SUMMARY

This summary highlights selected information contained in this proxy statement/ prospectus and may not contain all the information that is important to you. We urge you to read carefully this proxy statement/prospectus in its entirety for a more complete understanding of the proposed business combination, including the risk factors starting on page [ — ] , as well as the annexes to this proxy statement/prospectus. We have included page references parenthetically to direct you to a more complete description of the topics presented in this summary.

The Companies

Alesco Financial Inc.

Cira Centre

2929 Arch Street, 17th Floor

Philadelphia, PA 19104-2870

(215) 701-8952

Alesco Financial Inc., or AFN, a Maryland corporation, resulted from a reverse merger between Alesco Financial Trust, or AFT, a private Maryland real estate investment trust, or REIT, and a subsidiary of Sunset Financial Resources, Inc., or Sunset, a publicly-traded Maryland REIT, which merger was completed on October 6, 2006. AFN is a specialty finance company that invests in multiple target asset classes, subject to maintaining its qualification as a REIT under the Internal Revenue Code and its exemption from regulation under the Investment Company Act of 1940, as amended, or the Investment Company Act. AFN’s common stock is traded on the NYSE under the ticker symbol “AFN.”

AFN’s investment strategy has historically been focused on investing primarily in the following target asset classes:

 

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subordinated debt financings, primarily in the form of trust preferred securities, or TruPS, issued by banks or bank holding companies and insurance companies, and surplus notes issued by insurance companies;

 

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leveraged loans made to small and mid-sized companies in a variety of industries, including the consumer products and manufacturing industries; and

 

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mortgage loans, other real estate-related senior and subordinated debt securities, and residential mortgage-backed securities, or RMBS.

AFN has typically financed investments in these target asset classes on a short-term basis with on and off-balance sheet warehouse facilities or other short-term financing arrangements and on a long-term basis with securitization vehicles, including collateralized debt obligations, or CDOs, and collateralized loan obligations, or CLOs.

AFN is externally managed and advised by Cohen & Company Management, LLC pursuant to a management agreement. AFN’s manager is a wholly owned subsidiary of Cohen.

AFN is a holding company that holds most of its assets and conducts most of its business through its subsidiaries.

For more information regarding AFN, see “Information Regarding Alesco Financial Inc.” beginning on page  [ — ] and AFN’s consolidated financial statements and notes thereto beginning on page [ — ] .

Cohen Brothers, LLC (d/b/a Cohen & Company)

Cira Centre

2929 Arch Street, 17th Floor

Philadelphia, PA 19104-2870

(215) 701-8960

 

Cohen is an investment firm specializing in credit related fixed income investments. Cohen began operations in 1999 as an investment firm focused on small and mid-cap banks, but has evolved over the past ten years into a more diversified fixed income specialist. Its revenues increased from $11.2 million for the year ended December 31, 2003 to $83.3 million for the year ended December 31, 2008.

Cohen’s business is organized into three business segments:

 

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Capital Markets . Cohen’s Capital Markets business segment consists of fixed income securities sales and trading through its broker-dealer subsidiary, Cohen & Company Securities, LLC, or CCS, interest income and interest expense and gains and losses on secondary trading activities, origination of corporate debt issues, and new issue securitizations. Cohen’s fixed income sales and trading group provides trade execution to corporate and institutional investors. Cohen specializes in the following products: high grade corporate bonds, asset-backed securities, or ABS, CLOs, mortgage-backed securities, or MBS, TruPS, whole loans, and other structured financial instruments. Cohen believes that it is one of the most active participants in the brokering of TruPS due to its knowledge of the transactions and the relationships it maintains with institutional investors in these securities.

 

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Asset Management . Cohen serves the needs of client investors by managing assets within investment funds, managed accounts, permanent capital vehicles and CDOs, collectively referred to in this proxy statement/prospectus as investment vehicles, as more fully discussed under “Information Regarding Cohen Brothers, LLC — Business — Asset Management” beginning on page [ — ] . Cohen’s Asset Management business segment includes its fee based asset management operations which include ongoing base and incentive management fees. As of March 31, 2009, Cohen had $18.9 billion in assets under management, or AUM.

 

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Principal Investing . Cohen’s Principal Investing business segment is comprised primarily of its seed capital investments in the investment vehicles Cohen manages.

Cohen generates its revenue by business segment primarily through:

Capital Markets:

 

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trading activities of CCS, its broker-dealer subsidiary, which includes riskless trading activities as well as gains and losses (unrealized and realized) and income and expense earned on securities classified as trading;

 

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new issue revenue comprised of (1) origination fees for corporate debt-issues originated by Cohen; and (2) new issue securitization revenues associated with arranging or participating in new securitizations;

Asset Management:

 

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asset management fees for its on-going services as asset manager charged and earned by managing investment vehicles, which may include fees both senior and subordinated to the securities issued by the investment vehicle;

 

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incentive management fees earned based on the performance of the various investment vehicles;

Principal Investing:

 

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gains and losses (unrealized and realized) and income and expense earned on investments, primarily seed capital investments, classified as other investments, at fair value; and

 

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income or loss from equity method affiliates.

 

For more information regarding Cohen, see “Information Regarding Cohen Brothers, LLC” beginning on page [ — ] and the consolidated financial statements of Cohen and the notes thereto.

Alesco Financial Holdings, LLC

Cira Centre

2929 Arch Street, 17th Floor

Philadelphia, PA 19104-2870

(215) 701-8952

Alesco Financial Holdings, LLC, or Merger Sub, is a wholly owned subsidiary of AFN formed on February 9, 2006. Pursuant to the June 1, 2009 amendment to the merger agreement, Merger Sub is the assignee of Fortune Merger Sub, LLC, the original AFN merger subsidiary party to the merger agreement. In the business combination, Merger Sub will merge with and into Cohen and thereafter cease to exist.

The Proposed Business Combination (Page [ — ])

On February 20, 2009, AFN, Cohen and Merger Sub entered into a merger agreement. Under the merger agreement, AFN will contribute substantially all of the assets and certain of the liabilities of AFN not already owned, directly or indirectly, by Merger Sub, to Merger Sub, which we refer to in this proxy statement/prospectus as the “AFN contribution.” Immediately after the AFN contribution, Merger Sub will merge with and into Cohen, with Cohen surviving as a majority owned subsidiary of AFN.

