-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D/4K68lJ29KfktWQY8VarNZvBnIAfOYvM3xsB7luZX/WyKgIsuJ6hhu971/sFk86 FIY68qjE5+/XTUId37p/oA== 0000899140-08-001601.txt : 20080815 0000899140-08-001601.hdr.sgml : 20080814 20080815172650 ACCESSION NUMBER: 0000899140-08-001601 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20080815 DATE AS OF CHANGE: 20080815 GROUP MEMBERS: ALAN FOURNIER SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PHH CORP CENTRAL INDEX KEY: 0000077776 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 520551284 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-13543 FILM NUMBER: 081023680 BUSINESS ADDRESS: STREET 1: 3000 LEADENHALL ROAD CITY: MT. LAUREL STATE: NJ ZIP: 08054 BUSINESS PHONE: 856-917-1744 MAIL ADDRESS: STREET 1: 3000 LEADENHALL ROAD CITY: MT. LAUREL STATE: NJ ZIP: 08054 FORMER COMPANY: FORMER CONFORMED NAME: PHH GROUP INC DATE OF NAME CHANGE: 19880913 FORMER COMPANY: FORMER CONFORMED NAME: PETERSON HOWELL & HEATHER INC DATE OF NAME CHANGE: 19790121 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PENNANT CAPITAL MANAGEMENT LLC CENTRAL INDEX KEY: 0001168664 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 26 MAIN STREET STREET 2: SUITE 203 CITY: CHATHAM STATE: NY ZIP: 07928 BUSINESS PHONE: 9737011100 MAIL ADDRESS: STREET 1: 26 MAIN STREET STREET 2: SUITE 203 CITY: CHATHAM STATE: NY ZIP: 07928 FORMER COMPANY: FORMER CONFORMED NAME: PENNANT CAPITAL MANAGEMENT INC DATE OF NAME CHANGE: 20020307 SC 13D/A 1 p4423404b.txt AMENDMENT NO. 5 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Amendment No. 5) Under the Securities Exchange Act of 1934* PHH Corporation --------------------------------------------------------------------- (Name of Issuer) Common Stock, par value $0.01 per share --------------------------------------------------------------------- (Title of Class of Securities) 693320202 --------------------------------------------------------------------- (CUSIP Number of Class of Securities) Alan Fournier Pennant Capital Management LLC 26 Main Street, Suite 203 Chatham, NJ 07928 (973) 701-1100 --------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copies to: Michael A. Schwartz, Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019-6099 (212) 728-8000 August 12, 2008 --------------------------------------------------------------------- (Date of Event which Requires Filing of this Schedule) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box: [ ] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7 for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the "Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - -------------------------------- ------------------- CUSIP No. 693320202 Page 2 of 8 Pages - -------------------------------- ------------------- - ----------- -------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Pennant Capital Management LLC - ----------- -------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] - ----------- -------------------------------------------------------------------- 3 SEC USE ONLY - ----------- -------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - ----------- -------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ----------- -------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - --------------------- --------- ------------------------------------------------ 7 SOLE VOTING POWER 0 --------- ------------------------------------------------ NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 5,395,941 OWNED BY --------- ------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON WITH 0 --------- ------------------------------------------------ 10 SHARED DISPOSITIVE POWER 5,395,941 - ----------- -------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 5,395,941 - ----------- -------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ----------- -------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.9% - ----------- -------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO - ----------- -------------------------------------------------------------------- SCHEDULE 13D - -------------------------------- ------------------- CUSIP No. 693320202 Page 3 of 8 Pages - -------------------------------- ------------------- - ----------- -------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Alan Fournier - ----------- -------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] - ----------- -------------------------------------------------------------------- 3 SEC USE ONLY - ----------- -------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - ----------- -------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ----------- -------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - --------------------- --------- ------------------------------------------------ 