As filed with the Securities and Exchange Commission on July 24, 2009

File No. 1-34354

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

POST-EFFECTIVE AMENDMENT NO. 1

TO

 

Form 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(b) OR 12(g)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

Altisource Portfolio Solutions S.A.

(Exact name of registrant as specified in its charter)

 

 

 

2-8 Avenue Charles de Gaulle,

L-1653 Luxembourg

Grand Duchy of Luxembourg

R.C.S. Luxembourg: B 72 391

(Address of Principal Executive Offices)

 

Registrant’s telephone number, including area code:

407-737-5419

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

 

 

 

Securities to be registered pursuant to Section 12(g) of the Act:

None.

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

 

Altisource Portfolio Solutions S.A.
Cross-Reference Sheet Between the Information Statement and Items of Form 10

 

Our information statement may be found as Exhibit 99.1 to this Form 10. For your convenience, we have provided below a cross-reference sheet identifying where the items required by Form 10 can be found in the information statement.

 

 

(a) List of Financial Statements and Schedules.

 

The following financial statements are included in the information statement and filed as part of this registration statement on Form 10.

(1) Consolidated Financial Statements of Altisource Portfolio Solutions S.A., including Report of Independent Registered Certified Public Accounting Firm.

 

(2) Consolidated Financial Statements of Nationwide Credit, Inc. and Subsidiary for the period January 1, 2007 to June 5, 2007, including Report of Independent Auditors.

 

(3) Consolidated Financial Statements of Nationwide Credit, Inc. and Subsidiary for the Year Ended December 31, 2006, including Report of Independent Auditors.

 

(b) Exhibits. The following documents are filed as exhibits hereto.

 

 

 

SIGNATURE

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Post-Effective Amendment No. 1 to the registration statement on Form 10 to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Altisource Portfolio Solutions S.A.

 

Name:     Robert D. Stiles

Title:       Chief Financial Officer

 

Dated: July 24, 2009

EXHIBIT INDEX

 

 

 

Exhibit 99.1

 

 

[     ], 2009

 

Dear Shareholders of Ocwen Financial Corporation:

 

In November 2008, Ocwen Financial Corporation, which we refer to as Ocwen, announced a plan to separate into two focused companies. To accomplish this, we will consolidate most of the Ocwen Solutions operations into an existing subsidiary, which upon the separation will become a separate public company. After the separation, this new business will conduct its operations as Altisource Portfolio Solutions S.A., which we refer to as Altisource.

 

Altisource provides a robust suite of real estate mortgage portfolio management and related technology products and asset recovery and customer relationship management services. After the separation, Ocwen will remain committed to providing high quality asset management and loan servicing.

 

The separation of Altisource is expected to occur on August 10, 2009, subject to certain closing conditions, by way of a pro rata stock distribution to Ocwen shareholders (including the holders of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024 on an as if converted basis). Each Ocwen shareholder will receive one share of Altisource common stock for every three shares of Ocwen common stock held (on an as if converted basis) as of the close of business on August 4, 2009, the record date of the separation.

 

As a holder of Ocwen common stock, you will automatically receive Altisource common stock unless you sell your Ocwen shares before the Separation Date in the “regular way” market as described in the enclosed information statement. If the number of shares of Ocwen common stock that you own is not a multiple of three, you will receive a cash payment in lieu of any fractional share that you otherwise are entitled to receive. The number of shares of Ocwen common stock that you currently own will not change as a result of the separation. Shareholder approval of the separation is not required and is not being sought. You do not need to take any action or pay any consideration to receive the shares of Altisource in the separation. Please do not send us certificates representing your shares of Ocwen common stock.

 

The separation is also conditioned upon the receipt of a favorable opinion of counsel confirming the transaction’s tax-free status under Section 355 of the Internal Revenue Code. A transaction that qualifies as a tax-free spin-off under Section 355 of the Internal Revenue Code is not taxable to Ocwen, Altisource or Ocwen shareholders, except to the extent that you receive cash in lieu of fractional shares of Altisource common stock.

 

Altisource has applied to list its common stock on The NASDAQ Stock Market LLC under the symbol “ASPS.” The common stock of Ocwen will continue to trade on the New York Stock Exchange under the symbol “OCN.”

 

The enclosed information statement, which is being mailed to all Ocwen shareholders, describes the separation in detail and contains important information about Altisource. We encourage you to read this information statement carefully.

 

We believe the separation will enable Ocwen and Altisource management to maximize strengths of their respective core businesses. We are proud of what we have built at Ocwen and want to ensure that we continue to capitalize on innovative ideas and business opportunities. This is an exciting time for Ocwen and Altisource and we believe this separation is in the best interest of Ocwen shareholders. We remain committed to working on behalf of you, our shareholders, to build long-term value.

 

Sincerely,

 

William C. Erbey

Chief Executive Officer and Chairman

[     ], 2009

 

 

 

Dear Prospective Shareholders of Altisource Portfolio Solutions:

 

We look forward to welcoming you as a shareholder of Altisource Portfolio Solutions S.A., which we refer to as Altisource. We believe that our independence will allow us to focus on our core businesses and provides us with the financial and operational flexibility to take advantage of opportunities in the knowledge process outsourcing marketplace. At Altisource, we are committed to enhancing our customers’ performance and profitability by automating high value, knowledge-based job functions with cutting edge solutions that improve our performance, resulting in higher quality, faster delivery and increased margins for both ourselves and our customers.

 

We expect Altisource to become a stand-alone newly-public company on or about August 10, 2009 upon receipt of all required approvals and satisfaction of all other conditions. We anticipate that Altisource’s shares will be listed on The NASDAQ Stock Market LLC under the symbol “ASPS.” Altisource will include the majority of the operations within Ocwen’s Mortgage Services, Financial Services and Technology Products business segments.

 

I encourage you to learn more about Altisource and the objectives we will pursue as a stand-alone public company by reading the enclosed information statement. It describes the separation in detail including the conditions to the separation.

 

We look forward to creating long-term shareholder value for you our shareholders.

 

Sincerely,

 

William B. Shepro

Chief Executive Officer

 

 

SUBJECT TO COMPLETION, DATED JULY 24, 2009

 

 

INFORMATION STATEMENT RELATING TO THE DISTRIBUTION OF COMMON STOCK OF

 

 

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
by
OCWEN FINANCIAL CORPORATION
to Shareholders of Ocwen Financial Corporation

 

 

Ocwen Financial Corporation, which we refer to as Ocwen, has decided to separate its Ocwen Solutions business (the “Restructuring”) and to distribute all of our common stock to Ocwen’s shareholders (the “Distribution”). We refer to the Restructuring and the Distribution collectively as the Separation. Immediately after the Separation is completed, Altisource will be a stand-alone, publicly traded company.

 

 

For every three shares of Ocwen common stock, par value $0.01 per share, which we refer to as Ocwen common stock, that you hold as of the close of business on August 4, 2009, the record date for the Distribution (the “Record Date”), you will receive one share of Altisource common stock, par value $1.00 per share, which we refer to as Altisource common stock or our common stock. We expect Ocwen to distribute shares of our common stock to Ocwen’s shareholders on or about August 10, 2009 (the “Separation Date”). As discussed more fully in this information statement, if you sell shares of Ocwen common stock in the “regular way” market, and the sale of the shares settles before the Separation Date, you will be selling your right to receive shares of Altisource common stock in the Separation. See “The Separation — Trading Before the Separation Date.”

 

 

Because it is not required, we are not requesting that Ocwen shareholders vote on the Separation, and you do not have to take any other action in order to receive shares of Altisource common stock. You will not be required to pay anything for the Altisource common stock or to surrender any of your Ocwen common stock. Please do not send us certificates representing your shares of Ocwen common stock. We are not asking you for a proxy and request that you do not send a proxy.

 

 

All of the outstanding shares of our common stock are currently owned by Ocwen. Accordingly, there is no current trading market for our common stock. We expect, however, that a limited trading market for our common stock, known as a “when issued” trading market, will develop several business days prior to the Record date, and we expect “regular way” trading of our common stock will begin on the Separation Date. We expect to list the Altisource common stock on The NASDAQ Stock Market LLC under the symbol “ASPS.”

 

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 11.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

 

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 

 

 

 

The date of this information statement is [     ], 2009.

 

 

This information statement was first mailed to Ocwen shareholders on or about [     ], 2009.

 

TABLE OF CONTENTS

 

 

We are furnishing this information statement solely to provide information to Ocwen Financial Corporation shareholders who will receive shares of our common stock in the Separation. It is not and should not be construed as an inducement or encouragement to buy or sell any of our securities or any securities of Ocwen. This information statement describes our business, the relationship between Ocwen and Altisource Portfolio Solutions and how the Separation affects Ocwen and its shareholders, and it provides other information to assist you in evaluating the benefits and risks of holding or disposing of our common stock that you will receive in the Separation. You should be aware of certain risks relating to the Separation, our business and ownership of our common stock, which are described under the heading “Risk Factors.”

 

You should not assume that the information contained in this information statement is accurate as of any date other than the date on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information except in the normal course of our public disclosure obligations and practices.

 

The information statement refers to certain trademarks and service marks, including Altisource Portfolio Solutions, Altisource, the REAL- family of trademarks and service marks, including REALTrans^®, REALTrans^® (Stylized and Design), REALSynergy^®, REALSynergy^® (Stylized and Design), REALResolution, REALServicing^®, REALRemit^®, and REALDoc, Nationwide Credit, Inc.(NCI) and NCI.

 

SUMMARY

	•	Our Mortgage Services business includes due diligence, valuation, real estate sales, default processing services, property inspection and preservation services, homeowner outreach, closing and title services and knowledge process outsourcing services. Mortgage Services supports mortgage originators and servicers, insurance companies, hedge funds and commercial banks. Our services span the lifecycle of a mortgage loan from origination services through the disposition of real estate owned properties (“REO”). For the year ended December 31, 2008, this segment generated $54,956 in revenue;
	•	Our Financial Services business provides asset recovery and customer relationship management services to the financial services, consumer products, telecommunications and utilities industries. In June 2007, we acquired Nationwide Credit, Inc., referred to as “NCI,” a leading accounts receivable and customer relationship management company. NCI is one of the ten largest receivables management companies in the United States as reported in independent third party industry polls conducted in 2007 and 2008. For the year ended December 31, 2008, this segment generated $73,835 in revenue; and
	•	Our Technology Products business consists of products and services utilized in the mortgage industry including our REAL suite of applications that provide technology products to serve the needs of servicing and origination businesses. Our offerings include commercial and residential loan servicing and loss mitigation software, vendor management and a patented vouchless payable system and information technology solutions to manage and oversee payments to large-scale vendor networks. For the year ended December 31, 2008, this segment generated $45,283 in revenue.

	•	Strong domain expertise.  Altisource focuses on selling process outputs and solutions instead of seats. Process outputs and solutions are the number of units managed on behalf of our client. Seats refer to charging a set rate per outsourced employee or per minute of talk time. For example, in our Mortgage Services business we generally charge for each valuation, property inspection, title search and real estate asset sold. In our Financial Services business, we generally charge a percentage of the amount we collect on delinquent consumer receivables on behalf of our clients. In our Technology Products business, we generally charge our clients based upon the number of the client’s loans processed on the Altisource licensed system, or based on the number of our client’s employees that are using the applicable systems. Unlike a business model that sells all of its services on a per person basis, this allows us to improve our margins as we become more efficient in providing our services.
	•	Firmly established.  We are well regarded in the mortgage services and asset recovery management industries and have maintained long-term relationships with our customers.
	•	Technology and Process.  By utilizing psychological principles, scripts, decision models and workflow management, we believe that Altisource is able to reduce variability and improve performance resulting in higher quality, faster delivery and increased margins for both ourselves and our customers.
	•	Management Team.  We have a cohesive management team with significant experience. Our disciplined recruiting practices include cognitive testing, personality screening and behavioral interviewing for all levels of the Company.

	•	Mortgage Services.  We believe our Mortgage Services segment is poised to grow its revenue and earnings by providing products and services primarily related to loans in default and real estate serviced and or owned by Ocwen and third parties. Currently, Ocwen pays approximately $400,000 per year to vendors for various services primarily associated with residential loan servicing and default management for its own use or on behalf of the trusts and investors for which it services. We believe that we will be able to capture additional revenue annually over the next few years from recently launched services including real estate sales, default processing services, property inspection and preservation services, homeowner outreach and title services. After firmly establishing our capabilities in these services for Ocwen, we intend to sell the same services to third parties.
	•	Financial Services.  Technology integration, right-sizing U.S. infrastructure, data-driven variability reduction initiatives including scripting based upon psychological principles and focusing on core customers are some of the initiatives we believe will allow us to lower variability, reduce costs, improve margins and provide better performance to current and future customers in our asset recovery and customer relationship management business. We believe we can use many of the same methods and processes that enabled Ocwen

		to become one of the most efficient mortgage loan servicers to generate growth and margin expansion in our Financial Services segment.

	•	Technology Products.  Our Technology Products segment supports the business lines within Mortgage Services and drives operational excellence in the Financial Services segment. We intend to sell our REAL suite of products as part of an overall service solution that forms part of the business lines of Mortgage Services. Technology Products supports Ocwen’s information technology needs and where relevant, Technology Products will be sold on a stand-alone basis to external customers.

	•	Allow each of Ocwen and Altisource to separately focus on their core business and be better able to respond to initiatives and market challenges;
	•	Better position Altisource to pursue business opportunities with other servicers;
	•	Provide Altisource the option of offering its stock as consideration to potential acquisition targets (subject to certain limitations, as for a period of two years following the Separation, issuances of 50% or more of our common stock to one entity may cause the Distribution to lose its tax-free treatment for Ocwen and therefore we are required to notify or obtain approval from Ocwen for proposed issuances of 25% or more of our common stock; however, we believe that the impact of such loss of the tax-free treatment for Ocwen would be mitigated substantially because Ocwen shall recognize substantially all of its gain in the Altisource business in connection with the Restructuring as more fully described under “Certain United States Federal Income Tax Consequences of the Separation”);
	•	Grant Altisource flexibility in creating its own capital structure which may include a subsequent raise of equity or debt; and
	•	Allow potential investors to choose between the contrasting business models of knowledge processing or servicing, each of which may be valued differently by the equity markets.

What assets, liabilities and operations will comprise Altisource in connection with the Separation?		The majority of Ocwen’s knowledge process outsourcing business (consisting of mortgage services, financial services and technology products businesses) will be consolidated into Altisource prior to the Distribution. Ocwen’s interest in BMS Holdings, Inc., an equity investment which we refer to as BMS, and Global Servicing Solutions, LLC, which we refer to as GSS, will remain with Ocwen after the Separation. In connection with the Separation, we expect to enter into a “Separation Agreement” with Ocwen that will contain the key provisions relating to the transaction including identification of the assets to be transferred, liabilities to be assumed and contracts to be assigned to us by Ocwen and will describe the material terms of when and how these transfers, assumptions and assignments will occur. In addition, we expect to enter into a “Tax Matters Agreement” setting out each party’s rights and obligations with respect to federal, state, local and foreign taxes for tax periods before the Separation and related matters, certain indemnification rights and obligations with respect to taxes for tax periods before the Separation and for any taxes and associated adverse consequences resulting from the transaction and certain restrictions designed to preserve the tax-free status of the Distribution. See “Risk Factors — Risk Factors Related to the Separation.” In connection with the Separation, we also expect to enter into an “Employee Matters Agreement” with Ocwen providing for the allocation of assets, liabilities and responsibilities with respect to certain employee benefit plans, policies and compensation programs. See “Certain Relationships and Related Party Transactions — Agreements With Ocwen.”
What will Altisource’s Relationship with Ocwen be after the Separation?		In connection with the Separation, we expect to enter into a two-year “Transition Services Agreement” under which Ocwen and we will provide each other with certain services on an interim basis. Post Separation, Altisource’s largest customer will be Ocwen, and we will enter into long-term servicing contracts for up to eight years with Ocwen. For the year ended December 31, 2008, Ocwen represented 75.8% of revenues for Mortgage Services, 47.3% for Technology Products, 1.6% for Financial Services or 40.1% of total Altisource revenues. There are other arrangements between us and Ocwen that will continue following the Separation. See “Relationship Between Ocwen and Us Following the Separation” for additional details of these agreements.

