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 nine months ended September 30, 2013, Star Asia Manager (since its acquisition on March 1, 2013) has contributed $1,812 in revenue and $1,019 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, 2012:


	Pro Forma
	Nine Months Ended
	September 30,
	2013		2012
	(dollars in thousands)
Revenue	$	46,426	$	74,772
Earnings (loss) attributable to IFMI	$	(9,326)	$	(3,512)

Investments by Mead Park Capital and EBC 2013 Family Trust (“EBC”)

On May 9, 2013, the Company entered into definitive agreements (the “definitive agreements” with Mead Park Capital Partners LLC (“Mead Park Capital”) and CBF (an entity owned solely by Daniel G. Cohen), the Vice Chairman of the Company’s Board of Directors and of the board of managers of the Operating LLC, President and Chief Executive of the Company’s European Business, and President of CCFL), pursuant to which each committed to 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 is controlled by Jack J. DiMaio, Jr., Chief Executive Officer and founder of Mead Park and Chairman of the Company’s Board of Directors. 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 Company obtained shareholder approval of the share issuances contemplated by the definitive agreements at the Company’s 2013 Annual Meeting of Stockholders on September 24, 2013.

In connection with the closing of the transactions contemplated by the definitive agreements, on September 25, 2013, Mead Park Capital purchased 1,949,167 shares of the Company’s common stock and EBC, as assignee of CBF, purchased 800,000 shares of the Company’s common stock, in each case, at $2.00 per share for a combined investment of $5,498. Mead Park Capital also purchased convertible senior promissory notes in the aggregate principal amount of $5,848, which are convertible in accordance with the terms of the note into 1,949,167 shares at $3.00 per share. In addition, EBC, as assignee of CBF, purchased a convertible senior promissory note in the aggregate principal amount of $2,400, which is convertible into 800,000 shares at $3.00 per share. Daniel G. Cohen is a trustee of EBC. The convertible notes issued under the definitive agreements and described above (the “8.0% Convertible Notes”) have an 8.0% annual interest rate and will mature on September 25, 2018. See note 12 for a discussion about the 8.0% Convertible Notes.

In connection with the transactions contemplated by the definitive agreements, on May 9, 2013, the Company’s Board of Directors adopted a Section 382 Rights Agreement (the “Rights Agreement”) in an effort to protect stockholder value by attempting 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 Company’s Board of Directors authorized and declared a dividend distribution of one right for each share of the Company’s common stock outstanding at the close of business on May 20, 2013. Each right entitles the registered holder to purchase from the Company one ten-thousandth of a share of the Company’s Series C Junior Participating Preferred Stock at an exercise price of $100.00 per one ten-thousandth of a share of the Company’s Series C Junior Participating Preferred Stock, subject to adjustment.

The rights will become exercisable following (i) the 10th day after a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 4.95% or more of the Company’s common stock or (ii) the 10th business day following the commencement of a tender offer or exchange offer that would result in a person or group having ownership of 4.95% or more of the Company’s common stock.

The Rights Agreement has no voting privileges and will expire on the earliest of (i) the close of business on October 1, 2016, (ii) the time at which the rights are redeemed pursuant to the Rights Agreement, (iii) the time at which the Rights are exchanged pursuant to the Rights Agreement, (iv) the repeal of Section 382 of the Internal Revenue Code or any successor statute if the Company’s Board of Directors determines that the Rights Agreement is no longer necessary or desirable for the preservation of certain tax benefits, and (v) the beginning of the taxable year of the Company to which the Company’s Board of Directors determines that certain tax benefits may not be carried forward.

No rights were exercisable at September 30, 2013. There was no impact to the Company’s financial results as a result of the adoption of the Rights Agreements. The terms and the conditions of the rights are set forth in the Section 382 Rights Agreement attached as Exhibit 4.1 to the IFMI’s Form 8-K filed with the Securities and Exchange Commission on May 13, 2013.

In connection with the September 25, 2013 closing of the transactions contemplated by the definitive agreements, Mr. DiMaio and Christopher Ricciardi, a partner in Mead Park and the former President of the Company, were elected to the Company’s Board of Directors. Mr. DiMaio was also named Chairman of the Company’s Board of Directors and Mr. Cohen was named Vice Chairman of the Company’s Board of Directors. In addition, the Company’s Board of Directors was reduced from ten to eight members.

In June 2013, the Company appointed Lester Brafman as President of the Company. In September 2013, the Company appointed Mr. Brafman as the Chief Executive Officer of the Company. In September 2013, Mr. Cohen transitioned his role as Chief Executive Officer and Chief Investment Officer of the Company, to serve as President and Chief Executive Officer of the Company’s European Business and President of CCFL.