As filed with the Securities and Exchange Commission on August 12, 2010

Registration No. 333-      

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form S-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

IMPERIAL HOLDINGS, INC.

(to be converted from Imperial Holdings, LLC)

(Exact name of registrant as specified in its charter)

 

 

701 Park of Commerce Boulevard — Suite 301
Boca Raton, Florida 33487
(561) 995-4200
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

 

Jonathan Neuman
President and Chief Operating Officer
701 Park of Commerce Boulevard — Suite 301

Boca Raton, Florida 33487

(561) 995-4200

(Address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

Copies to:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED AUGUST 12, 2010

 

PRELIMINARY PROSPECTUS

 

[          ] Shares

 

IMPERIAL HOLDINGS, INC.

 

Common Stock

 

 

 

 

We are a specialty finance company with a focus on providing premium financing for individual life insurance policies and purchasing structured settlements.

 

This is our initial public offering. We are offering [          ] shares of our common stock in this firm commitment underwritten public offering. We anticipate that the initial public offering price of our common stock will be $[     ] per share.

 

Prior to this offering, there has been no public market for our common stock, and our common stock is not currently listed on any national exchange or market system. We intend to apply to list our common stock on the New York Stock Exchange under the symbol “IFT.”

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 13 of this prospectus to read about the risks you should consider before buying our common stock.

 

 

 

 

 

We have granted the underwriters the right to purchase up to [          ] additional shares of our common stock at the public offering price, less the underwriting discounts, solely to cover over-allotments, if any. The underwriters can exercise this right at any time within 30 days after the date of our underwriting agreement with them.

 

Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver the shares of our common stock to purchasers against payment on or about [          ], 2010.

 

FBR Capital Markets

 

The date of this prospectus is [          ], 2010.

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with information that is different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We and the underwriters are offering to sell and seeking offers to buy these securities only in jurisdictions where offers and sales are permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

 

TABLE OF CONTENTS

 

 

For your convenience we have included below definitions of terms used in this prospectus.

 

In this prospectus references to:

 

 

Unless otherwise stated, in this prospectus all references to the number of shares of our common stock outstanding before and after this offering assume:

 

 

PROSPECTUS SUMMARY

														Three Months Ended
		Year Ended December 31,												March 31,
		2007				2008				2009				2009				2010
Number of transactions			10				276				396				79				105
Face value of undiscounted future payments purchased		$	701			$	18,295			$	28,877			$	5,828			$	7,297
Weighted average purchase effective discount rate			11.0	%			12.0	%			16.3	%			14.2	%			17.0	%
Number of transactions sold			—				226				439				11				—
Weighted average sale discount rate			—				10.8	%			11.5	%			10.0	%			—
Average marketing cost per transaction		$	205.6			$	19.2			$	11.3			$	14.2			$	10.0

		Year Ended
		December 31,												Three Months Ended March 31,
		2007				2008				2009				2009				2010
Lender protection insurance cost			—				8.5	%			10.9	%			10.4	%			10.1	%
Interest cost and other lender funding charges under credit facilities			14.5	%			13.7	%			18.2	%			16.7	%			20.4	%
Total financing cost			14.5	%			22.2	%			29.1	%			27.1	%			30.5	%

	•	Complementary mix of business lines.  Unlike many of our competitors who are focused on either structured settlements or premium financings, we operate in both lines of business. This diversification provides us with a complementary mix of business lines as the revenues generated by our structured settlement business are generally short-term cash receipts in comparison to the revenue from our premium financing business which is collected over time.
	•	Scalable and cost-effective infrastructure.  We have created an efficient, cost-effective, scalable infrastructure that complements our businesses. We have developed proprietary systems and models that allow for cost-effective review of both premium finance and structured settlement transactions that utilize our underwriting standards and guidelines. Our systems allow us to efficiently process transactions while maintaining our underwriting standards. As a result of our investments in our infrastructure, we have developed a structured settlement business model that we believe has sufficient scalability to permit our structured settlement business to continue to grow with only minor incremental costs.
	•	Barriers to entry.  We believe that there are significant barriers to entry into the premium financing and structured settlement businesses. With respect to premium finance, obtaining the requisite state licenses and developing a network of referring agents is time intensive and expensive. With respect to structured settlements, the various state regulations require special knowledge as well as a network of attorneys experienced in obtaining court approval of these transactions. Our management and key

		personnel from our purchasing, underwriting and information technology departments are well trained in our specialized businesses and, in many cases, have almost a decade of experience working together at Imperial and at prior employers. Our management team has significant experience operating in this highly regulated industry.

	•	Strength and financial commitment of management team with proven track record.  Our senior management team is experienced in the premium finance and structured settlement industries. In the mid-1990s, several members of our management team worked together at Singer Asset Finance, where they were early entrants in structured settlement asset classes. After Singer was acquired in 1997 by Enhance Financial Services, several members of our senior management team joined Peach Holdings, Inc. At Peach Holdings, they held senior positions, including Chief Operating Officer, Head of Life Finance and Head of Structured Settlements. In addition, Antony Mitchell, our chief executive officer, and Jonathan Neuman, our president and chief operating officer, each have over $7 million of their own capital invested in our company. This financial commitment aligns the interests of our principal executive officers with those of our shareholders.

	•	Reduce or eliminate the use of debt financing in our premium finance business.  The capital generated by this offering will enable us to fund new premium finance loans and maintain investments in life insurance policies that we acquire upon relinquishment by our borrowers without the need for additional debt financing. In contrast to our existing leveraged business model that has made us reliant on third-party financing that is often unavailable or expensive, we intend to use equity capital from this offering to engage in premium finance transactions at profit margins significantly greater than what we have historically experienced. In the future, we expect to consider debt financing for our premium finance transactions and structured settlement purchases only if such financing is available on attractive terms.
	•	Eliminate the use of lender protection insurance.  With the proceeds of this offering, we will no longer require debt financing and lender protection insurance for new premium finance business. As a result, we expect to experience considerable cost savings, and in addition expect to be able to produce more premium finance loans because we will not be subject to production limitations imposed by our lender protection insurer.
	•	Continue to develop structured settlement database.  We intend to increase our marketing budget and grow our sales staff in order to increase the number of leads in our structured settlement database and to originate more structured settlement transactions. As our database of structured settlements grows, our sales staff is able to increase our transaction volume due in part to repeat transactions from our existing customers.

	•	Imperial Premium Finance, LLC is a licensed insurance premium financer that originates and services our premium finance transactions.
	•	Imperial Life and Annuity Services, LLC is a licensed insurance agency that receives agency fees from referring life insurance agents in connection with our premium finance transactions.
	•	Imperial Life Settlements, LLC is a licensed life/viatical settlement provider.
	•	Imperial Finance & Trading, LLC employs all of our staff and provides services to each of our other operating subsidiaries.
	•	Washington Square Financial, LLC originates and services our structured settlement transactions.

Shares of common stock offered by us		[          ] shares.
Over-allotment shares of common stock offered by us		[          ] shares.
Shares of common stock to be outstanding after the offering		[          ] shares.
Use of proceeds		We estimate that our net proceeds from this offering will be approximately $[     ], after deducting the estimated underwriting discounts and commissions and our estimated offering expenses, and, if the underwriters exercise their over-allotment in-full, we estimate that our net proceeds will be approximately $[     ]. We intend to use the majority of the net proceeds to support our premium finance transactions and for general corporate purposes. See “Use of Proceeds.”
Dividend policy		We do not expect to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any future earnings to finance our operations and growth. Any future determination to pay cash dividends on our common stock will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operating results, capital requirements, any contractual, regulatory and other restrictions on the payment of dividends by us or by our subsidiaries to us, and other factors that our board of directors deems relevant.
Exchange listing		We intend to apply to list our common stock on the New York Stock Exchange under the symbol “IFT.”

	•	reflects the consummation of the corporate conversion, pursuant to which all outstanding common and preferred limited liability company units (including all accrued but unpaid dividends thereon) will be converted into [          ] shares of our common stock;
	•	reflects the conversion of $[     ] million of our promissory notes and $[     ] million of related accrued interest into [          ] shares of our common stock at an assumed initial public offering price of $[     ] per share, which is the midpoint of the price range on the cover of this prospectus, upon the closing of this offering;
	•	excludes up to [          ] shares of common stock that may be issued pursuant to the underwriters’ over-allotment option;
	•	excludes [          ] shares of common stock issuable upon the exercise of stock options we intend to grant to our directors, executive officers and other employees upon completion of this offering, at an exercise price equal to the initial public offering price;
	•	excludes [          ] shares of common stock issuable upon the exercise of warrants that will be issued to our existing shareholders prior to the closing of this offering as described in “Description of Capital Stock — Warrants”; and
	•	excludes [          ] additional shares of common stock available for future issuance under our 2010 Omnibus Incentive Plan (the “2010 Plan”).

