4. ACQUISITION AND PRIVATE INVESTMENT IN IFMI

Acquisition of Star Asia Manager

Effective March 1, 2013, Star Asia Manager repurchased its outstanding equity units held by Star Asia Mercury LLC (formerly, Mercury Partners, LLC) (“Mercury”). Star Asia Manager repurchased the units from Mercury for $425 and a note payable of $725. Under the note payable, interest accrues at a variable rate and there is no stated maturity date. See note 12. This agreement between Star Asia Manager and Mercury is referred to herein as the “Star Asia Manager Repurchase Transaction.”

Prior to the Star Asia Manager Repurchase Transaction, the Company owned 50% of the voting interests in Star Asia Manager and Mercury owned 50%. The Company accounted for its investment under the equity method of accounting. As a result of the Star Asia Manager Repurchase Transaction, the Company obtained 100% voting control of Star Asia Manager. Because the transaction resulted in the Company obtaining control, the Company accounted for the transaction as a business combination as called for under Accounting Standards Codification (“ASC”) 805, Business Combinations. Subsequent to the Star Asia Manager Repurchase Transaction, the Company included Star Asia Manager in its consolidated financial statements.

Under ASC 805, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report provisional amounts. For a period of up to one year subsequent to the acquisition date (the measurement period), the Company can adjust the provisional amounts as it obtains new information regarding the facts and circumstances that existed at the acquisition date. The following table summarizes the provisional amounts of the identified assets acquired and liabilities assumed at the acquisition date as of March 1, 2013 (dollars in thousands):



	Total Estimated Fair Value as of Acquisition Date
Assets acquired:
Cash and cash equivalents	$	1,104
Due from related parties		253
Other assets		150
Liabilities assumed:
Accounts payable and other liabilities		(55)
Fair value of net assets acquired		1,452
Purchase price (1)		1,855
Intangible Asset (2)	$	403

As provisional amounts, the amounts in the table above are subject to changes during the measurement period. See notes 11 and 19.

(1) The purchase price represents the cash paid to Mercury of $425; the note payable to Mercury of $725; and the Company’s equity method investment immediately prior to the Star Asia Manager Repurchase Transaction. For purposes of the provisional amounts, the Company has assumed the carrying value of the Company’s equity method investment immediately prior to the Star Asia Manager Repurchase Transaction approximated fair value. As with all provisional purchase accounting amounts, this is subject to adjustment during the measurement period.

(2) For purposes of the provisional purchase accounting, the Company determined that the excess of the purchase price over the net fair value of tangible assets acquired should entirely be allocated to an intangible asset representing the value of Star Asia Manager’s investment management contract with Star Asia. The Company treated the estimated value as an intangible asset with a finite life. The Company will amortize the intangible asset using the straight-line method over the estimated economic life of the asset of 1.3 years. The intangible asset was allocated to the Asset Management business segment. See note 18. As with all provisional purchase accounting amounts, this is subject to adjustment during the measurement period.

For the six months ended June 30, 2013, Star Asia Manager (since its acquisition on March 1, 2013) has contributed $1,055 in revenue and $661 in net income to the Company. The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition had occurred on January 1, 2011:


	Pro Forma
	Six months ended
	June 30,
	2013		2012
	(dollars in thousands)
Revenue	$	28,340	$	43,797
Earnings (loss) attributable to IFMI	$	(9,171)	$	(5,657)

Investments by Mead Park and Daniel G. Cohen

On May 9, 2013, the Company entered into definitive agreements with Mead Park Capital Partners LLC (“Mead Park Capital”) and CBF (an entity owned solely by Daniel G. Cohen), pursuant to which each will make investments in the Company, totaling $13,746 in the aggregate. Mead Park Capital is a vehicle advised by Mead Park Advisors LLC (“Mead Park”) (a registered investment advisor) and controlled by Jack J. DiMaio, Chief Executive Officer and founder of Mead Park. The investment and related actions were unanimously approved by the Company’s Board of Directors (with Daniel G. Cohen abstaining) following the recommendation of the Board’s Special Committee of the Board of Directors, which was formed in connection with the transaction and was comprised of three of the Company’s independent directors. The resulting share issuance is subject to shareholder approval and customary closing conditions. Shareholders representing approximately 52% of those eligible to vote have signed voting agreements in support of the transaction.

Under the terms of the definitive agreements, Mead Park Capital will purchase 1,949,167 shares of the Company’s common stock and CBF will purchase 800,000 shares of the Company’s common stock, in each case, at $2.00 per share for a combined investment of $5,498. In addition, Mead Park Capital will purchase a convertible promissory note in the aggregate principal amount of $5,848, which is convertible in accordance with the terms of the note into 1,949,167 shares at $3.00 per share. CBF will purchase a convertible promissory note in the aggregate principal amount of $2,400, which is convertible into 800,000 shares at $3.00 per share. The convertible notes will have an 8.0% annual interest rate and will mature in five years following the date of their issuances.

If no event of default has occurred under the notes, (i) if dividends of less than $0.02 per share are paid on the Common Stock in any fiscal quarter prior to an interest payment date, then the Company may pay one-half of the interest payable on such date in cash, and the remaining one-half of the interest otherwise payable will be added to the principal amount of the convertible note then outstanding; and (ii) if no dividends are paid on the Common Stock in the fiscal quarter prior to an interest payment date, then the Company may make no payment in cash of the interest payable on such date, and all of the interest otherwise payable on such date will be added to the principal amount of the note then outstanding. Any increase in the principal balance as a result of this provision will increase the total shares that would be issued if the holder exercises their conversion option in full.

Upon the closing of the transactions, Mr. DiMaio and Christopher Ricciardi, a partner in the adviser to Mead Park Capital and the former President of the Company, will join the Company’s Board of Directors. Mr. DiMaio will be named Chairman, and Mr. Cohen will be named Vice Chairman of the Board of Directors. In addition, the Company’s Board of Directors will be reduced from ten to eight members.

In addition, Mr. Cohen will transition to President of the Company’s European operations. The Board’s Nominating and Corporate Governance Committee is currently searching for a successor to Mr. Cohen as Chief Executive Officer. Until a successor is appointed, Mr. Cohen will remain as the Company’s Chief Executive Officer. In June 2013, the Company appointed Lester Brafman as President of the Company.