7 SOLE VOTING POWER 0 --------- ------------------------------------------------ NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 5,395,941 OWNED BY --------- ------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON WITH 0 --------- ------------------------------------------------ 10 SHARED DISPOSITIVE POWER 5,395,941 - ----------- -------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 5,395,941 - ----------- -------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ----------- -------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.9% - ----------- -------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - ----------- -------------------------------------------------------------------- This Amendment No. 5 to Schedule 13D further amends the Schedule 13D filed on March 22, 2007, as amended by Amendment No. 1 thereto filed on April 30, 2007, Amendment No. 2 thereto filed on June 20, 2007, Amendment No. 3 thereto filed on August 3, 2007, and Amendment No. 4 thereto filed on August 10, 2007 (all as amended by this Amendment No. 5, the "Schedule 13D") by Pennant Capital Management, LLC, a Delaware limited liability company ("Pennant Capital"), and Alan Fournier, a United States citizen ("Mr. Fournier," and together with Pennant Capital, the "Reporting Persons"), with respect to the shares of common stock, par value $0.01 per share (the "Common Stock"), of PHH Corporation, a Maryland corporation (the "Issuer"). Capitalized terms used and not otherwise defined herein have the meanings ascribed thereto in the Schedule 13D. Item 3. Source and Amount of Funds or Other Consideration Item 3 of the Schedule 13D is amended and restated as follows: Funds for the purchase of the shares of Common Stock reported herein to be held by Offshore, Onshore, Qualified, Spinnaker, Windward LP and Windward Ltd. were derived from their respective general working capital and margin account borrowings made in the ordinary course of business. A total of approximately $144.94 million was paid to acquire the shares of Common Stock reported herein. Item 4. Purpose of Transaction Item 4 of the Schedule 13D is hereby amended by the addition of the following: On August 12, 2008, the Reporting Persons received a determination (the "Determination Letter") by the New York State Insurance Department (the "Department"), pursuant to Section 1501(c) of the New York Insurance Law, that the Reporting Persons will not "control" (as defined in Section 1501(a)(2) of the New York Insurance Law) Atrium Insurance Corporation, a subsidiary of the Issuer ("Atrium"), if the Reporting Persons take certain investment actions described in such Determination Letter with respect to their investment in the Issuer, subject to the conditions stated therein. The Determination Letter is more fully described in Item 6 below. Subject to the conditions and limitations set forth in the Determination Letter, the Reporting Persons may in the future, without resulting in "control" of the Issuer or Atrium within the meaning of Section 1501(a)(2) of the New York Insurance Law, take such actions (within the parameters set forth in the Determination Letter) with respect to their investment in the Issuer as they deem appropriate, including purchasing shares of Common Stock or any of the Issuer's debt or other equity securities (including shares received upon conversion of the Notes as described above), entering into swap agreements or other arrangements relating to securities of the Issuer (which would expose the Reporting Persons to the economic benefits and risks of owning such securities or having sold such securities, without the actual acquisition or transfer of ownership), or selling or otherwise disposing of some or all of their shares of Common Stock or any of the Issuer's debt or other equity securities, in each case, in the open market or in privately negotiated transactions or otherwise, or changing their intention with respect to any and all matters referred to above. - 4 - Item 5. Interest in Securities of the Issuer Paragraphs (a), (b) and (c) of Item 5 of the Schedule 13D are hereby amended and restated as follows: (a-b) Pennant Capital is the manager of each of Offshore, Onshore, Qualified, Spinnaker, Windward LP and Windward Ltd., and consequently has voting control and investment discretion over the securities held by each of Offshore, Onshore, Qualified, Spinnaker, Windward LP and Windward Ltd. As of the date hereof, the Funds collectively hold 9.9% of the outstanding shares of Common Stock of the Issuer. Alan Fournier is the managing member of, and thereby controls, Pennant Capital. The foregoing should not be construed as an admission by any Reporting Person as to beneficial ownership of shares of Common Stock owned by another Reporting Person. The percentages used herein are based upon the 54,256,294 shares of Common Stock reported to be outstanding as of July 16, 2008 by the Issuer in its Quarterly Report on Form 10-Q for the period ended June 30, 2008, filed with the Securities and Exchange Commission on August 8, 2008. (c) During the past 60 days there were no transactions in the Common Stock effected by the Reporting Persons. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. In connection with the Issuer's offering of its 4.00% Convertible Senior Notes due 2012 (the "Notes") completed on April 2, 2008, the Funds acquired $25,000,000 in aggregate principal amount of the Notes. Pursuant to the Indenture governing the Notes, prior to October 15, 2011, holders of the Notes may convert the Notes only under limited circumstances beyond the control of such holders, including (i) if the Notes and Common Stock trade at certain ratios during a five business day period, (ii) if the Common Stock trades at certain amounts for 20 or more trading days in a period of 30 consecutive trading days in the preceding quarter or (iii) upon the occurrence of certain specified corporate events. Subsequent to October 15, 2011, the Notes may be converted regardless of circumstances. If the Notes become convertible, the principal amount of the Notes may only be converted to cash, and in certain limited circumstances the Issuer may opt to pay the excess over principal, if any, in cash, Common Stock or a combination of both. As disclosed in Item 4 above, the Reporting Persons received the Determination Letter on August 12, 2008, containing a determination by the Department, pursuant to Section 1501(c) of the New York Insurance Law, that the Reporting Persons will not "control", within the meaning of Section 1501(a)(2) of the New York Insurance Law, the Company or Atrium, if the Reporting Persons take certain actions described in the Determination letter with respect to their investment in the Issuer, subject to the conditions stated therein. In particular, if the Reporting Persons, holding no greater than a 9.99% voting interest in the Issuer, direct the Funds to acquire additional economic interests in the Issuer of up to 10%, resulting in a total economic interest in the Issuer of no greater than 19.99%, and continue to abide by certain commitments and meet certain conditions stated in the Determination Letter, the Reporting Persons will not be deemed to have "control" of the Issuer or Atrium as defined in Section 15(a)(2) of the New York Insurance Law. In accordance with commitments made by the Reporting Persons and conditions - 5 - set forth in the Determination Letter, the Reporting Persons may acquire additional economic interests in the Issuer by (a) entering into swap arrangements under which the Funds are entitled to the economic benefits, and are subject to the economic risks, of owning shares of Common Stock, (b) acquiring convertible securities (including additional Notes) of the Issuer containing certain features limiting the rights of the Reporting Persons to exercise control or (c) obtaining prior approval from the NYS Insurance Department before directing the Funds to purchase or acquire voting stock or securities convertible into voting stock. The Determination Letter sets forth certain conditions and guidelines with respect to the transactions listed above. With respect to swap arrangements, such swaps (i) may not grant any voting rights to the Funds with respect to the Issuer, (ii) may not require the counterparty to the swap to acquire any shares of Common Stock and (iii) may provide for only cash settlement of the swap upon termination. With respect to the acquisition of convertible securities, such securities must contain certain restrictions limiting the rights of the Reporting Persons to exercise control over the Issuer, including limitations on voting power or veto rights regarding the election or compensation of directors or management of the Issuer, any control over the day-to-day management of the Issuer (including hiring decisions), or any rights to participate in the board of directors or management committees of the Issuer (except non-voting observation rights). If the convertible securities do not contain such features, the Reporting Persons would be required to take steps to restrict the rights of the Funds purchasing such convertible securities via a regulatory letter agreement setting forth such restrictions or to seek the Department's prior approval before directing the Funds to purchase such convertible securities. Furthermore, under the terms of the