		Historical																				Pro Forma
																										Three
																						Year				Months
														Three Months Ended								Ended				Ended
		Years Ended December 31,												March 31,								Dec. 31,				March 31,
		2007				2008				2009				2009				2010				2009				2010
														(Unaudited)								(Unaudited)
		(In thousands, except share data)
Income
Agency fee income		$	24,515			$	48,004			$	26,114			$	10,634			$	5,279			$	26,114			$	5,279
Interest income			4,888				11,914				21,483				4,978				5,583				21,483				5,583
Origination fee income			526				9,399				29,853				5,694				7,299				29,853				7,299
Gain on sale of structured settlements			—				443				2,684				39				—				2,684				—
Gain on forgiveness of debt			—				—				16,410				8,591				1,765				16,410				1,765
Change in fair value of investment in life settlements			—				—				—				—				(203	)			—				(203	)
Other income			2				47				71				16				23				71				23
Total income			29,931				69,807				96,615				29,952				19,746				96,615				19,746
Expenses
Interest expense			1,343				12,752				33,755				7,092				8,969				28,763	(1)			7,797	(1)
Provision for losses on loans receivable			2,332				10,768				9,830				2,793				3,367				9,830				3,367
Loss (gain) on loan payoffs and settlements, net			(225	)			2,738				12,058				8,130				1,378				12,058				1,378
Amortization of deferred costs			126				7,569				18,339				3,573				5,847				18,339				5,847
Selling, general and administrative expenses			24,335				41,566				31,269				8,527				7,672				31,269				7,672
Provision for income taxes			—				—				—				—				—				[—	](2)			[—	](2)
Total expenses			27,911				75,393				105,251				30,115				27,233				100,259				26,061
Net income (loss)		$	2,020			$	(5,586	)		$	(8,636	)		$	(163	)		$	(7,487	)		$	(3,644	)		$	(6,315	)
Earnings per Share
Basic
Diluted
Weighted Average Common Shares Outstanding
Basic
Diluted

(1)		Reflects reduction of interest expense of $5.0 million for the year ended December 31, 2009 and $1.2 million for the three months ended March 31, 2010, due to conversion of promissory notes payable into shares of our common stock which will occur upon the closing of this offering.
(2)		The results of the Company being treated for the pro forma presentation as a “C” corporation resulted in no impact to the consolidated and combined balance sheet or statements of operations for the pro forma periods presented. The primary reasons for this are that the losses produce no current benefit and any net operating losses generated and other deferred tax assets (net of deferred tax liabilities) would be fully reserved due to historical operating losses. The Company, therefore, has not recorded any pro forma tax provision.

		As of
		December 31, 2009				As of March 31, 2010
														Pro Forma As
		Actual				Actual				Pro Forma				Adjusted(3)
						(Unaudited)
		(In thousands, except share data)
Assets:
Cash and cash equivalents		$	15,891			$	7,490			$	8,190	(1)		$
Certificate of deposit — restricted			670				1,342				1,342
Agency fees receivable, net of allowance for doubtful accounts			2,165				407				407
Deferred costs, net			26,323				23,677				23,677
Interest receivable, net			21,034				23,350				23,350
Loans receivable, net			189,111				191,331				191,331
Structured settlements receivables, net			152				2,778				2,778
Investment in life settlements, at estimated fair value			4,306				2,411				2,411
Investment in life settlement fund			542				1,270				1,270
Prepaid expenses and other assets			3,526				3,363				3,363
Total assets		$	263,720			$	257,419			$	258,119			$
Liabilities:
Accounts payable and accrued expenses		$	3,170			$	3,822			$	3,822			$
Interest payable			12,627				15,591				13,354	(2)
Notes payable			231,064				221,633				193,306	(2)
Total liabilities		$	246,861			$	241,046			$	210,482			$
Member units — Series A preferred (500,000 authorized; 90,796 issued and outstanding, actual; 0 issued and outstanding, pro forma and pro forma as adjusted)			4,035				4,035				—	(1)
Member units — Series B preferred (50,000 authorized; 50,000 issued and outstanding, actual; 0 issued and outstanding, pro forma and pro forma as adjusted)			5,000				5,000				—	(1)
Member units — Series C preferred (75,000 authorized; 70,000 issued and outstanding, actual; 0 issued and outstanding, pro forma and pro forma as adjusted)			—				7,000				—	(1)
Member units — Series D preferred (7,000 authorized; 7,000 issued and outstanding, actual; 0 issued and outstanding, pro forma and pro forma as adjusted)			—				—				—	(1)
Member units — common (500,000 authorized; 450,000 issued and outstanding, actual; 0 issued and outstanding, pro forma and pro forma as adjusted)			19,924				19,924				—	(1)
Common stock			—				—				[—	](1)(2)
Paid-in capital			—				—				[67,223	](1)(2)
Retained earnings (accumulated deficit)			(12,100	)			(19,586	)			(19,586	)
Total members’/stockholders’ equity			16,859				16,373				47,637
Total liabilities and members’/stockholders’ equity		$	263,720			$	257,419				258,119

(1)		Reflects the conversion of all common and preferred limited liability company units of Imperial Holdings, LLC into [          ] shares of common stock of Imperial Holdings, Inc. as a result of the corporate conversion. Also reflects the sale of 7,000 Series D preferred units in June 2010 for $700,000, which also will be converted into shares of our common stock as a result of the corporate conversion.
(2)		Reflects conversion of $28.3 million of promissory notes payable and $2.2 million of accrued interest, which will be converted into shares of our common stock upon the closing of this offering.
(3)		Reflects our sale of [          ] shares of common stock at an initial public offering price of $[     ] per share, which is the midpoint of the price range on the cover of this prospectus, after the deduction of the underwriting discounts and commissions and the estimated offering expenses payable by us.

														Three Months Ended
		Year Ended December 31,												March 31,
		2007				2008				2009				2009				2010
Period Originations:
Number of loans originated			196				499				194				72				52
Principal balance of loans originated		$	44,501			$	97,559			$	51,573			$	19,418			$	10,561
Aggregate death benefit of policies underlying loans originated		$	794,517			$	2,283,223			$	942,312			$	364,135			$	252,400
Selling general and administrative expenses		$	15,082			$	21,744			$	13,742			$	4,113			$	2,643
Average Per Origination During Period:
Age of insured at origination			75.5				74.9				74.9				74.8				73.8
Life expectancy (years)			12.9				13.2				13.2				13.9				14.3
Monthly premium (year after origination)		$	14.0			$	14.9			$	16.0			$	16.8			$	13.4
Death benefit of policies underlying loans originated		$	4,053.7			$	4,575.6			$	4,857.3			$	5,057.4			$	4,853.8
Principal balance of the loan		$	227.0			$	195.5			$	265.8			$	269.7			$	203.1
Interest rate charged			10.5	%			10.8	%			11.4	%			11.3	%			11.5	%
Agency fee		$	125.1			$	96.2			$	134.6			$	147.7			$	101.5
Agency fee as % of principal balance			55.1	%			49.2	%			50.6	%			54.8	%			50.0	%
Origination fee		$	45.8			$	77.9			$	118.9			$	127.6			$	83.5
Origination fee as % of principal balance			20.2	%			39.9	%			44.7	%			47.3	%			41.1	%
End of Period Loan Portfolio
Loans receivable, net		$	43,650			$	148,744			$	189,111			$	172,314			$	191,331
Number of policies underlying loans receivable			240				702				692				717				676
Aggregate death benefit of policies underlying loans receivable		$	1,065,870			$	2,895,780			$	3,091,099			$	3,086,603			$	3,096,236
Average Per Loan:
Age of insured in loans receivable			76.3				75.3				75.4				75.2				75.4
Monthly premium		$	7.7			$	9.1			$	8.5			$	7.7			$	6.6
Loan receivable, net		$	181.9			$	211.9			$	273.3			$	240.3			$	283.0
Interest rate			10.2	%			10.4	%			10.9	%			10.6	%			11.1	%

														Three Months Ended
		Year Ended December 31,												March 31,
		2007				2008				2009				2009				2010
Period Originations:
Number of transactions			10				276				396				79				105
Number of transactions from repeat customers			—				23				52				10				24
Weighted average purchase effective discount rate			11.0	%			12.0	%			16.3	%			14.2	%			17.0	%
Face value of undiscounted future payments purchased		$	701			$	18,295			$	28,877			$	5,828			$	7,297
Amount paid for settlements purchased		$	369			$	8,010			$	10,947			$	2,507			$	2,574
Marketing costs		$	2,056			$	5,295			$	4,460			$	1,124			$	1,048
Selling, general and administrative (excluding marketing costs)		$	666			$	4,475			$	5,015			$	995			$	1,580
Average Per Origination During Period:
Face value of undiscounted future payments purchased		$	70.1			$	66.3			$	72.9			$	73.8			$	69.5
Amount paid for settlement purchased		$	36.9			$	29.0			$	27.6			$	31.7			$	24.5
Duration (months)			80.3				113.8				109.7				106.8				124.8
Marketing cost per transaction		$	205.6			$	19.2			$	11.3			$	14.2			$	10.0
Segment selling, general and administrative (excluding marketing costs) per transaction		$	66.6			$	16.2			$	12.7			$	12.6			$	15.1
Period Sales:
Number of transactions sold (Slate)			—				—				—				—				—
Gain on sale of structured settlements (Slate)		$	—			$	—			$	—			$	—			$	—
Average sale discount rate (Slate)			—				—				—				—				—
Number of structured settlements (buyers other than Slate)			—				226				439				11				—
Gain on sale of structured settlements (buyers other than Slate)		$	—			$	443			$	2,684			$	39			$	—
Average sale discount rate (buyers other than Slate)			—				10.8	%			11.5	%			10.0	%			—

 

An investment in our common stock involves a number of risks. Before making a decision to purchase our common stock, you should carefully consider the following information about these risks, together with the other information contained in this prospectus. Many factors, including the risks described below, could result in a significant or material adverse effect on our business, financial condition and results of operations. If this were to happen, the price of our common stock could decline significantly and you could lose all or part of your investment.

