EMERGENT CAPITAL, INC. - Annual Report: 2017 (Form 10-K)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35064

EMERGENT CAPITAL, INC.

(Exact name of registrant as specified in its charter)



Florida		30-0663473
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5355 Town Center Road—Suite 701

Boca Raton, Florida 33486

(Address of principal executive offices, including zip code)

(561) 995-4200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		OTCQB

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ¨ No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on June 30, 2017 was $9,577,209.

The number of shares of the registrant’s common stock outstanding as of March 12, 2018 was 158,475,399.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s definitive proxy statement for the 2018 annual meeting are incorporated by reference in this Annual Report on Form 10-K in response to Part III— Items 10, 11, 12, 13 and 14.

EMERGENT CAPITAL, INC.

2017 Annual Report on Form 10-K

Table of Contents



Item		Page No.
PART I
1.	Business	1
1A.	Risk Factors	2
1B.	Unresolved Staff Comments	13
2.	Properties	13
3.	Legal Proceedings	14
4.	Mine Safety Disclosures	14
PART II
5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Our Equity Securities	15
6.	Selected Financial Data	16
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
7A.	Quantitative and Qualitative Disclosures about Market Risk	43
8.	Financial Statements and Supplementary Data	44
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
9A.	Controls and Procedures	44
9B.	Other Information	44
PART III
10.	Directors, Executive Officers and Corporate Governance	45
11.	Executive Compensation	45
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45
13.	Certain Relationships and Related Transactions, and Director Independence	45
14.	Principal Accountant Fees and Services	45
PART IV
15.	Exhibits and Financial Statement Schedules	46
	Exhibit Index	47
	Signatures	55
	Table of Contents to Consolidated Financial Statements and Notes	F-1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company and the Company’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, results may prove to be materially different. Unless otherwise required by law, the Company disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this report.

Factors that could cause our actual results to differ materially from those indicated in our forward-looking statements include, but are not limited to, the following:


•	our ability to maintain our rights in the policies that serve as the primary assets of the Company and are the collateral under various debt instruments to which we are a party;


•	our ability to obtain future financings on favorable terms, or at all;


•	We may not improve our solvency in a manner acceptable to the lender of the White Eagle Revolving Credit Facility which may impact our ability to receive distributions from policy proceeds from life insurance policies pledged as collateral under the facility;


•	our ability to meet our debt service obligations;


•	delays in the receipt of death benefits from our portfolio of life insurance policies;


•	costs related to obtaining death benefits from our portfolio of life insurance policies;


•	our ability to continue to comply with the covenants and other obligations, including the conditions precedent for additional fundings under our revolving credit facility;


•	increases in premiums on, or the cost of insurance of, life insurance policies that we own;


•	changes to actuarial life expectancy tables;


•	changes in general economic conditions, including inflation, changes in interest or tax rates;


•	our results of operations;


•	our ability to continue to make premium payments on the life insurance policies that we own;


•	adverse developments, including financial ones, associated with other litigation and judicial actions;


•	inaccurate estimates regarding the likelihood and magnitude of death benefits related to life insurance policies that we own;


•	lack of mortalities of insureds of the life insurance policies that we own;


•	increases to the discount rates used to value the life insurance policies that we own;


•	changes in mortality rates and inaccurate assumptions about life expectancies;


•	changes in life expectancy calculation methodologies by third party medical underwriters;


•	the effect on our financial condition as a result of any lapse of life insurance policies;


•	our ability to sell the life insurance policies we own at favorable prices, if at all;


•	adverse developments in capital markets;


•	deterioration of the market for life insurance policies and life settlements;


•	increased carrier challenges to the validity of our life insurance policies;


•	adverse court decisions regarding insurable interest and the obligation of a life insurance carrier to pay death benefits or return premiums upon a successful rescission or contest;


•	challenges to the ownership of the policies in our portfolio;


•	changes in laws and regulations;


•	deterioration in the credit worthiness of the life insurance companies that issue the policies included in our portfolio;


•	regulation of life settlement transactions as securities;


•	liabilities associated with our legacy structured settlement business;


•	our failure to maintain the security of personally identifiable information pertaining to insureds and counterparties;


•	disruption of our information technology systems;


•	our ability to avoid defaulting under the various credit documents to which we are a party;


•	our ability to maintain a listing or quotation on a national securities exchange or other trading platform for our common stock;


•	cyber security risks and the threat of data breaches;


•	loss of the services of any of our executive officers; and


•	the effects of United States involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts.

