19. PERMANENT EQUITY AND RESTRICTIONS

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 A Voting Convertible Preferred Stock: In connection with the Merger, in exchange for all of the Cohen Brothers Class C membership units, held through Cohen Bros. Financial, LLC (“CBF”), Daniel G. Cohen, the Chairman and Chief Executive Officer of the Company, received one share of the Company’s Series A Voting Convertible Preferred Stock (“Series A Preferred Stock”), which had no economic rights but gave Mr. Cohen the right to nominate and elect a number equal to at least one-third (but less than a majority) of the total number of directors on the Company’s Board of Directors. The Series A Preferred Stock would have been automatically redeemed for par value on December 31, 2012. The holder of the Series A Preferred Stock was not entitled to receive any dividends, distributions, or any distributions upon liquidation, dissolution, or winding up of the Company. On October 18, 2010, Mr. Cohen elected to convert the one share of Series A Preferred Stock that he held into 4,983,557 shares of Series B Voting Non-Convertible Preferred Stock. Therefore, there were no shares of Series A Preferred Stock issued and outstanding as of December 31, 2011 and 2012.

Series B Voting Non-Convertible Preferred Stock: Each share of the Company’s Series B Voting Non-Convertible Preferred Stock (“Series B Preferred Stock”), had no economic rights but entitled Mr. Cohen to vote the Series B Preferred Stock on all matters presented to the Company’s stockholders. Each share of Series B Preferred Stock was entitled to one vote. The 4,983,557 shares of Series B Preferred Stock were equivalent to the amount of Operating LLC membership units held by Mr. Cohen. The Series B Preferred stock effectively gave 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 B Preferred Stock was scheduled to be automatically redeemed for par value on December 31, 2012. Holders of Series B Preferred Stock were not entitled to receive any dividends, distributions or distributions upon liquidation, dissolution, or winding up of the Company. On December 28, 2012, the Company entered into a Preferred Stock Exchange Agreement (the “Exchange Agreement”) with CBF, wholly owned by Mr. Cohen. Pursuant to the Exchange Agreement, CBF exchanged with the Company 4,983,557 shares of Series B Preferred Stock, representing all of the issued and outstanding Series B Preferred Stock, for 4,983,557 newly issued shares of Series D Voting Non-Convertible Preferred Stock of the Company (“Series D Preferred Stock”). Pursuant to the Exchange Agreement, the 4,983,557 shares of Series B Preferred Stock were cancelled. Therefore, there were no shares of Series B Preferred Stock issued and outstanding as of December 31, 2012. As of December 31, 2011, there were 4,983,557 shares of Series B Preferred Stock issued and outstanding.

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 holders of Series C Preferred Stock were 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 was entitled to 10,000 votes on all matters submitted to a vote of the Company’s stockholders. Holders of Series C Preferred Stock were 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 were not redeemable. There were no shares of Series C Preferred Stock issued and outstanding as of December 31, 2012 and 2011.

Series D Voting Non-Convertible Preferred Stock: Each share of the Company’s Series D Preferred Stock has no economic rights but entitles Mr. Cohen to vote the Series D Preferred Stock on all matters presented to the Company’s stockholders. Each share of Series D Preferred Stock is entitled to one vote. The 4,983,557 shares of Series D Preferred Stock are equivalent to the amount of Operating LLC membership units held by Mr. Cohen as of December 31, 2012. See note 1. The 4,983,557 shares of Series D Preferred Stock were issued on December 28, 2012 in exchange for the 4,983,557 shares of Series B Preferred Stock held by CBF, an entity wholly owned by Mr. Cohen. The Series D 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 D Preferred Stock effectively enables Mr. Cohen to exercise approximately 29.5% of the voting power of the Company’s Common Stock based on the outstanding number of shares of the Company’s Common Stock as of December 31, 2012 and assuming all vested Operating LLC units that are not held by Mr. Cohen are converted into the Company’s Common Stock. The Series D Preferred Stock will be automatically redeemed for par value on December 31, 2013. Holders of Series D Preferred Stock are not entitled to receive any dividends, distributions or distributions upon liquidation, dissolution, or winding up of the Company. As of December 31, 2012, there were 4,983,557 shares of Series D Preferred Stock issued and outstanding. See Non-Controlling Interest — Future Conversion / Redemption of Operating LLC Units below.