As a result of the business combination:

 

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certain Cohen members will become AFN stockholders;

 

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it is currently expected that existing AFN stockholders will own 56.5% of the shares of AFN’s common stock immediately after the business combination and existing Cohen members will hold the remaining 43.5%; however, the actual percentages will not be known until members of Cohen have made their elections either to receive AFN common stock or retain recapitalized Cohen membership units;

 

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if all Cohen Class A membership units and Cohen Class B membership units were to be converted into AFN common stock, existing AFN stockholders would own 38.5%, and existing Cohen members would own 61.5%, of AFN; and

 

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in exchange for all of his Cohen Class C membership units, Daniel G. Cohen, through Cohen Bros. Financial, LLC, or Cohen Bros. Financial, will receive one share of Series A preferred stock, which will give him the right to nominate and elect a number equal to at least one-third (but less than a majority) of the directors on AFN’s board of directors, which directors are referred to in this proxy statement/prospectus as the Series A directors. Mr. Cohen’s economic interest in the combined company of 31.9% will be approximately equivalent to the percentage representation of the Series A directors on the AFN board of directors, and the percentage voting power of the 4,983,557 shares of Series B Voting Non-Convertible Preferred Stock, or Series B preferred stock, into which the Series A preferred stock may be converted after June 30, 2010.

 

The following chart illustrates the capital structure of AFN and Cohen post-business combination, assuming only Daniel G. Cohen chooses to retain his recapitalized Cohen membership units and all other existing Cohen members choose to receive AFN common stock:

For information on distributions to AFN for payment of the liabilities that will remain at AFN, see “The Merger Agreement — Terms of Other Agreements — Limited Liability Company Agreement of Cohen Post-Business Combination — Distributions” beginning on page [ — ] .

Reasons for the Business Combination (Page [ — ])

AFN and Cohen believe the business combination is in the best interests of the stockholders of AFN and the members of Cohen, respectively, and the combination of AFN’s existing capital and its public listing with Cohen’s more diverse revenue sources and comprehensive operating platform will create a well-capitalized company with opportunities for profitable growth in the future. AFN’s business model will shift from a capital investment company to a comprehensive operating company that is expected to be less capital intensive. AFN and Cohen believe the business combination will provide enhanced financial resilience, synergies and economies of scale and will allow the combined company greater flexibility in withstanding the current volatile market conditions than on a stand-alone basis. The combined company is expected to generate positive cash flow through a recurring revenue stream from asset management contracts and a growing capital markets business. In addition, the combined company is expected to pursue growth opportunities, including (1) expanding Cohen’s capital markets operations to other credit-related fixed income areas to deepen the combined company’s product capabilities; (2) acquiring other in-place asset management contracts and asset management and investment firms; and (3) growing Cohen’s existing investment funds and providing seed capital for new investment funds.

 

Consideration for the Business Combination (Page [ — ])

Cohen Members

Each Cohen member who holds any Class A membership units also holds an equal number of Class B membership units. Each Cohen Class A membership unit, together with one Cohen Class B membership unit, will entitle the holder of such units to the right to either (1) receive 0.57372 shares of AFN common stock, or (2) retain 0.57372 new membership units in Cohen, which will be deemed a recapitalization of one Cohen Class A membership unit and one Cohen Class B membership unit into 0.57372 membership units in Cohen. These new membership units in Cohen are referred to in this proxy statement/prospectus as recapitalized Cohen membership units. All Cohen Class C membership units collectively will be converted into the right to receive one share of AFN Series A preferred stock, which will give the holder 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 AFN’s board of directors (i.e., the Series A directors). The merger agreement requires, as a condition to completing the business combination, that Cohen members elect to exchange at least enough of the Cohen Class A membership units and Cohen Class B membership units for AFN common stock that AFN will be the beneficial owner of at least a majority of the recapitalized Cohen membership units.

With regard to holders of Cohen’s long term incentive profit units, or LTIP units, each LTIP unit (whether vested or unvested) will, immediately prior to the effective time of the business combination, be automatically converted into a Cohen Class A membership unit together with a Cohen Class B membership unit and each such Cohen Class A membership unit and Cohen Class B membership unit will be treated the same as any other Cohen Class A membership unit and Cohen Class B membership unit in the business combination.

With regard to Cohen options, upon the completion of the business combination, Cohen will have the option of either paying each holder of options the intrinsic value of such options in cash or providing each option holder with a number of restricted shares of AFN common stock issued pursuant to the Alesco Financial Inc. 2006 Long-Term Incentive Plan, as amended, or the AFN equity plan. The intrinsic value of the options will be: (1) AFN’s stock price (on a pre-reverse stock split basis) as of the effective date of the business combination multiplied by 5.7372 less (2) the stated exercise price of the option. If Cohen chooses to have the Cohen option holders receive restricted shares of AFN common stock in exchange for their options, which decision must be made prior to the effectiveness of this proxy statement/prospectus, then the exchange ratio for each Cohen Class A membership unit, together with one Class B membership unit, will be recalculated and equal the number determined by dividing (1) (a) 9,611,782 (the number of shares of AFN common stock issuable to Cohen based on the number of Class A membership units, Class B membership units and LTIP units outstanding at the time the merger agreement was signed, adjusted for certain fractional share rounding differences) minus (b) the aggregate number of AFN restricted stock awards granted to Cohen option holders by (2) 16,753,309 (the number of outstanding Cohen Class A membership units and Cohen Class B membership units, on a fully diluted basis).

Cohen members will have the right to receive cash for any fractional shares of AFN common stock they otherwise would receive in the business combination or any fractional recapitalized Cohen membership units. No additional consideration, including the preferred return on Cohen Class A membership units, will be paid to any Cohen members.

If a Cohen member other than Daniel G. Cohen elects not to receive shares of AFN common stock in the business combination, that Cohen member will be subject to a lock-up period for six months from the completion of the business combination that prohibits such Cohen member from exercising his or her right to cause Cohen to redeem his or her recapitalized Cohen membership units for cash or, at the election of AFN, shares of AFN common stock. The rights of Cohen members who retain their recapitalized Cohen membership units will be governed by Delaware law and Merger Sub’s Amended and Restated Limited Liability Company Agreement, or the New Cohen LLC Agreement, which will be Cohen’s limited liability company agreement following the completion of the business combination. The New Cohen LLC Agreement imposes significant contractual

 

restrictions on the transfer of recapitalized Cohen membership units. The recapitalized Cohen membership units will not be registered under federal or applicable state securities laws and, accordingly, any resale of the recapitalized Cohen membership units must be registered under the Securities Act of 1933, as amended, or the Securities Act, and any applicable state securities laws unless exemptions are available for such resale transactions. If, after the lock-up period, AFN elects to provide shares of AFN common stock to a Cohen member that exercises his or her redemption right, such shares of AFN common stock will not be registered under the Securities Act or any applicable state securities laws, unless AFN, in its sole discretion, registers such shares of AFN common stock. If the AFN common stock is unregistered, the unregistered AFN common stock may not be resold under federal and applicable state securities laws unless exemptions are available for those transactions. Mr. Cohen will have the same restrictions on transfer and considerations regarding federal and state securities laws as other Cohen members that elect not to receive shares of AFN common stock in the business combination. However, Mr. Cohen’s recapitalized Cohen membership units will be subject to a three year lock-up period.

