
- ----------------
Interest earning cash and other.................... $ 225 $ 96 $ 339 $ 146
Federal funds sold and repurchase agreements....... 350 419 742 737
Trading securities................................. 4,315 4,757 7,553 9,622
Loans.............................................. 710 737 1,170 1,109
Match funded loans and securities.................. 362 989 763 2,141
--------- --------- --------- ---------
5,962 6,998 10,567 13,755
--------- --------- --------- ---------
Interest expense:
- -----------------
Deposits........................................... 3,678 4,534 7,715 9,400
Securities sold under agreements to repurchase..... -- -- -- 3
Bonds - match funded agreements.................... 1,069 1,258 2,096 2,564
Lines of credit and other secured borrowings....... 820 1,319 2,028 2,176
Notes and debentures............................... 1,529 2,293 3,059 4,588
--------- --------- --------- ---------
7,096 9,404 14,898 18,731
--------- --------- --------- ---------
Net interest income (expense) before provision
for loan losses................................... $ (1,134) $ (2,406) $ (4,331) $ (4,976)
========= ========= ========= =========
NOTE 7 BUSINESS SEGMENT REPORTING
An operating segment is defined as a component of an enterprise (a) that
engages in business activities from which it may earn revenues and incur
expenses, (b) whose operating results are regularly reviewed by the enterprise's
chief operating decision maker to make decisions about resources to be allocated
to the segment and assess its performance, and (c) for which discrete financial
information is available. A brief description of our segments follows.
Core Businesses
---------------
. Residential Loan Servicing. Through this business, we provide for a
fee, loan servicing, including asset management and resolution
services, to third party owners of subprime residential mortgage and
"high loan-to-value loans". We acquire the rights to service loans
by purchasing them outright or by entering into sub-servicing
contracts.
. OTX. Through this segment we provide technology solutions for the
mortgage and real estate industries. OTX products include a
residential loan servicing system (REALServicing(TM)), a commercial
loan servicing system (REALSynergy(TM)) and an internet-based
mortgage loan processing application and vendor management system
(REALTrans(TM)).
. Ocwen Realty Advisors (ORA). Through ORA we provide residential
property valuation services to external customers in the wholesale
lending community as well as for our own residential real estate
transactions.
. Ocwen Recovery Group (formerly Unsecured Collections). This business
conducts collection activities for third party owners of unsecured
receivables and for a portfolio of unsecured credit card receivables
that we acquired at a discount in 1999 and 2000.
. Business Process Outsourcing. This business segment began operation
in December 2002. Business Process Outsourcing provides outsourcing
services, including data processing, call center maintenance,
mortgage research and others, to third parties and leverages the
operational capacity of our facilities in India.
. Commercial Servicing. This segment now includes the results of both
our domestic and international servicing of commercial assets,
including commercial real estate loans, corporate loans and
unsecured loans. Previously, domestic commercial servicing was
included as a component of the Commercial Finance Segment, and the
results of our international operations were reported as a separate
segment. International servicing is conducted through GSS, our joint
servicing venture with Merrill Lynch.
13
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
Non-Core Businesses
-------------------
. Commercial Assets. This segment comprised operations to acquire
sub-performing commercial loans at a discount, as well as operations
to invest in and reposition under-performing real estate assets. No
assets have been acquired since 2000. Since then, this business has
consisted of the management, repositioning and resolution of the
remaining loan and real estate assets.
. Affordable Housing. Includes our investments, primarily through
limited partnerships, in qualified low-income rental housing for the
purpose of obtaining Federal income tax credits pursuant to Section
42 of the Internal Revenue Code of 1986, as amended. Except to
complete those projects in which an investment had already been
made, we ceased making investments in properties in 2000.
. Subprime Finance. In August 1999, we closed our domestic subprime
origination business. Previously, activities of this segment
included our acquisition and origination of single-family
residential loans to non-conforming borrowers. We have continued to
manage and resolve the remaining non-core assets, which consist
primarily of unrated single-family subprime residual securities.
Corporate Items and Other
-------------------------
This segment includes business activities that are individually
insignificant, interest income on cash and cash equivalents,
interest expense on corporate assets, gains and losses from debt
repurchases and general corporate expenses.
We allocate interest income and expense to each business segment for the
investment of funds raised or funding of investments made. We also make
allocations of non-interest expense generated by corporate support services to
each business segment.
Financial information for our segments is as follows for the dates
indicated:
Total Assets
--------------------------
June 30, December 31,
2004 2003
----------- ------------
Core businesses:
Residential Loan Servicing..................... $ 612,424 $ 672,779
OTX............................................ 6,161 5,290
Ocwen Realty Advisors.......................... 3,010 1,056
Ocwen Recovery Group........................... 342 323
Business Process Outsourcing................... 1,623 1,010
Commercial Servicing........................... 11,009 5,241
----------- ------------
634,569 685,699
----------- ------------
Non-core businesses:
Commercial Assets.............................. 81,056 133,015
Affordable Housing............................. 44,613 48,974
Subprime Finance............................... 36,960 39,162
----------- ------------
162,629 221,151
----------- ------------
Corporate Items and Other........................ 391,971 333,268
----------- ------------
$ 1,189,169 $ 1,240,118
=========== ============
The following table summarizes our remaining investment in non-core
assets, which are included in the total asset amounts presented above:
Non-Core Assets
--------------------------
June 30, December 31,
2004 2003
----------- ------------
Non-core businesses:
Commercial Assets............................ $ 78,543 $ 126,401
Affordable Housing........................... 11,833 13,955
Subprime Finance............................. 37,119 38,973
Corporate Items and Other.................... 2,583 2,963
----------- -----------
$ 130,078 $ 182,292
=========== ===========
14
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
Net Interest Provision Pre-Tax
Non-Interest Income for Loan Non-Interest Income
Revenue (Expense) Loses Expense (Loss) (1)
------------ ------------ --------- ------------ ----------
At or for the three months ended June 30, 2004
- ----------------------------------------------
Core businesses:
Residential Loan Servicing.................. $ 33,566 $ (5,267) $ -- $ 23,663 $ 4,637
OTX......................................... 6,688 -- -- 5,154 1,534
Ocwen Realty Advisors....................... 7,401 (19) -- 5,806 1,576
Ocwen Recovery Group........................ 3,180 -- -- 2,291 889
Business Process Outsourcing................ 2,193 (5) -- 1,481 707
Commercial Servicing........................ 3,437 (1) -- 3,662 (226)
--------- ---------- --------- --------- ---------
56,465 (5,292) -- 42,057 9,117
--------- --------- --------- --------- ---------
Non-core businesses:
Commercial Assets........................... 252 512 (255) 829 190
Affordable Housing.......................... 17 (472) -- 731 (1,186)
Subprime Finance............................ 1,112 3,249 -- 739 3,623
--------- --------- --------- --------- ---------
1,381 3,289 (255) 2,299 2,627
--------- --------- --------- --------- ---------
Corporate Items and Other..................... 569 869 (32) 4,112 (2,644)
--------- --------- --------- --------- ---------
$ 58,415 $ (1,134) $ (287) $ 48,468 $ 9,100
========= ========= ========= ========= =========
At or for the three months ended June 30, 2003
- ----------------------------------------------
Core businesses:
Residential Loan Servicing.................. $ 28,810 $ (4,937) $ -- $ 15,472 $ 8,401
OTX......................................... 2,534 -- -- 5,179 (2,645)
Ocwen Realty Advisors....................... 4,905 (6) -- 3,305 1,594
Ocwen Recovery Group........................ 2,653 -- -- 1,688 964
Business Process Outsourcing................ 401 -- -- 478 (77)
Commercial Servicing........................ 1,430 (11) -- 2,203 (784)
--------- --------- --------- --------- ---------
40,733 (4,954) -- 28,325 7,453
--------- --------- --------- --------- ---------
Non-core businesses:
Commercial Assets........................... (4,586) (2,096) (3,373) 930 (4,239)
Affordable Housing.......................... 82 (811) 3 592 (1,324)
Subprime Finance............................ 3,067 4,372 -- 1,655 5,785
--------- --------- --------- --------- ---------
(1,437) 1,465 (3,370) 3,177 222
--------- --------- --------- --------- ---------
Corporate Items and Other..................... 105 1,083 120 2,833 (3,294)
--------- --------- --------- --------- ---------
$ 39,401 $ (2,406) $ (3,250) $ 34,335 $ 4,381
========= ========= ========= ========= =========
(1) Income (loss) before minority interest and income taxes.
15
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
Net Interest Provision Pre-Tax
Non-Interest Income for Loan Non-Interest Income
Revenue (Expense) Loses Expense (Loss) (1)
------------ ------------ --------- ------------ ----------
For the six months ended June 30, 2004
- -----------------------------------------------
Core businesses:
Residential Loan Servicing................... $ 68,840 $ (10,539) $ -- $ 47,918 $ 10,383
OTX.......................................... 9,887 -- -- 10,123 (237)
Ocwen Realty Advisors........................ 16,597 (25) -- 13,037 3,535
Ocwen Recovery Group......................... 6,658 -- -- 4,368 2,290
Business Process Outsourcing................. 4,348 (8) -- 3,236 1,104
Commercial Servicing......................... 6,968 (2) -- 6,968 (3)
--------- ---------- --------- --------- ---------
113,298 (10,574) -- 85,650 17,072
--------- ---------- --------- --------- ---------
Non-core businesses:
Commercial Assets............................ (2,043) 219 (764) 1,990 (3,050)
Affordable Housing........................... 17 (882) (29) 1,323 (2,159)
Subprime Finance............................. 1,284 5,991 -- 1,148 6,127
--------- --------- --------- --------- ---------
(742) 5,328 (793) 4,461 918
--------- --------- --------- --------- ---------
Corporate Items and Other...................... 4,746 915 (26) 7,827 (2,138)
--------- --------- ---------- --------- ---------
$ 117,302 $ (4,331) $ (819) $ 97,938 $ 15,852
========= ========= ========= ========= =========
For the six months ended June 30, 2003
- -----------------------------------------------
Core businesses:
Residential Loan Servicing................... $ 59,393 $ (9,824) $ -- $ 31,920 $ 17,649
OTX.......................................... 5,007 -- -- 10,979 (5,972)
Ocwen Realty Advisors........................ 8,726 (9) -- 6,108 2,609
Ocwen Recovery Group......................... 5,505 -- -- 3,224 2,281
Business Process Outsourcing................. 752 -- -- 748 4
Commercial Servicing......................... 2,936 (34) -- 5,067 (2,165)
--------- --------- --------- --------- ---------
82,319 (9,867) -- 58,046 14,406
--------- --------- --------- --------- ---------
Non-core businesses:
Commercial Assets............................ (3,420) (4,397) (3,458) 2,308 (6,668)
Affordable Housing........................... 145 (1,648) 148 1,953 (3,604)
Subprime Finance............................. 2,463 8,859 -- 13,022 (1,700)
--------- --------- --------- --------- ---------
(812) 2,814 (3,310) 17,283 (11,972)
--------- --------- --------- --------- ---------
Corporate Items and Other........................ 277 2,077 225 5,526 (6,455)
--------- --------- --------- --------- ---------
$ 81,784 $ (4,976) $ (3,085) $ 80,855 $ (4,021)
========= ========= ========= ========= =========
(1) Income (loss) before minority interest and income taxes.
NOTE 8 COMMITMENTS AND CONTINGENCIES
OCN and certain of its affiliates, including the Bank, have been named
as defendants in a number of purported class action lawsuits challenging the
Bank's mortgage servicing practices. The lawsuits allege that the defendants
violated federal and state statutes, including the federal Real Estate
Settlement Procedures Act, Fair Debt Collection Practices Act and state
deceptive trade practices statutes, and assert common law claims. The lawsuits
seek actual and punitive damages, and injunctive and other relief. These
lawsuits have been consolidated into a single proceeding before the United
States District Court for the Northern District of Illinois, under caption
styled: In re Ocwen Federal Bank FSB Mortgage Servicing Litigation, MDL Docket
No. 1604. The consolidated action is at an early stage of proceedings, and the
court has not yet considered a motion for class certification. We are defending
and intend to continue to defend the consolidated action vigorously. While the
outcome of litigation is always uncertain, we believe that we have meritorious
legal and factual defenses to all of the claims in the consolidated action.
16
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2004
(Dollars in thousands)
- --------------------------------------------------------------------------------
The Bank is also a defendant in a purported class action proceeding in
state court in Alabama that challenges the Bank's mortgage servicing practices,
and particularly certain fees charged to borrowers. In the proceeding, which
relates to loans that were part of a portfolio that we acquired from a third
party, plaintiffs alleged common law and Alabama state law claims against the
Bank and other defendants. We recently concluded an agreement with counsel for
the plaintiffs to settle the case on a non-class basis and to dismiss all claims
with prejudice. Pursuant to this settlement agreement, on August 6, 2004, the
parties jointly filed a Joint Motion to Vacate and to Dismiss the case with the
Court. The settlement agreement will not have a material effect on our financial
condition, results of operations or cash flows.
On July 9, 2004, a jury rendered a verdict of $9,320, which included
both actual and punitive components, against Ocwen, the Bank and OTX in
litigation brought by Cartel Asset Management, Inc. ("Cartel") in federal court
in Denver, Colorado. Cartel alleged trade secret and contract-related claims
arising out of real estate valuation services performed from 1997 through the
first quarter of 2001, at which time we ceased doing business with Cartel. On
July 16, 2004, the judge in the Cartel litigation ordered a new trial on damages
on the ground that the testimony of plaintiff's damages expert should have been,
but was not, excluded. The lawsuit does not involve challenges to our core
Residential Loan Servicing business practices. We will continue to defend this
litigation vigorously and, if necessary, take an appeal to the U.S. Court of
Appeals for the Tenth Circuit.
OCN and the Bank are also subject to various other pending legal
proceedings. In our opinion, the resolution of these proceedings will not have a
material effect on our financial condition, results of operations or cash flows.
NOTE 9 SUBSEQUENT EVENT
On July 28, 2004, OCN issued $175,000 aggregate principal amount of
3.25% Contingent Convertible Senior Unsecured Notes due 2024 ("Convertible
Notes") in a private placement under Securities Act of 1933, as amended. The
Convertible Notes are senior unsecured obligations of Ocwen Financial
Corporation and bear interest at the rate of 3.25% per year. Interest is payable
on February 1 and August 1 of each year, beginning on February 1, 2005. The
Convertible Notes will mature on August 1, 2024.
The Convertible Notes will be convertible at the option of the holder
thereof under certain circumstances into shares of our common stock at an
initial conversion rate of 82.1693 shares per $1 principal amount of the
Convertible Notes, subject to adjustment. Upon conversion, OCN may at its option
choose to deliver, in lieu of common stock, cash or a combination of cash and
common stock.
In privately negotiated transactions concurrent with the private
placement of the Convertible Notes, we have used 25% of the gross proceeds from
the sale of the Convertible Notes to repurchase 4,850,000 shares of our common
stock at a price of $9.02 per share. We intend to use the remaining proceeds,
net of underwriting discount and other expenses, for general corporate purposes.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
General
OCN is a diversified financial services company with headquarters in
West Palm Beach, Florida, and a presence in Canada, China, Germany, India, Japan
and Taiwan. We are engaged in a variety of businesses related to residential and
commercial mortgage servicing, real estate asset management, asset recovery,
global outsourcing and the marketing and sales of technology solutions to third
parties.
Overview of Risks and Related Critical Accounting Policies
For the past several years, we have been undergoing a fundamental
transition in the nature of our business. In late 1999 and early 2000, we began
to execute a strategic plan to shift our business activities away from
capital-intensive businesses involving the purchase or origination of loans,
real estate and related assets toward less capital-intensive businesses that
generate fee-based revenues. As a result, we generally ceased to invest in
assets in certain of our business segments ("non-core businesses") unless we
were contractually committed to do so. However, we continue actively to manage
and resolve the remaining assets in these segments. As of June 30, 2004, or core
and non-core businesses were as follows:
Core Businesses Non-Core Businesses
--------------- -------------------
Residential Loan Servicing Commercial Assets
Ocwen Technology Xchange ("OTX") Affordable Housing
Ocwen Realty Advisors ("ORA") Subprime Finance
Ocwen Recovery Group (formerly Unsecured
Collections)
Business Process Outsourcing
Commercial Servicing
In addition to our business segments, we use our Corporate Items and
Other segment to account for certain items of revenue and expense that are not
directly related to a business unit. We include in our Corporate Items and Other
segment interest income on cash and cash equivalents, interest expense on
corporate assets, gains and losses from debt repurchases and general corporate
expenses.
Principal Risk Factors. We included a discussion of the principal risk
factors that relate to our businesses and may affect future results on pages 14
through 17 of Management's Discussion and Analysis of Operations and Financial
Conditions in our Annual Report on Form 10-K for the year ended December 31,
2003.
Critical Accounting Policies. Our strategies to exit non-core businesses
and expand our core businesses are affected by risks in the marketplace.
Further, our ability to measure and report our operating results and financial
position is heavily influenced by the need to estimate the impact or outcome of
these risks, or other future events. Our critical accounting policies are those
that relate to the estimation and measurement of these risks, and an
understanding of these policies is fundamental to understanding Management's
Discussion and Analysis of Results of Operations and Financial Condition. We
summarize our more subjective and complex accounting policies as they relate to
our overall business strategy on pages 17 and 18 of Management's Discussion and
Analysis of Results of Operations and Financial Condition in our Annual Report
on Form 10-K for the year ended December 31, 2003. We discuss our significant
accounting policies in detail in Note 1 to our Consolidated Financial Statements
included in our Annual Report on Form 10-K for the year ended December 31, 2003.
Banking Operations
The Bank operates one bank branch in Fort Lee, New Jersey. This
location, which provides most of our retail banking services, is primarily
focused on the issuance of retail certificates of deposit that currently serve
as a source of financing for us. We do not conduct loan origination activities
in the Fort Lee branch.
We currently operate several of our core businesses primarily in the
Bank: Residential Loan Servicing, ORA, the domestic operations of Commercial
Servicing and portions of Ocwen Recovery Group. In addition, our non-core
Affordable Housing business operates in the Bank, as does a portion of our
non-core Commercial Assets business.
As described in Note 5 to our Interim Consolidated Financial Statements,
we have committed to the OTS to maintain our investment in mortgage servicing
rights at approximately 60% of core capital at the Bank (before any deduction
thereto for mortgage servicing rights) and 50% of stockholders' equity on a
consolidated basis. These commitments effectively limit the size of our
Residential Loan Servicing business. Consistent with our strategy of growing
that business, we are currently exploring the possibility of the Bank
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
terminating its status as a federal savings bank under OTS and FDIC supervision,
which would, among other things, eliminate these restrictions on our growth. If
we were to go forward with this process, which we refer to as "debanking," we
would dissolve the Bank and continue its non-depositary businesses, including
its mortgage servicing business, under another subsidiary of our company, which
would be licensed where necessary at the state level. Should debanking occur, we
would no longer be a savings-and-loan holding company and would no longer be
able to take deposits in the United States or benefit from federal preemption.
No final determination has yet been made with respect to whether we will
pursue this strategy. Were we to decide to do so, our ability to debank would be
subject to a number of contingencies, many of which are beyond our control,
including approvals by the OTS with respect to applications for a voluntary
dissolution as well as sales of the Bank's deposits to third parties. There can
be no assurance that we ultimately would be successful in debanking.
The following discussion of our consolidated financial condition,
results of operations, capital resources and liquidity should be read in
conjunction with the Interim Consolidated Financial Statements and related Notes
included in Item 1.
Selected Consolidated Financial Information
The following tables present selected consolidated financial information
at the dates and for the periods indicated.
Increase (Decrease)
June 30, December 31, ------------------------
2004 2003 $ %
----------- ----------- ----------- ---------
Financial Condition Data
- ------------------------
Total assets....................................... $ 1,189,169 $ 1,240,118 $ (50,949) (4)%
Trading securities, at fair value................ $ 46,932 $ 49,520 $ (2,588) (5)%
Real estate...................................... $ 68,080 $ 103,943 $ (35,863) (35)%
Loans, net....................................... $ 11,520 $ 28,098 $ (16,578) (59)%
Match funded assets, net......................... $ 132,775 $ 130,087 $ 2,688 2%
Advances on loans and loans serviced for others.. $ 337,320 $ 374,769 $ (37,449) (10)%
Mortgage servicing rights........................ $ 136,174 $ 166,495 $ (30,321) (18)%
Receivables...................................... $ 74,291 $ 88,157 $ (13,866) (16)%
Other assets..................................... $ 50,140 $ 33,607 $ 16,533 49%
Total liabilities.................................. $ 850,876 $ 921,574 $ (70,698) (8)%
Deposits......................................... $ 455,669 $ 446,388 $ 9,281 2%
Escrow deposits.................................. $ 138,661 $ 116,444 $ 22,217 19%
Bonds-match funded agreements.................... $ 117,745 $ 115,394 $ 2,351 2%
Lines of credit and other secured borrowings..... $ 50,582 $ 150,384 $ (99,802) (66)%
Notes and debentures (1)......................... $ 56,249 $ 56,249 $ -- --%
Stockholders' equity............................... $ 336,999 $ 317,258 $ 19,741 6%
For the Three Months Ended June 30,
--------------------------------------------------------
Favorable/(Unfavorable)
------------------------
2004 2003 $ %
----------- ----------- ----------- ---------
Operations Data
- ---------------
Net income (loss).................................. $ 9,092 $ 4,149 $ 4,943 119%
Non-interest revenue............................... $ 58,415 $ 39,401 $ 19,014 48%
Net interest income (expense) (1).................. $ (1,134) $ (2,406) $ 1,272 53%
Provision for loan losses.......................... $ (287) $ (3,250) $ (2,963) (91)%
Non-interest expense............................... $ 48,468 $ 34,335 $ (14,133) (41)%
Distributions on Capital Securities (1)............ $ -- $ 1,529 $ 1,529 100%
Income tax expense................................. $ 55 $ 305 $ 250 82%
Net income (loss) per share:
Basic and diluted................................ $ 0.13 $ 0.06 $ 0.07 117%
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30,
--------------------------------------------------------
Favorable/(Unfavorable)
------------------------
2004 2003 $ %
----------- ----------- ----------- ---------
Operations Data
- ---------------
Net income (loss).................................. $ 15,854 $ (4,297) $ 20,151 469%
Non-interest revenue............................... $ 117,302 $ 81,784 $ 35,518 43%
Net interest income (expense) (1).................. $ (4,331) $ (4,976) $ 645 13%
Provision for loan losses.......................... $ (819) $ (3,085) $ (2,266) (73)%
Non-interest expense............................... $ 97,938 $ 80,855 $ (17,083) (21)%
Distributions on Capital Securities (1)............ $ -- $ 3,059 $ 3,059 100%
Income tax expense................................. $ 66 $ 612 $ 546 89%
Net income (loss) per share:
Basic and diluted................................ $ 0.23 $ (0.06) $ .29 483%
(1) Effective with our adoption of SFAS No. 150 on July 1, 2003, we
reclassified our $56,249 balance of 10.875% Capital Securities to notes
and debentures. Distributions for the three and six months ended June
30, 2004 amounted to $1,529 and $3,059, respectively, and are included
with interest expense.
Results of Operations
General. We recorded net income of $9,092 for the second quarter of
2004, as compared to $4,149 for the second quarter of 2003. Our earnings per
share were $0.13 and $0.06 for the second quarter of 2004 and 2003,
respectively. For the first six months of 2004 we recorded net income of $15,854
or $0.23 per share as compared to a net loss of $(4,297) or $(0.06) per share
for the same period of 2003.
Our core businesses recorded combined pre-tax income of $9,117 in the
second quarter of 2004, an increase of $1,664 or 22% as compared to the second
quarter of 2003. Year to date, pre-tax income from our core businesses amounted
to $17,072, an increase of $2,666 or 19% compared to the same period of 2003.
Declines in Residential Loan Servicing income during the 2004 periods were more
than offset by improvements in the operating results of OTX and our other core
businesses. Our non-core business segments recorded pre-tax income of $2,627 in
the second quarter of 2004 as compared to $222 for the second quarter of
2003.Year to date, our non-core businesses recorded pre-tax income of $918, an
improvement of $12,890 over the loss incurred for the same period in 2003. The
improvement in the combined results of our year-to-date non-core segments is
largely due to the $10,000 charge in the first quarter of 2003, related to
settlement of the Admiral Home Loan arbitration. Losses from our Corporate Items
and Other segment declined in the 2004 periods. We discuss these segment results
in detail in our review of segment profitability, which follow.
Segment Profitability. In general, we have ceased conducting any new
business activities related to our non-core businesses, although we are actively
engaged in the sale or other resolution of the remaining non-core assets. These
assets are comprised of loans, real estate, securities held in our residual and
subordinate trading portfolio and affordable housing properties.
The following is a discussion of pre-tax income (loss) before minority
interest, income taxes and effect on change in accounting principle for each of
our core and non-core reportable business segments.
Core Businesses
- ---------------
Residential Loan Servicing. Through this business, we provide for a fee,
loan servicing, including asset management and resolution services, to third
party owners of subprime residential mortgage and "high loan to value" loans.
Subprime residential mortgages comprise the vast majority of loans we service.
We acquire the rights to service loans by purchasing them outright or by
entering into sub-servicing contracts. Results for the three and six months
ended June 30, 2004 as compared to the same periods of 2003 reflect growth in
the average volume of mortgage loans serviced, as shown in the table below,
continuing earnings pressure from current low interest rates and rising
prepayments in our servicing portfolio. Not only do prepayments result in the
loss of future servicing fees, they also result in increases to the rate at
which we amortize our servicing rights. Prepayments also create an obligation
for us to remit a final month of interest to the investor.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Selected information
- --------------------
2004 2003
------------- -------------
Number of loans at June 30..................................... 333,722 339,902
Unpaid principal balance at June 30............................ $ 34,768,367 $ 33,713,494
Average unpaid principal balance for the following periods:
Three months ended June 30................................... $ 35,676,776 $ 30,994,887
Six months ended June 30..................................... $ 36,370,943 $ 30,730,460
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ 4,637 $ 8,401 $ 10,383 $ 17,649
Net interest expense........................... $ 5,267 $ 4,937 $ 10,539 $ 9,824
Servicing and related fees:
Fees......................................... $ 62,476 $ 57,801 $ 130,377 $ 115,537
Amortization of servicing rights............. $ (23,009) $ (21,840) $ (48,669) $ (43,405)
Compensating interest expense................ $ (8,899) $ (7,657) $ (17,111) $ (13,621)
Non-interest expense........................... $ 23,663 $ 15,472 $ 47,918 $ 31,920
. The increase in fees in 2004, as compared to the same periods of 2003,
is primarily the result of average volume growth. Earnings on float
balances have increased as a result of volume growth, but these earnings
remain low due to low short-term interest rates. The yield we earned on
float balances averaged 0.85% and 1.16% during the second quarter of
2004 and 2003, respectively, and 0.90% and 1.15% for the first six
months of 2004 and 2003, respectively. See "Non-interest Revenue -
Servicing and Related Fees" for a detail of the principal components of
servicing and related fees.
. The rate of amortization on servicing rights has increased in response
to increased projected prepayment volumes. The balance of mortgage
servicing rights declined during the first six months of 2004 as
amortization exceeded purchases by $30,321. See "Changes in Financial
Condition - Mortgage Servicing Rights."
. The increase in compensating interest expense on loans repaid before the
end of a calendar month reflect higher prepayments in our servicing
portfolio.
. The increase in non-interest expense reflects costs associated with the
property management contract we entered into with The U.S. Department of
Veteran's Affairs ("the VA") in September 2003 and our reassumption in
the fourth quarter of 2003 of certain collection activities which were
previously outsourced to a third-party vendor. The total number of
employees in this business segment averaged 1,499 and 1,252 during the
second quarter of 2004 and 2003, respectively, and 1,469 and 1,267 for
the first six months of 2004 and 2003, respectively. Our workforce in
India assigned to this segment averaged 801 and 663 during the second
quarter of 2004 and 2003, respectively, and 765 and 649 for the year to
date periods of 2004 and 2003, respectively.
. Non-interest expense for 2004 also reflects a $1,393 increase in the
provision for uncollectible advances and other servicing related
receivables recorded during the first quarter.
OTX. Through this core segment we provide technology solutions for the
mortgage and real estate industries. OTX products include a residential loan
servicing system (REALServicing), a commercial loan servicing system
(REALSynergy) and an internet-based mortgage loan processing application and
vendor management system (REALTrans).
Selected information
- --------------------
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ 1,534 $ (2,645) $ (237) $ (5,972)
Non-interest revenue........................... $ 6,688 $ 2,534 $ 9,887 $ 5,007
Non-interest expense........................... $ 5,154 $ 5,179 $ 10,123 $ 10,979
The improvement in pre-tax results in the 2004 periods as compared to
2003 is primarily due to our REALServicing product. Pre-tax results for
REALServicing improved by $4,451 in the second quarter of 2004 as compared to
2003, and $5,868 year to date 2004 as compared to 2003. Non-interest revenue for
the second quarter of 2004 includes $2,900 of one-time fees (primarily
documentation fees) associated with a service contract for the use of our
REALServicing system.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Ocwen Realty Advisors. Through ORA we provide residential property
valuation services to external customers in the wholesale lending community as
well as our own residential real estate transactions.
Selected information
- --------------------
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ 1,576 $ 1,594 $ 3,535 $ 2,609
Property valuation fees........................ $ 7,401 $ 4,906 $ 16,597 $ 8,726
Non-interest expense:
Appraisal expenses........................... $ 5,015 $ 2,696 $ 12,110 $ 4,832
Other........................................ $ 791 $ 609 $ 927 $ 1,276
Gross margin................................... $ 2,386 $ 2,210 $ 4,487 $ 3,894
. The increase in property valuation fees and appraisal expenses reflects
a significant increase in the volume of property valuation services
performed, primarily as a result of the contract we entered into in
September 2003 to service residential REO properties for the VA.
Ocwen Recovery Group. This core business conducts collection activities
for third party owners of unsecured receivables and for a portfolio of unsecured
credit card receivables that we acquired at a discount in 1999 and 2000. On
collections for third party owners, we generally earn a fee based upon a
percentage of the amount collected. We accounted for our collections of our
unsecured credit card receivables portfolio under the cost recovery method
through the end of 2001 when we reduced the net book value of our unsecured
receivables to zero as a result of collections and additional reserves.
Beginning in 2002, income on that portfolio is recognized as cash is collected.
Selected information
- --------------------
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ 889 $ 964 $ 2,290 $ 2,281
Non-interest revenue:
Third-party collection fees.................. $ 2,625 $ 1,942 $ 5,604 $ 3,902
Recoveries of unsecured credit
card receivables owned....................... $ 492 $ 689 $ 965 $ 1,546
Other........................................ $ 63 $ 22 $ 89 $ 57
Non-interest expense........................... $ 2,291 $ 1,688 $ 4,368 $ 3,224
Business Process Outsourcing. Business Process Outsourcing provides
outsourcing services, including data processing, call center maintenance,
mortgage research and others, to third parties and leverages the operational
capacity of our facilities in India. This Business segment began operations in
December 2002. Results reflect the initiation of new outsourcing contracts in
the third quarter of 2003.
Selected information
- --------------------
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ 707 $ (77) $ 1,104 $ 4
Non-interest revenue........................... $ 2,193 $ 401 $ 4,348 $ 752
Non-interest expense........................... $ 1,481 $ 478 $ 3,236 $ 748
Commercial Servicing. This segment now includes the results of both our
domestic and international servicing of commercial assets. Previously, domestic
commercial servicing was included as a component of the Commercial Finance
segment, and the results of our international operations was reported as a
separate segment. International servicing is conducted through GSS, our joint
servicing venture with Merrill Lynch. As of the end of 2003, our two offices in
Tokyo, Japan and Taipei, Taiwan were fully operational. We are also in the
process of establishing servicing offices in other locations, including Canada
and Germany. We have established consulting operations in the United Kingdom and
China. At June 30, 2004, this segment serviced a total of 9,060 loans with an
aggregate unpaid principal balance of $12,466,252, the majority of which were
serviced by our office in Japan.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Selected information
- --------------------
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ (226) $ (784) $ (3) $ (2,165)
Servicing and related fees..................... $ 3,413 $ 1,296 $ 6,911 $ 2,630
Non-interest expense........................... $ 3,662 $ 2,203 $ 6,968 $ 5,067
. The results for the 2004 periods as compared to 2003 primarily reflect
growth in our international servicing of commercial assets through GSS.
See "Non-Interest Revenue - Servicing and Related Fees."
Non-Core Businesses
- -------------------
Commercial Assets. Results for this non-core segment reflect our
continuing exit from our loan and real estate businesses. We have not purchased
any commercial assets since 2000. See "Changes in Financial Condition - Loans,
Net". Since then, this business has consisted of the management, repositioning
and resolution of the remaining non-core assets. At June 30, 2004 the non-core
assets remaining in this business consisted of six loan and real estate assets
and one unrated subordinate security with a fair value of $3,943. These six
assets consisted of one loan totaling $7,134 and five real estate assets
totaling $67,466.
Selected information
- --------------------
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ 190 $ (4,239) $ (3,050) $ (6,668)
Net interest income (expense).................. $ 512 $ (2,096) $ 219 $ (4,397)
Provision for loan losses...................... $ (255) $ (3,373) $ (764) $ (3,458)
Non-interest revenue........................... $ 252 $ (4,586) $ (2,043) $ (3,420)
Non-interest expense........................... $ 829 $ 930 $ 1,990 $ 2,308
. The improvement in net interest income reflects a decline in real estate
assets, which do not earn interest but are financed with
interest-bearing liabilities. Also, in the second quarter of 2004 we
recorded $601 of interest income on our unrated subordinate security,
reflecting the first cash flow received from this security.
. Non-interest revenue includes impairment charges on our real estate
assets of $1,877 and $5,526 during the second quarter of 2004 and 2003,
respectively. For the first six months of 2004 and 2003, impairment
charges were $3,777 and $5,526, respectively.
. Non-interest revenue for 2004 also includes a $1,366 unrealized gain in
the second quarter on the unrated subordinate security, reflecting the
probability of receiving additional cash flows in the future.
. The negative provision for loan losses in 2003 primarily resulted from
the recovery of reserves on loan sales during the second quarter. See
"Provisions for Loan Losses".
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Affordable Housing. Historically, we invested in affordable housing
properties primarily through a series of limited partnerships. Except to
complete those projects in which an investment had already been made, we ceased
making investments in properties in 2000 as part of our shift in strategy to
fee-based businesses and because the volume of tax credits being generated was
exceeding our ability to utilize them effectively. Since that time, we have been
marketing these properties for sale. Our investment in affordable housing
properties consists of four properties and amounted to $8,198 and $7,410 at June
30, 2004 and December 31, 2003, respectively. In addition, this segment has
$3,635 of loans outstanding to limited partnership properties that we do not
consolidate in our financial statements. During the second quarter, we entered
into a contract to sell three of the four remaining properties. This transaction
is in the due diligence phase and has not yet closed. We anticipate that new
sources of financing will be established to repay the remaining loan balances.
We regularly assess the carrying value of our remaining assets and provide
additional loss reserves as appropriate. At June 30, 2004, our combined reserves
associated with affordable housing properties and loans amount to 56% of the
remaining book value of such assets as compared to 55% at December 31, 2003.
Subprime Finance. We were engaged in domestic subprime residential
lending prior to ceasing originations in August of 1999; however, we have
continued to manage and resolve the remaining non-core assets. At June 30, 2004,
the non-core assets remaining in this business consisted primarily of unrated
single family subprime residual trading securities with a fair value of $37,044.
These securities are presently generating income and return of principal through
cash flows. See "Changes in Financial Condition - Trading Securities".
Selected information
- --------------------
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ 3,623 $ 5,785 $ 6,127 $ (1,700)
Interest income................................ $ 3,572 $ 4,656 $ 6,644 $ 9,486
Interest expense............................... $ 323 $ 284 $ 653 $ 627
Gain (loss) on trading securities, net......... $ 1,109 $ 3,071 $ 325 $ 2,466
Non-interest expense........................... $ 739 $ 1,655 $ 1,148 $ 13,022
. The decrease in interest income is largely the result of a decline in
cash flow distributions received on single-family unrated subprime
residual securities.
. The $11,874 decline in non-interest expense year to date 2004 compared
to 2003 is primarily due to the $10,000 charge recorded during the first
quarter of 2003 related to the conclusion of the Admiral Home Loan
arbitration.
Corporate Items and Other. Pre-tax results for this segment include
business activities that are individually insignificant, interest income on cash
and cash equivalents, interest expense on corporate assets, gains and losses
from debt repurchases, and general corporate expenses. The table below presents
the more significant amounts included in each of the periods indicated.
Selected information
- --------------------
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Pre-tax income (loss).......................... $ (2,644) $ (3,294) $ (2,138) $ (6,455)
Net interest expense........................... $ 352 $ 704 $ 676 $ 1,399
Corporate and technology expenses.............. $ 2,545 $ 2,635 $ 5,628 $ 5,484
Other income................................... $ 253 $ 45 $ 4,166 $ 428
. Effective with our adoption of SFAS No. 150 effective July 1, 2003,
distributions on our Capital securities are reported in the consolidated
statement of operations as interest expense beginning in the third
quarter of 2003. For purposes of this analysis, net interest expense
includes distributions on Capital Securities for all periods.
. Other income for 2004 includes $3,675 of interest income recognized
during the first quarter on a federal income tax refund claim. See
"Changes in Financial Condition - Receivables" for additional
information regarding this claim.
See Note 7 to the Interim Consolidated Financial Statements, for
additional information related to our operating segments.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Non-Interest Revenue. The following table sets forth the principal
components of our non-interest income during the periods indicated:
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Servicing and related fees..................... $ 38,602 $ 32,224 $ 80,723 $ 66,052
Vendor management fees......................... 13,654 7,458 26,827 13,999
Gain (loss) on trading and match funded
securities, net............................... 2,503 3,188 1,860 2,765
Valuation gains (losses) on real estate........ (1,974) (6,308) (3,825) (6,009)
Gain (loss) on sales of real estate............ 81 13 (460) 92
Operating income (losses) from real estate..... 565 1,421 573 2,192
Gain (loss) on debt repurchases................ -- (4) -- (4)
Other income................................... 4,984 1,409 11,604 2,697
----------- ----------- ----------- -----------
$ 58,415 $ 39,401 $ 117,302 $ 81,784
=========== =========== =========== ===========
Servicing and Related Fees. Our servicing and related fees are primarily
comprised of fees we earned from investors for servicing residential mortgage
loans on their behalf. The following table sets forth the principal components
of our servicing and related fees by segment for the periods indicated:
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Residential Loan Servicing:
- --------------------------
Loan servicing and related fees:
Loan servicing fees (1)...................... $ 43,354 $ 38,352 $ 89,301 $ 77,962
Late charges................................. 10,179 9,155 21,548 18,046
Interest on custodial accounts (2)........... 2,750 2,434 5,763 4,274
Compensating interest expense (3)............ (8,899) (7,657) (17,111) (13,621)
Amortization of servicing rights (4)......... (23,009) (21,840) (48,669) (43,405)
Other, net................................... 2,288 2,599 4,146 4,836
----------- ----------- ----------- -----------
26,663 23,043 54,978 48,092
Other fees:
Default servicing fees....................... 392 1,020 1,337 1,993
Retail banking fees.......................... 2,078 1,825 3,950 3,551
Other........................................ 1,435 2,416 4,332 4,871
----------- ----------- ----------- -----------
30,568 28,304 64,597 58,507
----------- ----------- ----------- -----------
Other Segments (5):
- ------------------
Loan servicing and related fees:
Loan servicing fees.......................... 3,047 2,151 6,392 4,468
Late charges................................. 158 537 453 854
Other, net (6)............................... 3,491 1,063 7,048 1,906
----------- ----------- ----------- -----------
6,696 3,751 13,893 7,228
Other fees..................................... 1,338 169 2,233 317
----------- ----------- ----------- -----------
$ 38,602 $ 32,224 $ 80,723 $ 66,052
=========== =========== =========== ===========
(1) The increase in residential loan servicing fees during 2004 as compared
to 2003 is largely due to the growth in the average balance of
residential loans we serviced for others. The average unpaid principal
balance of loans serviced by our Residential Loan Servicing segment
during the three months ended June 30, 2004 and 2003 amounted to
$35,676,776 and $30,994,887, respectively. For the first six months of
2004 and 2003, the average balance of loans serviced was $36,370,943 and
$30,730,460, respectively. See "Segment Results - Residential Loan
Servicing".
(2) Interest we earned on custodial accounts during the holding period
between collection of borrower payments and remittance to investors.
These custodial accounts are held by an unaffiliated bank and are
excluded from our statement of financial condition. The average balances
held in these custodial accounts were approximately $1,336,700 and
$870,400 for the second quarter of
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
2004 and 2003, respectively. Year to date, the balances in these
accounts averaged $1,208,300 and $762,400 for 2004 and 2003,
respectively.
(3) A servicer of securitized loans is typically obligated to pay the
securitization trust the difference between a full month of interest and
the interest collected on loans that are repaid before the end of a
calendar month. The increase in compensating interest expense reflects
volume growth and an increase in loan prepayments.
(4) The increase in amortization expense during 2004 as compared to 2003
reflects an increase in the rate of amortization to reflect projected
prepayment volumes on subprime residential mortgage loans. See "Changes
in Financial Condition - Mortgage Servicing Rights".
(5) Other segments primarily includes Commercial Servicing, Ocwen Recovery
Group and Business Process Outsourcing. See "Segment Results" for
additional discussion regarding loan servicing and related fees for
these segments.
(6) Includes $2,193 and $401 of fees earned by our Business Process
Outsourcing segment for the second quarter of 2004 and 2003,
respectively. Year to date, these fees amounted to $4,348 and $752 for
2004 and 2003, respectively. See "Segment Results - Business Process
Outsourcing".
The following table sets forth loans we serviced at the dates indicated.