 

Risk Factor Relating to the Dislocations in the Capital Markets

 

Difficult conditions in the credit and equity markets have adversely affected and may continue to adversely affect the growth of our business, our financial condition and results of operations.

 

Since 2007, the United States’ capital markets have experienced extensive distress and dislocation due to the global economic downturn and credit crisis. During this period of dislocation in the capital markets, our borrowing costs increased dramatically in our premium finance business, and we were unable to access traditional sources of capital to finance the acquisition and sale of structured settlements. At certain points, we were unable to obtain any debt financing. Furthermore, such market conditions forced us to obtain lender protection insurance coverage for our premium finance loans. The cost of this insurance, together with our credit facility interest rate costs, has resulted in total average financing costs of approximately 30.5% per annum of the principal balance of the loans as of March 31, 2010. Our ability to grow depends, in part, on our ability to increase transaction volume in each of our businesses, while successfully managing our growth, and on our ability to access sufficient capital or enter into financing arrangements on favorable terms. With the net proceeds from this offering, we expect to rely on equity financing and our existing debt financing arrangements to fund our business going forward. However, should additional financing be needed in the future, continued or future dislocations in the capital markets may adversely affect our ability to obtain debt or equity financing and, if we are unable to access sufficient capital or enter into financing arrangements on favorable terms in the future, the growth of our business, our financial condition and results of operations may be materially adversely affected.

 

Risk Factors Related to Premium Finance Transactions

 

Uncertainty in valuing the life insurance policies collateralizing our premium finance loans can affect the fair value of the collateral and if the fair value of the collateral decreases, we will incur losses.

 

We evaluate all of our premium finance loans for impairment, on a monthly basis, based on the fair value of the underlying life insurance policies, as the collectability is primarily dependent on the fair value of the policy serving as collateral. For loans without lender protection insurance, the fair value of the policy is determined using our valuation model, which is a Level 3 fair value measurement. For loans with lender protection insurance, the fair value of the policy is based on the amount of the lender protection insurance. The lender protection insurance provider limits the amount of coverage to an amount equal to or less than their determination of the underlying policy’s economic value. For all loans, the amount of impairment, if any, is calculated as the difference in the fair value the life insurance policy and the carrying value of the loan. A loan impairment valuation is established as losses on our loans are estimated and charged to the provision for losses on loans receivable, and the provision is charged to earnings. Once established, the loan impairment valuation cannot be reversed to earnings.

 

In the ordinary course of business, a large portion of our borrowers may default by not paying off the loan and relinquish beneficial ownership of the life insurance policy to us in exchange for our release of the underlying loan. When this occurs, we record the investment in the policy at the carrying value of the loan and then adjust the carrying value to fair value. If the carrying value of the loan is less than the outstanding premium finance loan balance at maturity, we establish an impairment valuation in the amount of the difference. Additionally, at the end of each quarter, we re-value the life insurance policies we own. If the calculation results in a decrease in the fair value of the policy, we also establish an impairment valuation in the amount of the difference.

This evaluation of the fair value of life insurance policies is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Using our valuation model, we determine the fair value of life insurance policies using a discounted cash flow basis, incorporating current life expectancy assumptions. The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and our estimate of the risk margin an investor in the policy would require. To determine the life expectancy of an insured, we utilize medical reviews from four different medical underwriters. The health of the insured is summarized by the medical underwriters into a life assessment which is based on the review of historical and current medical records. The medical underwriter assesses the characteristics and health risks of the insured in order to quantify the health into a mortality rating that represents their life expectancy. The probability of mortality for an insured is then calculated by applying the life expectancy estimate to an actuarial table. If the calculation of fair value results in a decrease in value, we record this reduction as a loss.

 

Insurable interest concerns regarding a life insurance policy can also adversely impact its fair value. A claim or the perceived potential for a claim for rescission by an insurance company or by persons with an insurable interest in the insured of a portion of or all of the policy death benefit can negatively impact the fair value of a life insurance policy.

 

As and when loan impairment valuations are established due to the decline in the fair value of the policies collateralizing our loans, our net income will be reduced by the amount of such impairment valuations in the period in which the valuations are established, and as a result our business, financial condition and results of operations may be materially adversely affected.

 

Our success in operating our premium finance business using equity financing depends on our assumptions about life expectancies being accurate.

 

With the net proceeds of this offering, we intend to fund our new premium finance business with equity financing instead of relying on debt financing and lender protection insurance. Without lender protection insurance coverage on our loans, we plan to retain the policies that borrowers will relinquish to us in the event of default instead of transferring them to the lender protection insurer. In such instances, we will be responsible for paying all premiums necessary to keep the policy in force. Therefore, our cash flow projections will become dependent on our assumptions about life expectancies being accurate.

 

Life expectancies are estimates of the expected longevity or mortality of an insured and are inherently uncertain. There can be no assurance that any life expectancy obtained on an insured for a life insurance policy will be predictive of the future longevity or mortality of the insured. Inaccurate forecasting of an insured’s life expectancy could result from, among other things: (i) advances in medical treatment (e.g., new cancer treatments) resulting in deaths occurring later than forecasted; (ii) inaccurate diagnosis or prognosis; (iii) changes to life style habits or the individual’s ability to fight disease, resulting in improved health; (iv) reliance on outdated or incomplete age or health information about the insured, or on information that is inaccurate (whether or not due to fraud or misrepresentation by the insured); or (v) improper or flawed methodology or assumptions in terms of modeling or crediting of medical conditions. In forecasting estimated life expectancies, we utilize third party medical underwriters to evaluate the medical condition and life expectancy of each insured. The firms that provide health assessments and life expectancy information may depend on, among other things, actuarial tables and model inputs for insureds and third-party information from independent physicians who, in turn, may not have personally performed a physical examination of any of the insureds and may have relied solely on reports provided to them by attending physicians with whom they were authorized to communicate. The accuracy of this information has not been and will not be independently verified by us or our service providers.

 

If these life expectancy valuations underestimate the longevity of the insureds, the actual maturity date of the life insurance policies may therefore be longer than projected. Consequently, we may not have sufficient reserves for payment of insurance premiums and we may allow the policies to lapse, resulting in a loss of our investment in those policies, or if we continue to fund premium payments, the time period within which we

could expect to receive a return of our investment in such life insurance policies may be extended, either of which could have a material adverse effect on our business, financial condition and results of operation.

 

Our success in our premium finance business depends on maintaining relationships within our referral networks.

 

We rely primarily upon agents and brokers to refer potential premium finance customers to us. These relationships are essential to our operations and we must maintain these relationships to be successful. We do not have fixed contractual arrangements with the referring agents and brokers and they are free to do business with our competitors. Our ability to build and maintain relationships with our agents and brokers depends upon the amount of agency fees we charge and the value we bring to our clients. For the three months ended March 31, 2010, our top ten agents and brokers referred to us approximately 47.3% and 56.7%, respectively, of our premium finance business, based upon the loan maturity balances of the loans originated during such period. The loss of any of our top-referring agents and brokers could have a material adverse effect on our business, financial condition and results of operations.

 

If a regulator or court decides that trusts that are formed to own many of the life insurance policies that serve as collateral for our premium finance loans do not have an insurable interest in the life of the insured, such determination could have a material adverse effect on our business, financial condition and results of operations.

 

All states require that the initial purchaser of a new life insurance policy insuring the life of an individual has an insurable interest in such individual’s life at the time of original issuance of the policy. Whether an insurable interest exists in the context of the purchase of a life insurance policy is critical because, in the absence of a valid insurable interest, life insurance policies are unenforceable under most states’ laws. Where a life insurance policy has been issued to a policyholder without an insurable interest in the life of the individual who is insured, the life insurance company may be able to void or rescind the policy, but must repay to the owner of the policy all premium payments, usually without interest. Even if the insurance company cannot void or rescind the policy, however, the insurable interest laws of a number of states provide that persons with an insurable interest on the life of the insured may have the right to recover a portion or all of the death benefit payable under a policy from a person who has no insurable interest on the life of the insured. These claims can generally only be brought if the policy was originally issued to a person without an insurable interest in the life of the insured. However, some states may require that this insurable interest not only exist at the time that a life insurance policy was issued, but also at any later time that the policy is transferred.

 

Generally, there are two forms of insurable interests in the life of an individual, familial and financial. Additionally, an individual is deemed to have an insurable interest in his or her own life. It is also a common practice for an individual, as a grantor or settlor, to form an irrevocable trust to purchase and own a life insurance policy insuring the life of the grantor or settlor, where the beneficiaries of the trust are persons who themselves, by virtue of certain familial relationships with the grantor or settlor, also have an insurable interest in the life of the insured. In the event of a payment default on our premium finance loans when we are otherwise unable to sell the underlying policy, we will acquire life insurance policies owned by trusts (or the beneficial interests in the trust itself) that we believe had an insurable interest in the life of the related insureds. However, a state insurance regulatory authority or a court may determine that the trust does not have an insurable interest in the life of the insured. Any such determination could result in our being unable to receive the proceeds of the life insurance policy, which could lead to a total loss of all amounts loaned in the premium finance transaction. Any such loss or losses could have a material adverse effect on our business, financial condition and results of operations.