Determination Letter, the Reporting Persons may not purchase additional shares of voting stock if such stock would increase the voting interests held by the Funds to over 9.99% of the outstanding voting interests of the Issuer, unless prior approval of the Department is obtained. Similarly, the Reporting Persons may not convert the Notes currently held by the Funds, or any additional convertible securities of the Issuer acquired in the future, into voting stock if such conversion would increase the voting interests held by the Funds to over 9.99% of the outstanding voting interests in the Issuer, unless prior approval of the Department is obtained. The conclusions of the Department are limited to the facts as presented in the Determination Letter and by the continued adherence by the Reporting Persons to certain commitments and conditions set forth in the Determination Letter. The foregoing description of the Determination Letter is qualified in its entirety by reference to the text of the letter, which is attached hereto as Exhibit D and incorporated by reference herein. Item 7. Material to be Filed as Exhibits Exhibit A: Letter to the Board of Directors of PHH Corp dated April 30, 2007 (previously filed) Exhibit B: Letter to the Board of Directors of PHH Corp dated June 20, 2007 (previously filed) - 6 - Exhibit C: Letter to the Board of Directors of PHH Corp dated August 10, 2007 (previously filed) Exhibit D: Determination of Non-Control of Atrium Insurance Corporation, dated August 12, 2008, from New York State Insurance Department. [Signatures on following page] - 7 - SIGNATURES After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: August 15, 2008 PENNANT CAPITAL MANAGEMENT LLC By: /s/ Alan Fournier ------------------------------------- Alan Fournier, Managing Member By: /s/ Alan Fournier ------------------------------------- Alan Fournier [SIGNATURE PAGE TO AMENDMENT NO. 5 TO SCHEDULE 13D WITH RESPECT TO PHH CORPORATION] EX-99.4 3 p4423404c.txt DETERMINATION Exhibit D STATE OF NEW YORK INSURANCE DEPARTMENT 25 BEAVER STREET NEW YORK, NEW YORK 10014 David A. Paterson Eric R. Dinallo Governor Superintendent August 12, 2008 Keith Richardson Chief Financial Officer Pennant Capital Management, LLC 26 Main Street, Suite 203 Chatham, NJ 07928 Re: Application by Pennant Capital Management LLC, Pennant General Partner, L.L.C., and Alan Fournier for Determination of Non-Control of Atrium Insurance Corporation ------------------------------------------------------------ Dear Mr. Richardson: I write in response to your letter dated April 30, 2008, which submitted to the New York Insurance Department (the "Department") an Amended and restated Disclaimer of Control(1) dated April 30, 2008 (the "Amended Disclaimer") by Pennant Capital Management LLC ("PCM"), a Delaware limited liability company; Pennant General partner, L.L.C. ("PGP"), a Delaware limited liability company; and Mr. Alan Fournier, who is the manager and majority owner of each of PCM and PGP, with the exclusive authority to direct and manage the activities of both PCM and PGP (collectively, the "Applicants"). In the Amended Disclaimer, Applicants seek a determination, pursuant to New York Insurance Law ss. 1501(c), that the Superintendent of Insurance would not consider Applicants to "control" Atrium Insurance Corporation ("Atrium"), a New York-domiciled mortgage guaranty insurer, within the meaning of Insurance Law ss. 1501(a)(2), if they were to acquire further economic interests in Atrium's 100% parent, PHH Corporation ("PHH"), a publicly traded Maryland Corporation. I. The Amended Disclaimer ---------------------- A. Applicants' Current Interests in PHH Stock ------------------------------------------ According to the Amended Disclaimer, Applicants at present indirectly own approximately 9.97% of PHH's outstanding common stock through their ownership and control of certain investment funds. Specifically, PCM and PCP manage and control the investment operations of the following funds that have directly invested in PHH (collectively, the "Funds"): o Pennant Offshore Partners, Ltd., a Cayman Islands company; o Pennant Windward Fund, Ltd., a Cayman Islands company; - ------------------------ (1) The Amended Disclaimer replaced an initial Disclaimer of Control dated February 29, 2008 which applicants had previously submitted to the Department. Keith Richardson August 12, 2008 Page 2 of 4 o Pennant Onshore Partners, LP, a Delaware limited partnership; o Pennant Onshore Qualified, LP, a Delaware limited partnership; o Pennant Spinnaker Fund, LP, a Delaware limited partnership; and o Pennant Windward Fund, LP, a Delaware limited partnership. According the Amended Disclaimer, each of the Funds was formed by