19. PERMANENT EQUITY

Stockholders’ Equity

Common Stock

The holders of the Company’s 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 Company’s Common Stock have no preference, conversion, exchange, sinking fund, redemption, or, so long as the Company’s 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 Company’s 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 are authorized as of December 31, 2013 and 2012, respectively. 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 Junior Participating 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, 2013 and 2012.

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 Mr. Cohen, the Company’s Vice Chairman, to vote the Series E Preferred Stock on all matters presented to the Company’s stockholders. Each share of Series E Preferred Stock is entitled to one vote. The 4,983,557 shares of Series E Preferred Stock currently outstanding are equivalent to the amount of Operating LLC membership units held by Mr. Cohen as of December 31, 2013. See note 1. The 4,983,557 shares of Series E Preferred Stock were issued on May 9, 2013 in exchange for the 4,983,557 shares of Series D Voting Non-Convertible Preferred Stock (“Series D Preferred Stock”) held by CBF, an entity wholly owned by Mr. Cohen. The Series E Preferred Stock effectively gives Mr. Cohen voting rights at the Company in the same proportion as his economic interest (as his membership units of the Operating LLC do not carry voting rights at the Company level). The Series E Preferred Stock effectively enables Mr. Cohen to exercise approximately 25.2% of the voting power of the Company’s total shares outstanding that are entitled to vote as of December 31, 2013. 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 Mr. 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. All former Series D Preferred Stock and Series B Voting Non-Convertible Preferred Stock which entitled Mr. Cohen to vote on all matters presented to the Company’s stockholders were cancelled on May 9, 2013 and December 28, 2012, respectively. As of December 31, 2013, 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.

Stockholder Rights Plan

The Company’s Board of Directors adopted a Section 382 Rights Agreement on December 21, 2009 (the “2009 Rights Agreement”) in an effort to protect against a possible limitation on the Company’s ability to use its net operating loss and net capital loss carry forwards (the “deferred tax assets”) to reduce potential future federal income tax obligations. No rights pursuant to the 2009 Rights Agreement were exercisable at December 31, 2012 or 2011. There was no impact to the Company’s financial results as a result of the adoption of the 2009 Rights Agreement. The 2009 Rights Agreement expired on December 31, 2012.

In connection with the investments by Mead Park Capital and EBC (see note 4), on May 9, 2013, the Company’s Board of Directors adopted the Section 382 Rights Agreement between the Company and Computershare Shareowner Services LLC (the “2013 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 deferred tax assets to reduce potential future federal income tax obligations. The Company’s Board of Directors authorized and declared a dividend distribution of one right for each share of the Company’s Common Stock outstanding at the close of business on May 20, 2013. Each right entitles the registered holder to purchase from the Company one ten-thousandth of a share of the Company’s Series C Junior Participating Preferred Stock at an exercise price of $100.00 per one ten-thousandth of a share of the Company’s Series C Junior Participating Preferred Stock, subject to adjustment.

The rights will become exercisable following (i) the 10th day following a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 4.95% or more of the Company’s 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 Company’s Common Stock.

The 2013 Rights Agreement has no voting privileges and will expire on the earliest of (i) the close of business on October 1, 2016, (ii) the time at which the rights are redeemed pursuant to the 2013 Rights Agreement, (iii) the time at which the rights are exchanged pursuant to the 2013 Rights Agreement, (iv) the repeal of Section 382 of the Internal Revenue Code or any successor statute if the Company’s Board of Directors determines that the 2013 Rights Agreement is no longer necessary or desirable for the preservation of certain tax benefits, and (v) the beginning of the taxable year of the Company to which the Company’s Board of Directors determines that certain tax benefits may not be carried forward.

No rights were exercisable at December 31, 2013. There was no impact to the Company’s financial results as a result of the adoption of the 2013 Rights Agreement. The terms and the conditions of the rights are set forth in the Section 382 Rights Agreement attached as Exhibit 4.1 to the IFMI’s Form 8-K filed with the Securities and Exchange Commission on May 13, 2013.

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 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 and retired 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.

Retirement of Treasury Stock

During the second half of 2011, the Company repurchased 667,601 shares of its Common Stock. Of the 667,601 shares repurchased, 647,701 shares were repurchased from an unrelated third party in a privately negotiated transaction in August 2011 and 19,900 shares were repurchased at various times in November and December 2011 in the open market. The total cost related to the 667,601 shares of the Company’s Common Stock repurchased was $1,488, which represented a weighted average price of $2.23 per share. The Company subsequently retired the Common Stock. In conjunction with this repurchase, IFMI surrendered an equal number of units to the Operating LLC.