		Although Ocwen is a separate company, Ocwen and we will have the same Chairman, William C. Erbey. Mr. Erbey currently owns 27.1% of Ocwen and will own approximately 25.6% of our stock following the Separation. This arrangement with Ocwen may involve, or may appear

		to involve, conflicts of interest. See “Certain Relationships and Related Party Transactions.”
Will Altisource be subject to any Anti-Takeover Effects?		Our formation and governance documents (under Luxembourg law, our articles of incorporation) do not include many of the typical provisions that would be considered to have an anti-takeover effect (e.g., staggered board of directors, poison pill or shareholder rights plan, etc.). However, approximately 27.6% of the voting power of our outstanding voting stock was held by our directors and executive officers as of the record date. This concentration of voting power could encourage or discourage third parties from making proposals involving an acquisition or change in control of Altisource since it could be easier or more difficult for third parties to obtain any requisite shareholder approval for acquisition or change in control.
		See “Business — Government Regulation,” “Description of Capital Stock” and “Anti-Takeover Provisions.”
What are the United States Federal Income Tax Consequences of the Separation?		The Distribution is conditioned upon the receipt of an opinion of O’Melveny & Myers LLP confirming the tax-free status under Section 355 of the United States Internal Revenue Code of 1986, as amended (the “Code”). The opinion will be based on the assumption that, among other things, the representations made, and information submitted, in connection with each are accurate. Altisource has agreed to indemnify Ocwen for tax liabilities resulting from the Distribution under particular circumstances. Although the Separation involves the use of existing Ocwen entities, as part of the Restructuring, any assets that are transferred to Altisource Portfolio Solutions S.A. or non-U.S. subsidiaries will be taxable to Ocwen pursuant to Section 367(a) of the Code.

		You are not expected to recognize any gain or loss for U.S. federal income tax purposes as a result of the Distribution, except for any gain or loss attributable to the receipt of cash in lieu of a fractional share of our common stock. The receipt by the holders of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024 of Altisource common stock should be currently taxable as interest income equal to the value of the Altisource shares received. See “The Separation — Certain U.S. Federal Income Tax Consequences of the Separation” for a more detailed description of the U.S. federal income tax consequences of the Distribution.

		Each shareholder is urged to consult a tax advisor as to the specific tax consequences of the Distribution to that shareholder, including the effect of any U.S., state, local or foreign tax laws and of changes in applicable tax laws.
What are the risks associated with Altisource and the Separation?		You should review the risks relating to the Separation, our business and ownership of our common stock described in “Risk Factors.”

What will I receive as a result of the Separation?		For every three shares of Ocwen common stock that you owned on the Record Date, you will receive one share of Altisource common stock which we refer to as the “Separation Ratio.” If you would be entitled to a fractional Altisource share of common stock, you will receive instead a check for the market value thereof. See “The Separation — Treatment of Fractional Shares.” If you are a holder of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024, like Ocwen shareholders you will receive one share of Altisource common stock for every three shares of Ocwen common stock you are deemed to hold on an as if

		converted basis, based on a conversion ratio of 82.1693 shares of Ocwen common stock for every $1,000 in aggregate principal amount of notes that you owned on the Record Date.

When will the Separation occur?		Ocwen currently anticipates completing the Separation on or about August 10, 2009, which we refer to as the “Separation Date”.

What is the Record Date for the Separation?		The Record Date is August 4, 2009, and ownership of Ocwen common stock will be determined as of 5:00 p.m., Eastern Time on that date. When we refer to the “Record Date,” we are referring to that date and time.

Are there any conditions to the Separation?		The Separation is subject to certain conditions including but not limited to confirmation of the tax-free treatment of the spin-off, necessary regulatory approvals, any required lender counterparty consents and final approval by the Ocwen Board of Directors.
Is shareholder approval required for the Separation?		Shareholder approval is not required for the Separation. The Separation will be accomplished by distributing all of the shares of Altisource common stock to holders of Ocwen common stock, which has been approved by the Ocwen Board of Directors pursuant to its statutory authority under Florida law.
What do I have to do to receive my shares of Altisource common stock?		Nothing. Your shares of Altisource common stock will be either reflected in an account statement that our transfer agent, American Stock Transfer & Trust Company, will send to you shortly after August 10, 2009 or credited to your account with your broker or nominee on or about August 10, 2009.
When will I receive my shares of Altisource common stock?		If you hold your Ocwen shares in your own name, then your account statement reflecting the Altisource shares will be mailed to you on or about August 10, 2009. You should allow several days for the mail to reach you.
		If you hold your Ocwen shares through your broker or other nominee, you are probably not a shareholder of record, and your receipt of Altisource shares depends on your arrangements with the nominee that holds your Altisource shares for you. Ocwen anticipates that brokers and other nominees generally will credit their customers’ accounts with Altisource shares on or about August 10, 2009, but you should check with your broker or other nominee. See “The Separation — When and How You Will Receive Altisource Common Stock.”
How will shares of Altisource common stock be distributed to me?		Ocwen will distribute the Altisource common stock by book entry. If you were a record holder of Ocwen common stock on the record date, then you will receive from our transfer agent shortly after August 10, 2009 a statement of your book entry account for the shares of Altisource common stock that are distributed to you. You will not receive physical stock certificates for your Altisource common stock. If you were not a record holder of Ocwen common stock on the record date because your shares are held on your behalf by your broker or other nominee, then your shares of Altisource common stock should be credited to your account with your broker or nominee on or about August 10, 2009.
Will Ocwen distribute fractional shares?		Fractional shares of Altisource common stock will not be issued in the Separation. If you would be entitled to receive a fractional share in the Separation, then you will instead receive a cash payment in lieu of the fractional share which cash payment may be taxable to you. See “The Separation — Treatment of Fractional Shares.”

Will the Separation affect the market price of my Ocwen shares?		Following the Separation, Ocwen common stock will continue to be listed and traded on the NYSE under the symbol “OCN.” As a result of the Separation, the trading price of Ocwen shares immediately following the Separation may be lower than immediately prior to the Separation. Net operating revenues for Altisource were approximately $160,363 and $134,906 for the fiscal years ended December 31, 2008 and 2007, respectively. Until the market has fully analyzed the operations of Ocwen without Altisource’s business, the price of Ocwen shares may fluctuate significantly. See “The Separation — Listing and Trading of the Shares of Altisource Common Stock.”

Where will my shares of Altisource common stock trade?		We expect that the shares of Altisource common stock will be authorized for listing on The NASDAQ Stock Market LLC under the trading symbol “ASPS” following completion of the Separation. Trading of Altisource common stock will begin on a “when-issued” basis on July 31, 2009. See “The Separation — Listing and Trading of the Shares of Altisource Common Stock” and “Description of Capital Stock — Transfer Restrictions.”

When will I be able to trade shares of Altisource common stock?		Trading of Altisource common stock will begin on a “when-issued” basis on July 31, 2009. “Regular-way” trading will begin on the Separation Date. In the context of a spin-off, when-issued trading refers to securities transactions made on or before the Separation Date and made conditionally because the securities of the distributed entity have not yet been distributed. When-issued trades generally settle within three trading days after the Separation Date. On the Separation Date, all when-issued trading, if any, will end, and regular-way trading in shares of Altisource common stock will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the transaction. Shares of Altisource common stock generally will be freely tradable after the Separation Date although the share price may be subject to greater trading volatility than Ocwen shares historically have experienced. See “The Separation — Listing and Trading of the Shares of Altisource Common Stock.”

What is Altisource’s dividend policy?		We currently do not plan to pay dividends. The timing and amount of future dividends, if any, will be determined by our Board of Directors (subject to prior approval of or subsequent ratification by our shareholders) and will be evaluated from time to time in light of our financial condition, earnings, growth prospects, funding requirements, financing arrangements, applicable law and other factors our Board of Directors deems relevant.

How will Altisource be managed?		After the Separation, we will have an initial Board of Directors consisting of five directors. William C. Erbey will be Chairman of our Board of Directors. See “Management — The Board.”
		Our Chief Executive Officer will be William B. Shepro, currently an Executive Vice President of Ocwen. Our Chief Financial Officer will be Robert D. Stiles, currently the Chief Financial Officer of the Altisource businesses. Shekar Sivasubramanian, currently the President of Mortgage Services and Technology Products of Ocwen and John T. McRae, II, currently the Chief Executive Officer of Nationwide Credit, Inc. will have the same titles in our company. Kevin J. Wilcox, currently the Executive Vice President and Chief Administration Officer of

		Ocwen, will be Chief Administration Officer and General Counsel. See “Management — Directors and Executive Officers.”
How will existing stock options be treated in the Separation?		Currently, stock options are outstanding under Ocwen’s 2007 Equity Incentive Plan and Ocwen’s 1991 Non-Qualified Stock Option Plan. Each outstanding Ocwen stock option will be adjusted to reflect the value of Altisource stock distributed to Ocwen shareholders. At the Separation Date, all holders of Ocwen stock options, including Altisource employees and those who will remain with Ocwen after the Separation, will receive the following:
		• a new Altisource stock option (issued by Altisource) to acquire the number of shares of Altisource common stock equal to the product of (a) the number of Ocwen stock options held on the Separation Date and (b) the distribution ratio of one share of Altisource common stock for every three shares of Ocwen common stock; and
		• an adjusted Ocwen option for the same number of shares of Ocwen common stock with a reduced exercise price per stock option.
		We will determine the exercise price of the new Altisource stock option and the adjusted Ocwen stock option based on the exercise price ratio. We will calculate the exercise price ratio for each individual stock option based on the ratio of the grant date exercise price of the individual stock option to the fair market value of the Ocwen stock immediately prior to the Separation. For example, assume that the Ocwen stock trades at $12.00 immediately prior to the Separation, and an employee holds a stock option with an exercise price of $8.00. The exercise price ratio for this stock option is 66.7%. We then will apply this exercise price ratio to the trading value of the Ocwen stock and the Altisource stock on the date the Altisource stock begins trading on The NASDAQ Stock Market LLC to determine the exercise price of the new Altisource stock option and the adjusted Ocwen stock option.
How will restricted shares be treated in the Separation?		Holders of outstanding Ocwen restricted stock as of the date of the Separation will receive one share of restricted stock of Altisource for every three shares of restricted stock of Ocwen consistent with the treatment of Ocwen common stock. These new restricted shares will have the same terms and conditions as the related Ocwen restricted shares, and the shares will vest on the same dates that the Ocwen shares vest.
Do I have appraisal rights in connection with the Separation?		No. Holders of Ocwen common stock have no appraisal rights in connection with the Separation. See “The Separation — No Appraisal Rights.”
Who is the transfer agent for Altisource common stock?		The transfer agent for Altisource’s common stock is American Stock Transfer & Trust Company. You can contact the transfer agent at the following address and telephone number:
		American Stock Transfer & Trust Company 59 Maiden Lane New York, New York 10038 Telephone: 718-921-8200 Fax: 718-259-1144
		Please contact the transfer agent with any questions about the Separation or if you need any additional information.

Summary Financial Data

 

Set forth below are summary selected combined consolidated financial data for Altisource for each of the three years ended December 31, 2008. We derived the combined consolidated balance sheet data as of December 31, 2008 and 2007 and the combined consolidated statement of operations data for each of the three years in the period ended December 31, 2008 from our audited combined consolidated financial statements included in this information statement. We derived the combined consolidated balance sheet data as of December 31, 2006 from unaudited, combined consolidated financial information that are not included in this information statement. The unaudited combined consolidated financial statements have been prepared on the same basis as the audited combined consolidated financial statements and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth herein.

 

The selected historical financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited combined consolidated financial statements and the related notes thereto. The selected historical financial data reflect Altisource’s results as we historically have operated as a part of Ocwen, and these results may not be indicative of our future performance as a separate company following the Separation and do not necessarily reflect what our financial position, results of operations and cash flows would have been had we operated as a separate, stand-alone public entity during the periods presented. Operating expenses in the historical income statements reflect direct expenses of our business together with allocations of certain Ocwen corporate expenses that have been charged to Altisource based on use or other methodologies we believe appropriate for such expenses (see the combined consolidated financial statements, Note 1 — Description of Business, Separation and Basis of Presentation). In our opinion, these allocations have been made on a reasonable and appropriate basis under the circumstances. We include these allocations in selling, general and administrative expenses, and they comprise all of the transactions with related parties within this caption in the table below. Per share data have not been presented since these financial statements are prepared on a combined basis.

 

 

The operations of NCI are included in our combined consolidated financial statements effective June 6, 2007, the date of acquisition. NCI is a receivables management company specializing in contingency collections and customer relationship management for credit card issuers and other consumer credit providers. The allocation of the purchase price has resulted in total goodwill and intangibles of $52,124 at December 31, 2007. NCI revenues and operating expenses (including both cost of revenue and selling, general and administrative expenses) for 2008 were $69,623 and $74,763, respectively. For the 2007 period, NCI revenues and operating expenses were $35,999 and $38,406, respectively.

 

RISKS RELATED TO THE SEPARATION:

 

Our historical financial information may not be indicative of our future results as a stand-alone public company.

 

The historical financial information included in this information statement may not reflect what our results of operations, financial condition and cash flows would have been had we been a stand-alone public company during the periods presented or be indicative of what our results of operations, financial condition and cash flows may be in the future when we are a stand-alone company. This primarily is because:

 

 

We have never operated on a stand-alone basis, and our transition to a standalone operation may adversely affect our ability to conduct business.

 

Historically, our business principally operated as business units of Ocwen. We will need to replicate certain facilities, systems, infrastructure and personnel to which we will no longer have access after the Separation. We will incur capital and other costs associated with developing and implementing our own support functions in these areas. This transition may constrain or otherwise adversely affect our ability to conduct business.

 

Our status as a foreign corporation may subject us to greater international risk than Ocwen.

 

Ocwen is a Florida corporation with its headquarters in the United States. Altisource is organized under the laws of Luxembourg and a significant portion of our employees and assets are located outside the United States. We may be affected by a number of factors relating to our international operations, including potential changes in:

 

 

Altisource is a Luxembourg company and it may be difficult for you to enforce judgments against it or its directors and executive officers.

 

Altisource is a public limited company organized under the laws of Luxembourg. As a result, the rights of shareholders are governed by Luxembourg law and the articles of incorporation of Altisource. The rights of shareholders under Luxembourg law may differ from the rights of shareholders of companies incorporated in other jurisdictions. A significant portion of the assets of Altisource is located outside the United States. It may be difficult for investors to enforce in the United States judgments obtained in U.S. courts against Altisource or its directors

based on the civil liability provisions of the U.S. securities laws, or to enforce in Luxembourg judgments obtained in other jurisdictions, including the United States.

 

The market price and trading volume of our common stock may be volatile and may be affected by market conditions beyond our control.

 

Prior to the Separation, our common stock had no trading market. We expect to list our common stock on The NASDAQ Stock Market LLC. We expect trading in our common stock to commence on a “when issued” basis on or about July 31, 2009.

 

Neither we nor Ocwen can assure you as to the trading prices of our common stock after the Separation. Although we have applied to list our common stock on The NASDAQ Stock Market LLC, an active trading market in our common stock might not develop or continue. Unless and until our common stock is fully distributed and an orderly market develops, the prices at which our stock trades may fluctuate significantly. In addition, the combined trading prices of Ocwen common stock and our common stock after the Separation may, in the aggregate, be less than, equal to or greater than the trading prices of Ocwen common stock prior to the Separation. The market price of our common stock may fluctuate in response to many things including but not limited to:

 

 

The market prices of securities of information technology and services providers have experienced fluctuations that often have been unrelated or disproportionate to the operating results of these companies. These market fluctuations could result in extreme volatility in the price of our shares of common stock.

