Business Context and Reporting Period
Company: Cohen & Company Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: March 10, 2020
Event: Entry into a Material Definitive Agreement (Section 382 Rights Agreement).
Key Financial Metrics
This filing is a current report regarding a corporate governance action and does not contain audited financial statements, revenue, profit, cash flow, or debt figures. The text notes that the Company has experienced "substantial operating and capital losses" in the past, resulting in significant net operating loss and net capital loss carry forwards (deferred tax assets).
Material Changes and Corporate Action
On March 10, 2020, the Company entered into a Section 382 Rights Agreement with Computershare Inc. as the rights agent. The key terms include:
- Purpose: To protect the Company's ability to utilize deferred tax assets (net operating and capital loss carry forwards) by preventing an "Ownership Change" under Section 382 of the Internal Revenue Code, which would limit or delay the use of these assets.
- Structure: Distribution of one preferred stock purchase right ("Right") for each share of Common Stock outstanding to stockholders of record on March 20, 2020.
- Exercise Terms: Each Right entitles the holder to purchase one ten-thousandth of a share of Series C Junior Participating Preferred Stock at a purchase price of $100.00 per Unit.
- Trigger Event: Rights separate from Common Stock upon the earlier of 10 days following a public announcement of an "Acquiring Person" (beneficial owner of 4.95% or more of Common Stock) or 10 business days following the commencement of a tender offer resulting in such ownership.
- Flip-In Provision: If an Acquiring Person is identified, non-acquiring holders may exercise Rights to purchase Common Stock (or other consideration) with a value equal to two times the exercise price (e.g., $200 value for a $100 price).
- Expiration: Rights expire on the earliest of December 31, 2023, redemption, exchange, or repeal of Section 382.
Guidance, Outlook, and Risks
Management Commentary: The Board adopted the Rights Agreement to protect stockholder value by safeguarding deferred tax assets, which are considered a substantial asset to the Company given its history of losses.
Risks and Contingencies:
- Tax Asset Limitation: An "Ownership Change" could substantially limit the Company's ability to use deferred tax assets to offset future federal income tax obligations.
- Dilution: The "Flip-In" mechanism could result in significant dilution to existing shareholders if an Acquiring Person is identified, as non-acquiring holders receive shares worth double the exercise price.
- Redemption: The Company may redeem the Rights at $0.001 per Right at any time until ten days following the Stock Acquisition Date.
Investor Verification Checklist
- Verify the exact number of Common Shares outstanding as of the Record Date (March 20, 2020) to determine the total number of Rights distributed.
- Review the full text of the Section 382 Rights Agreement (Exhibit 4.1) for specific definitions of "Exempted Persons" and exceptions to the 4.95% threshold.
- Assess the current valuation of the Company's deferred tax assets and the potential financial impact if an Ownership Change were to occur.
- Monitor for any public announcements regarding beneficial ownership exceeding 4.95% of Common Stock, which would trigger the separation of Rights.