During the third quarter of 2012, the Company retired 50,400 shares, resulting in an increase of $328 in accumulated deficit, and a decrease of $328 in treasury stock. The shares remain as authorized stock; however, they are now considered unissued. In conjunction with this retirement, IFMI surrendered an equal number of units to the Operating LLC.

Dividends and Distributions

During 2013, 2012 and 2011, the Company paid cash dividends on its outstanding Common Stock in the amount of $1,066, $953, and $2,115, 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 2013, 2012, and 2011, the Company paid cash distributions of $431, $420, and $1,054, respectively, to the holders of the non-controlling interest (that is, the members of the Operating LLC other than IFMI).

Certain subsidiaries of the Operating LLC have restrictions on the withdrawal of capital and otherwise in making distributions and loans. CCPR and JVB are subject to net capital restrictions imposed by the SEC and FINRA, which require certain minimum levels of net capital to remain in these subsidiaries. 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 Financial Services Authority in the United Kingdom and must maintain certain minimum levels of capital but will allow withdrawal of excess capital without restriction. See note 23.

Shares Outstanding of Stockholders’ Equity of the Company

The following table summarizes the share transactions that occurred in stockholders’ equity during the years ended December 31, 2013, 2012, and 2011, respectively.



ROLLFORWARD OF SHARES OUTSTANDING OF
INSTITUTIONAL FINANCIAL MARKETS, INC.


	Common Stock	Restricted Stock	Treasury Stock	Total
December 31, 2010	10,370,858	162,226	(50,400)	10,482,684
Issuance of shares	313,051	-	-	313,051
Issuance as equity-based compensation	-	3,924,612	-	3,924,612
Vesting of shares	140,857	(140,857)	-	-
Shares withheld for employee taxes	(24,668)	-	-	(24,668)
Forfeiture / cancellation of restricted stock (1)	-	(1,348,361)	-	(1,348,361)
Purchase of Common Stock for treasury	-	-	(667,601)	(667,601)
Retirement of treasury stock	(667,601)	-	667,601	-
December 31, 2011	10,132,497	2,597,620	(50,400)	12,679,717
Issuance of shares	230,846	-	-	230,846
Issuance as equity-based compensation	-	428,984	-	428,984
Vesting of shares	643,830	(643,830)	-	-
Shares withheld for employee taxes	(162,048)	-	-	(162,048)
Forfeiture / cancellation of restricted stock (1)	-	(1,508,353)	-	(1,508,353)
Surrender of restricted stock (2)	-	(116,595)	-	(116,595)
Retirement of treasury stock	(50,400)	-	50,400	-
December 31, 2012	10,794,725	757,826	-	11,552,551
Issuance of shares	2,935,506	-	-	2,935,506
Issuance as equity-based compensation	-	408,079	-	408,079
Vesting of shares / restricted units (3)	739,931	(649,796)	-	90,135
Shares withheld for employee taxes	(71,583)	-	-	(71,583)
Forfeiture / cancellation of restricted stock	-	(104,983)	-	(104,983)
December 31, 2013 (4)	14,398,579	411,126	-	14,809,705

(1)For the 2011 period, the cancellation of restricted stock included the 90,135 shares of restricted stock of IFMI that the Company cancelled and replaced with 90,135 restricted units of IFMI Common Stock in October 2011. The 90,135 restricted units were not included in the above table since the restricted units are not considered legally outstanding.

For the 2012 period, the forfeiture of restricted stock included the 848,742 shares of restricted stock that the former chief executive officer of PrinceRidge and member of the Board of Managers of PrinceRidge GP and the former chairman of the Board of Managers of PrinceRidge GP forfeited in connection with the separation, release, and repurchase agreements that the Company entered into with them in July 2012. See note 20.

(2)In December 2012, Mr. Cohen transferred 116,595 restricted shares of IFMI Common Stock to the Company in order to satisfy his obligation under the Equity Funding Agreement. See note 20 for the discussion about the 2009 Restricted Units Pursuant to the 2009 Equity Award Plan.

(3)Vesting includes 90,135 of unvested restricted units of IFMI Common Stock. See note 20.

(4)Excludes remaining restricted units of IFMI Common Stock. See note 20.

Non-Controlling Interest

Future Conversion / Redemption of Operating LLC Units

Of the 5,324,090 Operating LLC membership units not held by the Company as of December 31, 2013 and 2012, respectively, Daniel G. Cohen, the Company’s Vice Chairman, through CBF, a single member LLC, held 4,983,557 Operating LLC membership units. Each of Mr. Cohen’s Operating LLC membership units is redeemable at Mr. Cohen’s option, at any time, for (i) cash in an amount equal to the average of the per share closing prices of the Company’s Common Stock for the ten consecutive trading days immediately preceding the date the Company receives Mr. Cohen’s redemption notice, or (ii) at the Company’s option, one share of the Company’s Common Stock subject, in each case, to appropriate adjustment upon the occurrence of an issuance of additional shares of the Company’s 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 Company’s Common Stock. The Operating LLC membership units not held by Daniel G. Cohen have the same redemption rights as described herein.