Non-performing loans serviced for others have been delinquent for 90 days or
more. Performing loans serviced for others are current or have been delinquent
for less than 90 days.
Loans (1) REO (2) Total
------------------------------ ------------------------------ ------------------------------
Amount Count Amount Count Amount Count
------------- ------------- ------------- ------------- ------------- -------------
Residential Loan Servicing
- --------------------------
June 30, 2004:
Performing................... $ 29,141,730 262,170 $ -- -- $ 29,141,730 262,170
Non-performing............... 4,111,232 49,838 1,515,405 21,714 5,626,637 71,552
------------- ------------- ------------- ------------- ------------- -------------
$ 33,252,962 312,008 $ 1,515,405 21,714 $ 34,768,367 333,722
============= ============= ============= ============= ============= =============
December 31, 2003:
Performing................... $ 32,413,747 293,007 $ -- -- $ 32,413,747 293,007
Non-performing............... 4,306,047 52,585 977,564 14,000 5,283,611 66,585
------------- ------------- ------------- ------------- ------------- -------------
$ 36,719,794 345,592 $ 977,564 14,000 $ 37,697,358 359,592
============= ============= ============= ============= ============= =============
Commercial Servicing
- --------------------
June 30, 2004:
Performing................... $ 622,924 247 $ -- -- $ 622,924 247
Non-performing............... 11,782,519 8,783 60,809 30 11,843,328 8,813
------------- ------------- ------------- ------------- ------------- -------------
$ 12,405,443 9,030 $ 60,809 30 $ 12,466,252 9,060
============= ============= ============= ============= ============= =============
December 31, 2003:
Performing................... $ 461,276 264 $ -- -- $ 461,276 264
Non-performing............... 12,148,555 7,434 85,290 40 12,233,845 7,474
------------- ------------- ------------- ------------- ------------- -------------
$ 12,609,831 7,698 $ 85,290 40 $ 12,695,121 7,738
============= ============= ============= ============= ============= =============
(1) At June 30, 2004 we serviced 234,485 subprime loans with a total unpaid
principal balance of $27,613,286, as compared to 257,089 subprime loans
with an unpaid principal balance of $30,563,123 at December 31, 2003.
Subprime loans represent residential loans we service which were made by
others to borrowers who generally did not qualify under guidelines of
the Fannie Mae and Freddie Mac ("nonconforming loans"). The decline in
residential loans serviced at June 30, 2004 as compared to December 31,
2003 is the result of high prepayment rates and reduced purchases of
servicing rights.
(2) Included $1,034,212 and $480,388 of residential REO properties serviced
for the VA at June 30, 2004 and December 31, 2003, respectively.
Vendor Management Fees. Vendor management fees are primarily comprised
of property valuation fees earned by our ORA segment, fees earned from vendors
in the REALTrans network and commissions on real estate sales. The increase in
vendor management fees in 2004 as compared to 2003 primarily reflects an
increase in the volume of valuation services performed by ORA, primarily as a
result of the VA contract. See "Segment Profitability - Ocwen Realty Advisors".
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Gain (Loss) on Trading and Match Funded Securities, Net. Gain (loss) on
trading and match funded securities, net, includes both unrealized gains
(losses) on securities and realized gains (losses) resulting from sales thereof.
The gains for 2004 include a $1,366 unrealized gain on our commercial unrated
subordinate security. The gains for 2003 were primarily the result of net
unrealized gains on our unrated subprime residual and subordinate securities.
Valuation Gains (Losses) on Real Estate. We regularly assess the value
of our remaining real estate assets and provide additional loss reserves or
impairment charges as appropriate. During the second quarter of 2004 and 2003,
we recorded $1,877 and $5,526 of such charges, respectively. The year to date
loss for 2004 also includes a $1,900 charge we recorded in the first quarter to
reflect a loss in value on our retail shopping center located in Halifax, Nova
Scotia. See "Changes in Financial Condition - Real Estate."
Gain (Loss) on Sales of Real Estate. The loss for the first six months
of 2004 is primarily the result of a $(591) loss on the sale of our office
building located in Jacksonville, Florida during the first quarter.
Operating Income (Loss) from Real Estate. Operating results of our real
estate include rental income, depreciation expense and operating expenses
associated with holding and maintaining the properties. The decline in operating
income in 2004 as compared to 2003 is largely due to sales of commercial real
estate properties. Only three commercial properties remain at June 30, 2004.
Operating income for 2003 also included $346 of equity in earnings of loans
accounted for as investments in real estate which were fully repaid as of
December 31, 2003.
Other Income. The following table sets forth the principal components of
other income by segment for the periods indicated:
Three Months Six Months
------------------------- -------------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------- ----------- ----------- ----------- -----------
Residential Loan Servicing..................... $ 2 $ -- $ 317 $ 4
OTX (1)........................................ 4,467 508 5,378 675
Unsecured Collections (2)...................... 524 714 1,028 1,610
Commercial Servicing........................... (2) 134 30 306
Commercial Assets.............................. 26 49 71 69
Affordable Housing............................. -- 82 -- 82
Subprime Finance............................... 5 -- 961 1
Corporate Items and Other (3).................. (38) (78) 3,819 (50)
----------- ----------- ----------- -----------
$ 4,984 $ 1,409 $ 11,604 $ 2,697
=========== =========== =========== ===========
(1) Includes $2,900 of one-time fees earned during the second quarter,
primarily documentation fees, associated with a service contract for the
use of our REALServicing system. See "Segment Results - OTX".
(2) Primarily comprised of collections of credit card receivables accounted
for under the cost recovery method. See "Segment Results - Ocwen
Recovery Group".
(3) Includes $3,675 of interest income recorded during the first quarter of
2004 on a federal tax refund claim due from the Internal Revenue Service
("IRS"). Our policy is to recognize interest income on income tax
receivable balances upon receipt of a written finding from the IRS agent
that validates our claim. See "Changes in Financial Condition -
Receivables".
Net Interest Income (Expense). Net interest income (expense) is the
difference between the interest income earned from our interest-earning assets
and the interest expense incurred on our interest-bearing liabilities. Net
interest income (expense) is determined by net interest spread (i.e., the
difference between the yield earned on our interest-earning assets and the rates
incurred on our interest-bearing liabilities), the relative amount of
interest-earning assets and interest-bearing liabilities and the degree of
mismatch in the maturity and repricing characteristics of our interest-earning
assets and interest-bearing liabilities.
In addition to interest income reported in this caption, we also earn
interest on the balance of custodial accounts we hold in connection with our
Residential Loan Servicing business. These amounts are reported as a component
of servicing fees and are not included in the following information.
Our net interest income and net interest margin began declining in 2000
and have been negative since 2001. This trend reflects a decline in the ratio of
interest-earning assets to interest-bearing liabilities, which has fallen from
98% for 1999 to 46% for both the second quarter of 2004 and 2003. Both our
acquisition of OAC in 1999 and our change in strategic direction from
capital-intensive businesses to fee-based sources of income have contributed to
an increase in the relative amount of non-interest-earning assets (such as real
estate, advances on loans serviced for others and mortgage servicing rights)
that are funded by interest-bearing liabilities. We expect the trend of
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
net interest expense and negative net interest margin to continue as we dispose
of our remaining non-core assets, a portion of which are interest-bearing, and
increase non-interest-earning assets of our core businesses. While it has no
impact on consolidated net income, the reclassification of our 10.875% Capital
Securities to interest-bearing liabilities on July 1, 2003 as a result of our
adoption of SFAS No. 150 has also had a negative impact on net interest income,
margin and spread. At the same time, our redemption of the remaining $33,065
balance of 12% subordinated debentures on September 30, 2003, the repayment of
the remaining $43,475 of 11.875% notes on October 1, 2003 (the maturity date)
and the continuing reduction in brokered certificates of deposit all have had a
positive impact on net interest income, spread and margin.
The following table sets forth, for the periods indicated, information
regarding the total amount of income from our interest-earning assets and the
resultant average yields, the interest expense associated with our
interest-bearing liabilities, expressed in dollars and rates, and the net
interest spread and net interest margin. Information is based on average daily
balances during the indicated periods:
For the three months ended June 30, 2004 2003
- -------------------------------------------------- --------------------------------------- ------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------ ---------- ---------- ---------- ---------- ----------
Average Assets:
- --------------
Interest-earning cash and other .................. $ 96,732 $ 225 0.93% $ 29,679 $ 96 1.29%
Federal funds sold and repurchase agreements ..... 137,928 350 1.02% 135,794 419 1.23%
Trading securities (1):
U.S. government and sponsored enterprise
securities and CMOs (AAA-rated) ............... 4,610 15 1.21% 10,500 14 0.65%
Subordinates and residuals ..................... 41,650 4,300 41.31% 36,503 4,743 51.94%
Loans (2) ........................................ 27,719 710 10.25% 93,499 737 3.15%
Match funded loans and securities (3) ............ 21,756 362 6.66% 44,063 989 8.98%
------------ ---------- ---------- ----------
Total interest earning assets .................. 330,395 5,962 7.22% 350,038 6,998 8.00%
---------- ----------
Advances on loans and loans serviced for others .. 330,815 288,805
Mortgage servicing rights ........................ 146,373 172,251
Match funded advances on loans serviced for others 108,642 118,546
Other non-interest earning assets ................ 304,491 350,460
------------ ----------
Total assets ................................. $ 1,220,716 $1,280,100
============ ==========
Average Liabilities and Stockholders Equity:
- -------------------------------------------
Interest-bearing demand deposits ................. $ 20,550 41 0.80% $ 17,005 61 1.43%
Savings deposits ................................. 1,604 3 0.75% 1,423 3 0.84%
Certificates of deposit (4) ...................... 461,572 3,634 3.15% 404,334 4,470 4.42%
------------ ---------- ---------- ----------
Total interest-bearing deposits ................ 483,726 3,678 3.04% 422,762 4,534 4.29%
Bonds-match funded agreements (5) ................ 116,905 1,069 3.66% 136,106 1,258 3.70%
Lines of credit and other secured borrowings (6).. 60,745 820 5.40% 121,173 1,319 4.35%
Notes and debentures (7) ......................... 56,249 1,529 10.87% 76,869 2,293 11.93%
------------ ---------- ---------- ----------
Total interest-bearing liabilities ............. 717,625 7,096 3.96% 756,910 9,404 4.97%
---------- ----------
Escrow deposits .................................. 131,418 96,695
Other non-interest bearing liabilities ........... 37,931 64,958
------------ ----------
Total liabilities .............................. 886,974 918,563
Capital Securities (7) ........................... -- 56,249
Minority interest ................................ 1,318 1,561
Stockholders' equity ............................. 332,424 303,727
------------ ----------
Total liabilities and stockholders' equity ..... $ 1,220,716 $1,280,100
============ ==========
Net interest income (expense) .................... $ (1,134) $ (2,406)
========== ==========
Net interest spread .............................. 3.26% 3.03%
Net interest margin .............................. (1.37)% (2.75)%
Ratio of interest-earning assets to
interest-bearing liabilities .................... 46% 46%
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
For the six months ended June 30, 2004 2003
- -------------------------------------------------- -------------------------------------- ------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------- ---------- ---------- ---------- ---------- ----------
Average Assets:
- --------------
Interest-earning cash and other .................. $ 66,142 $ 339 1.03% $ 20,815 $ 146 1.40%
Federal funds sold and repurchase agreements ..... 147,024 742 1.01% 120,237 737 1.23%
Trading securities (1):
U.S. government and sponsored enterprise
securities and CMOs (AAA-rated) ............... 4,946 30 1.21% 13,310 (91) (1.32)%
Subordinates and residuals ..................... 42,391 7,523 35.49% 36,679 9,713 52.95%
Loans (2) ........................................ 36,217 1,170 6.46% 97,409 1,109 2.28%
Match funded loans and securities (3) ............ 22,834 763 6.68% 47,056 2,141 9.10%
----------- ---------- ---------- ----------
Total interest earning assets .................. 319,554 10,567 6.61% 335,506 13,755 8.20%
---------- ----------
Advances on loans and loans serviced for others .. 343,074 285,346
Mortgage servicing rights ........................ 154,301 171,535
Match funded advances on loans serviced for others 105,380 119,263
Other non-interest earning assets ................ 307,698 349,942
----------- ----------
Total assets ................................... $ 1,230,007 $1,261,592
=========== ==========
Average Liabilities and Stockholders Equity:
- -------------------------------------------
Interest-bearing demand deposits ................. $ 22,355 99 0.89% $ 16,818 121 1.44%
Savings deposits ................................. 1,661 6 0.72% 1,490 6 0.81%
Certificates of deposit (4) ...................... 459,338 7,610 3.31% 402,762 9,273 4.60%
----------- ---------- ---------- ----------
Total interest-bearing deposits ................ 483,354 7,715 3.19% 421,070 9,400 4.46%
Securities sold under agreements to repurchase ... -- -- --% 500 3 1.20%
Bonds-match funded agreements (5) ................ 115,561 2,096 3.63% 139,919 2,564 3.66%
Lines of credit and other secured borrowings (6) 81,828 2,028 4.96% 107,955 2,176 4.03%
Notes and debentures (7) ......................... 56,249 3,059 10.88% 76,922 4,588 11.93%
----------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities.. ........... 736,992 14,898 4.04% 746,366 18,731 5.02%
---------- ----------
Escrow deposits .................................. 126,153 93,237
Other non-interest bearing liabilities ........... 38,542 57,023
----------- ----------
Total liabilities .............................. 901,687 896,626
Capital Securities (7) ........................... -- 56,249
Minority interest ................................ 1,329 1,589
Stockholders' equity ............................. 326,991 307,128
----------- ----------
Total liabilities and stockholders' equity ..... $ 1,230,007 $1,261,592
=========== ==========
Net interest income (expense) .................... $ (4,331) $ (4,976)
========== ==========
Net interest spread .............................. 2.57% 3.18%
Net interest margin .............................. (2.71)% (2.97)%
Ratio of interest-earning assets to
interest-bearing liabilities .................... 43% 45%
(1) The decline in the average yield on subordinates and residual securities
is largely the result of lower interest on our U.K. unrated
single-family subprime residual securities. The increase in our average
investment in subordinates and residuals is primarily due to the
transfer in the second quarter of 2003 of securities previously reported
as match funded, as noted in (3) below.
(2) The decline in the average balance of loans is a result of sales,
resolutions and repayments, coupled with minimal acquisitions and
originations. This reflects our strategic decision to exit non-core
businesses and dispose of the related assets. The average balances
include non-performing loans, interest on which is recognized on a cash
basis.
(3) The decline in the average balance of match funded loans and securities
was primarily the result of principal repayments received on the loans
and the transfer of the match funded securities to residual trading
securities during the second quarter of 2003 as a result of the
repurchase and retirement of the related match funded debt.
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
(4) The increase in the average balance of certificates of deposits resulted
primarily from an increase in non-brokered certificates of deposit,
offset in part by maturing brokered certificates of deposit. We have not
issued any new brokered certificates of deposit since 2000. The decline
in the average rate earned on deposits reflects the replacement of
maturing brokered certificates of deposit with non-brokered certificates
of deposit, that have lower rates of interest because of the current
interest rate environment. See "Changes in Financial Condition -
Deposits".
(5) The decline in the average balance of bonds match funded agreements is
principally due to principal repayments, offset by amortization. In
addition, in the second quarter of 2003 the match funded debt related to
the match funded unrated residual securities was repurchased and retired
as noted above.
(6) The decline in the average balance of lines of credit and other secured
borrowings is due to repayments and maturities. See "Changes in
Financial Condition - Lines of Credit and Other Secured Borrowings".
(7) The decline in the average balance of notes and debentures outstanding
resulted primarily from repurchases and maturities of notes and
debentures during 2003, offset in part by the transfer of our $56,249 of
10.875% Capital Securities to notes and debentures effective with the
adoption of SFAS No. 150 on July 1, 2003. Distributions on Capital
Securities are included in interest expense on notes and debentures
effective with the adoption of SFAS No. 150. See "Changes in Financial
Condition - Notes and Debentures".
The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior rate), (ii) changes in rate (change
in rate multiplied by prior volume) and (iii) total change in rate and volume.
Changes attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
Three Months Six Months
------------------------------------ ------------------------------------
2004 vs. 2003 2004 vs. 2003
------------------------------------ ------------------------------------
For the periods ended June 30, Favorable (Unfavorable) Variance Favorable (Unfavorable) Variance
- -------------------------------------------------- ------------------------------------ ------------------------------------
Rate Volume Total Rate Volume Total
---------- ---------- ---------- ---------- ---------- ----------
Interest Income from Interest-Earning Assets
- --------------------------------------------
Interest earning cash and other .................. $ (34) $ 163 $ 129 $ (48) $ 241 $ 193
Federal funds sold and repurchase agreements ..... (75) 6 (69) (144) 149 5
Trading securities:
U.S. government and sponsored enterprise
securities and CMOs (AAA-rated) ............... 10 (13) (3) 89 29 118
Subordinates and residuals ..................... (1,052) 613 (439) (3,540) 1,353 (2,187)
Loans ............................................ 769 (796) (27) 1,085 (1,024) 61
Match funded loans and securities ................ (212) (415) (627) (469) (909) (1,378)
---------- ---------- ---------- ---------- ---------- ----------
Total interest income from interest-earning
assets ........................................ (594) (442) (1,036) (3,027) (161) (3,188)
---------- ---------- ---------- ---------- ---------- ----------
Interest Expense on Interest-Bearing Liabilities
- ------------------------------------------------
Interest-bearing demand deposits ................. 31 (11) 20 55 (33) 22
Savings deposits ................................. -- -- -- 1 (1) --
Certificates of deposit .......................... 1,409 (573) 836 2,842 (1,179) 1,663
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing deposits ................ 1,440 (584) 856 2,898 (1,213) 1,685
Securities sold under agreements to repurchase ... -- -- -- -- 3 3
Bonds-match funded agreements .................... 13 176 189 21 447 468
Lines of credit and other secured borrowings ..... (265) 764 499 (442) 590 148
Notes and debentures ............................. 190 574 764 377 1,152 1,529
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense on interest-bearing
liabilities ................................... 1,378 930 2,308 2,854 979 3,833
---------- ---------- ---------- ---------- ---------- ----------
Favorable (unfavorable) variance, net ............ $ 784 $ 488 $ 1,272 $ (173) $ 818 $ 645
========== ========== ========== ========== ========== ==========
30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Provisions for Loan Losses. At June 30, 2004, our total net loan balance
was $11,520 or 1% of total assets. Of this balance, $7,134 represents one
non-residential loan held in our Commercial Assets segment and $3,635 represents
three multi-family loans held in our Affordable Housing segment. Because of the
small number of remaining loans, we are able to perform a specific risk
assessment on each loan in the Commercial Assets and affordable Housing
segments. Our risk assessment of loans in the Commercial Assets segment includes
a review of the underlying loan collateral, general and local economic
conditions, property type risk, borrower's capacity and willingness to pay, and
projections of prospective cash flows based on property-specific events. For
loans held in our affordable Housing business, we project the amounts to be
realized from the disposition of the property to determine the appropriate
allowance for loan losses. We also analyze the historical trends in the gains or
losses on disposition and resolution of loans as compared to the allowance for
loan losses at the time of disposition and resolution. The results of this
analysis are also taken into consideration in evaluating the allowance for loan
losses on the remaining loans. The allowance for loan losses is management's
best estimate of probable inherent loan losses incurred as of June 30, 2004.
The following table presents the provisions for loan losses by business
segment for the periods indicated:
Three Months Six Months
----------------------- -----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- ---------- ---------- ---------- ----------
Loans:
Commercial Assets ................................. $ (255) $ (3,373) $ (764) $ (3,458)
Affordable Housing ................................ -- 3 (29) 148
Corporate Items and Other ......................... (23) 109 (21) 222
---------- ---------- ---------- ----------
(278) (3,261) (814) (3,088)
Match funded loans:
Corporate Items and Other ......................... (9) 11 (5) 3
---------- ---------- ---------- ----------
$ (287) $ (3,250) $ (819) $ (3,085)
========== ========== ========== ==========
The negative loan loss provision for 2004 primarily reflects a reduction
in non-performing loans in the Commercial Assets segment. Our allowance for loan
losses as a percentage of non-performing loans has increased from 38.7% at
December 31, 2003 to 66.5% at June 30, 2004. Overall, our allowance as a
percentage of loans increased from 23.2% at December 31, 2003 to 32.9% at June
30, 2004. The negative provision that we recorded during 2003 results primarily
from the recovery of reserves on sales of loans in the Commercial Assets segment
during the second quarter. For additional information, see "Changes in Financial
Condition - Loans, Net" and "Allowance for Loan Losses".
Non-Interest Expense. The following table sets forth the principal
components of our non-interest expense during the periods indicated:
Three Months Six Months
----------------------- -----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- ---------- ---------- ---------- ----------
Compensation and employee benefits .................. $ 20,897 $ 17,130 $ 42,930 $ 34,838
Occupancy and equipment ............................. 4,021 2,685 8,018 5,515
Technology and communication costs .................. 6,616 4,497 13,285 8,994
Loan expenses ....................................... 7,460 3,465 15,387 7,000
Loss (gain) on investments in affordable housing
properties ......................................... (41) (56) (79) 314
Professional services and regulatory fees ........... 7,316 4,060 13,141 19,344
Other operating expenses ............................ 2,199 2,554 5,256 4,850
---------- ---------- ---------- ----------
$ 48,468 $ 34,335 $ 97,938 $ 80,855
========== ========== ========== ==========
31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Compensation and Employee Benefits. The following table presents the
principal components of compensation and benefits we incurred for the periods
indicated:
Three Months Six Months
----------------------- -----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- ---------- ---------- ---------- ----------
Salaries (1) ........................................ $ 14,592 $ 11,655 $ 28,697 $ 23,630
Bonuses (2) ......................................... 2,514 2,374 5,209 5,243
Payroll taxes ....................................... 968 792 2,702 2,026
Commissions ......................................... 1,328 410 2,567 801
Insurance ........................................... 702 553 1,227 1,073
Severance ........................................... 70 736 978 817
Other (3) ........................................... 723 610 1,550 1,248
---------- ---------- ---------- ----------
$ 20,897 $ 17,130 $ 42,930 $ 34,838
========== ========== ========== ==========
(1) Salaries include fees paid for the services of temporary employees.
(2) Bonus expense includes compensation related to employee incentive awards
of restricted stock and stock options.
(3) Other consists primarily of recruiting expenses, matching contributions
to our 401(K) plan and fees paid to directors.
The increase in compensation and benefits in the 2004 periods as
compared to the 2003 periods is primarily due to increases in salaries and
commissions. The increase in salaries and commissions has occurred primarily
because of an increase in the average number of our full-time employees, both in
the U.S. and our India offices. Our total combined workforce (domestic and
international) averaged 2,852 employees in the second quarter of 2004 as
compared to 1,990 for the second quarter of 2003. For the year to date periods,
our total number of employees averaged 2,663 and 1,915 in 2004 and 2003,
respectively. An average of approximately 1,624 and 1,062 employees were based
in our India locations during the second quarter of 2004 and 2003, respectively.
For the first six months of 2004 and 2003, our India workforce averaged 1,553
and 969, respectively. Our reassumption of certain collection activities in the
Residential Loan Servicing segment which were previously outsourced to a
third-party vendor contributed to the growth in headcount and resulting increase
in salaries and commissions. Severance for 2004 includes a one-time payment of
$750 during the first quarter to the former president of OTX in accordance with
the terms of his employment agreement.
Occupancy and Equipment. The following table presents the principal
components of occupancy and equipment costs for the periods indicated:
Three Months Six Months
----------------------- -----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- ---------- ---------- ---------- ----------
Postage and mailing ................................. $ 1,284 $ 1,077 $ 2,843 $ 2,076
Rent ................................................ 679 719 1,388 1,736
Depreciation ........................................ 671 692 1,368 1,393
Other (1) ........................................... 1,387 197 2,419 310
---------- ---------- ---------- ----------
$ 4,021 $ 2,685 $ 8,018 $ 5,515
========== ========== ========== ==========
(1) The increase in other occupancy and equipment costs is primarily the
result of our reassuming certain collection activities in our
Residential Loan Servicing segment during the fourth quarter of 2003
that were previously performed by a third party vendor.
32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Technology and Communication Costs. The following table presents the
principle components of technology and communication costs for the years
indicated:
Three Months Six Months
----------------------- -----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- ---------- ---------- ---------- ----------
Depreciation:
Hardware .......................................... $ 1,522 $ 1,787 $ 3,095 $ 3,646
Software .......................................... 728 538 1,434 1,234
Other ............................................. 146 132 288 214
---------- ---------- ---------- ----------
2,396 2,457 4,817 5,094
---------- ---------- ---------- ----------
Telecommunications .................................. 1,803 1,308 3,290 2,765
Contract service and maintenance .................... 1,123 675 1,621 1,332
Other (1) ........................................... 1,294 57 3,557 (197)
---------- ---------- ---------- ----------
$ 6,616 $ 4,497 $ 13,285 $ 8,994
========== ========== ========== ==========
(1) The increase in other technology and communication costs is largely due
to our reassuming certain collection activities in our Residential Loan
Servicing segment during the fourth quarter of 2003 that were previously
performed by a third party vendor.
Loan Expenses. Loan expenses are primarily comprised of appraisal fees
incurred in connection with property valuation services we provided through ORA,
which amounted to $5,015 and $2,696 for the three months ended June 30, 2004 and
2003, respectively. For the first six months of 2004 and 2003, these appraisal
fees were $12,110 and $4,832, respectively. The increase in ORA appraisal fees
in the 2004 periods reflects an increase in the volume of property appraisals
completed, primarily in connection with the VA contract. See "Segment
Profitability - Ocwen Realty Advisors" for additional discussion of these costs.
Loan expenses also include other miscellaneous expenses incurred in connection
with loans we own and those we service for others.
Professional Services and Regulatory Fees. The following table presents
the principal components of professional services and regulatory fees for the
periods indicated:
Three Months Six Months
----------------------- -----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- ---------- ---------- ---------- ----------
Legal fees and settlements (1) ...................... $ 4,995 $ 2,201 $ 8,329 $ 15,209
Consulting fees (non-technology) .................... 656 538 1,258 1,222
Audit and accounting fees ........................... 578 309 1,132 917
Corporate insurance ................................. 446 483 800 835
Other ............................................... 641 529 1,622 1,161
---------- ---------- ---------- ----------
$ 7,316 $ 4,060 $ 13,141 $ 19,344
========== ========== ========== ==========
(1) The $6,880 decline in legal fees and settlements in the first six months
of 2004 as compared to 2003 is primarily the result of a $10,000 charge
recorded during the first quarter of 2003 in connection with the
arbitration award to the former owners of Admiral Home Loan.
Other Operating Expenses. The following table presents the principal
components of other operating expenses for the periods indicated:
Three Months Six Months
----------------------- -----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- ---------- ---------- ---------- ----------
Bad debt expense (1) ................................ $ 119 $ 65 $ 1,769 $ 198
Travel, lodging, meals and entertainment ............ 955 661 1,617 1,315
Amortization of deferred costs ...................... 160 323 424 678
Deposit related expense ............................. 127 154 324 397
Other ............................................... 838 1,351 1,122 2,262
---------- ---------- ---------- ----------
$ 2,199 $ 2,554 $ 5,256 $ 4,850
========== ========== ========== ==========
(1) Bad debt expense for 2004 includes a provision of $1,393 recorded during
the first quarter for estimated uncollectible servicing advances and
other receivables related to our Residential Loan Servicing segment.
33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Distributions on Company Obligated, Mandatorily Redeemable Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company.
Cash distributions on the Capital Securities are payable semi-annually in
arrears on February 1 and August 1 of each year at an annual rate of 10.875%. We
recorded $1,529 of such distributions to holders of the Capital Securities
during both the three months ended June 30, 2004 and 2003, and distributions of
$3,059 during both the first six months of 2004 and 2003. Effective July 1, 2003
with our adoption of SFAS No. 150, these distributions are reported in the
consolidated statement of operations as interest expense. See Note 3 to the
Interim Consolidated Financial Statements.
Income Tax Expense (Benefit). The following table provides details of
our income tax expense (benefit) for the periods indicated:
Three Months Six Months
----------------------- -----------------------
For the periods ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- ---------- ---------- ---------- ----------
Income tax expense (benefit) on income (loss)
before taxes ....................................... $ 2,642 $ (1,918) $ 4,417 $ (1,992)
Provision for valuation allowance on current
year's deferred tax asset .......................... (2,587) 2,223 (4,351) 2,604
---------- ---------- ---------- ----------
Total income tax expense ............................ $ 55 $ 305 $ 66 $ 612
========== ========== ========== ==========
Total income tax expense of $55 and $66 for the three and six months
ended June 30, 2004 represents taxes related to our foreign subsidiaries. Income
tax expense of $305 and $612 for the three and six months ended June 30, 2003
included $25 and $26 of taxes related to our foreign subsidiaries and $280 and
$585 of tax payments related to our investment in non-economic tax residual
securities that have no book value. Excluding these items, our effective tax
rate was 35% for the three and six months ended June 30, 2004 and 2003.
The provision for deferred tax asset valuation allowance is a non-cash
charge that we recorded to increase the aggregate valuation allowance. We
estimated this valuation allowance based on our assessment of the portion of the
deferred tax asset that will more likely than not be realized. Reversal of all
or a portion of the valuation allowance may occur in the future based on the
results of our operations.
Changes in Financial Condition
Trading Securities. The following table sets forth the fair value of our
trading securities at the dates indicated:
June 30, December 31,
2004 2003
---------- ------------
U.S. government and sponsored enterprise securities.. $ 4,652 $ 6,679
========== ============
Subordinates and residuals:
Single family residential
BB-rated subordinates............................ $ 568 $ 579
B-rated subordinates............................. 457 580
Unrated subordinates............................. 268 222
Unrated subprime residuals....................... 37,044 38,883
---------- ------------
38,337 40,264
Commercial unrated subordinates.................... 3,943 2,577
---------- ------------
$ 42,280 $ 42,841
========== ============
Subordinate and residual interests in mortgage-related securities
provide credit support to the more senior classes of the mortgage-related
securities. Principal from the underlying mortgage loans generally is allocated
first to the senior classes, with the most senior class having a priority right
to the cash flow from the mortgage loans until its payment requirements are
satisfied. To the extent that there are defaults and unrecoverable losses on the
underlying mortgage loans, resulting in reduced cash flows, the most subordinate
security will be the first to bear this loss. Because subordinate and residual
interests generally have no credit support, to the extent there are realized
losses on the mortgage loans comprising the mortgage collateral for such
securities, we may not recover the full amount or, indeed, any of our remaining
investment in such subordinate and residual interests.
34
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
The following table presents information regarding our subordinate and
residual trading securities summarized by classification and rating at June 30,
2004:
Anticipated Anticipated Anticipated
Yield to Yield to Weighted
Percent Maturity at Maturity at Average
Owned Purchase 06/30/2004 Remaining
Rating/Description (1) by Ocwen (2) (3) (2) (4) Coupon Life (2) (5)
- ------------------------------ -------- ----------- ----------- ------- ------------
Residential:
BB-rated subordinates....... 100.00% 16.70% 10.90% 5.91% 4.01
B-rated subordinates........ 100.00% 17.17% 18.28% 5.84% 1.69
Unrated subordinates........ 100.00% 14.05% 38.31% 6.73% 0.10
Unrated subprime residuals.. 100.00% 17.23% 9.85% N/A 4.45
Commercial:
Unrated Subordinates........ 25.00% 22.15% 12.10% N/A 1.35
(1) Refers to the credit rating designated by the rating agency for each
securitization transaction. Classes designated "A" have a superior claim
on payment to those rated "B." Additionally, multiple letters have a
superior claim to designations with fewer letters. Thus, for example,
"BBB" is superior to "BB," which in turn is superior to "B." The lower
class designations in any securitization will receive interest payments
after senior classes and will experience losses before any senior class.
The lowest potential class designation is "unrated" which, if included
in a securitization, will always receive interest last and experience
losses first.
(2) Subordinate and residual securities do not have a contractual maturity
but are paid down over time as cash distributions are received. Because
they do not have a stated maturity, we disclose the weighted average
life of these securities.
(3) Represents the effective yield from inception to maturity based on the
purchase price and anticipated future cash flows under pricing
assumptions.
(4) Represents the effective yield based on the purchase price, actual cash
flows received from inception until the respective date, and the then
current estimate of future cash flows under the assumptions at the
respective date. Changes in the June 30, 2004 anticipated yield to
maturity from that originally anticipated are primarily the result of
changes in prepayment assumptions and loss assumptions.
(5) Represents the weighted average life in years based on the June 30, 2004
book value.
The mortgages that underlie our trading subordinate and residual
securities, which totaled $336,386 at June 30, 2004, are secured by properties
located in forty-nine states and the United Kingdom. The aggregate value of
mortgages in any one state or country did not exceed $58,315.
Real Estate. Our real estate totaled $68,080 or 5.7% of total assets at
June 30, 2004 and consisted of the following at the dates indicated:
June 30, December 31,
2004 2003
----------- ------------
Properties:
Office building........................ $ -- $ 41,467
Retail................................. 56,011 57,321
Hotel.................................. 6,187 6,171
Single family residential.............. 615 882
----------- ------------
62,813 105,841
Accumulated depreciation............... (3,592) (7,118)
----------- ------------
59,221 98,723
Investment in real estate partnerships... 8,859 5,220
----------- ------------
$ 68,080 $ 103,943
=========== ============
35
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Properties. Properties at June 30, 2004 consisted primarily of one
shopping center located in Halifax, Nova Scotia, one shopping mall located in
Florida and one hotel located in Michigan. The shopping mall, which had a
carrying value of $44,000 at June 30, 2004, and the hotel were originally
acquired as a result of loan foreclosures. The $39,502 decline in the carrying
value of our properties during the six months ended June 30, 2004 was primarily
due to the sale of our office building, which had a carrying value of $37,553 at
December 31, 2003, and $2,793 of charges we recorded to reflect declines in fair
value.
Investment in Real Estate Partnerships. Our investment at both June 30,
2004 and December 31, 2003 consisted of interests in two limited partnerships
operating as real estate ventures, consisting of multi-family type properties.
At December 31, 2003 we also had loans with combined net book value of $4,771
($6,811 before discount and allowance for loan losses) due from one of the real
estate ventures. During the first quarter of 2004 our loans to the venture were
forgiven in exchange for an increased investment in the partnership. During the
second quarter of 2004, we recorded an impairment charge of $984 related to one
of our partnership interests. See "Loans, Net" below.
Loans, Net. Our total net investment in loans of $11,520 at June 30,
2004 represents 1.0% of total assets. Originations in 2004 represent loans we
made to facilitate sales of real estate assets we owned. The decline in our
investment reflects our strategy to dispose of these non-core assets.
Composition of Loans, Net. The following table sets forth the
composition of our loans by business segment and type of loan at the dates
indicated:
June 30, December 31,
2004 2003
----------- -------------
Commercial Assets:
- ------------------
Hotels................................. $ -- $ 10,600
Multifamily residential................ 8,153 14,964
----------- -------------
8,153 25,564
Unaccreted discount and deferred fees.. -- (1,015)
Allowance for loan losses.............. (1,019) (3,786)
----------- -------------
7,134 20,763
----------- -------------
Affordable Housing:
- -------------------
Multifamily residential (1)............ 7,985 10,924
Unsecured.............................. 200 200
----------- -------------
8,185 11,124
Allowance for loan losses.............. (4,550) (4,579)
----------- -------------
3,635 6,545
----------- -------------
Corporate Items and Other:
- --------------------------
Single family residential.............. 1,272 1,307
Unaccreted discount and deferred fees.. (437) (412)
Allowance for loan losses.............. (84) (105)
----------- -------------
751 790
----------- -------------
Loans, net............................... $ 11,520 $ 28,098
=========== =============
(1) Loans we made to affordable housing properties in which we have invested
as a limited partner but do not consolidate in our financial statements.
Our mortgage loans at June 30, 2004 are secured by mortgages on property
located in 14 states throughout the United States, none of which aggregated over
$3,750 in any one state.
36
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Activity in Loans. The following table sets forth our loan activity at
the dates indicated:
Balance at December 31, 2003................................. $ 28,098
Originations and repurchases (1)............................. 15,975
Resolutions and repayments (2)............................... (29,521)
Other (3).................................................... (6,841)
Decrease (increase) in discount and deferred fees............ 991
Decrease (increase) in allowance for loan losses............. 2,818
--------------
Balance at June 30, 2004..................................... $ 11,520
==============
(1) Originations represent loans made to facilitate sales of our own assets
and fundings of construction loans we originated in prior years.
Originations include a loan in the amount of $15,500 made during the
first quarter to facilitate the sale of our office building in
Jacksonville, Florida. This loan was repaid during the second quarter.
See "Real Estate". Repurchases represent acquisitions of single-family
residential discount loans previously sold.
(2) Resolutions and repayments consists of loans that were resolved in a
manner which resulted in partial or full repayment of the loan to us, as
well as principal payments on loans which have been brought current in
accordance with their original or modified terms (whether pursuant to
forbearance agreements or otherwise) or on other loans that have not
been resolved.
(3) As discussed in the "Real Estate" section, our loans to a real estate
partnership in which we also had an equity ownership interest were
converted to an increased investment in the partnership.
The following table sets forth certain information related to our
non-performing loans at the dates indicated:
June 30, December 31,
2004 2003
---------- ------------
Non-performing loans (1)........................ $ 8,506 $ 21,898
Non-performing loans as a percentage of: (1)
Total loans (2)............................... 49.5% 59.9%
Total assets.................................. 0.7% 1.8%
Allowance for loan losses as a percentage of:
Total loans (2)............................... 32.9% 23.2%
Non-performing loans (1)...................... 66.5% 38.7%
(1) Loans which are contractually past due 90 days or more in accordance
with the original terms of the loan agreement. We do not accrue interest
on loans past due 90 days or more.
(2) Total loans are net of unaccreted discount, unamortized deferred fees
and undisbursed loan funds.
See "Changes in Financial Condition - Allowance for Loan Losses" below
for additional information regarding the allowance for loan losses.
37
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Allowances for Loan Losses. As discussed in the "Results of Operations -
Provision for Loan Losses" section, we maintain an allowance for loan losses for
each of our loans at a level that we consider adequate to provide for probable
losses based upon an evaluation of known and inherent risks. The following table
sets forth (a) the breakdown of the allowance for loan losses and loan balance
in each segment and (b) the percentage of allowance and loans in each segment to
totals in the respective segments at the dates indicated:
June 30, 2004 December 31, 2003
------------------------------------------ -----------------------------------------
Allowance Loan Balance Allowance Loan Balance
-------------------- ------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent
---------- ------- --------- ------- --------- ------- --------- -------
Loans:
Commercial Assets............ $ 1,019 18.0% $ 8,153 47.5% $ 3,786 44.7% $ 24,549 67.1%
Affordable Housing........... 4,550 80.5% 8,185 47.7% 4,579 54.1% 11,124 30.4%
Corporate Items and Other.... 84 1.5% 835 4.8% 105 1.2% 895 2.5%
---------- ------- --------- ------- --------- ------- --------- -------
$ 5,653 100.0% $ 17,173 100.0% $ 8,470 100.0% $ 36,568 100.0%
========== ======= ========= ======= ========= ======= ========= =======
Match funded loans:
Corporate Items and Other.... $ -- --% $ 21,416 81.8% $ 94 100.0% $ 24,393 100.0%
Commercial Servicing......... 89 100.0% 4,770 18.2% -- --% -- --%
---------- ------- --------- ------- --------- ------- --------- -------
$ 89 100.0% $ 26,186 100.0% $ 94 100.0% $ 24,393 100.0%
========== ======= ========= ======= ========= ======= ========= =======
The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict use of the allowance to absorb
losses in any other category.
The following table sets forth an analysis of activity in the allowance
for losses relating to our loans and match funded loans at the dates indicated:
Balance at December 31, 2003.................................. $ 8,564
Provision for loan losses..................................... (819)
Charge-offs................................................... (2,003)
--------------
Balance at June 30, 2004...................................... $ 5,742
==============
Match Funded Assets. Match funded assets are comprised of the following
at the dates indicated:
June 30, December 31,
2004 2003
----------- -----------
Single family residential loans (1)................ $ 21,416 $ 24,393
Commercial loans................................... 4,770 --
Allowance for loan losses.......................... (89) (94)
----------- -----------
Match funded loans, net........................ 26,097 24,299
----------- -----------
Match funded advances on loans serviced for others:
Principal and interest......................... 56,950 54,516
Taxes and insurance............................ 28,353 30,176
Other.......................................... 21,375 21,096
----------- -----------
106,678 105,788
----------- -----------
$ 132,775 $ 130,087
=========== ===========
(1) Includes $1,814 and $2,321 of non-performing loans at June 30, 2004 and
December 31, 2003, respectively.
We acquired single-family residential match funded loans in connection
with our acquisition of OAC. OAC had previously securitized these loans and
transferred them to a real estate mortgage investment conduit on November 13,
1998. The transfer did not qualify as a sale for accounting purposes since we
retained effective control of the loans transferred. Accordingly, we report the
proceeds that we received from the transfer as a liability (bonds-match funded
agreements). The $2,977 decline during the first six months of 2004 was largely
due to repayment of loan principal.
The single-family residential match funded loans at June 30, 2004 are
secured by mortgages on properties located in 38 states, none of which
aggregated over $3,517 in any one state.
38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Commercial match funded loans held by our GSS subsidiary in Japan
resulted from the transfer, on a non-recourse basis, of an undivided 100%
participation interest in certain real estate loans to a Japanese subsidiary of
Merrill Lynch on March 30, 2004 in exchange for cash. The transfer did not
qualify as a sale for accounting purposes as we did not meet all of the
conditions for surrender of control over the transferred loans. Accordingly, we
report the amount of proceeds we received from the transfer as a secured
borrowing with pledge of collateral (bonds-match funded agreements).
