| Equity | 21. EQUITY
Common Stock
On September 1, 2017, the Company effected a 1-for- 10 reverse stock split and increased the par value of the Common Stock from $0.001 per share to $0.01 per share. All share and per share amounts, and exercise and conversion prices for all periods presented herein reflect the reverse split as if it had occurred as of the beginning of the first period presented. No fractional shares were issued in connection with the reverse stock split. Instead, a stockholder who otherwise would have been entitled to receive fractional shares of Common Stock as a result of the reverse stock split became entitled to receive from the Company cash in lieu of such fractional shares. The total cash payment for the fractional shares was $4 . Immediately after the reverse stock split there were 1,262,584 of common shares outstanding, which included 81,098 of unvested and restricted stock.
The holders of the Common Stock are entitled to one vote per share. These holders are entitled to receive distributions on such stock when, as, and if authorized by the Company’s board of directors out of funds legally available and declared by the Company, and to share ratably in the assets legally available for distribution to the Company’s stockholders in the event of its liquidation, dissolution, or winding up after payment of or adequate provision for all of the Company’s known debts and liabilities, including the preferential rights on dissolution of any class or classes of preferred stock. The holders of the Common Stock have no preference, conversion, exchange, sinking fund, redemption, or, so long as the Common Stock remains listed on a national exchange, appraisal rights and have no preemptive rights to subscribe for any of the Company’s securities. Shares of the Common Stock have equal dividend, liquidation, and other rights.
Preferred Stock
Series C Junior Participating Preferred Stock : Series C Junior Participating Preferred Stock (“Series C Preferred Stock”) was authorized by the Company’s board of directors in connection with the Stockholder Rights Plan discussed below. The Series C Preferred Stock has a par value of $0.001 per share and 10,000 shares were authorized as of December 31, 2019 and 2018 . The holders of Series C Preferred Stock are entitled to receive, when, as, and if declared by the Company’s board of directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September, and December in each year commencing on the first quarterly dividend payment date after the first issuance of a share or fraction of a share of Series C Preferred Stock. Dividends accrue and are cumulative. The holder of each share of Series C Preferred Stock is entitled to 10,000 votes on all matters submitted to a vote of the Company’s stockholders. Holders of Series C Preferred Stock are entitled to receive dividends, distributions or distributions upon liquidation, dissolution, or winding up of the Company in an amount equal to $100,000 per share of Series C Preferred Stock, plus an amount equal to accrued and unpaid dividends and distributions, whether or not declared, prior to payments made to holders of shares of stock ranking junior to the Series C Preferred Stock. The shares of Series C Preferred Stock are not redeemable. There were no shares of Series C Preferred Stock issued and outstanding as of December 31, 2019 and 2018 .
Series E Voting Non-Convertible Preferred Stock : Each share of the Company’s Series E Voting Non-Convertible Preferred Stock (“Series E Preferred Stock”) has no economic rights but entitles the holders thereof, to vote the Series E Preferred Stock on all matters presented to the Company’s stockholders. For every 10 shares of Series E Preferred Stock, the holders thereof are entitled to one vote on any such matter. Daniel G. Cohen, the Company’s chairman, is the sole holder of all 4,983,557 shares of Series E Preferred Stock outstanding as of December 31, 2019 . The Series E Preferred Stock held by Daniel G. Cohen gives him the same voting rights he would have if all of the Operating LLC units of membership interests held by him were exchanged for Common Stock on a ten for one basis and effectively gives him voting rights at the Company in the same proportion as his economic interest (as his units of membership interests of the Operating LLC do not carry voting rights at the Company level). The Series E Preferred Stock effectively enables Daniel G. Cohen to exercise approximately 29.45% of the voting power of the Company’s total shares outstanding that were entitled to vote as of December 31, 2019 (in addition to the voting power he holds through his common share ownership and Series F Preferred Stock (defined below)). The terms of the Series E Preferred Stock provide that, if the Company causes the redemption of or otherwise acquires any of the Operating LLC units owned by Daniel G. Cohen as of May 9, 2013, then the Company will redeem an equal number of shares of Series E Preferred Stock. The Series E Preferred Stock is otherwise perpetual. As of December 31, 2019 , there were 4,983,557 shares of Series E Preferred Stock issued and outstanding. See Non-Controlling Interest — Future Conversion / Redemption of Operating LLC Units below.