The completion of the business combination requires the completion of a 1-for-10 reverse stock split of the outstanding shares of AFN common stock, or the AFN reverse stock split, so all conversion ratios and calculations, except for references to AFN’s or Cohen’s historical financial statements, assume that the AFN reverse stock split has occurred. AFN’s board of directors has adopted resolutions reclassifying one authorized and unissued share of preferred stock into one share of Series A preferred stock and 4,983,557 authorized and unissued shares of preferred stock into shares of Series B preferred stock. The completion of the business combination also requires that AFN file articles supplementary to its charter setting forth the terms of one share of Series A preferred stock and 4,983,557 shares of Series B preferred stock. Forms of the articles supplementary in respect of the Series A preferred stock and the Series B preferred stock are attached to this proxy statement/prospectus as Annex C-1 and Annex C-2 , respectively.

AFN Stockholders

If you are an AFN stockholder, AFN shares of common stock held by you before the business combination will remain outstanding and each certificate representing shares of AFN common stock issued before the business combination will continue to represent AFN common stock after the business combination. You do not need to surrender your common stock or your stock certificates.

The Number of Shares of AFN Common Stock to be Issued in the Business Combination is Fixed, Although the Value of the Consideration Contemplated by the Business Combination May Fluctuate with Market Prices (Page [ — ])

The number of shares of AFN common stock to be issued in the business combination in exchange for one Cohen Class A membership unit together with one Cohen Class B membership unit is fixed and will not be adjusted for changes in the market price of AFN common stock. Accordingly, any change in the price of AFN common stock prior to the business combination will affect the market value of the consideration that Cohen members will receive. Neither AFN nor Cohen may terminate the merger agreement or resolicit the vote of its stockholders or members, as the case may be, solely because of changes in the market price of AFN common stock.

You may obtain current stock price quotations for AFN common stock. Shares of AFN common stock are listed on the NYSE under the symbol “AFN.” There is no public trading market for Cohen membership units.

AFN and Cohen agreed upon a fixed exchange ratio. Although the number of shares of AFN common stock that will be issued will not change, the value of those shares will fluctuate with the market price of AFN’s common stock.

 

Listing of AFN’s Common Stock (Page [ — ])

Upon completion of the business combination we expect that shares of AFN’s common stock will trade on the NYSE Amex (formerly the American Stock Exchange) under the symbol “[ — ].”

Completion of the Business Combination (Pages [ — ])

We are working to complete the business combination in the second half of 2009, although we cannot assure completion by any particular date. If AFN stockholders approve the issuance of AFN common stock and Series A preferred stock and the other transactions contemplated by the merger agreement and the Cohen members approve the merger agreement and the business combination, at their respective company’s meeting, we expect that the other conditions to completion of the business combination will be satisfied and that the business combination will be completed as soon as practicable following such approvals by AFN stockholders and Cohen members. Daniel G. Cohen, who beneficially owns 66.7% of the Cohen Class A membership units and Cohen Class B membership units and 100% of the Cohen Class C membership units, has agreed to vote his membership units in favor of the merger agreement. In general, the merger agreement may be terminated by AFN or Cohen if the business combination is not completed by September 30, 2009.

There are important risks associated with the business combination. We encourage you to read carefully and in their entirety the sections of this proxy statement/prospectus entitled “Risk Factors” and “Cautionary Information Regarding Forward-Looking Statements” beginning on pages [ — ] and [ — ] , respectively.

AFN Established a Special Committee to Negotiate and Consider the Merger Agreement (Page [ — ])

AFN established a special committee of the independent directors, which we refer to as the AFN special committee, to consider potential strategic alternatives available to AFN. The AFN special committee negotiated and considered the terms of the business combination and the other transactions contemplated by the merger agreement. The AFN special committee consisted of all directors of AFN other than Daniel G. Cohen, who is the Chairman of the board of directors and executive Chairman of AFN and the Chairman of Cohen’s board of managers, and James J. McEntee, III, who is the chief executive officer and a director of AFN and the chief operating officer of Cohen. The AFN special committee retained Stifel, Nicolaus & Company, Incorporated, or Stifel Nicolaus, as its financial advisor, and Cooley Godward Kronish LLP, or Cooley, as its counsel.

The AFN Special Committee Received an Opinion from its Financial Advisor as to the Fairness, from a Financial Point of View, to AFN’s Stockholders of the Financial Terms of the Business Combination (Page [ — ])

In connection with the business combination and the other transactions contemplated by the merger agreement, the AFN special committee received a written opinion, dated February 20, 2009, from Stifel Nicolaus as to the fairness, from a financial point of view and as of the date of such opinion, to AFN’s stockholders of the financial terms of the business combination. The full text of Stifel Nicolaus’ written opinion is attached to this proxy statement/prospectus as Annex D . We encourage you to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Stifel Nicolaus, as well as the detailed discussion of the financial analysis performed by Stifel Nicolaus contained in this proxy statement/prospectus. Stifel Nicolaus’ opinion was provided to the AFN special committee in its evaluation of the business combination from a financial point of view, and does not address any other aspect of the business combination and does not constitute a recommendation to any AFN stockholder as to how to vote or act with respect to the approval of the issuance of shares of AFN common stock and Series A preferred stock and the other transactions contemplated by the merger agreement. The AFN special committee does not currently expect that it will request an updated opinion from Stifel Nicolaus. AFN has agreed to pay Stifel Nicolaus for its financial advisory services in connection with the business combination an aggregate fee

 

estimated to be approximately $2.5 million, comprised of (1) a nonrefundable initial retainer fee of $300,000, (2) a monthly retainer fee of $75,000 per month, (3) an opinion fee of $500,000 payable in connection with Stifel Nicolaus’ opinion and (4) a transaction fee of approximately $1.1 million, contingent upon the completion of the business combination.