Match funded advances on loans serviced for others resulted from the
transfer of certain residential loan servicing related advances to a third party
in exchange for cash. The original and subsequent transfers did not qualify as a
sale for accounting purposes since we retained effective control of the
advances. Accordingly, we report the amount of proceeds we received from the
transfers as a secured borrowing with pledge of collateral (bonds-match funded
agreements). See "Bonds-Match Funded Agreements".
Advances on Loans and Loans Serviced for Others. Advances consisted of
the following at the dates indicated:
June 30, December 31,
2004 2003
----------- ------------
Loans ............................................. $ 341 $ 436
Loans serviced for others.......................... 336,979 374,333
----------- ------------
$ 337,320 $ 374,769
=========== ============
During any period in which the borrower is not making payments, we are
required under certain servicing agreements to advance our own funds to meet
contractual principal and interest remittance requirements for certain
investors, pay property taxes and insurance premiums and process foreclosures.
We generally recover such advances from borrowers for reinstated and performing
loans and from investors for foreclosed loans. We record a charge to the extent
that we estimate that advances are uncollectible, taking into consideration the
age and nature of the advance and our historical loss experience, among other
factors. The balances of advances on loans serviced for others do not include
match funded advances that are transferred to a third party in a transaction
that does not qualify as a sale for accounting purposes and that we account for
as a secured borrowing. See "Match Funded Assets".
Mortgage Servicing Rights. The unamortized balance of our mortgage
servicing rights is primarily related to residential assets. Our investment
decreased by $30,321 during the six months ended June 30, 2004 as amortization
exceeded purchases. The rate of amortization reflects increased projected
prepayment volumes on subprime residential mortgage loans. The following table
sets forth the activity in our mortgage servicing rights at the dates indicated:
Balance at December 31, 2003................................... $ 166,495
Purchases...................................................... 18,348
Amortization................................................... (48,669)
-------------
Balance at June 30, 2004....................................... $ 136,174
=============
At June 30, 2004, we serviced loans under approximately 330 servicing
agreements for 22 investors. Purchases during the six months ended June 30, 2004
were all for residential assets.
Receivables. Receivables consisted of the following at the dates
indicated:
June 30, December 31,
2004 2003
----------- ------------
Residential Loan Servicing (1)..................... $ 10,849 $ 18,564
OTX 3,080 1,442
Ocwen Realty Advisors.............................. 2,933 962
Unsecured Collections.............................. 209 260
Business Process Outsourcing....................... 1,587 969
Commercial Servicing............................... 2,097 1,324
Commercial Assets.................................. 1,134 2,848
Affordable Housing (2)............................. 23,116 25,581
Corporate Items and Other (3)...................... 29,286 36,207
----------- ------------
$ 74,291 $ 88,157
=========== ============
(1) Consist principally of fees earned and reimbursable expenses due from
investors.
39
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
(2) Primarily represents future payments of proceeds from the sale of
investments in affordable housing properties, net of an unaccreted
discount of $2,371 and $2,901 at June 30, 2004 and December 31, 2003,
respectively. Balances are net of reserves for doubtful accounts. In
July 2004, approximately $7,544 of installment payments were received
related to the balance outstanding at June 30, 2004.
(3) Includes $22,008 and $21,465 at June 30, 2004 and December 31, 2003,
respectively, of federal tax refund claims, which are pending completion
of IRS examination that is required by the Joint Committee on taxation
of the U.S. Congress before the claims can be paid. We have received a
written finding from the IRS agent that validates our claim for $14,966
of the amounts due to us. This claim has been sent to the Joint
Committee for final review and approval of the payment to us. At
December 31, 2003, the receivables balance for this segment also
included amounts related to our overnight collection account activities.
Other Assets. Other assets consisted of the following at the dates
indicated:
June 30, December 31,
2004 2003
----------- ------------
Loans held for resale (1).......................... $ 11,124 $ --
Interest earning insurance collateral deposits (2). 8,844 8,813
Deferred tax assets, net (3)....................... 8,141 7,547
Investments (4).................................... 6,719 4,293
Deposits on purchases of mortgage servicing rights. 3,372 --
Deferred debt related costs, net................... 2,717 3,114
Capitalized software development costs, net........ 1,830 2,599
Goodwill, net...................................... 1,618 1,618
Other.............................................. 5,775 5,623
----------- ------------
$ 50,140 $ 33,607
=========== ============
(1) Loans originated in response to requests from Residential Loan Servicing
customers to refinance their mortgage. Only loans with sales commitments
prior to closing are originated under this program. During July 2004,
approximately $9,400 of these loans were sold.
(2) These deposits were required in order to obtain surety bonds for
affordable housing properties that we sold before the end of the
fifteen-year tax credit amortization period, and on which we have
previously claimed tax credits on our income tax returns. The surety
bond is necessary in order to avoid the recapture of those tax credits
previously claimed.
(3) Deferred tax assets are net of valuation allowances of $191,005 and
$201,445 at June 30, 2004 and December 31, 2003, respectively. See
"Results of Operations - Income Tax Expense (Benefit)". (4) The $2,426
increase in the balance during the six months ended June 30, 2004
represents an investment by the Bank in a mutual fund that invests in
assets that meet the requirements under the Community Reinvestment Act.
Deposits. The following table sets forth information related to our
deposits at the dates indicated:
June 30, 2004 December 31, 2003
------------------------------------ ------------------------------------
Weighted Weighted
Average % of Total Average % of Total
Amount Rate Deposits Amount Rate Deposits
---------- ---------- ---------- ---------- ---------- ----------
Non-interest bearing checking accounts ........... $ 6,805 --% 1.5% $ 4,879 --% 1.1%
NOW and money market checking accounts ........... 20,093 0.74% 4.4% 18,313 0.90% 4.1%
Savings accounts ................................. 1,574 0.75% 0.3% 1,657 1.00% 0.4%
---------- ---------- ---------- ----------
28,472 6.2% 24,849 5.6%
---------- ----------
Certificates of deposit (1) (2) .................. 427,197 421,657
Unamortized deferred fees ........................ -- (118)
---------- ----------
Total certificates of deposit .................... 427,197 3.04% 93.8% 421,539 3.41% 94.4%
---------- ---------- ---------- ----------
$ 455,669 100.0% $ 446,388 100.0%
========== ========== ========== ==========
40
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
(1) Included $48,192 and $84,328 at June 30, 2004 and December 31, 2003,
respectively, of brokered deposits originated through national, regional
and local investment banking firms that solicit deposits from their
customers, all of which are non-cancelable.
(2) At June 30, 2004 and December 31, 2003, certificates of deposit with
outstanding balances of $100 or more amounted to $138,657 and $142,408,
respectively. Of those deposits at June 30, 2004, $37,680 were from
political subdivisions in New Jersey and were secured or collateralized
as required under state law. The basic insured amount of a depositor is
$100. Deposits maintained in different categories of legal ownership are
separately insured.
The following table sets forth the remaining maturities of our time
deposits with balances of $100 or more at June 30, 2004:
Matures within three months.................................. $ 40,214
Matures after three months through six months................ 30,343
Matures after six months through twelve months............... 33,690
Matures after twelve months.................................. 34,410
--------------
$ 138,657
==============
Escrow Deposits. Escrow deposits on our loans and loans we serviced for
others amounted to $138,661 and $116,444 at June 30, 2004 and December 31, 2003,
respectively. The balance consisted principally of custodial deposit balances
representing collections that we made from borrowers for the payment of taxes
and insurance premiums on mortgage properties underlying loans that we serviced
for others. Such balances amounted to $115,227 and $96,924 at June 30, 2004 and
December 31, 2003, respectively. See "Results of Operations - Non-Interest
Income - Servicing and Related Fees".
Bonds-Match Funded Agreements. Bonds-match funded agreements represent
proceeds received from transfers of loans and advances on loans serviced for
others. Because we retained effective control over the assets transferred, these
transfers did not qualify as sales for accounting purposes, and therefore we
report them as secured borrowing with pledges of collateral. See "Match Funded
Assets" for additional details regarding these transactions. Bonds-match funded
agreements were comprised of the following at the dates indicated:
June 30, December 31,
Collateral (Interest Rate) Interest Rate 2004 2004
- ----------------------------------------- ----------------------------- ------------- --------------
Single family loans (1) LIBOR plus 65-70 basis points $ 16,965 $ 20,427
Commercial loans 4,770 --
Advances on loans serviced for others (2) LIBOR plus 175 basis points 96,010 94,967
------------- -------------
$ 117,745 $ 115,394
============= =============
(1) The decline in the balance outstanding during the six months ended June
30, 2004 was due to principal repayments.
(2) Under the terms of the agreement, we are eligible to sell additional
advances on loans serviced for others up to a maximum balance of
$200,000.
41
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Lines of Credit and Other Secured Borrowings. We have obtained secured
borrowings from unaffiliated financial institutions as follows:
June 30, December 31,
Borrowing Type Collateral Maturity Interest Rate (1) 2004 2003
- --------------------- ---------------------------- ------------- ---------------------- ------------- ------------
Line of credit Advances on loans serviced March 2004 LIBOR + 200 basis $ -- $ 68,548
for others (2) points
Secured loan Trading securities - unrated August 2004 LIBOR + 275 basis 6,615 11,562
subprime residuals (UK) points
Installment notes Purchased mortgage July 2004 2.81% -- 2,332
servicing rights
Line of credit Advances on loans serviced October 2004 LIBOR + 200 basis 8,994 9,386
for others (3) points
Term loan Loan receivable (4) LIBOR + 250 basis -- 3,235
points
Senior secured credit Purchased mortgage April 2005 LIBOR + 162.5 or 225 22,473 35,321
agreement servicing rights and basis points
advances on loans
serviced for others (5)
Mortgage note Real estate - office (6) LIBOR + 350 basis -- 20,000
building points, floor of 5.75%
Senior secured credit Purchased mortgage December 2005 LIBOR + 250 basis
agreement servicing rights points 12,500 --
------------- ------------
$ 50,582 $ 150,384
============= ============
(1) 1-month LIBOR was 1.37% and 1.12% at June 30, 2004 and December 31,
2003, respectively.
(2) This line was fully repaid during the first quarter of 2004 and was not
renewed upon maturity.
(3) Maximum amount of borrowing under this facility is $100,000.
(4) The contractual maturity of the loan was March 2005; however, we repaid
the loan during the first quarter of 2004.
(5) Subsequent to December 31, 2003, the original maturity date of April
2004 was extended to April 2005, and the maximum amount of borrowing
under this facility was increased from $60,000 to $70,000.
(6) We sold our office building in January 2004, and the buyer assumed this
note at that time.
Each of our credit facilities provides qualitative and quantitative
covenants that establish, among other things, the maintenance of specified net
worth and liquidity, and restrictions on future indebtedness, as well as the
monitoring and reporting of various specified transactions or events.
Notes and Debentures. Notes and debentures consist of our 10.875%
Capital Securities due August 1, 2007 and amounted to $56,249 at both June 30,
2004 and December 31, 2003.
Stockholders' Equity. Stockholders' equity increased $19,741 during the
six months ended June 30, 2004. The increase was primarily due to net income of
$15,854, the issuance of common stock resulting from exercises of stock options,
and the issuance of restricted common stock to employees as part of our annual
incentive awards. See the Consolidated Statements of Changes in Stockholders'
Equity in the Interim Consolidated Financial Statements.
42
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
Liquidity, Commitments and Off-Balance Sheet Risks
Our primary sources of funds for liquidity are:
. Lines of credit and other secured borrowings
. Match funded debt
. Notes
. Servicing fees
. Payments received on loans and securities
. Proceeds from sales of assets
. Deposits
At June 30, 2004, we had $269,698 of unrestricted cash and cash
equivalents. Under certain of our credit facilities we are required to maintain
minimum liquidity levels. We closely monitor our liquidity position and ongoing
funding requirements. Among the risks and challenges associated with our funding
activities are the following:
. Scheduled maturities of all certificates of deposit for the twelve
months ending June 30, 2005, the twelve months ending June 30, 2006 and
thereafter amount to $282,464, $93,120 and $51,613, respectively.
. Maturity of existing collateralized lines of credit and other secured
borrowings totaling $38,082 during the next twelve months, including
$15,609 during the remainder of 2004.
. Potential extension of resolution and sale timelines for non-core
assets.
. Ongoing cash requirements to fund operations of our holding company.
. Cash requirements to fund our acquisition of additional servicing rights
and related advances.
While we have not issued brokered deposits since mid-2000, which
amounted to $48,192 at June 30, 2004, we continue to use non-brokered deposits
as a source of funding. Our reliance on deposits has been reduced through sales
of non-core assets, and by diversifying our funding sources, including obtaining
credit facilities for servicing rights and advances. If, as described under
"Banking Operations," we cease to control a federal savings bank, we would no
longer be able to rely on non-brokered deposits obtained through the Bank as a
source of funding.
As described in Note 9 to the Interim Consolidated Financial Statements,
on July 28, 2004 we issued $175,000 aggregate principal amount of 3.25%
Convertible Notes due 2024. The notes are convertible at the option of the
holders, if certain conditions are met, into shares of our common stock. We have
used 25% of the gross proceeds of the sale of the Convertible Notes to
repurchase, in privately negotiated transactions concurrent with the private
placement of the Convertible Notes, 4,850,000 shares of our common stock at a
price of $9.02 per share. We intend to use the remaining proceeds, net of
underwriting discount and other expenses, for general corporate purposes.
In the last several years, our Residential Loan Servicing business has
grown through the purchase of servicing rights. Servicing rights entitle the
owner to earn servicing fees and other types of ancillary income and impose
various obligations on the servicer. Among these are the obligations to advance
our own funds to meet contractual principal and interest payments for certain
investors and to pay taxes, insurance and various other items that are required
to preserve the assets being serviced.
Our ability to continue to expand our servicing business depends in part
on our ability to obtain additional financing to purchase new servicing rights
and to fund servicing advances. We currently use a variety of sources of debt to
finance these assets, including deposits, credit facilities and seller
financing. Our credit facilities provide financing to us at amounts that are
less than the full value of the related servicing assets that serve as
collateral for the credit facilities. If we cannot replace or renew these
sources as they mature or obtain additional sources of financing, we may be
unable to acquire new servicing rights or make the associated advances.
Under a match funding agreement that we entered into on December 20,
2001, we are eligible to sell advances on loans serviced for others up to a
maximum debt balance of $200,000 ant any one time. At June 30, 2004, we had
$96,010 of bonds-match funded agreements outstanding under this facility, which
will mature in January 2006. The sales of advances do not qualify as sales for
accounting purposes; therefore, we report them as secured borrowings with
pledges of collateral.
Under a revolving credit facility executed in October 2003, we have the
right to borrow up to $100,000 secured by a pledge of servicing advances as
collateral. The facility will mature in October 2004. The balance outstanding
under this facility at June 30, 2004 was $8,994.
43
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
(Dollars in thousand, except share data)
- --------------------------------------------------------------------------------
In April 2003, we also entered into a $60,000 secured credit agreement
that may be used to fund servicing advances and acquisitions of servicing
rights. The agreement matured April 2004 and was renewed to April 2005. The size
of the facility was increased to $70,000. At June 30, 2004, we had a balance
outstanding under this agreement of $22,473.
In June 2003, we entered into a secured loan agreement under which we
borrowed $18,846. This agreement, which is secured by the assignment of our
interest in U.K. unrated subprime residual securities, matured in June 2004 and
was renewed to August 2004. As of June 30, 2004, the outstanding balance had
been reduced to $6,615 through the assignment of principal and interest payments
received on our unrated subprime residual securities.
In December 2003, we entered into a $12,500 secured credit agreement
under which any borrowings are collateralized by mortgage servicing rights. In
January 2004, we borrowed $12,500 under this facility, which is the balance
outstanding as of June 30, 2004.
We believe that our existing sources of liquidity, including internally
generated funds, will be adequate to fund our planned activities for the
foreseeable future, although there can be no assurances in this regard. As
discussed above, we continue to evaluate other sources of liquidity, such as
lines of credit from unaffiliated parties, match funded debt and other secured
borrowings.
Our operating activities provided $103,062 and $22,180 of cash flows
during the six months ended June 30, 2004 and 2003, respectively. The
improvement in operating cash flows primarily relates to advances on loans
serviced for others, as collections exceeded new advances during the first six
months of 2004. During the first six months of 2003, new advances exceeded
collections.
Our investing activities provided cash flows totaling $6,592 and $735
during the six months ended June 30, 2004 and 2003, respectively. During the
foregoing periods, cash flows from our investing activities were provided
primarily from principal payments on loans and proceeds from sales of loans and
real estate. We used cash flows from our investing activities primarily to
purchase mortgage servicing rights and fund loans to facilitate the sales of
real estate assets.
Our financing activities provided (used) cash flows of $(43,636) and
$44,838 during the six months ended June 30, 2004 and 2003, respectively. Cash
flows related to our financing activities in 2004 primarily resulted from
repayment and maturities of lines of credit, offset in part by net increases in
deposits and match funded debt. The increase in deposits was primarily due to
certificates of deposit, as new non-brokered deposits exceeded maturing brokered
deposits. The repayment of lines of credit is primarily due to the maturity of a
revolving line collateralized by servicing advances. The financing cash flows
for 2003 primarily represent proceeds from lines of credit, offset in part by
net declines in deposits and match funded debt.
See the Consolidated Statements of Cash Flows in the Interim
Consolidated Financial Statements for additional details regarding cash flows
during the six months ended June 30, 2004 and 2003.
Commitments. We believe that we have adequate resources to meet our
contractual obligations as they come due. Such contractual obligations include
our Capital Trust Securities, lines of credit and other secured borrowings,
certificates of deposit and operating leases. See Note 8 to our Interim
Consolidated Financial Statements regarding our commitments and contingencies.
Off-Balance Sheet Risks. We are party to off-balance sheet financial
instruments in the normal course of our business to manage our foreign currency
exchange rate risk. See Note 4 to our Interim Consolidated Financial Statements
and "Asset and Liability Management".
We conduct business with a variety of financial institutions and other
companies in the normal course of business, including counter parties to our
off-balance sheet financial instruments. We are subject to potential financial
loss if the counter party is unable to complete an agreed upon transaction. We
seek to limit counter party risk through financial analysis, dollar limits and
monitoring procedures.
Regulatory Capital and Other Requirements
See Note 5 to our Interim Consolidated Financial Statements.
Recent Accounting developments
For information relating to the effects of our adoption of recent
accounting standards, see Note 2 to our Interim Consolidated Financial
Statements.
44
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Dollars in thousands)
- --------------------------------------------------------------------------------
Asset and Liability Management
Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. Our objective is to
control risks associated with interest rate and foreign currency exchange rate
movements. Our Asset/Liability Management Committee (the "Committee"), which is
composed of certain of our officers, formulates and monitors our asset and
liability management strategy in accordance with policies approved by our Board
of Directors. The Committee meets to review, among other things, the sensitivity
of our assets and liabilities to interest rate changes and foreign currency
exchange rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, including those attributable to hedging
transactions, purchase and sale activity, and maturities of investments and
borrowings. The Committee also approves and establishes pricing and funding
decisions with respect to overall asset and liability composition.
The Committee's methods for evaluating interest rate risk include an
analysis of the our interest rate sensitivity "gap", which is defined as the
difference between interest-earning assets and interest-bearing liabilities
maturing or repricing within a given time period. A gap is considered positive
when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income, while a positive gap would tend to result
in an increase in net interest income. During a period of failing interest
rates, a negative gap would tend to result in an increase in net interest
income, while a positive gap would tend to affect net interest income adversely.
Because different types of assets and liabilities with the same or similar
maturities may react differently to changes in overall market rates or
conditions, changes in interest rates may affect net interest income positively
or negatively even if an institution were perfectly matched in each maturity
category.
The following table sets forth the estimated maturity or repricing of
our interest-earning assets and interest-bearing liabilities at June 30, 2004.
The amounts of assets and liabilities shown within a particular period were
determined in accordance with the contractual terms of the assets and
liabilities, except:
. Securities are included in the period in which they are first scheduled
to adjust and not in the period in which the mature,
. Fixed-rate mortgage-related securities reflect prepayments that were
estimated based on analyses of broker estimates, the results of a
prepayment model we use and empirical data,
. NOW and money market checking deposits and savings deposits, which do
not have contractual maturities, reflect estimated levels of attrition,
which are based on our detailed studies of each such category of deposit
and,
. Escrow deposits and other non interest-bearing checking accounts, which
amounted to $145,466 at June 30, 2004, are excluded.
45
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (Continued)
(Dollars in thousands)
- --------------------------------------------------------------------------------
June 30, 2004
-------------------------------------------------------------------------
Four to More Than
Within Three Twelve One Year to Three Years
Months Months Three Years and Over Total
------------ ----------- ------------- ------------- -----------
Rate-Sensitive Assets (1):
- --------------------------
Interest-earning deposits................. $ 7 $ -- $ -- $ -- $ 7
Trading securities........................ 6,584 9,063 15,936 15,349 46,932
Investments............................... 4,288 2,431 -- -- 6,719
Loans, net (2)............................ 785 7,468 1,327 1,940 11,520
Match funded loans (2) (3)................ 6,881 14,303 1,632 3,281 26,097
------------ ----------- ------------- ------------- -----------
Total rate-sensitive assets............. 18,545 33,265 18,895 20,570 91,275
------------ ----------- ------------- ------------- -----------
Rate-Sensitive Liabilities:
- ---------------------------
NOW and money market checking deposits.... 18,199 217 465 1,212 20,093
Savings deposits.......................... 108 226 447 793 1,574
Certificates of deposit................... 62,992 219,541 136,375 8,289 427,197
------------ ----------- ------------- ------------- -----------
Total interest-bearing deposits......... 81,299 219,984 137,287 10,294 448,864
Bonds-match funded agreements............. 117,745 -- -- -- 117,745
Lines of credit and other secured
borrowings .............................. 50,582 -- -- -- 50,582
Notes and debentures...................... -- -- -- 56,249 56,249
------------ ----------- ------------- ------------- -----------
Total rate-sensitive liabilities........ 249,626 219,984 137,287 66,543 673,440
------------ ----------- ------------- ------------- -----------
Interest rate sensitivity gap (4)........... $ (231,081) $ (186,719) $ (118,392) $ (45,973) $ (582,165)
============ =========== ============= ============= ===========
Cumulative interest rate sensitivity
gap (5) ................................... $ (231,081) $ (417,800) $ (536,192) $ (582,165)
============ =========== ============= =============
Cumulative interest rate sensitivity gap
as a percentage of total rate-sensitive
assets .................................... (253.17)% (457.74)% (587.45)% (637.81)%
As of December 31, 2003:
- ------------------------
Cumulative interest rate sensitivity
gap (5) ................................... $ (372,312) $ (505,845) $ (615,111) $ (657,002)
============ =========== ============= =============
Cumulative interest rate sensitivity gap
as a percentage of total rate-sensitive
assets .................................... (349.48)% (474.82)% (577.38)% (616.71)%
(1) Excludes balances in the collection accounts of our Residential Loan
Servicing business. These balances, which totaled approximately
$1,025,900 at June 30, 2004, are not included in our statements of
financial condition and earn interest at short term rates. This interest
is included as a component of servicing fees. See "Segment Results -
Residential Loan Servicing".
(2) We have not reduced balances for non-performing loans.
(3) Excludes match funded advances on loans serviced for others, which do
not earn interest, of $106,678 at June 30, 2004.
(4) We had no rate -sensitive derivative financial instruments outstanding
at June 30, 2004.
(5) We have experienced a large negative interest rate sensitivity gap in
recent years. The negative interest rate sensitivity gap reflects the
economics of our Residential Loan Servicing business. Servicing
advances, the largest asset class on our balance sheet, is not sensitive
to changes in interest rates. However, we finance servicing advances
with interest rate sensitive liabilities.
The OTS has established specific minimum guidelines for thrift
institutions to observe in the area of interest rate risk as described in Thrift
Bulletin No. 13a, "Management of Interest Rate Risk, Investment Securities, and
Derivative Activities" ("TB 13a"). Under TB 13a, institutions are required to
establish and demonstrate quarterly compliance with board-approved limits on
interest rate risk that are defined in terms of net portfolio value ("NPV"),
which is defined as the net present value of an institution's existing assets,
liabilities and off-balance sheet instruments. These limits specify the minimum
net portfolio value ratio ("NPV Ratio") allowable under current interest rates
and hypothetical interest rate scenarios. An institution's NVP Ratio for a given
interest rate scenario is calculated by dividing the NPV that would result in
that scenario by the present value of the institution's assets in that same
scenario. The hypothetical scenarios are represented by immediate, permanent,
parallel movements (shocks) in the term structured of interest rates of plus
100, 200 and 300 basis points and minus 100 basis points from the actual term
structure observed at quarter end. The current NPV Ratio for each of the five
rate scenarios and the corresponding limits approved by the Board of Directors,
as applied to Ocwen Financial Corporation and its subsidiaries, are as follows
at June 30, 2004:
46
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (Continued)
(Dollars in thousands)
- --------------------------------------------------------------------------------
Board Limits Current
Rate Shock in basis pints (minimum NPV Ratios) NPV Ratios
- -------------------------- ------------------------ --------------
+300 5.00% 35.76%
+200 6.00% 33.69%
+100 7.00% 31.53%
0 8.00% 29.16%
-100 7.00% 26.65%
The Committee also regularly reviews interest rate risk by forecasting
the impact of alternative interest rate environments on net interest income or
expense and NPV and evaluating such impacts against the maximum potential
changes in net interest income and NPV that is authorized by the Board of
Directors, as applied to Ocwen Financial Corporation and its subsidiaries. The
following table quantifies the potential changes in net interest expense and net
portfolio value should interest rates go up or down (shocked) 300 or 100 basis
points, respectively, assuming the yield curves of the rate shocks will be
parallel to each other. We calculate the cash flows associated with the loan
portfolios and securities available for sale based on prepayment and default
rates that vary by asset. We generate projected losses, as well as prepayments,
based upon the actual experience with the subject pool, as well as similar, more
seasoned pools. To the extent available, we use loan characteristics such as
loan-to-value ratio, interest rate, credit history, prepayment penalty terms and
product types to produce the projected loss and prepayment assumptions that are
included in the cash flow projections of the securities. When we shock interest
rates we further adjust these projected loss and prepayment assumptions. The
base interest rate scenario assumes interest rates at June 30, 2004. Actual
results of Ocwen Financial Corporation and its subsidiaries could differ
significantly from the results estimated in the following table:
Estimated Changes in
-------------------------------------
Rate Shock in basis pints Net Interest NPV
- -------------------------- -------------------- ----------
+300 207.17% 31.55%
+200 138.12% 21.11%
+100 69.06% 10.75%
0 --% --%
-100 (69.06)% (10.77)%
The Committee is authorized to utilize a wide variety of off-balance
sheet financial techniques to assist in the management of interest rate risk and
foreign currency exchange rate risk. These techniques include interest rate caps
and floors and foreign currency futures contracts.
Foreign Currency Exchange Rate Risk Management. We have entered into
foreign currency futures to hedge our net investments in foreign subsidiaries
that own residual interests backed by residential loans originated in the UK and
the shopping center located in Halifax, Nova Scotia. Our principal exposure to
foreign currency exchange rates with the British Pound versus the U.S. dollar
and the Canadian Dollar versus the U.S. dollar. Our policy is to periodically
adjust the amount of foreign currency derivative contracts that we have entered
into in response to changes in our recorded investment in these foreign entities
as well as to changes in our assets denominated in a foreign currency. Our net
exposures are subject to gain or loss if foreign currency exchange rates
fluctuate. See Note 4 to our Interim Consolidated Financial Statements.
47
ITEM 4. CONTROLS AND PROCEDURES.
- --------------------------------------------------------------------------------
Our management, with the participation of our chief executive officer
and chief financial officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) under the securities
Exchange Act) as of June 30, 2004. Based on this evaluation, our chief executive
officer and chief financial officer concluded that, as of June 30, 2004 our
disclosure controls and procedures were (1) designed to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to our chief executive officer and chief financial officer by others
within those entities, particularly during the period in which this report was
being prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.
No change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d -15(f) under the Exchange Act) occurred during the
fiscal quarter ended June 30, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including, but
not limited to discussions of the future availability of funds, beliefs
regarding regulatory compliance and litigation resolution, expectations as to
resolution of our non-core assets, predictions on loan yield and the adequacy of
our finding needs, resource assumptions and beliefs, intentions with regard to
the issuance of brokered deposits, estimates for loan losses and carrying
values, and plans for growth in India. Forward-looking statements are not
guarantees of future performance, and involve a number of assumptions, risks and
uncertainties that could cause actual results to differ materially.
Important factors that could cause actual results to differ materially
from those suggested by the forward-looking statements include, but are not
limited to, the following: general economic and market conditions, prevailing
interest or currency exchange rates, governmental regulations and policies,
international political and economic uncertainty, availability of adequate and
timely sources of liquidity, uncertainty related to dispute resolution and
litigation, and real estate market conditions and trends, as well as other risks
detailed in OCN's reports and filing with the Securities and Exchange
Commission, including our annual report on Form 10-K for the year ended December
31, 2003 and our Form 10-Q for the quarter ended March 31, 2004. The
forward-looking statements speak only as of the date they are made and should
not be relied upon. OCN undertakes no obligation to update or revise the
forward-looking statements.
48
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS.
See "Note 8 Commitments and Contingencies" of Ocwen Financial Corporation's
Interim Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)3 Exhibits.
2.1 Agreement of Merger dated as of July 25, 1999 among Ocwen
Financial Corporation, Ocwen Asset Investment Corp. and Ocwen
Acquisition Company (1)
3.1 Amended and Restated Articles of Incorporation (2)
3.2 Amended and Restated Bylaws (3)
4.0 Form of Certificate of Common Stock (2)
4.1 Certificate of Trust of Ocwen Capital Trust I (4)
4.2 Amended and Restated Declaration of Trust to Ocwen Capital Trust
I (4)
4.3 Form of Capital Security of Ocwen Capital Trust I (Included in
Exhibit 4.2)(4)
4.4 Form of Indenture relating to 10.875% Junior Subordinated
Debentures due 2027 of OCN (4)
4.5 Form of 10.875% Junior Subordinated Debentures due 2027 of OCN
(Included in Exhibit 4.4) (4)
4.6 Form of Guarantee of the OCN relating to the Capital Securities
of Ocwen Capital Trust I (4)
4.7 Form of Registration Rights Agreement dated as of July 28, 2004,
between OCN and Jeffries & Company Inc. (filed herewith)
4.8 Form of Indenture dated as of July 28, 2004, between OCN and the
Bank of New York Trust Company, N.A., as trustee (filed
herewith)
10.1 Ocwen Financial Corporation 1996 Stock Plan for Directors, as
amended (5)
10.2 Ocwen Financial Corporation 1998 Annual Incentive Plan (6)
10.3 Compensation and Indemnification Agreement, dated as of May 6,
1999, between OAC and the independent committee of the Board of
Directors (7)
10.4 Indemnity agreement, dated August 24, 1999, among OCN and OAC's
Board of Directors (8)
10.5 Amended Ocwen Financial Corporation 1991 Non-Qualified Stock
Option Plan, dated October 26, 1999 (8)
10.6 First Amendment to Agreement, dated March 31, 2000, between HCT
Investments, Inc. and OAIC Partnership I, L.P. (8)
10.7 Form of Employment Agreement dated as of April 1, 2001, by and
between Ocwen Financial Corporation and Arthur D. Ringwald (9)
31.1 Certification of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2 Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1 Certification of the Chief Executive Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
32.2 Certification of the Chief Financial Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
(1) Incorporated by reference from the similarly described exhibit included
with the Registrant's Current Report on Form 8-K filed with the Commission
on July 26, 1999.
(2) Incorporated by reference from the similarly described exhibit in
connection with the Registrant's Registration Statement on Form S-1 (File
No. 333-5153), as amended, declared effective by the Commission on
September 25, 1996.
(3) Incorporated by reference from the similarly described exhibit included
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998.
(4) Incorporated by reference from the similarly described exhibit filed in
connection with Ocwen Financial Corporation's Registration Statement on
Form S-1 (File No. 333-28889), as amended, declared effective by the
Commission on August 6, 1997.
(5) Incorporated by reference from the similarly described exhibit filed in
connection with the Registrant's Registration Statement on Form S-8 (File
No. 333-44999), effective when filed with the Commission on January 28,
1998.
(6) Incorporated by reference from the similarly described exhibit to Ocwen
Financial Corporation's Definitive Proxy Statement with respect to Ocwen
Financial Corporation's 1998 Annual Meeting of Shareholders filed with the
Commission on March 31, 1998.
(7) Incorporated by reference from OAC's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999.
49
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
(8) Incorporated by reference from the similarly described exhibit included
with Registrant's Quarterly Report of Form 10-Q for the quarterly period
ended March 31, 2000.
(9) Incorporated by reference from the similarly described exhibit included
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001.
(b) Reports on Form 8-K Filed during the Quarter Ended June 30, 3004.
(1) A Form 8-K was filed by OCN on May 7, 2004 reporting, under Item 12, a news
release announcing Ocwen Financial Corporation's financial results for the
first quarter ended March 31, 2004.
(2) A Form 8-K was filed by OCN on April 20, 2004 reporting, under Item 5, a
news release announcing that Ocwen Federal Bank FSB had entered into a
supervisory agreement with the Office of Thrift Supervision.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
OCWEN FINANCIAL CORPORATION
By: /s/ MARK S. ZEIDMAN
---------------------------------------
Mark S. Zeidman,
Senior Vice President and
Chief Financial Officer
(On behalf of the Registrant and as its
principal financial officer)
Date: August 9, 2004
51
Exhibit 4.7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of July 28, 2004 between Ocwen Financial Corporation, a corporation
organized under the laws of Florida (the "Company"), and Jefferies & Company,
Inc., as the Initial Purchaser, pursuant to the Purchase Agreement, dated July
22, 2004 (the "Purchase Agreement"), between the Company and the Initial
Purchaser. In order to induce the Initial Purchaser to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement. The execution of this Agreement is a condition to the closing
under the Purchase Agreement.
The Company agrees with the Initial Purchaser, (i) for its benefit as
Initial Purchaser and (ii) for the benefit of the beneficial owners (including
the Initial Purchaser) from time to time of the Notes (as defined herein), and
the beneficial owners from time to time of the Underlying Common Stock (as
defined herein) issuable upon conversion of the Notes (each of the foregoing a
"Holder" and together the "Holders"), as follows:
SECTION 1. Definitions. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. In
addition to the terms that are defined elsewhere in this Agreement, the
following terms shall have the following meanings:
"Additional Amount" has the meaning specified in Section 2(e) hereof.
"Additional Amount Accrual Period" has the meaning specified in Section
2(e) hereof.
"Additional Amount Payment Date" means each February 1 and August 1.
"Additional Notes" means up to an additional $25,000,000 aggregate
principal amount of 3.25% Contingent Convertible Senior Unsecured Notes due 2024
of the Company to be purchased pursuant to the Purchase Agreement.
"Affiliate", with respect to any specified person, has the meaning
specified in Rule 144.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
"Common Stock" means any of the common stock, par value $0.01 per share,
of the Company and any other common stock as may constitute "Common Stock" for
purposes of the Indenture, including the Underlying Common Stock.
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Conversion Price" means, with respect to each $1,000 principal amount of
Notes, as of any date of determination, the principal amount divided by the
Conversion Rate in effect as of such date of determination or, if no Notes are
then outstanding, the Conversion Rate that would be in effect were Notes then
outstanding.
"Conversion Rate" has the meaning assigned to such term in the Indenture.
"Deferral Notice" has the meaning specified in Section 3(i) hereof.
"Deferral Period" has the meaning specified in Section 3(i) hereof.
"Effectiveness Deadline Date" has the meaning specified in Section 2(a)
hereof.
"Effectiveness Period" means the period of two years from the Issue Date
or such shorter period ending on the date that all Registrable Securities have
ceased to be Registrable Securities.
"Event" has the meaning specified in Section 2(e) hereof.
"Event Date" has the meaning specified in Section 2(e) hereof.
"Event Termination Date" has the meaning specified in Section 2(e) hereof.
1
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Filing Deadline Date" has the meaning specified in Section 2(a) hereof.
"Firm Notes" means an aggregate of $150,000,000 principal amount of the
3.25% Contingent Convertible Senior Unsecured Notes due 2024 of the Company to
be purchased pursuant to the Purchase Agreement.
"Holder" has the meaning specified in the second paragraph of this
Agreement.
"Indenture" means the Indenture dated as of the date hereof, as amended
from time to time, between the Company and The Bank of New York Trust Company,
N.A., as trustee, pursuant to which the Notes are being issued.
"Initial Purchaser" means Jefferies & Company, Inc.
"Initial Shelf Registration Statement" has the meaning specified in
Section 2(a) hereof.
"Issue Date" means July 28, 2004.
"Material Event" has the meaning specified in Section 3(i) hereof.
"Notes" means the Firm Notes and the Additional Notes.
"Notice and Questionnaire" means a written notice executed by a Holder and
delivered to the Company containing substantially the information called for by
the Notice of Registration Statement and Selling Securityholder Questionnaire
attached as Annex A to the Offering Memorandum dated July 22, 2004 of the
Company relating to the Notes.
"Notice Holder" means on any date, any Holder that has delivered a Notice
and Questionnaire to the Company on or prior to such date.
"Prospectus" means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 415 promulgated under the Securities Act), as
amended or supplemented by all amendments and prospectus supplements, including
post-effective amendments, and all materials incorporated by reference or
explicitly deemed to be incorporated by reference in such Prospectus.
"Purchase Agreement" has the meaning specified in the first paragraph of
this Agreement.
"Record Holder" means, with respect to any Additional Amount Payment Date
relating to any Note or Underlying Common Stock as to which any Additional
Amount has accrued, the registered holder of such Note or such shares of
Underlying Common Stock, as the case may be, on the January 15 or July 15
immediately prior to the next succeeding Additional Amount Payment Date.
"Registrable Securities" means the Notes and the Underlying Common Stock
until such securities have been converted or exchanged and, at all times
subsequent to any such conversion or exchange, any securities into or for which
such securities have been converted or exchanged, and any security issued with
respect thereto upon any stock dividend, split, merger or similar event until,
in the case of any such security, the earlier of the date on which: (i) the
Notes or the shares of Underlying Common Stock issued upon conversion have been
effectively registered under the Securities Act and disposed of in accordance
with a Shelf Registration Statement; (ii) the Notes or the shares of Underlying
Common Stock issued upon conversion are transferred in compliance with Rule 144
(or any similar provision then in effect) or may be sold or transferred by a
person who is not an Affiliate of the Company; or (iii) the Notes or the shares
of Underlying Common Stock issued upon conversion cease to be outstanding
(whether as a result of redemption, repurchase and cancellation, conversion or
otherwise).
"Registration Statement" means any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all materials incorporated by reference or explicitly deemed to be incorporated
by reference in such registration statement.
2
"Rule 144" means Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar or successor rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
"Rule 144A" means Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar or successor rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
"SEC" means the United States Securities and Exchange Commission and any
successor agency.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"Shelf Registration Statement" means a Registration Statement for an
offering to be made on a delayed or continuous basis pursuant to Rule 415 of the
Securities Act registering the resale from time to time by Holders of the
Registrable Securities.
"Subsequent Shelf Registration Statement" has the meaning specified in
Section 2(b) hereof.
"TIA" means the Trust Indenture Act of 1939, as amended.
"Trustee" means The Bank of New York Trust Company, N.A. (or any successor
entity), the Trustee under the Indenture.
"Underlying Common Stock" means the Common Stock into which the Notes are
convertible or issued upon any such conversion.
SECTION 2. Shelf Registration.
(a) The Company shall prepare and file or cause to be prepared and filed
with the SEC no later than a date which is ninety (90) days after the Issue Date
(the "Filing Deadline Date") a Shelf Registration Statement (the "Initial Shelf
Registration Statement"). The Initial Shelf Registration Statement shall be on
Form S-3 or another appropriate form permitting registration of such Registrable
Securities for resale by such Holders in accordance with the methods of
distribution reasonably elected by the Holders and set forth in the Initial
Shelf Registration Statement; provided, that in no event will such method(s) of
distribution take the form of an underwritten offering of the Registrable
Securities without the prior agreement of the Company. The Company shall use its
reasonable best efforts to cause the Initial Shelf Registration Statement to be
declared effective under the Securities Act no later than a date (the
"Effectiveness Deadline Date") that is one hundred and eighty (180) days after
the Issue Date, and to keep, subject to Section 3(i)(A) hereof, the Initial
Shelf Registration Statement (or any Subsequent Shelf Registration Statement)
continuously effective under the Securities Act until the expiration of the
Effectiveness Period. Each Holder that became a Notice Holder on or prior to the
date ten (10) Business Days prior to the time that the Initial Shelf
Registration Statement became effective shall be named as a selling
securityholder in the Initial Shelf Registration Statement and the related
Prospectus in such a manner as to permit such Holder to deliver such Prospectus
to purchasers of Registrable Securities in accordance with applicable law (other
than laws not generally applicable to all such Holders). Notwithstanding the
foregoing, no Holder shall be entitled to have the Registrable Securities held
by it covered by such Shelf Registration Statement unless such Holder has
complied with the provisions of this Agreement, including providing a Notice and
Questionnaire.
(b) If the Initial Shelf Registration Statement (or any Subsequent Shelf
Registration Statement) ceases to be effective for any reason at any time during
the Effectiveness Period (other than because all Registrable Securities
registered thereunder shall have been resold pursuant thereto or shall have
otherwise ceased to be Registrable Securities), the Company shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within thirty (30) days of
such cessation of effectiveness amend such Shelf Registration Statement in a
manner reasonably expected by the Company to obtain the withdrawal of the order
suspending the effectiveness thereof, or, subject to a Deferral Notice having
been given, file an additional Shelf Registration Statement covering all of the
securities that as of the date of such filing are Registrable Securities (a
"Subsequent Shelf Registration Statement"). If a Subsequent Shelf Registration
Statement is filed, the Company shall use reasonable best efforts to cause the
Subsequent Shelf Registration Statement to become effective as promptly as is
reasonably practicable after such filing or, if filed during a Deferral Period,
after the expiration of such Deferral Period, and to keep such Subsequent Shelf
Registration Statement, subject to Section 3(i)(A) hereof, continuously
effective until the end of the Effectiveness Period.