Applicants to offer a distinct investment strategy to sophisticated investors, and investors in the Funds are passive and have limited or no authority to influence the Funds' actions. The Funds are said to have acquired the PHH common stock through gradual purchases on the open market starting in April 2006. B. Applicants' Recent Acquisition of PHH Convertible Notes ------------------------------------------------------- According to the Amended Disclaimer, the Applicants recently acquired additional economic interests in PHH through the Funds' purchase of 10% of certain 4.00% Convertible Senior Notes due in 2012 (the "Convertible Notes") offered by PHH on April 2, 2008. Applicants state that they purchased the Convertible Notes in order to maintain their current investment position in PHH. Applicants expressly commit in the Amended Disclaimer "that the Funds will not convert the Convertible Notes they hold if such conversion would cause PHH to issue an amount of voting common stock increasing the Funds' ownership of voting common stock to 10% or more of the voting common stock outstanding." Amended Disclaimer at n. 5. C. Applicants' Planned Further Acquisition of Interests in PHH ----------------------------------------------------------- The amended Disclaimer states that PCM plans to acquire further economic interests in PHH on behalf of the Funds (and thus Applicants), not to exceed approximately 10% more of the economic interests in PHH. PCM's planned acquisitions would result in the Applicants having a total investment of up to 19.99% of the economic interests in PHH, including the voting common stock of PHH that the Funds currently hold and the Convertible Notes. PCM plans to acquire such further interests in PHH, on behalf of the Funds, using one of or a combination of the following two structures, with a combined total limit of 19.99% of the economic interests in PHH (including the Funds' current holdings of 9.97% of PHH's voting common stock(2) and the Convertible Notes): 1. Swaps Pertaining to PHH ----------------------- The first method by which the Funds may acquire economic interests in PHH common stock, in excess of the 9.97% they currently own, is by entering one or more swaps with Morgan Stanley, the returns of which would be tied to the performance of PHH common stock ("Swaps"). The purpose of such Swaps would be to gain the economic benefits of owning an additional 10% of PHH's voting common stock without incurring the burdens of actual ownership. Applicants acknowledge that actually owning 10% more of PHH's voting common stock would require them to file with the SEC and would increase the chances that the Department would find the Applicants to control Atrium. According to the Amended Disclaimer, if the Funds enter into one or more Swaps, such Swaps would be governed by the terms of certain existing agreements between Morgan Stanley - ------------------------ (2) Applicants represent that they will not purchase more than 9.99% of the outstanding voting common stock of PHH. - 2 - Keith Richardson August 12, 2008 Page 3 of 4 and each of the Funds (the "Swap Arrangement"). Applicants represent that such Swaps (a) would not accord any voting rights to the Funds with respect to PHH; (b) would not require Morgan Stanley, as the counterparty, to acquire any shares of PHH common stock; and (c) would provide for only cash settlement of the Swaps upon termination. Applicants also note that, if the Funds were to enter into one or more Swaps pursuant to the Swap Arrangement, Morgan Stanley might choose to hedge its exposure under the Swaps by purchasing common stock of PHH. Applicants state that any decision by Morgan Stanley to hedge its exposure under such Swaps would be left to Morgan Stanley, and that neither the Applicants nor the Funds would be involved in any aspect of that decision. In addition, if Morgan Stanley were to hedge its risk under the Swaps by acquiring PHH common stock, the Funds would not obtain ownership of the PHH shares (or the voting power thereof), but instead would be limited to the economic interests associated with such shares on account of the Swaps. 