 

Premium finance loan originations are susceptible to practices which can invalidate the underlying life insurance policy and subject us to material fines or license suspension or revocation.

 

Many states in which we do business have laws which define and prohibit stranger-originated life insurance (“STOLI”) practices, which in general involve the issuance of life insurance policies as part of or in

connection with a practice or plan to initiate life insurance policies for the benefit of a third party investor who, at the time of the policy issuance, lacked a valid insurable interest in the life of the insured. Most of these statutes expressly provide that premium finance loans that only advance life insurance premiums and certain permissible expenses are not STOLI practices or transactions. Under these statutes, a premium finance loan, as well as any life insurance policy collateralizing such loan, must meet certain criteria or such policy can be invalidated, or deemed unenforceable, in its entirety. We cannot control whether a state regulator or borrower will assert that any of our loans should be treated as STOLI transactions or that the loans do not meet the criteria required under the statutes.

 

The legality and merit of “investor-initiated” leveraged life insurance products have been questioned by members of the industry, certain life insurance providers and certain regulators. As an illustration, the New York Department of Insurance issued a General Counsel’s opinion in 2006 concluding that arrangements intended to facilitate the procurement of life insurance policies for resale violated New York’s insurable interest statute and may also constitute a violation of New York state’s prohibition against premium rebates/free insurance.

 

The premium finance industry has been tainted by lawsuits based on allegations of fraud and misconduct. These lawsuits involve allegations of fraud, breaches of fiduciary duty and other misconduct by industry participants. Some of these cases are brought by life insurance companies attacking the original issuance of the policies on insurable interest and fraud grounds. Notwithstanding the litigation in this industry, there is a lack of judicial certainty in the legal standards used to determine the validity of insurable interest supporting a life insurance policy or the existence of STOLI practices. Lawsuits sometimes focus on transfers of equity interests of the policyholder (e.g., beneficial interests of an irrevocable trust holding a policy) that occur very shortly after or contemporaneously with the issuance of the policy or arrangements whereby the premium finance lender, the life insurance agent and the insured agree to transfer the policy to the premium finance lender or another third party shortly after the policy issuance or the “contestability period.” The “contestability period” is a period of time, usually two years, after which the policy cannot be contested by the issuing life insurance company under the terms of the policy other than for the nonpayment of premiums. Some states have adopted exceptions to such limitation for fraud or other similar malfeasance by the policyholder.

 

While our loan underwriting guidelines are designed to lessen the risks of our participation in STOLI or other business that originates life insurance policies not supported by a valid insurable interest, a regulator’s or carrier’s assertion to the contrary and subsequent successful enforcement could have a material adverse effect on the fair value of the policies collateralizing our premium finance loans and our ability to originate business going forward. In particular, the closer the origination date of a premium finance loan transaction is to the life insurance policy issuance date, there is increasing risk that a life insurance policy may be subject to contest or rescission on the basis that such policy was issued as part of STOLI practices or was not supported by a valid insurable interest. As of March 31, 2010, 99.7% of our premium finance loans outstanding were originated within two years of the issuance of the underlying life insurance policy. Regulatory, legislative or judicial changes in these areas could materially and adversely affect our ability to participate in the premium finance business and could significantly increase the costs of compliance, resulting in lower revenue or a complete cessation of our premium finance business. No assurance can be given that any such changes will not occur. In addition, in this arena, regulatory action for statutory or regulatory infractions could involve fines or license suspension or revocation. No assurance can be given that we will be able to obtain or maintain the licenses necessary for us to conduct our premium finance business, or that any such licenses will not be suspended or revoked.

 

The life insurance policies securing our premium finance loans may be subject to contest, rescission and/or non-cooperation by the issuing life insurance company, which may have a material adverse effect on our business, financial condition and results of operations.

 

Our premium finance loans are secured by the underlying life insurance policy. If the underlying policy is subject to contest or rescission, the fair value of the collateral could be reduced to zero. Life insurance policies may generally be contested or rescinded by the issuing life insurance company within the contestability period and sometimes beyond the contestability period, depending on the grounds for rescission and applicable law.

Misrepresentations, fraud, omissions or lack of insurable interest can all form the basis of loss of right to payment under a life insurance policy for many years beyond the contestability period. Whether or not there exists a reasonable legal basis for a contest or rescission, it can result in a cloud on the title or collectability of the policy. Contestation can be based upon any material misrepresentation or omission made in the life insurance policy application, even if unintentional. Misleading or incomplete answers by the insured to any questions asked by the insurance carrier regarding the financing of premiums, the policyholder’s net worth or the insured’s health and medical history and condition as well as to any other questions on a life insurance policy application, can lead to claims that a material misrepresentation or omission was made and may give rise to the insurance carrier’s right to void, contest or rescind the policy. Lack of a valid insurable interest of the life insurance policy owner in the insured also may give rise to the insurance carrier’s right to void, contest or rescind the policy. Although we obtain representations and warranties from the insured, policyholders and referring agents, we may not know whether the applicants for any of our policies have made any material misrepresentations or omissions on the policy applications, or whether the policy owner has a valid insurable interest in the insured, and as such, the policies securing our loans are subject to the risk of contestability or rescission. In addition, some insurance carriers have contested policies as STOLI arrangements, specifically citing the existence of certain nonrecourse premium financing arrangements as a basis to challenge the validity of the policies used to collateralize the financing. A policy may be voided or rescinded by the insurance carrier if found to be a STOLI policy where a valid insurable interest did not exist in the insured at policy inception. While the impact on our business from these risks has not been significant to date, there can be no assurance that any future challenges to the policies that we own or hold as collateral for our premium finance loans will not have a material adverse effect on our business, financial condition and results of operations.

 

If the insurance company successfully contests or rescinds a policy, the policy will be declared void, and in such event, the insurance company’s liability would be limited to a refund of all the insurance premiums paid for the policy without any accrued interest. While defending an action to contest or rescind a policy, premium payments may have to continue to be made to the life insurance company. Furthermore, a life insurance company may refuse to refund any of the premiums paid and seek to retain them as an offset to damages it claims to have suffered in connection with the issuance of the life insurance policy. Additionally, the issuing insurance company may refuse to cooperate with us by not providing information, processing notices and/or paperwork required to document the transaction. Hence, in the case of a contest or rescission, there cannot be any assurance that any of the premiums paid to the carrier (including those paid during the pendency of a contest or rescission action) will be refunded. If they are not, we may suffer a complete loss with respect to this portion of the loan amount which may adversely affect our business, financial condition and results of operations.

 

Premium financed life insurance policies are susceptible to a higher risk of fraud and misrepresentation in life insurance applications.

 

While fraud and misrepresentation by applicants and potential insureds in completing life insurance applications (especially with respect to the health and medical history and condition of the potential insured as well as the applicant’s net worth) exist generally in the life insurance industry, such risk of fraud and misrepresentation is heightened in connection with life insurance policies for which the premiums are financed through premium finance loans. In particular, there is a significant risk that applicants and potential insureds may not answer truthfully or completely to any questions related to whether the life insurance policy premiums will be financed through a premium finance loan or otherwise, the applicants’ purpose for purchasing the policy or the applicants’ intention regarding the future sale or transfer of the life insurance policy. Such risk may be further increased to the extent life insurance agents communicate to applicants and potential insureds regarding potential premium finance arrangements or transfer of life insurance policies through payment defaults under premium finance loans. In the ordinary course of business, our sales team receives inquiries from life insurance agents and brokers regarding the availability of premium finance loans for their clients. However, any communication between the life insurance agent and the potential policyholder or insured is beyond our control and we may not know whether a life insurance agent discussed with the potential policyholder or the insured the possibility of a premium finance loan by us or the subsequent transfer of the life insurance policy in the event of a payment default under the loan. Consequently, notwithstanding the

representations and certifications we obtain from the policyholders, insureds and the life insurance agents, there is a risk that we may finance premiums for policies subject to contest or rescission by the insurance carrier based on fraud or misrepresentation in any information provided to the life insurance company, including the life insurance application.

 

Our liquidity depends upon a secondary market for life insurance policies.

 

With respect to a potential sale of a life insurance policy owned by us, the fair value depends significantly on an active secondary market for life insurance, which may contract or disappear depending on the impact of potential government regulation, future economic conditions and/or other market variables. Many investors who invest in life insurance policies are foreign investors who are attracted by potential investment returns from life insurance policies issued by United States life insurers with high ratings and financial strength as well as by the view that such investments are non-correlated assets — meaning changes in the equity or debt markets should not affect returns on such investments. In the event that the United States dollar loses value in comparison to other currencies, foreign investors suffer a reduction in value of their United States dollar denominated investments. In 2008, the United States dollar declined in value against other currencies and a number of United States life insurers suffered a downgrade in their ratings. These events caused investors in life insurance policies to reduce their demand for such products as well as reduced their demand for United States dollar denominated investments, which reduced the fair value of life insurance policies in the secondary market. Any of the above factors may result in us selling a policy for less than its fair value, resulting in a loss of profitability.

 

Delays in payment and non-payment of life insurance policy proceeds may have a material adverse effect on our business, financial condition and results of operations.