Series F Voting Non-Convertible Preferred Stock : O n December 23, 2019, the board of directors adopted a resolution that reclassified 25,000,000 authorized but unissued shares of Preferred Stock, par value $.001 per share, of the C ompany as a series of Preferred Stock designated as Series F Voting Non-Convertible (“Series F Preferred Stock”). In conjunction with SPA , the Company issued 12,549,273 Series F Preferred Stock to Daniel G. Cohen and 9,880,268 Series F Preferred Stock to the DGC Trust . The h olders of the Series F Preferred Stock are not entitled to receive any dividends or distributions (whether in cash, stock or property of the Co mpany ). The holders of Series F Preferred Stock and Common Stock are required to vote, together as a single class on all matters with respect to which a vote of the stockholders of the Corporation is required or permitted. Each outstanding share of Series F P referred Stock entitle s the holder to (1) vote for every ten (10) shares of Series F Preferred Stock on each matter submitted to the Holders for their vote. The Series F Preferred Stock held by Daniel G. Cohen and the DGC Trust give them the same voting rights they would have if all of the Operating LLC units of membership interests held by each were exchanged for Common Stock on a ten for one basis and effectively gives Daniel G. Cohen and the DGC Trust voting rights at the Company in the same proportion as their economic interest (as units of membership interests of the Operating LLC do not carry voting rights at the Company level). The Series F Preferred Stock effectively enables Daniel G. Cohen and the DGC Trust to exercise approximately 65.27% of the voting power of the Company’s total shares outstanding that were entitled to vote as of December 31, 2019 (in addition to the voting power held through his common share ownership and Series E Preferred Stock ownership ). As of December 31, 2019, there were 22,429,541 shares of Series F Preferred Stock issued and outstanding . See Non-Controlling Interest/ - Securities Purchase Agreement – Purchase of IMXI shares below.
Together, the Series E and Series F Preferred stock enables Daniel G. Cohen and the DGC Trust to exercise approximately 69.67% of the voting power of the Company’s total shares outstanding that were entitled to vote as of December 31, 2019, in addition to the voting power held through Mr. Cohen’s common share ownership.
Stockholder Rights Plan
On August 3, 2016, the Company adopted a Section 382 Rights Agreement (the “2016 Rights Agreement”) between the Company and Computershare, Inc. The Company’s board of directors adopted the 2016 Rights Agreement in an effort to protect stockholder value by attempting to protect against a possible limitation on the Company’s ability to use its net operating loss and net capital loss carryforwards to reduce potential future federal income tax obligations.
The 2016 Rights Agreement provided for a distribution of one preferred stock purchase right for each share of the Common Stock outstanding to stockholders of record at the close of business on August 15, 2016. Each right entitled the registered holder to purchase from the Company a unit consisting of one ten-thousandth of a share of the Company’s Series C Junior Participating Preferred Stock, par value $0.001 per share, at a purchase price of $100.00 per unit subject to adjustment.
The rights would have become exercisable following (i) the 10th day after a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 4.95% or more of the Common Stock or (ii) the 10th business day following the commencement of a tender offer or exchange offer that would result in a person or group having ownership of 4.95% or more of the Common Stock.
The rights had no voting privileges and the Rights Agreement expired on December 31, 2019. No rights were exercisable at December 31, 2019 . There was no impact to the Company’s financial results as a result of the adoption of the 2016 Rights Agreement. The terms and the conditions of the rights are set forth in the Section 382 Rights Agreement filed on Form 8-A with the Securities and Exchange Commission on August 3, 2016.
