Convertible Debt and Notes Payable

As of September 30, 2015 and December 31, 2014, the Company's outstanding debt was as follows:



	As of September 30, 2015		As of December 31, 2014
	(dollars in thousands)
Convertible debt	$	123,149	$	118,475
Note Payable	63,250		63,250
Other Note payable	355		—
Capital lease obligations	3,023		3,894
	$	189,777	$	185,619

Convertible Debt

On March 10, 2014, the Company issued $149.5 million of 3.0% cash convertible senior notes ("Convertible Notes"). The Convertible Notes are due on March 15, 2019 unless earlier repurchased by the Company or converted by the holder into cash in accordance with their terms prior to such date. The interest on the Convertible Notes is payable semi-annually on March 15 and September 15 of each year. The Convertible Notes are senior unsecured obligations and rank senior in right of payments to other obligations. The Convertible Notes may be converted into cash, upon the occurrence of certain events, whereby a holder will receive, per $1,000 principal amount of notes being converted, an amount equal to the sum of principal amount outstanding and the conversion amount based on the current conversion price (the "Conversion Option"). The Convertible Notes were issued with an initial conversion price of $5.33 per share.

The Company recorded interest expense of $1.1 million for the three months ended September 30, 2015 and 2014, respectively, and $3.4 million and $1.1 million for the nine months ended September 30, 2015 and 2014, respectively. The initial unamortized discount on the Convertible Notes was $35.7 million and is shown net in convertible debt in the accompanying consolidated statements of financial condition. Amortization on the discount, included within interest expense in the accompanying consolidated statements of operations is $1.6 million and $1.5 million for the three months ended September 30, 2015 and 2014 and $4.7 million and $3.2 million for the nine months ended September 30, 2015 and 2014, respectively, based on an effective interest rate of 8.89%. The Company capitalized the debt issuance costs in the amount of $3.7 million, which is included in other assets in the accompanying consolidated statements of financial condition, and will be amortized over the life of the Convertible Notes. As of September 30, 2015, the Company is in compliance with all covenants included in the indenture governing the Convertible Notes.

Of the net proceeds from the sale of the Convertible Notes, approximately $20.5 million was applied to pay the net cost of a cash convertible note economic hedge and warrant transaction which increases the effective conversion price to $7.18 (see Note 5), and approximately $0.3 million was applied to repurchase shares of Cowen Class A common stock. The remainder of the net proceeds is being used for general corporate purposes.

Note Payable

On October 10, 2014 the Company completed its public offering of $63.3 million aggregate principal amount of 8.25% senior notes due on October 15, 2021 ("2021 Notes"). Interest on the 2021 Notes is payable quarterly in arrears on January 15, April 15, July 15 and October 15, commencing on January 15, 2015. The Company recorded interest expense of $1.3 million and $3.9 million for the three and nine months ended September 30, 2015, respectively. The Company capitalized debt issuance costs of approximately $2.9 million which are included in other assets in the accompanying consolidated statements of financial condition and will be amortized over the life of the 2021 Notes. As of September 30, 2015, the Company is in compliance with all covenants included in the indenture governing the 2021 Notes.

Other Note Payable

During January 2015, the Company borrowed $2.0 million to fund insurance premium payments. This note has an effective interest rate of 1.33% and is due on December 1, 2015, with monthly payment requirements of $0.2 million. As of September 30, 2015, the outstanding balance on this note payable was $0.4 million. Interest expense for the three and nine months ended September 30, 2015 was insignificant.

Revolver

On July 31, 2015, the Company entered into a $25.0 million 364 day revolving unsecured credit facility with multiple financial institutions. The Company had no amounts outstanding under this facility as of September 30, 2015. Interest accrues on borrowed funds at LIBOR plus 3.0% and interest accrues on the undrawn facility amount at LIBOR plus 0.38%. The Company is required to comply with certain financial covenants for which the Company was in compliance with at September 30, 2015.

Capital Lease Obligations

The Company entered into several capital leases for computer equipment during the fourth quarter of 2010 and one in January 2014. These leases amounted to $7.6 million and are recorded in fixed assets and as capital lease obligations, which are included in short-term borrowings and other debt in the accompanying consolidated statements of financial condition, and have lease terms that range from 48 to 60 months and interest rates that range from 0.60% to 6.03%. As of September 30, 2015, the remaining balance on these capital leases was $3.0 million. Interest expense was $0.1 million for the three months ended September 30, 2015 and 2014, respectively, and $0.1 million and $0.2 million for the nine months ended September 30, 2015 and 2014, respectively.

Annual scheduled maturities of debt and minimum payments for all debt outstanding as of September 30, 2015, is as follows:



	Convertible Debt			Note Payable			Other Note Payable			Capital Lease Obligation
	(dollars in thousands)
2015	$	—		$	1,304		$	361		$	330
2016	4,485			5,218			—			1,025
2017	4,485			5,218			—			938
2018	4,485			5,218			—			938
2019	151,743			5,218			—			78
Thereafter	—			73,686			—			—
Subtotal	165,198			95,862			361			3,309
Less: Amount representing interest (a)	(42,049		)	(32,612		)	(6		)	(286		)
Total	$	123,149		$	63,250		$	355		$	3,023


(a)	Amount necessary to reduce net minimum payments to present value calculated at the Company's implicit rate at inception. This amount also includes the unamortized discount on the convertible debt.

Letters of Credit

As of September 30, 2015, the Company has the following seven irrevocable letters of credit related to leased office space, for which there is cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit.



Location	Amount		Maturity
	(dollars in thousands)
San Francisco	$	710	October 2025
New York	$	1,000	February 2016
Boston	$	382	March 2016
New York	$	355	May 2016
New York	$	1,861	May 2016
New York	$	794	October 2016
New York	$	3,935	October 2016

To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of September 30, 2015 and December 31, 2014, there were no amounts due related to these letters of credit.