 

A number of arguments may be made by former beneficiaries (including but not limited to spouses, ex-spouses and descendants of the insured) under a life insurance policy, by the beneficiaries of the trust holding the policy, by the estate or legal heirs of the insured or by the insurance company issuing such policy, to deny or delay payment of proceeds following the death of an insured, including arguments related to lack of mental capacity of the insured, contestability or suicide provisions in a policy. In addition, the insurable interest and life settlement laws of certain states may prevent or delay the liquidation of the life insurance policy serving as collateral for a loan. Furthermore, if the death of an insured cannot be verified and no death certificate can be produced, the related insurance company may not pay the proceeds of the life insurance policy until the passage of a statutory period (usually five to seven years) for the presumption of death without proof. Such delays in payment or non-payment of policy proceeds may have a material adverse effect on our business, financial condition and results of operations.

 

Bankruptcy of the insured, a beneficiary of the trust owning the life insurance policy or the trust itself could prevent a claim under our lender protection insurance policy.

 

In many instances, individuals establish an irrevocable trust to hold and own their life insurance policy for estate planning reasons. In our premium finance business, the majority of the premium finance borrowers are trusts owning life insurance policies. A bankruptcy of the insured, a bankruptcy of a beneficiary of a trust owning the life insurance policy or a bankruptcy of the trust itself could prevent us from acquiring the life insurance policy following an event of default under the related premium finance loan unless consent of the applicable bankruptcy court is obtained or it is determined that the automatic stay generally arising following a bankruptcy filing is not applicable. A failure to promptly obtain any required bankruptcy court consent within one hundred twenty (120) days following the maturity date of the related premium finance loan could delay or prevent us from making a claim under the lender protection insurance policy for any loss sustained following a default under the premium finance loan. Lender protection insurance policies insure us and our lenders against certain risks of loss associated with our premium finance loans, including payment default by the borrower. If a premium finance loan is not repaid, the lender protection insurance policy provider repays the loan in full and takes ownership of the underlying life insurance policy. If we are delayed or otherwise prevented from making a claim under the lender protection insurance policy for any loss sustained following a

default under the premium finance loan, additional premium payments will be required to be made to keep the life insurance policy in force. As a result, we may be forced to expend additional funds, or borrow funds at unfavorable rates if such financing is even available, in order to fund the premiums or, if we are unable to obtain the necessary funds, we may be forced to allow the policy to lapse, resulting in the loss of the premiums we financed in the transaction. Such events could have a material adverse effect on our business, financial condition and results of operations.

 

Our lender protection insurance policies have significant exclusions and limitations.

 

Coverage under our lender protection insurance policies is not comprehensive and each of these policies is subject to significant exclusions, limitations and coverage gaps. In the event that any of the exclusions or limitations to coverage set forth in the lender protection insurance policies are applicable or there is a coverage gap, there will be no coverage for any losses we may suffer, which would have a material adverse effect on our business, financial condition and results of operations. The coverage exclusions include, but are not limited to: (a) the lapse of the related life insurance policy due to the failure to pay sufficient premiums during the term of the applicable premium finance loan; (b) certain losses relating to situations where the life insured has died and there has been a bankruptcy or insolvency of the life insurance company that issued the applicable policy; (c) any loss caused by our fraudulent, illegal, criminal, malicious or grossly negligent acts; (d) a surrender of the related life insurance policy to the issuing life insurance carrier or the sale of such policy or the beneficial interest therein, in each case without the prior written consent of the lender protection insurer; (e) our failure to timely obtain necessary rights, free and clear of any lien or encumbrance, with respect to the applicable life insurance policy as required under the lender protection insurance policy; (f) our failure to timely submit a properly completed proof of loss certificate to the lender protection insurance policy insurer; (g) our failure to timely notify the lender protection insurance policy insurer of (i) the occurrence of certain prohibited acts, as described in the lender protection insurance policy, or (ii) material non-compliance of the related loan with applicable laws, in each case after obtaining actual knowledge of such events; (h) our making of a claim under the lender protection insurance policy knowing the same to be fraudulent; or (i) the related life insurance policy being contested prior to the effective date of the related coverage certificate issued under the lender protection insurance policy and we have actual knowledge of such contest.

 

Failure to perfect a security interest in the underlying life insurance policy or the beneficial interests therein could result in our interest being subordinated to other creditors.

 

Payment by the related premium finance loan borrower of amounts owed pursuant to each loan is secured by the underlying life insurance policy or by the beneficial interests in a trust established to hold the insurance policy. If we fail to perfect a security interest in such policy or beneficial interests, our interest in such policy or beneficial interests may be subordinated to those of other parties, including, in the event of a bankruptcy or insolvency, a bankruptcy trustee, receiver or conservator.

 

Some life insurance companies are opposed to the financing of life insurance policies.

 

Some United States life insurance companies and their trade associations have voiced concerns about the life settlement and premium finance industries generally and the transfer of life insurance policies to investors. These life insurance companies may oppose the transfer of a policy to, or honoring of a life insurance policy held by, third parties unrelated to the original insured/owner, especially when they may believe the initial premiums for such life insurance policies might have been financed, directly or indirectly, by investors that lacked an insurable interest in the continuing life of the insured. If the life insurance companies seek to contest or rescind life insurance policies acquired by us based on such aversion to the financing of life insurance policies, we may experience a substantial loss with respect to the related premium finance loans and the underlying life insurance policies, which could have a material adverse effect on our business, financial condition and results of operations. These life insurance companies and their trade associations may also seek additional state and federal regulation of the life settlement and premium finance industries. If such additional regulations were adopted, we may experience material adverse effects on our business, financial condition and results of operations.

We are dependent on the creditworthiness of the life insurance companies that issue the policies serving as collateral for our premium finance loans. If a life insurance company defaults on its obligation to pay death benefits on a policy we own, we would experience a loss of our investment, which would have a material adverse effect on our business, financial condition and results of operations.

 

We are dependent on the creditworthiness of the life insurance companies who issue the policies serving as collateral for our premium finance loans. We assume the credit risk associated with life insurance policies issued by various life insurance companies. Furthermore, there is a concentration of life insurance companies who issue the policies that serve as collateral for our premium finance loans. Over 50% of our premium finance loans outstanding as of March 31, 2010 are secured by life insurance policies issued by 3 life insurance companies. The failure or bankruptcy of any such life insurance company or annuity company could have a material adverse impact on our ability to achieve our investment objectives. A life insurance company’s business tends to track general economic and market conditions that are beyond its control, including extended economic recessions or interest rate changes. Changes in investor perceptions regarding the strength of insurers generally and the policies or annuities they offer can adversely affect our ability to sell or finance our assets. Adverse economic factors and volatility in the financial markets may have a material adverse effect on a life insurance company’s business and credit rating, financial condition and operating results, and an issuing life insurance company may default on its obligation to pay death benefits on the life insurance policies we acquired following a payment default on our premium finance loans when we are otherwise unable to sell the underlying policy. In such event, we would experience a loss of our investment in such life insurance policies which would have a material adverse effect on our business, financial condition and results of operations.

 

If a life insurance company is able to increase the premiums due on life insurance policies that we own or finance, it will adversely affect our returns on such life insurance policies.

 

For any life insurance policies that we own or finance, we will be responsible for paying insurance premiums due. If a life insurance company is able to increase the cost of insurance charged for any of the life insurance policies that we own or finance, the amounts required to be paid for insurance premiums due for these life insurance policies may increase, requiring us to incur additional costs for the life insurance policies, which may adversely affect returns on such life insurance policies and consequently reduce the secondary market value of such life insurance policies. Failure to pay premiums on the life insurance policies when due will result in termination or “lapse” of the life insurance policies. The insurer may in a “lapse” situation view reinstatement of a life insurance policy as tantamount to the issuance of a new life insurance policy and may require the current owner to have an insurable interest in the life of the insured as of the date of the reinstatement. In such event, we would experience a loss of our investment in such life insurance policy.

 

If an insured reaches age 95 or 100, the policy may terminate.

 

Some life insurance policies terminate if the insured lives to the age of 100, or in some cases at age 95. Thus if the insured under a policy acquired by us outlives such policy, we would receive nothing on such life insurance policy as the insurer is relieved of its obligations thereunder. Such termination of a life insurance policy would result in a loss of investment return on such life insurance policy and eliminate any potential proceeds realizable by us from the sale or the maturation of such life insurance policy.

 

Failure to protect our premium finance transaction clients’ confidential information and privacy could adversely affect our business.

 

Our premium finance business is subject to privacy regulations and to confidentiality obligations. For example, the collection and use of medical data is subject to national and state legislation, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA. The actions we take to protect such confidential information include, among other things:

 

 

 

However, if we do not properly comply with privacy regulations and protect confidential information, we could experience adverse consequences, including regulatory sanctions, such as penalties, fines and loss of licenses, as well as loss of reputation and possible litigation.

 

Risk Factors Related to Structured Settlements

 

We are dependent on third parties to purchase our structured settlements. Any inability to sell structured settlements or, in the alternative, to access additional capital to purchase structured settlements, may have a material adverse effect on our ability to grow our business, our financial condition and results of operations.

 

We are dependent on third parties, such as Slate, to purchase our structured settlements. Our ability to grow our business depends upon our ability to sell our structured settlements at favorable discount rates and to establish alternative financing arrangements. There can be no assurance that such third party purchasers or other financing will be available to us in the future on favorable terms or at all. If such financing were not available, then we may be required to seek additional equity financing, if available, which would dilute the interests of shareholders who purchase common stock in this offering.

 

No assurance can be given that we will continue to be able to sell our structured settlements to third parties at favorable discount rates or that financing through borrowings or other means will be available on acceptable terms to satisfy our cash requirements and to grow our business.