(c) The Company shall supplement and amend the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement if
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement, if
required by the Securities Act or, to the extent to which the Company does not
3
reasonably object, as reasonably requested in writing by the Initial Purchaser
or by the Trustee on behalf of the registered Holders with respect to
information relating to such Holders.
(d) Each Holder of Registrable Securities agrees that if such Holder
wishes to sell Registrable Securities pursuant to a Shelf Registration Statement
and related Prospectus, it will do so only in accordance with this Section 2(d)
and Sections 3(i) and 4 hereof. Each Holder of Registrable Securities wishing to
sell Registrable Securities pursuant to the Initial Shelf Registration Statement
or any Subsequent Shelf Registration Statement and related Prospectus agrees to
deliver a Notice and Questionnaire to the Company at least ten (10) Business
Days prior to any intended distribution of Registrable Securities under such
Shelf Registration Statement. From and after the date the Initial Shelf
Registration Statement is declared effective, the Company shall, as promptly as
is reasonably practicable and in any event within thirty (30) Business Days
after the date a fully completed and legible Notice and Questionnaire is
received by the Company, (i) if required by applicable law, file with the SEC a
post-effective amendment to such Shelf Registration Statement or prepare and, if
required by applicable law, file a supplement to the related Prospectus or a
supplement or amendment to any document incorporated therein by reference or
file any other document required by the SEC so that the Holder delivering such
Notice and Questionnaire is named as a selling securityholder in such Shelf
Registration Statement and the related Prospectus in such a manner as to permit
such Holder to deliver such Prospectus to purchasers of the Registrable
Securities in accordance with applicable law (other than laws not generally
applicable to all Holders of Registrable Securities wishing to sell Registrable
Securities pursuant to such Shelf Registration Statement and related Prospectus)
and, if the Company shall file a post-effective amendment to such Shelf
Registration Statement, use reasonable efforts to cause such post-effective
amendment to be declared effective under the Securities Act as promptly as is
reasonably practicable; (ii) upon its request provide such Holder copies of any
documents filed pursuant to Section 2(d)(i) hereof; and (iii) notify such Holder
as promptly as is reasonably practicable after the effectiveness under the
Securities Act of any post-effective amendment filed pursuant to Section 2(d)(i)
hereof; provided, that if such Notice and Questionnaire is delivered during a
Deferral Period or a Deferral Period begins within thirty (30) Business Days
after the delivery of such Notice and Questionnaire, the Company shall so inform
the Holder delivering such Notice and Questionnaire and shall take the actions
set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral
Period (except that any days falling within such Deferral Period will not be
included in calculating the thirty (30) Business Days permitted for the filing
of any amendments or supplements) in accordance with Section 3(i), provided,
further, that if under applicable law the Company has more than one option as to
the type or manner of making any such filing, they will make the required filing
or filings in the manner or of a type that is reasonably expected to result in
the earliest availability of the Prospectus for effecting resales of Registrable
Securities. Notwithstanding anything contained herein to the contrary, the
Company shall be under no obligation to name any Holder that is not a Notice
Holder as a selling securityholder in any Registration Statement or related
Prospectus; provided, however, that any Holder that becomes a Notice Holder
pursuant to the provisions of this Section 2(d) of this Agreement (whether or
not such Holder was a Notice Holder at the time the Registration Statement was
initially declared effective) shall be named as a selling securityholder in the
Registration Statement or related Prospectus subject to and in accordance with
the requirements of this Section 2(d).
(e) The parties hereto agree that the Holders of Registrable Securities
will suffer damages, and that it would not be feasible to ascertain the extent
of such damages with precision, if (i) the Initial Shelf Registration Statement
has not been filed on or prior to the Filing Deadline Date, (ii) the Initial
Shelf Registration Statement has not been declared effective under the
Securities Act on or prior to the Effectiveness Deadline Date, or (iii) (x) at
any time after the Effectiveness Deadline Date, the Initial Shelf Registration
Statement ceases to be effective or fails to be usable and the Company does not
cure the Initial Shelf Registration Statement within ten (10) business days (or,
if a Deferral Period is then in effect, the fifth business day following the
expiration of such Deferral Period) by a post-effective amendment, prospectus
supplement or report filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act that cures such failure and, in the case of a post-effective
amendment, is itself declared effective, or (y) the aggregate duration of
Deferral Periods in any period exceeds the number of days permitted in respect
of such period pursuant to Section 3(i) hereof (each of the events of a type
described in any of the foregoing clauses (i) through (iii) is individually
referred to herein as an "Event," and the Filing Deadline Date in the case of
clause (i), the Effectiveness Deadline Date in the case of clause (ii), and the
date on which the aggregate duration of Deferral Periods in any period exceeds
the number of days permitted by Section 3(i) hereof in the case of clause (iii),
being referred to herein as an "Event Date"). Events shall be deemed to continue
until the "Event Termination Date," which shall be the following dates with
respect to the respective types of Events: the date the Initial Shelf
Registration Statement is filed in the case of an Event of the type described in
clause (i), the date the Initial Shelf Registration Statement is declared
effective under the Securities Act in the case of an Event of the type described
in clause (ii), and either (x) the date on which any post-effective amendment is
declared effective by the SEC or any Prospectus supplement or report is filed
that makes the Initial Shelf Registration Statement usable, or (y) the date on
which the Deferral Period that caused the limit on the aggregate duration of
Deferral Periods in a period set forth in Section 3(i) to be exceeded ends in
the case of the commencement of an Event of the type described in clause (iii).
Accordingly, commencing on (and including) any Event Date and ending on
(but excluding) the next date after an Event Termination Date or the date that a
Shelf Registration Statement is no longer required to be kept effective (an
"Additional Amount Accrual Period"), the Company agrees to pay an additional
amount (the "Additional Amount"), payable on the Additional Amount Payment Dates
to Record Holders of then-outstanding Notes that are Registrable Securities,
accruing, for each portion of such Additional Amount Accrual Period beginning on
4
and including an Additional Amount Payment Date (or, in respect of the first
time that the Additional Amount is to be paid to Holders on an Additional Amount
Payment Date as a result of the occurrence of any particular Event, from the
Event Date) and ending on but excluding the first to occur of (A) the date of
the end of the Additional Amount Accrual Period or (B) the next Additional
Amount Payment Date, at a rate per annum equal to one-quarter of one percent
(0.25%) of the aggregate principal amount of the Notes that are Registrable
Securities for the first ninety (90)-day period from the Event Date, and
thereafter at a rate per annum equal to one-half of one percent (0.50%) of the
aggregate principal amount of such Notes that are Registrable Securities,
determined as of the Business Day immediately preceding the next Additional
Amount Payment Date; provided, that no Additional Amount shall be payable to
Record Holders in respect of any shares of Common Stock issued upon conversion
of the Notes, but the Record Holders of such shares of Common Stock issued upon
conversion of the Notes shall be entitled to receive additional shares of Common
Stock upon conversion (except to the extent that the Company elects to deliver
cash upon conversion); provided, further, that any Additional Amount accrued
with respect to any Note or portion thereof called for redemption on a
redemption date prior to the Additional Amount Payment Date shall, in any such
event, be paid instead to the Holder who submitted such Note or portion thereof
for redemption on the applicable redemption date, on such date. Notwithstanding
the foregoing, no Additional Amounts shall accrue as to any Note that is a
Registrable Security from and after the earlier of (x) the date such Note is no
longer a Registrable Security and (y) expiration of the Effectiveness Period.
The rate of accrual of the Additional Amount with respect to any period shall
not exceed the rate provided for in this paragraph notwithstanding the
occurrence of multiple concurrent Events. Following the cure of all Events
requiring the payment by the Company of Additional Amounts to the Holders of
Registrable Securities pursuant to this Section, the accrual of Additional
Amounts will cease (without in any way limiting the effect of any subsequent
Event requiring the payment of Additional Amounts by the Company).
Notwithstanding the provisions in this Section 2(e), if any Additional
Amount is payable as a result of the Company's failure to add the name of a
Holder as a selling securityholder in the Initial Shelf Registration Statement
and the related Prospectus in such a manner as to permit such Holder to deliver
such Prospectus to purchasers of the Registrable Securities and if such failure
shall have not resulted in an Event with respect to the other Holders, only such
Holder that was not named as a selling securityholder shall be entitled to
receive such Additional Amount.
The Trustee, subject to the applicable provisions of the Indenture, shall
be entitled to seek on behalf of Holders of Notes any available remedy for the
enforcement of this Agreement, including for the payment of any Additional
Amount. Notwithstanding the foregoing, the parties agree that the sole monetary
damages payable for a violation of the terms of this Agreement with respect to
which additional amounts are expressly provided shall be such Additional Amount.
Nothing shall preclude a Notice Holder or Holder of Registrable Securities from
pursuing or obtaining specific performance or other equitable relief with
respect to this Agreement.
All of the Company's obligations set forth in this Section 2(e) that are
outstanding with respect to any Registrable Security at the time such security
ceases to be a Registrable Security shall survive until such time as all such
obligations with respect to such security have been satisfied in full
(notwithstanding termination of this Agreement pursuant to Section 8(k)). The
parties hereto agree that the Additional Amounts provided for in this Section
2(e) constitute a reasonable estimate of the damages that may be incurred by
Holders of Registrable Securities by reason of the failure of a Shelf
Registration Statement to be filed or declared effective or available for
effecting resales of Registrable Securities in accordance with the provisions
hereof.
SECTION 3. Registration Procedures. In connection with the registration
obligations of the Company under Section 2 hereof, the Company shall:
(a) Before filing any Registration Statement or Prospectus or any
amendments or supplements (other than supplements that do nothing more
substantive than name one or more Notice Holders as selling securityholders)
thereto with the SEC, furnish to the Initial Purchaser copies of all such
documents proposed to be filed and use reasonable efforts to reflect in each
such document when so filed with the SEC such comments as the Initial Purchaser
reasonably shall propose within three (3) Business Days of the delivery of such
copies to the Initial Purchaser.
(b) Prepare and file with the SEC the Registration Statement and such
amendments and post-effective amendments to each Registration Statement as may
be necessary to keep such Registration Statement continuously effective for the
applicable period specified in Section 2(a); cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and use reasonable best efforts to comply with the provisions of
the Securities Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement during the Effectiveness
Period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement as so amended or such
Prospectus as so supplemented.
(c) As promptly as reasonably practicable give notice to the Notice
Holders and the Initial Purchaser (i) when any Prospectus, Prospectus
supplement, Registration Statement or post-effective amendment to a Registration
Statement has been filed with the SEC and, with respect to a Registration
5
Statement or any post-effective amendment, when the same has been declared
effective, (ii) of any request, following the effectiveness of the Initial Shelf
Registration Statement under the Securities Act, by the SEC or any other federal
or state governmental authority for amendments or supplements to any
Registration Statement or related Prospectus or for additional information,
(iii) of the issuance by the SEC or any other federal or state governmental
authority of any stop order or injunction suspending or enjoining the use of any
Prospectus or the effectiveness of any Registration Statement or the initiation
of any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for offering or sale
under the securities or "blue sky" laws in any jurisdiction or the initiation of
any proceeding for such purpose and (v) of the occurrence of (but not the nature
of or details concerning) a Material Event (provided, however, that no notice by
the Company shall be required pursuant to this clause (v) in the event that the
Company promptly files a Prospectus supplement to update the Prospectus or the
Company files a Current Report on Form 8-K or other appropriate Exchange Act
report that is incorporated by reference into the Registration Statement, which,
in either case, contains the requisite information with respect to such Material
Event that results in such Registration Statement no longer containing any
untrue statement of material fact or omitting to state a material fact necessary
to make the statements contained therein not misleading, which notice may, at
the discretion of the Company (or as required pursuant to Section 3(i)), state
that it constitutes a Deferral Notice, in which event the provisions of Section
3(i) shall apply.
(d) Use reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction in which they have been
qualified for sale, in either case at the earliest possible moment or, if any
such order or suspension is made effective during any Deferral Period, at the
earliest possible moment after the expiration of such Deferral Period.
(e) If reasonably requested in writing by the Initial Purchaser or any
Notice Holder, as promptly as reasonably practicable incorporate in a prospectus
supplement or post-effective amendment to a Registration Statement such
information as the Initial Purchaser or such Notice Holder shall, on the basis
of an opinion of nationally recognized counsel experienced in such matters,
determine to be required to be included therein by applicable law and make any
required filings of such prospectus supplement or such post-effective amendment
as required by applicable law; provided, that the Company shall not be required
to take any actions under this Section 3(e) that are not, in the reasonable
opinion of counsel for the Company, in compliance with applicable law. For
purposes of this Agreement, Sidley Austin Brown & Wood LLP shall be deemed to be
nationally recognized counsel experienced in the matters described in this
Section 3.
(f) As promptly as reasonably practicable after the filing of such
documents with the SEC, furnish to each Notice Holder and the Initial Purchaser,
upon their written request and without charge, at least one (1) conformed copy
of the Registration Statement and any amendment thereto, including financial
statements, but excluding schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits (unless requested in writing
to the Company by such Notice Holder or the Initial Purchaser, as the case may
be).
(g) During the Effectiveness Period (except during such periods that a
Deferral Notice is outstanding and has not been revoked), deliver to each Notice
Holder in connection with any sale of Registrable Securities pursuant to a
Registration Statement, without charge, as many copies of the Prospectus or
Prospectuses relating to such Registrable Securities and any amendment or
supplement thereto as such Notice Holder may reasonably request in writing; and
the Company hereby consents (except during such periods that a Deferral Notice
is outstanding and has not been revoked) to the use of such Prospectus or each
amendment or supplement thereto by each Notice Holder in connection with any
offering and sale of the Registrable Securities covered by such Prospectus or
any amendment or supplement thereto in the manner set forth therein.
(h) Subject to Section 3(i), prior to any public offering of the
Registrable Securities pursuant to a Shelf Registration Statement, use
reasonable best efforts to register or qualify or cooperate with the Notice
Holders in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Notice Holder reasonably requests in writing (which request
may be included in the Notice and Questionnaire), it being agreed that no such
registration or qualification will be made unless so requested; prior to any
public offering of the Registrable Securities pursuant to a Shelf Registration
Statement, use reasonable best efforts to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
in connection with such Notice Holder's offer and sale of Registrable Securities
pursuant to such registration or qualification (or exemption therefrom) and do
any and all other acts or things necessary to enable the disposition in such
jurisdictions of such Registrable Securities in the manner set forth in the
relevant Registration Statement and the related Prospectus; provided, that the
Company will not be required to (i) register or qualify as a foreign corporation
or as a dealer in securities in any jurisdiction where it is not otherwise
qualified or where it would be subject to income tax as a foreign corporation,
or to take any action that would subject it to the service of process in any
jurisdiction where it is not now so subject or (ii) take any action that would
subject it to general or unlimited service of process in suits or to taxation in
any such jurisdiction where it is not then so subject.
6
(i) Upon (A) the issuance by the SEC of a stop order suspending the
effectiveness of a Shelf Registration Statement or the initiation of proceedings
with respect to a Shelf Registration Statement under Section 8(d) or 8(e) of the
Securities Act, (B) the occurrence or existence of any development, event, fact,
situation or circumstance (a "Material Event") as a result of which any
Registration Statement shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any Prospectus shall contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading (including, in any such case, as a result of the
non-availability of financial statements), or (C) the occurrence or existence of
any Material Event relating to the Company that, in the sole discretion of the
Company acting in good faith, makes it appropriate to suspend the availability
of such Shelf Registration Statement and the related Prospectus, (i) in the case
of clause (B) above, subject to the next sentence, as promptly as practicable
prepare and file a post-effective amendment to such Registration Statement or a
supplement to the related Prospectus or any document incorporated therein by
reference or file any other required document that would be incorporated by
reference into such Registration Statement and Prospectus so that such
Registration Statement does not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and such Prospectus does not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, as thereafter delivered to the
purchasers of the Registrable Securities being sold thereunder, and, in the case
of a post-effective amendment to a Registration Statement, subject to the next
sentence, use reasonable efforts to cause it to be declared effective as
promptly as is reasonably practicable, and (ii) give notice to the Notice
Holders that the availability of such Shelf Registration Statement is suspended
(a "Deferral Notice") and, upon receipt of any Deferral Notice, each Notice
Holder agrees not to sell any Registrable Securities pursuant to the
Registration Statement until such Notice Holder's receipt of copies of the
supplemented or amended Prospectus provided for in clause (i) above, or until it
is advised in writing by the Company that the Prospectus may be used, and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus. The Company will use
reasonable efforts to ensure that the use of the Prospectus may be resumed (x)
in the case of clause (A) above, as promptly as is practicable, (y) in the case
of clause (B) above, as soon as, in the sole judgment of the Company acting in
good faith, public disclosure of such Material Event would not be prejudicial to
or contrary to the interests of the Company or, if necessary to avoid
unreasonable burden or expense, as soon as reasonably practicable thereafter and
(z) in the case of clause (C) above, as soon as, in the discretion of the
Company acting in good faith, such suspension is no longer appropriate. So long
as the period during which the availability of the Registration Statement and
any Prospectus is suspended (the "Deferral Period") does not exceed thirty (30)
days during any three (3) month period or ninety (90) days during any twelve
(12) month period, the Company shall not incur any obligation to pay Additional
Amounts pursuant to Section 2(e). Notwithstanding the foregoing, to the extent a
Material Event relates to a previously undisclosed proposed or pending material
business transaction, the disclosure of which the Company determines in good
faith would be reasonably likely to impede the Company's ability to consummate
such transaction, the Company may extend a Deferral Period from thirty (30) days
to sixty (60) days. The Company shall not be required to specify in the written
notice to the Holders the nature of the event giving rise to the Deferral
Period.
(j) If reasonably requested in writing in connection with a disposition
of Registrable Securities having a fair market value of a least $5,000,000
pursuant to a Registration Statement, make reasonably available for inspection
during reasonable business hours by a representative for the Notice Holders of
such Registrable Securities and any broker dealers, attorneys and accountants
retained by such Notice Holders, all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, as shall be reasonably necessary to enable them to conduct a
reasonable investigation within the meaning of Section 11 of the Securities Act,
and cause the appropriate executive officers, directors and designated employees
of the Company and its subsidiaries to make reasonably available for inspection
during normal business hours all relevant information reasonably requested by
such representative for the Notice Holders or any such broker-dealers, attorneys
or accountants in connection with such disposition, in each case as is customary
for similar "due diligence" examinations; provided, however, that such persons
shall first agree in writing with the Company that any information that is
reasonably designated by the Company as confidential at the time of delivery of
such information shall be kept confidential by such persons and shall be used
solely for the purposes of exercising rights under this Agreement, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities; (ii) disclosure
of such information is required by law (including any disclosure requirements
pursuant to federal securities laws in connection with the filing of any
Registration Statement or the use of any Prospectus referred to in this
Agreement), (iii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by any such
person or (iv) such information becomes available to any such person from a
source other than the Company and such source is not bound by a confidentiality
agreement or otherwise obligated to keep such information confidential; and
provided, further, that the foregoing inspection and information gathering shall
be coordinated on behalf of all the Notice Holders and the other parties
entitled thereto by the counsel referred to in Section 5.
(k) Use its reasonable best efforts to comply with all applicable rules
and regulations of the SEC to the extent and so long as they are applicable to
the offer and sale of Registrable Securities by the Notice Holders thereof from
time to time in accordance with the methods of distribution set forth in the
Shelf Registration Statement and Rule 415 under the Securities Act, and make
generally available to its securityholders earning statements (which need not be
audited) satisfying the provisions of Section 11(a) of the Securities Act and
7
Rule 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than forty-five (45) days after the end of any twelve (12)-month period
(or ninety (90) days after the end of any twelve (12)-month period if such
period is a fiscal year) commencing on the first day of the first fiscal quarter
of the Company commencing after the effective date of a Registration Statement,
which statements shall cover said twelve (12)-month periods.
(l) Cooperate with each Notice Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement and not bearing any restrictive
legends (unless required by applicable securities laws), and enable such
Registrable Securities to be in such denominations as are permitted by the
Indenture and registered in such names as such Notice Holder may request in
writing at least two (2) Business Days prior to any sale of such Registrable
Securities.
(m) Provide a CUSIP number for all Registrable Securities covered by
each Registration Statement not later than the effective date of such
Registration Statement and provide the Trustee for the Notes and the transfer
agent for the Common Stock with certificates for the Registrable Securities that
are in a form eligible for deposit with The Depository Trust Company.
(n) Make a reasonable effort to provide such information as is required
for any filings required to be made with the National Association of Securities
Dealers, Inc.
(o) Upon (i) the filing of the Initial Shelf Registration Statement and
(ii) the effectiveness of the Initial Shelf Registration Statement, announce the
same, in each case by release to PR Newswire, Reuters Economic Services,
Bloomberg Business News or any other means of dissemination reasonably expected
to make such information known publicly.
(p) Use its reasonable best efforts to take all actions necessary, or
reasonably requested by the holders of a majority of the Registrable Securities
being sold, in order to expedite or facilitate disposition of such Registrable
Securities; provided, that the Company shall not be required to take any action
in connection with an underwritten offering without its consent.
(q) Cause the Indenture to be qualified under the TIA not later than the
effective date of any Registration Statement; and in connection therewith,
cooperate with the Trustee to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the terms of
the TIA and execute, and use reasonable efforts to cause the Trustee to execute,
all documents as may be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner.
SECTION 4. Holder's Obligations. (a) Each Holder agrees by acquisition of
Registrable Securities that, upon receipt of any Deferral Notice from the
Company of the existence of any fact of the kind described in Section 3(i)(B)
hereof, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the Shelf Registration Statement until:
(i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 3(i) hereof; or
(ii) such Holder is advised in writing by the Company that the use
of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in
the Prospectus (unless such filings are made pursuant to the requirements
of Section 13 or Section 15 of the Exchange Act and such filings are
available through the SEC's EDGAR system).
If so directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities that
was current at the time of receipt of such Deferral Notice.
(b) Each Holder agrees, by acquisition of the Registrable Securities,
that no Holder of Registrable Securities shall be entitled to sell any of such
Registrable Securities pursuant to a Registration Statement or to receive a copy
of the Prospectus relating thereto, unless such Holder has furnished the Company
with a completed Notice and Questionnaire as required pursuant to Section 2(d)
hereof (including the information required to be included in such Notice and
Questionnaire) and the information set forth in the next sentence. Each Notice
Holder agrees promptly to furnish to the Company in writing all information
required to be disclosed in order to make the information previously furnished
to the Company by such Notice Holder not misleading, any other information
regarding such Notice Holder and the distribution of such Registrable Securities
as may be required by the Company to be disclosed in the Registration Statement
under applicable law or pursuant to SEC comments and any information otherwise
required by the Company to comply with applicable law or regulations. Any sale
of any Registrable Securities by any Holder shall constitute a representation
and warranty by such Holder that the information relating to such Holder is as
set forth in the Prospectus delivered by such Holder in connection with such
disposition, that such Prospectus does not as of the time of such sale contain
any untrue statement of material fact relating to or provided by such Holder and
8
that such Prospectus does not as of the time of such sale omit to state any
material fact relating to or provided by such Holder necessary to make the
statements in such Prospectus, in the light of the circumstances under which
they were made, not misleading. Each Holder further agrees, following
termination of the Effectiveness Period, to notify the Company, within ten (10)
Business Days of a request, of the amount of Registrable Securities sold
pursuant to the Registration Statement and, in the absence of a response, the
Company may assume that all of the Holder's Registrable Securities were so sold.
SECTION 5. Registration Expenses. The Company shall bear all fees
and expenses incurred in connection with the performance by the Company of its
obligations under Sections 2 and 3 of this Agreement whether or not any of the
Registration Statements are declared effective. Such fees and expenses shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (x) with respect to filings required to be
made with the National Association of Securities Dealers, Inc. and (y) of
compliance with federal and state securities or blue sky laws to the extent such
filings or compliance are required pursuant to this Agreement (including,
without limitation, reasonable fees and disbursements of the counsel specified
in the next sentence in connection with Blue Sky qualifications of the
Registrable Securities under the laws of such jurisdictions as the Notice
Holders of a majority of the Registrable Securities being sold pursuant to a
Registration Statement may designate)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
in a form eligible for deposit with The Depository Trust Company), (iii)
duplication expenses relating to copies of any Registration Statement or
Prospectus delivered to any Holders hereunder, (iv) fees and disbursements of
counsel for the Company in connection with the Shelf Registration Statement, and
(v) reasonable fees and disbursements of the Trustee and its counsel and of the
registrar and transfer agent for the Common Stock. In addition, the Company
shall bear or reimburse the Notice Holders for the reasonable fees and
disbursements of one firm of legal counsel for the Holders, which shall, upon
the written consent of the Initial Purchaser (which shall not be unreasonably
withheld), be a nationally recognized law firm experienced in securities law
matters designated by the Company. In addition, the Company shall pay its
internal expenses (including, without limitation, all salaries and expenses of
officers and employees performing legal or accounting duties), and its expenses
for any annual audit, the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange on which the
same securities of the Company are then listed and the fees and expenses of any
person, including special experts, retained by the Company.
SECTION 6. Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchaser and each Holder of Registrable Securities and each person, if any, who
controls the Initial Purchaser or any Holder of Registrable Securities within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act against any and all loss, liability, claim and damage, as incurred,
arising out of any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment thereto), or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each indemnified Holder as promptly as practicable upon demand for any
legal or other expenses reasonably incurred by such indemnified Holder in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability or action; provided, however, that this
indemnity agreement shall not apply to any loss, liability, claim or damage to
the extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Initial Purchaser,
such Holder of Registrable Securities (which also acknowledges the indemnity
provisions herein) or any person, if any, who controls the Initial Purchaser or
any such Holder of Registrable Securities expressly for use in the Registration
Statement (or any amendment thereto), or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); provided, further, that
this indemnity agreement shall not apply to any loss, liability, claim or damage
(1) arising from an offer or sale of Registrable Securities occurring during a
Deferral Period, if a Deferral Notice was given to such Notice Holder or (2) if
the Holder fails to deliver at or prior to the written confirmation of sale, the
most recent Prospectus, as amended or supplemented, and such Prospectus, as
amended or supplemented, would have corrected such untrue statement or omission
or alleged untrue statement or omission of a material fact and the delivery
thereof was required by law.
(b) In connection with any Shelf Registration Statement in which a
Holder, including, without limitation, the Initial Purchaser, of Registrable
Securities is participating, in furnishing information relating to such Holder
of Registrable Securities to the Company in writing expressly for use in such
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto, the Holders of such Registrable Securities
agree, severally and not jointly, to indemnify and hold harmless the Initial
Purchaser and each person, if any, who controls the Initial Purchaser within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act and the Company and each person, if any, who controls the Company within the
meaning of either such Section, against any and all loss, liability, claim and
9
damage described in the indemnity contained in subsection (a) of this Section 6,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder of
Registrable Securities (such Holder hereby acknowledges the indemnity provisions
herein) or any person, if any, who controls any such Holder of Registrable
Securities expressly for use in the Registration Statement (or any amendment
thereto) or such preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
The Initial Purchaser agrees to indemnify and hold harmless the Company,
the Holders of Registrable Securities, and each person, if any, who controls the
Company or any Holder of Registrable Securities within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act against any
and all loss, liability, claim and damage described in the indemnity contained
in subsection (a) of this Section 6, as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto) or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Initial Purchaser expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action or proceeding commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of these indemnity provisions. In case any
such action shall be brought against any indemnified party and it shall notify
an indemnifying party of the commencement thereof, such indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, such
indemnifying party shall not be liable to such indemnified party under this
Section 6 for any legal expenses of other counsel or any other expenses, in each
case subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party. Subject to Section 6(d), no indemnified party shall, without
the prior written consent of the indemnifying party, which shall not be
unreasonably withheld or delayed, effect any settlement of any commenced or
threatened litigation, investigation, proceeding or claim in respect of which
any indemnification is sought hereunder.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a) effected without its
written consent if (i) such settlement is entered into more than sixty (60) days
after receipt by such indemnifying party of aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least forty-five (45) days prior to such settlement being entered into and (iii)
such indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement; provided,
that an indemnifying party shall not be liable for any such settlement effected
without its consent if such indemnifying party (1) reimburses such indemnified
party in accordance with such request to the extent it considers such request to
be reasonable and (2) provides written notice to the indemnified party
describing any unpaid balance it believes is unreasonable and the reasons
therefor, in each case prior to the date of such settlement.
(e) If the indemnification to which an indemnified party is entitled
under this Section 6 is for any reason unavailable to or insufficient although
applicable in accordance with its terms to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims and damages incurred by such indemnified
party, as incurred, in such proportion as is appropriate to reflect the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims or damages, as well
as any other relevant equitable considerations.
The relative fault of the Company on the one hand and the holders of the
Registrable Securities or the Initial Purchaser on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
10
holder of the Registrable Securities or the Initial Purchaser and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(e) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 6(e). The
aggregate amount of losses, liabilities, claims and damages incurred by an
indemnified party and referred to above in this Section 6(e) shall be deemed to
include any out-of-pocket legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 6, neither the Holder of
any Registrable Securities nor the Initial Purchaser shall be required to
indemnify or contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such Holder of Registrable
Securities or by the Initial Purchaser, as the case may be, and distributed to
the public were offered to the public exceeds the amount of any damages that
such Holder of Registrable Securities or the Initial Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 6(e), each person, if any, who controls the
Initial Purchaser or any Holder of Registrable Securities within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Initial Purchaser or such Holder, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company.
SECTION 7. Information Requirements. The Company covenants that, if at any
time before the end of the Effectiveness Period the Company is not subject to
the reporting requirements of the Exchange Act, it will cooperate with any
Holder of Registrable Securities and take such further reasonable action as any
Holder of Registrable Securities may reasonably request in writing (including,
without limitation, making such reasonable representations as any such Holder
may reasonably request), all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration under the
Securities Act within the limitations of Rule 144 and Rule 144A under the
Securities Act and customarily taken in connection with sales pursuant to such
exemptions. Notwithstanding the foregoing, nothing in this Section 7 shall be
deemed to require the Company to register any of its securities under any
section of the Exchange Act.
SECTION 8. Miscellaneous.
(a) No Conflicting Agreements. The Company is not, as of the date
hereof, a party to, nor shall it, on or after the date of this Agreement, enter
into, any agreement with respect to the Company's securities that conflicts with
the rights granted to the Holders of Registrable Securities in this Agreement.
The Company represents and warrants that the rights granted to the Holders of
Registrable Securities hereunder do not in any way conflict with the rights
granted to the holders of the Company's securities under any other agreements.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of Holders of a
majority of the then outstanding Underlying Common Stock constituting
Registrable Securities (with Holders of Notes deemed to be the Holders, for
purposes of this Section, of the number of outstanding shares of Underlying
Common Stock into which such Notes are or would be convertible or exchangeable
as of the date on which such consent is requested). Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders of Registrable
Securities whose securities are being sold pursuant to a Registration Statement
and that does not directly or indirectly affect the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority of the
Registrable Securities being sold by such Holders pursuant to such Registration
Statement; provided, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence. Each Holder of Registrable Securities
outstanding at the time of any such amendment, modification, supplement, waiver
or consent or thereafter shall be bound by any such amendment, modification,
supplement, waiver or consent effected pursuant to this Section 8(b), whether or
not any notice, writing or marking indicating such amendment, modification,
supplement, waiver or consent appears on the Registrable Securities or is
delivered to such Holder.
11
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, by telecopier, by
courier guaranteeing overnight delivery or by first-class mail, return receipt
requested, and shall be deemed given (i) when made, if made by hand delivery,
(ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after
being deposited with such courier, if made by overnight courier, or (iv) on the
date indicated on the notice of receipt, if made by first-class mail, to the
parties as follows:
if to a Holder of Registrable Securities that is not a Notice Holder, at
the address for such Holder then appearing in the Registrar (as defined in the
Indenture);
if to a Notice Holder, at the most current address given by such Holder to
the Company in a Notice and Questionnaire or any amendment thereto;
if to the Company, to:
Ocwen Financial Corporation
1675 Palm Beach Lakes Boulevard
West Palm Beach, FL 33401
Attn: Legal Department
Facsimile No.: (561) 471-4264
with a copy (which shall not constitute notice) to:
Sidley Austin Brown & Wood LLP
Bank One Plaza
10 South Dearborn
Street
Chicago, IL 60603
Attention: David J. Zampa, Esq.
Facsimile No.: (312) 853-7036
and,
if to the Initial Purchaser, to:
Jefferies & Company, Inc.
520 Madison Avenue, 12th Floor
New York, New York 10022
Attention: General Counsel
Facsimile No.: (212) 284-2280
or to such other address as such person may have furnished to the other persons
identified in this Section 8(c) in writing in accordance herewith.
(a) Approval of Holders. Whenever the consent or approval of Holders of
a specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or its Affiliates (other than the
Initial Purchaser or subsequent Holders of Registrable Securities if such
subsequent Holders are deemed to be such Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(b) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto
and, without requiring any express assignment, shall inure to the benefit of and
be binding upon each Holder of any Registrable Securities; provided, that
nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Registrable Securities in violation of the terms of the Purchase
Agreement. If any transferee of any Holder shall acquire Registrable Securities
in any manner, whether by operation of law or otherwise, such Registrable
Securities shall be subject to all of the terms of this Agreement and by taking
and holding such Registrable Securities, such person shall be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
12
(d) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(e) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PROVISIONS THEREOF.
(f) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their reasonable best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction, it being intended that all of the rights and privileges
of the parties hereto shall be enforceable to the fullest extent permitted by
law.
(g) Entire Agreement. This Agreement is intended by the parties hereto
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Registrable Securities. Except as
provided in the Purchase Agreement, there are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
undertakings among the parties hereto with respect to such registration rights.
(h) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the expiration of the Effectiveness Period,
except for (i) any liabilities or obligations under Section 4, 5 or 6 hereof and
the obligations to make payments of and provide for Additional Amounts under
Section 2(e) hereof to the extent such damages accrue prior to the end of the
Effectiveness Period, each of which shall remain in effect in accordance with
its terms.
13
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.
Very truly yours,
Ocwen Financial Corporation
By: /s/ M. ZEIDMAN
--------------------------------------
Name: Mark S. Zeidman
Title: Senior Vice President and Chief
Financial Officer
Agreed and accepted as of the date
first above written:
Jefferies & Company, Inc.
By: /s/ RAYMOND J. MINELLA
----------------------------
Name: Raymond J. Minella
Title: Managing Director
14
Exhibit 4.8
OCWEN FINANCIAL CORPORATION
3.25% Contingent Convertible Unsecured Senior Notes Due 2024
-----------------------------------------------------------
INDENTURE
Dated as of July 28, 2004
-----------------------------------------------------------
THE BANK OF NEW YORK TRUST COMPANY, N.A.
TRUSTEE
-----------------------------------------------------------
Exhibit 4.8
Reconciliation and tie between
Trust Indenture Act of 1939 and Indenture
Trust Indenture Act Indenture
Section Section
- ------------------------------------------------------------ ------------
310(a)(1)................................................... Section 7.10
310(a)(2)................................................... Section 7.10
310(b)...................................................... Section 7.08
Section 7.10
311(a)...................................................... Section 7.11
311(b)...................................................... Section 7.11
312(a)...................................................... Section 2.05
312(b)...................................................... Section 12.03
312(c)...................................................... Section 12.03
313(a)...................................................... Section 7.06
313(b)...................................................... Section 7.06
313(d)...................................................... Section 7.06
314(a)...................................................... Section 4.02
314(c)...................................................... Section 12.04
314(e)...................................................... Section 12.05
315(a)...................................................... Section 7.01
315(b)...................................................... Section 7.05
315(c)...................................................... Section 7.01
315(d)(1)................................................... Section 7.01
315(d)(2)................................................... Section 7.01
315(d)(3)................................................... Section 7.01
315(e)...................................................... Section 6.11
316(a)(1)(A)................................................ Section 6.05
316(a)(1)(B)................................................ Section 6.04
316(b)...................................................... Section 6.07
316(c)...................................................... Section 1.04
317(a)...................................................... Section 6.08
317(b)...................................................... Section 2.04
2
TABLE OF CONTENTS
------------------------------------------------------
- --------------------------------------------------------------------------------
Article 1 Definitions And Incorporation By Reference..........................1
Section 1.01 . Definitions.................................................1
Section 1.02 . Incorporation by Reference of Trust Indenture Act:..........5
Section 1.03 . Rules of Construction. Unless the context otherwise
requires:...................................................6
Section 1.04 . Acts of Holders.............................................6
Article 2 The Securities......................................................6
Section 2.01 . Form and Dating.............................................6
Section 2.02 . Execution and Authentication................................7
Section 2.03 . Registrar, Paying Agent and Conversion Agen ................7
Section 2.04 . Paying Agent to Hold Money and Securities in Trust..........8
Section 2.05 . Securityholder Lists........................................8
Section 2.06 . Transfer and Exchange.......................................8
Section 2.07 . Replacement Securities......................................9
Section 2.08 . Outstanding Securities; Determinations of Holders' Action...9
Section 2.09 . Temporary Securities.......................................10
Section 2.10 . Cancellation...............................................10
Section 2.11 . Persons Deemed Owners......................................10
Section 2.12 . Global Securities..........................................10
Section 2.13 . CUSIP Numbers..............................................13
Article 3 Redemption and Repurchases.........................................13
Section 3.01 . Company's Right to Redeem; Notices to Trustee .............13
Section 3.02 . Selection of Securities to be Redeemed.....................13
Section 3.03 . Notice of Redemption ......................................13
Section 3.04 . Effect of Notice of Redemption.............................14
Section 3.05 . Deposit of Redemption Price................................14
Section 3.06 . Securities Redeemed in Part ...............................14
Section 3.07 . Repurchase of Securities by the Company at Option of the
Holder:....................................................14
Section 3.08 . Repurchase of Securities at Option of the Holder upon a
Change of Control .........................................15
Section 3.09 . Effect of Repurchase Notice or Fundamental Change
Repurchase Notice..........................................18
Section 3.10 . Deposit of Repurchase Price or Fundamental Change
Repurchase Price...........................................19
Section 3.11 . Securities Purchased in Part...............................19
i
Section 3.12 . Covenant to Comply with Securities Laws upon Purchase of
Securities.................................................19
Section 3.13 . Repayment to the Company ..................................19
Article 4 Covenants..........................................................19
Section 4.01 . Payment of Securities......................................19
Section 4.02 . SEC and Other Reports......................................19
Section 4.03 . Compliance Certificate.....................................20
Section 4.04 . Further Instruments and Acts...............................20
Section 4.05 . Maintenance of Office or Agency............................20
Section 4.06 . Delivery of Certain Information............................20
Section 4.07 . Liquidated Damages Notice..................................20
Article 5 Successor Person...................................................20
Section 5.01 . When Company may Merge or Transfer Assets..................20
Article 6 Defaults And Remedies..............................................21
Section 6.01 . Events of Default..........................................21
Section 6.02 . Acceleration...............................................22
Section 6.03 . Other Remedies.............................................22
Section 6.04 . Waiver of Past Defaults....................................22
Section 6.05 . Control by Majority........................................23
Section 6.06 . Limitation on Suits........................................23
Section 6.07 . Rights of Holders to Receive Payment ......................23
Section 6.08 . Collection Suit by Trustee ................................23
Section 6.09 . Trustee May File Proofs of Claim...........................23
Section 6.10 . Priorities.................................................24
Section 6.11 . Undertaking for Costs......................................24
Section 6.12 . Waiver of Stay, Extension or Usury Laws....................24
Article 7 Trustee............................................................24
Section 7.01 . Duties of Trustee..........................................24
Section 7.02 . Rights of Trustee..........................................25
Section 7.03 . Individual Rights of Trustee...............................26
Section 7.04 . Trustee's Disclaimer.......................................26
Section 7.05 . Notice of Defaults.........................................26
Section 7.06 . Reports by Trustee to Holders..............................26
Section 7.07 . Compensation and Indemnity.................................26
Section 7.08 . Replacement of Trustee.....................................27
ii
Section 7.09 . Successor Trustee by Merger................................27
Section 7.10 . Eligibility; Disqualification..............................27
Section 7.11 . Preferential Collection of Claims Against Company..........27
Article 8 Discharge Of Indenture.............................................28
Section 8.01 . Discharge of Liability on Securities.......................28
Section 8.02 . Repayment to the Company...................................28
Article 9 Amendments.........................................................28
Section 9.01 . Without Consent of Holders.................................28
Section 9.02 . With Consent of Holders....................................29
Section 9.03 . Compliance with Trust Indenture Act........................29
Section 9.04 . Revocation and Effect of Consents; Waivers and Actions.....29
Section 9.05 . Notation on or Exchange of Securities......................30
Section 9.06 . Trustee to Sign Supplemental Indentures....................30
Section 9.07 . Effect of Supplemental Indentures..........................30
Article 10 Conversions.......................................................30
Section 10.01 . Conversion Privilege......................................30
Section 10.02 . Conversion Procedure; Conversion Rate; Fractional Shares..31
Section 10.03 . Payment upon Conversion...................................32
Section 10.04 . Adjustment of Conversion Rate.............................33
Section 10.05 . Effect of Reclassification; Consolidation; Merger or Sale.37
Section 10.06 . Taxes on Shares Issued....................................38
Section 10.07 . Reservation of Shares, Shares to be Fully Paid;
Compliance with Governmental Requirements; Listing of
Common Stock..............................................38
Section 10.08 . Responsibility of Trustee.................................38
Section 10.09 . Notice to Holders Prior to Certain Actions................39
Section 10.10 . Rights Issued in Respect of Common Stock Issued upon
Conversion ...............................................39
Section 10.11 . Unconditional Rights of Holders to Convert................39
Article 11 Make-Whole Premium................................................39
Section 11.01 . Make-Whole Premium........................................39
Section 11.02 . Adjustments Relating To The Make-whole Premium............41
Section 11.03 . Calculation Of The Make-whole Premium.....................41
Article 12 Miscellaneous.....................................................41
Section 12.01 . Trust Indenture Act Controls .............................41
Section 12.02 . Notices...................................................41
iii
Section 12.03 . Communication by Holders with Other Holders...............42
Section 12.04 . Certificate and Opinion as to Conditions Precedent........42
Section 12.05 . Statements Required in Certificate or Opinion.............42
Section 12.06 . Separability Clause.......................................42
Section 12.07 . Rules by Trustee, Paying Agent, Conversion Agent and
Registrar.................................................42
Section 12.08 . Legal Holidays............................................42
Section 12.09 . GOVERNING LAW.............................................42
Section 12.10 . No Recourse Against Others................................42
Section 12.11 . Successors................................................42
Section 12.12 . Multiple Originals........................................42
EXHIBIT A Form of Global Security
EXHIBIT B Form of Certificated Security
EXHIBIT C Transfer Certificate
iv
INDENTURE dated as of July 28, 2004 between OCWEN FINANCIAL CORPORATION, a
Florida corporation (the "Company"), and THE BANK OF NEW YORK TRUST COMPANY,
N.A., a national banking association (the "Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company's 3.25% Contingent
Convertible Senior Unsecured Notes Due 2024:
Article 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Security" means a permanent Global Security in the form of
the Security attached hereto as Exhibit A, and that is deposited with and
registered in the name of the Depository, representing Securities sold in
reliance on Rule 144A under the Securities Act.