Recommendations of the AFN Board of Directors and Cohen Board of Managers (Pages [ — ] and [ — ])

At a meeting held on February 20, 2009, the AFN special committee unanimously determined that the merger agreement and the transactions contemplated thereby, including the issuance of shares of AFN common stock and Series A preferred stock in the business combination, are advisable and in the best interests of AFN and recommended to AFN’s board of directors that the merger agreement be approved. At a meeting held on February 20, 2009, the AFN board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the business combination and the issuance of shares of AFN common stock and Series A preferred stock pursuant to the merger agreement, are advisable and in the best interests of AFN and directed that the transactions contemplated by the merger agreement, including the issuance of shares of AFN common stock and Series A preferred stock pursuant to the merger agreement, be submitted for consideration at a meeting of the AFN stockholders. Accordingly, AFN’s board of directors approved the merger agreement and unanimously recommended that AFN’s stockholders vote FOR approval of the transactions contemplated by the merger agreement, including the issuance of shares of AFN common stock and Series A preferred stock.

At its meeting on February 20, 2009, after due consideration, the Cohen board of managers unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are fair to, and in the best interests of, Cohen and its members. Accordingly, Cohen’s board of managers approved, adopted and declared advisable the merger agreement, the business combination, and the other transactions contemplated by the merger agreement and unanimously recommended that the Cohen members vote FOR approval of the merger agreement and the transactions contemplated by the merger agreement.

To review the risks related to the business combination and the combined company following completion of the business combination, please see “Risk Factors” beginning on page [ — ]. To review the background, strategic and financial rationale and reasons for the business combination, please see these sections in “The Transactions — Background of the Business Combination” and “— Strategic and Financial Rationale for the Business Combination” beginning on pages [ — ] and [ — ], respectively.

Interests of Board Members and Executive Officers in the Business Combination (Page [ — ])

All AFN directors and executive officers are stockholders of AFN and all Cohen managers and executive officers are members of Cohen. You should be aware that certain AFN and Cohen board members and executive officers have interests in the business combination as board members or executive officers that are different from, or in addition to, their interests as AFN stockholders or Cohen members. The members of the AFN board of directors, including the AFN special committee, knew about these additional interests and considered them when they approved the merger agreement and the other transactions contemplated thereby, including the issuance of AFN common stock and Series A preferred stock in the business combination, and the board of managers of Cohen knew about these additional interests and considered them when they approved the merger agreement and the transactions contemplated by the merger agreement.

Continuing Board and Management Positions (Page [ — ])

The merger agreement requires that, upon completion of the business combination, the AFN board of directors will consist of ten members, six designated by Cohen and four designated by AFN. Upon the completion of the business combination, it is anticipated that AFN’s board of directors will increase the number of AFN’s directors from nine to ten directors, James J. McEntee, III will resign as a director of AFN and Joseph

 

Donovan and one other director to be appointed by Cohen prior to the completion of the business combination will be elected by AFN’s board of directors to fill the resulting vacancies on the board of directors, in each case, effective upon completion of the business combination. The remainder of AFN’s current directors, including the seven independent directors, will remain directors of AFN following the business combination. Daniel G. Cohen, current Chairman of Cohen’s board of managers and Chairman of the board of directors of AFN, will continue to be the Chairman of the board of directors of AFN and will be the Chief Executive Officer of AFN and the chief investment officer of the combined company’s Investment Advisory business. Christopher Ricciardi, current Chief Executive Officer and President of Cohen, will be the President of AFN and the Chief Executive Officer of the combined company’s Capital Markets business. Joseph W. Pooler, Jr., current Chief Financial Officer of Cohen will be the Chief Financial Officer of AFN.

Post-Business Combination Employment Agreements

Messrs. Ricciardi and Pooler have employment agreements with Cohen. These agreements, as amended, will govern the terms and conditions of the executives’ employment after the business combination. See “The Merger Agreement — Terms of Other Agreements — Employment Agreements Post-Business Combination” beginning on page [ — ] for a description of the employment agreements. The compensation committee of AFN may adopt compensation programs in addition to those set out in the employment agreements.

Regulatory Matters (Page [ — ])

The business combination requires certain approvals from the Financial Industry Regulatory Authority, or FINRA, and the Financial Services Authority in the United Kingdom, or FSA. Cohen has begun preparing the necessary notices to FINRA and FSA and anticipates filing requests for approval of the business combination in the second quarter of 2009 with respect to the FSA filing and on or prior to the record date for the AFN annual meeting with respect to the FINRA filing.

Accounting Treatment (Page [ — ])

The business combination will be treated as a reverse merger. Cohen has been determined to be the acquirer for purposes of generally accepted accounting principles, or GAAP. The consideration transferred (that is, the purchase price or cost of the business combination) will be equal to the market capitalization of AFN’s common stock as of the effective date of the business combination. Any difference between the estimated fair value of the net assets acquired and the consideration transferred shall be treated as either goodwill (if the consideration transferred exceeds the fair value of the net assets acquired) or bargain purchase (if the fair value of the net assets acquired exceeds the consideration transferred). As an accounting matter, Cohen shall be treated as the accounting acquirer. Therefore, the combined company’s historical results prior to the effective date of the business combination will be Cohen’s stand-alone results. Subsequent to the business combination, the combined company’s results will be the consolidated results of both AFN’s and Cohen’s operations. All of Cohen’s net assets will be carried forward at their existing accounting basis while AFN’s net assets will be recorded at estimated fair value as of the effective date of the business combination.

After the business combination, Cohen will be a consolidated subsidiary of AFN. Each of the current members of Cohen will either convert their Cohen membership units into shares of AFN common stock or retain a direct membership interest in Cohen. Subsequent to the business combination, any recapitalized membership units in Cohen (other than the recapitalized Cohen membership units held by AFN) will be treated as a noncontrolling interest.

 

Appraisal Rights (Page [ — ])

AFN stockholders will not have appraisal rights under Maryland law or its charter or bylaws as a result of the business combination, as more fully discussed in “The Transactions — Appraisal Rights — AFN” beginning on page [ — ]. Cohen members will not have appraisal rights under Delaware law or the provisions of its certificate of formation or limited liability company agreement in connection with the business combination, as more fully discussed in “The Transactions — Appraisal Rights — Cohen” beginning on page [ — ].

Material United States Federal Income Tax Consequences of the Business Combination (Page [ — ])

With respect to Cohen members who elect to receive AFN common stock in the business combination, the business combination should be treated for United States federal income tax purposes as the contribution by such Cohen members of their Cohen membership units to AFN in exchange for AFN common stock and such members should recognize gain or loss pursuant to such exchange. AFN should not recognize gain or loss pursuant to this exchange. Generally, subject to certain exceptions discussed below, and depending on the individual circumstances of the Cohen member, the conversion of Cohen Class A membership units and Cohen Class B membership units into recapitalized Cohen membership units should not result in the recognition of gain or loss to the members. The AFN contribution should be treated for United States federal income tax purposes as a tax-deferred contribution by AFN of assets to Cohen in exchange for Cohen membership units. Cohen members and AFN stockholders should carefully review the section entitled “Material United States Federal Income Tax Consequences” beginning on page [ — ].