Stockholder Rights Plan

On December 21, 2009, the Company’s Board of Directors adopted a Section 382 Rights Agreement (the “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. The Rights Agreement provided for a distribution of one preferred stock purchase right (a “Right,” and collectively, the “Rights”) for each share of the Company’s Common Stock, par value $0.001 per share, outstanding to stockholders of record at the close of business on December 21, 2009. Each Right entitled the registered holder to purchase from the Company a unit consisting of one ten-thousandth of a share of Series C Preferred Stock, par value $0.001 per share, at a purchase price of $100.00 per unit, subject to adjustment. No rights were exercisable at December 31, 2012, 2011, or 2010. There was no impact to the Company’s financial results as a result of the adoption of the Rights Agreement. The Rights Agreement expired on December 31, 2012.

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 2012, 2011 and 2010, the Company paid cash dividends on its outstanding Common Stock in the amount of $953, $2,115, and $1,043, 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 2012, 2011, and 2010, the Company paid cash distributions of $420, $1,054, and $528, respectively, to the holders of the non-controlling interest.

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.

PrinceRidge is a majority owned subsidiary. Since it is not wholly-owned, there are certain restrictions on distributed capital from PrinceRidge imposed by the PrinceRidge organizational documents. As a general matter, pro rata distributions of capital are allowed with majority vote of the PrinceRidge board. All members of the PrinceRidge board are appointed by the Operating LLC. So, although the Operating LLC can withdraw capital from PrinceRidge, it may require a pro rata distribution to the other partners of PrinceRidge. As of December 31, 2012, the Operating LLC owned 98% of the PrinceRidge equity interests.

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, 2010, 2011, and 2012, respectively.

ROLLFORWARD OF SHARES OUTSTANDING OF

INSTITUTIONAL FINANCIAL MARKETS, INC.

For the Year Ended December 31, 2010


	December 31, 2009			Issuance of shares		Issuance as Equity-Based Compensation		Vesting of Shares			Shares withheld for Employee Taxes			Forfeiture of Restricted Stock			December 31, 2010
Common Stock		10,307,238			—		—		89,572			(25,952	)		—			10,370,858
Restricted Stock		36,109			—		216,383		(89,572	)		—			(694	)		162,226
Treasury Stock		(50,400	)		—		—		—			—			—			(50,400	)

		10,292,947			—		216,383		—			(25,952	)		(694	)		10,482,684

For the Year Ended December 31, 2011


	December 31, 2010			Issuance of shares		Issuance as Equity-Based Compensation		Vesting of Shares			Shares withheld for Employee Taxes			Forfeiture/ Cancellation of Restricted Stock (1)			Purchase of Common Stock for Treasury			Retirement of Treasury Stock			December 31, 2011 (2)
Common Stock		10,370,858			313,051		—		140,857			(24,668	)		—			—			(667,601	)		10,132,497
Restricted Stock		162,226			—		3,924,612		(140,857	)		—			(1,348,361	)		—			—			2,597,620
Treasury Stock		(50,400	)		—		—		—			—			—			(667,601	)		667,601			(50,400	)

		10,482,684			313,051		3,924,612		—			(24,668	)		(1,348,361	)		(667,601	)		—			12,679,717

(1)

Included in the 1,348,361 shares of restricted stock forfeited/cancelled are 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 are not included in the above table since the restricted units are not considered legally outstanding.

(2)	Excludes the 90,135 restricted units of IFMI Common Stock granted in October 2011. See note 20.

For the Year Ended December 31, 2012


	December 31, 2011			Issuance of shares		Issuance as Equity-Based Compensation		Vesting of Shares			Shares withheld for Employee Taxes			Forfeiture of Restricted Stock (1)			Surrender of Restricted Stock (2)			Retirement of Treasury Stock			December 31, 2012 (3)
Common Stock		10,132,497			230,846		—		643,830			(162,048	)		—			—			(50,400	)		10,794,725
Restricted Stock		2,597,620			—		428,984		(643,830	)		—			(1,508,353	)		(116,595	)		—			757,826
Treasury Stock		(50,400	)		—		—		—			—			—			—			50,400			—

		12,679,717			230,846		428,984		—			(162,048	)		(1,508,353	)		(116,595	)		—			11,552,551

(1)

Includes 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)	Excludes the restricted units of IFMI common stock. See note 20.