"Accounting Event" means that the Emerging Issues Task Force of the
Financial Accounting Standards Board has issued in final form, an amendment to,
change in or clarification of rules relating to accounting treatment of
contingent convertible securities, as a result of which the Company is required,
under then current generally accepted accounting principles, to include the full
number of shares of Common Stock into which the Securities may be converted in
determining the number of shares of Common Stock outstanding for purposes of
calculating diluted earnings per share without regard to fulfillment of any
related contingencies.
"Adjustment Event" shall have the meaning set forth in Section 10.04(j).
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct or cause the direction of the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent Members" shall have the meaning set forth in Section 2.12(e)(v).
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depository for such Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of such board.
"Board Resolution" means a resolution of the Board of Directors.
"Business Day" means, with respect to any Security, a day, other than a
Saturday or Sunday, that in the City of New York, is not a day on which banking
institutions are authorized or required by law, regulation or executive order to
close.
"Capital Stock" for any corporation means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) stock issued by that corporation.
"Cash Amount" shall have the meaning set forth in Section 10.03(a)(iii).
"Cash Settlement Averaging Period" means the 20 Trading Day period
beginning the Trading Day following the final day of the Conversion Retraction
Period.
"Cash Settlement Notice Period" shall have the meaning set forth in
Section 10.03(a).
"Certificated Securities" means Securities that are in the form of the
Securities attached hereto as Exhibit B.
"Change of Control" shall have the meaning set forth in Section 3.08.
"Close of business" means 5 p.m. (New York City time).
"Common Stock" means the common stock, $0.01 par value per share, of the
Company existing on the date of this Indenture or any other shares of Capital
Stock of the Company into which such Common Stock shall be reclassified or
changed, including, subject to Section 10.05 below, in the event of a merger,
consolidation or other similar transaction involving the Company that is
otherwise permitted hereunder in which the Company is not the surviving Person,
the common stock of such surviving corporation.
1
"Company" means the party named as the "Company" in the preamble of this
Indenture until a successor replaces it pursuant to the applicable provisions of
this Indenture and, thereafter, shall mean such successor. The foregoing
sentence shall likewise apply to any subsequent such successor or successors.
"Company Notice" means a notice to Holders delivered pursuant to Section
3.07 or Section 3.08.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any two Officers.
"Conversion Agent" shall have the meaning set forth in Section 2.03.
"Conversion Date" shall have the meaning set forth in Section 10.02(c).
"Conversion Obligation" shall have the meaning set forth in Section
10.01(a).
"Conversion Price" as of any date means $1,000 divided by the Conversion
Rate as of such date; provided that, for the purposes of Section 10.01(a),
following any distribution of Distributed Assets as set forth in Section
10.04(d) or an Extraordinary Cash Dividend as set forth in Section 10.04(e), in
each case where an adjustment to the Conversion Rate was not made pursuant to
the provisos set forth therein, the Conversion Price shall be adjusted following
such distribution by subtracting from the Conversion Price then in effect (x) in
the case of a distribution of Distributed Assets, the Fair Market Value of the
portion of Distributed Assets so distributed applicable to one share of Common
Stock or (y) in the case of an Extraordinary Cash Dividend, the cash so
distributed applicable to one share of Common Stock; provided further that if
such subtraction produces a number less than $1.00, the Conversion Price shall
be $1.00.
"Conversion Rate" has the meaning set forth in Section 10.02(a) hereof.
"Conversion Retraction Period" shall have the meaning set forth in Section
10.03(a).
"Conversion Settlement Date" means the date that is the third Business Day
following the Conversion Date; provided, however, that if the Company elects to
pay cash in lieu of Common Stock to satisfy all or any portion of the Conversion
Obligation pursuant to Section 10.03, the Conversion Settlement Date shall be
the Business Day following the last day of the Cash Settlement Averaging Period.
"Conversion Settlement Distribution" shall have the meaning set forth in
Section 10.03.
"Corporate Trust Office" means the principal office of the Trustee at
which at any time its corporate trust business shall be administered, which
office at the date hereof is located at 10161 Centurion Parkway, Jacksonville,
FL 32256, Attention: Corporate Trust Administration, or such other address as
the Trustee may designate from time to time by notice to the Holders and the
Company, or the principal corporate trust office of any successor Trustee (or
such other address as a successor Trustee may designate from time to time by
notice to the Holders and the Company).
"Current Market Price" on any date of determination shall mean the average
of the daily Last Reported Sale Prices per share of Common Stock for the first
20 consecutive Trading Days from and including the Ex-Dividend Date with respect
to the issuance, distribution, subdivision or combination requiring such
computation immediately prior to the date in question. In the event that an
issuance, distribution, subdivision, combination or tender or exchange offer to
which Section 10.04 applies occurs during the period applicable for calculating
the Current Market Price pursuant to the definition in the preceding sentence,
the Current Market Price shall be calculated for such period in a manner
determined by the Board of Directors to reflect the impact of such issuance,
distribution, subdivision, combination or tender or exchange offer on the Last
Reported Sale Price of the Common Stock during such period.
"Depository" shall have the meaning set forth in Section 2.01(a).
"Designated Subsidiary" shall mean any existing or future, direct or
indirect, Subsidiary of the Company whose assets constitute 15% or more of the
total assets of the Company on a consolidated basis.
"Determination Date" shall have the meaning set forth in Section 10.04(j).
"Distributed Assets" shall have the meaning set forth in Section 10.04(d).
"DTC" shall have the meaning set forth in Section 2.01(a).
"Effective Date" shall have the meaning set forth in Section 11.01(d).
"Event of Default" shall have the meaning set forth in Section 6.01.
"Ex-Dividend Date" means (1) when used with respect to any issuance or
distribution, the first date on which a sale of shares of the Common Stock,
regular way, on the relevant exchange or in the relevant market for the Common
Stock, does not automatically transfer the right to receive such issuance or
distribution from the seller of the Common Stock to its buyer, and (2) when used
with respect to any subdivision or combination of shares of Common Stock, the
first date on which the Common Stock trades, regular way, on such exchange or in
such market after the time at which such subdivision or combination becomes
effective.
2
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Time" shall have the meaning set forth in Section 10.04(f).
"Extraordinary Cash Dividend" shall have the meaning set forth in Section
10.04(e).
"Fair Market Value", or "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's-length transaction.
"Final Notice Date" shall have the meaning set forth in Section 10.03.
"Fiscal Quarter" shall have the meaning set forth in Section 10.01(a)(i).
"Fundamental Change" shall have the meaning set forth in Section 3.08(a).
"Fundamental Change Repurchase Date" shall have the meaning set forth in
Section 3.08(a).
"Fundamental Change Repurchase Notice" shall have the meaning set forth in
Section 3.08(c).
"Fundamental Change Repurchase Price" shall have the meaning set forth in
Section 3.08(a).
"Global Securities" means Securities that are in the form of the
Securities attached hereto as Exhibit A, and that are registered in the register
of Securities in the name of a Depository or a nominee thereof, and to the
extent that such Securities are required to bear the Legend required by Section
2.06(f), such Securities will be in the form of a 144A Global Security.
"Holder" or "Securityholder" means a person in whose name a Security is
registered on the Registrar's books.
"Indenture" means this Indenture, as amended or supplemented from time to
time in accordance with the terms hereof, including the provisions of the TIA
that are deemed to be a part hereof.
"Interest" means interest payable on each Security pursuant to Section 1
of the Securities.
"Interest Payment Date" means August 1 and February 1 of each year,
commencing February 1, 2005.
"Interest Record Date" means July 15 and January 15 of each year.
"Issue Date" of any Security means the date on which the Security was
originally issued or deemed issued as set forth on the face of the Security.
"Last Reported Sale Price" means, with respect to the Common Stock or any
other security on any day, the closing sale price per share of the Common Stock
or such other security on such day (or if no closing sale price is reported, the
average of the reported closing bid and ask prices or, if there is more than one
bid or ask price, the average of the average bid and the average ask prices) as
reported in composite transactions for the principal United States securities
exchange on which the Common Stock or such other security is listed, or if the
Common Stock or such other security is not listed on a United States national or
regional securities exchange, as reported by the National Association of
Securities Dealers Automated Quotation System or by the National Quotation
Bureau Incorporated.
"Legal Holiday" shall have the meaning set forth in Section 12.08.
"Legend" has the meaning set forth in Section 2.06(f).
"Liquidated Damages" means the interest that is payable by the Company
pursuant to the Registration Rights Agreement upon an Event (as defined in such
agreement).
"Liquidated Damages Notice" shall have the meaning set forth in Section
4.07.
"Make-Whole Percentage" has the meaning set forth in Section 11.01(d).
"Make-Whole Premium" has the meaning set forth in Section 11.01.
"Measurement Period" shall have the meaning set forth in Section
10.01(a)(ii).
"Nonelecting Share" shall have the meaning set forth in Section 10.05.
"Notice of Conversion" shall have the meaning set forth in Section
10.02(b).
"Notice of Default" shall have the meaning set forth in Section 6.01.
"NYSE" means the New York Stock Exchange, Inc.
3
"Offering Memorandum" means the offering memorandum dated July 22, 2004
relating to the offering by the Company of the Securities.
"Officer" means the Chairman of the Board of Directors, the Chief
Executive Officer, the Chief Financial Officer, the President, the Treasurer,
any Vice President, the Secretary or any Assistant Secretary of the Company.
"Officers' Certificate" means a written certificate containing the
information specified in Sections 12.04 and 12.05, signed in the name of the
Company by any two Officers, and delivered to the Trustee. An Officers'
Certificate given pursuant to Section 4.03 shall be signed by an authorized
financial or accounting Officer of the Company but need not contain the
information specified in Sections 12.04 and 12.05.
"Opinion of Counsel" means a written opinion containing the information
specified in Sections 12.04 and 12.05, from legal counsel. The counsel may be an
employee of, or counsel to, the Company.
"Paying Agent" shall have the meaning set forth in Section 2.03.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 2.07 hereof in exchange for or in lieu
of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence
the same debt as the mutilated, destroyed, lost or stolen Security.
"Purchase Agreement" means the Purchase Agreement dated July 22, 2004
between the Company and Jefferies & Company, Inc., as the initial purchaser.
"Purchased Shares" shall have the meaning set forth in Section
10.04(f)(i).
"QIBs" shall have the meaning set forth in Section 2.01(a).
"Record Date" shall mean, with respect to any dividend, distribution or
other transaction or event in which the holders of Common Stock have the right
to receive any cash, securities or other property or in which the Common Stock
(or other applicable security) is exchanged for or converted into any
combination of cash, securities or other property, the date fixed for
determination of stockholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
"Redemption Date" means the date specified in a notice of redemption on
which the Securities may be redeemed in accordance with the terms of the
Securities and this Indenture.
"Redemption Price" or "redemption price" shall have the meaning set forth
in Section 3.01.
"Registrar" shall have the meaning set forth in Section 2.03.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated the date hereof, between the Company and Jefferies & Company, Inc., as the
initial purchaser under the Purchase Agreement.
"Repurchase Date" shall have the meaning set forth in Section 3.07.
"Repurchase Notice" shall have the meaning set forth in Section
3.07(j)(i).
"Repurchase Price" shall have the meaning set forth in Section 3.07.
"Responsible Officer" means, when used with respect to the Trustee, any
officer within the corporate trust department of the Trustee, including any vice
president, assistant vice president, assistant treasurer, trust officer or any
other officer associated with the corporate trust department of the Trustee who
customarily performs functions similar to those performed by the persons who at
the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such person's knowledge of and familiarity with
the particular subject and who shall have direct responsibility for the
administration of this Indenture.
"Restricted Security" means a Security required to bear the Legend.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Information" shall have the meaning set forth in Section 4.06.
"Schedule TO" means a tender offer statement on a Schedule TO.
4
"SEC" means the Securities and Exchange Commission.
"Securities" means any of the Company's 3.25% Contingent Convertible
Senior Unsecured Notes Due 2024, as amended or supplemented from time to time,
issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholder" or "Holder" means a person in whose name a Security is
registered on the Registrar's books.
"Stated Maturity" means, with respect to any Security, August 1, 2024.
"Stock Price" shall have the meaning set forth in Section 11.01(d).
"Stock Price Cap" shall have the meaning set forth in Section 11.01(d).
"Stock Price Floor" shall have the meaning set forth in Section 11.01(d).
"Subsidiary" means any person of which at least a majority of the
outstanding Voting Stock shall at the time directly or indirectly be owned or
controlled by the Company or by one or more Subsidiaries or by the Company and
one or more Subsidiaries.
"Termination of Trading" shall have the meaning set forth in Section
3.08(a).
"TIA" means the Trust Indenture Act of 1939 as in effect on the date of
this Indenture, provided, however, that in the event the TIA is amended after
such date, TIA means, to the extent required by any such amendment, the TIA as
so amended.
"Trading Day" means a day during which trading in securities generally
occurs on the principal United States securities exchange on which the Common
Stock then is listed or, if the Common Stock is not listed on a national or
regional securities exchange, on the National Association of Securities Dealers
Automated Quotation System or, if the Common Stock is not quoted on the National
Association of Securities Dealers Automated Quotation System, on the principal
other market on which the Common Stock is then traded or quoted.
"Trading Price" of the Securities on any Trading Day means the average of
the secondary market bid quotations per Security obtained by the Trustee for
$1,000,000 principal amount of the Securities at approximately 3:30 p.m., New
York City time, on such Trading Day from three independent nationally recognized
securities dealers the Company selects, provided that if at least three such
bids cannot reasonably be obtained by the Trustee, but two such bids are
obtained, then the average of the two bids shall be used, and if only one such
bid can reasonably be obtained by the Trustee, that one bid shall be used. If
the Trustee cannot reasonably obtain at least one bid for $1,000,000 principal
amount of the Securities from a nationally recognized securities dealer on such
Trading Day, then the Trading Price per $1,000 principal amount of the
Securities will be deemed to be less than 98% of the Last Reported Sale Price of
the Common Stock on such Trading Day multiplied by the Conversion Rate then in
effect.
"Trigger Event" shall have the meaning set forth in Section 10.04(d).
"Trustee" means the party named as the "Trustee" in the preamble of this
Indenture until a successor replaces it pursuant to the applicable provisions of
this Indenture and, thereafter, shall mean such successor. The foregoing
sentence shall likewise apply to any subsequent such successor or successors.
"Voting Stock" of a person means Capital Stock of such person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such person (irrespective of whether or not
at the time Capital Stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
Section 1.02. Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company.
5
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(c) "or" is not exclusive;
(d) "including" means including, without limitation; and
(e) words in the singular include the plural, and words in the
plural include the singular.
Section 1.04. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company, as
described in Section 12.02. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of Holders signing such instrument or instruments. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to such officer the execution thereof.
Where such execution is by a signer acting in a capacity other than such
signer's individual capacity, such certificate or affidavit shall also
constitute sufficient proof of such signer's authority. The fact and date of the
execution of any such instrument or writing, or the authority of the person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c) The principal amount and serial number of any Security and the
ownership of Securities shall be proved by the register for the Securities.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(e) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
Article 2
THE SECURITIES
Section 2.01. Form and Dating. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibits A
and B, which are a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage (provided
that any such notation, legend or endorsement required by usage is in a form
6
acceptable to the Company). The Company shall provide any such notations,
legends or endorsements to the Trustee in writing. Each Security shall be dated
the date of its authentication.
(a) 144A Global Securities. Securities offered and sold within the
United States to qualified institutional buyers as defined in Rule 144A ("QIBs")
in reliance on Rule 144A shall be issued, initially in the form of a 144A Global
Security, which shall be deposited with the Trustee at its Corporate Trust
Office, as custodian for the Depository (as defined below) and registered in the
name of The Depository Trust Company ("DTC") or the nominee thereof (DTC, or any
successor thereto, and any such nominee being hereinafter referred to as the
"Depository"), duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the 144A Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee and the Depository as hereinafter provided.
(b) Global Securities in General. Each Global Security shall represent
such of the outstanding Securities as shall be specified therein and each shall
provide that it shall represent the aggregate amount of outstanding Securities
from time to time endorsed thereon and that the aggregate amount of outstanding
Securities represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges, redemptions, repurchases and conversions.
Any adjustment of the aggregate principal amount of a Global Security to
reflect the amount of any increase or decrease in the amount of outstanding
Securities represented thereby shall be made by the Trustee in accordance with
instructions given by the Holder thereof as required by Section 2.12 hereof and
shall be made on the records of the Trustee and the Depository.
(c) Book-Entry Provisions. This Section 2.01(c) shall apply only to
Global Securities deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(c), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository, (b) shall
be delivered by the Trustee to the Depository or held by the Trustee pursuant to
the Depository's instructions and (c) shall be substantially in the form of
Exhibit A attached hereto.
(d) Certificated Securities. Securities not issued as interests in the
Global Securities will be issued in certificated form substantially in the form
of Exhibit B attached hereto.
Section 2.02. Execution and Authentication. The Securities shall be
executed on behalf of the Company by an Officer. The signature of the Officer on
the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signature of an individual who
was, at the time of the execution of the Securities, an Officer shall bind the
Company, notwithstanding that such individual has ceased to hold such office
prior to the authentication and delivery of such Securities or did not hold such
office at the date of authentication of such Securities.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
The Trustee shall authenticate and deliver the Securities for original
issue in an aggregate principal amount of up to $150,000,000 (up to $175,000,000
aggregate principal amount if the initial purchaser's option set forth in the
Purchase Agreement is exercised in full) upon one or more Company Orders without
any further action by the Company (other than as contemplated in Section 12.04
and Section 12.05 hereof). The aggregate principal amount of the Securities due
at the Stated Maturity thereof outstanding at any time may not exceed the amount
set forth in the foregoing sentence.
The Securities shall be issued only in registered form without coupons and
only in denominations of $1,000 of principal amount and any integral multiple of
$1,000.
Section 2.03. Registrar, Paying Agent and Conversion Agent. The Company
shall maintain an office or agency where Securities may be presented for
registration of transfer or for exchange ("Registrar"), an office or agency
where Securities may be presented for purchase or payment ("Paying Agent") and
an office or agency where Securities may be presented for conversion
("Conversion Agent"). The Registrar shall keep a register of the Securities and
of their transfer and exchange. The Company may have one or more co-registrars,
one or more additional paying agents and one or more additional conversion
agents. The term Paying Agent includes any additional paying agent, including
any named pursuant to Section 4.05. The term Conversion Agent includes any
additional conversion agent, including any named pursuant to Section 4.05.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent, Conversion Agent, or co-registrar (in each case, if
such Registrar, agent or co-registrar is a Person other than the Trustee). The
agreement shall implement the provisions of this Indenture that relate to such
7
agent. The Company shall notify the Trustee of the name and address of any such
agent. If the Company fails to maintain a Registrar, Paying Agent or Conversion
Agent, the Trustee shall act as such and shall be entitled to appropriate
compensation therefor pursuant to Section 7.07. The Company or any Subsidiary or
an Affiliate of either of them may act as Paying Agent, Registrar, Conversion
Agent or co-registrar.
The Company initially appoints the Trustee as Registrar, Conversion Agent
and Paying Agent in connection with the Securities.
Section 2.04. Paying Agent to Hold Money and Securities in Trust. Except
as otherwise provided herein, on or prior to each due date of payments in
respect of any Security, the Company shall deposit with the Paying Agent a sum
of money (in immediately available funds if deposited on the due date) or shares
of Common Stock sufficient to make such payments when so becoming due. The
Company shall require each Paying Agent (other than the Trustee) to agree in
writing that the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money and shares of Common Stock held by the
Paying Agent for the making of payments in respect of the Securities and shall
notify the Trustee of any default by the Company in making any such payment. At
any time during the continuance of any such default, the Paying Agent shall,
upon the written request of the Trustee, forthwith pay to the Trustee all money
and shares of Common Stock so held in trust. If the Company, a Subsidiary or an
Affiliate of either of them acts as Paying Agent, it shall segregate the money
and shares of Common Stock held by it as Paying Agent and hold it as a separate
trust fund. The Company at any time may require a Paying Agent to pay all money
and shares of Common Stock held by it to the Trustee and to account for any
funds and Common Stock disbursed by it. Upon doing so, the Paying Agent shall
have no further liability for the money or shares of Common Stock.
Section 2.05. Securityholder Lists. The Trustee shall preserve the most
recent list available to it of the names and addresses of Securityholders. If
the Trustee is not the Registrar, the Company shall cause to be furnished to the
Trustee at least semiannually on July 15 and January 15 a listing of
Securityholders dated within 15 days of the date on which the list is furnished
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee may reasonably require of the names and
addresses of Securityholders.
Section 2.06. Transfer and Exchange.
(a) Subject to Section 2.12 hereof, upon surrender for registration of
transfer of any Security, together with a written instrument of transfer
satisfactory to the Registrar duly executed by the Securityholder or such
Securityholder's attorney duly authorized in writing, at the office or agency of
the Company designated as Registrar or co-registrar pursuant to Section 2.03,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Securities
of any authorized denomination or denominations, of a like aggregate principal
amount. The Company shall not charge a service charge for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
pay all taxes, assessments or other governmental charges that may be imposed in
connection with the transfer or exchange of the Securities from the
Securityholder requesting such transfer or exchange.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like aggregate
principal amount upon surrender of the Securities to be exchanged, together with
a written instrument of transfer satisfactory to the Registrar duly executed by
the Securityholder or such Securityholder's attorney duly authorized in writing,
at such office or agency. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities that the Holder making the exchange is entitled to
receive.
The Company shall not be required to make, and the Registrar need not
register, transfers or exchanges of Securities selected for redemption (except,
in the case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or any Securities in respect of which a Repurchase Notice or
Fundamental Change Repurchase Notice has been given and not withdrawn by the
Holder thereof in accordance with the terms of this Indenture (except, in the
case of Securities to be purchased in part, the portion thereof not to be
purchased) or any Securities for a period of 15 days before the mailing of a
notice of redemption of Securities to be redeemed.
(b) Notwithstanding any provision to the contrary herein, so long as a
Global Security remains outstanding and is held by or on behalf of the
Depository, transfers of a Global Security, in whole or in part, shall be made
only in accordance with Section 2.12 and this Section 2.06(b). Transfers of a
Global Security shall be limited to transfers of such Global Security in whole
or in part, to the Depository, to nominees of the Depository or to a successor
of the Depository or such successor's nominee.
(c) Successive registrations and registrations of transfers and
exchanges as aforesaid may be made from time to time as desired, and each such
registration shall be noted on the register for the Securities.
(d) Any Registrar appointed pursuant to Section 2.03 hereof shall
provide to the Trustee such information as the Trustee may reasonably require in
connection with the delivery by such Registrar of Securities upon transfer or
exchange of Securities.
(e) No Registrar shall be required to make registrations of transfer or
exchange of Securities during any periods designated in the text of the
Securities or in this Indenture as periods during which such registration of
transfers and exchanges need not be made.
8
(f) If Securities are issued upon the transfer, exchange or replacement
of Securities subject to restrictions on transfer and bearing the legends set
forth on the forms of Security attached hereto as Exhibits A and B setting forth
such restrictions (collectively, the "Legend"), or if a request is made to
remove the Legend on a Security, the Securities so issued shall bear the Legend,
or the Legend shall not be removed, as the case may be, unless there is
delivered to each of the Company, the Trustee and the Registrar (if not the same
Person as the Trustee) such satisfactory evidence, which shall include an
opinion of counsel, as may be reasonably required by the Company, the Trustee
and the Registrar (if not the same Person as the Trustee), that neither the
Legend nor the restrictions on transfer set forth therein are required to ensure
that transfers thereof comply with the provisions of Rule 144A or Rule 144 under
the Securities Act or that such Securities are not "restricted" within the
meaning of Rule 144 under the Securities Act. Upon (i) provision of such
satisfactory evidence or (ii) notification by the Company to the Trustee and
Registrar of the sale of such Security pursuant to a registration statement that
is effective at the time of such sale, the Trustee, at the written direction of
the Company, shall authenticate and deliver a Security that does not bear the
Legend. If the Legend is removed from the face of a Security and the Security is
subsequently held by the Company or an Affiliate of the Company, the Legend
shall be reinstated.
Section 2.07. Replacement Securities. If (a) any mutilated Security is
surrendered to the Trustee or (b) the Company and the Trustee receive evidence
to their satisfaction of the destruction, loss or theft of any Security, and
there is delivered to the Company and the Trustee such security or indemnity as
may be required by them to save each of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and upon its written request the
Trustee shall authenticate and deliver, in exchange for any such mutilated
Security or in lieu of any such destroyed, lost or stolen Security, a new
Security of like tenor and principal amount, bearing a certificate number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, or is about to be purchased by the
Company pursuant to Article 3 hereof, the Company in its discretion may, instead
of issuing a new Security, pay or purchase such Security, as the case may be.
Upon the issuance of any new Securities under this Section 2.07, 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 Trustee) connected therewith.
Every new Security issued pursuant to this Section 2.07 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section 2.07 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 2.08. Outstanding Securities; Determinations of Holders' Action.
Securities outstanding at any time are all the Securities authenticated by the
Trustee except for those cancelled by it, those paid pursuant to Section 2.07,
those delivered to it for cancellation and those described in this Section 2.08
as not outstanding. A Security does not cease to be outstanding because the
Company or an Affiliate thereof holds the Security; provided, however, that in
determining whether the Holders of the requisite principal amount of Securities
have given or concurred in any request, demand, authorization, direction,
notice, consent, waiver, or other Act hereunder, Securities owned by the Company
or any other obligor upon the Securities or any Affiliate of the Company or such
other obligor shall be disregarded and deemed not to be outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent, waiver or other
act, only Securities which a Responsible Officer of the Trustee actually knows
to be so owned shall be so disregarded. Subject to the foregoing, only
Securities outstanding at the time of such determination shall be considered in
any such determination (including, without limitation, determinations pursuant
to Articles 6 and 9).
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent holds, in accordance with this Indenture, on a
Redemption Date, or on the Business Day immediately following a Repurchase Date
or a Fundamental Change Repurchase Date, or on Stated Maturity, money or
securities, if permitted hereunder, sufficient to pay Securities payable on that
date (including, in the case of a Fundamental Change Repurchase Date, any
Make-Whole Premium), then immediately after such Redemption Date, Repurchase
Date, Fundamental Change Repurchase Date or Stated Maturity, as the case may be,
such Securities shall cease to be outstanding and Interest and Liquidated
Damages, if any, on such Securities shall cease to accrue; provided, that if
such Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made.
If a Security is converted in accordance with Article 10, then from and
after the time of conversion on the date of conversion, such Security shall
cease to be outstanding and Interest and Liquidated Damages, if any, shall cease
to accrue on such Security.
9
Section 2.09. Temporary Securities. Pending the preparation of definitive
Securities, the Company may execute, and upon Company Order the Trustee shall
authenticate and deliver, temporary Securities which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the Officers executing such Securities may determine, as
conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 2.03,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
Section 2.10. Cancellation. All Securities surrendered for payment,
purchase by the Company pursuant to Article 3, conversion, redemption or
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, the Registrar or the Paying Agent, as the case may be, be
delivered to the Trustee and shall be promptly cancelled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly cancelled
by the Trustee. The Company may not issue new Securities to replace Securities
it has paid or delivered to the Trustee for cancellation or that any Holder has
converted pursuant to Article 10. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be disposed of by the Trustee in accordance with the
Trustee's customary procedure.
Section 2.11. Persons Deemed Owners. Prior to due presentment of a
Security for registration of transfer, the Company, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
the principal amount of the Security or any portion thereof, or the payment of
any Redemption Price, Repurchase Price or Fundamental Change Repurchase Price in
respect thereof, and Interest or Liquidated Damages thereon, for the purpose of
conversion and for all other purposes whatsoever, whether or not such Security
be overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
Section 2.12. Global Securities.
(a) Notwithstanding any other provisions of this Indenture or the
Securities, (A) transfers of a Global Security, in whole or in part, shall be
made only in accordance with Section 2.06 and Section 2.12(a)(i) below, (B)
transfers of a beneficial interest in a Global Security for a Certificated
Security shall comply with Section 2.06, Section 2.12(a)(ii) and Section
2.12(e)(i), and (C) transfers of a Certificated Security shall comply with
Section 2.06, Section 2.12(a)(iii) and Section 2.12(a)(iv).
(i) Transfer of Global Security. A Global Security may not
be transferred, in whole or in part, to any person other than the
Depository or a nominee or any successor thereof, and no such transfer to
any such other Person may be registered; provided that this clause shall
not prohibit any transfer of a Security that is issued in exchange for a
Global Security but is not itself a Global Security. No transfer of a
Security to any Person shall be effective under this Indenture or the
Securities unless and until such Security has been registered in the name
of such Person. Nothing in this Section 2.12(a)(i) shall prohibit or
render ineffective any transfer of a beneficial interest in a Global
Security effected in accordance with the other provisions of this Section
2.12(a).
(ii) Restrictions on Transfer of a Beneficial Interest in a
Global Security for a Certificated Security. A beneficial interest in a
Global Security may not be exchanged for a Certificated Security except
upon satisfaction of the requirements set forth below and in Section
2.12(e)(i) below. Upon receipt by the Trustee of a transfer of a
beneficial interest in a Global Security in accordance with Applicable
Procedures for a Certificated Security in the form satisfactory to the
Trustee, together with:
(A) so long as the Securities are Restricted
Securities, certification in the form set forth in Exhibit C;
(B) written instructions to the Trustee to make,
or direct the Registrar to make, an adjustment on its books
and records with respect to such Global Security to reflect a
decrease in the aggregate principal amount of the Securities
represented by the Global Security, such instructions to
contain information regarding the Depository account to be
credited with such decrease; and
(C) if the Company or the Trustee so requests,
an opinion of counsel or other evidence reasonably
satisfactory to it as to the compliance with the restrictions
set forth in the Legend,
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then the Trustee shall cause, or direct the Registrar to
cause, in accordance with the standing instructions and
procedures existing between the Depository and the Registrar,
the aggregate principal amount of the Securities represented
by the Global Security to be decreased by the aggregate
principal amount of the Certificated Security to be issued,
shall issue such Certificated Security and shall debit or
cause to be debited to the account of the person specified in
such instructions a beneficial interest in the Global Security
equal to the principal amount of the Certificated Security so
issued.
(iii) Transfer and Exchange of Certificated Securities. When
Certificated Securities are presented to the Registrar with a request:
(y) to register the transfer of such Certificated
Securities; or
(z) to exchange such Certificated Securities for an
equal principal amount of Certificated Securities of other
authorized denominations,
the Registrar shall register the transfer or make the exchange as
requested if its reasonable requirements for such transaction are met;
provided, however, that the Certificated Securities surrendered for
transfer or exchange:
(A) shall be duly endorsed or accompanied by a
written instrument of transfer in form reasonably satisfactory
to the Company and the Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing; and
(B) so long as such Securities are Restricted
Securities, such Securities are being transferred or exchanged
pursuant to an effective registration statement under the
Securities Act or pursuant to clause (1), (2) or (3) below,
and are accompanied by the following additional information
and documents, as applicable:
(1) if such Certificated Securities are
being delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification from such Holder to that
effect; or
(2) if such Certificated Securities are
being transferred to the Company, a certification
to that effect; or
(3) if such Certificated Securities are
being transferred pursuant to an exemption from
registration, (i) a certification to that effect
(in the form set forth in Exhibit C, if
applicable) and (ii) if the Company or the Trustee
so requests, an opinion of counsel or other
evidence reasonably satisfactory to it as to the
compliance with the restrictions set forth in the
Legend.
(iv) Restrictions on Transfer of a Certificated Security
for a Beneficial Interest in a Global Security. A Certificated Security
may not be exchanged for a beneficial interest in a Global Security except
upon satisfaction of the requirements set forth below.
Upon receipt by the Trustee of a Certificated Security, duly endorsed
or accompanied by appropriate instruments of transfer, in form satisfactory
to the Trustee, together with:
(A) so long as the Securities are Restricted
Securities, certification, in the form set forth in Exhibit C,
that such Certificated Security (1) is being transferred to a
QIB in accordance with Rule 144A under the Securities Act or
(2) is being transferred pursuant to and in compliance with
Rule 144 under the Securities Act; and
(B) written instructions directing the Trustee
to make, or to direct the Registrar to make, an adjustment on
its books and records with respect to such Global Security to
reflect an increase in the aggregate principal amount of the
Securities represented by the Global Security, such
instructions to contain information regarding the Depository
account to be credited with such increase, then the Trustee
shall cancel such Certificated Security and cause, or direct
the Registrar to cause, in accordance with the standing
instructions and procedures existing between the Depository
and the Registrar, the aggregate principal amount of
Securities represented by the Global Security to be increased
by the aggregate principal amount of the Certificated Security
to be exchanged, and shall credit or cause to be credited to
the account of the person specified in such instructions a
beneficial interest in the Global Security equal to the
principal amount of the Certificated Security so cancelled. If
no Global Securities are then outstanding, the Company shall
issue and the Trustee shall authenticate, upon written order
of the Company in the form of an Officers' Certificate, a new
Global Security in the appropriate principal amount.
(b) Subject to Section 2.12(c), every Security shall be subject to the
restrictions on transfer provided in the Legend including the delivery of an
opinion of counsel, if so provided. Whenever any Restricted Security is
presented or surrendered for registration of transfer or for exchange for a
Security registered in a name other than that of the Holder, such Security must
be accompanied by a certificate in substantially the form set forth in Exhibit
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C, dated the date of such surrender and signed by the Holder of such Security,
as to compliance with such restrictions on transfer. The Registrar shall not be
required to accept for such registration of transfer or exchange any Security
not so accompanied by a properly completed certificate.
(c) The restrictions imposed by the Legend upon the transferability of
any Security shall cease and terminate when such Security has been sold pursuant
to an effective registration statement under the Securities Act or transferred
in compliance with Rule 144 under the Securities Act (or any successor provision
thereto) or, if earlier, upon the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision). Any Security as to which such restrictions on transfer shall have
expired in accordance with their terms or shall have terminated may, upon a
surrender of such Security for exchange to the Registrar in accordance with the
provisions of this Section 2.12 (accompanied, in the event that such
restrictions on transfer have terminated by reason of a transfer in compliance
with Rule 144 under the Securities Act or any successor provision, by an opinion
of counsel having substantial experience in practice under the Securities Act
and otherwise reasonably acceptable to the Company and the Trustee, addressed to
the Company and the Trustee and in form acceptable to the Company and the
Trustee, to the effect that the transfer of such Security has been made in
compliance with Rule 144 under the Securities Act or such successor provision),
be exchanged for a new Security, of like tenor and aggregate principal amount,
which shall not bear the restrictive Legend. The Company shall inform the
Trustee of the effective date of any registration statement registering the
Securities under the Securities Act. The Trustee shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
aforementioned opinion of counsel or registration statement.
(d) As used in the preceding two paragraphs of this Section 2.12, the
term "transfer" encompasses any sale, pledge, transfer, loan, hypothecation, or
other disposition of any Security.
(e) The provisions of clauses (i), (ii), (iii), (iv) and (v) of this
Section 2.12(e) shall apply only to Global Securities:
(i) Notwithstanding any other provisions of this Indenture
or the Securities, a Global Security shall not be exchanged in whole or in
part for a Security registered in the name of any Person other than the
Depository or one or more nominees thereof, provided that a Global
Security may be exchanged for Securities registered in the names of any
Person designated by the Depository in the event that (A) the Depository
has notified the Company that it is unwilling or unable to continue as
Depository for such Global Security or such Depository has ceased to be a
"clearing agency" registered under the Exchange Act, and a successor
Depository is not appointed by the Company within 90 days, (B) at any
time, the Company, in its sole discretion but to the extent permitted by
the Depository, determines not to have Securities represented by Global
Securities, or (C) upon a request by or on behalf of the Depository, a
beneficial interest in a Global Security may be exchanged for a security
in registered form in accordance with the Depository's procedures. Any
Global Security exchanged pursuant to clause (A) above shall be so
exchanged in whole and not in part, and any Global Security exchanged
pursuant to clause (B) above may be exchanged in whole or from time to
time in part as directed by the Depository. Any Security issued in
exchange for a Global Security or any portion thereof shall be a Global
Security; provided that any such Security so issued that is registered in
the name of a person other than the Depository or a nominee thereof shall
not be a Global Security.
(ii) Securities issued in exchange for a Global Security or
any portion thereof shall be issued in definitive, fully registered form,
shall have an aggregate principal amount equal to that of such Global
Security or portion thereof to be so exchanged, shall be registered in
such names and be in such authorized denominations as the Depository shall
designate and shall bear the applicable legends provided for herein. Any
Global Security to be exchanged in whole shall be surrendered by the
Depository to the Registrar. With regard to any Global Security to be
exchanged in part, either such Global Security shall be so surrendered for
exchange or, if the Trustee is acting as custodian for the Depository or
its nominee with respect to such Global Security, the principal amount
thereof shall be reduced, by an amount equal to the portion thereof to be
so exchanged, by means of an appropriate adjustment made on the records of
the Trustee. Upon any such surrender or adjustment, the Trustee shall
authenticate and deliver the Security issuable on such exchange to or upon
the order of the Depository or an authorized representative thereof.
(iii) Subject to the provisions of clause (v) of this
Section 2.12(e), the registered Holder may grant proxies and otherwise
authorize any person, including Agent Members (as defined below) and
persons that may hold interests through Agent Members, to take any action
which a holder is entitled to take under this Indenture or the Securities.
(iv) In the event of the occurrence of any of the events
specified in clause (i) of this Section 2.12(e), the Company will promptly
notify the Trustee and make available to the Trustee a reasonable supply
of Certificated Securities in definitive, fully registered form.
(v) Neither any members of, or participants in, the
Depository (collectively, the "Agent Members") nor any other persons on
whose behalf Agent Members may act shall have any rights under this
Indenture with respect to any Global Security registered in the name of
12
the Depository or any nominee thereof, or under any such Global Security,
and the Depository or such nominee, as the case may be, may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as
the absolute owner and holder of such Global Security for all purposes
whatsoever; provided that an owner of a beneficial interest in a Global
Security may directly enforce against the Company, without any proxy,
comment, solicitation, waiver or any participation of the Depository, its
right to exchange such beneficial interest for a Security in registered
form pursuant to Section 2.12(e)(i) above. Notwithstanding the foregoing,
nothing herein shall (A) prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depository or
such nominee, as the case may be, or (B) impair, as between the
Depository, its Agent Members and any other person on whose behalf an
Agent Member may act, the operation of customary practices of such Persons
governing the exercise of the rights of a holder of any Security.
Section 2.13. CUSIP Numbers. The Company may issue the Securities with one
or more "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the CUSIP numbers.
Article 3
REDEMPTION AND REPURCHASES
Section 3.01. Company's Right to Redeem; Notices to Trustee. Prior to
August 1, 2009, the Securities will not be redeemable at the Company's option.
Beginning on August 1, 2009, the Company, at its option, may redeem the
Securities for cash at any time as a whole, or from time to time in part, at a
redemption price (the "Redemption Price") equal to 100% of the principal amount
of the Securities redeemed, plus accrued and unpaid Interest, if any, and
accrued and unpaid Liquidated Damages, if any, on the Securities redeemed to
(but excluding) the Redemption Date; provided that if the Redemption Date falls
after an Interest Record Date and on or prior to the related Interest Payment
Date, the Redemption Price shall only be 100% of the principal amount of
Securities to be redeemed and the Company shall pay such accrued and unpaid
Interest to the record holder of the Securities on such Interest Record Date. If
the Company elects to redeem Securities pursuant to this Section 3.01, it shall
notify the Trustee in writing of the Redemption Date, the Conversion Rate, the
principal amount of Securities to be redeemed and the Redemption Price.
The Company shall give the notice to the Trustee provided for in this
Section 3.01 by a Company Order, at least 45 days but not more than 60 days
before the Redemption Date (unless a shorter notice shall be satisfactory to the
Trustee).