This summary does not address tax consequences that may vary with, or depend upon, individual circumstances. Accordingly, you should consult a tax advisor to determine the United States federal, state, local and foreign tax consequences to you of the business combination taking into account your particular circumstances.

Summary of Merger Agreement (Page [ — ])

The merger agreement is attached as Annex A to this proxy statement/prospectus and governs the terms of the business combination.

Conditions to the Business Combination (Page [ — ])

The parties’ obligations to consummate the business combination are subject to the satisfaction or waiver of a number of conditions, including that:

 

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AFN has obtained the approval of its stockholders necessary to approve the issuance of shares of AFN common stock and Series A preferred stock;

 

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Cohen has obtained the approval of its members necessary to approve the merger agreement;

 

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the parties have obtained all required consents, approvals and authorizations of governmental authorities, including, if necessary, approval of the business combination by FINRA and the FSA, and any other consents or approvals, the absence of which would result in a material adverse effect on the party that failed to obtain the consent or approval;

 

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the Securities and Exchange Commission, or the SEC, has declared the registration statement, of which this proxy statement/prospectus forms a part, to be effective, and no stop order has been issued or threatened by the SEC;

 

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all necessary state securities or blue sky authorizations have been obtained;

 

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none of the parties to the merger agreement is subject to any statute, rule, ruling, regulation, judgment, decision, order, injunction, writ or decree of any court or other governmental authority that prohibits, enjoins or restricts the completion of the business combination or the other transactions contemplated by the merger agreement;

 

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NYSE Amex, or any other national securities exchange that is registered with the SEC, has authorized for listing the shares of AFN common stock to be issued pursuant to the business combination, subject to official notice of issuance;

 

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none of the events or conditions entitling any of the parties to terminate the business combination has occurred and is continuing;

 

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the filing of a certificate of dissolution of CFG, a minority member of Cohen, with the office of the Secretary of State of the State of Delaware and the liquidation of CFG;

 

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the taking of all necessary corporate action such that the board of directors of AFN consists of ten directors, four designated by AFN and six designated by Cohen;

 

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the taking of all necessary corporate action such that Daniel G. Cohen is elected as Chairman of the board of directors of AFN and appointed as Chief Executive Officer of AFN;

 

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the completion of the AFN reverse stock split and the filing of articles supplementary setting forth the terms of the Series A preferred stock and Series B preferred stock;

 

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Cohen has obtained either a credit facility having a term of at least two years from the effective date of such facility and an initial revolving credit amount of at least $30 million or a firm commitment, subject to customary conditions, from one or more financial institutions for a credit facility having a term of at least two years from the effective date of such facility and an initial revolving credit amount of at least $30 million; however, Cohen’s June 1, 2009 amended and restated credit facility, or the 2009 Credit Facility, satisfies this condition, therefore, this option is no longer available to AFN (see “Information Regarding Cohen Brothers, LLC — Management’s Discussion and Analysis of Financial Condition and Results of Operations of Cohen Brothers, LLC — Liquidity and Capital Resources — Revolving Line of Credit Agreement — Refinance of Bank Group Loan” beginning on page [ — ] for information on the 2009 Credit Facility);

 

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Cohen’s audited financial statements as of and for the fiscal year ended December 31, 2008 reflect not more than a $5 million reduction in members’ equity or a $5 million increase in net loss, as compared to the preliminary and unaudited financial results provided to the AFN special committee; however, the financial statements have been delivered and this condition has been satisfied, therefore, this option is no longer available to AFN;

 

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upon the completion of the business combination, AFN will be the beneficial owner of at least a majority of the recapitalized Cohen membership units; and

 

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other customary conditions to the completion of the business combination, or the closing, including, subject to materiality standards, the truth and correctness of the representations and warranties and performance of the covenants by each of the parties to the merger agreement and no event, circumstance or change having occurred that has had, or reasonably could be expected to have, a material adverse effect on the parties.

Where the law permits, either party could choose to waive a condition to the obligation to complete the business combination even when that condition has not been satisfied. There can be no assurance that all of the conditions to the business combination will either be satisfied or waived or that the business combination will occur.

 

“Go-Shop” Provisions (Page [ — ])

The merger agreement contains a “go-shop” period until April 1, 2009, during which AFN had the right to initiate, solicit and encourage takeover proposals by any other person and to enter into and maintain discussions or negotiations with respect to takeover proposals. Except for AFN’s rights during the “go-shop” period and as described in the next paragraph, each of the parties is prohibited from (1) soliciting, facilitating, initiating or encouraging, or taking any other action designed or reasonably likely to facilitate or encourage, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any takeover proposal or (2) participating in any discussions or negotiations, including by way of furnishing information, regarding any takeover proposal; provided, however, that AFN shall be permitted from and after the expiration of the go-shop period date to take actions described in clauses (1) and (2) above with respect to any third party that has made a bona fide takeover proposal prior to the end of the go-shop period date and with whom it is having ongoing discussions or negotiations as of the end of the go-shop period regarding a bona fide takeover proposal. The “go-shop” period ended April 1, 2009 without any alternative bona fide takeover proposal having been made.

The merger agreement also does not prevent AFN at any time prior to obtaining AFN’s stockholder approval of the issuance of shares of AFN common stock and Series A preferred stock pursuant to the merger agreement from furnishing information with respect to itself and its subsidiaries in response to a bona fide takeover proposal that AFN’s board of directors determines in good faith constitutes a superior proposal to the business combination.

