Business Context and Reporting Period
Company: Cohen & Company Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: September 29, 2017
Event: Entry into Material Definitive Agreements and Creation of Direct Financial Obligations.
On September 29, 2017, Cohen & Company, LLC (the "Operating Company"), a majority-owned subsidiary of Cohen & Company Inc., entered into two Investment Agreements with Cohen Bros. Financial LLC and the DGC Family Fintech Trust (collectively, the "Investors"). Daniel G. Cohen, the Company's Vice Chairman and largest stockholder, is the sole member of Cohen Bros. Financial LLC but has no control over the DGC Family Fintech Trust.
Key Financial Metrics and Obligations
Investment Amount: $10,000,000 (fully paid on the Effective Date).
Legal Expenses: Operating Company agreed to pay up to $20,000 of Investors' legal expenses.
Investment Return Structure (Annual):
- Years 1-3:
- Base: 3.2% of Investment Amount.
- Plus Performance Component based on Revenue of the matched book repurchase transactions business:
- 15% of Revenue if Revenue is $0 - $5,333,333.
- $800,000 flat if Revenue is $5,333,333 - $8,000,000.
- 10% of Revenue if Revenue exceeds $8,000,000.
- Year 4 and Beyond:
- If Revenue > $0: Greater of 20% of Investment Amount or 20% of Revenue.
- If Revenue = $0: 3.2% of Investment Amount.
Termination/Redemption:
- Pre-Year 3: Operating Company may terminate with 90 days' notice. Payout is the greater of (Investment + Accrued Returns + 15% annualized return on Investment) or (Investment + Accrued Returns).
- Post-Year 3: Either party may trigger Redemption with 60 days' notice. Payout is Investment Balance plus accrued unpaid returns.
Note: The filing does not provide current revenue, profit, cash flow, or existing debt levels for the Company.
Material Changes
This filing represents a new material definitive agreement and a direct financial obligation not present in prior periods. The Company has incurred a liability to pay monthly investment returns and potential redemption amounts totaling significantly more than the initial $10 million principal depending on business performance and timing of termination.
Guidance, Outlook, and Risks
Management Commentary: The filing contains no forward-looking guidance or management commentary regarding future financial performance beyond the terms of the Investment Agreements.
Risks and Contingencies:
- Related Party Transaction: One investor is controlled by the Company's largest stockholder and Vice Chairman.
- Performance Obligation: The cost of capital is variable and tied to the revenue of the matched book repurchase transactions business. High revenue levels may result in higher payout percentages (up to 10% of revenue in years 1-3, or 20% thereafter).
- Liquidity Impact: The Company must make monthly payments in arrears and has a potential obligation to repay principal plus significant accrued returns upon early termination.
Investor Verification Checklist
- Verify the current revenue of the "matched book repurchase transactions business" to estimate the immediate cost of the investment return.
- Confirm the allocation of the $10,000,000 investment between the two investors (Cohen Bros. Financial LLC and DGC Family Fintech Trust).
- Review the full text of Exhibits 10.1 and 10.2 for specific definitions of "Investment Balance" and "Redemption."
- Assess the Company's current liquidity position to ensure it can meet the monthly payment obligations and potential early termination penalties.
- Monitor future filings for any amendments to the Investment Agreements or changes in the related party status of the investors.