 

Furthermore, our smaller size and different investment characteristics, including our internationally based headquarters, may not appeal to the current investor base of Ocwen which may seek to dispose of large amounts of our common stock following the Separation. There is no assurance that there will be sufficient buying interest to offset those sales and, accordingly, the price of our common stock could be depressed and/or experience periods of high volatility.

 

The value we attribute to the Ocwen and Altisource common stock for the purpose of determining the revised exercise price of the Ocwen stock options and the exercise price of the new Altisource stock options might not be equivalent to the Ocwen and Altisource market prices following the Separation.

 

In connection with the Separation, all holders of Ocwen stock options will receive: (1) a new Altisource stock option to acquire the number of shares of Altisource common stock equal to the product of (a) the number of Ocwen stock options held on the Separation Date and (b) the distribution ratio of one share of Altisource common stock for every three shares of Ocwen common stock; and (2) an adjusted Ocwen option for the same number of shares of Ocwen common stock with a reduced exercise price per stock option. We will determine the exercise price of the new Altisource stock option and the adjusted Ocwen option based on the exercise price ratio. We will calculate the exercise price ratio for each individual stock option based on the ratio of the grant date exercise price of the individual stock option to the fair market value of the Ocwen stock immediately prior to the Separation. We then will apply this exercise price ratio to the trading value of the Ocwen stock and the Altisource stock on the date the Altisource stock begins trading on The NASDAQ Stock Market LLC to determine the exercise price of the new Altisource stock option and the adjusted Ocwen option. Although the intrinsic value (the difference between the market price of the stock and the exercise price of the stock option) of the stock option to its holder will be the same as of the Separation Date, fluctuations in the market price of the Ocwen and Altisource common stock may cause

this ratio to vary greatly following the Separation. In addition, although the intrinsic value will be the same, the fair value of the option may be different due to potential changes in the expected stock price volatility, option life and other factors we use to determine fair value using the Black-Scholes options pricing model.

 

If the Distribution does not qualify as a tax-free transaction, taxes could be imposed on Ocwen, Altisource and our shareholders, and we have indemnified Ocwen for payment of taxes and tax-related losses.

 

It is a condition to completing the Separation that Ocwen receive an opinion from Ocwen’s special tax advisor confirming that for United States federal income tax purposes the Distribution qualifies as a tax-free spin-off under Section 355 of the Code. A Distribution that so qualifies will not be taxable to Altisource or its shareholders except to the extent shareholders receive payment for fractional shares. Pursuant to Treasury regulations under Section 367(b) of the Code, Ocwen will recognize a portion of its gain realized pursuant to the Distribution; however, because the pre-Distribution Restructuring will be taxable to Ocwen, such gain should not be material. Altisource has agreed to indemnify Ocwen for certain tax liabilities, and this indemnity obligation, if triggered, could have a material adverse effect on Altisource’s financial condition and results of operations. Ocwen will be subject to tax on certain of the asset transfers within Ocwen that are made in the pre-Distribution Restructuring, and under the applicable Treasury regulations, each member of Ocwen’s consolidated group at the time of the Separation (including several Altisource subsidiaries) would be severally liable for such tax liability. If the Distribution does not qualify as a tax-free transaction for United States income tax purposes, Ocwen shareholders generally would be treated as if they received a distribution equal to the full fair market value of the Altisource common stock on the date of the Separation.

 

Even if the Distribution were to otherwise qualify for tax-free treatment under Section 355 of the Code, it would become taxable to Ocwen pursuant to Section 355(e) of the Code if stock representing a 50% or greater interest in Ocwen or Altisource were acquired by one or more persons, directly or indirectly, as part of a plan or series of related transactions that included the Distribution. If the Internal Revenue Service (“IRS”) were to determine that acquisitions of Ocwen common stock or Altisource’s common stock, either before or after the Distribution, were part of a plan or series of related transactions that included the Distribution, this determination could result in the recognition of gain by Ocwen under Section 355(e). See “Certain Relationships and Related Party Transactions — Agreements with Ocwen — Tax Matters Agreement.”

 

The tax liability to Ocwen as a result of the Restructuring could be substantial.

 

In the pre-Distribution Restructuring, any assets that are transferred to Altisource Portfolio Solutions S.A. or non-U.S. subsidiaries will be taxable pursuant to Section 367(a) of the Code, or other applicable provisions of the Code and Treasury regulations. The taxable gain recognized by Ocwen attributable to the transfer of assets to Altisource will equal the excess of the fair market value of each asset transferred over Ocwen’s basis in such asset. Ocwen’s basis in some assets transferred to Altisource may be low or zero which may result in a substantial tax liability to Ocwen. In addition, the amount of taxable gain will be based on a determination of the fair market value of Ocwen’s transferred assets. The determination of fair market values of non-publicly traded assets is subjective and could be subject to closing date adjustments or future challenge by the IRS which could result in an increased United States federal income tax liability to Ocwen.

 

We are agreeing to certain restrictions to help preserve the tax-free treatment to Ocwen of the Distribution which may reduce our strategic and operating flexibility.

 

In order to help preserve the tax-free treatment of the Distribution, we have agreed not to take certain actions without first securing the consent of certain Ocwen officers or securing an opinion from a nationally recognized law firm or accounting firm that such action will not cause the Distribution to be taxable. In general, such actions will include (i) for a period of two years after the Separation, engaging in certain transactions involving (a) the acquisition of our stock or (b) the issuance of shares of our stock and (ii) repurchasing or repaying our new debt prior to maturity, other than in accordance with its terms, or modifying the terms of the debt in any manner.

The covenants in, and our indemnity obligations under, the Tax Matters Agreement may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. These covenants and indemnity obligations might discourage, delay or prevent a change of control that could be favorable to our common shareholders.

 

New prospective tax regulations, if held applicable to the Separation, could materially increase tax costs to Altisource and/or Ocwen.

 

On June 10, 2009, the IRS issued new regulations under Section 7874 of the Code. The IRS further indicated that it intends to issue additional regulations with respect to transactions where a U.S. corporation contributes assets, including subsidiary equity interests, to a foreign corporation and distributes the shares of such corporation, as in the Separation. Our understanding of the IRS’s plans regarding these forthcoming regulations is that they would apply to the Separation only if the value of assets held by Ocwen’s corporate or partnership subsidiary entities (either currently, or those that were distributed from such entities as part of the plan encompassing the Separation) exceeds, in the aggregate, 60% of the value of Altisource when contributed to Altisource. It is not certain, however, what these regulations will provide for once adopted. Prior to completing the Separation, Ocwen’s board of directors will require Ocwen and Altisource to receive a valuation from an independent valuation firm that will enable the Company to determine whether the value of these assets is less than 60% of the value of Altisource. Because we believe the value of these assets does not exceed the 60% threshold, as we expect to be confirmed by information we derive from the independent valuation, we do not believe that Code Section 7874 applies to the Separation. The independent valuation is not binding on the IRS. If the IRS were to successfully challenge this valuation, and find that the value of these assets exceeds 60% of the value of Altisource, then Ocwen would not be permitted to offset gain recognized on the transfer of these assets to Altisource with net operating losses, tax credits or other tax attributes. This could materially increase the tax cost to Ocwen of the Separation. If the IRS were to successfully challenge this valuation and find that the value of these assets exceeded 80% of the value of Altisource, then instead of recognition of gain on the transfer of the assets to Altisource, Altisource would be treated as a U.S. domestic corporation. As such, without further changes to the Code or to its legal structure, Altisource would pay income taxes in both the U.S. and Luxembourg with no deduction or credit for taxes paid to the other country. This would have a material adverse impact on Altisource’s worldwide tax expense.

 

We could be required to expend significant money and time in order to comply with the provisions of Section 404 of the Sarbanes-Oxley Act beginning in 2010.

 

Although Ocwen is currently subject to Section 404 of the Sarbanes-Oxley Act, Altisource will not be subject to the provisions of the act until 2010. In evaluating the internal control structure as a separate stand-alone entity, we may be required to expend significant financial resources and divert time that management would otherwise have to operate our business in order to become compliant with the regulations of the act, which could have an impact on our results of operations.

 

RISKS RELATED TO OUR BUSINESS IN GENERAL:

 

Our business is dependent on our ability to grow, and an inability to attract new customers could adversely affect us.

 

Our business is dependent on our ability to grow which is affected by our ability to retain and expand our existing client relationships and our ability to attract new customers. Our ability to retain existing customers and expand those relationships is subject to a number of risks including the risk that:

 

 

We may expend significant resources in order to attract new customers. Our ability to attract new customers is subject to a number of risks including:

 

 

If our efforts to retain and expand our client relationships and to attract new customers do not prove effective, it could have a materially adverse effect on our business, results of operations and financial condition.

 

Our continuing relationship with Ocwen may inhibit our ability to obtain and retain other customers that compete with Ocwen.

 

Our chairman currently owns 27.1% of Ocwen’s common stock and will own approximately 25.6% of our common stock as of the Separation Date, subject to dilution due to stock option exercises. We generated approximately 40.1% of our revenues in 2008 from Ocwen. For up to two years following the Separation, we and Ocwen will provide transition services to each other. We also expect to retain Ocwen as a significant customer for the foreseeable future. Given this close and continuing relationship with Ocwen, we may encounter difficulties in obtaining and retaining other customers who compete with Ocwen. Should these other potential customers continue to view Altisource as part of Ocwen or as too closely related to or dependent upon Ocwen, they may be unwilling to utilize our services and our growth could be inhibited as a result.

 

A substantial part of our revenues and external cash flows will be generated by providing outsourcing services to Ocwen, and we are exposed to the risk of Ocwen’s termination, non-renewal or inability to pay for such services.

 

We currently generate approximately 40% of our revenue from Ocwen. After the Separation, Ocwen will be contractually obligated to purchase services (subject to termination under certain provisions) from us as more fully described in “Relationship Between Ocwen and Us Following the Separation.” These services include, but are not limited to, the following:

 

 

Ocwen is not restricted from redeveloping these services internally after the Separation. Furthermore, we expect, at least in the near term, we may generate an even greater portion of our revenue from Ocwen. If Ocwen either cancels services provided by us or is no longer able to pay for our services, it would have a materially adverse effect on our business, results of operations and financial condition and cash flows which we may not be able to survive.

 

Historically, we have operated as a part of Ocwen, and not as a separate company. We believe that we have identified all of our costs of conducting our current business. However, we may incur unexpected costs associated with being a separate company that we have not considered in pricing our services such as greater information technology, occupancy, administrative support and other costs. Accordingly, we may not have appropriately negotiated the prices for the services that we are obligated to provide to Ocwen. These agreements to provide services are generally subject to renegotiation among the parties annually after the initial two years of the agreement term. We will have diminished leverage with Ocwen after the Separation and could achieve lower margins than

originally budgeted. We may not be able to renegotiate executed agreements and pre-determined rate cards which could result in our earning lower margins or incurring a loss on services provided. This situation may result in our being legally required to provide services at below market rates. The inability to renegotiate contracts would adversely affect our results of operations and financial condition.

 

We are dependent on certain key customer relationships, the loss or inability to pay of any of which could reduce our revenues.

 

In addition to our relationship with Ocwen described above, we are dependent on a few key customers for a significant portion of our revenues, particularly within our Financial Services segment where American Express accounted for 25.8% of our 2008 revenues. Our relationship with American Express is governed by an agreement, which generally sets out the guidelines on which we will provide services to American Express, although each separate assignment for American Express must be separately agreed to by American Express and is separate from the agreement. American Express is not contractually obligated to continue to use our services at historical levels or at all. The relationship is terminable by American Express by giving 30 days prior written notice to us. While no other individual client represents more than 10% of our consolidated revenues, we are exposed to customer concentration. Most of our customers are not contractually obligated to continue to use our services at historical levels or at all. The loss of any of these key customers or their failure to pay us could reduce our revenues and adversely affect results of operations.

 

The application of our integrated technology solutions to additional processes may not achieve consistent results, thereby adversely affecting our results of operations and financial condition.

 

Our business plan involves applying our integrated technology solutions to processes that have not previously had them applied. There can be no assurance that this expanded use of integrated technology, including our scripts and decisions models, will be as successful in our processes as compared to previous applications to other processes such as servicing. If we are less successful than anticipated, we could experience a negative impact on our results of operations and financial condition.

 

If we do not adapt our services to changes in technology or in the marketplace, or if our ongoing efforts to upgrade our technology are not successful, we could lose customers and have difficulty attracting new customers for our services.

 

The markets for our services are characterized by constant technological changes, frequent introductions of new services and evolving industry standards. Our future success will be significantly affected by our ability to enhance our current services and develop and introduce new services that address the increasingly sophisticated needs of our customers and their customers. These initiatives carry the risks associated with any new service development effort including cost overruns, delays in delivery and performance monitoring. There can be no assurance that we will be successful in developing, marketing and selling new services that meet these changing demands; that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these services; or that our new services and their enhancements will adequately meet the demands of the marketplace and achieve market acceptance, which could have a negative impact on our financial condition and results of operations.

 

We operate in a competitive business environment, and if we are unable to compete effectively, our results of operations and financial condition may be adversely affected.

 

The markets for our services are intensely competitive. Our competitors vary in size and in the scope and breadth of the services they offer. We compete for existing and new customers against both third parties and in-house capabilities of our customers. Some of our competitors have substantial resources and are better known in the marketplace. In addition, we expect that the markets in which we compete will continue to attract new competitors and new technologies. There can be no assurance that we will be able to compete successfully against current or future competitors or that competitive pressures we face in the markets in which we operate will not materially adversely affect our business, financial condition and results of operations.

Some of our contracts contain provisions which, if triggered, could result in lower future revenues and have a material adverse effect on our business, results of operation and financial condition.

 

Many contracts contain provisions that would require us to pay penalties and/or provide the right to terminate the contract if we do not meet pre-agreed service level requirements. If we are unable to meet these requirements, significant penalties may be imposed which in turn could have a material adverse effect on our business, results of operations and financial condition.

 

We could have conflicts with Ocwen, and the Chairman of our Board of Directors, and other officers and directors could have conflicts of interest due to their relationships with Ocwen and Altisource, which may be resolved in a manner adverse to us.

 

Conflicts may arise between Ocwen and Altisource as a result of our ongoing agreements and the nature of our respective businesses. Among other things, we will become a party to a variety of agreements with Ocwen in connection with the Separation, and we may enter into further agreements with Ocwen after the Separation. Certain of our executive officers and directors may be subject to conflicts of interest with respect to such agreements and other matters due to their relationships with Ocwen.

 

William C. Erbey, who will become our non-executive Chairman of the Board as a result of the Separation, is currently the Chief Executive Officer and Chairman of the Board of Ocwen. As a result, he has obligations to us as well as to Ocwen and may potentially have conflicts of interest with respect to matters potentially or actually involving or affecting us and Ocwen.

 

Mr. Erbey owns substantial amounts of Ocwen common stock and stock options because of his relationships with Ocwen. In addition, certain of our directors and executive officers, including Mr. Shepro who also serves as a director, also own Ocwen stock and stock options due to similar current or past relationships with Ocwen. Such ownership could create or appear to create potential conflicts of interest when our non-executive Chairman of the Board and executive officers are faced with decisions that involve Ocwen, Altisource or any of their respective subsidiaries.