As permitted under the 2016 Rights Agreement, on December 18, 2017, the Company’s board of directors approved a request from Christopher Ricciardi, a former member of the Company’s board of directors and the beneficial owner of over 5% of the Common Stock to purchase up to 100,000 shares of Common Stock on or prior to March 31, 2018 without the rights under the 2016 Rights Agreement becoming exercisable. As a result, no rights under the 2016 Rights Agreement became exercisable in connection with any purchase by Mr. Ricciardi of such Common Stock.
Net Share Settlement of Restricted Stock
The Company may, from time to time, net share settle equity-based awards for the payment of employees’ tax obligations to taxing authorities related to the vesting of such equity-based awards. The total shares withheld and retired are based on the value of the restricted award on the applicable vesting date as determined by the Company’s closing stock price. These net share settlements reduced the number of shares that would have otherwise been issued as a result of the vesting and do not represent an expense to the Company.
Repurchases of Shares and Retirement of Treasury Stock
Since March 17, 2016, the Company has entered into letter agreements (together, the “10b5-1 Plan”) with Sandler O’Neill & Partners, L.P. (“Agent”). The most recent letter agreement, which terminated on March 19, 2019, provided for the Agent to purchase up to an aggregate maximum of $2,000 of Common Stock. Pursuant to the 10b5-1 Plan, purchases of Common Stock may be made in public and private transactions and must comply with Rule 10b-18 under the Exchange Act. The 10b5-1 Plan is designed to comply with Rule 10b5-1 under the Exchange Act.
During the twelve months ended December 31, 2019, pursuant to the 10b5-1 Plan, the Company repurchased 7,890 shares of Common Stock in the open market for a total purchase price of $65 . In addition, in privately negotiated transactions, on October 21, 2019, the Company purchased 23,000 shares from a former member of the board of directors for $230 or $10.00 per share. On November 7, 2019, the Company purchased 1,000 shares from the chief financial officer for $5 or $4.50 per share. See Note 31.
During the twelve months ended December 31, 2018, pursuant to the 10b5-1 Plan, the Company repurchased 57,526 shares of Common Stock in the open market for a total purchase price of $594 . In addition, in privately negotiated transactions, on August 29, 2018, the Company purchased 17,555 shares of Common Stock for an aggregate purchase price of $176 or $10.00 per share from a former member of the board of directors who was a director at the time of the purchase. See note 31.
During the twelve months ended December 31, 2017, pursuant to the 10b5-1 Plan, the Company repurchased 15,270 shares of Common Stock in the open market for a total purchase price of $149 . In addition, in privately negotiated transactions, (i) on May 25, 2017, the Company purchased 2,774 shares of Common Stock from an employee of the Company for an aggregate purchase price of $33 or $12.00 per share and (ii) December 18, 2017, the Company purchased 27,346 shares of Common Stock for an aggregate purchase price of $273 or $10.00 per share from a former member of the board of directors who was a director at the time of the purchase. See note 31. Also, during the fourth quarter of 2017, the Company purchased 11,177 shares of Common Stock from an unrelated third-party in a privately negotiated transaction for an aggregate price of $112 or $10.00 per share. The Company currently has no 10b5-1 Plan in place. All of the repurchases noted above were completed using cash on hand.
Dividends and Distributions
During 2019 , 2018 , and 2017 , the Company paid cash dividends on its outstanding Common Stock in the amount of $519 , $966 , and $985 , respectively. Pro-rata distributions were made to the other members of the Operating LLC upon the payment of dividends to the Company’s stockholders. During 2019 , 2018 , and 2017 , the Company paid cash distributions of $213 , $426 , and $425 , respectively, to the holders of the non-controlling interest (that is, the members of the Operating LLC other than Cohen & Company Inc.).