Section 3.02. Selection of Securities to be Redeemed. If less than all of
the Securities are to be redeemed, unless the procedures of the Depository
provide otherwise, the Trustee shall select the Securities to be redeemed by
lot, on a pro rata basis or by another method the Trustee considers fair and
appropriate (so long as such method is not prohibited by the rules of any stock
exchange or quotation association on which the Securities are then listed or
quoted). Subject to the previous sentence, the Trustee shall make the selection
within five Business Days after it receives the notice provided for in Section
3.01 from outstanding Securities not previously called for redemption. The
Trustee may select for redemption portions of the principal amount of Securities
that have denominations larger than $1,000.
Securities and portions of Securities that the Trustee selects shall be in
principal amounts of $1,000 or an integral multiple of $1,000. Provisions of
this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption. The Trustee shall notify the
Company promptly of the Securities or portions of the Securities selected to be
redeemed and, in the case of any Securities selected for partial redemption, the
method it has chosen for the selection of the Securities.
Securities and portions of Securities that are to be redeemed are
convertible pursuant to Section 10.01(a)(iii) by the Holder until the close of
business on the Business Day prior to the Redemption Date. If any Security
selected for partial redemption is converted in part pursuant to Section
10.01(a)(iii) before termination of the conversion right with respect to the
portion of the Security so selected, the converted portion of such Security
shall be deemed (so far as may be) to be the portion selected for redemption.
Securities that have been converted during a selection of Securities to be
redeemed may be treated by the Trustee as outstanding for the purpose of such
selection.
Section 3.03. Notice of Redemption. At least 30 days but not more than 60
days before a Redemption Date, the Company shall mail a notice of redemption by
first-class mail, postage prepaid, to each Holder of Securities to be redeemed.
The notice shall identify the Securities to be redeemed and shall state:
(a) the Redemption Date;
13
(b) the Redemption Price;
(c) the Conversion Rate;
(d) the name and address of the Paying Agent and the Conversion
Agent;
(e) that Securities called for redemption may be converted at any
time before the close of business on the Business Day prior to the
Redemption Date;
(f) that Securities called for redemption and not converted will
be redeemed on the Redemption Date;
(g) that Holders who want to convert their Securities must satisfy
the requirements set forth in the Securities;
(h) that Securities called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price;
(i) if fewer than all of the outstanding Securities are to be
redeemed, the certificate numbers, if any, and principal amounts of the
particular Securities to be redeemed;
(j) that, unless the Company defaults in making payment of such
Redemption Price, Interest and Liquidated Damages, if any, on Securities
called for redemption will cease to accrue on and after the Redemption
Date; and
(k) the CUSIP number(s) of the Securities.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at the Company's expense, provided that the Company
makes such request at least seven Business Days prior to the date by which such
notice of redemption must be given to Holders in accordance with this Section
3.03 and the text of such notice is completed by the Company and delivered to
the Trustee.
Section 3.04. Effect of Notice of Redemption. Once notice of redemption is
given, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price stated in the notice (except for Securities
that are converted in accordance with the terms of this Indenture) and from and
after such date (unless the Company shall default in the payment of the
Redemption Price) any accrued and unpaid Interest and Liquidated Damages, if
any, on such Securities shall cease to bear Interest. Upon surrender to the
Paying Agent, such Securities shall be paid at the Redemption Price.
Section 3.05. Deposit of Redemption Price. Prior to 10:00 a.m. (New York
City time), on the Redemption Date, the Company shall deposit with the Paying
Agent (or if the Company or a Subsidiary or an Affiliate of either of them is
the Paying Agent, shall segregate and hold in trust) money sufficient to pay the
Redemption Price of all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which on or prior
thereto have been delivered by the Company to the Trustee for cancellation or
have been converted. The Paying Agent shall as promptly as practicable return to
the Company any money not required for that purpose because of conversion of
Securities pursuant to Article 10. If such money is then held by the Company in
trust and is not required for such purpose it shall be discharged from such
trust.
Section 3.06. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Security in an authorized
denomination equal in principal amount to the unredeemed portion of the Security
surrendered.
Section 3.07. Repurchase of Securities by the Company at Option of the
Holder. Securities shall be purchased by the Company at the option of the Holder
on August 1, 2009, August 1, 2014 and August 1, 2019 (each, a "Repurchase
Date"), at a purchase price in cash equal to 100% of the principal amount of
those Securities, plus any accrued and unpaid Interest and accrued and unpaid
Liquidated Damages, if any, on those Securities, to (but excluding) such
Repurchase Date (the "Repurchase Price"); provided that if any such Repurchase
Date falls after an Interest Record Payment Date and on or prior to the related
Interest Payment Date, the Repurchase Price shall only be 100% of the principal
amount of those Securities and the Company shall pay such accrued and unpaid
Interest to the record holder of the Securities on such Interest Record Date.
Not later than 25 Business Days prior to any Repurchase Date, the Company shall
mail a Company Notice by first class mail to the Trustee and to each Holder (and
to beneficial owners as required by applicable law). The Company Notice shall
include a form of Repurchase Notice to be completed by a Holder and shall state:
(a) the Repurchase Price and the Conversion Rate;
(b) the name and address of the Paying Agent and the Conversion
Agent;
(c) that Securities as to which a Repurchase Notice has been given
may be converted if they are otherwise convertible only in accordance with
Article 10 hereof and the terms of the Securities if the applicable
Repurchase Notice has been withdrawn in accordance with the terms of this
Indenture;
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(d) that Securities must be surrendered to the Paying Agent to
collect payment;
(e) that the Repurchase Price for any Security as to which a
Repurchase Notice has been given and not withdrawn will be paid promptly
following the later of the Business Day immediately following the
Repurchase Date and the time of surrender of such Security as described in
clause (d) above;
(f) the procedures the Holder must follow to exercise its put
rights under this Section 3.07 and a brief description of those rights;
(g) briefly, the conversion rights, if any, with respect to the
Securities;
(h) the procedures for withdrawing a Repurchase Notice;
(i) that, unless the Company defaults in making payment on
Securities for which a Repurchase Notice has been submitted, Interest or
Liquidated Damages, if any, on such Securities will cease to accrue on and
immediately after the Repurchase Date; and
(j) the CUSIP number of the Securities.
At the Company's request, the Trustee shall give such Company Notice in
the Company's name and at the Company's expense; provided, however, that, the
Company makes such request at least seven Business Days prior to the date by
which such Company Notice must be given to Holders in accordance with this
Section 3.07 and that the text of such Company Notice is prepared by the Company
and delivered to the Trustee.
Purchases of Securities hereunder shall be made, at the option of the
Holder thereof, upon:
(i) delivery to the Paying Agent by the Holder of a written notice
of repurchase (a "Repurchase Notice") during the period beginning at any
time from the opening of business on the date that is 20 Business Days
prior to the relevant Repurchase Date until the close of business on the
Repurchase Date stating:
(A) if Certificated Securities have been issued, the
certificate number of the Security which the Holder will deliver to
be repurchased or the appropriate Depository procedures if
Certificated Securities have not been issued for such Security,
(B) the portion of the principal amount of the
Security which the Holder will deliver to be repurchased, which
portion must be in principal amounts of $1,000 or an integral
multiple of $1,000, and
(C) that such Security shall be repurchased by the
Company as of the Repurchase Date pursuant to the terms and
conditions specified in Section 5 of the Securities and in this
Indenture; and
(ii) delivery of such Security (together with all necessary
endorsements) to the Paying Agent at any time after delivery of the
Repurchase Notice at the offices of the Paying Agent, such delivery being
a condition to receipt by the Holder of the Repurchase Price therefor;
provided, however, that such Repurchase Price shall be so paid pursuant to
this Section 3.07 only if the Security (together with all necessary
endorsements) so delivered to the Paying Agent shall conform in all
respects to the description thereof in the related Repurchase Notice.
The Company shall repurchase from the Holder thereof, pursuant to this
Section 3.07, a portion of a Security, if the principal amount of such portion
is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the repurchase of all of a Security also apply to the repurchase of
such portion of such Security.
Any repurchase by the Company contemplated pursuant to the provisions of
this Section 3.07 shall be consummated by the delivery of the consideration to
be received by the Holder promptly following the later of the Business Day
immediately following the Repurchase Date or the time of delivery of the
Security (together with all necessary endorsements).
Notwithstanding anything herein to the contrary, any Holder delivering to
the Paying Agent the Repurchase Notice contemplated by this Section 3.07 shall
have the right to withdraw such Repurchase Notice at any time prior to the close
of business on the Repurchase Date by delivery of a written notice of withdrawal
to the Paying Agent in accordance with Section 3.09.
The Paying Agent shall promptly notify the Company of the receipt by it of
any Repurchase Notice or written notice of withdrawal thereof.
Section 3.08. Repurchase of Securities at Option of the Holder upon a
Fundamental Change .
(a) If a Fundamental Change occurs (subject to certain exceptions set
forth below), Securities not previously called for redemption or repurchased by
the Company or converted by Holders shall be repurchased by the Company, at the
option of the Holder thereof, at a purchase price in cash equal to 100% of the
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principal amount of those Securities, plus any accrued and unpaid Interest, the
Make-Whole Premium, if any, and accrued and unpaid Liquidated Damages, if any,
on those Securities (the "Fundamental Change Repurchase Price") to, but not
including, the date that is 30 days following the date of the notice of a
Fundamental Change by the Company pursuant to Section 3.08(b) (the "Fundamental
Change Repurchase Date"), subject to satisfaction by or on behalf of the Holder
of the requirements set forth in Section 3.08(c). If the Fundamental Change
Repurchase Date falls after an Interest Record Date and on or prior to the
related Interest Payment Date, the Fundamental Change Repurchase Price shall be
only 100% of the principal amount of those Securities and the Company shall pay
such accrued and unpaid Interest and the Make-Whole Premium, if any, to the
record holder of the Securities on such Interest Payment Date.
A "Fundamental Change" will, subject to the terms of this Indenture, be
deemed to have occurred upon a Change of Control or a Termination of Trading.
A "Change of Control" will be deemed to have occurred at such time after
the original issuance of the Securities when any of the following has occurred:
(i) as indicated by the filing of a Schedule TO under the Exchange
Act or any other schedule, form, or report under the Exchange Act
disclosing the acquisition by any Person, including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act of
beneficial ownership, directly or indirectly, through a purchase, merger
or other acquisition transaction or series of purchase, merger or other
acquisition transactions, of shares of the Capital Stock of the Company
entitling that Person to exercise 50% or more of the total voting power of
all shares of the Capital Stock of the Company entitled to vote generally
in elections of directors, other than any acquisition by the Company, any
Subsidiary of the Company, or any of the employee benefit plans of the
Company (except that any of those Persons shall be deemed to have
beneficial ownership of all securities it has the right to acquire,
whether the right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition);
(ii) the Company consolidates or merges with or into any other
Person (other than one or more Subsidiaries of the Company), any merger of
another Person (other than one or more Subsidiaries of the Company) into
the Company, or any conveyance, transfer, sale, lease or other disposition
of all or substantially all of the properties and assets of the Company to
another Person (other than one or more Subsidiaries of the Company), other
than: (A) any transaction pursuant to which holders of shares of the
Capital Stock of the Company immediately prior to the transaction have the
entitlement to exercise, directly or indirectly, 50% or more of the total
voting power of all shares of Capital Stock of the Company entitled to
vote generally in elections of directors of the continuing or surviving
Person immediately after giving effect to such issuance, or (B) any
merger, share exchange, transfer of assets or similar transaction solely
for the purpose of changing the jurisdiction of incorporation or form of
organization of the Company and resulting in a reclassification,
conversion or exchange of outstanding shares of Common Stock, if at all,
solely into shares of common stock, ordinary shares or American Depository
Shares or other equity interests of the surviving Person or a direct or
indirect parent of the surviving Person.
For the purposes of this Section 3.08(a), (x) whether a person is a
"beneficial owner" shall be determined in accordance with Rule 13d-3 under the
Exchange Act and (y) the term "person" includes any syndicate or group that
would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act.
Notwithstanding the foregoing, it shall not be considered a Fundamental
Change if more than 90% of the consideration received by stockholders of the
Company in the transaction or transactions (other than cash payments for
fractional shares and cash payments made in respect of dissenters' appraisal
rights) constituting a Change of Control consists of shares of common stock
traded or to be traded immediately following a Change of Control on a national
securities exchange or the Nasdaq National Market or that will be so traded or
quoted when issued or exchanged, and, as a result of the transaction or
transactions, the Securities become convertible into that common stock (and any
rights attached thereto).
A "Termination of Trading" will be deemed to have occurred if the Common
Stock of the Company (or other common stock into which the notes are then
convertible) is neither listed for trading on a United States national
securities exchange nor approved for trading on the Nasdaq National Market.
(b) No later than 30 days after the occurrence of a Fundamental Change
that is not subject to the exception set forth in Section 3.08(a), the Company
shall mail a Company Notice of the Fundamental Change by first class mail to the
Trustee and to each Holder (and to beneficial owners as required by applicable
law). The Company Notice shall include a form of Fundamental Change Repurchase
Notice to be completed by the Holder and shall state:
(i) briefly, the events causing the Fundamental Change and
the date of such Fundamental Change;
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(ii) the date by which the Fundamental Change Repurchase
Notice pursuant to this Section 3.08 must be delivered to the Paying Agent
in order for a Holder to exercise the repurchase rights;
(iii) the Fundamental Change Repurchase Date;
(iv) the Fundamental Change Repurchase Price (exclusive of
any Make-Whole Premium);
(v) whether a Make-Whole Premium is payable, and if so,
the Stock Price, Effective Date and Make-Whole Percentage to be used in
calculating such Make-Whole Premium;
(vi) the name and address of the Paying Agent and the
Conversion Agent;
(vii) the Conversion Rate;
(viii) that the Securities as to which a Fundamental Change
Repurchase Notice has been given may be converted if they are otherwise
convertible pursuant to Article 10 hereof only if the Fundamental Change
Repurchase Notice has been withdrawn in accordance with the terms of this
Indenture;
(ix) that the Securities must be surrendered to the Paying
Agent to collect payment;
(x) that the Fundamental Change Repurchase Price for any
Security as to which a Fundamental Change Repurchase Notice has been duly
given and not withdrawn will be paid promptly following the later of the
Business Day immediately following the Fundamental Change Repurchase Date
and the time of surrender of such Security as described in clause (ix);
(xi) briefly, the procedures the Holder must follow to
exercise rights under this Section 3.08;
(xii) briefly, the conversion rights, if any, on the
Securities;
(xiii) the procedures for withdrawing a Fundamental Change
Repurchase Notice;
(xiv) that, unless the Company defaults in making payment of
such Fundamental Change Repurchase Price, Interest and Liquidated Damages,
if any, on Securities surrendered for purchase by the Company will cease
to accrue immediately on the Fundamental Change Repurchase Date; and
(xv) the CUSIP number(s) of the Securities.
At the Company's request, the Trustee shall give such Company Notice in
the Company's name and at the Company's expense; provided, however, that, in all
cases, the text of such Company Notice shall be prepared by the Company.
(c) A Holder may exercise its rights specified in this Section 3.08
upon delivery of a written notice of purchase (a "Fundamental Change Repurchase
Notice") to the Paying Agent at any time before the close of business on the
Business Day immediately preceding the Fundamental Change Repurchase Date
stating:
(i) the certificate number of the Security which the
Holder will deliver to be purchased or the appropriate Depository
procedures if Certificated Securities have not been issued;
(ii) the portion of the principal amount of the Security
which the Holder will deliver to be purchased, which portion must be
$1,000 or an integral multiple of $1,000; and
(iii) that such Security shall be purchased pursuant to the
terms and conditions specified in the Securities and in this Indenture.
The delivery of such Security (together with all necessary endorsements)
to the Paying Agent with the Fundamental Change Repurchase Notice at the offices
of the Paying Agent shall be a condition to the receipt by the Holder of the
Fundamental Change Repurchase Price therefor; provided, however, that such
Fundamental Change Repurchase Price shall be so paid pursuant to this Section
3.08 only if the Security (together with all necessary endorsements) so
delivered to the Paying Agent shall conform in all respects to the description
thereof set forth in the related Fundamental Change Repurchase Notice.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.08, a portion of a Security if the principal amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Security also apply to the purchase of such
portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions of
this Section 3.08 shall be consummated by the delivery of the Fundamental Change
Repurchase Price to be received by the Holder on the later of the Business Day
17
immediately following the Fundamental Change Repurchase Date or the time of
book-entry transfer or delivery of such Security (together with all necessary
endorsements).
Notwithstanding anything herein to the contrary, any Holder delivering to
the Paying Agent the Fundamental Change Repurchase Notice contemplated by this
Section 3.08(c) shall have the right to withdraw such Fundamental Change
Repurchase Notice at any time prior to the close of business on the Business Day
immediately preceding the Fundamental Change Repurchase Date by delivery of a
written notice of withdrawal to the Paying Agent in accordance with Section
3.09.
The Paying Agent shall promptly notify the Company of the receipt by it of
any Fundamental Change Repurchase Notice or written withdrawal thereof.
The Company will not be required to make a Fundamental Change offer upon a
Fundamental Change if a third party makes the Fundamental Change offer in the
manner, at the times and otherwise in compliance with the requirements set forth
herein applicable to a Fundamental Change offer made by the Company and
purchases all Securities validly tendered and not withdrawn under such
Fundamental Change offer; provided, however, that if a holder of Securities
provides a Fundamental Change Repurchase Notice to such third party, such notice
shall also be deemed to have been made to the Company in the event that the
third party defaults in its obligation to repurchase the Securities.
Section 3.09. Effect of Repurchase Notice or Fundamental Change Repurchase
Notice.
(a) Payment of the Repurchase Price or the Fundamental Change
Repurchase Price for a Security for which a Repurchase Notice or a Fundamental
Change Repurchase Notice, as the case may be, has been delivered and not
withdrawn in accordance with Section 3.09(b) or Section 3.09(c), as the case may
be, is conditioned upon book-entry transfer or delivery of the Security,
together with necessary endorsements, to the Paying Agent at any time after
delivery of the Repurchase Notice or the Fundamental Change Repurchase Notice,
as the case may be. The Company shall pay the Repurchase Price or the
Fundamental Change Repurchase Price to the Paying Agent promptly following the
later of the Repurchase Date or the Fundamental Change Repurchase Date or the
time of book-entry transfer or delivery of the purchased Securities. If the
Paying Agent holds money or securities sufficient to pay the Repurchase Price or
the Fundamental Change Repurchase Price on the Business Day immediately
following the Repurchase Date or the Fundamental Change Repurchase Date, then:
(i) the purchased Securities will cease to be outstanding
and interest and Liquidated Damages, if any, will cease to accrue, and
(ii) all other rights of the Holders of such purchased
Securities will terminate (other than the right to receive the Repurchase
Price or the Fundamental Change Repurchase Price upon delivery or transfer
of such purchased Securities),
in each case, whether or not book-entry transfer of the purchased Securities is
made or whether or not the purchased Securities are delivered to the Paying
Agent.
Securities in respect of which a Repurchase Notice or Fundamental Change
Repurchase Notice has been given by the Holder thereof may not be converted
pursuant to Article 10 hereof on or after the date of the delivery of such
Repurchase Notice or Fundamental Change Repurchase Notice unless such Repurchase
Notice or Fundamental Change Repurchase Notice has first been validly withdrawn
in accordance with Section 3.09(b) or Section 3.09(c).
(b) A Repurchase Notice or Fundamental Change Repurchase Notice may be
withdrawn by means of a written notice of withdrawal delivered to the office of
the Paying Agent in accordance with the Repurchase Notice or Fundamental Change
Repurchase Notice, as the case may be, at any time prior to the close of
business on the Repurchase Date or prior to the Business Day immediately
preceding the Fundamental Change Repurchase Date, as the case may be,
specifying:
(i) the certificate number of the Security in respect of
which such notice of withdrawal is being submitted or the appropriate
Depository procedures if Certificated Securities have not been issued for
such Security,
(ii) the principal amount of the Security with respect to
which such notice of withdrawal is being submitted, and
(iii) the principal amount, if any, of such Security which
remains subject to the original Repurchase Notice or Fundamental Change
Repurchase Notice, as the case may be, and which has been or will be
delivered for purchase by the Company.
(c) There shall be no purchase of any Securities pursuant to Section
3.07 or 3.08 if there has occurred (prior to, on or after, as the case may be,
the giving, by the Holders of such Securities, of the required Repurchase Notice
or Fundamental Change Repurchase Notice, as the case may be) and is continuing
an Event of Default (other than a default that is cured by the payment of the
Repurchase Price or Fundamental Change Repurchase Price, as the case may be,
with respect to such Securities). The Paying Agent will promptly return to the
18
respective Holders thereof any Securities (x) with respect to which a Repurchase
Notice or Fundamental Change Repurchase Notice, as the case may be, has been
withdrawn in compliance with this Indenture, or (y) held by it during the
continuance of an Event of Default (other than a default that is cured by the
payment of the Repurchase Price or Fundamental Change Repurchase Price, as the
case may be, with respect to such Securities) in which case, upon such return,
the Repurchase Notice or Fundamental Change Repurchase Notice with respect
thereto shall be deemed to have been withdrawn.
Section 3.10. Deposit of Repurchase Price or Fundamental Change Repurchase
Price. Prior to 10:00 a.m. (local time in the City of New York) on the Business
Day immediately following the Repurchase Date or the Fundamental Change
Repurchase Date, as the case may be, the Company shall deposit with the Trustee
or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of
either of them is acting as the Paying Agent, shall segregate and hold in trust
as provided in Section 2.04) an amount of cash in immediately available funds
sufficient to pay the aggregate Repurchase Price or Fundamental Change
Repurchase Price, as the case may be, of all the Securities or portions thereof
which are to be purchased as of the Repurchase Date or Fundamental Change
Repurchase Date, as the case may be.
Section 3.11. Securities Purchased in Part. Any Certificated Security
which is to be purchased only in part shall be surrendered at the office of the
Paying Agent (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing) and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security, without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder in aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Security so surrendered which is not
purchased.
Section 3.12. Covenant to Comply with Securities Laws upon Purchase of
Securities. When complying with the provisions of Section 3.07 or 3.08 hereof
the Company shall (i) comply with Rule 13e-4 and Rule 14e-1 (and any other
tender offer rules or successor provisions) under the Exchange Act, (ii) file
the Schedule TO (or any other required schedule or successor schedule, form or
report) if required under the Exchange Act, and (iii) otherwise comply with all
Federal and state securities laws so as to permit the rights and obligations
under Sections 3.07 and 3.08 to be exercised in the time and in the manner
specified in Sections 3.07 and 3.08.
Section 3.13. Repayment to the Company. The Trustee and the Paying Agent
shall return to the Company any cash that remains unclaimed as provided in
Section 12 of the Securities, together with interest, if any, thereon (subject
to the provisions of Section 7.01(f)), held by them for the payment of the
Repurchase Price or Fundamental Change Repurchase Price, as the case may be;
provided, however, that to the extent that the aggregate amount of cash
deposited by the Company pursuant to Section 3.10 exceeds the aggregate
Repurchase Price or Fundamental Change Repurchase Price, as the case may be, of
the Securities or portions thereof which the Company is obligated to purchase as
of the Repurchase Date or Fundamental Change Repurchase Date, as the case may
be, then, unless otherwise agreed in writing with the Company, promptly after
the Business Day following the Repurchase Date or Fundamental Change Repurchase
Date, as the case may be, the Trustee shall return any such excess to the
Company together with interest, if any, thereon (subject to the provisions of
Section 7.01(f)).
Article 4
COVENANTS
Section 4.01. Payment of Securities. The Company shall promptly make all
payments in respect of the Securities on the dates and in the manner provided in
the Securities or pursuant to this Indenture. Any amounts of cash in immediately
available funds or shares of Common Stock to be given to the Trustee or Paying
Agent, shall be deposited with the Trustee or Paying Agent by 10:00 a.m., New
York City time, by the Company. The principal amount of, and Interest and
Liquidated Damages, if any, on the Securities, and the Redemption Price,
Repurchase Price and the Fundamental Change Repurchase Price shall be considered
paid on the applicable date due if on such date (or, in the case of a Repurchase
Price or a Fundamental Change Repurchase Price, on the Business Day immediately
following the applicable Repurchase Date or Fundamental Change Repurchase Date,
as the case may be) the Trustee or the Paying Agent holds, in accordance with
this Indenture, cash or securities, if permitted hereunder, sufficient to pay
all such amounts then due.
Section 4.02. SEC and Other Reports. The Company shall file with the
Trustee, within 15 days after it files such annual and quarterly reports,
information, documents and other reports with the SEC, copies of its annual
report and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act; provided that any such reports,
information or documents filed with the SEC pursuant to its Electronic Data and
Gathering Analysis and Retrieval System shall be deemed filed with the Trustee.
The Company shall comply with the other provisions of TIA Section 314(a).
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely conclusively on Officers' Certificates).
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Section 4.03. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending December 31, 2004) an Officers'
Certificate, stating whether or not to the knowledge of the signers thereof, the
Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
Section 4.04. Further Instruments and Acts. The Company will execute and
deliver such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purposes of this
Indenture.
Section 4.05. Maintenance of Office or Agency. The Company will maintain
in the Borough of Manhattan, the City of New York, an office or agency of the
Trustee, Registrar, Paying Agent and Conversion Agent where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer, exchange, purchase, redemption or conversion and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office of The Bank of New York Trust Company, N.A.
located at 10161 Centurion Parkway, Jacksonville, FL 32256, Attention: Corporate
Trust Administration, shall initially be such office or agency for all of the
aforesaid purposes. The Company shall give prompt written notice to the Trustee
of the location, and of any change in the location, of any such office or agency
(other than a change in the location of the office of the Trustee). If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 12.02.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York, for such purposes.
Section 4.06. Delivery of Certain Information. At any time when the
Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the
request of a Holder or any beneficial owner of Securities or holder or
beneficial owner of shares of Common Stock issued upon conversion thereof, the
Company will promptly furnish or cause to be furnished Rule 144A Information (as
defined below) to such Holder or any beneficial owner of Securities or holder or
beneficial owner of shares of Common Stock, or to a prospective purchaser of any
such security designated by any such holder, as the case may be, to the extent
required to permit compliance by such Holder or holder with Rule 144A under the
Securities Act in connection with the resale of any such security. "Rule 144A
Information" shall be such information as is specified pursuant to Rule
144A(d)(4) under the Securities Act. Whether a person is a beneficial owner
shall be determined by the Company to the Company's reasonable satisfaction.
Section 4.07. Liquidated Damages Notice. In the event that the Company is
required to pay Liquidated Damages to holders of Securities pursuant to the
Registration Rights Agreement, the Company will provide written notice
("Liquidated Damages Notice") to the Trustee of its obligation to pay Liquidated
Damages prior to the Interest Record Date for the payment of Liquidated Damages,
and the Liquidated Damages Notice shall set forth the amount of Liquidated
Damages to be paid by the Company on such payment date. The Trustee shall not at
any time be under any duty to any holder of Securities to determine the
Liquidated Damages, or with respect to the nature, extent or calculation of the
amount of Liquidated Damages when made, or with respect to the method employed
in such calculation of the Liquidated Damages. Unless and until the Trustee
shall receive at the Corporate Trust Office a Liquidated Damages Notice, the
Trustee may assume without inquiry that no Liquidated Damages are owed.
Article 5
SUCCESSOR PERSON
Section 5.01. When Company May Merge or Transfer Assets. The Company shall
not consolidate with or merge with or into any other Person or convey, transfer,
sell, lease or otherwise dispose of all or substantially all of its properties
and assets to any Person, unless:
(a) either (i) the Company shall be the continuing corporation or (ii)
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person that acquires by conveyance, transfer,
sale, lease or other disposition all or substantially all of the properties and
assets of the Company (A) shall be organized and validly existing under the laws
of the United States or any State thereof or the District of Columbia and (B)
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee, all of
the obligations of the Company under the Securities and this Indenture;
(b) then or immediately after giving effect to such transaction, no
Event of Default, and no event that, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing; and
20
(c) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, sale, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with this Article 5 and that all conditions precedent herein provided for
relating to such transaction have been satisfied.
The successor Person formed by such consolidation or into which the
Company is merged or the successor Person to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor had been named as the Company herein; and thereafter, except in
the case of a lease and obligations the Company may have under a supplemental
indenture, the Company shall be discharged from all obligations and covenants
under this Indenture and the Securities. Subject to Section 9.06, the Company,
the Trustee and the successor Person shall enter into a supplemental indenture
to evidence the succession and substitution of such successor Person and such
discharge and release of the Company.
Article 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
So long as any Securities are outstanding, each of the following shall be
an "Event of Default":
(a) following the exercise by the Holder of the right to convert a
Security in accordance with Article 10 hereof, the Company (x) fails to
deliver the cash, shares of Common Stock, or the required combination of
cash and shares of Common Stock required to be delivered as part of the
applicable Conversion Settlement Distribution on the applicable Conversion
Settlement Date;
(b) the Company defaults in its obligation to repurchase any
Security, or any portion thereof, or pay a Make-Whole Premium, if any is
due, upon the exercise by the Holder of such Holder's right to require the
Company to repurchase such Securities pursuant to and in accordance with
Section 3.07 or 3.08 hereof;
(c) the Company defaults in its obligation to redeem any Security,
or any portion thereof, called for redemption by the Company pursuant to
and in accordance with Section 3.01 hereof;
(d) the Company fails to provide notice to Holders of a
Fundamental Change when due;
(e) the Company defaults in the payment of the principal amount of
any Security when the same becomes due and payable at its Stated Maturity;
(f) the Company defaults in the payment of any Interest or
Liquidated Damages, if any, when due and payable, and continuance of such
default for a period of 30 days past the applicable due date;
(g) the Company fails to comply with any of the terms, agreements
or covenants of the Company in the Securities or this Indenture (other
than those referred to in clause (a) through clause (f) above) and such
failure continues for 60 days after receipt by the Company of a Notice of
Default;
(h) a failure to pay when due at maturity or a default, event of
default or other similar condition or event (however described) that
results in the acceleration of maturity of any indebtedness of the Company
or any Designated Subsidiary in an aggregate amount of $25 million or
more, unless the acceleration is rescinded, stayed or annulled within 30
days after written notice of default is given to the Company by the
Trustee or Holders of not less than 25% in aggregate principal amount of
the Securities then outstanding;
(i) the entry by a court having jurisdiction in the premise of (A)
a decree or order for relief in respect of the Company, any Designated
Subsidiary or any group of two or more Subsidiaries that, taken as a
whole, would constitute a Designated Subsidiary of an involuntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or
other similar law or (B) a decree or order adjudging the Company, any
Designated Subsidiary or any group of two or more Subsidiaries that, taken
as a whole, would constitute a Designated Subsidiary, a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company, any Designated Subsidiary or any group of two or more
Subsidiaries that, taken as a whole, would constitute a Designated
Subsidiary, under any applicable law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order described in
clause (A) or (B) above unstayed and in effect for a period of 90
consecutive days; and
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(j) the commencement by the Company, any Designated Subsidiary or
any group of two or more Subsidiaries that, taken as a whole, would
constitute a Designated Subsidiary of a voluntary case or proceeding under
any applicable bankruptcy, insolvency, reorganization or other similar law
or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by the Company or any Designated Subsidiary to
the entry of a decree or order for relief in respect of the Company, any
Designated Subsidiary or any group of two or more Subsidiaries that, taken
as a whole, would constitute a Designated Subsidiary in an involuntary
case or proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company, or the
filing by the Company, any Designated Subsidiary or any group of two or
more Subsidiaries that, taken as a whole, would constitute a Designated
Subsidiary of a petition or answer or consent seeking reorganization or
relief under any applicable law, or the consent by the Company to the
filing of such petition or to the appointment of or the taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or of any substantial part of its
property, or the making by the Company, any Designated Subsidiary or any
group of two or more Subsidiaries that, taken as a whole, would constitute
a Designated Subsidiary of an assignment for the benefit of creditors, or
the admission by the Company, any Designated Subsidiary or any group of
two or more Subsidiaries that, taken as a whole, would constitute a
Designated Subsidiary in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the
Company, any Designated Subsidiary or any group of two or more
Subsidiaries that, taken as a whole, would constitute a Designated
Subsidiary expressly in furtherance of any such action.
For the avoidance of doubt, clause (g) above shall not constitute an Event
of Default until the Trustee notifies the Company, or the Holders of at least
25% in aggregate principal amount of the Securities at the time outstanding
notify the Company and the Trustee, of such default and the Company does not
cure such default (and such default is not waived) within the time specified in
clause (g) above after actual receipt of such notice. Any such notice must
specify the default, demand that it be remedied and state that such notice is a
"Notice of Default."
For the avoidance of doubt, a reorganization or dissolution of Ocwen
Federal Bank FSB in connection with its voluntary termination of its status as a
federal savings bank under the supervision of the Office of Thrift Supervision
and the Federal Deposit Insurance Corporation will not constitute an Event of
Default pursuant to clauses (i) and (j) above.
The Trustee shall, within 90 days of the occurrence of an Event of Default
known to it, give to the Holders of the Securities notice of all uncured Events
of Defaults known to it and written notice of any event which, with the giving
of notice or the lapse of time, or both, would become an Event of Default, its
status and what action the Company is taking or proposes to take with respect
thereto; provided, however, that the Trustee shall be protected in withholding
such notice if it, in good faith, determines that the withholding of such notice
is in the best interest of such Holders, except in the case of an Event of
Default specified in clauses (a) through (e) of this Section 6.01.
Section 6.02. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.01(i) or 6.01(j) with respect to the Company)
occurs and is continuing (the default not having been cured or waived), the
Trustee by notice to the Company, or the Holders of at least 25% in aggregate
principal amount of the Securities at the time outstanding by notice to the
Company and the Trustee, may declare the principal amount of the Securities and
any accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if
any, on all the Securities to be immediately due and payable. Upon such a
declaration, such accelerated amount shall be due and payable immediately. If an
Event of Default specified in Section 6.01(i) or 6.01(j) with respect to the
Company occurs and is continuing, the principal amount of the Securities and any
accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any,
on all the Securities shall become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Securityholders.
The Holders of a majority in aggregate principal amount of the Securities at the
time outstanding, by notice to the Trustee (and without notice to any other
Securityholder) may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of the principal
amount of the Securities and any accrued and unpaid Interest and accrued and
unpaid Liquidated Damages, if any, that have become due solely as a result of
acceleration. No such rescission shall affect any subsequent Event of Default or
impair any right consequent thereto.
Section 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of the principal amount of the Securities and any accrued and unpaid Interest
and accrued and unpaid Liquidated Damages, if any, on the Securities or to
enforce the performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if the Trustee does not possess
any of the Securities or does not produce any of the Securities in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of, or acquiescence in, the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
Section 6.04. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the Securities at the time outstanding, by notice
to the Trustee (and without notice to any other Securityholder), may waive an
existing or past Event of Default and its consequences except (a) an Event of
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Default described in Section 6.01 clauses (a) through (f) or (b) an Event of
Default in respect of a provision that under Section 9.02 cannot be amended
without the consent of each Securityholder affected. When an Event of Default is
waived, it is deemed cured, but no such waiver shall extend to any subsequent or
other Event of Default or impair any consequent right. This Section 6.04 shall
be in lieu of Section 316(a)1(B) of the TIA and such Section 316(a)1(B) is
hereby expressly excluded from this Indenture, as permitted by the TIA.
Section 6.05. Control by Majority. The Holders of a majority in aggregate
principal amount of the Securities at the time outstanding may direct, through
the written consent of such Holders, the time, method and place of conducting
any proceeding for any remedy available to the Trustee or of exercising any
trust or power conferred on the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture or that the
Trustee determines in good faith is unduly prejudicial to the rights of other
Securityholders or would involve the Trustee in personal liability unless the
Trustee is offered indemnity satisfactory to it. This Section 6.05 shall be in
lieu of Section 316(a)1(A) of the TIA and such Section 316(a)1(A) is hereby
expressly excluded from this Indenture, as permitted by the TIA.
Section 6.06. Limitation on Suits. A Securityholder may not pursue any
remedy with respect to this Indenture or the Securities, except in the case of
an Event of Default specified in Section 6.01(e) and Section 6.01(f), unless:
(a) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(b) the Holders of at least 25% in aggregate principal amount of
the Securities at the time outstanding make a written request to the
Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee security or
indemnity satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of such notice, request and offer of security or indemnity;
and
(e) the Holders of a majority in aggregate principal amount of the
Securities at the time outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of any
other Securityholder or to obtain a preference or priority over any other
Securityholder.
Section 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
the principal amount of the Securities and any accrued and unpaid Interest and
accrued and unpaid Liquidated Damages, if any, in respect of the Securities held
by such Holder, on or after the respective due dates expressed in the Securities
or any Redemption Date, Repurchase Date or Fundamental Change Repurchase Date,
and to convert the Securities in accordance with Article 10, or to bring suit
for the enforcement of any such payment on or after such respective dates or the
right to convert, shall not be impaired or affected adversely without the
consent of such Holder.
Section 6.08. Collection Suit by Trustee. If an Event of Default described
in Section 6.01 clauses (a) through (f) occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust against
the Company for the whole amount owing with respect to the Securities and the
amounts provided for in Section 7.07.
Section 6.09. Trustee May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the property of the
Company or of such other obligor or their creditors, the Trustee (irrespective
of whether the principal amount of the Securities and any accrued and unpaid
Interest and accrued and unpaid Liquidated Damages, if any, in respect of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of any such amount) shall be entitled and
empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole principal amount of the
Securities and any accrued and unpaid Interest and accrued and unpaid Liquidated
Damages, if any, and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel or any other amounts due the Trustee under
Section 7.07) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
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making of such payments directly to the Holders, to pay the Trustee any amount
due it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities. If the Trustee collects any money pursuant to
this Article 6, it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the Securities
for the principal amount of the Securities and any accrued and unpaid Interest
and accrued and unpaid Liquidated Damages, if any, as the case may be, ratably,
without preference or priority of any kind, according to such amounts due and
payable on the Securities; and
THIRD: the balance, if any, to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section 6.10. At least 15 days before such
record date, the Trustee shall mail to each Securityholder and the Company a
notice that states the record date, the payment date and the amount to be paid.
Section 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant (other than the Trustee) in the suit of
an undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee. This Section 6.11 shall be in lieu of
Section 315(e) of the TIA and such Section 315(e) is hereby expressly excluded
from this Indenture, as permitted by the TIA.
Section 6.12. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury or other law
wherever enacted, now or at any time hereafter in force, which would prohibit or
forgive the Company from paying all or any portion of the principal amount of
the Securities and any accrued and unpaid Interest and accrued and unpaid
Liquidated Damages, if any, on Securities, as contemplated herein, or which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
Article 7
TRUSTEE
Section 7.01. Duties of Trustee. The duties and responsibilities of the
Trustee shall be as provided by the TIA and as set forth herein.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
duties shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture, but in the case of any such certificates or opinions which
by any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture, but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein. This Section
7.01(b) shall be in lieu of Section 315(a) of the TIA and such Section
315(a) is hereby expressly excluded from this Indenture, as permitted by
the TIA.
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(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this Section (c) does not limit the effect of Section
7.01(b);
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
Subparagraphs (c)(i), (ii) and (iii) shall be in lieu of Sections
315(d)(1), 315(d)(2) and 315(d)(3) of the TIA and such Sections 315(d)(1),
315(d)(2) and 315(d)(3) are hereby expressly excluded from this Indenture, as
permitted by the TIA.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to this Section 7.01.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee (acting in
any capacity hereunder) shall be under no liability for interest on any money
received by it hereunder unless otherwise agreed in writing with the Company.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
Section 7.02. Rights of Trustee. Subject to its duties and
responsibilities under the TIA:
(a) the Trustee may conclusively rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
(whether in original or facsimile form) believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officers' Certificate;
(c) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(d) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith which it believes to be authorized or
within its rights or powers conferred under this Indenture;
(e) the Trustee may consult with counsel selected by it and any advice
or Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such advice or Opinion of Counsel;
(f) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee security or indemnity
reasonably satisfactory to it against the costs, expenses and liabilities which
may be incurred therein or thereby;
(g) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(h) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney
at the sole cost of the Company and shall incur no liability or additional
liability of any kind by reason of such inquiry or investigation;
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(i) the Trustee shall not be deemed to have notice of any default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Securities and this Indenture;
(j) the rights, privileges, protections, immunities and benefits given
to the Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its capacities
hereunder, and to each agent, custodian and other person employed to act
hereunder;
(k) the Trustee may request that the Company deliver an Officers'
Certificate setting forth the names of individuals and/or titles of officers
authorized at such time to take specified actions pursuant to this Indenture,
which Officers' Certificate may be signed by any person authorized to sign an
Officers' Certificate, including any person specified as so authorized in any
such certificate previously delivered and not superseded; and
(l) in no event shall the Trustee be responsible or liable for special,
indirect, or consequential loss or damage of any kind whatsoever (including, but
not limited to, loss of profit) irrespective of whether the Trustee has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
Section 7.03. Individual Rights of Trustee. The Trustee in its individual
or any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee. Any Paying Agent, Registrar, Conversion Agent or
co-registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer. The Trustee makes no representation as
to the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use or application of the proceeds from the
Securities, it shall not be responsible for any statement in the registration
statement for the Securities under the Securities Act or in any offering
document for the Securities, the Indenture or the Securities (other than its
certificate of authentication), or the determination as to which beneficial
owners are entitled to receive any notices hereunder.
Section 7.05. Notice of Defaults. If a default or Event of Default occurs
and if it is known to the Trustee, the Trustee shall give to each Securityholder
notice of the default or Event of Default within 90 days after it occurs or, if
later, within 10 days after it is known to the Trustee, unless such default or
Event of Default shall have been cured or waived before the giving of such
notice. Notwithstanding the preceding sentence, except in the case of a default
or Event of Default described in Section 6.01 clauses (a) through (f), the
Trustee may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the interest
of the Securityholders. The preceding sentence shall be in lieu of the proviso
to Section 315(b) of the TIA and such proviso is hereby expressly excluded from
this Indenture, as permitted by the TIA. The Trustee shall not be deemed to have
knowledge of a default or Event of Default unless a Responsible Officer of the
Trustee has received written notice of such default or Event of Default, which
notice specifically references this Indenture and the Securities.