 

Matters that could give rise to conflicts between us and Ocwen include, among other things:

 

 

Ocwen is not limited in its ability to compete with us. Although we derive a substantial portion of our revenues within our Mortgage Services and Technology Products divisions from Ocwen, Ocwen is under no obligation to deal exclusively with us. However, the long-term services agreements contain a right of first opportunity in the event Ocwen seeks additional related services, which obligates Ocwen to seek such services from us before negotiating with other third parties. We will also seek to manage these potential conflicts through dispute resolution and other provisions of our agreements with Ocwen and through oversight by independent members of our Board of Directors. There can be no assurance that such measures will be effective, that we will be able to resolve all conflicts with Ocwen or that the resolution of any such conflicts will be no less favorable to us than if we were dealing with a third party.

 

Our success depends on our senior management team, and if we are not able to retain them, it could have a material adverse effect on us.

 

We are highly dependent upon the continued services and experience of our senior management team. We depend on the services of members of our senior management team to, among other things, continue the development and implementation of our growth strategies and maintain and develop our client relationships.

Our global operations expose us to risks including fluctuations in currency exchange rates that could adversely affect our results of operations.

 

We provide services through global locations primarily in Canada, India, the United States, Luxembourg and Uruguay. Any political or economic instability in these countries could result in our having to replace or reduce our operations which may impact our costs, including labor costs, and have an adverse impact on our results of operations. A decrease in the value of the U.S. dollar in relation to the currencies of the countries in which we operate could increase our cost of doing business in those countries. In addition, we expect to expand our operations in existing as well as other countries and, accordingly, will face similar risks with respect to the costs of doing business in such countries including the effect of any decreases in the value of the U.S. dollar in relation to the currencies of such countries. We currently do not intend to hedge these risks, and if we do so in the future, there is no guarantee that we will successfully hedge them.

 

The continuing crisis in the credit markets may restrict our liquidity and may make it difficult or impossible for us to obtain any required additional financing.

 

The domestic and international credit markets continue to experience significant dislocation. In the event that we need additional financing for our business or for acquisitions, we may have a difficult time obtaining that financing. In addition, the crisis in the credit markets may have an adverse effect on our customers.

 

We are dependent on our employees, and an increase in our turnover rate could have a material adverse effect.

 

We are dependent on our ability to attract, hire and retain qualified employees. Our industry, by its nature, is labor intensive and experiences a high employee turnover rate. Many of our employees receive modest hourly wages, and some of these employees are employed on a part-time basis. A higher turnover rate among our employees would increase our recruiting and training costs and could adversely impact the quality of services we provide to our customers. If we were unable to recruit and retain a sufficient number of employees, we would be forced to limit our growth or possibly curtail our operations. Growth in our business requires us to recruit and train qualified personnel at an accelerated rate from time to time. We cannot assure you that we will be able to continue to hire, train and retain a sufficient number of qualified employees to meet the needs of our business or to support our growth. If we are unable to do so, our results of operations could be harmed. Any increase in hourly wages, costs of employee benefits or employment taxes could also have a materially adverse affect on our results of operations.

 

Technology failures could damage our business operations and increase our costs.

 

The financial services industry as a whole is characterized by rapidly changing technologies, and system disruptions or failures may interrupt or delay our ability to provide services to our customers. Since we operate on a global basis, we utilize the services of third-party vendors to provide us telecommunication services. Any sustained and repeated disruptions in these services may have an adverse impact on our costs. The secure transmission of confidential information over the Internet is essential to maintaining consumer confidence. Security breaches, acts of vandalism and developments in computer capabilities could result in a compromise or breach of the technology that we use to protect our customers’ personal information and transaction data. Consumers generally are concerned with security breaches and privacy on the Internet, and Congress or individual states could enact new laws regulating the electronic commerce market that could adversely affect us and our results of operations.

 

If we fail to comply with privacy regulations imposed on providers of services to financial institutions, our business could be harmed.

 

As a provider of services to financial institutions, we are bound by the same limitations on disclosure of the information we receive from our customers that apply to the financial institutions themselves. If we fail to comply with these regulations, we could be exposed to suits for breach of contract or to governmental proceedings; our customer relationships and reputation could be harmed; and we could be inhibited in our ability to obtain new customers. In addition, the adoption of more restrictive privacy laws or rules in the future on the federal or state level could have an adverse impact on us.

Consolidation in the Banking and Financial Services industry could adversely affect our revenues by eliminating some of our existing and potential customers and could make us more dependent on a more limited number of customers.

 

There has been and continues to be substantial merger, acquisition and consolidation activity and outright failure of entities in the Banking and Financial Services industry. Mergers, consolidations and failures of banks and financial institutions in the future could reduce the number of our customers and potential customers which could adversely affect our revenues even if these events do not reduce the aggregate activities of the consolidated entities. If our customers merge with or are acquired by other entities that are not our customers, or that use fewer of our services, they may discontinue or reduce their use of our services. In addition, it is possible that the larger banks or financial institutions resulting from mergers or consolidations would have greater leverage in negotiating terms with us or could decide to perform in-house some or all of the services which we currently provide or could provide. Any of these developments could have a material adverse effect on our business and results of operations.

 

Our business is subject to extensive regulation, and failure to comply with existing or new regulations may adversely impact us.

 

Our business is subject to extensive regulation by federal, state and local governmental authorities including the Federal Trade Commission and the state agencies that license certain of our mortgage related services and collection services. We also must comply with a number of federal, state and local consumer protection laws including, among others, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Fair Credit Reporting Act and the Homeowners Protection Act. These statutes apply to debt collection, foreclosure and claims handling, and they mandate certain disclosures and notices to borrowers. These requirements can and do change as statutes and regulations are enacted, promulgated or amended.

 

We are subject to certain federal, state and local consumer protection provisions. We also are subject to licensing and regulation as a mortgage service provider and/or debt collector in a number of states. We are subject to audits and examinations that are conducted by the states in which we do business. Our employees and businesses that sell title insurance products and real estate services may be required to be licensed by various state commissions for the particular type of product sold and to participate in regular continuing education programs. From time to time, we receive requests from state and other agencies for records, documents and information regarding our policies, procedures and practices regarding our mortgage services and debt collection business activities. We incur significant ongoing costs to comply with governmental regulations.

 

The volume of new or modified laws and regulations has increased in recent years and, in addition, some individual municipalities have begun to enact laws that restrict mortgage service activities. If our regulators impose new or more restrictive requirements, we may incur additional significant costs to comply with such requirements which could further adversely affect our results of operations or financial condition. In addition, our failure to comply with these laws and regulations can possibly lead to civil and criminal liability; loss of licensure; damage to our reputation in the industry; fines and penalties, and litigation, including class action lawsuits or administrative enforcement actions. Any of these outcomes could harm our results of operations or financial condition.

 

RISKS AFFECTING OUR MORTGAGE SERVICES BUSINESS:

 

Mortgage Services is affected by seasonality, and our quarterly revenues could vary as a result.

 

Seasonality affects loan originations, as loan originations and payoffs are typically at their lowest levels during the first and fourth quarters due to a reduced level of home buying activity during the winter months. Loan originations and payoffs generally increase during the warmer months beginning in March and continuing through October. As a result, we may experience higher earnings in the second and third quarters and lower earnings in the first and fourth quarters.

Decreased lending and real estate activity may reduce demand for certain of our services and adversely affect our results of operations.

 

The recent dislocation in the mortgage market has resulted in an unprecedented decline in the number of loans originated, and our revenues related to services that support the loan origination market have been impacted negatively as a result.

 

In addition, recently the Office of Federal Housing Oversight (now known as the Federal Housing Finance Administration) increased the amounts of mortgage loans that Government Sponsored Entities (“GSEs”) are allowed to hold in their portfolios. The GSEs’ purchase of mortgage loans that are currently made on a non-agency basis effectively shrinks the size of the non-agency mortgage market. Mortgage loans that are insured by the Federal Housing Administration, referred to as FHA loans, are known as agency loans. Mortgages that are not FHA loans are known as non-agency loans. Our customers primarily service mortgages that are not insured by the FHA and therefore are non-agency mortgages. If the GSEs use their expanded authority or if these changes are extended or made permanent, our customers may reduce their involvement in the market for non-agency loans resulting in a reduction in securitization activity and demand for all of our mortgage services. Similarly, the expanding role of the Federal Housing Administration to include issuing mortgages to borrowers who were previously candidates for subprime mortgages may also decrease the demand for non-agency mortgages and may result in a reduction in securitization activity and demand for our services. While we do provide limited services to one of the GSEs, we may not be able to maintain or increase the amount of services we provide to the GSEs in amounts satisfactory to offset the decline in services provided to other customers. Further, in the event that levels of home ownership were to decline or other factors were to reduce the aggregate number of U.S. mortgage loans, our revenues from Mortgage Services and Technology Products could be adversely affected.

 

In the wake of the current crisis in the mortgage market, there could be adverse regulatory consequences or litigation that could affect us.

 

Various aspects of our businesses are subject to federal and state regulation. The sharp rise in home foreclosures that started in the United States during the fall of 2006 and accelerated in 2007 and 2008 has begun to result in investigations and lawsuits against various parties commenced by various governmental authorities and third parties. It also has resulted in governmental review of aspects of the mortgage lending business which may lead to greater regulation in areas such as appraisals, default management, loan closings and regulatory reporting. Such actions and proceedings could have adverse consequences that could affect our business.

 

Over the last few months, the New York Attorney General (“NYAG”) has been conducting an inquiry into various practices in the mortgage market, including a review of the possibility that conflicts of interest have in some cases affected the accuracy of property appraisals. To our knowledge, the NYAG’s inquiry does not specifically focus on Ocwen or the Altisource business or its or their practices. Recently, the NYAG announced a resolution of a portion of this inquiry with respect to the GSEs, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Under agreements entered into with the NYAG, Fannie Mae and Freddie Mac each committed to adopt a new Home Valuation Code of Conduct referred to as the Home Valuation Code. This Home Valuation Code establishes requirements governing appraiser selection, compensation, conflicts of interest and corporate independence, among other matters. Both Fannie Mae and Freddie Mac have agreed that they will not purchase any single family mortgage loans, other than government-insured loans, originated after January 1, 2009 from mortgage originators that have not adopted the Home Valuation Code with respect to such loans. Among other things, the Home Valuation Code prohibits mortgage lenders from utilizing any appraisal report prepared by an appraiser employed by the lender, an affiliate of the lender, a real estate settlement services provider or an affiliate of a real estate settlement services provider.

 

At this time, we are unable to predict the ultimate effect of the Home Valuation Code on our business or results of operations.

 

States might hinder or restrict our ability to provide title services.

 

The title agency and related services we provide are conducted through an underwritten title company, title agencies and individual title officers. Our title agency is domiciled in Florida and generally is limited by

requirements to maintain specified levels of net worth and working capital and to obtain and maintain a license when required in each of the states in which it operates. Title agencies also are subject to regulation by the insurance or banking regulators in many jurisdictions. These regulators generally require, among other items, that agents and individuals obtain and maintain a license and be appointed by a title insurer. States might deny us the ability to provide title services, or we may be limited in our ability to work with underwriters in certain states.

 

Regulation of the legal profession may constrain our operations and could impair our ability to provide services to our customers and reduce our revenues and profitability.

 

Each state has adopted laws, regulations and codes of ethics that provide for the licensure of attorneys which grants attorneys the exclusive right to practice law and places restrictions upon the activities of licensed attorneys. The boundaries of the “practice of law,” however, are indistinct, vary from one state to another and are the product of complex interactions among state law, bar associations and constitutional law formulated by the U.S. Supreme Court. Many states define the practice of law to include the giving of advice and opinions regarding another person’s legal rights, the preparation of legal documents or the preparation of court documents for another person. In addition, all states and the American Bar Association prohibit attorneys from sharing fees for legal services with non-attorneys.

 

Pursuant to services agreements between us and our law firm customers, we provide mortgage default processing services. Current laws, regulations and codes of ethics related to the practice of law pose the following principal risks:

 

 

Applicable laws, regulations and codes of ethics, including their interpretation and enforcement, could change in a manner that restricts our operations. Any such change in laws, policies or practices could increase our cost of doing business or adversely affect our revenues and profitability.

 

RISKS AFFECTING OUR FINANCIAL SERVICES BUSINESS:

 

Decreases in our contingency collections due to economic conditions in the United States may have an adverse effect on our results of operations, revenue and profitability.

 

Deterioration in economic conditions in the United States may lead to higher rates of unemployment and decrease the ability of consumers to pay their debts. Defaulted consumer loans and accounts that we service generally are unsecured, and we may be unable to collect these loans in the case of personal bankruptcy of a consumer or upon the expiration of the statute of limitations on the account. Increases in unemployment rates may result in a decline in our collections which may adversely impact our results of operations, revenue and profitability.

Most of our accounts receivable or collection contracts do not require customers to place accounts with us, may be terminated on 30 or 60 days notice and are on a contingent fee basis. We cannot guarantee that existing customers will continue to use our services at historical levels.

 

Under the terms of most of our contracts, customers are not required to give accounts to us for collection and usually have the right to terminate our services on 30 or 60 days notice. American Express is not contractually obligated to continue to use our services at historical levels or at all. The relationship with American Express is terminable by American Express by giving 30 days prior written notice to us. Accordingly, we cannot guarantee that existing customers will continue to use our services at historical levels. In addition, most of these contracts provide that we are entitled to a fee only when we collect accounts. Therefore, for these contracts, we can only recognize revenues upon the collection of funds on behalf of customers.

 

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the “CARD Act”) may have a negative impact on our business or that of our customers.

 

The CARD Act was signed into law by the President of the United States on May 22, 2009. The CARD Act limits when issuers of consumer credit cards can increase interest rates and bans billing and payment practices that the Federal Reserve calls “unfair or deceptive.” Although Altisource is not an issuer of consumer credit cards, the majority of our customers in the Financial Services segment do issue consumer credit cards and likely will be impacted by this new legislation. In that regard, indications suggest that the CARD Act will result in curtailing the amount of credit card business these customers generate and therefore may reduce the number and dollar value of accounts that these customers place with us. The resulting impact could be a future reduction of the revenues of this segment.

 

Consumer resistance to outbound services could harm the customer relationship management services industry.

 

As the customer relationship management services, or CRM, industry continues to grow, the effectiveness of CRM services as a direct marketing tool may decrease as a result of consumer saturation and increased consumer resistance to customer acquisition activities. This could result in a decrease in the demand for our CRM services.

 

Financial Services is affected by seasonality, and our quarterly revenues could vary as a result.

 

The Financial Services receivables management business is subject to moderate seasonality with collections revenue typically higher in the first calendar quarter of each year because consumers typically use income tax refunds to make payments on debts. The collection levels generally are lower in the remainder of the year.

RISKS AFFECTING OUR TECHNOLOGY PRODUCTS BUSINESS:

 

We have a long sales cycle for many of our technology solutions, and if we fail to close sales after expending significant time and resources to do so, our business, financial condition, and results of operations may be adversely affected.

 

Potential customers generally commit significant resources to an evaluation of available technology solutions and require us to expend substantial time, effort and money educating them as to the value of our technology solutions and services. As a result, we may incur substantial costs in order to obtain each new customer. We may expend significant funds and management resources during the sales cycle and ultimately fail to close the sale. Our sales cycle may be extended due to our customers’ budgetary constraints or for other reasons. If we are unsuccessful in closing sales after expending significant funds and management resources or if we experience delays, it could have a material adverse effect on our business, financial condition and results of operations.

 

We may experience defects, development delays and installation difficulties with respect to our technology solutions that would harm our business and reputation and expose us to potential liability.

 

Many of our services are based on sophisticated software and computing systems, and we may encounter delays when developing new technology solutions and services. Further, the technology solutions underlying our services occasionally have contained and may in the future contain undetected errors or defects when first introduced or when new versions are released. In addition, we may experience difficulties in installing or integrating our technologies on platforms used by our customers. Defects in our technology solutions, errors or delays in the processing of electronic transactions or other difficulties could result in one or more of the following:

 

 

We may experience difficulty in gaining new customers, which may adversely affect our growth.