Termination of Merger Agreement (Page [ — ])

The parties may terminate the merger agreement by mutual written consent. In addition and unless otherwise noted, the merger agreement may be terminated:

 

•

by either AFN or Cohen, if the stockholders of AFN have not approved the issuance of AFN common stock and Series A preferred stock at the AFN annual meeting or any adjournment or postponement thereof or the members of Cohen have not approved the merger agreement by the later of July 15, 2009 or the date of the AFN annual meeting, or any adjournment or postponement thereof, provided that the party desiring to terminate the merger agreement for this reason has not breached or failed to perform its obligations under the merger agreement or, in the case of termination by Cohen, the actions or inactions of the manager of AFN have not caused AFN to breach or fail to perform its obligations under the merger agreement;

 

•

by either AFN or Cohen, if any governmental authority has issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the business combination and that order, decree or ruling or other action has become final and non-appealable, provided that the party desiring to terminate the merger agreement for this reason has not breached or failed to perform its obligations to use its reasonable best efforts to consummate the business combination, comply with applicable laws, resolve any objections by any government authority, cause the completion of the business combination to occur as promptly as practicable and obtain all necessary consents, approvals and waivers under the merger agreement and such failure has caused or resulted in such action;

 

•

by either AFN or Cohen, if the effective time of the business combination has not occurred by September 30, 2009, provided that (1) breach or failure to perform its obligations under the merger agreement by the party desiring to terminate the merger agreement for this reason has not caused or resulted in the failure of the effective time of the business combination to have occurred by September 30, 2009 or, (2) in the case of termination by Cohen, the actions or inactions of the manager of AFN have not caused or resulted in the failure of the effective time of the business combination to have occurred by September 30, 2009;

 

•

by AFN only, within five business days after delivery to AFN of Cohen’s 2008 audited financial statements as required under the merger agreement, if such audited financial statements reflect more

 

than a $5 million reduction in members’ equity or a $5 million increase in net loss, as compared to the preliminary and unaudited financial results provided to the AFN special committee, however, the financial statements have been delivered and the conditions have been satisfied, therefore, this option is no longer available to AFN;

 

•

by AFN only, in order to enter into a letter of intent or other contract with a third party in connection with a takeover proposal, provided that AFN has paid the applicable termination fee and complied with the terms of the merger agreement relating to the solicitation of takeover proposals;

 

•

by Cohen only, if the AFN board of directors (1) makes a change in its recommendation to AFN stockholders to approve the issuance of AFN common stock and Series A preferred stock as contemplated by the merger agreement, (2) fails to reaffirm publicly its recommendation within five business days of being requested do so to by Cohen, or (3) resolves to take any of the foregoing actions;

 

•

by Cohen, if AFN fails to complete the AFN reverse stock split or file the articles supplementary setting forth the terms of the Series A preferred stock and the Series B preferred stock on or before September 30, 2009; or

 

•

by either AFN or Cohen, if the other party has breached its representations and warranties or failed to perform its covenants or agreements in a manner that would cause the failure of the related closing condition, and that breach of a representation or warranty or failure to perform a covenant would prevent the breaching party from consummating the business combination before September 30, 2009, and is incapable of being cured before September 30, 2009 or remains uncured 30 days after written notice of the breach, provided that in the case of a termination by Cohen, the actions or inactions of the manager of AFN have not caused any representation or warranty of AFN or Merger Sub to be inaccurate or caused AFN or Merger Sub to breach a covenant or agreement in the merger agreement.

Expenses and Termination Fees (Page [ — ])

Expenses

Except as otherwise provided in the merger agreement, whether or not the business combination is consummated, all costs and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses.

Termination Due to Change in the AFN Board Recommendation

If the merger agreement is terminated by Cohen because the board of directors of AFN has made a change in its recommendation to AFN stockholders regarding approval of the issuance of AFN common stock and Series A preferred stock as contemplated by the merger agreement, then AFN will be required to pay Cohen a cash termination fee of $1 million plus Cohen’s fees and expenses actually incurred in connection with the transactions contemplated in the merger agreement not to exceed an additional $1 million.

Termination Due to Takeover Proposal

In the event that AFN terminates the merger agreement in order to enter into a letter of intent or other contract, agreement, commitment or other similar arrangement with a third party in connection with a takeover proposal for a majority of the total voting power of any class of its equity securities or, following such a takeover proposal, if either party terminates the merger agreement because AFN stockholders have not approved the issuance of AFN common stock and Series A preferred stock as contemplated by the merger agreement or the effective date of the business combination has not occurred by September 30, 2009, and, within twelve months of the termination of the merger agreement, AFN enters into a definitive agreement with a third party with respect

 

to any takeover proposal or any takeover proposal with respect to AFN is consummated, then AFN will be required to pay Cohen a cash termination fee of $1 million plus Cohen’s fees and expenses actually incurred in connection with the transactions contemplated in the merger agreement not to exceed an additional $1 million.

Termination Due to Failure of AFN Closing Conditions

In the event that Cohen terminates the merger agreement because AFN has not completed the AFN reverse stock split or filed the articles supplementary regarding the classification of the Series A preferred stock and Series B preferred stock by September 30, 2009, AFN will be required to pay Cohen a cash termination fee of $1 million plus Cohen’s fees and expenses actually incurred in connection with the transactions contemplated in the merger agreement not to exceed an additional $1 million.

Termination Due to Failure of Cohen Closing Conditions

In the event that either party terminates the merger agreement as a result of the failure of Cohen’s members to approve the merger agreement by the later of July 15, 2009 or the date of the AFN annual meeting or any adjournment or postponement thereof, or AFN terminates the merger agreement because the completion of the business combination has not occurred on or before September 30, 2009 and, as of the date of such termination, Cohen has failed to obtain either a credit facility having a term of at least two years from the effective date of such facility and an initial revolving credit amount of at least $30 million or a firm commitment, subject to customary conditions, from one or more financial institutions for a credit facility having a term of at least two years from the effective date of such facility and an initial revolving credit amount of at least $30 million (which condition was satisfied by the 2009 Credit Facility) or CFG has not been liquidated, then Cohen will be required to pay AFN a cash termination fee of $1 million plus AFN’s fees and expenses actually incurred in connection with the transactions contemplated in the merger agreement not to exceed an additional $1 million.

Comparison of Holder Rights (Page [ — ])

AFN is incorporated under the laws of the State of Maryland. Cohen is formed under the laws of the State of Delaware. In accordance with the merger agreement, upon the completion of the business combination, the holders of Cohen Class A membership units and Cohen Class B membership units who choose to exchange those units for AFN common stock will exchange their respective membership units for AFN common stock. The rights of AFN stockholders will be governed by Maryland law and AFN’s charter and bylaws. The rights of Cohen members who retain their recapitalized Cohen membership units will be governed by Delaware law and the New Cohen LLC Agreement, which will be Cohen’s limited liability company agreement following the completion of the business combination. For a comparison of the material rights of AFN stockholders and Cohen members under each company’s organizational documents and the appropriate statutory framework, please see “Comparison of Holders Rights” beginning on page  [ — ] .