 

Any change in current tax law could have a material adverse effect on our business, financial condition and results of operations.

 

The use of structured settlements is largely the result of the favorable federal income tax treatment of such transactions. In 1982, the Internal Revenue Service issued a private revenue ruling that the income tax exclusion of personal injury settlements applied to related periodic payments. Thus, claimants receiving installment payments as compensation for a personal injury were exempt from all federal income taxation, provided certain conditions were met. This ruling, and its subsequent codification into federal tax law, resulted in the proliferation of structured settlements as a means of settling personal injury lawsuits. Changes to tax policies that eliminate this exemption of structured settlements from federal taxation could have a material adverse effect on our future profitability. If the tax treatment for structured settlements were changed adversely by a statutory change or a change in interpretation, the dollar volume of structured settlements could be reduced significantly which would also reduce the level of our structured settlement business. In addition, if there were a change in the federal tax code that would result in adverse tax consequences for the assignment or transfer of structured settlements, such change could have a material adverse effect on our business, financial condition and results of operations.

 

Fluctuations in interest rates may decrease our yield on structured settlement transactions.

 

Our profitability is directly affected by levels of and fluctuations in interest rates. Such profitability is largely determined by the difference, or “spread,” between the discount rate at which we purchase the structured settlements and the discount rate at which we can resell these assets or the interest rate at which we can finance those assets. Structured settlements are purchased at effective yields which are fixed, while rates at which structured settlements are sold, with the exception of our forward purchase arrangement with Slate, are generally a function of the prevailing market rates for short-term borrowings. As a result, increases in prevailing market interest rates after structured settlements are acquired could have a material adverse effect on our yield on structured settlement transactions.

The insolvency of a holder of a structured settlement could have an adverse effect on our business, financial condition and results of operations.

 

Our rights to scheduled payments in structured settlement transactions will be adversely affected if any holder of a structured settlement, the special purpose vehicle to which an insurance company assigns its obligations to make payments under the settlement (the “Assumption Party”) or the annuity provider becomes insolvent and/or becomes a debtor in a case under the Bankruptcy Code.

 

If a holder of a structured settlement were to become a debtor in a case under the Bankruptcy Code, a court could hold that the scheduled payments transferred by the holder under the applicable settlement purchase agreement would not constitute property of the estate of the claimant under the Bankruptcy Code. If, however, a trustee in bankruptcy or other receiver were to assert a contrary position, such as by requiring us (or any securitization vehicle) to establish our right to those payments under federal bankruptcy law or by persuading courts to recharacterize the transaction as secured loans, such result could have a material adverse effect on our business. If the rights to receive the scheduled payments are deemed to be property of the bankruptcy estate of the claimant, the trustee may be able to avoid assignment of the receivable to us.

 

Furthermore, a general creditor or representative of the creditors (such as a trustee in bankruptcy) of an Assumption Party could make the argument that the payments due from the annuity provider are the property of the estate of such Assumption Party (as the named owner thereof). To the extent that a court would accept this argument, the resulting delays or reductions in payments on our receivables could have a material adverse effect on our business, financial condition and results of operations.

 

If the identities of structured settlement holders become readily available, it could have an adverse effect on our structured settlement business, financial condition and results of operations.

 

We do not believe that there are any readily available lists of holders of structured settlements, which makes brand awareness critical to growing market share. We use national television marketing to generate in-bound telephone and internet inquiries and we have built a proprietary database of clients and prospective clients. As of March 31, 2010, we had a database of over 23,000 structured settlement leads. If the identities of structured settlement holders were to become readily available to our competitors or to the general public, we could face increased competition and the value of our proprietary database would be diminished, which would have a negative effect on our structured settlement business, financial condition and results of operations.

 

Adverse judicial developments could have an adverse effect on our business, financial condition and results of operations.

 

Adverse judicial developments have occasionally occurred in the structured settlement industry, especially with regard to anti-assignment concerns and issues associated with non-disclosure of material facts and associated misconduct. Any adverse judicial developments calling into doubt such laws and regulations could materially and adversely affect our investments in structured settlements.

 

Risk Factors Relating to Our General Business

 

Changes to statutory, licensing and regulatory regimes governing premium financing or structured settlements could have a material adverse effect on our activities and revenues.

 

Changes to statutory, licensing and regulatory regimes could result in the enforcement of stricter compliance measures or adoption of additional measures on us or on the insurance companies or annuity providers that stand behind the insurance policies that collateralize our premium finance loans and the structured settlements that we purchase, either of which could have a material adverse impact on our business activities and revenues. Any change to the regulatory regime covering the resale of any of these asset classes, including any change specifically applicable to our activities or to investor eligibility, could restrict our ability to finance, acquire or sell these assets or could lead to significantly increased compliance costs.

There is additional regulatory risk with respect to the acquisition of life insurance policies in the event of a payment default when we are otherwise unable to sell the policy collateralizing our premium finance loans. The making, enforcement and collection of premium finance loans is extensively regulated by the laws and regulations of many states and other applicable jurisdictions. These laws and regulations vary widely, but often:

 

 

In addition, our premium finance transactions are subject to state usury laws, which limit the interest rate that can be charged. While we attempt to structure these transactions to avoid being deemed in violation of usury laws, we cannot assure you that we will be successful in doing so. Loans found to be at usurious interest rates may be voided, which would mean the loss of our principal and interest. Also, the Securities and Exchange Commission recently issued a report recommending that sales of life insurance policies in life settlement transactions be regulated as securities for purposes of the federal securities laws. Any legislation implementing such regulatory change could lead to increased compliance costs and adversely affect our ability to acquire or sell life insurance policies.

 

To the extent that more restrictive regulations or more stringent interpretations of existing regulations are adopted in the future, the future costs of compliance with such changes in regulations could be significant and our ability to conduct our business may be materially adversely affected. For example, if a state insurance regulator were to take the position that our premium finance loans or the acquisition of life insurance policies serving as collateral for such loans should be characterized as life settlement transactions subject to applicable regulations, we could be issued a cease and desist order effectively requiring us to suspend premium finance transactions for an indefinite period, and be subject to fines and other penalties.

 

Negative press from media or consumer advocacy groups and as a result of litigation involving industry participants could have a material adverse effect on our business, financial condition and results of operations.

 

The premium finance and structured settlement industries periodically receive negative press from the media and consumer advocacy groups and as a result of litigation involving industry participants. A sustained campaign of negative press resulting from media or consumer advocacy groups, industry litigation or other factors could adversely affect the public’s perception of these industries as a whole, and lead to reluctance to sell assets to us or to provide us with third party financing, which could have a material adverse effect on our business, financial condition and results of operations.

 

We have limited operating experience.

 

Our business operations began in December 2006. Consequently, while certain of our management are very experienced in the premium finance and structured settlement businesses, we have limited operating history in both of our business segments. Therefore, the historical performance of our operations may be of limited relevance in predicting future performance.

 

The loss of any of our key personnel could have a material adverse effect on our business, financial condition and results of operations.

 

Our success depends to a significant degree upon the continuing contributions of our key executive officers including Antony Mitchell, our chief executive officer, and Jonathan Neuman, our president and chief operating officer. These officers have significant experience operating businesses in structured settlements and

premium finance transactions, which are highly regulated industries. In connection with this offering, we have entered into employment agreements with each of these executive officers. We do not maintain key man life insurance with respect to any of our executives. Mr. Mitchell is a citizen of the United Kingdom who is working in the United States as a lawful permanent resident on a conditional basis. In order to retain his lawful permanent residency, Mr. Mitchell will need to apply to have the conditions on his permanent resident status removed prior to March 31, 2011. Although Mr. Mitchell intends to apply to have the conditions on his lawful permanent residency removed, there can be no assurance that he will satisfy the requirements to have the conditions removed, or that his application to do so will be approved. The failure to remove the conditions on his permanent residency could result in Mr. Mitchell having to leave the United States or cause him to seek an alternative immigration status in the United States. The loss of Mr. Mitchell or Mr. Neuman or other executive officers or key personnel could have a material adverse effect on our business, financial condition and results of operations.

 

We compete with a number of other finance companies and may encounter additional competition.

 

There are a number of finance companies that compete with us. Many are significantly larger and possess considerably greater financial, marketing, management and other resources than we do. The premium finance business and structured settlement business could also prove attractive to new entrants. As a consequence, competition in these sectors may increase. In addition, existing competitors may increase their market penetration and purchasing activities in one or more of the sectors in which we participate. The availability of the type of insurance policies that meet our actuarial and underwriting standards for our premium finance transactions is limited and sought by many of our competitors. Also, we rely on life insurance agents and brokers to refer premium finance transactions to us, and our competitors may offer better terms and conditions to such life insurance agents and brokers. Increased competition could result in reduced origination volume, reduced discount rates and/or other fees, each of which could materially adversely affect our revenue, which would have a material adverse effect on our business, financial condition and results of operations.

 

Risks Related to Our Common Stock and This Offering

 

There has been no prior public market for our common stock, and, therefore, you cannot be certain that an active trading market or a specific share price will be established.

 

Currently, there is no public trading market for our common stock, and it is possible that an active trading market will not develop upon completion of this offering or that the market price of our common stock will decline below the initial public offering price. We intend to apply to list our common stock on the New York Stock Exchange under the symbol “IFT.” The initial public offering price per share will be determined by negotiation among us and the underwriters and may not be indicative of the market price of our common stock after completion of this offering.