 

In our Technology Products business, we face direct competition from third parties. Further, because many of our larger potential customers historically have developed their key processing applications in-house, we often compete against our potential customers’ in-house capabilities. As a result, gaining new customers in our Technology Products business can be difficult. For banks, loan servicers and other potential customers, switching from an internally designed system to an outside vendor or from one vendor of mortgage processing services to a new vendor is a significant undertaking. Many potential customers worry about potential disadvantages such as loss of functionality, increased costs and business disruption. As a result, potential customers often resist change. There can be no assurance that our strategies for overcoming potential customers’ reluctance to change will be successful, and this resistance may adversely affect our growth.

 

This Information Statement contains forward-looking statements that relate to, among other things, our future financial and operating results. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” or the negative of these terms and other comparable terminology including, but not limited to the following:

 

 

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 risks discussed in “Risk Factors” and the following:

 

 

Further information on the risks specific to our business are detailed within this report. Forward-looking statements speak only as of the date they are made and should not be relied upon. Altisource undertakes no obligation to update or revise forward-looking statements.

 

Introduction

 

On November 12, 2008, the Board of Directors of Ocwen authorized management to pursue a separation from Ocwen of most of Ocwen’s knowledge process outsourcing business for the reasons discussed below.

 

After considering several factors, management and the Board of Directors concluded that the most effective way to effectuate this separation was to restructure the knowledge process outsourcing business to move it within Altisource, and then to effect a tax-free distribution of Altisource to Ocwen’s shareholders. The restructuring is necessary because certain aspects of the knowledge outsourcing business are integrated within the mortgage servicing operations of Ocwen. Altisource Portfolio Solutions S.A. was incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.à r.l., renamed Altisource Portfolio Solutions S.à r.l. on May 12, 2009 and converted into a Luxembourg société anonyme, Altisource Portfolio Solutions S.A., on June 5, 2009. Altisource Portfolio Solutions S.A. has served as the principal holding company of Ocwen’s international operations since inception, including those of the knowledge process outsourcing business. We chose Altisource Portfolio Solutions S.A. as the most desirable entity under which to restructure the knowledge processing business given its existing ownership of most of the global operations of the knowledge processing business, central location to the various operations that ultimately will conduct business as Altisource and consideration of the structure of existing and potential competitors in order to position Altisource to compete in an effective manner.

 

Given the need to consolidate the businesses that perform Altisource’s operations and the selection of Altisource Portfolio Solutions S.A., Ocwen will incur taxes to the extent that the fair market value of a transferred asset exceeds Ocwen’s basis in such assets in accordance with section 367(a) of the Code.

 

Once the Restructuring is completed, and subsequent to certain conditions including but not limited to confirmation of the tax-free treatment of the spin-off, necessary regulatory approvals, any required lender counterparty consents and final approval by the Ocwen Board of Directors, Ocwen will distribute its ownership in Altisource to existing shareholders as of the Record Date in a transaction commonly referred to as a tax-free spin-off in accordance with Section 355 of the Code. Ocwen’s shareholders will receive one share of Altisource common stock for every three shares of Ocwen common stock they hold on the Record Date, as described below. We expect the Distribution to be effected on or about August 10, 2009 to holders of outstanding Ocwen common stock as of 5:00 p.m., Eastern Time, on August 4, 2009, the Record Date. Ocwen shareholders will not be required to pay any cash or other consideration or to surrender or exchange their shares of Ocwen common stock to receive Altisource common stock. If you are a holder of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024, like Ocwen shareholders you will receive one share of Altisource common stock for every three shares of Ocwen common stock you are deemed to hold on an as if converted basis, based on a conversion ratio of 82.1693 shares of Ocwen common stock for every $1,000 in aggregate principal amount that of notes you owned on the Record Date.

 

Business Reasons for the Separation

 

Ocwen and Altisource operate under different business models and cater to different customers. Ocwen is a mortgage loan servicer while Altisource is a knowledge process outsourcing business whose product offerings of valuation services, default processing services, real estate sales, asset recovery, customer relationship management and other services are utilized by a diverse set of businesses. Given our heritage, Ocwen will initially be our largest customer; however, we are focused on diversifying our revenue base by increasing our revenues from other customers over time. Since many of Altisource’s potential customers are also servicers, we believe that the Separation will result in fewer of our potential customers viewing us as a competitor.

 

The Board of Directors and management of Ocwen considered a number of strategies to position Altisource’s operations separately from Ocwen’s operations so that resources are deployed and activities are pursued in the best interests of both lines of business maximizing value for shareholders. Pursuant to the direction of the Board of Directors, early in 2008 management began analyzing several strategic alternatives. Among the possible alternatives discussed were the separation of Ocwen’s servicing business and separation of Ocwen’s knowledge process outsourcing business.

 

The Number of Altisource Shares Ocwen’s Shareholders Will Receive

 

The Separation will be made on the basis of one share of Altisource common stock for every three shares of Ocwen common stock. As such, for every three shares of Ocwen common stock that you owned at the close of business on August 4, 2009, the Record Date, you will receive one share of our common stock on the Separation Date. If you are a holder of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024, like Ocwen shareholders you will receive one share of Altisource common stock for every three shares of Ocwen common stock you are deemed to hold on an as if converted basis, based on a conversion ratio of 82.1693 shares of Ocwen common stock for every $1,000 in aggregate principal amount of notes that you owned on the Record Date. Based on the number of Ocwen shares outstanding on the Record Date (or deemed outstanding on an as if converted basis) and the Separation Ratio, approximately 24,024,348 shares of Altisource common stock will be distributed to Ocwen shareholders. As a result of the Separation, 100 percent of the outstanding Altisource common stock will be distributed to Ocwen shareholders (on an as if converted basis) on a pro rata basis.

 

When and How Will You Receive Altisource Common Stock

 

Ocwen will use a book entry system to distribute shares of Altisource common stock. No stock certificates will be issued for Altisource common stock. Following the Separation, each record holder of Ocwen common stock on the Record Date will receive from the transfer agent a statement of the amount of Altisource common shares credited to his or her account. If you were not a record holder of Ocwen common stock on the Record Date because your shares are held on your behalf by your broker or other nominee, your shares of Altisource common stock should be credited to your broker or other nominee on or about August 10, 2009.

 

No action is required by you in order to receive Altisource shares in the Separation, and you do not have to surrender or exchange your shares of Ocwen stock or pay cash or any other consideration to receive your shares of

Altisource common stock. The number of shares of Ocwen common stock that you currently own will not change as a result of the Separation.

 

We anticipate that on August 10, 2009, Ocwen will deliver to our transfer agent all of the shares of our common stock to be distributed. On that day, the transfer agent will credit the accounts of registered holders of Ocwen common stock entitled to the distribution. For those holders of Ocwen common stock who hold their shares through a broker, bank or other nominee, the transfer agent will credit the shares of our common stock to the accounts of those nominees who are registered holders, and they in turn will credit their customers’ accounts with our common stock. We anticipate that brokers, banks and other nominees will generally credit their customers’ accounts with our common stock on the same day that their accounts are credited which is expected to be the Separation Date.

 

Treatment of Fractional Shares

 

The transfer agent will not deliver any fractional shares of Altisource common stock in connection with the delivery of Altisource shares pursuant to the Separation. Instead, the transfer agent will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur as soon as practicable after the Separation Date. Those holders then will receive a cash payment, in the form of a check, in an amount equal to their pro rata share of the total proceeds of those sales. Any applicable expenses, including brokerage fees, will be paid by us. If you physically hold your Ocwen share certificates on the Record Date, your check for any cash that you may be entitled to receive instead of fractional shares of Altisource common stock will be mailed to you separately.

 

We expect that all fractional shares held in street name will be aggregated and sold by brokers or other nominees according to their standard procedures, and that brokers or other nominees may request the transfer agent to sell the fractional shares on their behalf. You should contact your broker or other nominee for additional details. Neither Ocwen, Altisource nor our transfer agent will guarantee any minimum sale price for the fractional shares of our common stock or pay any interest on the proceeds from the sale of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient shareholders. See “The Separation — Certain United States Federal Income Tax Consequences of the Separation.”

 

Listing and Trading of the Shares of Altisource Common Stock

 

You should consult and discuss with your own financial advisors, such as your broker or tax advisor, regarding the retention, sale or purchase of, or other transactions involving shares of, Ocwen common stock or Altisource common stock. Ocwen and Altisource do not make recommendations on the retention, sale or purchase of, or other transactions involving shares of Ocwen common stock or shares of Altisource common stock. If you do decide to sell any shares, you should make sure your broker or other nominee understands whether you want to sell your shares of Ocwen common stock, your shares of Altisource common stock or both.

 

Altisource has applied to list its common stock on The NASDAQ Stock Market LLC.

 

The following information may be helpful in discussions with your broker or other nominee.

 

“When-issued” trading of the shares of Altisource common stock is expected to begin on July 31, 2009. In the context of a spin-off, when-issued trading refers to securities transactions made on or before the Separation Date and made conditionally because the securities of the distributed entity have not yet been distributed. When-issued trades generally settle within three trading days after the Separation Date. On the Separation Date, all when-issued trading, if any, will end, and “regular-way” trading in shares of Altisource common stock will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the transaction. If the Separation does not occur, all when-issued trading will be null and void.

 

On August 4, 2009, we expect Ocwen’s common stock will begin to trade in two markets on the NYSE: a “regular way” market and an “ex-distribution when issued” market. Between the Record Date and consummation of the Separation, shares of Ocwen common stock that are sold on the regular way market will include an entitlement to receive shares of Altisource common stock distributable in the Separation. Conversely, Ocwen shares sold in the ex-distribution when issued market will not include an entitlement to receive shares of Altisource distributable in

the Separation, as the entitlement will remain with the original holder. Therefore, if you own shares of Ocwen common stock on the Record Date and thereafter sell those shares in the regular way market on or prior to the Separation Date, you will also be selling the shares of Altisource common stock that would have been distributed to you with respect to the shares of Ocwen common stock you sell. If you own shares of Ocwen common stock on the Record Date and thereafter sell those shares in the ex-distribution when issued market on or prior to the Separation Date, you will still receive the shares of Altisource common stock in the Separation. On the Separation Date, all shares of Ocwen common stock will trade without any entitlement to receive shares of Altisource common stock.

 

Shares of Altisource common stock distributed to Ocwen shareholders will be freely transferable except for such shares that are distributed to persons who are “affiliates” under the Securities Act of 1933, as amended (the “Securities Act”). Individuals or entities may be deemed to be Altisource affiliates if they control, are controlled by, or are under common control with, Altisource; such persons may include certain of our Directors, officers and significant shareholders. In addition, individuals who are affiliates of Ocwen on the Separation Date may be deemed to be affiliates of Altisource. Persons who are Altisource affiliates will be permitted to sell their shares of Altisource common stock only pursuant to an effective registration statement under the Securities Act, an exemption from the registration requirements of the Securities Act or pursuant to Rule 144 under the Securities Act. In general, under Rule 144, an affiliate who receives shares of Altisource common stock in the Separation is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:

 

 

Sales under Rule 144 are also subject to provisions relating to notice, manner of sale and the availability of current public information about Altisource.

 

There can be no assurance as to whether the shares of Altisource common stock will be actively traded or as to the prices at which the shares of Altisource common stock will trade. Until the shares of Altisource common stock are fully distributed and an orderly regular-way market develops, the prices at which shares trade may fluctuate significantly and may be lower than the price that may be expected for a fully distributed issue. Prices for shares of Altisource common stock in the marketplace will be influenced by many factors. For a detailed discussion of these and other risks, please refer to “Risk Factors.”

 

Following the Separation, Ocwen common stock will continue to be listed and traded on the NYSE under the symbol “OCN.” As a result of the Separation, the trading price of Ocwen common stock immediately following the Separation may be lower than the trading price of Ocwen common stock immediately prior to the Separation. Further, the combined trading prices of Ocwen common stock and Altisource common stock after the Separation may be less than the trading prices of Ocwen common stock immediately prior to the Separation.

 

Even though Ocwen is currently a publicly-held company, there can be no assurance as to the prices at which the Ocwen common stock will trade following the Separation. Some Ocwen shareholders may decide that they do not want shares in a company whose operations primarily are limited to the mortgage servicing business and may sell their Ocwen common stock following the Separation. This and other factors may delay or hinder the return to an orderly trading market in the Ocwen common stock following the Separation. The nature of the trading market and prices for Ocwen common stock after the Separation will be influenced by many factors. For a detailed discussion of these and other risks, please refer to “Risk Factors.”

 

Treatment of Outstanding Ocwen Stock Options Held by Our Employees and Directors

 

Ocwen stock options currently outstanding under Ocwen’s various equity compensation plans will be adjusted to reflect the value of Altisource stock distributed to Ocwen shareholders. At the Separation Date, all holders of

Ocwen stock awards, including Altisource employees and those who will remain with Ocwen after the Separation, will receive the following:

 

 

We will determine the exercise price of the new Altisource stock option and the adjusted Ocwen option based on the exercise price ratio. We will calculate the exercise price ratio for each individual stock option based on the ratio of the grant date exercise price of the individual stock option to the fair market value of the Ocwen stock immediately prior to the Separation. For example, assume that the Ocwen stock trades at $12.00 immediately prior to the Separation, and an employee holds an option with an exercise price of $8.00. The exercise price ratio for this option is 66.7%. We then will apply this exercise price ratio to the trading value of the Ocwen stock and the Altisource stock on the date the Altisource stock begins trading on The NASDAQ Stock Market LLC to determine the exercise price of the new Altisource stock option and the adjusted Ocwen option.

 

Interests of Ocwen Officers and Directors in the Separation

 

To the extent that Ocwen officers and directors hold shares of Ocwen common stock, they will receive shares of Altisource common stock in the Separation on the same terms as other Ocwen shareholders.

 

As noted above, William C. Erbey will be the Chairman of both Altisource and Ocwen after the Separation and will own 27.1% of Ocwen and 25.6% of Altisource. In addition, Ocwen will purchase services from us after the Separation pursuant to the services arrangements which services may be priced in a way that benefits Ocwen. See “Risk Factors”, “Relationship between Ocwen and Us Following the Separation” and “Certain Relationships and Related Transactions.”

 

Certain United States Federal Income Tax Consequences of the Separation

 

The following is a summary of the material United States federal income tax consequences of the Separation. This summary is based on the Code, on the Treasury Regulations promulgated thereunder and on judicial and administrative interpretations thereof all as in effect on the date of this summary, and all of which are subject to change (possibly on a retroactive basis).

 

This summary does not address tax consequences for any holder other than a United States Holder. For purposes of this summary, a United States Holder is a beneficial owner of Ocwen common stock that is, for United States federal income tax purposes:

 

 

Further, this summary does not discuss all of the tax considerations that may be relevant to United States Holders in light of their particular circumstances and does not address the tax consequences applicable to certain persons subject to special provisions of the United States federal income tax law including:

 

 

 

In addition, this summary is limited to shareholders that hold their Ocwen common stock as a capital asset. Finally, this summary does not address any estate, gift or other non-income tax consequences or any state, local or foreign tax consequences.

 

THIS SUMMARY IS FOR GENERAL INFORMATION PURPOSES ONLY, AND IT IS NOT INTENDED TO BE, AND IT SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR SHAREHOLDER.

 

OCWEN SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL, STATE AND LOCAL AND NON-UNITED STATES TAX CONSEQUENCES OF THE SEPARATION TO THEM IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

 

Ocwen has made it a condition to the Distribution that Ocwen obtain a favorable opinion of O’Melveny & Myers LLP confirming the Distribution’s tax-free status under Section 355 of the Code. The opinion will rely on management representations as well as various factual representations, assumptions and undertakings made by Ocwen and us. If any of those factual representations or assumptions were untrue or incomplete in any material respect, any undertaking was not complied with or the facts upon which the opinion is based were materially different from the facts at the time of the Distribution, the Distribution may not qualify for tax-free treatment. Opinions of counsel are not binding on the IRS. As a result, the conclusions expressed in the opinion of counsel could be challenged by the IRS, and if the IRS prevails in such challenge, the tax consequences to you could be materially less favorable.