Certain subsidiaries of the Operating LLC have restrictions on the withdrawal of capital and otherwise in making distributions and loans. JVB is subject to net capital restrictions imposed by the SEC and FINRA, which require certain minimum levels of net capital to remain in this subsidiary. In addition, these restrictions could potentially impose notice requirements or limit the Company’s ability to withdraw capital above the required minimum amounts (excess capital) whether through distribution or loan. CCFL is regulated by the FCA and must maintain certain minimum levels of capital but will allow withdrawal of excess capital without restriction. CCFEL is regulated by the CBI and must maintain certain minimum levels of capital. See note 25.
Shares Outstanding of Stockholders’ Equity of the Company
The following table summarizes share transactions that occurred in stockholders’ equity during the years ended December 31, 2019 , 2018 , and 2017 .
ROLLFORWARD OF SHARES OUTSTANDING OF
COHEN & COMPANY INC.
Common Stock
Restricted Stock
Total
December 31, 2016 (1)
1,134,957
73,962
1,208,919
Issuance of shares
-
29,167
29,167
Issuance as equity-based compensation
-
39,591
39,591
Vesting of shares
65,782
(65,782)
-
Shares withheld for employee taxes
(7,699)
-
(7,699)
Forfeiture / cancellation of restricted stock
-
-
-
Repurchase and retirement of common stock
(56,950)
(6)
(56,956)
December 31, 2017 (1)
1,136,090
76,932
1,213,022
Issuance of shares
-
-
-
Issuance as equity-based compensation
-
73,685
73,685
Vesting of shares
57,138
(57,138)
-
Shares withheld for employee taxes
(7,430)
-
(7,430)
Forfeiture / cancellation of restricted stock
-
-
-
Repurchase and retirement of common stock
(75,081)
-
(75,081)
December 31, 2018 (1)
1,110,717
93,479
1,204,196
Issuance of shares
-
-
-
Issuance as equity-based compensation
-
36,875
36,875
Vesting of shares
56,639
(56,639)
-
Shares withheld for employee taxes
(15,557)
-
(15,557)
Forfeiture / cancellation of restricted stock
-
-
Repurchase and retirement of common stock
(31,890)
-
(31,890)
December 31, 2019 (1)
1,119,909
73,715
1,193,624
(1)
Excludes remaining restricted units of Cohen & Company Inc. Common Stock. See note 22.
Non-Controlling Interest
Securities Purchase Agreement – Purchase of IMXI shares
On December 30, 2019 (the “SPA Effective Date”), the Company entered into a Securities Purchase Agreement (the “SPA”), by and among the Company, the Operating LLC, Daniel G. Cohen, and the DGC Trust.
Pursuant to the SPA, Daniel G. Cohen and the DGC Trust purchased (i) an aggregate of 22,429,541 newly issued units of membership interests in the Operating LLC (collectively, the “LLC Units”); and (ii) 22,429,541 newly issued, Series F Preferred Stock.
In consideration for the issuance of the LLC Units and Series F Preferred Stock , Daniel G. Cohen transferred to the Operating LLC 370,881 shares of common stock, par value $.00001 per share (“IMXI Common Stock”), of International Money Express, Inc. (formerly FinTech Acquisition Corp. II) a Delaware corporation (“IMXI”), and the DGC Trust transferred to the Operating LLC an aggregate of 291,480 shares of IMXI common stoc k. The aggregate number of IMXI shares transferred to the Operating LLC was 662,361 , of which (a) 264,021 shares are subject to certain restrictions on transfer until the closing price per share of IMXI Common Stock (as reported by The Nasdaq Capital Market) exceeds $15.00 for any 20 trading days within a consecutive 30 trading day period or immediately upon certain change of control events involving IMXI, as set forth in the letter agreement, dated January 19, 2017 (the “Letter Agreement”), by and among IMXI, Daniel G. Cohen , the DGC Trust and the other parties named therein, and (b) 264,023 shares are subject to certain restrictions on transfer until the closing price per share of IMXI Common Stock (as reported by The Nasdaq Capital Market) exceeds $17.00 for any 20 trading days within a consecutive 30 trading day period or immediately upon certain change of control events involving IMXI, as set forth in the Letter Agreement.