Section 7.06. Reports by Trustee to Holders. Within 60 days after each May
15 beginning with the May 15 following the date of this Indenture, the Trustee
shall mail to each Securityholder a brief report dated as of such May 15 that
complies with TIA Section 313(a), if required by such Section 313(a). The
Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each securities exchange, if any, on which the
Securities are listed. The Company agrees to notify the Trustee promptly
whenever the Securities become listed on any securities exchange and of any
delisting thereof.
Section 7.07. Compensation and Indemnity. The Company agrees:
(a) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder (which compensation shall not be limited (to
the extent permitted by law) by any provision of law in regard to the
compensation of a trustee of an express trust);
(b) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, advances and disbursements of its agents and
counsel), except any such expense, disbursement or advance as shall be
determined to have been caused by its own negligence or willful misconduct; and
(c) to indemnify the Trustee or any predecessor Trustee and their
agents for, and to hold them harmless against, any loss, damage, claim,
liability, cost or expense (including reasonable attorney's fees and expenses,
and taxes (other than taxes based upon, measured by or determined by the income
of the Trustee)) incurred without negligence or willful misconduct on its part,
arising out of or in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself against any claim
26
(whether asserted by the Company or any Holder or any other person) or liability
in connection with the exercise or performance of any of its powers or duties
hereunder.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay the principal
amount of, or the Redemption Price, Repurchase Price, Fundamental Change
Repurchase Price, Interest or Liquidated Damages, if any, as the case may be, on
particular Securities.
The Company's payment obligations pursuant to this Section 7.07 shall
survive the discharge of this Indenture and the resignation or removal of the
Trustee. When the Trustee incurs expenses after the occurrence of an Event of
Default specified in Section 6.01(i) or 6.01(j), the expenses, including the
reasonable charges and expenses of its counsel, are intended to constitute
expenses of administration under any bankruptcy law.
Section 7.08. Replacement of Trustee. The Trustee may resign by so
notifying the Company; provided, however, no such resignation shall be effective
until a successor Trustee has accepted its appointment pursuant to this Section
7.08. The Holders of a majority in aggregate principal amount of the Securities
at the time outstanding may remove the Trustee by so notifying the Trustee and
the Company. The Company shall remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver or public officer takes charge of the Trustee or its
property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint, by resolution of
its Board of Directors, a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company satisfactory in form and substance to
the retiring Trustee and the Company. Thereupon the resignation or removal of
the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.07.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of a majority in aggregate principal amount of the Securities at the
time outstanding may petition any court of competent jurisdiction at the expense
of the Company for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
So long as no event which is, or after notice or lapse of time, or both,
would become, an Event of Default shall have occurred and be continuing, if the
Company shall have delivered to the Trustee (i) a Board Resolution appointing a
successor Trustee, effective as of a date specified therein, and (ii) an
instrument of acceptance of such appointment, effective as of such date, by such
successor Trustee in accordance with this Indenture, the Trustee shall be deemed
to have resigned as contemplated in this Section 7.08, the successor Trustee
shall be deemed to have been accepted as contemplated in this Indenture, all of
such date, and all other provisions of this Indenture shall be applicable to
such resignation, appointment and acceptance.
Section 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation, the resulting,
surviving or transferee corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Sections 310(a)(1) and 310(b). The Trustee
(or its parent holding company) shall have a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of
condition. Nothing herein contained shall prevent the Trustee from filing with
the SEC the application referred to in the penultimate paragraph of TIA Section
310(b).
Section 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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Article 8
DISCHARGE OF INDENTURE
Section 8.01. Discharge of Liability on Securities. When (i) the Company
delivers to the Trustee all outstanding Securities (other than Securities
replaced or repaid pursuant to Section 2.07) for cancellation or (ii) all
outstanding Securities have become due and payable and the Company deposits with
the Trustee cash sufficient to pay all amounts due and owing on all outstanding
Securities (other than Securities replaced pursuant to Section 2.07), and if in
either case the Company pays all other sums payable hereunder by the Company,
then this Indenture shall, subject to Section 7.07, cease to be of further
effect. The Trustee shall join in the execution of a document prepared by the
Company acknowledging satisfaction and discharge of this Indenture on demand of
the Company accompanied by an Officers' Certificate and Opinion of Counsel and
at the cost and expense of the Company.
Section 8.02. Repayment to the Company. The Trustee and the Paying Agent
shall return to the Company upon written request any money or securities held by
them for the payment of any amount with respect to the Securities that remains
unclaimed for two years, subject to applicable unclaimed property law. After
return to the Company, Holders entitled to the money or securities must look to
the Company for payment as general creditors unless an applicable abandoned
property law designates another person and the Trustee and the Paying Agent
shall have no further liability to the Securityholders with respect to such
money or securities for that period commencing after the return thereof.
Article 9
AMENDMENTS
Section 9.01. Without Consent of Holders. The Company and the Trustee may
amend this Indenture (including the terms and conditions of the Securities) or
the Securities without the consent of any Securityholder to:
(a) add guarantees with respect to the Securities or securing the
Securities;
(b) add to the covenants of the Company or the Events of Default
for the benefit of the Holders of Securities;
(c) surrender any right or power herein conferred upon the
Company;
(d) provide for conversion rights of Holders of Securities if any
reclassification or change of the Common Stock or any consolidation,
merger or sale of all or substantially all of the Company's assets occurs;
(e) provide for the assumption of the Company's obligations to the
Holders of Securities in the case of a merger, consolidation, conveyance,
transfer or lease pursuant to Article 5 hereof;
(f) increase the Conversion Rate; provided, however, that such
increase in the Conversion Rate shall not adversely affect the interests
of the Holders of Securities;
(g) comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(h) make any changes or modifications necessary in connection with
the registration of the Securities under the Securities Act as
contemplated in the Registration Rights Agreement; provided, however, that
such change or modification does not, in the good faith opinion of the
Board of Directors of the Company (as evidenced by a Board Resolution) and
the Trustee, adversely affect the interests of the Holders of Securities
in any material respect;
(i) make any changes necessary to cure any ambiguity or to correct
any inconsistency or supplement any provision herein which may be
inconsistent with any other provision herein or which is otherwise
defective; provided, however, that any such cure, correction or supplement
shall not adversely affect the interests of the Holders of Securities in
any material respect; provided further that any such cure, correction or
supplement made solely to conform the provisions of this Indenture to the
"Description of the Notes" contained in the Offering Memorandum will not
be deemed to adversely affect the interests of the Holders of Securities;
(j) establish the form of Securities if issued in definitive form
(substantially in the form of Exhibit B);
(k) evidence and provide for the acceptance of the appointment
under this Indenture of a successor Trustee in accordance with the terms
of this Indenture;
(l) add or modify any other provisions herein with respect to
matters or questions arising hereunder that the Company and the Trustee
may deem necessary or desirable and that will not materially adversely
affect the interests of the Holders of Securities; provided that any
addition or modification made solely to conform the provisions of this
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Indenture to the "Description of the Notes" in the Offering Memorandum
will not be deemed to adversely affect the interests of the Holders of the
Securities.
Section 9.02. With Consent of Holders. Except as provided below in this
Section 9.02, this Indenture (including the terms and conditions of the
Securities) or the Securities may be amended, modified or supplemented, and
noncompliance in any particular instance with any provision of this Indenture or
the Securities may be waived, in each case with the written consent of the
Holders of at least a majority of the principal amount of the Securities at the
time outstanding.
Without the written consent or the affirmative vote of each Holder of
Securities affected thereby, an amendment, supplement or waiver under this
Section 9.02 may not:
(a) change the maturity of any Security, or the payment date of
any installment of Interest or Liquidated Damages payable on any Security;
(b) reduce the principal amount of, or the Interest or Liquidated
Damages payable on, or the Redemption Price, Repurchase Price or
Fundamental Change Repurchase Price or Make-Whole Premium on, any
Security;
(c) impair the conversion rights of any Holder of Securities or
reduce the number of shares of Common Stock of the Company or any other
property receivable upon conversion;
(d) change the currency of payment of such Securities or Interest
or Liquidated Damages thereon;
(e) alter the manner of calculation or rate of accrual of
Interest, Liquidated Damages or Make-Whole Premium on any Security, or
extend the time for payment of any such amounts due and payable to the
Holders of the Securities;
(f) impair the right of any Holder to institute suit for the
enforcement of any payment on or with respect to, or conversion of, any
Security;
(g) adversely affect the repurchase right of the Holders of the
Securities as provided in Section 3.07 (including after a Change of
Control), except as otherwise permitted pursuant to Article 5 or Section
10.05 hereof;
(h) modify the provisions of Section 3.01, 3.02, 3.03, 3.04, 3.05
or 3.06 in a manner adverse to the Holders of the Securities;
(i) modify the obligation of the Company to maintain an office or
agency in the places and for the purposes specified in this Indenture;
(j) modify the aggregate principal amount of outstanding
Securities required to amend, modify or supplement this Indenture or the
Security or waive a prior Event of Default, except to provide that certain
other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each outstanding Security affected thereby;
or
(k) reduce the percentage of the aggregate principal amount of the
outstanding Securities the consent of whose Holders is required for any
such supplemental indenture entered into in accordance with this Section
9.02 or the consent of whose Holders is required for any waiver provided
for in this Indenture.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section 9.02 becomes effective, the Company
shall mail to each Holder a notice briefly describing the amendment. The failure
to give such notice to each Holder, or any defect therein, shall not impair or
affect the validity of an amendment under this Section 9.02.
Nothing in this Section 9.02 shall impair the ability of the Company and
the Trustee to amend this Indenture or the Securities without the consent of any
Securityholder to provide for the assumption of the Company's obligations to the
Holders of Securities in the case of a merger, consolidation, conveyance,
transfer or lease pursuant to Article 5 hereof.
Section 9.03. Compliance with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article shall comply with the TIA.
Section 9.04. Revocation and Effect of Consents; Waivers and Actions.
Until an amendment, waiver or other action by Holders becomes effective, a
consent thereto by a Holder of a Security hereunder is a continuing consent by
the Holder and every subsequent Holder of that Security or portion of the
Security that evidences the same obligation as the consenting Holder's Security,
even if notation of the consent, waiver or action is not made on the Security.
However, any such Holder or subsequent Holder may revoke the consent, waiver or
action as to such Holder's Security or portion of the Security if the Trustee
29
receives the notice of revocation before the date the amendment, waiver or
action becomes effective. After an amendment, waiver or action becomes
effective, it shall bind every Securityholder.
Section 9.05. Notation on or Exchange of Securities. Securities
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article 9 may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Securities so
modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
outstanding Securities.
Section 9.06. Trustee to Sign Supplemental Indentures. The Trustee shall
sign any supplemental indenture authorized pursuant to this Article 9 if the
amendment contained therein does not affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, but need not, sign such
supplemental indenture. In signing such supplemental indenture the Trustee shall
receive, and (subject to the provisions of Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such supplemental indenture is authorized or permitted by this
Indenture.
Section 9.07. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
Article 10
CONVERSIONS
Section 10.01. Conversion Privilege.
(a) Subject to and upon compliance with the provisions of this Article
10 (including without limitation the Company's right, in its sole and absolute
discretion, to satisfy its Conversion Obligation in any manner permitted
pursuant to Section 10.03), a Holder of a Security shall have the right, at such
Holder's option, to convert all or any portion (if the portion to be converted
is $1,000 principal amount or an integral multiple thereof) of such Security at
any time prior to the close of business on the Stated Maturity at the Conversion
Rate (the "Conversion Obligation") in effect on the date of conversion:
(i) during any fiscal quarter of the Company (a "Fiscal
Quarter") (and only during such Fiscal Quarter) commencing after September
30, 2004, if the Last Reported Sale Price of the Common Stock for at least
20 consecutive Trading Days in the 30 consecutive Trading Day period
ending on the last Trading Day of the immediately preceding Fiscal Quarter
was more than 125% of the Conversion Price in effect on that 30th Trading
Day;
(ii) during the five consecutive Business Day period
immediately after any five consecutive Trading Day period (the
"Measurement Period") in which the Trading Price per $1,000 principal
amount of the Securities for each day of such Measurement Period was less
than 98% of the product of the Last Reported Sale Price of the Common
Stock on such date and the Conversion Rate on such date; provided,
however, that Securities may not be converted in reliance on this
subsection after August 1, 2019 if on any Trading Day during the
Measurement Period the Last Reported Sale Price of the Common Stock was
between 100% and 125% of the Conversion Price on such Trading Day.
(iii) at any time prior to the close of business on the
Business Day prior to the Redemption Date, if such Security has been
called for redemption pursuant to Article 3 hereof, even if the Securities
are not otherwise convertible at that time;
(iv) as provided in clause (b) of this Section 10.01; or
(v) from and after the date of the occurrence of an
Accounting Event following the date of the Offering Memorandum, if the
Company, at its option in its sole discretion, elects, by providing notice
to the Trustee and the Holders, to permit conversion without regard to the
fulfillment of the contingencies set forth in clauses 10.01(a)(i), (ii),
(iii) and (iv).
The Company or a designated agent shall determine on a daily basis whether
the Securities shall be convertible as a result of the occurrence of an event
specified in clause (a) above and, if the Securities shall be so convertible,
the Company shall promptly deliver to the Trustee and the Conversion Agent
written notice thereof. Whenever the Securities shall become convertible
pursuant to this Section 10.01, the Company or, at the Company's request, the
Trustee in the name and at the expense of the Company, shall promptly notify the
Holders of the event triggering such convertibility in the manner provided in
Section 12.02, and the Company shall also promptly publicly announce such
information. Any notice so given shall be conclusively presumed to have been
duly given, whether or not the Holder receives such notice.
(b) In the event that:
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(i) (x) the Company distributes to all holders of Common
Stock rights entitling them to purchase, for a period expiring within
sixty (60) days after the date of such distribution, Common Stock at a
price per share less than the Last Reported Sale Price of the Common Stock
on the Business Day immediately preceding the announcement of such
distribution; or (y) the Company elects to distribute to all holders of
Common Stock, cash or other assets, debt securities or certain rights to
purchase the Company's securities, which distribution has a per share
value as determined by the Board of Directors (which determination shall
be conclusive) exceeding 10% of the Last Reported Sale Price of the Common
Stock on the Business Day immediately preceding the announcement date of
such distribution, then, in each case, the Securities may be surrendered
for conversion at any time on and after the date that the Company gives
notice to the Holders of such right, which shall be not less than 20 days
prior to the Ex-Dividend Date for such distribution, until the earlier of
the close of business on the Business Day immediately preceding the
Ex-Dividend Date or the date the Company announces that such distribution
will not take place.
(ii) A Change of Control occurs and such Change of Control
constitutes a Fundamental Change, then the Securities may be surrendered
for conversion at any time from and after the date that is 15 days prior
to the anticipated effective date of such transaction until 15 days after
the effective date of the transaction.
Notwithstanding the foregoing, the Securities will not be convertible
pursuant to clause (i) above and no adjustment to the Conversion Rate will be
made if the Company provides that Holders of Securities will participate in such
distribution without conversion.
(c) In addition, if the transaction described in Section 10.02(b)(ii)
occurs before August 1, 2009, the Company will pay the Make-Whole Premium in
connection with the conversion of the Securities pursuant to Section 11.01.
Section 10.02. Conversion Procedure; Conversion Rate; Fractional Shares.
(a) Subject to Section 10.01 and the Company's rights under Section
10.03, each Security shall be convertible at the office of the Conversion Agent
into fully paid and nonassessable shares (calculated to the nearest 1/100th of a
share) of Common Stock. The rate at which shares of Common Stock shall be
delivered upon conversion (the "Conversion Rate") shall be initially 82.1693
shares of Common Stock for each $1,000 principal amount of Securities. The
Conversion Rate shall be adjusted in certain instances as provided in Section
10.04 hereof, but shall not be adjusted for any accrued and unpaid Interest or
Liquidated Damages, if any. Upon conversion, no payment shall be made by the
Company with respect to any accrued and unpaid Interest, if any. Instead, such
amount shall be deemed paid by the applicable Conversion Settlement Distribution
delivered upon conversion of any Security. In addition, no payment or adjustment
shall be made in respect of dividends on the Common Stock with a record date
prior to the Conversion Date. Notwithstanding the foregoing, upon conversion a
Holder shall receive any accrued and unpaid Liquidated Damages to the Conversion
Date. The Company shall not issue any fraction of a share of Common Stock in
connection with any conversion of Securities, but instead shall, subject to
Section 10.04 hereof, make a cash payment (calculated to the nearest cent) equal
to such fraction multiplied by the Last Reported Sale Price of the Common Stock
on the Trading Day immediately preceding the Conversion Settlement Date.
(b) Before any Holder of a Security shall be entitled to convert the
same into Common Stock, such Holder shall (1) in the case of Global Securities,
comply with the procedures of the Depository in effect at that time and furnish
appropriate endorsement and transfer documents, and (2) in the case of
Certificated Securities, surrender such Securities, duly endorsed to the Company
or in blank (and accompanied by appropriate endorsement and transfer documents),
at the office of the Conversion Agent, and give written notice to the Company in
the form on the reverse of such Certificated Security (or a facsimile thereof)
(a "Notice of Conversion") at said office or place that such Holder elects to
convert the same and shall state in writing therein the principal amount of
Securities to be converted and the name or names (with addresses) in which such
Holder wishes the certificate or certificates for Common Stock included in the
Conversion Settlement Distribution, if any, to be registered.
Before any such conversion, a Holder also shall pay all taxes or duties,
if any, as provided in Section 10.06 and any amount payable pursuant to Section
10.02(g).
If more than one Security shall be surrendered for conversion at one time
by the same Holder, the number of full shares of Common Stock, if any, that
shall be deliverable upon conversion as part of the Conversion Settlement
Distribution shall be computed on the basis of the aggregate principal amount of
the Securities (or specified portions thereof to the extent permitted thereby)
so surrendered.
(c) A Security shall be deemed to have been converted immediately prior
to the close of business on the date (the "Conversion Date") that is the latest
of: (i) the date the Holder has complied with Section 10.02(b), (ii) the
expiration of the Cash Settlement Notice Period or (iii) if the Company elects
to pay cash in lieu of Common Stock pursuant to Section 10.03, the expiration of
the Conversion Retraction Period.
(d) Subject to the next succeeding sentence, the Company will, on the
Conversion Settlement Date, (i) pay the cash component (including cash in lieu
of any fraction of a share to which such Holder would otherwise be entitled), if
any, of the Conversion Settlement Distribution determined pursuant to Section
10.03 to the Holder of a Security surrendered for conversion, or such Holder's
31
nominee or nominees, and (ii) issue, or cause to be issued, and deliver to the
Conversion Agent or to such Holder, or such Holder's nominee or nominees,
certificates or a book-entry transfer through the Depository for the number of
full shares of Common Stock, if any, to which such Holder shall be entitled as
part of such Conversion Settlement Distribution.
(e) In case any Security shall be surrendered for partial conversion,
the Company shall execute and the Trustee shall authenticate and deliver to or
upon the written order of the Holder of the Security so surrendered, without
charge to such Holder (subject to the provisions of Section 10.06 hereof), a new
Security or Securities in authorized denominations in an aggregate principal
amount equal to the unconverted portion of the surrendered Securities.
(f) By delivering the applicable Conversion Settlement Distribution
upon conversion of any Security to the Conversion Agent or to the Holder or such
Holder's nominee or nominees, the Company will have satisfied in full its
Conversion Obligation with respect to such Security (other than any Make-Whole
Premium payable pursuant to Section 11.02), and upon such delivery accrued and
unpaid Interest, if any, with respect to such Security will be deemed to be paid
in full rather than canceled, extinguished or forfeited.
(g) If a Securityholder delivers a Notice of Conversion after the
Interest Record Date for a payment of Interest but prior to the corresponding
Interest Payment Date, such Securityholder must pay to the Company, at the time
such Securityholder surrenders Securities for conversion, an amount equal to the
Interest excluding, for the avoidance of doubt, Liquidated Damages, if any, that
has accrued and will be paid on the related Interest Payment Date. This Section
10.02(g) shall not apply to a Securityholder that converts Securities after an
Interest Record Date for a payment of Interest but on or prior to the
corresponding Interest Payment Date if (1) the Company has specified a
Redemption Date during such period, (2) the Company has specified a Fundamental
Change Repurchase Date during such period or (3) to the extent of any overdue
Interest if any overdue Interest exists at the time of conversion with respect
to the Securities converted. Notwithstanding the foregoing, the Company shall
refund any amount paid by a Securityholder pursuant to this Section 10.02(g) if
the Cash Settlement Notice Period or, if the Company elects to pay cash in lieu
of Common Stock pursuant to Section 10.03, the Cash Settlement Averaging Period,
ends on or subsequent to the Interest Payment Date immediately following the
date such Securityholder delivered a Notice of Conversion. Such refunded amount
shall be paid at the time of delivery of the Conversion Settlement Distribution
following conversion of any Securities.
Section 10.03. Payment upon Conversion. If a Holder elects to convert all
or any portion of a Security into shares of Common Stock as set forth in Section
10.01 and the Company receives such Holder's Notice of Conversion on or prior to
the day that is 20 calendar days prior to the Stated Maturity, or with respect
to Securities called for redemption pursuant to Section 3.01, the applicable
Redemption Date (the "Final Notice Date"), the Company may choose to satisfy all
or any portion of its Conversion Obligation in cash. Upon such election, the
Company will notify such Holder through the Trustee of the dollar amount to be
satisfied in cash (which must be expressed either as 100% of the Conversion
Obligation or as a fixed dollar amount) at any time on or before the date that
is two Business Days following the Company's receipt of the Notice of Conversion
as specified in Section 10.02 (such period, the "Cash Settlement Notice
Period"). If the Company elects to pay cash for any portion of the Common Stock
otherwise issuable to such Holder, the Conversion Notice may be retracted by the
Holder at any time during the two Business Day period immediately following the
Cash Settlement Notice Period (the "Conversion Retraction Period"); no such
retraction can be made (and a Notice of Conversion shall be irrevocable) if the
Company does not elect to deliver cash in lieu of shares of Common Stock (other
than cash in lieu of fractional shares). With respect to any Notice of
Conversion received by the Company prior to the Final Notice Date, the
"Conversion Settlement Distribution" for any Security subject to such Notice of
Conversion shall consist of cash, Common Stock or a combination thereof, as
selected by the Company as set forth below:
(i) If the Company elects to satisfy the entire Conversion
Obligation in shares of Common Stock, the Conversion Settlement
Distribution shall be a number of shares of Common Stock, for each $1,000
principal amount of Securities, equal to the then current Conversion Rate.
(ii) If the Company elects to satisfy the entire Conversion
Obligation in cash, the Conversion Settlement Distribution shall be cash
in an amount equal to the product of:
(A) the applicable Conversion Rate, and
(B) the average Last Reported Sale Price of the
Common Stock for the 20 Trading Days in the Cash Settlement
Averaging Period.
(iii) If the Company elects to satisfy a fixed portion
(other than 100%) of the Conversion Obligation in cash, the Conversion
Settlement Distribution shall consist of such cash amount ("Cash Amount")
and a number of shares of Common Stock equal to the greater of (1) zero
and (2) the excess, if any, of the number of shares of Common Stock
calculated as set forth in clause (i) above over the number of shares
equal to the sum, for each day of the Cash Settlement Averaging Period, of
(x) 5% of the Cash Amount, divided by (y) the Last Reported Sale Price of
the Common Stock on such day.
32
(b) At any time on or before any Final Notice Date, the Company will
notify the Trustee if it intends to satisfy all or any portion of the Conversion
Obligation with respect to conversions of Securities for which the Company
receives a Notice of Conversion after such Final Notice Date in cash and the
dollar amount to be satisfied in cash (which must be expressed either as 100% or
as a fixed dollar amount). In such case, such Notice of Conversion will not be
retractable and the applicable Conversion Settlement Distribution will be
computed in the same manner as set forth in clause (a) above except that the
Cash Settlement Averaging Period shall be the 10 Trading Days beginning on the
first day following the Company's receipt of the Notice of Conversion.
(c) Notwithstanding anything to the contrary in this Indenture, at any
time prior to Stated Maturity, the Company may irrevocably elect, in its sole
discretion without the consent of the Holders, by notice to the Trustee and the
Holders, to satisfy the Conversion Obligation in cash by paying 100% of the
principal amount of the Securities converted after the date of such election.
After making such election, the Company shall satisfy the remainder of the
Conversion Obligation to the extent it exceeds the principal amount in Common
Stock. Settlement amounts shall be computed and settlement dates shall be
determined in the same manner as set forth above under clause (a); provided that
(i) notice of the election to deliver cash for the principal amount will be
deemed to have been provided on the last date of the Cash Settlement Notice
Period and the Company will not be required to make any further election prior
to the Final Notice Date (and will not deliver any further notice thereof
following the Conversion Date); (ii) the Notice of Conversion will not be
retractable; (iii) the Cash Settlement Averaging Period shall be the 20 Trading
Days beginning on the first day following the Company's receipt of the Notice of
Conversion; and (iv) the Cash Amount shall be the lesser of (A) (x) the number
of shares of Common Stock, calculated as set forth above in clause (a)(i),
multiplied by (y) the average Last Reported Sale Price of the Common Stock
during the Cash Settlement Averaging Period and (B) 100% of the principal amount
of a Security.
(d) If the Company elects to satisfy a fixed portion (other than 100%)
of the Conversion Obligation in cash, the Cash Amount shall be allocated first
to the satisfaction of any accrued and unpaid Interest, if any, on the
Securities.
(e) In addition, if applicable pursuant to Article 11 hereof, the
Company shall pay the Make-Whole Premium to Holders surrendering Securities for
conversion. Payment of the Make-Whole Premium to Holders surrendering their
Securities for conversion or repurchase will be made upon the later of: (i) the
Fundamental Change Repurchase Date and (ii) the Conversion Settlement Date for
the Securities. The Company will pay the Make-Whole Premium in the
consideration, as applicable, into which its shares of Common Stock were
converted, exchanged or acquired, except that the Company will pay cash in lieu
of fractional interests in any security or other property delivered in
connection with such transaction.
Section 10.04. Adjustment of Conversion Rate. The Conversion Rate shall be
adjusted (without duplication) from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Rate shall be increased so that the same shall equal the
rate determined by multiplying the Conversion Rate in effect at the opening of
business on the date following the Record Date of such dividend or other
distribution by a fraction,
(i) the numerator of which shall be the sum of (x) the
number of shares of Common Stock outstanding on such Record Date fixed for
the dividend or distribution plus (y) the total number of shares
constituting the dividend or distribution, and
(ii) the denominator of which is the number of shares of
Common Stock outstanding on the Record Date fixed for the dividend or
distribution;
such increase to become effective immediately after the opening of business on
the day following the Record Date. For the purpose of this paragraph (a), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company. The Company will not pay any
dividend or make any distribution on shares of Common Stock held in the treasury
of the Company. If any dividend or distribution of the type described in this
Section 10.04(a) is declared but not so paid or made, the Conversion Rate shall
again be adjusted to the Conversion Rate that would then be in effect if such
dividend or distribution had not been declared.
(b) In case the Company shall distribute rights or warrants (other than
pursuant to any dividend reinvestment or share purchase plan) to all holders of
its outstanding shares of Common Stock entitling them (for a period expiring
within 60 days after the date of such issuance) to subscribe for or purchase
shares of Common Stock at a price per share less than the Last Reported Sale
Price of the Common Stock on the Record Date for such distribution, the
Conversion Rate shall be adjusted so that the same shall equal the rate
determined by multiplying the Conversion Rate in effect immediately prior to the
date fixed for determination of stockholders entitled to receive such rights or
warrants by a fraction,
(i) the numerator of which shall be the sum of (x) the
number of shares of Common Stock outstanding at the close of business on
the Record Date fixed for the distribution plus (y) the total number of
additional shares of Common Stock offered for purchase (or into which such
convertible securities could be converted), and
33
(ii) the denominator of which shall be the sum of (x) the
number of shares of Common Stock at the close of business on the Record
Date fixed for the distribution plus (y) the total number of shares of
Common Stock that the aggregate offering price of the total number of
shares offered for subscription or purchase (or the aggregate conversion
price of such convertible securities) would purchase at the Current Market
Price of the Common Stock on such date.
Such adjustment shall be successively made whenever any such rights or
warrants are issued, and shall become effective immediately after the opening of
business on the day following the Record Date for the issuance of such rights or
warrants. To the extent that shares of Common Stock are not delivered after the
expiration of such rights or warrants, the Conversion Rate shall be readjusted
to the Conversion Rate that would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made on the basis of delivery
of only the number of shares of Common Stock actually delivered. In the event
that such rights or warrants are not so issued, the Conversion Rate shall again
be adjusted to be the Conversion Rate that would then be in effect if such
Record Date had not been fixed. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase shares of Common Stock at less
than such Last Reported Sale Price of the Common Stock, and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received by the Company for such rights or
warrants and any amount payable on exercise or conversion thereof, the value of
such consideration, if other than cash, to be determined by the Board of
Directors.
(c) In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately increased, and conversely, in case
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Rate in effect at the opening of business
on the day following the day upon which such combination becomes effective shall
be proportionately reduced, such increase or reduction, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(d) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock shares of any class of Capital Stock of the
Company, debt securities, assets or rights or warrants to purchase securities of
the Company (excluding (x) any dividend or distribution paid exclusively in cash
or (y) any dividend, distribution or issuance referred to in Section 10.04(a) or
(b)) (any of the foregoing hereinafter in this Section 10.04(d) called the
"Distributed Assets"), then, in each such case, the Conversion Rate shall be
adjusted so that the same shall be equal to the rate determined by multiplying
the Conversion Rate in effect on the Record Date with respect to such
distribution by a fraction,
(i) the numerator of which shall be the Current Market
Price per share of the Common Stock on such Record Date plus the Fair
Market Value, as determined by the Board of Directors, of the portion of
those assets, debt securities, shares of any class of Capital Stock of the
Company or rights or warrants so distributed applicable to one share of
Common Stock; and
(ii) the denominator of which shall be the Current Market
Price per share of the Common Stock on the Record Date,
such adjustment to become effective immediately prior to the opening of business
on the day following such Record Date; provided, however, that in the event (1)
the then Fair Market Value (as so determined) of the portion of the Distributed
Assets so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record Date or
(2) the Current Market Price of the Common Stock on the Record Date exceeds the
then Fair Market Value (as so determined) of the portion of the Distributed
Assets so distributed applicable to one share of Common Stock by less than
$1.00, in lieu of the foregoing adjustment, adequate provision shall be made so
that each Holder shall have the right to receive upon conversion the amount of
Distributed Assets such holder would have received had such holder converted
each Security on the Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Rate shall again be adjusted
to be the Conversion Rate that would then be in effect if such dividend or
distribution had not been declared.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's Capital Stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been distributed for
purposes of this Section 10.04 (and no adjustment to the Conversion Rate under
this Section 10.04 will be required) until the occurrence of the earliest
Trigger Event, whereupon such rights and warrants shall be deemed to have been
distributed and an appropriate adjustment (if any is required) to the Conversion
Rate shall be made under this Section 10.04(d). If any such right or warrant,
including any such existing rights or warrants distributed prior to the date of
this Indenture, are subject to events, upon the occurrence of which such rights
or warrants become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the date of the occurrence of any and each
such event shall be deemed to be the date of distribution and record date with
respect to new rights or warrants with such rights (and a termination or
expiration of the existing rights or warrants without exercise by any of the
holders thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event (of the
34
type described in the preceding sentence) with respect thereto that was counted
for purposes of calculating a distribution amount for which an adjustment to the
Conversion Rate under this Section 10.04 was made, (1) in the case of any such
rights or warrants that shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Rate shall be readjusted upon
such final redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash distribution, equal
to the per share redemption or repurchase price received by a holder or holders
of Common Stock with respect to such rights or warrants (assuming such holder
had retained such rights or warrants), made to all holders of Common Stock as of
the date of such redemption or repurchase, and (2) in the case of such rights or
warrants that shall have expired or been terminated without exercise by any
holders thereof, the Conversion Rate shall be readjusted as if such rights and
warrants had not been issued.
No adjustment of the Conversion Rate shall be made pursuant to this
Section 10.04(d) in respect of rights or warrants distributed or deemed
distributed on any Trigger Event to the extent that such rights or warrants are
actually distributed, or reserved by the Company for distribution to holders of
Securities upon conversion by such holders of Securities to Common Stock.
For purposes of this Section 10.04(d) and Sections 10.04(a) and (b), any
dividend or distribution to which this Section 10.04(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock (or both), shall be deemed instead to be (1) a
dividend or distribution of debt securities, assets or shares of capital stock
other than such shares of Common Stock or rights or warrants (and any Conversion
Rate adjustment required by this Section 10.04(d) with respect to such dividend
or distribution shall then be made) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or warrants (and any
further Conversion Rate adjustment required by Sections 10.04(a) and (b) with
respect to such dividend or distribution shall then be made), except (A) the
Record Date of such dividend or distribution shall be substituted as "the date
fixed for the determination of stockholders entitled to receive such dividend or
other distribution", "the date fixed for the determination of stockholders
entitled to receive such rights or warrants" and "the date fixed for such
determination" within the meaning of Sections 10.04(a) and (b), and (B) any
shares of Common Stock included in such dividend or distribution shall not be
deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 10.04(a).
If any Distributed Assets requiring any adjustment pursuant to this
Section 10.04(d) consists of the Capital Stock, or similar equity interests in,
a Subsidiary or other business unit of the Company, the Conversion Rate in
effect immediately before the close of business on the Record Date fixed for
determination of shareholders entitled to receive the distribution shall instead
be increased by multiplying the Conversion Rate then in effect by a fraction,
(A) the numerator of which is the sum of (1) the average of the Last Reported
Sale Prices of such distributed security for the 20 Trading Days commencing on
and including the fifth Trading Day after the Ex-Dividend Date on the New York
Stock Exchange, the Nasdaq National Market or such other national or regional
exchange or market on which the securities are then listed or quoted, plus (2)
the average of the Last Reported Sale Prices of the Common Stock over the same
Trading Day period and (B) the denominator of which is such average of the Last
Reported Sale Prices of the Common Stock.
(e) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (an "Extraordinary Cash Dividend")
(excluding any dividend or distribution in connection with the liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary),
then, in such case, the Conversion Rate shall be adjusted so that the same shall
equal the rate determined by multiplying the Conversion Rate in effect
immediately prior to the close of business on the Record Date for such
Extraordinary Cash Dividend by a fraction,
(i) the numerator of which shall be the Current Market
Price of the Common Stock on such Record Date, and
(ii) the denominator of which shall be such Current Market
Price of the Common Stock minus the amount per share of such dividend or
distribution,
such adjustment to be effective immediately prior to the opening of business on
the day following such Record Date; provided, however, that in the event the
portion of the cash so distributed applicable to one share of Common Stock is
equal to or greater than the Current Market Price of the Common Stock on such
Record Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Holder shall have the right to receive upon conversion the
amount of cash such Holder would have received had such holder converted each
Security on such Record Date. In the event that such dividend or distribution is
not so paid or made, the Conversion Rate shall again be adjusted to be the
Conversion Rate that would then be in effect if such dividend or distribution
had not been declared.
(f) In case a tender or exchange offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall expire and such
tender or exchange offer (as amended upon the expiration thereof) shall require
the payment to stockholders of consideration per share of Common Stock having a
Fair Market Value (as determined by the Board of Directors) that as of the last
time (the "Expiration Time") tenders or exchanges may be made pursuant to such
tender or exchange offer (as it may be amended) exceeds the Last Reported Sale
Price of the Common Stock on the Trading Day next succeeding the Expiration
Time, the Conversion Rate shall be adjusted so that the same shall equal the
rate determined by multiplying the Conversion Rate in effect immediately prior
to the Expiration Time by a fraction,
35
(i) the numerator of which shall be the sum of (x) the
Fair Market Value (determined by the Board of Directors) of the aggregate
consideration payable to stockholders based on the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted up to any such maximum,
being referred to as the "Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Purchased Shares)
at the Expiration Time and the Last Reported Sale Price of the Common
Stock on the Trading Day next succeeding the Expiration Time, and
(ii) the denominator of which shall be the product of the
number of shares of Common Stock outstanding (including any Purchased
Shares) at the Expiration Time and the Last Reported Sale Price of the
Common Stock on the Trading Day next succeeding the Expiration Time,
such adjustment to become effective immediately prior to the opening of business
on the day following the Expiration Time. In the event that the Company is
obligated to purchase shares pursuant to any such tender or exchange offer, but
the Company is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Rate shall again
be adjusted to be the Conversion Rate that would then be in effect if such
tender or exchange offer had not been made.
(g) The Company, from time to time, may, to the extent permitted by
applicable law and the listing requirements of the New York Stock Exchange and
any other exchange on which shares of the Common Stock are then listed, make
such increases in the Conversion Rate, in addition to those required by this
Section 10.04 as the Board of Directors considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase shares
of Common Stock resulting from any dividend or distribution of Capital Stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes.
To the extent permitted by applicable law and the listing requirements of
the New York Stock Exchange and any other exchange on which shares of Common
Stock are then listed, the Company from time to time may increase the Conversion
Rate by any amount for any period of time if the period is at least twenty (20)
Business Days and the Board of Directors shall have made a determination that
such increase would be in the best interests of the Company, which determination
shall be conclusive. Whenever the Conversion Rate is increased pursuant to the
preceding sentence, the Company shall mail to holders of record of the
Securities a notice of the increase at least fifteen (15) days prior to the date
the increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period during which it will be in effect.
(h) All calculations under this Article 10 shall be made by the Company
and shall be made to the nearest cent or to the nearest one-ten thousandth of a
share, as the case may be, with one half-cent and 0.00005 of a share,
respectively, being rounded upward. No adjustment need be made for:
(i) the issuance of any shares of Common Stock pursuant to
any present or future plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under any plan,
(ii) the issuance of any shares of Common Stock or options
or rights to purchase those shares pursuant to any present or future
employee, director or consultant benefit plan or program of or assumed by
the Company or any of its Subsidiaries,
(iii) the issuance of any shares of Common Stock pursuant to
any option, warrant, right or exercisable, exchangeable or convertible
security not described in clause (ii) above and outstanding as of the date
the Securities were first issued,
(iv) a change in the par value of the Common Stock,
(v) the issuance of any shares of Common Stock pursuant to
conversion of the Securities, or
(vi) accrued and unpaid Interest or Liquidated Damages, if
any.
To the extent the Securities become convertible into cash, assets,
property or securities (other than Capital Stock of the Company), no
adjustment need be made thereafter as to the cash, assets, property or
such securities.
(i) Whenever the Conversion Rate is adjusted as herein provided, the
Company shall promptly file with the Trustee and any Conversion Agent other than
the Trustee an Officers' Certificate setting forth the Conversion Rate after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Unless and until a Responsible Officer of the Trustee shall have
received such Officers' Certificate, the Trustee shall not be deemed to have
knowledge of any adjustment of the Conversion Rate and may assume that the last
Conversion Rate of which it has knowledge is still in effect. Promptly after
delivery of such certificate, the Company shall prepare a notice of such
adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and
the date on which each adjustment becomes effective and shall mail such notice
of such adjustment of the Conversion Rate to the holder of each Security at his
36
last address appearing on the Security register provided for in Section 2.03 of
this Indenture, within twenty (20) days after execution thereof. Failure to
deliver such notice shall not affect the legality or validity of any such
adjustment.
(j) In any case in which this Section 10.04 provides that an adjustment
shall become effective immediately after (1) a record date or Record Date for an
event, (2) the date fixed for the determination of stockholders entitled to
receive a dividend or distribution pursuant to Section 10.04(a), (3) the date
fixed for the determination of stockholders entitled to receive rights or
warrants pursuant to Section 10.04(b), or (4) the Expiration Time for any tender
or exchange offer pursuant to Section 10.04(f) (each a "Determination Date"),
the Company may elect to defer until the occurrence of the relevant Adjustment
Event (as hereinafter defined) (x) issuing to the holder of any Security
converted after such Determination Date and before the occurrence of such
Adjustment Event, the additional shares of Common Stock or other consideration
issuable or deliverable upon such conversion by reason of the adjustment
required by such Adjustment Event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (y) paying to such
holder any amount in cash in lieu of any fraction pursuant to Section 10.04(a).
For purposes of this Section 10.04(j), the term "Adjustment Event" shall mean:
(i) in any case referred to in clause (1) hereof, the
occurrence of such event,
(ii) in any case referred to in clause (2) hereof, the date
any such dividend or distribution is paid or made,
(iii) in any case referred to in clause (3) hereof, the date
of expiration of such rights or warrants, and
(iv) in any case referred to in clause (4) hereof, the date
a sale or exchange of Common Stock pursuant to such tender or exchange
offer is consummated and becomes irrevocable.
(k) For purposes of this Section 10.04, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(l) If rights or warrants for which an adjustment has been made
pursuant to the provisions of this Section 10.04 expire unexercised, the
Conversion Rate shall be readjusted as if such unexercised rights or warrants
had not been issued.
(m) Notwithstanding the foregoing provisions of this Section 10.04, no
adjustment shall be made thereunder, nor shall an adjustment be made to the
ability of a Holder of a Security to convert, for any distribution described
therein if the Holder will otherwise participate in the distribution without
conversion of such Holder's Securities.
Section 10.05. Effect of Reclassification; Consolidation; Merger or Sale.