 

As a tax-free transaction under Section 355 of the Code, the Distribution will not be taxable to you or Altisource. Ocwen shareholders will apportion their tax basis in Ocwen common stock between such Ocwen common stock and our common stock received in the Distribution in proportion to the relative fair market values of such stock at the time of the Distribution. However, if you receive cash in lieu of a fractional share of common stock as part of the Distribution, you will be treated as though you first received a distribution of the fractional share in the Distribution and then sold it for the amount of such cash. You will generally recognize capital gain or loss in the

amount of the difference between the cash you receive for such fractional share and your tax basis in that fractional share, as determined above. Such capital gain or loss will be a long-term capital gain or loss if your holding period for your Ocwen common stock is more than one year on the Separation Date.

 

The receipt by the holders of the Convertible Notes of Altisource common stock should be currently taxable as interest income equal to the value of the Altisource shares received.

 

The transfer of assets from Ocwen to Altisource will be structured to qualify as a reorganization under Section 368(a)(1)(D). Under Section 367(a) of the Code, in such a reorganization Ocwen must recognize taxable gain to the extent certain assets are transferred to Altisource as part of the Separation, for the amount that the fair market value of each transferred asset exceeds Ocwen’s basis in such asset. In addition, pursuant to Section 367(b) of the Code, Ocwen will be required to recognize a portion of its gain on the Distribution. Because gain will be recognized in the reorganization transactions described above, any gain recognized on the Distribution should not be material.

 

If the Distribution were not to qualify as a tax-free transaction, Ocwen may not recognize substantial taxable gain because most, if not all, of such gain would already have been recognized pursuant to the Restructuring of Altisource described above. Each shareholder receiving common stock in the Distribution would generally be treated as receiving a distribution in an amount equal to the fair market value of our common stock received which would generally result in (i) a taxable dividend to the extent of the shareholder’s pro rata share of Ocwen’s current and accumulated earnings and profits, (ii) a reduction in the shareholder’s basis (but not below zero) in Ocwen common stock to the extent the amount received exceeds the shareholder’s share of Ocwen’s earnings and profits and (iii) taxable gain to the extent the amount received exceeds both the shareholder’s share of Ocwen’s earnings and profits and the basis in the shareholder’s Ocwen common stock.

 

Even if the Distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, it may become fully taxable to Ocwen under Section 355(e) of the Code if stock representing 50% or greater interest in either Ocwen or Altisource is acquired by one or more persons as part of a plan or series of related transactions that include the Distribution. For this purpose, any acquisitions of our stock or Ocwen stock within two years before or after the Distribution are presumed to be part of such a plan although we may be able to rebut that presumption. In connection with the tax opinion of Ocwen’s special tax advisor, each of Ocwen and Altisource will represent that the Distribution is not part of any plan or series of related transactions. If such an acquisition of our stock or Ocwen stock triggers the application of Section 355(e) of the Code, Ocwen would recognize taxable gain as described above with respect to the Distribution, but the Distribution would generally be tax-free to each Ocwen shareholder.

 

Although taxes resulting from the Distribution not qualifying for tax-free treatment for U.S. federal income tax purposes generally would be imposed on Ocwen and shareholders of Ocwen, under the Tax Matters Agreement, Altisource would be required to indemnify Ocwen and its affiliates against all tax-related liabilities caused by the failure of the Distribution to qualify for tax-free treatment for U.S. federal income tax purposes (including as a result of events subsequent to the Distribution that caused Ocwen to recognize gain under Section 355(e) of the Code) to the extent these liabilities arise as a result of an action taken by Altisource or any of its affiliates or otherwise result from any breach of any representation, covenant or obligation of Altisource or any of its affiliates under the Tax Matters Agreement or any other agreement entered into by Altisource in connection with the Distribution.

 

Luxembourg Taxation

 

The following paragraphs describe generally the tax laws of Luxembourg as they apply to shareholders in Altisource (which is a corporation fully taxable under Luxembourg laws). The following is intended merely as a general summary of the principal Luxembourg tax consequences of the holding and the disposal of Altisource common stock and should be treated with the appropriate caution. This summary does not purport to be a complete analysis of all material tax considerations that may be relevant to a holder or prospective holder of shares in Altisource. This summary also does not take into account the specific circumstances of particular shareholders and is not intended as a substitute for professional tax advice that takes into account the particular circumstances relevant to a specific shareholder. Accordingly, shareholders should consult their own professional advisors on the possible tax consequences of holding or disposing of Altisource common stock, under the laws of Luxembourg as well as under their countries of citizenship, residence or domicile.

This summary is based on the laws, regulations and applicable tax treaties in effect in Luxembourg on the date hereof, all of which are subject to change, possibly with retroactive effect.

 

Consequences of the Distribution to Shareholders

 

No Luxembourg tax is due for Luxembourg non-resident holders upon the Distribution to the extent they have no permanent establishment, fixed place of business or a permanent representative in Luxembourg, to which the disposal of the shares can be attributed. If Luxembourg resident holders are beneficial owners of shares, they are urged to consult their own tax advisers regarding the Luxembourg tax consequences to them of the Distribution.

 

Consequences of the Distribution to Ocwen

 

Under Luxembourg tax law, if Ocwen has no permanent establishment, fixed place of business or permanent representative in Luxembourg, to which the disposal could be attributed, no Luxembourg corporate income tax will be due by Ocwen as a result of the Distribution provided Ocwen is entitled to benefit from the tax treaty concluded between Luxembourg and the United States or, if not, provided Ocwen has held its interest in Altisource for at least six months.

 

The mere disposal of shares is not subject to a Luxembourg registration tax or stamp duty.

 

Taxation of Altisource Subsequent to the Separation

 

Corporate Income Tax

 

A Luxembourg resident and fully taxable company is subject to income tax on its worldwide income. Normally, taxable companies pursuant to Luxembourg standard corporate income tax rules may benefit from the participation exemption regime with respect to dividends and capital gains derived from qualifying shareholdings. This means that dividends received by Altisource and capital gains on the sale of subsidiary shares may be exempt from corporate income tax under certain conditions. For Luxembourg tax purposes, normally taxable companies are entitled to the benefits of Luxembourg tax treaty network and the EU directives including the EU Parent-Subsidiary Directive and the EU Merger Directive, as amended.

 

Luxembourg withholding tax on distributions

 

Dividends distributed by Altisource will generally be subject to a withholding tax at a rate of 15% of the gross amount except (i) if an exemption from that withholding tax is applicable under Luxembourg domestic tax law (e.g., based on the implementation of the EU Parent-Subsidiary Directive) or (ii) if a lower rate or an exemption applies under any applicable double taxation treaty.

 

The exemption mentioned above is available if dividends are distributed to a company (“organisme à caractère collectif”) residing in a treaty country provided the recipient of the dividend has held or commits to hold a participation of at least 10% (or of EUR 1,200 acquisition cost) in Altisource for an uninterrupted period of 12 months (this must be checked on a case-by-case basis). The recipient of the dividends must be subject to tax on a basis computed in accordance with Luxembourg income tax law.

 

Luxembourg Net Wealth Tax

 

Luxembourg imposes an annual Net Wealth Tax (“NWT”) of 0.5% on the net asset value of corporate taxpayers as of January 1st. The net asset value will be reduced by the value of participations qualifying for participation exemption privilege (as defined in § 60 of the NWT law). In general Luxembourg resident companies subject to NWT are taxed on their worldwide net wealth (unless a double taxation treaty provides for an exemption).

 

Consequences to Shareholders Subsequent to the Distribution

 

The tax consequences discussed below are not a complete analysis or listing of all the possible tax consequences that may be relevant to you (in particular consequences may differ if there is an applicable tax treaty concluded between Luxembourg and your country of residence). You should consult your own tax advisor in respect of the tax consequences related to receipt, ownership, purchase or sale or other disposal of Altisource shares and the procedures for, as the case may be, claiming a refund of withholding tax.

Luxembourg income tax on dividends and similar distributions

 

Non-Resident Individual Holders

 

For Non-Resident Individual Holders having a permanent establishment, a fixed place of business or a permanent representative in Luxembourg to which Altisource’s shares are attributable, dividends distributed by Altisource are subject to Luxembourg income tax at the applicable progressive rate. However, in certain circumstances, 50% of the gross amount of the dividends are exempt from Luxembourg income tax.

 

Non-Resident Corporate Holders

 

Dividends received by Non-Resident Corporate Holders, having a permanent establishment, fixed place of business or permanent representative in Luxembourg are subject to corporate income tax in Luxembourg. However, such dividends and gains may be exempt under the conditions of the participation exemption privilege.

 

Furthermore, the permanent establishment, fixed place of business or permanent representative of a Non-Resident Corporate Holder may, under certain conditions, benefit from a 50% exemption on dividends received if the conditions for participation exemption are not met.

 

Luxembourg capital gains tax upon Disposal of Shares

 

Non-Resident Individual Holders

 

For Non-Resident Individual Holders having a permanent establishment, fixed place of business or permanent representative in Luxembourg to which the shares in Altisource are attributable, gains realized on the sale of such shares in Altisource are subject to Luxembourg income tax at the applicable progressive rate.

 

Capital gains realized on the sale of shares by a Non-Resident Individual Holder who does not have a permanent establishment, fixed place of business or permanent representative in Luxembourg generally will not be taxable in Luxembourg, unless the Non-Resident Individual Holder together with his or her spouse, life partner or person under 18 years of age holds a direct or indirect participation exceeding 10% of the share capital in Altisource at the date of the sale, or has held such participation at any moment and under similar holding modalities during the 5 years preceding the date of the sale and, either the disposal of the shares in Altisource happens within a period of six months from the acquisition of the shares, or the Non-Resident Individual Holder has been a Luxembourg taxpayer during more than 15 years and became a non-resident taxpayer less than five years before the realization of the capital gain. In such cases, the gain is taxable at half of the applicable progressive rates, with a minimum of a 15% rate. However, a double tax treaty (if any) may grant the exclusive taxation right in respect of the capital gains to the country of residence of the Non-Resident Individual Holder.

 

Non-Resident Corporate Holders

 

Capital gains realized on the sale of shares by Non-Resident Corporate Holders, having a permanent establishment, fixed place of business or permanent representative in Luxembourg are subject to income tax in Luxembourg. However, such gains, just like dividends, may be exempt under the conditions of the participation exemption.

 

Capital gains realized by Non-Resident Corporate Holders on the sale of shares which are not attributed to a Luxembourg permanent establishment, fixed place of business or permanent representative will not be taxable in Luxembourg, except for a participation exceeding 10% of the share capital in Altisource is sold within a period of six months from the acquisition of the shares. In such cases, the gain is taxable at a rate of 21.84%. However, a double tax treaty (if any) may grant the exclusive taxation right in respect of the capital gains to the country of residence of the Non-Resident Corporate Holder.

 

Luxembourg Net Wealth Tax

 

A Luxembourg non-resident corporate holder whose shares are attributable to a permanent establishment, a fixed place of business or a permanent representative in Luxembourg, and a Luxembourg resident corporate holder will be subject to Luxembourg NWT. NWT does not apply to resident and non resident individuals.

Luxembourg inheritance and gift tax

 

Under present Luxembourg tax law, where an individual shareholder in Altisource is a resident of Luxembourg for tax purposes at the time of his or her death, the shares in Altisource are included in his or her taxable estate for inheritance tax purposes.

 

Gift tax may be due on a gift or donation of the shares in Altisource if embodied in a Luxembourg notary deed or otherwise registered in Luxembourg.

 

Stamp Duties in Relation to the Transfer of Shares

 

The mere disposal of shares is not subject to a Luxembourg registration tax or stamp duty.

 

For a discussion of potential Luxembourg withholding tax on distributions, see above.

 

Certain Ongoing United States Federal Income Tax Matters Subsequent to the Separation

 

In general, U.S. federal income tax applies to a foreign corporation’s net taxable income that is effectively connected with the conduct of a U.S. trade or business. In addition, the U.S. branch profits tax will apply to a foreign corporation’s earnings and profits from such a business, with some adjustments, deemed repatriated out of the U.S. The U.S. has entered into an income tax treaty with Luxembourg in which the U.S. may tax the business profits earned by a Luxembourg corporation only if those profits are attributable to the conduct of a business carried on through a permanent establishment in the U.S.

 

There are no definitive standards provided by the Code or Treasury Regulations or court decision as to those activities that constitute the conduct of a business within the U.S., and as the determination is essentially factual in nature, the IRS may contend successfully that Altisource or its non-U.S. subsidiaries conduct a business in the U.S. If Altisource or these non-U.S. subsidiaries that are covered by an income tax treaty with the U.S. have taxable income attributable to a permanent establishment in the U.S. (or in the case of subsidiaries that are not in a treaty jurisdiction, if income is effectively connected with a U.S. trade or business), the U.S. will tax that income in the same manner that generally applies to the income of a domestic corporation.

 

On June 10, 2009, the IRS issued new regulations under Section 7874 of the Code. The IRS further indicated that it intends to issue additional regulations with respect to transactions where a U.S. corporation contributes assets, including subsidiary equity interests, to a foreign corporation and distributes the shares of such corporation, as in the Separation. Our understanding of the IRS’s plans regarding these forthcoming regulations is that they would apply to the Separation only if the value of assets held by Ocwen’s corporate or partnership subsidiary entities (either currently, or those that were distributed from such entities as part of the plan encompassing the Separation) exceeds, in the aggregate, 60% of the value of Altisource when contributed to Altisource. It is not certain, however, what these regulations will provide for once adopted. Prior to completing the Separation, Ocwen’s board of directors will require Ocwen and Altisource to receive a valuation from an independent valuation firm that will enable the Company to determine whether the value of these assets is less than 60% of the value of Altisource. Because we believe the value of these assets does not exceed the 60% threshold, as we expect to be confirmed by information we derive from the independent valuation, we do not believe that Code Section 7874 applies to the Separation. Neither our valuation nor the independent valuation is binding on the IRS. If the IRS were to successfully challenge this valuation, and find that the value of these assets exceeds 60% of the value of Altisource, then Ocwen would not be permitted to offset gain recognized on the transfer of these assets to Altisource with net operating losses, tax credits or other tax attributes. This could materially increase the tax cost to Ocwen of the Separation. If the IRS were to successfully challenge this valuation and find that the value of these assets exceeded 80% of the value of Altisource, then instead of recognition of gain on the transfer of the assets to Altisource, Altisource would be treated as a U.S. domestic corporation. As such, without further changes to the Code or to its legal structure, Altisource would pay income taxes in both the U.S. and Luxembourg with no deduction or credit for taxes paid to the other country. This would have a material adverse impact on Altisource’s worldwide tax expense.

Branch Profits Tax

 

If Altisource or any of its non-U.S. subsidiaries operate a U.S. business, then the branch profits tax may also apply to the profits of that business. Generally the branch profits tax is an additional 30% tax on the earnings of a foreign corporation’s U.S. business when these earnings are deemed to have been removed from the U.S. business. In addition, any interest paid or deemed paid by such U.S. business would be treated as U.S. source income and subject to U.S. withholding tax. Because Altisource should qualify for the benefits of the Luxembourg tax treaty and should not have a permanent establishment in the U.S., the branch profits tax should not apply; however, the IRS may not agree with this conclusion, or Altisource may not qualify for the treaty in the future.

 

Non-Business Profit

 

Foreign corporations are subject to U.S. income tax on some types of income such as rent, royalties, dividends and some types of interest on investments, from sources within the U.S. that are not taxable as business profits. Such income is taxed at a rate of 30%, but the rate may be reduced by the Luxembourg tax treaty and eliminated for some types of U.S. source income.