The Company engaged a third-party valuation firm to value the IMXI shares transferred to the Operating LLC. The shares transferred by Daniel Cohen were valued at $4,351 and the shares transferred by the DGC Trust were valued at $3,428 . The Company accounted for this transaction by recording an increase of $7,779 in other investments, at fair value and a corresponding increase in the non-controlling interest.
The IMXI Common Stock is listed on The Nasdaq Capital Market (“Nasdaq”) under the trading symbol “IMXI.” Prior to the merger of IMXI with and into a special purpose acquisition company in a transaction that resulted in the listing of IMXI on Nasdaq, Mr. Cohen served as the c hief e xecutive o fficer and member of the board of directors of the special purpose acquisition company.
The SPA contain s customary representations and warranties on the part of each of the Operating LLC , the Company , Daniel G. Cohen, and the DGC Trust. T he Operating LLC , the Company , Daniel G. Cohen, and the DGC Trust provide customary indemnifications thereunder.
Pursuant to the Amended and Restated Limited Liability Company Agreement of the Operating LLC, dated as of December 16, 2009, as amended (“LLC Agreement”), a holder of units of membership interests in the Operating Agreement, including the LLC Units, may cause the Operating LLC to redeem (each, a “Unit Redemption”) such units at any time for, at the Company’s option, (A) cash or (B) one share of Common Stock for every 10 units of membership interests in the Operating LLC.
However, pursuant to the SPA , Daniel G. Cohen and the DGC Trust agreed that, until the Company’s stockholders approve the Stockholder Proposal (as defined below), they will not cause a Unit Redemption with respect to any portion of the LLC Units if such Unit Redemption would result in the Company issuing a number of shares of Common Stock that, when aggregated with any shares of Common Stock previously issued in connection with any Unit Redemption of the LLC Units equals or exceeds 19.99% of the outstanding Common Stock as of the SPA Effective Date.
Pursuant to the SPA , Daniel G. Cohen and the DGC Trust also agreed to not cause a Unit Redemption with respect to any portion of the Cohen LLC Units if the Company’s board of directors determines that the satisfaction of such Unit Redemption by the Company with shares of Common Stock would jeopardize or endanger the availability to the Company of its net operating loss and net capital loss carryforwards and certain other tax benefits under Section 382 of the Internal Revenue Code of 1986, as amended.
Pursuant to the SPA , at the 2020 annual meeting of the Company’s stockholders, the Company agreed to cause its stockholders to vote on proposals (collectively, the “Stockholder Proposal”) regarding the issuance of all shares of Common Stock issuable in connection with a redemption of the LLC Units for purposes of Section 713 of the NYSE American’s Company Guide. Further, the Company’s b oard of d irectors must recommend to the Company’s stockholders that such stockholders approve the Stockholder Proposal and may not modify or withdraw such resolution.
In addition, effective as of the SPA Effective Date, if the Company owns a number of units of membership interests in the Operating LLC representing less than a majority of the votes entitled to be cast at any meeting or any other circumstances upon which a vote, agreement, consent (including unanimous written consents) or other approval is sought from the holders of units of membership interests in the Operating LLC (each, a “Meeting”), then for so long as the Company owns a number of units of membership interests in the Operating LLC representing less than a majority of the votes entitled to be cast at any Meeting, Daniel G. Cohen and the DGC Trust ha ve agreed to grant a voting proxy to the Company pursuant to which the Company may vote at any Meeting the number of units of membership interests in the Operating LLC owned by Daniel G. Cohen and the DGC Trust necessary to give the Company a majority of the votes at such Meeting. See Notes 3, 4, and 31.