Non-Controlling Interest

Future Conversion / Redemption of Operating LLC Units

Of the 5,324,090 and 5,252,002 Operating LLC membership units not held by the Company as of December 31, 2012 and 2011, respectively, Daniel G. Cohen, the Company’s Chairman and Chief Executive Officer, 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 on or after January 1, 2014, 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. As of December 31, 2012 and 2011, other members of the Operating LLC held a total of 340,533 units and 268,445 units, respectively. These units have the same redemption rights as described above except that the members holding these units may elect to redeem their shares at any time. See Series D Voting Non-Convertible Preferred Stock described above.

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 one of the three years has elapsed) and are treated as compensation for future service. In January 2012, 186,339 restricted units of the Operating LLC vested, and the holders of these vested Operating LLC membership units elected to redeem these units. 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. As of December 31, 2012, there were 372,681 restricted units of the Operating LLC outstanding. Of the 372,681, 186,339 vested on January 13, 2013 and the remainder will vest on January 13, 2014 assuming the service requirement is met. 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.

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

On December 10, 2010, but 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.

2011

During the year ended December 31, 2011, the Operating LLC issued to IFMI 259,212 units related to the UIS Agreement.

During the year ended December 31, 2011, the Operating LLC issued to IFMI 313,051 units related to an equivalent amount of equity issued by IFMI in conjunction with the acquisition of JVB Holdings.

Also during the year ended December 31, 2011, IFMI surrendered 667,601 units to the Operating LLC related to the retirement of Common Stock.

In summary, during the year ended December 31, 2011, IFMI surrendered (net of acquisitions) 95,338 units of the Operating LLC pursuant to the UIS Agreement, as a result of the JVB Holdings acquisition, and as a result of the retirement of common stock. The Company recognized a net decrease in additional paid-in-capital of $8 and a net increase in accumulated other comprehensive loss of $4 with an offsetting increase in non-controlling interest of $12 in connection with the acquisition and surrender of additional units of the Operating LLC.

2012

During the year ended December 31, 2012, the Operating LLC issued to IFMI 705,083 units related to the UIS Agreement.

In January 2012, IFMI received 186,339 vested membership units from certain JVB Holdings Sellers in exchange for the Company’s issuance of 186,339 shares of IFMI Common Stock to the same JVB Holdings Sellers.

In December 2012, IFMI received 44,507 vested membership units from certain Operating LLC members who had exercised their redemption right in exchange for the Company’s issuance of 44,507 shares of IFMI Common Stock to the same members.

Also during the year ended December 31, 2012, IFMI surrendered 50,400 units to the Operating LLC related to the retirement of Common Stock.

In summary, during the year ended December 31, 2012, IFMI received (net of surrenders) 885,529 units of the Operating LLC (i) pursuant to the UIS Agreement; (ii) as a result of the vesting and redemption of membership units of the Operating LLC by certain JVB Holdings Sellers for IFMI common stock; (iii) as a result of the vesting and redemption of membership units of the Operating LLC by certain participants of the 2009 Equity Award Plan for IFMI common stock, and (iv) as a result of the retirement of common stock. The Company recognized a net increase in additional paid in capital of $928 and a net increase in accumulated other comprehensive loss of $23 with an offsetting decrease in non-controlling interest of $905 in connection with the acquisition and surrender of additional units of the Operating LLC.

The following schedule presents the effects of changes in IFMI’s ownership interest in the Operating LLC on the equity attributable to IFMI for the years ended December 31, 2012, 2011, and 2010, respectively:


	December 31, 2012			December 31, 2011			December 31, 2010
Net income / (loss) attributable to IFMI	$	(968	)	$	(9,388	)	$	7,595
Transfers (to) from the non-controlling interest:
Increase / (decrease) in IFMI’s paid in capital for the acquisition / (surrender) of additional units of consolidated subsidiary, net		928			(8	)		—

Changes from net income/(loss) attributable to IFMI and transfers (to) from non-controlling interest	$	(40	)	$	(9,396	)	$	7,595