Convertible Debt and Notes Payable

As of September 30, 2016 and December 31, 2015, the Company's outstanding debt was as follows:



	As of September 30, 2016		As of December 31, 2015
	(dollars in thousands)
Convertible debt	$	128,065	$	122,401
Note payable	61,145		60,831
Other notes payable	15,166		—
Revolver	—		5,000
Capital lease obligations	2,046		2,734
	$	206,422	$	190,966

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 and $1.1 million for the three months ended September 30, 2016 and 2015 and $3.4 million and $3.4 million for the nine months ended September 30, 2016 and 2015, respectively. The initial unamortized discount on the Convertible Notes was $35.7 million and is shown net in convertible debt in the accompanying condensed consolidated statements of financial condition. Amortization on the discount, included within interest expense in the accompanying condensed consolidated statements of operations is $1.7 million and $1.6 million for the three months ended September 30, 2016 and 2015 and $5.1 million and $4.7 million for the nine months ended September 30, 2016 and 2015, 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 a direct deduction from the carrying value of the debt and will be amortized over the life of 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 $1.3 million for the three months ended September 30, 2016 and 2015 and $3.9 million and $3.9 million for the nine months ended September 30, 2016 and 2015, respectively. The Company capitalized debt issuance costs of approximately $2.9 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2021 Notes.

Other Notes Payable

During January 2016, the Company borrowed $2.0 million to fund insurance premium payments. This note has an effective interest rate of 1.38% and is due on December 31, 2016, with monthly payment requirements of $0.2 million. As of September 30, 2016, the outstanding balance on this note payable was $0.4 million. Interest expense for the three and nine months ended September 30, 2016 was insignificant.

During the second quarter of 2016, the Company entered into financing for two of its aircraft and acquired additional debt when four other aircraft were acquired (See Note 2). The aircraft financing, net of debt costs, is recorded in notes payable and short-term borrowings in the accompanying condensed consolidated statements of financial condition. The debt maturities ranged from February 2017 to May 2021 and interest rates ranged from 4.80% to 7.25%. As of September 30, 2016, the remaining balance on the aircraft financing agreements was $14.8 million. Interest expense was $0.2 million and $0.5 million for the three and nine months ended September 30, 2016, respectively.

Revolver

On July 31, 2015, the Company entered into a $25.0 million 364 day revolving unsecured credit facility with multiple financial institutions primarily for working capital management. On July 29, 2016, the Company amended its credit facility to, among other things, extend the existing stated maturity thereof from August 3, 2016 to September 29, 2016, reduce the aggregate revolving commitments thereunder from $25 million to $15 million and make future draws on the revolver during the extension period subject to the sole discretion of the lenders thereunder. In connection with the amendment, the Company repaid all outstanding amounts under the credit facility. The revolving unsecured credit facility terminated in accordance with its terms on September 29, 2016. Interest accrued on borrowed funds at LIBOR plus 3.0% and interest accrued on the undrawn facility amount at LIBOR plus 0.38%. Interest expense for the three and nine months ended September 30, 2016 was $0.1 million and $0.4 million and interest expense for the three and nine months ended September 30, 2015 was $0.2 million and $0.2 million, respectively.

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 condensed 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, 2016, the remaining balance on these capital leases was $2.0 million. Interest expense was $0.1 million and $0.1 million for the three months ended September 30, 2016 and 2015 and $0.1 million and $0.1 million for the nine months ended September 30, 2016 and 2015, respectively.

Annual scheduled maturities of debt and minimum payments for all debt outstanding as of September 30, 2016, is as follows:



	Convertible Debt			Note Payable			Other Note Payable			Capital Lease Obligation
	(dollars in thousands)
2016	$	—		$	1,304		$	1,221		$	235
2017	4,485			5,218			4,225			938
2018	4,485			5,218			2,225			938
2019	151,743			5,218			3,702			78
2020	—			5,218			1,805			—
Thereafter	—			68,468			4,723			—
Subtotal	160,713			90,644			17,901			2,189
Less: Amount representing interest (a)	(32,648		)	(29,499		)	(2,735		)	(143		)
Total	$	128,065		$	61,145		$	15,166		$	2,046


(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, 2016, the Company has nine 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. The Company also has a letter of credit, in the amount of $5.5 million, due March 2017, for which cash is pledged as collateral under a reinsurance agreement.



Location	Amount		Maturity
	(dollars in thousands)
New York	$	355	May 2017
New York	$	70	May 2017
New York	$	695	October 2016
New York	$	3,373	October 2016
New York	$	1,600	November 2016
San Francisco	$	710	January 2017
Connecticut	$	65	January 2017
New York	$	1,000	February 2017
Boston	$	382	March 2017

To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of September 30, 2016 and December 31, 2015, there were no amounts due related to these letters of credit.