In January 2011, the Company granted 559,020 restricted units of the Operating LLC to certain JVB Holdings Sellers in connection with the JVB Holdings acquisition who remained employees of JVB Holdings. These units vest over a three year period (of which two of the three years have elapsed as of December 31, 2013) and are treated as compensation for future service. In January 2012 and 2013, 186,339 restricted units of the Operating LLC vested, and the holders of these vested Operating LLC membership units elected to redeem these units. In January 2012 and 2013, the Company, at its discretion, issued 186,339 shares of the Company’s Common Stock to the JVB Holdings Sellers in exchange for the 186,339 vested membership units in each period. As of December 31, 2013, there were 186,342 restricted units of the Operating LLC outstanding. All of the 186,342 restricted units vested on January 13, 2014. See notes 4 and 20.

During the third quarter of 2011, one member of the Operating LLC redeemed 31,554 membership units for $107 in cash.

In December 2012, 116,595 restricted units of the Operating LLC vested pursuant to the Cohen Brothers, LLC Amended and Restated 2009 Equity Award Plan (the “2009 Equity Award Plan”). See note 20. The holders of 44,507 vested Operating LLC membership units elected to redeem these units. The Company, at its discretion, issued 44,507 shares of the Company’s Common Stock, in exchange for the 44,507 vested membership units. The holder of 72,088 vested Operating LLC membership units elected to remain a partner of the Operating LLC.

In connection with the private placement investment made in September 2013 by Mead Park Capital and EBC, as assignee of CBF, in IFMI, the Operating LLC issued 2,749,167 Operating LLC membership units to IFMI.

Unit Issuance and Surrender Agreement — Acquisition and Surrender of Additional Units of the Operating LLC, net

Effective January 1, 2011, IFMI and the Operating LLC entered into a Unit Issuance and Surrender Agreement (the “UIS Agreement”), that was approved by IFMI’s Board of Directors and the board of managers of the Operating LLC. In an effort to maintain a 1:1 ratio of IFMI’s Common Stock to the number of membership units IFMI holds in the Operating LLC, the UIS Agreement calls for the issuance of additional membership units of the Operating LLC to IFMI when IFMI issues its Common Stock to employees under existing equity compensation plans. In certain cases, the UIS Agreement calls for IFMI to surrender units to the Operating LLC when certain restricted shares are forfeited by the employee or repurchased.

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

	Units Held by IFMI	Units Held by Daniel G. Cohen	Units Held by Others	Total
December 31, 2010	10,343,347	4,983,557	299,999	15,626,903
Issuance of Units for JVB acquisition	313,051	-	-	313,051
Issuance of Units under UIS, net	259,212	-	-	259,212
Redemption of Operating LLC Units for cash	-	-	(31,554)	(31,554)
Retirement of treasury stock	(667,601)	-		(667,601)
December 31, 2011	10,248,009	4,983,557	268,445	15,500,011
Issuance of Units under UIS, net	705,083	-	-	705,083
Vesting of Units	-	-	302,934	302,934
Redemption of Operating LLC Units for IFMI Shares	230,846	-	(230,846)	-
Retirement of treasury stock	(50,400)	-	-	(50,400)
December 31, 2012	11,133,538	4,983,557	340,533	16,457,628
Issuance of Units under UIS, net	502,614	-	-	502,614
Issuance of Units for Mead / EBC Investment	2,749,167			2,749,167
Vesting of Units	-	-	186,339	186,339
Redemption of Operating LLC Units for IFMI Shares	186,339	-	(186,339)	-
December 31, 2013 (1)	14,571,658	4,983,557	340,533	19,895,748

(1)Unit amounts above exclude unvested Operating LLC units. See note 20.

The following schedule presents the impact to permanent equity from IFMI’s ownership interest in the Operating LLC for the years ended December 31, 2013, 2012, and 2011, respectively:



		For the Year Ended December 31, 2013		For the Year Ended December 31, 2012		For the Year Ended December 31, 2011
Net income / (loss) attributable to IFMI	$	(13,318)	$	(968)	$	(9,388)
Transfers (to) from the non-controlling interest:
Increase / (decrease) in IFMI's paid in capital for the acquisition / (surrender) of additional units in consolidated subsidiary, net		2,764		928		(8)
Changes from net income / loss) attributable to IFMI and transfers (to) from non-controlling interest	$	(10,554)	$	(40)	$	(9,396)