See Item 1A,"Risk Factors" for more information. All written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Annual Report on Form 10-K in the context of these risks and uncertainties. The Company cautions you that the important factors referenced above may not contain all of the factors that are important to you.

All statements in this Annual Report on Form 10-K to "Emergent Capital," "Company," "we," "us," or "our" refer to Emergent Capital, Inc. and its consolidated subsidiaries unless the context suggests otherwise.

PART I

Item 1. Business

Overview

Emergent Capital, Inc. was founded in December 2006 as a Florida limited liability company, Imperial Holdings, LLC, and converted into Imperial Holdings, Inc. on February 3, 2011, in connection with the Company’s initial public offering. Effective September 1, 2015, the name was changed to Emergent Capital, Inc. (with its subsidiary companies, the "Company" or "Emergent Capital").

Life Settlements Portfolio & Portfolio Management

The life insurance policies in Emergent Capital’s portfolio were acquired through a combination of direct policy purchases from the original policy owners (the secondary market), purchases of policies owned by other institutional investors (the tertiary market) and from policy surrenders or foreclosures in satisfaction of loans issued under the Company’s legacy premium finance business. Emergent Capital uses a probabilistic method of valuing life insurance policies, meaning the insured individual’s probability of survival and probability of death are applied to the required premiums and net death benefit of the policy to extrapolate the likely cash flows over the life expectancy of the insured. These likely cash flows are then discounted using a net present value formula. Management believes this to be the preferred valuation method in the industry at the present time.

Until a policy matures, the Company must pay ongoing premiums to keep that policy in force and to prevent it from lapsing. Upon a policy lapse, the Company would suffer a complete loss on its investment in that policy. Accordingly, the Company must proactively manage its cash in order to effectively run its business, maintain liquidity and continue to pay premiums in order to maintain the policies in its portfolio. 606 of these policies, with an aggregate death benefit of approximately $2.9 billion and a fair value of approximately $566.7 million at December 31, 2017, are pledged under a $370.0 million, revolving credit agreement (the "White Eagle Revolving Credit Facility") entered into by the Company’s indirect subsidiary, White Eagle Asset Portfolio, LP ("White Eagle"). At December 31, 2017, 2 policies owned by the Company, with an aggregate death benefit of approximately $12.0 million and a fair value of $750,000 were not pledged as collateral under the White Eagle Revolving Credit Facility.

Regulation

The sale and solicitation of life insurance policies in the secondary market is highly regulated by the laws and regulations of individual states and other applicable jurisdictions. The purchase of a policy directly from a policy owner is referred to as a life settlement and is regulated on a state-by-state basis.

At December 31, 2017, the Company, through its subsidiary Imperial Life Settlements, LLC, maintained licenses to transact life settlements as a provider in 28 of the states that currently require a license and was qualified to conduct business in 37 states and the District of Columbia.

The primary regulator for Imperial Life Settlements, LLC when purchasing life settlements in the secondary market is the Florida Office of Insurance Regulation. A majority of the state laws and regulations concerning life settlements relate to: (i) provider and broker licensing requirements; (ii) reporting requirements; (iii) required contract provisions and disclosures; (iv) privacy requirements; (v) fraud prevention measures; (vi) criminal and civil remedies; (vii) marketing requirements; (viii) the time period in which policies cannot be sold in life settlement transactions; and (ix) other rules governing the relationship between policy owners, insured persons, insurers, and others.

Competition

Competition is primarily through two channels: life settlement providers and institutional investors. In order to be a life settlement provider and transact with the original holder of a life insurance policy, in most instances, a license on a state-by-state basis is required. The life settlement business is highly fragmented and, therefore, competition is diverse. Often, life settlement providers are originating life settlements on behalf of institutional investors who do not maintain the necessary

licenses to transact in the secondary market for life insurance. These investors may have significantly more resources than the Company and can generally also transact directly in the tertiary market.

Employees

At December 31, 2017, we employed 13 full-time employees and no part-time employees. None of our employees are subject to any collective bargaining agreements. We believe that our employee relations are good.

Company Website Access and SEC Filings

Our website may be accessed at www.emergentcapital.com. All of our filings with the Securities and Exchange Commission ("SEC") can be accessed free of charge through our website promptly after filing; however, in the event that the website is inaccessible, we will provide paper copies of our most recent annual report on Form 10-K, the most recent quarterly report on Form 10-Q, current reports filed or furnished on Form 8-K, and all related amendments, excluding exhibits, free of charge upon request. These filings are also accessible on the SEC’s website at www.sec.gov. Information on our website is not incorporated by reference into this Annual Report on Form 10-K.