2. Additional Convertible Securities --------------------------------- The second method by which the Funds may increase their interests in PHH is by purchasing convertible securities that PHH may issue in the future (e.g., convertible preferred stock or convertible debt with warrants), which could include additional Convertible Notes ("Convertible Securities"). If PHH were to issue additional Convertible Securities, although the terms of any such Convertible Securities have not yet been determined, the Applicants anticipate that they would have certain features limiting the rights of the Funds and the Applicants to exercise control over PHH. In the event that PHH were to offer additional Convertible Securities that lack these features, the Applicants commit either to restrict the rights of the Funds purchasing such Convertible Securities via a regulatory letter agreement or to seek the Department's prior approval before directing the Funds to purchase such securities. II. Analysis -------- Insurance Law ss. 1501(a)(2) defines "control" to mean "the possession direct or indirect of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract (except a commercial contract for goods or non-management services) or otherwise." The provision further states that "control shall be presumed to exist if any person directly or indirectly owns, controls or holds the power to vote ten percent or more of the voting securities of any other person." Applicants currently control approximately 9.97% of PHH's voting common stock through the Funds' holdings, and have recently acquired additional interests in PHH through their acquisition of the Convertible Notes. Moreover, they anticipate acquiring additional economic interests in PHH's voting common stock up to an aggregate maximum of 19.99% of such interests. If the Convertible Notes, Swaps, and/or additional Convertible Securities could be considered "voting securities" of PHH within the meaning of Insurance Law ss. 1501(a)(2), the Applicants would trigger that provision's presumption of control as soon as their interests in PHH voting common stock reached or exceeded 10%. However, neither the Convertible Notes, Applicant's interests in the Swaps, nor the Convertible Securities constitute "voting securities" for purposes of Insurance Law ss. 1501(a)(2). Insurance Law ss. 107(a), which contains the applicable definition, defines "voting securities" as - 3 - Keith Richardson August 12, 2008 Page 4 of 4 "securities of any class or any ownership interest having voting power for the election of directors, trustees or management of an institution, other than securities having such power only by reason of the happening of a contingency." Applicants represent that neither the Convertible Notes nor the Convertible Securities presently have voting rights and that voting rights would attach only upon the happening of a contingency. Accordingly, neither the Convertible Notes nor the Convertible Securities constitute "voting securities" that could trigger the presumption of control set forth in Insurance Law ss. 1501(a)(2). Nor is economic exposure to the performance of the PHH voting common stock, absent ownership of the stock itself or the voting rights associated therewith (neither of which the Applicants would acquire), the equivalent of owning "voting securities" as defined in Insurance Law ss. 107(a). Accordingly, even if Applicants acquire the proposed additional interests in PHH voting common stock up to an aggregate interest of 19.99% of such stock (including the voting common stock that the Funds currently hold and the Convertible Notes), the Funds would not own, and thus Applicants would not control, "voting securities" above 9.99% of the voting common stock of PHH. Moreover, in the Amended Disclaimer Applicants make the following commitments: o The Funds will not convert the Convertible Notes if such conversion would cause PHH to issue an amount of voting common stock that would increase the Funds' ownership of such stock to 10% or more of the PHH voting common stock outstanding; and o If the Funds purchase additional Convertible Securities, the Applicants will not convert such Convertible Securities into voting stock if such conversion would increase the voting interests held by the Funds to 10% or more of the outstanding voting common stock of PHH, unless they obtain the Department's prior approval. Based on the representations made in the Amended Disclaimer, and provided that Applicants abide by their commitments to the Department set forth therein and recited herein, the Department will not view Applicants' proposed acquisitions of additional interests in PHH common stock as causing Applicants to "control" PHH or Atrium within the meaning of Insurance Law ss. 1501(a)(2), notwithstanding the presumption of control set forth in that statutory provision. The Department's conclusion is strictly limited to the course of action proposed in the Amended Disclaimer and Applicants' continued adherence to their commitments, and does not extend to any other activity, which could result in a finding of control pursuant to Insurance Law ss. 1501. Very truly yours, /s/ Martha A. Lees Martha A. Lees Deputy General Counsel cc: Kermitt J. Brooks Robert H. Easton Larry Levine. -----END PRIVACY-ENHANCED MESSAGE-----