 

The trading price of our common stock may decline after this offering.

 

The trading price of our common stock may decline after this offering for many reasons, some of which are beyond our control, including, among others:

 

 

 

In addition, the stock market in general has experienced significant volatility that often has been unrelated to the operating performance of companies whose shares are traded. These market fluctuations could adversely affect the trading price of our common stock, regardless of our actual operating performance. As a result, the trading price of our common stock may be less than the initial public offering price, and you may not be able to sell your shares at or above the price you pay to purchase them.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. Additionally, since we do not believe that there are other similar public companies involved in both the premium finance business and the structured settlement business as we are, the risk that we may never obtain research coverage by securities and industry analysts is heightened. If no securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

 

Public investors will suffer immediate and substantial dilution as a result of this offering.

 

The initial public offering price per share is significantly higher than our pro forma net tangible book value per share of our common stock. Accordingly, if you purchase shares in this offering, you will suffer immediate and substantial dilution of your investment. Based upon the issuance and sale of [          ] shares of our common stock at an assumed initial offering price of $[     ] per share, which is the midpoint of the price range on the cover of this prospectus, less an amount equal to the underwriting discounts and commissions, you will incur immediate dilution of approximately $[     ] in the pro forma net tangible book value per share if you purchase common stock in this offering. In addition, investors in this offering will:

 

 

Future sales of our common stock may affect the trading price of our common stock and the future exercise of options may lower the price of our common stock.

 

We cannot predict what effect, if any, future sales of our common stock, or the availability of shares for future sale, will have on the trading price of our common stock. Sales of a substantial number of shares of our common stock in the public market after completion of this offering, or the perception that such sales could occur, may adversely affect the trading price of our common stock and may make it more difficult for you to sell your shares at a time and price that you determine appropriate. Upon completion of this offering, after giving effect to (i) the corporate conversion, pursuant to which all outstanding common and preferred limited liability company units of Imperial Holdings, LLC (including all accrued but unpaid dividends thereon) will be converted into [          ] shares of our common stock; (ii) the conversion of $[     ] million of our

promissory notes and $[     ] million of related accrued interest into [          ] shares of our common stock upon the closing of this offering at an assumed initial public offering price of $[     ] per share, which is the midpoint of the price range on the cover of this prospectus and (iii) the sale of [          ] shares in this offering, there will be [          ] shares of our common stock outstanding. Up to an additional [          ] shares of common stock will be issuable upon the exercise of warrants issued to our existing members prior to the completion of this offering. Moreover, [          ] additional shares of our common stock are issuable upon the exercise of options that we intend to grant to our directors, executive officers and other employees upon the completion of this offering, at an exercise price equal to the initial public offering price. Following completion of this offering, we intend to register all of the [          ] shares issuable or reserved for issuance under the 2010 Plan. See “Description of Capital Stock” and “Executive Compensation.” We and our current directors, executive officers and shareholders have entered into 180-day lock-up agreements. The lock-up agreements are described in “Shares Eligible for Future Sale — Lock-Up Agreements.” An aggregate of [          ] shares of our common stock will be subject to these lock-up agreements upon completion of this offering.

 

Being a public company will increase our expenses and administrative workload and will expose us to risks relating to evaluation of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.

 

As a public company, we will need to comply with additional laws and regulations, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and related rules of the Securities and Exchange Commission, or the SEC, and requirements of the New York Stock Exchange. We were not required to comply with these laws and requirements as a private company. Complying with these laws and regulations will require the time and attention of our board of directors and management and will increase our expenses. Among other things, we will need to: design, establish, evaluate and maintain a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; prepare and distribute periodic reports in compliance with our obligations under the federal securities laws; establish new internal policies, principally those relating to disclosure controls and procedures and corporate governance; institute a more comprehensive compliance function; and involve to a greater degree our outside legal counsel and accountants in the above activities.

 

In addition, we also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage. These factors could also make it more difficult for us to attract and retain qualified executives and members of our board of directors, particularly directors willing to serve on our audit committee.

 

We are in the process of evaluating our internal control systems to allow management to report on, and our independent auditors to assess, our internal controls over financial reporting. We plan to perform the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We are required to comply with Section 404 in our annual report for the year ending December 31, 2011.

 

However, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations. Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board rules and regulations that remain unremediated.

 

If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory agencies such as the SEC. In addition, failure to comply with Section 404 or the report by us of a material weakness may cause investors to lose confidence in our financial statements or the trading price of our common stock to decline. If we fail to remediate any material weakness, our financial statements may be inaccurate, our access to the capital markets may be restricted and the trading price of our common stock may decline.

As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that materially affect, or are reasonably likely to materially affect, internal controls over financial reporting. A “control deficiency” exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A “significant deficiency” is a control deficiency, or combination of control deficiencies, that adversely affects the ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles that results in more than a remote likelihood that a misstatement of financial statements that is more than inconsequential will not be prevented or detected. A “material weakness” is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

 

Our independent registered public accounting firm has in the past identified certain deficiencies in our internal controls that it considered to be control deficiencies and material weaknesses. If we fail to remediate these internal control deficiencies and material weaknesses and maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results.

 

During their audit of our financial statements for the years ended December 31, 2008 and 2007, Grant Thornton LLP, our independent registered public accounting firm, identified certain deficiencies in our internal controls, including deficiencies that they considered to be significant deficiencies and material weaknesses. Specifically, in their audit of our financial statements for the year ended December 31, 2008, our independent auditors identified a material weakness relating to the number of adjustments recorded to reconcile differences and to correct accounts improperly booked relating to the year-end closing and reporting process. In their audit of our financial statements for the year ended December 31, 2007, our independent auditors identified material weaknesses relating to (i) the incorrect recordation of agency fees, (ii) a reversal of capital contributions entry due to inaccuracies in the timing of the payments and (iii) inaccuracies in the input of maturity dates of loans. Additionally, the audit identified a significant control deficiency with respect to the number of adjusting journal entries as a result of us having a limited accounting staff.

 

In response, we initiated corrective actions to remediate these control deficiencies and material weaknesses. Although no material deficiencies were identified during the audit of our financial statements for the period ended December 31, 2009, it is possible that we or our independent auditors may identify significant deficiencies or material weaknesses in our internal control over financial reporting in the future. Any failure or difficulties in implementing and maintaining these controls could cause us to fail to meet the periodic reporting obligations that we will become subject to after this offering or result in material misstatements in our financial statements. The existence of a material weakness could result in errors to our financial statements requiring a restatement of our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which could lead to a decline in our stock price.

 

Due to the concentration of our capital stock ownership with certain of our executive officers, they may be able to influence shareholder decisions, which may conflict with your interests as a shareholder.

 

Immediately upon completion of this offering Antony Mitchell, our chief executive officer, and Jonathan Neuman, our chief operating officer, directly and through corporations that they control, will each beneficially own shares representing approximately [     ]% and [     ]%, respectively, of the voting power of our common stock. As a result, these executive officers may have the ability to significantly influence matters requiring shareholder approval, including, without limitation, the election or removal of directors, mergers, acquisitions, changes of control of our company and sales of all or substantially all of our assets. Your interests as a shareholder may conflict with their interests, and the trading price of shares of our common stock could be adversely affected.

Provisions in our executive officers’ employment agreements and provisions in our articles of incorporation and bylaws and under the laws of the State of Florida could impede an attempt to replace or remove our directors or otherwise effect a change of control, which could diminish the price of our common stock.

 

We have entered into employment agreements with our executive officers as described in the section title “Executive Compensation — Employment Agreements.” The agreements for our Chief Executive Officer and President provide for substantial payments in the event of a material change in the geographic location where such officers perform their duties, upon a material diminution of their base salaries or responsibilities or upon their resignation for any reason within sixty days following a change in control. These payments may deter any transaction that would result in a change in control.

 

Our articles of incorporation and bylaws contain provisions that may entrench directors and make it more difficult for shareholders to replace directors even if the shareholders consider it beneficial to do so. In particular, shareholders are required to provide us with advance notice of shareholder nominations and proposals to be brought before any annual meeting of shareholders, which could discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or to introduce a proposal. In addition, our articles of incorporation eliminate our shareholders’ ability to act without a meeting and require the holders of not less than 50% of the voting power of our common stock to call a special meeting of shareholders.

 

These provisions could delay or prevent a change of control that a shareholder might consider favorable. For example, these provisions may prevent a shareholder from receiving the benefit from any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging changes in management and takeover attempts in the future.

 

Furthermore, our articles of incorporation and our bylaws provide that the number of directors shall be fixed from time to time by our board of directors, provided that the board shall consist of at least three and no more than fifteen members. Additionally, subject to certain exceptions, the Florida Business Corporation Act prohibits the voting of shares in a publicly held Florida corporation that are acquired in a “control share acquisition” unless:

 

 

A “control share acquisition” is defined as an acquisition that immediately thereafter entitles the acquiring party, directly or indirectly, to vote in the election of directors within any of the following ranges of voting power:

 

 

Additionally, one of our subsidiaries, Imperial Life Settlements, LLC, a Delaware limited liability company, is licensed as a viatical settlement provider and is regulated by the Florida Office of Insurance Regulation. As a Florida viatical settlement provider, Imperial Life Settlements, LLC is subject to regulation as a specialty insurer under certain provisions of the Florida Insurance Code. Under applicable Florida law, no person can finally acquire, directly or indirectly, more than 10% of the voting securities of a viatical settlement provider or its controlling company without the written approval of the Florida Office of Insurance Regulation. Accordingly, any person who acquires beneficial ownership of 10% or more of our voting securities will be required by law to notify the Florida Office of Insurance Regulation no later than five days after any form of tender offer or exchange offer is proposed, or no later than five days after the acquisition of securities or

ownership interest if no tender offer or exchange offer is involved. Such person will also be required to file with the Florida Office of Insurance Regulation an application for approval of the acquisition no later than 30 days after the same date that triggers the 5-day notice requirement.

