Item 1.01
Entry into a Material Definitive Agreement.
Securities Purchase Agreement
On March 10, 2017 (the “Closing Date”), IFMI, LLC, a majority owned subsidiary of Institutional Financial Markets, Inc., a Maryland corporation (the “Company”), entered into a Securities Purchase Agreement (the “Purchase Agreement”), by and among IFMI, LLC and DGC Family Fintech Trust (“Buyer”), a trust established by Daniel G. Cohen, and solely for purposes of Article VI and Sections 7.3, 7.4, 7.5 and 7.6 thereof, the Company. Mr. Cohen is the Vice Chairman of the Company’s Board of Directors (the “Board of Directors”) and Vice Chairman of the Board of Managers (the “Board of Managers”) of IFMI, LLC, President and Chief Executive of the Company’s European Business, and President, a director and the Chief Investment Officer of the Company’s indirect majority owned subsidiary, Cohen & Company Financial Limited (formerly known as EuroDekania Management Limited).
Pursuant to the Purchase Agreement, the Buyer agreed to purchase from IFMI, LLC, and IFMI, LLC agreed to issue and to sell to the Buyer, a convertible senior secured promissory note (the “Note”) in the aggregate principal amount of $15,000,000. On the Closing Date, the Buyer paid to IFMI, LLC $15,000,000 in cash in consideration for the Note. In addition, pursuant to the Purchase Agreement, on the Closing Date, IFMI, LLC was required to pay to the Buyer a $600,000 financing fee (the “Financing Fee”), which obligation was offset in full by Mr. Cohen’s obligation to pay the Termination Fee (as defined and discussed more fully below) to IFMI, LLC.
Under the Purchase Agreement, IFMI, LLC and the Buyer offer customary indemnifications. Further, IFMI, LLC and the Buyer provide each other with customary representations and warranties, the Company provides limited representations and warranties to the Buyer, and each of IFMI, LLC and the Company make customary affirmative covenants.
Pursuant to the Purchase Agreement, the Company agreed to execute an amendment (the “LLC Agreement Amendment”) to the Amended and Restated Limited Liability Company Agreement of IFMI, LLC, dated as of December 16, 2009, by and among IFMI, LLC and its members, as amended (the “LLC Agreement”) at such time in the future as all of the other members execute the LLC Agreement Amendment. The LLC Agreement Amendment provides, among other things, that the Board of Managers will initially consist of Daniel G. Cohen, as Chairman of the Board of Managers, Lester R. Brafman (the Company’s current Chief Executive Officer) and Joseph W. Pooler, Jr. (the Company’s current Executive Vice President, Chief Financial Officer and Treasurer). The LLC Agreement Amendment also provides that Mr. Cohen would not be able to be removed from the Board of Managers or as Chairman of the Board of Managers other than for cause or under certain limited circumstances.
A special committee of the Board of Directors, comprised solely of independent directors not affiliated with the Company, negotiated the Purchase Agreement on behalf of the Company. In connection with the transactions contemplated by the Purchase Agreement, the special committee was advised by separate independent legal and financial advisors.
Mr. Cohen is neither a trustee nor a named beneficiary of the DGC Family Fintech Trust and does not have any voting or dispositive control of securities held by the trust.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase Agreement, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.
The Note
The outstanding principal amount under the Note is due and payable on the fifth anniversary of the Closing Date, provided that IFMI, LLC may, in its sole discretion, extend the maturity date for an
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additional one-year period, in each case unless the Note is earlier converted (in the manner described below). The Note accrues interest at a rate of 8% per year, payable quarterly. Provided that no event of default has occurred under the Note, if dividends of less than $0.02 per share are paid on the Company’s common stock, par value $0.001 per share (“Common Stock”), in any fiscal quarter prior to an interest payment date, then IFMI, LLC may pay one-half of the interest payable on such date in cash, and the remaining one-half of the interest otherwise payable will be added to the principal amount of the Note then outstanding. The Note contains customary “Events of Default.” Upon the occurrence or existence of any Event of Default under the Note, the outstanding principal amount is immediately accelerated in certain limited instances and may be accelerated in all other instances upon notice by the holder of the Note to IFMI, LLC. Further, upon the occurrence of any Event of Default under the Note and for so long as such Event of Default continues, all principal, interest and other amounts payable under the Note will bear interest at a rate equal to 9% per year. The Note may not be prepaid in whole or in part prior to the maturity date without the prior written consent of the holder thereof (which may be granted or withheld in its sole discretion). The Note is secured by the equity interests held by IFMI, LLC in all of its subsidiaries.
At any time following the Closing Date, all or any portion of the outstanding principal amount of the Note may be converted by the holder thereof into units of membership interests of IFMI, LLC (“LLC Units”) at a conversion rate equal to $1.45 per unit, subject to customary anti-dilution adjustments. Pursuant to the LLC Agreement, and subject to certain limitations, holders of IFMI, LLC may require IFMI, LLC to redeem all or any portion of such units in exchange for, in the Company’s sole discretion, cash or Common Stock. Under the Purchase Agreement, the Company agreed to submit a proposal to the Company’s stockholders at its 2017 annual meeting of stockholders to approve the Company’s issuance, if any, of Common Stock upon any redemption of the LLC Units and the Board of Directors agreed to recommend that the Company’s stockholders vote to approve such proposal.