Voting Agreements (Page [ — ])

Each of Cohen Bros. Financial (a limited liability company wholly owned by Daniel G. Cohen), Christopher Ricciardi, and James J. McEntee, III, individually and as trustee on behalf of James J. McEntee, III T/U/A James J. McEntee III, has entered into a voting agreement with AFN pursuant to which each has agreed to vote his or its Cohen membership units in favor of the adoption of the merger agreement, and any other action of the Cohen members requested by Cohen in furtherance thereof. Collectively, these voting agreements represent the power to vote approximately 73.5% of the Cohen Class B membership units and 100% of the Cohen Class C membership units (excluding any interest held in CFG, which will be dissolved prior to the completion of the business combination). For additional information regarding the voting agreements, see “The Merger Agreement — Terms of Other Agreements — Voting Agreements” beginning on page [ — ].

 

Limited Liability Company Agreement of Cohen (Page [ — ])

Cohen members who choose to retain the recapitalized Cohen membership units will be party to the New Cohen LLC Agreement. Pursuant to the New Cohen LLC Agreement, each membership unit will entitle the holder thereof to one vote per membership unit on any matter submitted to a vote or for the consent of the members of Cohen. As of the effective date of the business combination and until the Series A preferred stock has been converted into Series B preferred stock, if there is any member of Cohen other than AFN having a percentage interest of at least 10%, AFN has agreed that it will not, without receiving advance approval of the majority of the voting power of the recapitalized Cohen membership units held by members other than AFN that have a percentage interest of at least 10% of Cohen, take certain actions specified by the New Cohen LLC Agreement, including, other than as specifically contemplated by the merger agreement or the New Cohen LLC Agreement, as applicable, issuing any additional securities of AFN or permitting any subsidiaries of AFN other than Cohen and other than subsidiaries formed to engage in securitization transactions to issue any additional securities, entering into or suffering a transaction constituting a change of control of AFN, amending AFN’s charter or bylaws in any manner that adversely affects the redemption rights of members of Cohen, adopting a plan of liquidation or dissolution or filing a certificate of dissolution, or entering into or conducting any business other than (1) the ownership of Cohen membership units, (2) the ownership of certain subsidiaries, (3) the management of Cohen’s business, (4) the payment of AFN’s outstanding debt obligations, and (5) such other activities as are reasonably required in connection with the ownership of Cohen membership units and the management of the business of Cohen.

Following the business combination, each member of Cohen, other than AFN, will have the right, commencing on a date that is six months following the completion of the business combination, to require that Cohen redeem all or a portion (not less than 100 membership units, unless such holder has less than 100 membership units, without the consent of the board of managers of Cohen) of such members’ recapitalized Cohen membership units in exchange for, in AFN’s sole discretion, cash or shares of AFN common stock. Daniel G. Cohen will not be eligible to exercise the right of redemption until after December 31, 2012. This right of redemption is subject to certain delivery and timing requirements.

For additional information regarding the New Cohen LLC Agreement, please see “The Merger Agreement — Terms of Other Agreements — Limited Liability Company Agreement of Cohen Post-Business Combination” beginning on page  [ — ].

 

INFORMATION REGARDING THE COMBINED COMPANY

FOLLOWING THE BUSINESS COMBINATION

The business combination is expected to provide the combined company with enhanced financial resilience, synergies and economies of scale and will allow the combined company greater flexibility in withstanding the current volatile market conditions than on a stand-alone basis. AFN’s business model will shift from a capital investment company to a comprehensive operating company that is expected to be less capital intensive. In addition, the combined company will seek to deploy additional capital that will generate incremental investment income and fee income. The combined company anticipates earning fee income from the management of investment vehicles as well as fees, gains and other income generated by capital markets activities. As a result of the completion of the proposed business combination, AFN expects that it will cease to qualify as a REIT as of the beginning of the taxable year ending on December 31, 2009.

The combined company will seek to generate diversified revenue and fee income streams through Cohen’s three operating business segments:

 

•

Capital Markets. This business consists of sales and trading, as well as origination, structuring, and placement of fixed income securities through Cohen’s broker-dealer subsidiary, CCS, as more fully discussed below in “Information Regarding Cohen Brothers, LLC — Business — Capital Markets” beginning on page [ — ] . Additionally, this business provides corporate debt originations and new issue securitizations for a wide variety of corporate clients with a historical focus on the financial services industry.

 

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Asset Management . This business serves the needs of client investors by managing assets within a variety of investment vehicles, including investment funds, permanent capital vehicles and CDOs, as more fully discussed below in “Information Regarding Cohen Brothers, LLC — Business — Asset Management” beginning on page [ — ]. This business will seek to generate additional fee income through strategic “roll up” acquisitions of credit fixed income contracts at attractive valuations and through the formation of additional investment vehicles.

 

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Principal Investing . This business will be comprised primarily of AFN’s investment portfolio and Cohen’s seed capital in certain investment vehicles and the related gains and losses that they generate, as more fully discussed below in “Information Regarding Alesco Financial, Inc. — Business — Our Portfolio” beginning on page [ — ] and “Information Regarding Cohen Brothers, LLC — Business — Principal Investing” beginning on page [ — ].

AFN and Cohen expect that the capital markets and asset management operations will constitute the combined company’s primary business operations. Over the past year, Cohen has continued to build its capital markets operations and we plan to continue this expansion to other credit-related fixed income areas to deepen the combined company’s existing product capabilities. For example, we believe that the high yield bond and leveraged loan markets offer opportunities to repeat the success Cohen has enjoyed in the very similar investment grade corporate bond business. We also intend to continue to build Cohen’s existing investment funds, including Brigadier Capital LP, or Brigadier LP, and other Brigadier LP – related entities, which are collectively referred to in this proxy statement/prospectus as Brigadier or the Brigadier Entities, and Strategos Deep Value Mortgage Fund LP, or Deep Value, and other Deep Value – related entities, which are collectively referred to in this proxy statement/prospectus as the Deep Value Entities.

Over the medium to long term, the business combination is expected to create a platform specializing in credit related fixed income trading and management and a combined company with greater capital resources to pursue opportunistic initiatives in a distressed market, which may include potential acquisitions of other in-place asset management contracts and asset management and investment firms. We intend to continue to build on Cohen’s existing investment funds, expand the broker-dealer platform in new and existing products and evaluate incremental business opportunities in our areas of expertise. See “Selected Historical Financial Data” beginning on page [ — ] and “Unaudited Pro Forma Condensed Combined Financial Data for the Combined Company” on page [ — ] for additional financial information regarding AFN, Cohen and the combined company.

 

SELECTED HISTORICAL FINANCIAL DATA

Alesco Financial Inc.

The following selected financial data is derived from AFN’s unaudited consolidated financial statements as of and for the three months ended March 31, 2009 and AFN’s audited consolidated financial statements for the period from January 31, 2006 to December 31, 2006 and for the years ended December 31, 2007 and 2008.