 

The Florida Office of Insurance Regulation may disapprove the acquisition of 10% or more of our voting securities by any person who refuses to apply for and obtain regulatory approval of such acquisition. In addition, if the Florida Office of Insurance Regulation determines that any person has acquired 10% or more of our voting securities without obtaining its regulatory approval, it may order that person to cease the acquisition and divest itself of any shares of our voting securities which may have been acquired in violation of the applicable Florida law. In addition, the Florida Office of Insurance Regulation may assess administrative fines against the purchaser not to exceed $20,000 per willful violation, subject to a cap of $100,000 for violations arising from one transaction. Due to the requirement to file an application with and obtain approval from the Florida Office of Insurance Regulation, purchasers of 10% or more of our voting securities may incur additional expenses in connection with preparing, filing and obtaining approval of the application, and the effectiveness of the acquisition will be delayed pending receipt of approval from the Florida Office of Insurance Regulation.

 

The Florida Office of Insurance Regulation may also take disciplinary action against Imperial Life Settlements, LLC’s license if it finds that an acquisition of our voting securities is made in violation of the applicable Florida law and would render the further transaction of business hazardous to our customers, creditors, shareholders or the public.

 

Some of the statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and elsewhere in this prospectus may include forward-looking statements. These statements reflect the current views of our management with respect to future events and our financial performance. These statements include forward-looking statements with respect to our business and the insurance industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.

 

Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

 

 

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus, including in particular the risks described under “Risk Factors” beginning on page 13 of this prospectus. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Any forward-looking statements you read in this prospectus reflect our views as of the date of this prospectus with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. Before making a decision to purchase our common stock, you should carefully consider all of the factors identified in this prospectus that could cause actual results to differ.

 

We estimate that our net proceeds from this offering, based on the sale of [          ] shares of our common stock at an assumed initial public offering price of $[     ] per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the underwriting discounts and commissions and our estimated offering expenses, will be approximately $[     ]. We estimate that our net proceeds from this offering will be $[     ] if the underwriters exercise their over-allotment option in full.

 

We intend to contribute approximately $[     ] to our subsidiary, Imperial Premium Finance, LLC, to support its premium financing lending activities. We intend to use the remaining $[     ] of the net proceeds for general corporate purposes.

 

Pending the use of the net proceeds from this offering, we may invest some of the proceeds in short-term investment-grade instruments.

 

We do not expect to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any future earnings to finance our operations and growth. Any future determination to pay cash dividends on our common stock will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operating results, capital requirements, any contractual, regulatory and other restrictions on the payment of dividends by us or by our subsidiaries to us, and other factors that our board of directors deems relevant.

 

Imperial is a holding company and has no direct operations. Our ability to pay dividends in the future depends on the ability of our operating subsidiaries to pay dividends to us. In addition, future debt arrangements may contain certain prohibitions or limitations on the payment of dividends.

 

In connection with this offering, our board of directors and the holders of our outstanding common and preferred limited liability company units will complete a reorganization in which Imperial Holdings, Inc., a Florida corporation, will succeed to the business of Imperial Holdings, LLC, a Florida limited liability company, and the members of Imperial Holdings, LLC will become shareholders of Imperial Holdings, Inc. We refer to this reorganization as the corporate conversion. In order to consummate the corporate conversion, a certificate of conversion will be filed with the Florida Secretary of State prior to the closing of this offering. In connection with the corporate conversion, all of our outstanding common and preferred limited liability company units will be converted into an aggregate of [          ] shares of common stock of Imperial Holdings, Inc. as follows:

 

 

After the corporate conversion and prior to the closing of this offering, our shareholders will consist of three Florida corporations and one Florida limited liability company. These four shareholders will reorganize so that their beneficial owners who are listed under “Principal Shareholders”, including Messrs. Mitchell and Neuman, will receive the [          ] shares of common stock of Imperial Holdings, Inc. issuable to the members of Imperial Holdings, LLC in the corporate conversion. We do not expect any of the prior losses which the members of Imperial Holdings, LLC have accumulated to carry forward into Imperial Holdings, Inc., as a result of the corporate conversion.

 

Following the corporate conversion and upon the closing of this offering, our shareholders will cause the conversion of $[     ] million of our promissory notes and $[     ] million of related accrued interest into [          ] shares of our common stock at an assumed initial public offering price of $[     ] per share, which is the midpoint of the price range on the cover of this prospectus. Such shares will be issued to [          ] and [          ].

 

In addition, following the corporate conversion and upon the closing of this offering, our four current shareholders will receive warrants that may be exercised for up to [          ] shares of common stock, as described elsewhere herein under the subsection “Warrants” in the section titled “Description of Capital Stock.”

 

The following table sets forth our capitalization as of March 31, 2010:

 

 

 

 

 

 

 

You should read this table in conjunction with the “Use of Proceeds,” “Selected Historical and Unaudited Pro Forma Consolidated and Combined Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus and our financial statements and related notes included in the back of this prospectus.

 

 

The number of shares of common stock shown to be outstanding upon the completion of this offering excludes:

 

 

Our net tangible book value as of March 31, 2010, on a pro forma basis, was approximately $[     ] million, or $[     ] per share of our common stock. Pro forma net tangible book value per share represents our total tangible assets reduced by our total liabilities and divided by the number of shares of common stock outstanding after giving effect to:

 

 

Dilution in pro forma net tangible book value per share represents the difference between the amount per share that you will pay in this offering and the net tangible book value per share immediately after this offering.

 

After giving effect to our receipt of approximately $[     ] million of estimated net proceeds (after deducting underwriting discounts and commissions and estimated offering expenses payable by us) from our sale of common stock in this offering based on an assumed initial public offering price of $[     ] per share, which is the midpoint of the price range on the cover of this prospectus, our pro forma net tangible book value as of March 31, 2010 would have been approximately $[     ] million, or $[     ] per share of common stock. This amount represents an immediate increase in pro forma net tangible book value of $[     ] per share of our common stock to existing shareholders and an immediate dilution of $[     ] per share of our common stock to new investors purchasing shares of common stock in this offering at the assumed initial public offering price. The following table illustrates the dilution:

 

 

If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share after giving effect to the offering would be $[     ] per share. This represents an increase in pro forma net tangible book value of $[     ] per share to existing shareholders and dilution in pro forma net tangible book value of $[     ] per share to new investors.

 

A $1.00 increase (decrease) in the assumed initial public offering of $[     ] per share would increase (decrease) our pro forma net tangible book value per share after this offering and decrease (increase) dilution to new investors by $[     ], assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, as of March 31, 2010, the differences between the number of shares issued to, the total consideration paid, and the average price per share paid by existing shareholders and by new investors in this offering, after giving effect to (i) the issuance of [          ] shares of our common stock to our shareholders upon the consummation of the corporate conversion, (ii) the conversion of $[     ] million of our promissory notes and $[     ] million of related accrued interest into [          ] shares of our common stock and (iii) the issuance of [          ] shares of common stock in this offering, in the case of (ii) and (iii) at the assumed initial public offering price of $[     ] per share, and excluding underwriter discounts and commissions and estimated offering expenses payable by us. The table below assumes an initial public offering price of $[     ] per share for shares purchased in this offering and excludes underwriting discounts and commissions and estimated offering expenses payable by us:

 

 

This table does not give effect to:

 

 

The following table sets forth selected historical and unaudited pro forma consolidated financial and operating data of Imperial Holdings, LLC (to be converted into Imperial Holdings, Inc. in connection with this offering) as of such dates and for such periods indicated below. The selected unaudited pro forma condensed consolidated financial data for the three months ended March 31, 2010 and the twelve months ended December 31, 2009 give pro forma effect to the corporate conversion and conversion of promissory notes as if they had occurred on the first day of the periods presented. The selected unaudited pro forma financial and operating data set forth below are presented for information purposes only, should not be considered indicative or actual results of operations that would have been achieved had the corporate conversion been consummated on the dates indicated, and do not purport to be indicative of balance sheet data or income statement data as of any future date or future period. These selected historical and unaudited pro forma consolidated results are not necessarily indicative of results to be expected in any future period. You should read the following financial information together with the other information contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes.

 

We have derived the selected historical income statement data for the three months ended March 31, 2010 and 2009 and balance sheet data as of March 31, 2010 from our unaudited consolidated financial statements included elsewhere in this prospectus. Such unaudited financial statements include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of our financial position and results of operations. The selected historical income statement data for the years ended December 31, 2009, 2008 and 2007 and balance sheet data as of December 31, 2009 and 2008 were derived from our audited consolidated financial statements included elsewhere in this prospectus. The income statement data for the period from December 15, 2006 through December 31, 2006 and balance sheet data for December 31, 2007 and 2006 were derived from our audited consolidated financial statements that are not included in this prospectus.