General Information

Our registrar and stock transfer agent is American Stock Transfer & Trust Company, LLC. Our transfer agent is responsible for maintaining all records of shareholders, canceling or issuing stock certificates and resolving problems related to lost, destroyed or stolen certificates. For more information, please contact: American Stock Transfer & Trust Company at 6201 15th Avenue, Brooklyn, NY 11219 Phone: 800-937-5449.

Item 1A. Risk Factors

Risks Related to Our Indebtedness & Organizational Structure

We may not have sufficient funds to pay our debt and other obligations.

Our cash, cash equivalents, short-term investments and operating cash flows may be inadequate to meet our obligations under our outstanding indebtedness and our other obligations. At December 31, 2017, 606 of the policies we owned were pledged as collateral under our White Eagle Revolving Credit Facility. When those policies mature, distributions will be made pursuant to a "waterfall" payment structure and any amounts available to us will vary based on the respective then current loan to value ratio under the facility. The White Eagle Revolving Credit Facility contemplates that proceeds will be directed to pay fees to service providers and premiums, with any remaining proceeds directed to pay outstanding interest. To the extent there is not sufficient remaining proceeds in the waterfall to satisfy the amount of required interest, White Eagle will be obligated to pay any such shortfall amount.

Under the White Eagle Revolving Credit Facility, proceeds from the maturity of the policies pledged as collateral are distributed pursuant to a waterfall. After distributions for payments of premiums, fees to service providers, and interest, a percentage of the collections from policy proceeds are to be paid to the lenders, which will vary depending on the then loan-to-value ratio ("LTV") as illustrated below where the valuation is determined by the lenders:



LTV	Premiums, Interest & Other Fees	Principal	Distribution to White Eagle - 55%	Lender Participation - 45%
N/A	100%	—%	—%	—%
>65%	N/A	100%	—%	—%
50-65%	N/A	70%	16.5%	13.5%
35-50%	N/A	55%	24.8%	20.3%
0-35%	N/A	45%	30.3%	24.8%

the cash flow sweep percentage shall equal one-hundred percent (100%). See Note 8, "White Eagle Revolving Credit Facility" to our accompanying consolidated financial statements.

Accordingly, there can be no assurance as to when proceeds or the amounts from maturities of the policies pledged as collateral under the White Eagle Revolving Credit Facility will be distributed to us. In addition, we are not able to borrow money under our White Eagle Revolving Credit Facility to pay interest or principal under the facility or any other indebtedness. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on any of our indebtedness, we will be in default, which could cause defaults under any other of our indebtedness then outstanding. Any such default would have a material adverse effect on our business, prospects, financial condition and operating results. Additionally, upon an event of default of the White Eagle Revolving Credit Facility, absent a waiver, in addition to principal and interest, the lenders’ rights to proceeds from collections under the White Eagle Revolving Credit Facility will become due. If these obligations cannot be satisfied, the lenders, or their agent, may dispose of, release, or foreclose on (including by means of strict foreclosure on all or any of the policies or on our interests in White Eagle, which might be exercised in a manner intended to impair our rights to excess proceeds of any liquidation of foreclosed assets), or take other actions with respect to the policies pledged as collateral under the White Eagle Revolving Credit Facility that we or our shareholders may disagree with or that may be contrary to the interests of our shareholders.

Our substantial leverage and significant debt service obligations could adversely affect our ability to fulfill our obligations and make it more difficult for us to fund our operations.

As of December 31, 2017, we had $441.1 million in outstanding long-term debt (without giving effect to the fair value of such indebtedness) consisting of borrowings under the White Eagle Revolving Credit Facility, our 8.50% senior unsecured convertible notes (the "Convertible Notes"); 5.0% senior unsecured convertible notes (the "New Convertible Notes") and the 8.5% senior secured notes (the "8.5% Senior Secured Notes"). Our substantial level of indebtedness could have important negative consequences to you and us, including:


•	we may have difficulty satisfying our debt obligations, including payment of current interest obligations;


•	we may have difficulty refinancing our existing indebtedness or obtaining financing in the future for working capital, premium payments, portfolio lending, acquisitions or other purposes;


•	we will need to use a substantial portion of our available cash flow to pay interest and principal on our debt, which will reduce the amount of money available to finance our operations and other business activities;


•	our debt level increases our vulnerability to general economic downturns and adverse industry conditions;


•	our debt level could limit our flexibility in planning for, or reacting to, changes in our business and in our industry in general; and


•	our leverage could place us at a competitive disadvantage compared to our competitors that have less debt.