This information is only a summary. You should read this selected financial data together with the more detailed information contained in AFN’s consolidated financial statements and related notes thereto and in the section titled “Information Regarding Alesco Financial Inc. — Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alesco Financial Inc.” beginning on page [ — ].

AFN SUMMARY FINANCIAL DATA

(in thousands, except per share data)

 

		For the three- months ended March 31, 2009				For the year ended December 31, 2008(1)(3) (As Adjusted)				For the year ended December 31, 2007(3) (As Adjusted)				For the period from January 31, 2006 to December 31, 2006(2)(3) (As Adjusted)
Operations Highlights:
Net investment income (loss)		$	(9,527	)		$	53,100			$	83,603			$	25,554
Net income (loss) attributable to common stockholders		$	(35,833	)		$	(146,343	)		$	(1,261,320	)		$	22,031
Per Share Data:
Basic earnings (loss) per share		$	(0.60	)		$	(2.46	)		$	(22.48	)		$	1.48
Diluted earnings (loss) per share		$	(0.60	)		$	(2.46	)		$	(22.48	)		$	1.48
Dividends declared per share		$	—			$	0.50			$	1.23			$	1.75
Book value per share(4)		$	0.51			$	1.10			$	(40.45	)		$	7.81
(in thousands)		As of March 31, 2009				As of December 31, 2008(1)(3) (As Adjusted)				As of December 31, 2007(3) (As Adjusted)				As of December 31, 2006(3) (As Adjusted)
Balance Sheet Highlights:
Total assets		$	3,603,929			$	3,934,931			$	8,935,376			$	10,602,350
Total indebtedness		$	3,249,122			$	3,512,372			$	11,096,783			$	9,981,891
Total liabilities		$	3,538,276			$	3,826,931			$	11,315,371			$	10,074,950
Noncontrolling interests in subsidiaries		$	35,645			$	43,048			$	19,543			$	98,598
Total parent stockholders’ equity (deficit)		$	30,008			$	64,952			$	(2,399,538	)		$	428,802

 

(1)

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities , or SFAS No. 159. SFAS No. 159 provides entities with an irrevocable option to report most financial assets and liabilities at fair value, with subsequent changes in fair value reported in earnings. Effective January 1, 2008, AFN elected to apply the fair value option for its investments in TruPS and TruPS security-related receivables, MBS, TruPS CDO notes payable, MBS CDO notes payable, and TruPS obligations. AFN elected the fair value option for these instruments to enhance the transparency of its financial condition. The transition adjustment that was recorded as of January 1, 2008 due to the adoption of SFAS No. 159 was an increase to parent stockholders’ equity of $2.6 billion.

 

(2)

AFT commenced operations on January 31, 2006. AFT merged with a subsidiary of Sunset on October 6, 2006 and the combined company’s name was changed to Alesco Financial Inc. The merger between AFT and Sunset was accounted for as a reverse acquisition and AFT was deemed to be the accounting acquirer. As a result, AFN’s financial statements reflect operations of AFT from January 31, 2006 and the operations of the combined company thereafter.

 

(3)	As of January 1, 2009, AFN adopted the following accounting pronouncements, which resulted in retrospective adjustments to its previously filed consolidated financial statements:

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of Accounting Research Bulletin No. 51 , or SFAS No. 160. SFAS No. 160 requires reporting entities to present noncontrolling (minority) interests as equity (as opposed to as a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS No. 160 applies prospectively as of the first annual reporting period beginning on or after December 15, 2008, except for the presentation and disclosure requirements which will be applied retrospectively for all periods presented. As of January 1, 2009, the Company adopted SFAS No. 160 and the adoption of SFAS No. 160 resulted in the following changes to the presentation of the Company’s prior period consolidated financial statements: (1) reclassified all amounts previously included within the “Minority interests” financial statement caption to the “Noncontrolling interests in subsidiaries” financial statement caption, which is included within the equity section of the Company’s consolidated financial statements; (2) consolidated net income (loss) was adjusted to include net income (loss) attributable to both the controlling and noncontrolling interests; and (3) consolidated comprehensive income (loss) was adjusted to include comprehensive income (loss) attributable to both the controlling and noncontrolling interests. The adoption of SFAS No. 160 did not have an impact on net income (loss) for any prior periods.

In May 2008, the FASB issued FASB Staff Position, or FSP, No. Accounting Principles Board 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) , or FSP APB 14-1, which clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. FSP APB 14-1 requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer’s nonconvertible, unsecured debt borrowing rate when interest cost is recognized. The equity component is presented in parent stockholders’ equity and the accretion of the resulting discount on the debt is recognized as part of interest expense in the consolidated statement of operations. FSP APB 14-1 requires companies to retroactively apply the requirements of the pronouncement to all periods presented. As of January 1, 2009, the Company adopted FSP APB 14-1 and the consolidated financial statements as of and for the year ended December 31, 2008 have been retroactively restated for the adoption, which resulted in an increase to the Company’s net loss of $1.6 million, or $0.03 per diluted share, and a $2.2 million increase to parent stockholders’ equity at January 1, 2008.

 

(4)	Calculation excludes the noncontrolling interests’ portion of equity.

 

Cohen Brothers, LLC

The following table presents the selected historical consolidated/combined financial data of Cohen. This information is only a summary and should be read in conjunction with the consolidated financial statements of Cohen and the notes thereto and the section titled “Information Regarding Cohen Brothers, LLC — Management’s Discussion and Analysis of Financial Condition and Results of Operations of Cohen Brothers, LLC” beginning on page [ — ] .

Cohen’s consolidated financial information as of March 31, 2009 and for the three months ended March 31, 2009 and 2008 has been derived from its unaudited consolidated condensed interim financial statements included elsewhere in this proxy statement/prospectus, which include all adjustments, consisting only of normal recurring adjustments, that in its opinion are necessary for a fair presentation of its financial position as of March 31, 2009 and the results of operations for the three months ended March 31, 2009 and 2008.

Cohen’s consolidated financial information as of and for the years ended December 31, 2008, 2007, and 2006 has been derived from its audited consolidated financial statements which are included elsewhere in this proxy statement/prospectus. The consolidated/combined financial information as of and for the year ended December 31, 2005 has been derived from Cohen’s audited consolidated/combined financial statements which are not included elsewhere in this proxy statement/prospectus. The combined financial information as of and for the year ended December 31, 2004 has been derived from Cohen’s audited combined financial statements which are not included elsewhere in this proxy statement/prospectus.