Future Conversion / Redemption of Operating LLC Units
Of the 27,753,631 Operating LLC units of membership interests not held by the Company as of December 31, 2019 , Daniel G. Cohen, the Company’s chairman, through CBF, a single member LLC, held 17,801,275 Operating LLC units of membership interests and the DGC Trust held 9,880,268 . Each Operating LLC membership unit is redeemable at the member’s option, at any time, for (i) cash in an amount equal to the average of the per share closing prices of the Common Stock for the ten consecutive trading days immediately preceding the date the Company receives the holder’s redemption notice, or (ii) at the Company’s option, for one share of the Common Stock for every 10 units subject, in each case, to appropriate adjustment upon the occurrence of an issuance of additional shares of the Common Stock as a dividend or other distribution on the Company’s outstanding Common Stock, or a further subdivision or combination of the outstanding shares of the Common Stock.
Unit Issuance and Surrender Agreement — Acquisition and Surrender of Additional Units of the Operating LLC, net
Effective January 1, 2011, Cohen & Company Inc. and the Operating LLC entered into a Unit Issuance and Surrender Agreement (the “UIS Agreement”) that was approved by the board of directors of Cohen & Company Inc. and the board of managers of the Operating LLC. In an effort to maintain a 1:10 ratio of Common Stock to the number of units of membership interests Cohen & Company Inc. holds in the Operating LLC, the UIS Agreement calls for the issuance of additional units of membership interests of the Operating LLC to Cohen & Company Inc. when the Cohen & Company Inc. issues its Common Stock to employees under existing equity compensation plans. In certain cases, the UIS Agreement calls for Cohen & Company Inc. to surrender units to the Operating LLC when certain restricted shares are forfeited by the employee or repurchased by the Company.
Letter Agreements – Repurchase of Common Stock
Also, in an effort to maintain a 1 :10 ratio of Common Stock to the number of units of membership interests Cohen & Company Inc. holds in the Operating LLC, Cohen & Company Inc. and the Operating LLC have entered into a series of letter agreements. These agreements call for Cohen & Company Inc. to surrender units to the Operating LLC when the Company repurchases its Common Stock.
The following table summarizes the transactions that resulted in changes in the unit ownership of the Operating LLC including unit issuances and forfeitures related to the UIS agreement.
ROLLFORWARD OF UNITS OUTSTANDING OF
THE OPERATING LLC
Cohen & Company Inc.
Daniel G. Cohen
DGC Trust
Others
Total
December 31, 2016
11,781,662
4,983,557
-
340,533
17,105,752
Issuance of Units under UIS, net
398,741
-
-
-
398,741
Repurchase and retirement of Common Stock
(569,549)
-
-
-
(569,549)
December 31, 2017
11,610,854
4,983,557
-
340,533
16,934,944
Issuance of Units under UIS, net
247,120
-
-
-
247,120
Repurchase and retirement of Common Stock
(750,810)
-
-
-
(750,810)
December 31, 2018
11,107,164
4,983,557
-
340,533
16,431,254
Issuance of Units under UIS, net
410,820
-
-
-
410,820
Issuance of Units for purchase of IMXI shares
-
12,549,273
9,880,268
-
22,429,541
Additional units purchased by Daniel G. Cohen
-
268,445
-
(268,445)
-
Repurchase and retirement of Common Stock
(318,900)
-
-
-
(318,900)
December 31, 2019
11,199,084
17,801,275
9,880,268
72,088
38,952,715
The following table presents the impact to equity from Cohen & Company Inc.’s ownership interest in the Operating LLC.
For the Year Ended December 31,
2019
2018
2017
Net income / (loss) attributable to Cohen & Company Inc.
$ (2,054)
$ (2,463)
$ 2,064
Transfers (to) from the non-controlling interest:
Increase / (decrease) in Cohen & Company Inc.'s paid in capital for the acquisition / (surrender) of additional units in consolidated subsidiary, net
28
(217)
(81)
Changes from net income / (loss) attributable to Cohen & Company Inc. and transfers (to) from non-controlling interest
$ (2,026)
$ (2,680)
$ 1,983
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