 

Transfer Pricing

 

The Code provides the IRS with the authority to reallocate income, deductions and other tax-related items among commonly controlled entities to prevent the evasion of taxes or to clearly reflect income and also to reallocate income. Generally, intercompany transactions on arm’s length terms will be respected by the IRS. Altisource intends to conduct transactions between its non-U.S. subsidiaries and U.S. subsidiaries on arm’s length terms; however, the IRS may not agree that these terms are arm’s length and could challenge the terms of these transactions and increase the U.S. tax liability of Altisource’s U.S. subsidiaries.

 

Regulatory Approval

 

Apart from registration under certain United States federal securities laws of the shares of Altisource common stock, which registration we have applied for, and the related requirements for listing on The NASDAQ Stock Market LLC, for which we have also applied, we do not believe that any other material governmental or regulatory filings or approvals will be necessary to consummate the Separation. The Separation will not affect the ownership or control of Ocwen’s servicing business or licenses; consequently, government approval will not be required in connection with the Separation.

 

No Appraisal Rights

 

Under the Florida Business Corporation Act, Ocwen shareholders will not have appraisal rights in connection with the Separation.

 

For purposes of governing certain of the ongoing relationships between Ocwen and us after the Separation, and to provide for an orderly transition to the status of two independent companies, we have entered or will enter into the agreements with Ocwen described in this section. The forms of agreements summarized in this section are, or will be, included as exhibits to the registration statement on Form 10 that we have filed with the SEC, which relates to this information statement, and the following summaries are qualified in their entirety by reference to the agreements as filed. See “Where You Can Find More Information” on page 107.

 

Separation Agreement

 

On the Separation Date, we will enter into the Separation Agreement with Ocwen which will provide for, among other things, the principal corporate transactions required to effect the Separation and certain other agreements relating to the continuing relationship between Ocwen and us after the Separation.

Ocwen may own certain assets which are part of our business, and we may own certain assets which are part of Ocwen’s business. Under the Separation Agreement, these assets will be transferred to Altisource (and any related liabilities will be assumed) in the Restructuring so that the assets, liabilities and operations associated with the asset management business will be owned by Ocwen and its subsidiaries, and the assets, liabilities and operations associated with the knowledge process outsourcing business will be owned by us and our subsidiaries. Additionally, the Separation Agreement will require that any assets or liabilities that should have been transferred to us as part of the Altisource business but that were not so transferred to us on the Separation Date, or that were transferred to us but were not part of the Altisource business and so should not have been so transferred, be transferred to either us or Ocwen, as applicable, upon the discovery of the same after the Separation Date. The Separation, when finalized, will include substantially all assets and liabilities that historically were included in the Altisource financial statements.

 

Under the Separation Agreement, and effective as of the Separation Date, we will assume, and will agree to indemnify Ocwen against, all liabilities, litigation and claims including related insurance costs arising out of our business, and Ocwen will retain, and will agree to indemnify us against, all liabilities, litigation and claims including related insurance costs arising out of Ocwen’s businesses. The foregoing obligations will not entitle an indemnified party to recovery to the extent any such liability is covered by proceeds received by such party from any third party insurance policy.

 

The Separation Agreement also will provide that we both shall be granted access to certain records and information in the possession of the other and will require the retention by each of Ocwen and us for a period of six years following the Separation Date of all such information in its possession.

 

Transition Services Agreement

 

On the Separation Date, we will enter into a Transition Services Agreement with Ocwen. Under this agreement, Ocwen and we will provide to each other services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other areas where we, and Ocwen, may need transition assistance and support following the Separation. The Transition Services Agreement will provide generally that Ocwen and Altisource will undertake to provide substantially the same level of service and use substantially the same degree of care as their respective personnel provided and used in providing such services prior to the Separation. The agreement will extend for two years after the Separation but may be terminated earlier under certain circumstances including a default. We expect that all services pursuant to the Transition Services Agreement will be based on fully-allocated cost of providing the service. We expect to estimate the time and expense of providing services and then to charge a fee based on the estimated fully burdened cost of the personnel involved in each activity. We believe that the terms and conditions of the Transition Services Agreement are no less favorable to us than those available from unrelated parties for a comparable arrangement and will result in expenses comparable to those we incur currently.

 

Tax Matters Agreement

 

We will enter into a Tax Matters Agreement with Ocwen on the Separation Date which sets out each party’s rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local or foreign taxes for periods before and after the Separation and related matters such as the filing of tax returns and the conduct of IRS and other audits. In general, under this agreement, we will be responsible for taxes attributable to our business incurred after the Separation closing, and Ocwen will be responsible for taxes incurred prior to the closing. In addition, we will indemnify Ocwen for all taxes and liabilities incurred as a result of (1) a breach of a representation made by us to O’Melveny & Myers LLP in connection with its tax opinion or (2) a post-Separation action or omission by us or an affiliate of ours that affects the tax consequences of the Separation.

 

Employee Matters Agreement

 

General.  We will enter into an Employee Matters Agreement with Ocwen on the Separation Date that will provide for the transition of employee benefit plans and programs sponsored by Ocwen for employees of the

knowledge process outsourcing business and any employees of the corporate office that we hire. This agreement will allocate responsibility for certain employee benefits matters and liabilities after the Separation Date. Under the Employee Matters Agreement, we will become liable for providing specified welfare and retirement benefits to our employees after the Separation Date which will generally be similar to the benefits currently provided to such employees by Ocwen and its subsidiaries (except as otherwise noted herein). We generally expect to adopt new plans that will be similar to the plans maintained by Ocwen. Except as specifically provided in the Employee Matters Agreement, nothing in that agreement will restrict the ability of Ocwen or us to amend or terminate any of our respective employee benefit plans.

 

Stock Options and Restricted Stock.  The Employee Matters Agreement provides that, at the time of the Separation, outstanding Ocwen stock options will be adjusted to reflect the value of Altisource stock disbursed to Ocwen shareholders.

 

With respect to restricted stock, holders of outstanding Ocwen restricted stock as of the date of the Separation will receive one share of restricted stock of Altisource for every three shares of restricted stock of Ocwen consistent with the treatment of Ocwen common stock. These new restricted shares of Altisource will have the same terms and conditions as the Ocwen restricted shares of common stock, including terms of vesting.

 

401(k) Plans.  Effective as of the Separation Date, we will adopt a new 401(k) plan for the Altisource business. Within a reasonably short period of time following the Separation, we will transfer all of the assets associated with Altisource employees from the Ocwen 401(k) plan to our new 401(k) plan.

 

Health and Welfare Plans.  We will assume all liabilities and responsibilities for providing health and welfare benefits to our employees. As of the Separation Date, we intend to establish health and welfare plans that are substantially similar to Ocwen’s plans that cover our employees at such time. For those benefits that are provided through insurance, Ocwen will make commercially reasonable efforts to have each insurance carrier agree to allow our employees to continue to be covered by Ocwen policies or through separate contracts on substantially the same basis during the transition period.

 

Services Agreement

 

On the Separation Date, we will enter into a Services Agreement with Ocwen. Under this agreement, we will provide to Ocwen certain services in connection with the Ocwen business following the Separation. The agreement will have a term of up to eight years after the Separation but may be terminated earlier under certain circumstances including a default of the provisions of the agreement. The specific services to be provided under this umbrella agreement will be set forth separately on a service-by-service basis as will economic terms. Services may be either fixed-price, in which case no yearly increase in service fee applies, or subject to annual increase in service fee based on market conditions and inflation. This agreement will provide Altisource with a right of first opportunity to bid on additional, related services desired to be received by Ocwen. Furthermore, if Ocwen receives a third party offer for the performance of such additional services it must provide Altisource with the opportunity to make its own offer for the same or substantially the same services, in which case Ocwen must accept Altisource’s offer if such offer is equal to or better than the third party offer. We expect that all services pursuant to the Services Agreement will be based on market rates prevailing at the time of execution or otherwise on arms-length terms and will be materially similar to the terms of existing arrangements between the parties. We believe that the terms and conditions of the Services Agreement are comparable to those available from unrelated parties for a comparable arrangement.

 

Technology Products Services Agreement

 

On the Separation Date, we will enter into a Technology Products Services Agreement with Ocwen. Under this agreement, we will provide to Ocwen certain Technology Products services in connection with the Ocwen business. The agreement will have a term of up to eight years after the Separation but may be terminated earlier under certain circumstances including a default. As with the Services Agreement, the specific services to be provided under this umbrella agreement will be set forth separately on a service-by-service basis, as will economic terms. Services may be either fixed-price, in which case no yearly increase in service fee applies, or subject to annual increase in service fee based on market conditions and inflation. This agreement will provide Altisource with a right of first opportunity to bid on additional, related services desired to be received by Ocwen. Furthermore, if Ocwen receives a third party offer for the

performance of such additional services it must provide Altisource with the opportunity to make its own offer for the same or substantially the same services, in which case Ocwen must accept Altisource’s offer if such offer is equal to or better than the third party offer. We expect that all services pursuant to the Technology Products Services Agreement will be based on market rates prevailing at the time of execution or otherwise on arms-length terms. We believe that the terms and conditions of the Technology Products Services Agreement are no less favorable to us than those available from unrelated parties for a comparable arrangement.

 

Intellectual Property Agreement

 

On the Separation Date, we will enter into an Intellectual Property Agreement with Ocwen. Under this agreement, Ocwen will transfer the intellectual property assets specified therein to Altisource. Additionally, under the Intellectual Property Agreement, Ocwen and Altisource each will license specified intellectual property rights to the other party necessary to permit each party to use and exploit the services received under the various service agreements described in this Information Statement. This Intellectual Property Agreement will have an initial term of eight years, but may be terminated earlier under certain circumstances including a default. The agreement will automatically renew four times for two-year terms. In exchange for the right of each party to use the specified intellectual property, we will pay agreed-upon royalties to Ocwen and Ocwen will pay agreed-upon royalties to us. We expect that all licenses and other rights granted pursuant to the Intellectual Property Agreement will be based on market rates prevailing at the time of execution or otherwise on arms-length terms. We believe that the terms and conditions of the Intellectual Property Agreement are no less favorable to us than those available from unrelated parties for a comparable arrangement.

 

Data Center and Disaster Recovery Agreement

 

On the Separation Date, we will enter into a Data Center and Disaster Recovery Agreement with Ocwen. Under this agreement, we will provide to Ocwen certain data center and disaster recovery services in connection with the Ocwen business. The agreement will have a term of up to eight years after the Separation, but may be terminated earlier by either party under certain circumstances, including a default by the other party. The economic terms for the services to be provided under this agreement will be set forth separately. We expect that all services pursuant to the Data Center and Disaster Recovery Agreement will be based on the fully allocated cost of providing such service.

 

We have no current plans to pay dividends. Dividends on our common stock are not cumulative. Decisions regarding the declaration and payment of interim dividends, including with respect to any initial interim dividend, will be at the discretion of our Board of Directors (subject to prior approval of or subsequent ratification by our shareholders) and will be evaluated from time to time in light of our financial condition, earnings, growth prospects, funding requirements, financing arrangements, applicable law and other factors our Board of Directors deems relevant.

 

Listing and Trading of Our Common Stock

 

Before the Separation Date, there will be no public market for our common stock. We have applied to list our common stock on The NASDAQ Stock Market LLC under the symbol “ASPS”. Following the Separation, Ocwen’s common stock will continue to trade on the New York Stock Exchange under the symbol “OCN”.

 

As of May 1, 2009, there were 67,434,998 shares of Ocwen common stock, $0.01 par value outstanding. In addition, there were 4,638,048 shares of Ocwen common stock eligible for issuance under the Convertible Notes. Based on the Separation Ratio of one share of Altisource common stock for every three shares of Ocwen common stock outstanding (on an as if converted basis), we anticipate that Ocwen will distribute up to 24,024,348 shares of our common stock to shareholders, adjusted downward for fractional shares. In addition, as of December 31, 2008, there were 9,428,952 stock options outstanding under Ocwen equity plans that may be exercised for up to 3,142,984 shares of Altisource common stock.

 

The following table describes our cash and cash equivalents and capitalization as of March 31, 2009 on an actual basis and on an as-adjusted basis to give effect to the Separation. The information presented below should be read in conjunction with “Pro Forma Financial Information,” “Management’s Discussion and Analysis and Financial Condition and Results of Operations” and our “Combined Consolidated Financial Statements” and the related notes included elsewhere in this information statement.

 

 

In connection with the Separation, Ocwen will contribute cash to Altisource, if necessary, such that Altisource has a minimum cash balance of at least $7,000 to provide what management believes to be sufficient operating capital for Altisource to operate separately for at least the next twelve months. Although our cash balance was less than $7,000 at March 31, 2009, we did not reflect an adjustment to the cash balance because Ocwen repaid the $4,700 amount recorded as Due from affiliates in May 2009. With the cash from this repayment, we had more than $7,000 of cash and anticipate that we will remain above $7,000 through the Separation Date. Therefore, we currently do not anticipate that we will require additional cash from Ocwen as of the Separation Date and will have no adjustments to our capitalization as a result.

 

The following table sets forth our selected financial data which we have derived from our combined consolidated financial statements for each of the five years in the period ended December 31, 2008. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the “Combined Consolidated Financial Statements” and the notes related to those combined consolidated financial statements and the “Pro Forma Financial Information” and discussion included elsewhere in this information statement. The statements of operations data for the years ended December 31, 2008, 2007 and 2006 and the balance sheet data at December 31, 2008 and 2007 are derived from Altisource’s audited combined consolidated financial statements. The unaudited statements of operations data for the years ended December 31, 2005 and 2004 and the unaudited balance sheet data at December 31, 2006, 2005 and 2004 are derived from Altisource’s accounting records for those periods and have been prepared on a basis consistent with Altisource’s audited combined consolidated financial statements.

 

The selected financial data is as reported in the historical carve-out financial statements of Altisource beginning on page F-1. The selected financial data may not necessarily reflect Altisource’s results of operations and financial position in the future or what results of operations and financial position would have been had Altisource been a separate, stand-alone company during the periods presented. Operating expenses in the historical income statements reflect direct expenses of our business together with allocations of certain Ocwen corporate expenses that have been charged to us based on usage or other methodologies appropriate for such expenses. In our opinion, these assumptions and allocations have been made on a reasonable and appropriate basis under the circumstances. Per share data have not been presented since these financial statements are prepared on a combined basis.

 

 

 

 

 

Altisource was incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.à r.l. renamed Altisource Portfolio Solutions S.à r.l. on May 12, 2009 and converted into Altisource Portfolio Solutions S.A. on June 5, 2009. As of the date of the Separation Ocwen will contribute to Altisource the business operations intended to constitute the Altisource businesses that are not already included in Altisource. Altisource also has business operations that will remain with Ocwen after the Separation, and we will distribute those operations to Ocwen as of the date of the Separation. In comparison to the presentation of the three segments that comprised the former Ocwen Solutions line of business within the Ocwen financial statements, these historical results are the same with two exceptions. The operations of BMS Holdings, Inc., an equity investment which we refer to as BMS, and Global Servicing Solutions, LLC, a majority owned consolidated investment which we refer to as GSS, will remain with Ocwen after the Separation. As the operations of these businesses are not similar to our business, are managed and financed autonomously and do not share common facilities with Altisource, we have excluded them from these combined consolidated financial statements. Ocwen includes BMS in its Technology Products segment and GSS in its Mortgage Services segment in its historical financial statements. Neither BMS or GSS are reflected in the historical or pro forma combined consolidated balance sheets or the combined consolidated statements of operations presented herein.