If any of the following events occur, namely (a) any reclassification or change
of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 10.04(c) applies), (b) any consolidation, merger,
statutory share exchange or combination of the Company with another Person as a
result of which holders of Common Stock shall be entitled to receive stock,
other securities or other property or assets (including cash) with respect to or
in exchange for such Common Stock, or (c) any sale or conveyance of all or
substantially all the properties and assets of the Company to any other Person
as a result of which holders of Common Stock shall be entitled to receive stock,
other securities or other property or assets (including cash) with respect to or
in exchange for such Common Stock, then the Company or the successor or
purchasing Person, as the case may be, shall execute with the Trustee a
supplemental indenture (which shall comply with the TIA as in force at the date
of execution of such supplemental indenture) providing that each Security shall
be convertible, subject to the provisions of Section 10.03, into the kind and
amount of shares of stock, other securities or other property or assets
(including cash) receivable upon such reclassification, change, consolidation,
merger, statutory share exchange, combination, sale or conveyance by a holder of
a number of shares of Common Stock issuable upon conversion of such Securities
(assuming, for such purposes, a sufficient number of authorized shares of Common
Stock are available to convert all such Securities) immediately prior to such
reclassification, change, consolidation, merger, statutory share exchange,
combination, sale or conveyance assuming such holder of Common Stock did not
exercise his rights of election, if any, as to the kind or amount of stock,
other securities or other property or assets (including cash) receivable upon
such reclassification, change, consolidation, merger, statutory share exchange,
combination, sale or conveyance (provided that, if the kind or amount of stock,
other securities or other property or assets (including cash) receivable upon
such reclassification, change, consolidation, merger, statutory share exchange,
combination, sale or conveyance is not the same for each share of Common Stock
in respect of which such rights of election shall not have been exercised
("nonelecting share"), then for the purposes of this Section 10.05 the kind and
amount of stock, other securities or other property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger, statutory
share exchange, combination, sale or conveyance for each nonelecting share shall
be deemed to be the kind and amount so receivable per share by a plurality of
the nonelecting shares). Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 10.
37
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder of Securities, at its address appearing on
the Security register provided for in Section 2.03 of this Indenture, within
twenty (20) days after execution thereof. Failure to deliver such notice shall
not affect the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to successive
reclassifications, changes, consolidations, mergers, statutory share exchanges,
combinations, sales and conveyances.
If this Section 10.05 applies to any event or occurrence, Section 10.04
shall not apply.
Section 10.06. Taxes on Shares Issued. The issue of stock certificates on
conversions of Securities shall be made without charge to the converting Holder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the Holder of
any Securities converted, and the Company shall not be required to issue or
deliver any such stock certificate unless and until the Person or Persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
Section 10.07. Reservation of Shares, Shares to be Fully Paid; Compliance
with Governmental Requirements; Listing of Common Stock.
(a) The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, sufficient shares of
Common Stock to provide for the conversion of the Securities from time to time
as such Securities are presented for conversion.
(b) Before taking any action which would cause an adjustment increasing
the Conversion Rate to an amount that would cause the Conversion Price to be
reduced below the then par value, if any, of the shares of Common Stock issuable
upon conversion of the Securities, the Company will take all corporate action
which may, in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue shares of such Common Stock at such adjusted
Conversion Rate.
(c) (i) The Company covenants that all shares of Common Stock which
may be issued upon conversion of Securities or in payment of the Repurchase
Price or the Change of Control Repurchase Price will upon issue be fully paid
and non-assessable by the Company and free from all taxes, liens and charges
with respect to the issue thereof.
(ii) The Company covenants that, if any shares of Common Stock to
be provided for the purpose of conversion of Securities hereunder require
registration with or approval of any governmental authority under any
federal or state law before such shares may be validly issued upon
conversion, the Company will in good faith and as expeditiously as
possible, to the extent then permitted by the rules and interpretations of
the Securities and Exchange Commission (or any successor thereto),
endeavor to secure such registration or approval, as the case may be.
(iii) The Company further covenants that, if at any time the Common
Stock shall be listed on the NYSE or any other national securities
exchange or automated quotation system, the Company will, if permitted by
the rules of such exchange or automated quotation system, list and keep
listed, so long as the Common Stock shall be so listed on such exchange or
automated quotation system, all Common Stock issuable upon conversion of
the Security; provided, however, that, if the rules of such exchange or
automated quotation system permit the Company to defer the listing of such
Common Stock until the first conversion of the Securities into Common
Stock in Common Stock in accordance with the provisions of this Indenture,
the Company covenants to list such Common Stock issuable upon conversion
of the Securities in accordance with the requirements of such exchange or
automated quotation system at such time.
Section 10.08. Responsibility of Trustee. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Securities to determine the Conversion Rate or whether any facts
exist which may require any adjustment of the Conversion Rate, or with respect
to the nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee and any other
conversion agent shall not be accountable with respect to the validity or value
(or the kind or amount) of any shares of Common Stock, or of any securities or
property, which may at any time be issued or delivered upon the conversion of
any Security; and the Trustee and any other conversion agent make no
representations with respect thereto. Neither the Trustee nor any conversion
agent shall be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property or cash upon the surrender of any Security for the purpose of
conversion or to comply with any of the duties, responsibilities or covenants of
the Company contained in this Article 10. Without limiting the generality of the
foregoing, neither the Trustee nor any conversion agent shall be under any
responsibility to determine the correctness of any provisions contained in any
supplemental indenture entered into pursuant to Section 10.05 relating either to
the kind or amount of shares of stock or securities or property (including cash)
receivable by Holders upon the conversion of their Securities after any event
referred to in such Section 10.05 or to any adjustment to be made with respect
38
thereto, but, subject to the provisions of Section 7.01, may accept as
conclusive evidence of the correctness of any such provisions, and shall be
protected in relying upon, the Officers' Certificate (which the Company shall be
obligated to file with the Trustee prior to the execution of any such
supplemental indenture) with respect thereto.
Section 10.09. Notice to Holders Prior to Certain Actions. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in the
Conversion Rate pursuant to Section 10.04; or
(b) the Company shall authorize the granting to the holders of all
or substantially all of its Common Stock of rights or warrants to
subscribe for or purchase any share of any class or any other rights or
warrants; or
(c) of any reclassification or reorganization of the Common Stock
of the Company (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value,
or from no par value to par value), or of any consolidation, merger or
statutory share exchange to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
Holder of Securities at his address appearing on the register provided for in
Section 2.03 of this Indenture, as promptly as possible but in any event at
least ten (10) days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution of rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, or statutory share
exchange, sale, transfer, dissolution, liquidation or winding up is expected to
become effective or occur, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, or statutory share exchange, sale, transfer, dissolution,
liquidation or winding up. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such dividend, distribution,
reclassification, consolidation, merger, or statutory share exchange, sale,
transfer, dissolution, liquidation or winding up.
Section 10.10. Rights Issued in Respect of Common Stock Issued upon
Conversion. To the extent the Company has a rights plan that is in effect upon a
Conversion Date, Holders of Securities shall receive, upon conversion of
Securities, in addition to shares of Common Stock, cash, or combination of cash
and shares of Common Stock, the rights under the applicable rights plan unless,
prior to the Conversion Date, the rights have separated from the Common Stock,
in which case the Conversion Rate in effect shall be adjusted at the time of
separation as if the Company had distributed to all holders of Common Stock the
assets, debt securities, shares of Capital Stock or rights or warrants to
purchase securities of the Company as described in Section 10.04(d).
Section 10.11. Unconditional Rights of Holders to Convert. Notwithstanding
any other provision in this Indenture, the Holder of any Security shall have the
right, which is absolute and unconditional, to convert its Security in
accordance with this Article 10 and to bring an action for the enforcement of
any such right to convert, and such rights shall not be impaired or affected
without the consent of such Holder.
Article 11
MAKE-WHOLE PREMIUM
Section 11.01. Make-Whole Premium.
(a) If a Change of Control set forth in Section 3.08(a) occurs prior to
August 1, 2009 and such transaction constitutes a Fundamental Change, the
Company will pay the Make-Whole Premium to (i) Holders of Securities who convert
their Securities pursuant to Section 10.01(b)(2), and (ii) Holders of Securities
who elect to require the Company to repurchase their Securities upon such
Fundamental Change pursuant to Section 3.08, in either case, in addition to the
Conversion Price or the Fundamental Change Repurchase Price, as applicable.
(b) The Company will pay the Make-Whole Premium in the consideration
into which the Common Stock was converted, exchanged or acquired in the
transaction constituting the Fundamental Change (except that the Company will
pay cash in lieu of fractional interests in any security or other property
delivered in connection with such transaction). If holders of the Common Stock
receive or have the right to receive more than one form of consideration in
connection with such transaction, then for purposes of the foregoing, the forms
of consideration in which the Make-Whole Premium will be paid will be in
proportion to the relative values, determined as described in the next
paragraph, of the different forms of consideration paid to holders of Common
Stock in connection with such Fundamental Change.
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The value of such consideration to be delivered in respect of the
Make-Whole Premium will be calculated as follows:
(i) securities that are traded on a United States national
securities exchange or approved for quotation on the Nasdaq National
Market or any similar system of automated dissemination of quotations of
securities prices will be valued based on 98% of the average closing price
or last sale price, as applicable, on the ten trading days for such
securities on the applicable exchange or quotation system prior to but
excluding the Fundamental Change Repurchase Date;
(ii) other securities, assets or property (other than cash)
will be valued based on 98% of the average of the fair market value of
such securities, assets or property (other than cash) as determined by two
independent nationally-recognized banks selected by the Trustee; and
(iii) 100% of any cash.
(c) The Company shall pay the Make-Whole Premium to the Holder who
tendered Securities for conversion or repurchase (i) with respect to any
Securities tendered for repurchase pursuant to Section 3.08, on the Fundamental
Change Repurchase Date or (ii) with respect to Securities converted, on the
later of (A) the Fundamental Change Repurchase Date or (B) the Conversion
Settlement Date for such converted Securities.
(d) The Make-Whole Premium will be determined as follows:
(i) "Effective Date" means the date that the Fundamental
Change becomes effective.
(ii) "Stock Price" means the price paid per share of Common
Stock in the Fundamental Change, determined as follows:
(A) If holders of the Common Stock receive only
cash in the Fundamental Change, the Stock Price shall be the
cash amount paid per share of Common Stock; or
(B) Otherwise, the Stock Price shall be the
average of the Closing Sale Price of the Common Stock on the
10 Trading Days up to but not including the Effective Date.
(iii) "Make-Whole Percentage" means the percentage set forth
in the table below for the Stock Price and the Effective Date:
Stock Price
Effective Date $9.02 $9.92 $10.82 $11.73 $12.63 $13.53 $14.43 $15.33 $16.24 $17.14 $18.04 $22.55 $27.06 $31.57 $36.08
- -------------- ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
August 1, 2004 -- 8.64 13.97 19.52 20.07 19.05 18.17 17.39 16.73 16.13 15.62 13.86 12.90 12.35 11.99
August 1, 2005 -- 8.11 13.14 18.43 18.76 17.56 16.52 15.62 14.84 14.16 13.57 11.59 10.56 10.00 9.66
August 1, 2006 -- 7.30 11.95 16.92 16.99 15.58 14.36 13.32 12.44 11.66 11.01 8.89 7.87 7.36 7.09
August 1, 2007 -- 5.98 10.11 14.66 14.41 12.74 11.34 10.17 9.21 8.37 7.69 5.66 4.79 4.48 4.30
August 1, 2008 -- 3.53 6.84 10.76 10.06 8.14 6.58 5.39 4.51 3.72 3.17 1.89 1.51 1.45 1.42
August 1, 2009 -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
If the applicable Stock Price is between two Stock Price amounts on the
table above or the Effective Date is between two dates on the table above, the
Make-Whole Percentage will be determined by straight-line interpolation between
the amounts set forth for the higher and lower Stock Prices and the two
Effective Dates, as applicable, based on a 365-day year.
(iv) "Make-Whole Premium" means the amount per $1,000
principal amount of Securities equal to:
(A) If the Effective Date is on or after August
1, 2009, $0;
(B) If the Stock Price is less than or equal to
$9.02 (subject to adjustment pursuant to Section 11.02) (the
"Stock Price Floor"), $0;
(C) If the Stock Price is greater than $36.08
(subject to adjustment pursuant to Section 11.02) (the "Stock
Price Cap"), $0; or
(D) Otherwise, the dollar amount equal to the
Make-Whole Percentage multiplied by $1,000.
40
Section 11.02. Adjustments Relating To The Make-whole Premium. Whenever
the Conversion Rate shall be adjusted from time to time by the Company pursuant
to Section 10.04, the Stock Price Floor, the Stock Price Cap and each of the
Stock Prices set forth in the table in Section 11.01(d)(iii) shall be adjusted
by multiplying each such amount by a fraction, the numerator of which is the
Conversion Rate in effect immediately prior to such adjustment and the
denominator of which is the Conversion Rate as so adjusted.
Section 11.03. Calculation Of The Make-whole Premium.
(a) Promptly following the Effective Date of any Fundamental Change
that, pursuant to Section 11.01, triggers the obligation to pay the Make-Whole
Premium, the Company shall calculate the Stock Price and the Make-Whole
Percentage and the Make-Whole Premium with respect to such Stock Price based on
the applicable Effective Date. No less than five Business Days following the
Effective Date, the Company shall notify the Trustee of the results of such
calculations and notify the Holders of the Stock Price, the Make-Whole Premium
per $1,000 principal amount of Securities and the type of consideration in which
the Make-Whole Premium will be paid.
(b) The Company shall also make the calculations required by Section
11.01(b). On the Fundamental Change Repurchase Date, the Company shall notify
the Trustee and the Holders of the amount of each type of consideration in which
the Make-Whole Premium will be paid.
(c) The Company shall issue a press release containing the information
described in Section 11.01 (a) and (b) and publish such information on its
website.
Article 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies, or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
Section 12.02. Notices. Any request, demand, authorization, notice,
waiver, consent or communication shall be in writing and delivered in person or
mailed by first-class mail, postage prepaid, addressed as follows or transmitted
by facsimile transmission (confirmed by guaranteed overnight courier) to the
following facsimile numbers:
if to the Company:
Ocwen Financial Corporation
1675 Palm Beach Lakes Boulevard
West Palm Beach, FL 33401
Facsimile: (561) 471-4264
Attention: Legal Department
if to the Trustee:
The Bank of New York Trust Company, N.A.
10161 Centurion Parkway
Jacksonville, FL 32256
Facsimile: (914) 645-1921
Attention: Corporate Trust Administration
The Company or the Trustee, by notice given to the other in the manner
provided above, may designate additional or different addresses for subsequent
notices or communications.
Any notice or communication given to a Securityholder shall be delivered
to the Securityholder, in accordance with the procedures of the Registrar or by
first-class mail, postage prepaid, at the Securityholder's address as it appears
on the registration books of the Registrar and shall be considered sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder, or any
defect in it, shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not received by the addressee.
If the Company mails a notice or communication to the Securityholders, it
shall mail a copy to the Trustee and each Registrar, Paying Agent, Conversion
Agent and co-registrar.
41
Section 12.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar, the Paying Agent, the
Conversion Agent and anyone else shall have the protection of TIA Section
312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 12.05. Statements Required in Certificate or Opinion. Each
Officers' Certificate or Opinion of Counsel with respect to compliance with a
covenant or condition provided for in this Indenture shall include:
(a) a statement that each person making such Officers' Certificate
or Opinion of Counsel has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such Officers' Certificate or Opinion of Counsel are based;
(c) a statement that, in the opinion of each such person, such
person has made such examination or investigation as is necessary to
enable such person to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(d) a statement that, in the opinion of such person, such covenant
or condition has been complied with;
provided, however, that with respect to matters of fact an Opinion of Counsel
may rely on an Officers' Certificate or certificates of public officials.
Section 12.06. Separability Clause. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 12.07. Rules by Trustee, Paying Agent, Conversion Agent and
Registrar. The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar, the Conversion Agent and the Paying Agent may
make reasonable rules for their functions.
Section 12.08. Legal Holidays. A "Legal Holiday" is any day other than a
Business Day. If any specified date (including a date for giving notice) is a
Legal Holiday, the action shall be taken on the next succeeding day that is not
a Legal Holiday, and, if the action to be taken on such date is a payment in
respect of the Securities, no interest shall accrue with respect to such payment
for the intervening period.
Section 12.09. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Section 12.10. No Recourse Against Others. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
Section 12.11. Successors. All agreements of the Company in this Indenture
and the Securities shall bind its successor. All agreements of the Trustee in
this Indenture shall bind its successor.
Section 12.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
42
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed
this Indenture on behalf of the respective parties hereto as of the date first
above written.
OCWEN FINANCIAL CORPORATION
By: /s/ M. ZEIDMAN
-------------------------------------
Name: Mark S. Zeidman
Title: Senior Vice President and Chief
Financial Officer
THE BANK OF NEW YORK TRUST COMPANY, N.A.,
As Trustee
By: /s/ CRAIG A. KAYE
-------------------------------------
Name: Craig A. Kaye
Title: Assistant Treasurer
43
EXHIBIT A
[FORM OF FACE OF GLOBAL SECURITY]
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION HEREOF MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH
EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS
ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER
OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(A) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, OR (C) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION
OF COUNSEL IF THE COMPANY SO REQUESTS), AS LONG AS THE REGISTRAR RECEIVES A
CERTIFICATION OF THE TRANSFEROR THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTION SET FORTH IN
(A) ABOVE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF
THE DEPOSITORY TRUST COMPANY, OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF
THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THE FOREGOING LEGEND MAY BE REMOVED FROM THIS SECURITY ON SATISFACTION OF THE
CONDITIONS SPECIFIED IN THE INDENTURE.
44
OCWEN FINANCIAL CORPORATION
3.25% Contingent Convertible Senior Unsecured Notes Due 2024
CUSIP: 675746AC5
ISSUE DATE: July 28, 2004 Principal Amount: $175,000,000
No. [?]
OCWEN FINANCIAL CORPORATION, a Florida corporation, promises to pay to
Cede & Co. or registered assigns, the principal amount of $175,000,000 Million
Dollars, on August 1, 2024.
Interest Rate: 3.25% per year.
Interest Payment Dates: August 1 and February 1 of each year, commencing
February 1, 2005.
Interest Record Date: July 15 and January 15 of each year.
Reference is hereby made to the further provisions of this Security set
forth on the reverse side of this Security, which further provisions shall for
all purposes have the same effect as if set forth at this place.
45
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: July 28, 2004 OCWEN FINANCIAL CORPORATION
By:
-----------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THE BANK OF NEW YORK TRUST COMPANY, N.A.,
as Trustee, certifies that this is one
of the Securities referred to in the
within-mentioned Indenture.
By:
------------------------------
Authorized Signatory
Dated: July 28, 2004
46
[FORM OF REVERSE OF GLOBAL SECURITY]
3.25% Contingent Convertible Senior Unsecured Notes Due 2024
This Security is one of a duly authorized issue of 3.25% Contingent
Convertible Senior Unsecured Notes Due 2024 (the "Securities") of Ocwen
Financial Corporation, a Florida corporation (including any successor
corporation under the Indenture hereinafter referred to, the "Company"), issued
under an Indenture, dated as of July 28, 2004 (the "Indenture"), between the
Company and The Bank of New York Trust Company, N.A., as trustee (the
"Trustee"). The terms of the Security include those stated in the Indenture,
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended ("TIA"), and those set forth in this Security. This Security is
subject to all such terms, and Holders are referred to the Indenture and the TIA
for a statement of all such terms. To the extent permitted by applicable law, in
the event of any inconsistency between the terms of this Security and the terms
of the Indenture, the terms of the Indenture shall control. Capitalized terms
used but not defined herein have the meanings assigned to them in the Indenture
referred to below unless otherwise indicated.
1. Interest.
The Securities shall bear interest on the principal amount thereof at a
rate of 3.25% per year. The Company shall pay Liquidated Damages as set forth in
Section 4.07 of the Indenture and the Registration Rights Agreement.
Interest will be payable semi-annually on each Interest Payment Date to
Holders at the close of business on the preceding Interest Record Date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30 day
months.
If any Interest Payment Date, Stated Maturity date, Redemption Date,
Repurchase Date or Fundamental Change Repurchase Date of a Security falls on a
day that is not a Business Day, the required payment of Interest, if any, and
principal will be made on the next succeeding Business Day and no Interest on
such payment will accrue for the period from and after the Interest Payment
Date, the Stated Maturity date, Redemption Date, Repurchase Date or Fundamental
Change Repurchase Date to such next succeeding Business Day.
If the principal amount of any Security, or any accrued and unpaid
Interest or Liquidated Damages, if any, are not paid when due (whether upon
acceleration pursuant to Section 6.02 of the Indenture, upon the date set for
payment of the Redemption Price pursuant to Section 4 hereof, upon the date set
for payment of the Repurchase Price or Fundamental Change Repurchase Price
pursuant to Section 5 hereof, upon the Stated Maturity of the Securities, upon
the Interest Payment Dates or upon the date of payment of Liquidated Damages
pursuant to the Registration Rights Agreement), then in each such case the
overdue amount shall, to the extent permitted by law, bear cash interest at the
rate of 3.25% per annum, compounded semiannually, which interest shall accrue
from the date such overdue amount was originally due to the date payment of such
amount, including interest thereon, has been made or duly provided for. All such
interest shall be payable in cash on demand but if not so demanded shall be paid
quarterly to the Holders on the last day of each quarter.
2. Method of Payment.
Except as provided below, the Company shall pay Interest on (i) Global
Securities, to DTC in immediately available funds, (ii) any Certificated
Security having an aggregate principal amount of $5,000,000 or less, by check
mailed to the Holder of such Security and (iii) any Certificated Security having
an aggregate principal amount of more than $5,000,000, by wire transfer in
immediately available funds or by mail at the election of the Holder of any such
Security.
Subject to the terms and conditions of the Indenture, the Company will
make payments in cash in respect of Redemption Prices, Repurchase Prices,
Fundamental Change Repurchase Prices and at Stated Maturity to Holders who
surrender Securities to a Paying Agent to collect such payments in respect of
the Securities. The Company will pay cash amounts in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. However, the Company may make such cash payments by check payable in such
money.
3. Indenture.
The Securities are general unsecured obligations of the Company limited to
$175,000,000 aggregate principal amount. The Indenture does not limit other
indebtedness of the Company, secured or unsecured.
4. Redemption at the Option of the Company.
No sinking fund is provided for the Securities. The Securities are
redeemable for cash at the option of the Company, in whole or in part, at any
time or from time to time on or after August 1, 2009 upon not less than 30 nor
more than 60 days' notice in writing for a redemption price equal to the
principal amount of those Securities plus accrued and unpaid Interest and
Liquidated Damages, if any, on those Securities up to (but excluding) the
Redemption Date (the "Redemption Price").
47
In no event will any Security be redeemable before August 1, 2009.
5. Repurchase By the Company at the Option of the Holder.
Subject to the terms and conditions of the Indenture, the Company shall
become obligated to repurchase, at the option of the Holder, all or any portion
of the Securities held by such Holder on August 1, 2009, August 1, 2014, August
1, 2019, in integral multiples of $1,000 at a Repurchase Price equal to the
principal amount of those Securities plus accrued and unpaid Interest and
Liquidated Damages, if any, on those Securities up to (but excluding) the
Repurchase Date. To exercise such right, a Holder shall deliver to the Paying
Agent a Repurchase Notice containing the information set forth in the Indenture,
at any time from the opening of business on the date that is 20 Business Days
prior to such Repurchase Date until the close of business on such Repurchase
Date, and shall deliver the Securities to the Paying Agent as set forth in the
Indenture.
At the option of the Holder and subject to the terms and conditions of the
Indenture, the Company shall become obligated to offer to repurchase the
Securities held by such Holder after the occurrence of a Fundamental Change for
a Fundamental Change Repurchase Price equal to the principal amount of those
Securities plus accrued and unpaid Interest, the Make-Whole Premium, if any, and
Liquidated Damages, if any, on those Securities up to (but excluding) the
Fundamental Change Repurchase Date.
Holders have the right to withdraw any Repurchase Notice or Fundamental
Change Repurchase Notice, as the case may be, by delivering to the Paying Agent
a written notice of withdrawal in accordance with the provisions of the
Indenture.
If cash sufficient to pay the Repurchase Price or Fundamental Change
Repurchase Price (including any Make-Whole Premium), as the case may be, of all
Securities or portions thereof to be purchased as of the Repurchase Date or the
Fundamental Change Repurchase Date, as the case may be, is deposited with the
Paying Agent, on the Business Day immediately following the Repurchase Date or
the Fundamental Change Repurchase Date, Interest and Liquidated Damages, if any,
will cease to accrue on such Securities (or portions thereof) on and following
such Repurchase Date or Fundamental Change Repurchase Date, and the Holder
thereof shall have no other rights as such other than the right to receive the
Repurchase Price or Fundamental Change Repurchase Price upon surrender of such
Security.
6. Make-Whole Premium.
Subject to and in compliance with the provisions of the Indenture, if
certain Fundamental Changes occur prior to August 1, 2009, in certain
circumstances the Company will pay a Make-Whole Premium on the Securities
converted or tendered for repurchase upon a Fundamental Change. The Make-Whole
Premium, if any, will be payable in the consideration into which the Common
Stock was converted, exchanged or acquired in such Fundamental Change.
The Make-Whole Premium, if any, will be calculated and paid as described
in Section 11.01 of the Indenture.
7. Notice of Redemption.
Notice of redemption pursuant to Section 4 of this Security will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at the Holder's registered address. If money
sufficient to pay the Redemption Price of all Securities (or portions thereof)
to be redeemed on the Redemption Date is deposited with the Paying Agent prior
to or on the Redemption Date, on and immediately after such Redemption Date
Interest and Liquidated Damages, if any, will cease to accrue on such Securities
or portions thereof. Securities in denominations larger than $1,000 principal
amount may be redeemed in part but only in integral multiples of $1,000 of
principal amount.
8. Conversion.
Subject to and in compliance with the provisions of the Indenture
(including, without limitation, the conditions to conversion of this Security
set forth in Section 10.01 thereof), a Holder is entitled, at such Holder's
option, to convert the Holder's Security (or any portion of the principal amount
thereof that is $1,000 or an integral multiple $1,000), into fully paid and
nonassessable shares of Common Stock at the Conversion Rate in effect at the
time of conversion provided, however, the Company may satisfy its obligation
with respect to any demand for conversion by delivering Common Stock, cash or a
combination of cash and Common Stock. If the Company elects to satisfy a fixed
portion (other than 100%) of the Conversion Obligation in cash, the Cash Amount
shall be allocated first to the satisfaction of any accrued and unpaid Interest,
if any, on the Securities.
The Company will notify Holders of any event triggering the right to
convert the Securities as specified above in accordance with the Indenture.
A Security in respect of which a Holder has delivered a Repurchase Notice
or Fundamental Change Repurchase Notice, as the case may be, exercising the
option of such Holder to require the Company to purchase such Security may be
48
converted only if such Repurchase Notice or Fundamental Change Repurchase
Notice, as the case may be, is withdrawn in accordance with the terms of the
Indenture.
The initial Conversion Rate is 82.1693 shares of Common Stock per $1,000
principal amount, subject to adjustment in certain events described in the
Indenture. The Conversion Rate shall not be adjusted for any accrued and unpaid
Interest and accrued or Liquidated Damages. Upon conversion, no payment shall be
made by the Company with respect to accrued and unpaid Interest, if any.
Instead, such amount shall be deemed paid by the shares of Common Stock
delivered upon conversion of any Security. A Holder shall receive, however,
accrued and unpaid Liquidated Damages, if any. In addition, no payment or
adjustment shall be made in respect of dividends on the Common Stock, except as
set forth in the Indenture.
In certain circumstances as set forth in the Indenture, a Holder shall be
entitled to receive a Make-Whole Premium as described in Section 11 of the
Indenture.
To surrender a Security for conversion, a Holder must (1) complete and
manually sign the Notice of Conversion attached hereto (or complete and manually
sign a facsimile of such notice) and deliver such notice to the Conversion
Agent, (2) surrender the Security to the Conversion Agent, (3) furnish
appropriate endorsements and transfer documents, (4) if required by Section
10.02(g) of the Indenture, pay Interest and (5) pay any transfer or similar tax,
if required.
No fractional shares of Common Stock shall be issued upon conversion of
any Security. Instead of any fractional share of Common Stock that would
otherwise be issued upon conversion of such Security, the Company shall pay a
cash adjustment as provided in the Indenture.
If the Company (i) is a party to a consolidation, merger, statutory share
exchange or combination, (ii) reclassifies the Common Stock, or (iii) conveys,
transfers or leases its properties and assets substantially as an entirety to
any Person, the right to convert a Security into shares of Common Stock may be
changed into a right to convert it into securities, cash or other assets of the
Company or such other Person, in each case in accordance with the Indenture.
9. Conversion Arrangement on Call for Redemption.
Any Securities called for redemption, unless surrendered for conversion
before the close of business on a Redemption Date, may be deemed to be purchased
from the Holders of such Securities at an amount not less than the Redemption
Price, by one or more investment bankers or other purchasers who may agree with
the Company to purchase such Securities from the Holders, to convert them into
shares of Common Stock and to make payment for such Securities to the Trustee in
trust for such Holders.
10. Paying Agent, Conversion Agent and Registrar.
Initially, the Trustee will act as Paying Agent, Conversion Agent and
Registrar. The Company may appoint and change any Paying Agent, Conversion Agent
or Registrar without notice, other than notice to the Trustee; provided that the
Company will maintain at least one Paying Agent in the State of New York, City
of New York, Borough of Manhattan, which shall initially be an office or agency
of the Trustee. The Company or any of its Subsidiaries or any of their
Affiliates may act as Paying Agent, Conversion Agent or Registrar.
11. Denominations; Transfer; Exchange.
The Securities are in fully registered form, without coupons, in
denominations of $1,000 of principal amount and integral multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or exchange
any Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities in respect of which a Repurchase Notice or Fundamental Change
Repurchase Notice has been given and not withdrawn (except, in the case of a
Security to be purchased in part, the portion of the Security not to be
purchased) or any Securities for a period of 15 days before the mailing of a
notice of redemption of Securities to be redeemed.
12. Persons Deemed Owners.
The registered Holder of this Security may be treated as the owner of this
Security for all purposes.
13. Unclaimed Money or Securities.
The Trustee and the Paying Agent shall return to the Company upon written
request any money or securities held by them for the payment of any amount with
respect to the Securities that remains unclaimed for two years, subject to
applicable unclaimed property law. After return to the Company, Holders entitled
49
to the money or securities must look to the Company for payment as general
creditors unless an applicable abandoned property law designates another person.
14. Amendment; Waiver.
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in aggregate principal amount of the outstanding
Securities and (ii) certain Events of Defaults may be waived with the written
consent of the Holders of a majority in aggregate principal amount of the
outstanding Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company and the
Trustee may amend the Indenture or the Securities (i) to add guarantees with
respect to the Securities or securing the Securities, (ii) to add to the
covenants of the Company or the Events of Default for the benefit of the Holders
of Securities, (iii) to surrender any right or power conferred upon the Company
in the Indenture, (iv) to provide for conversion rights of Holders of Securities
if any reclassification or change of the Company's Common Stock or any
consolidation, merger or sale of all or substantially all of the Company's
assets occurs, (v) to provide for the assumption of the Company's obligations to
Holders of Securities in the case of a merger, consolidation, conveyance,
transfer or lease pursuant to Article 5 of the Indenture, (vi) to increase the
Conversion Rate; provided, however, that such increase in the Conversion Rate
shall not adversely affect the interests of the Holders of Securities, (vii) to
establish the form of Securities if issued in definitive form, (viii) to
evidence and provide for the acceptance of the appointment under the Indenture
of a successor Trustee, (ix) to comply with the requirements of the SEC in order
to effect or maintain the qualification of the Indenture under the TIA , (x)
make any changes or modifications necessary in connection with the registration
of the Securities under the Securities Act as contemplated in the Registration
Rights Agreement; provided that such change or modification does not in the good
faith opinion of the Board of Directors and the Trustee adversely affect the
interests of the Holders of Securities in any material respect, (xi) to cure any
ambiguity or to correct or supplement any provision in the Indenture which may
be inconsistent with any other provision in the Indenture or which is otherwise
defective, provided, however, that any such cure, correction or supplement shall
not adversely affect the interests of the Holders of Securities, provided
further that any such cure, correction or supplement made solely to conform the
provisions of the Indenture to the "Description of the Notes" in the Offering
Memorandum will not be deemed to adversely affect the interests of the Holders
of Securities, or (xii) add or modify any other provisions of the Indenture with
respect to matters or questions arising under the Indenture that the Company and
the Trustee may deem necessary or desirable and that will not materially
adversely affect the interests of the Holders of Securities; provided that any
addition or modification made solely to conform the provisions of this Indenture
to the "Description of Notes" in the Offering Memorandum will not be deemed to
adversely affect the interests of the holders of the Securities.
15. Defaults and Remedies.
If any Event of Default with respect to Securities shall occur and be
continuing, the principal amount of the Securities and any accrued and unpaid
Interest and accrued and unpaid Liquidated Damages, if any, on all the
Securities may be declared due and payable in the manner, on the terms and with
the effect provided in the Indenture.
16. Trustee Dealings with the Company.
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
17. Calculations in Respect of Securities.
The Company or its agents will be responsible for making all calculations
called for under the Securities including, but not limited to, determination of
the market prices for the Securities and of the Common Stock and Liquidated
Damages, if any, accrued on the Securities. Any calculations made in good faith
and without manifest error will be final and binding on Holders of the
Securities. The Company or its agents will be required to deliver to the Trustee
a schedule of its calculations and the Trustee will be entitled to conclusively
rely upon the accuracy of such calculations without independent verification.
18. [Reserved].
19. [Reserved].
20. No Recourse Against Others.
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
50
21. Authentication.
This Security shall not be valid until an authorized signatory of the
Trustee manually signs the Trustee's Certificate of Authentication on the other
side of this Security.
22. Abbreviations.
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
23. GOVERNING LAW.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS
SECURITY.
24. Copy of Indenture.
The Company will furnish to any Securityholder upon written request and
without charge a copy of the Indenture which has in it the text of this Security
in larger type. Requests may be made to:
Ocwen Financial Corporation
1675 Palm Beach Lakes Boulevard
West Palm Beach, FL 33401
Attention: Legal Department
Facsimile: (561) 471-4264
25. Registration Rights.
The Holders of the Securities are entitled to the benefits of a
Registration Rights Agreement, dated July 28, 2004, between the Company and
Jefferies & Company, Inc., as the initial purchaser, including the receipt of
Liquidated Damages upon an Event (as defined in such agreement). The Company
shall make payments of Liquidated Damages on the dates of payment of Liquidated
Damages (as set forth in the Registration Rights Agreement), but otherwise in
accordance with the provisions set forth herein for the payment of Interest.
51
- ------------------------------------------------- -----------------------------------------------
ASSIGNMENT FORM CONVERSION NOTICE
- ------------------------------------------------- -----------------------------------------------
To assign this Security, fill in the form below: To convert this Security into Common Stock of
the Company, check the box [ ]
- ------------------------------------------------- -----------------------------------------------
I or we assign and transfer this Security to To convert only part of this Security, state the
principal amount to be converted (which must
- -------------------------------------- be $1,000 or an integral multiple of $1,000):
(Insert assignee's soc. sec. or tax ID no.)
If you want the stock certificate made out in
- ------------------------------------- another person's name fill in the form below:
- ------------------------------------- -------------------------------------------
- ------------------------------------- -------------------------------
(Print or type assignee's name, address and zip (Insert the other person's soc. sec. tax ID no.)
code)
--------------------------------------------
and irrevocably appoint -------------------------------------------
____________________ agent to transfer this -------------------------------------------
Security on the books of the Company. The
agent may substitute another to act for him. ------------------------------
(Print or type other person's name, address and
zip code)
- ------------------------------------------------- -----------------------------------------------
Date: Your Signature:
------------ -----------------------------------
- -------------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Security)
Signature Guaranteed
- -------------------------------------
Participant in a Recognized Signature
Guarantee Medallion Program
By:
-----------------------------
Authorized Signatory
52
SCHEDULE OF INCREASES AND DECREASES
OF GLOBAL SECURITY
Initial Principal Amount of Global Security: One Hundred Seventy-Five Million
dollars ($175,000,000).
------------------------------------------------------------------------------------------------
Amount of Amount of Principal Amount
Increase in Decrease in of Global Security Notation by
Principal Amount Principal Amount After Increase or Registrar or
Date of Global Security of Global Security Decrease Security Custodian
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
53
EXHIBIT B
[FORM OF FACE OF CERTIFICATED SECURITY]
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION HEREOF MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH
EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS
ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER
OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(A) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, OR (C) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION
OF COUNSEL IF THE COMPANY SO REQUESTS), AS LONG AS THE REGISTRAR RECEIVES A
CERTIFICATION OF THE TRANSFEROR THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTION SET FORTH IN
(A) ABOVE.
THE FOREGOING LEGEND MAY BE REMOVED FROM THIS SECURITY ON SATISFACTION OF THE
CONDITIONS SPECIFIED IN THE INDENTURE.
B-1
1
OCWEN FINANCIAL CORPORATION
3.25% Contingent Convertible Senior Unsecured Notes Due 2024
REGISTERED
CUSIP: 675746AC5
ISSUE DATE: July 28, 2004 Principal Amount: [ ]
No.
Ocwen Financial Corporation, a Florida corporation, promises to pay to
__________ or registered assigns, the principal amount of _____________________,
on August 1, 2024.
Interest Rate: 3.25% per year.
Interest Payment Dates: August 1 and February 1 of each year, commencing
February 1, 2005.
Interest Record Date: August 1 and February 1 of each year.
Reference is hereby made to the further provisions of this Security set
forth on the reverse side of this Security, which further provisions shall for
all purposes have the same effect as if set forth at this place.
B-2
2
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: July 28, 2004 OCWEN FINANCIAL CORPORATION
By:
-------------------------------------
Title:
----------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
- -------------------------------------,
THE BANK OF NEW YORK TRUST COMPANY, N.A.,
as Trustee, certifies that this is one
of the Securities referred to in the
within-mentioned Indenture.
By:
------------------------------------
Authorized Signatory
Dated: July 28, 2004
B-3
3
[FORM OF REVERSE OF CERTIFICATED SECURITY IS IDENTICAL TO EXHIBIT A]
B-4
4
EXHIBIT C
OCWEN FINANCIAL CORPORATION
3.25% Contingent Convertible Senior Unsecured Notes Due 2024
Transfer Certificate
In connection with any transfer of any of the Securities within the period
prior to the expiration of the holding period applicable to the sales thereof
under Rule 144(k) under the Securities Act of 1933, as amended (the "Securities
Act") (or any successor provision), the undersigned registered owner of this
Security hereby certifies with respect to $____________ principal amount of the
above-captioned Securities presented or surrendered on the date hereof (the
"Surrendered Securities") for registration of transfer, or for exchange or
conversion where the securities issuable upon such exchange or conversion are to
be registered in a name other than that of the undersigned registered owner
(each such transaction being a "transfer"), that such transfer complies with the
restrictive legend set forth on the face of the Surrendered Securities for the
reason checked below:
[ ] A transfer of the Surrendered Securities is made to the Company or
any of its subsidiaries; or
[ ] The transfer of the Surrendered Securities is pursuant to an
effective registration statement under the Securities Act; or
[ ] The transfer of the Surrendered Securities complies with Rule 144A
under the Securities Act; or
[ ] The transfer of the Surrendered Securities is pursuant to Rule 144
under the Securities Act and each of the conditions set forth in such
rule have been met;
and unless the box below is checked, the undersigned confirms that, to the
undersigned's knowledge, such Securities are not being transferred to an
"affiliate" of the Company as defined in Rule 144 under the Securities Act (an
"Affiliate").
B-5
5
[ ] The transferee is an Affiliate of the Company.
DATE:
----------------------------------
Signature(s)
(If the registered owner is a corporation, partnership or fiduciary, the
title of the person signing on behalf of such registered owner must be stated.)
Signature Guaranteed
- ---------------------------------------
Participant in a Recognized Signature
B-6
6
EXHIBIT 31.1
CERTIFICATIONS
I, William C. Erbey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ocwen Financial
Corporation;
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) 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) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusion 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
(c) Disclosed in this report any changes 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 on not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: August 9, 2004 /s/ WILLIAM C. ERBEY
---------------------------
William C. Erbey
Chief Executive Officer
52
EXHIBIT 31.2
CERTIFICATIONS
I, Mark S. Zeidman, certify that:
5. I have reviewed this quarterly report on Form 10-Q of Ocwen Financial
Corporation;
6. 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;
7. 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;
8. 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) 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) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusion 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
(c) Disclosed in this report any changes 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 on not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: August 9, 2004 /s/ MARK S. ZEIDMAN
---------------------------
Mark S. Zeidman
Chief Financial Officer
53
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
I, William C. Erbey, state and attest that:
1. I am the Chief Executive Officer of Ocwen Financial Corporation (the
"Registrant").
2. I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
. the Quarterly Report on Form 10-Q of the Registrant for the
quarter ended June 30, 2004 (the "periodic report") containing
financial statements fully complies with the requirements of
Section 13(a) or 15(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78m or 78o(d)); and
. the information contained in the periodic report fairly
represents, in all material respects, the financial condition
and results of operations of the Registrant for the periods
presented.
Name: /s/ WILLIAM C. ERBEY
-------------------------
Title: Chief Executive Officer
Date: August 9, 2004
54
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
I, Mark S. Zeidman, state and attest that:
3. I am the Chief Financial Officer of Ocwen Financial Corporation (the
"Registrant").
4. I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
. the Quarterly Report on Form 10-Q of the Registrant for the
quarter ended June 30, 2004 (the "periodic report") containing
financial statements fully complies with the requirements of
Section 13(a) or 15(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78m or 78o(d)); and
. the information contained in the periodic report fairly
represents, in all material respects, the financial condition
and results of operations of the Registrant for the periods
presented.
Name: /s/ MARK S. ZEIDMAN
-------------------------
Title: Chief Financial Officer
Date: August 9, 2004
55