Following any conversion of the Note into LLC Units, the holder of such LLC Units will have the same rights of redemption, if any, held by the holders of LLC Units as set forth in the LLC Agreement; provided that the holder will have no such redemption rights with respect to such LLC Units if the Board of Directors determines in good faith that satisfaction of such redemption by the Company with shares of its Common Stock would (i) 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, or (ii) constitute a “Change of Control” under the Junior Subordinated Indenture, dated as of June 25, 2007, between the Company (formerly Alesco Financial Inc.) and Wells Fargo Bank, N.A., as trustee.
Under the Note, if following any conversion of the Note into LLC Units, for so long as the Company owns a number of LLC Units representing less than a majority of the voting control of IFMI, LLC, each holder of any LLC Units issued as a result of the conversion of the Note (regardless of how such LLC Units were acquired by such holder) is obligated to grant and appoint the Company as such holder’s proxy and attorney-in-fact to vote (i) the number of LLC Units owned by each such holder that, if voted by the Company, would give the Company a majority of the voting control of IFMI, LLC, or (ii) if such holder holds less than such number of LLC Units, all such holder’s LLC Units.
The Note provides that it is senior to all indebtedness of IFMI, LLC incurred following the Closing Date, and is senior to any subordinated or junior subordinated indebtedness of IFMI, LLC outstanding as of the Closing Date.
The foregoing description of the Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Note, which is attached hereto as Exhibit 10.2 and is
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incorporated herein by reference.
Item 1.02.
Termination of a Material Definitive Agreement.
As previously disclosed, on August 19, 2014, IFMI, LLC entered into a definitive agreement (the “European Sale Agreement”) to sell the Company’s European operations to C&Co Europe Acquisition LLC, an entity controlled by Mr. Cohen, for approximately $8.7 million. The transaction was subject to customary closing conditions and regulatory approval from the United Kingdom Financial Conduct Authority. On March 26, 2015, the parties to the European Sale Agreement agreed to extend the deadline for the closing of the transactions contemplated by the European Sale Agreement from March 31, 2015 to June 30, 2015. In addition, the parties to the European Sale Agreement amended the date which C&Co Europe Acquisition LLC was obligated to cause the settlement of intercompany accounts of Cohen & Company Financial Limited and our subsidiaries, Cohen & Compagnie, SAS and Unicum Capital, S.L., owed to IFMI, LLC (the “Intercompany Payables”) from March 31, 2015 to June 30, 2015.
Further, on June 30, 2015, the parties to the European Sale Agreement agreed to extend the deadline for the closing from June 30, 2015 to December 31, 2015 and the settlement date of the Intercompany Payables from June 30, 2015 to December 31, 2015 (the “Second Extension”). In connection with the Second Extension, the parties to the European Sale Agreement agreed that, if the transaction was terminated in accordance with its terms prior to the closing, then (i) Mr. Cohen would pay $600,000 in respect of a portion of the legal and financial advisory fees and expenses incurred by the Company and the special committee of the Board of Directors in connection with the transaction since April 1, 2014 (the “Termination Fee”), and (ii) an amendment (the “Cohen Employment Agreement Amendment”) to the Amended and Restated Employment Agreement, dated as of May 9, 2013, among IFMI, LLC, the Company, Mr. Cohen and J.V.B. Financial Group Holdings, LP (formerly known as C&Co/PrinceRidge Holdings LP) (the “Employment Agreement”), was to become effective.
The European Sale Agreement provided that either party may terminate the agreement after December 31, 2015. On the Closing Date, C&Co Europe Acquisition LLC provided notice to IFMI, LLC that it was terminating the European Sale Agreement. As a result, on the Closing Date, the parties entered into a termination letter (the “Termination Letter”), pursuant to which IFMI, LLC acknowledged the termination by C&Co Europe Acquisition LLC of the European Sales Agreement. The Termination Letter contains a mutual release of claims between C&Co Europe Acquisition LLC and IFMI, LLC.
On the Closing Date, Mr. Cohen’s obligation to pay the Termination Fee was offset in full by IFMI, LLC’s obligation to pay the Financing Fee to the Buyer and the Cohen Employment Agreement Amendment became effective. The Cohen Employment Agreement Amendment amended the Employment Agreement to provide that if Mr. Cohen’s employment is terminated by IFMI, LLC without “cause” or by Mr. Cohen for “good reason” (as such terms are defined in the Employment Agreement), IFMI, LLC will pay Mr. Cohen a maximum of $1,000,000 as a severance benefit. The Employment Agreement formerly provided that in the event of such termination, IFMI, LLC would pay Mr. Cohen a minimum of $3,000,000 as a severance benefit.
The foregoing description of the Termination Letter does not purport to be complete and is qualified in its entirety by reference to the full text of the Termination Letter, which is attached hereto as Exhibit 10.3 and is incorporated herein by reference.
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