 

Altisource will enter into a Transition Services Agreement with Ocwen under which we and Ocwen will provide to each other services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other areas for up to two years. Each company will provide such services at fully-allocated cost and management believes that such allocations will be materially consistent with current cost levels incurred by Altisource as a part of Ocwen. We have not contemplated any financial impact of this agreement in these pro forma results of operations. We do anticipate that we will incur increased costs associated with being a separate publicly traded company including, but not limited to, maintaining a separate Board of Directors and obtaining a separate audit as well as changes that we expect in our tax profile, personnel needs, financing and operations of the contributed business as a result of the Separation from Ocwen. We also expect to incur costs to relocate certain executives, and to grant a limited number of stock options to executives subsequent to the Separation. We estimate that all of such expenses will range from $2,000 to $4,000 per year in excess of amounts currently allocated to us by Ocwen for similar expenses.

 

Unaudited Pro Forma Combined Consolidated Balance Sheet
March 31, 2009

 

 

 

 

 

 

Unaudited Pro Forma Combined Consolidated Statement of Operations
For the Three Months Ended March 31, 2009

 

Unaudited Pro Forma Combined Consolidated Statement of Operations
For the Year Ended December 31, 2008

 

 

 

 

 

 

The following discussion should be read in conjunction with other sections of this information statement including Business, Risk Factors, Selected Financial Data, Quantitative and Qualitative Disclosures about Market Risk and the combined consolidated financial statements and the related notes thereto and selected historical financial information included elsewhere herein. The discussion below contains forward-looking statements that are based upon our current expectations which are subject to uncertainty and changes in circumstances. Our actual results may differ materially from the expectations due to changes in global, political, economic, business, competitive and market factors many of which are beyond our control. See “Forward-Looking Statements” included elsewhere herein.

 

All dollar amounts not related to compensation are in thousands unless otherwise indicated.

 

Significant components of the management’s discussion and analysis of results of operations and financial condition include:

 

 

OVERVIEW

 

Altisource provides real estate mortgage portfolio management and related technology products and asset recovery and customer relationship management services.

 

Our competitive advantage is the ability to manage high value, knowledge-based job functions efficiently while reducing operating variability. In general, we utilize integrated technology solutions that include pre-determined call scripts for our customer service personnel based on psychological principles and decision models. We operate our technology platforms to manage large scale distributed networks of vendors. This allows our customers to improve their business processes while reducing costs. Along with expanding our use of integrated technology solutions, a central tenet to our strategy is a focus on selling output or solutions, thereby enabling us to convert operational efficiency gains into higher margins and profitability per employee.

We manage our operations through three reporting segments: Mortgage Services, Financial Services and Technology Products.

 

Mortgage Services provides due diligence, valuation, real estate sales, default processing services, property inspection and preservation services, homeowner outreach, closing and title services and knowledge process outsourcing services. Our services span the lifecycle of a mortgage loan from origination through the disposition of real estate owned properties (“REO”).

 

Financial Services comprises our asset recovery management services and customer relationship management to the financial services, consumer products, telecommunications and utilities industries. We specialize in, and our primary source of revenues for this segment is, contingency collections and customer relationship management for credit card issuers and other consumer credit providers. In June 2007, we acquired Nationwide Credit, Inc., one of the ten largest accounts receivable management companies in the United States.

 

Technology Products is responsible for the design, development and delivery of technology products and services to the mortgage industry including our REAL suite of applications that provide technology products to serve the needs of servicing and origination businesses. Our offerings include residential and commercial loan servicing and loss mitigation software, vendor management and a patented vouchless payable system to manage and oversee payments to large-scale vendor networks and information technology services. We build all of our technology platforms to be scalable, highly secure, flexible, standards-based and web connected. Standards and web connectivity ensure that our customers find our products easy to use. Further, we bring new products to market quickly because of the investments that we made in integrating our technology.

 

For additional information regarding our segments please refer to the discussions under the Business section of this document.

 

Separation from Ocwen

 

On November 12, 2008, the Board of Directors of Ocwen authorized management to pursue a reorganization of a number of predominantly non-U.S. operations including its knowledge process outsourcing business to be known as Altisource. On the Separation Date, we will distribute all of the shares of Altisource common stock to Ocwen’s shareholders in a tax-free distribution. Ocwen’s shareholders will receive one share of Altisource common stock for every three shares of Ocwen common stock they hold on the Record Date. In addition, holders of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024, also will receive one share of Altisource common stock for every three shares of Ocwen common stock deemed held on an as if converted basis, based on a conversion ratio of 82.1693 shares of Ocwen common stock for every $1,000 in aggregate principal amount of notes owned on the Record Date. Upon the Separation, Altisource will no longer be part of Ocwen.

 

In connection with the Separation, we and Ocwen entered into the Separation Agreement as well as certain other agreements to govern the terms of the separation and certain ongoing relationships between Ocwen and us subsequent to the Separation. These agreements include a Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Intellectual Property Agreement, Services Agreement, Technology Products Services Agreement and Data Center and Disaster Recovery Services Agreement. These related party agreements are more fully described below and in the notes to the combined consolidated financial statements.

 

Basis of Presentation

 

Our historical combined consolidated financial statements include assets, liabilities, revenues and expenses directly attributable to our operations carved out of the historical operations of Ocwen’s consolidated financial statements. Our historical financial statements also reflect allocations of corporate expenses from Ocwen based on use, percentage of time or other methodologies management believes appropriate for such expenses. These corporate expenses primarily reflect an allocation to us of a portion of the compensation and related costs of certain senior officers and other personnel of Ocwen who will not be our employees after the Separation, but who historically provided services to us.

 

The historical financial statements included in this information statement may not be indicative of our future performance as a separate company following the Separation and do not necessarily reflect what our financial

position, results of operations and cash flows would have been had we operated as a separate, stand-alone public entity during the periods presented. As part of Ocwen, we share certain corporate functions with Ocwen and Ocwen allocates a portion of its expenses to us to reflect our share of such expenses. We expect to enter into a Transition Services Agreement with Ocwen under which we and Ocwen will continue to share resources and provide services to each other on a fully allocated cost basis for up to two years. These services will include such services as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other services. Given that these services will be at fully allocated cost, we expect that our costs will be approximately equal before and immediately after the Separation. However, we will need to transition away from Ocwen over the next two years, which likely will increase the overall costs that we incur as we no longer will benefit from the economies of scale we generated as part of a larger organization and likely will have duplication of functions that would not be necessary if we were to remain within the Ocwen organization. We also will incur other expenses as a result of being a separate publicly traded company that are not reflected in our historical financial statements. These additional expenses include, but are not necessarily limited to:

 

 

We estimate that these additional expenses will be between $2,000 and $4,000 per year, resulting in higher expenses that we will record in our results of operations. This estimate includes from $500 to $700 for the Board of Directors fees and expenses, $700 to $1,000 for audit fees, $200 to $400 for legal counsel and fees, $300 to $500 for additional insurance, $1,000 to $1,600 for additional personnel and $500 to $1,000 for other expenses, all net of approximately $1,200 currently being allocated to Altisource by Ocwen for these expenses. The amount and timing of when we incur such additional expenses will increase the variability of our earnings and cash flows after the Separation. If we are unable to lower other expenses or increase revenues, these additional expenses also will lower our earnings and our cash flows.

 

We generated 40.1% of our revenues in 2008 from Ocwen businesses not included in the Separation or services derived from Ocwen’s loan servicing portfolio. We anticipate that Ocwen will continue to be a significant customer for Altisource for at least the next eight years, representing the expected initial terms of the agreements under which we will provide these services to Ocwen. We currently provide these services at rates that we consider to be at market. We expect that the prices that we will charge for these services beginning with the Separation Date will be determined pursuant to these services agreements, with such prices subject to revision annually after the initial two years of the agreement term. However, if market conditions change and we are required to provide services to Ocwen at below market rates, we could experience decreased earnings and cash flows as well as greater variability in our performance compared to our historical results.

 

The assets and liabilities assigned to us pursuant to the Separation Agreement are accounted for at the historical book values of such assets and liabilities. Prior to the separation, Ocwen centrally managed the cash flows generated from our various activities.

COMBINED CONSOLIDATED RESULTS OF OPERATIONS

 

YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006

 

The following table summarizes our combined consolidated operating results for the periods indicated. The transactions with related parties included in this table and throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations consist of transactions with Ocwen businesses not included in the Separation or transactions derived from Ocwen’s loan servicing portfolio.

 

 

Revenues

 

We completed the year ended December 31, 2008 with $160,363 in consolidated revenues as compared to $134,906 in 2007, an 18.9% increase. The year ended December 31, 2007 was a 39.6% increase over 2006 revenues of $96,603. The following table summarizes the net operating revenues by segment for the years ended December 31, 2008, 2007 and 2006:

 

 

Mortgage Services principally generates revenue by providing professional outsourced services that span the lifecycle of a mortgage loan. Although we provide a balanced set of product services related to both mortgage

originations and mortgage default services, our revenues are subject to fluctuation based on prevailing market conditions. Mortgage Services grew from 2006 to 2007 due primarily to increasing revenues from valuation and title searches offered principally in connection with mortgage originations. Revenue from these services peaked in the fourth quarter of 2007 and declined throughout 2008 resulting in lower revenues in the current year. We also experienced declining revenues in our mortgage due diligence business from the reduction in new residential loan originations resulting from the current mortgage crisis. We partially offset these revenue declines in 2008 by expanding our products to include more offerings relating to mortgage default management including property inspection and property preservation, closing and title services and default processing services. We expect these new products to help stabilize our mortgage services revenue and drive revenue growth for us in 2009.

 

Financial Services revenues increased to $73,835 for the year ended December 31, 2008 from $41,293 in the prior period primarily from our acquisition of NCI in June 2007. NCI contributed net incremental revenues of $69,623 in 2008 ($35,999 of incremental revenues subsequent to June 2007). Partially offsetting this increase is a decline in our remaining Financial Services business primarily resulting from our decision to stop serving certain customers from whom we were not earning an acceptable profit level. We continue to evaluate our Financial Services product offerings and customer mix with a growing focus towards our most profitable customers and/or those we believe have growth potential.

 

The increase in Technology Products revenue resulted from providing support services to NCI since the June 2007 date of acquisition and from a change in our billings to Ocwen and inter-segment charges from a cost-based method to market-based rate card in the second quarter of 2008. Under the cost-based method, we based our billings to Ocwen and our inter-segment charges on our expectation of costs for providing such services. We performed these cost-based billings on overall expectations of how we would allocate our resources with limited changes to reflect actual costs. Our market-based rate cards include charges for specific functions or services that we provide that are at rates that we believe approximate what market participants would charge in arms-length transactions. We establish the rates based on specific functions such as the number of loans processed on the Altisource licensed system or the number of employees that are using the applicable systems. We bill for these services on a monthly basis, and the billings change monthly based on activity levels. We change the rates periodically based on changes we identify in the market, but generally maintain consistent rates from month to month. This change resulted in approximately $6,000 greater revenues in the current year. We believe these rates to be market rates as they are consistent with one or more of the following: the fees we charge to other customers for comparable services; the rates Ocwen pays to other service providers; market surveys prepared by unaffiliated firms; and prices being charged by our competitors. These revised rates are materially consistent with the rates we will charge Ocwen under the various long-term servicing contracts into which we will enter in connection with the Separation.

 

We intend to cross-sell our mortgage services and technology products going forward and believe doing so will increase the overall value we provide to our customers as well as improve the margins that we earn.

 

Cost of revenue

 

Cost of revenue includes: (i) payroll and employee benefits associated with personnel employed in customer service roles; (ii) fees paid to external providers of valuation, title, due diligence and other outsourcing services as well as printing and mailing costs for correspondence with debtors; and (iii) technology and telephone expenses as well as depreciation and amortization of operating assets.

 

Cost of revenue increased 18.7% in 2008 compared to an 18.9% increase in revenues. Our gross profit grew 19.4% to $45,315 in 2008. The $18,094 increase in cost of revenue consists of $29,524 incremental costs relating to our inclusion of the NCI results for a full year in 2008 compared to a partial year in 2007, partially offset by decreases in cost of revenue in our Mortgage Services segment. The cost reductions resulted from leveraging our workforce, our proprietary processes and the embedded technology. These cost reductions, as well as the change to a market-based rate card in our Technology Products segment noted above, enabled us to improve our gross profit by $7,363 from 2007 to 2008 despite a decline in revenues when adjusting for the impact of NCI.

 

Cost of revenue increased 34.4% in 2007 from 2006 levels due to the inclusion of NCI since acquisition. These expenses decreased 2.8% exclusive of the additional expenses from NCI due primarily to cost savings we generated in our legacy Financial Services business and in our Technology Products segment.

Selling, general and administrative expenses

 

Selling, general and administrative expenses increased $158 or 0.6% from 2007 to 2008. This increase includes $6,409 of additional expenses in NCI due to our including their operating results for a full year in 2008 offset by net decreases of $6,251 from our remaining operations. We generated these net decreases primarily by reducing the number and cost of our personnel supporting our Mortgage Services operations. By increasing the utilization of our technology, maximizing the benefits of our diverse workforce and limiting the use of external professional services, we reduced our internal costs and the allocation of costs charged to us by Ocwen. We anticipate that these cost improvements will continue to benefit us in 2009 but may be offset to some degree by the costs associated with the growth and development of our new products. Further, the additional costs of being a separate public company that we will incur after the Separation will offset or may exceed the benefits of these improvements and we may have higher selling, general and administrative costs in the future as a result.

 

We also generated cost savings in 2007 with selling, general and administrative expenses declining 7.3% exclusive of the additional expenses from NCI.

 

Income from Operations

 

Cost savings in cost of revenues and in selling, general and administrative expenses and the change to a market-based rate card noted above enabled us to improve our income from operations by 71.9%, or $7,205, from 2007 to 2008. We consistently have expanded our income from operations margin over the periods presented even while we have continued to invest significant resources in developing new offerings. We accomplished this improvement despite a decline in revenues in 2008 when excluding the impact of NCI. In 2007, we increased our income from operations by 47.0%, or $3,204, driven principally by an increase in revenues and a reduction in costs. We continue to be focused on lowering our costs across all of our segments to grow profits while we seek to grow revenues.

 

Income before income taxes

 

Other income (expense), net included an increase in expenses in 2008 as a result of higher charges from Ocwen resulting from our acquisition of NCI. Income before income taxes increased 76.4% due primarily to the cost reductions and greater margins in Technology Products as noted above.

 

Other income (expense), net also included an increase in interest expense and in other expenses in 2007 relating to the debt incurred and interest charges from Ocwen in connection with our acquisition of NCI. Income before income taxes increased 17.9% which includes a loss of $3,716 in NCI. Adjusting for the NCI loss, income before income taxes increased 70.8% due primarily to the cost reductions described above.

 

Income Tax Provision

 

Income tax provision was $5,382, $1,564 and $1,616 for 2008, 2007 and 2006, respectively. Our effective tax rate on a stand alone basis was 36.9%, 18.9% and 23.0% for 2008, 2007 and 2006, respectively. Income tax provision on income before income tax differs from amounts that would be computed by applying the Luxembourg federal corporate income tax rate of 29.6% primarily because of the effect of differing tax rates outside of Luxembourg, indefinite deferral on earnings of non-U.S. affiliates and changes in the valuation allowance. The principal contributing factor to the increased effective tax rate for 2008 was an increase in valuation allowance particularly related to certain states and the impact of foreign tax positions including related deferrals. See Note 14 to our combined consolidated financial statements for a reconciliation of taxes at the statutory rate to actual income tax provision.

 

We expect that our effective tax rate in future periods will be consistent with 2007 and 2006 levels given our proposed operating structure, which is a rate in the low to mid twenty percent range.

THREE MONTHS ENDED MARCH 31, 2009 AND 2008

 

The following table summarizes our combined consolidated operating results for the periods indicated. The transactions with related parties included in this table and throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations consist of transactions with Ocwen businesses not included in the Separation or transactions derived from Ocwen’s loan servicing portfolio.