While the terms of the financing arrangements governing our debt contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Accordingly, we could incur significant additional indebtedness in the future; the more we increase our leverage, the more we become exposed to the risks described above.

We may require additional capital and there can be no assurance that we will be able to raise additional capital in a timely manner, at the level sought, on favorable terms or at all.

Subject to borrowing base limitations and other conditions to funding, White Eagle may borrow proceeds to pay premiums on all of the life insurance policies pledged as collateral under the White Eagle Revolving Credit Facility at December 31, 2017. However, we estimate that, in addition to general overhead expenses, we will need to pay approximately $140,000 in premiums to keep our remaining 2 life insurance policies that have not been pledged as collateral under the White Eagle Revolving Credit Facility in force through December 31, 2018. As of December 31, 2017, we had approximately $31.3 million of cash and cash equivalents and certificates of deposit of $1.0 million; of this amount, approximately $18.1 million is available to pay premiums on the 2 unencumbered policies and other overhead expenses, with approximately $13.1 million being restricted by the White Eagle Revolving Credit Facility. Accordingly, we must proactively manage our cash and may need to raise additional capital in order to effectively run our businesses, maintain the policies that have not been pledged under the White Eagle Revolving Credit Facility, pay interest expense on our debt and opportunistically grow our assets. There can be no assurance, however, that we will, if needed, be able to raise additional or sufficient capital on favorable terms or at all.

As part of our cash management and business strategy, we may, subject to the covenants in our debt arrangements, determine to sell all or a portion of our portfolio, but there can be no assurance that we can consummate any sales or that, if consummated, sales of policies will be at or above their carrying values. We may also, subject to the covenants in our debt arrangements and lender approval, determine to lapse certain of these policies that have a low return profile or as our portfolio management needs dictate. The lapsing of policies, if any, could result in an event of default under our debt arrangements and would create losses as the policies would be written down to zero.

We may have exposure to greater than anticipated tax liabilities.

Our income tax obligations are based in part on our corporate operating structure and intercompany arrangements, including the manner that we own our life settlements and the valuations of our intercompany transactions. The tax laws applicable to our business, including the laws of the United States, Ireland and other jurisdictions, are subject to interpretation and certain jurisdictions are aggressively interpreting their laws in new ways in an effort to raise additional tax proceeds from companies. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for intercompany arrangements and ownership of life settlements, which could increase our effective tax rate and harm our financial position and results of operations. We are subject to regular review and audit by U.S. federal and state authorities and from 2014 on, foreign tax authorities. Tax authorities may disagree with certain positions we have taken and any adverse outcome of such a review or audit could have a material negative effect on our financial position and results of operations. In addition, the determination of our provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. In addition, our future income taxes could be adversely affected by changes in tax laws, regulations, or accounting principles.

Changes in tax laws or tax rulings could materially affect our financial position and results of operations.

The U.S., Ireland and many countries in the European Union, are actively considering changes to existing tax laws. Certain proposals, including proposals with retroactive effects, could include recommendations that would significantly increase our tax obligations where we do business or where our subsidiaries own life insurance policies. Any changes in the taxation of either international business activities or ownership of life settlements may increase our effective tax rate and harm our financial position and results of operations and, under certain circumstances, may constitute an event of default under the White Eagle Revolving Credit Facility.

We may not be able to refinance the White Eagle Revolving Credit Facility.

The White Eagle Revolving Credit Facility contains covenants that may significantly limit our ability to refinance the facility. In addition, the lender under the White Eagle Revolving Credit Facility has a substantial interest in and priority rights to distributions of certain proceeds from policies pledged by White Eagle. Such covenants and such interests in and rights to distributions may significantly reduce our ability to attract replacement financing were we to seek to refinance the credit facility as a means of limiting adverse actions by the lenders in the exercise of their remedies in relation to any event of default.

We may be unable to deduct interest payments on debt that is attributed to policies that we own, which would reduce any future income and cash flows.

Generally, under the Internal Revenue Code of 1986, as amended (the "Code"), interest paid or accrued on debt obligations is deductible in computing a taxpayer’s federal income tax liability. However, when the proceeds of indebtedness are used to pay premiums on life insurance policies that are owned by the entity incurring the debt or otherwise used to support the purchase or ownership of life insurance policies, the interest in respect of such proceeds may not be deductible. Accordingly, so long as we use a portion of debt financing to pay the premiums on policies owned by us or to support the continued ownership of life insurance policies by us, the interest paid or accrued on that portion of the debt may not be currently deductible by us for federal income tax purposes. We may have net operating losses that we may be able to use to reduce a portion of our future taxable income, but the inability to currently deduct interest accrued on debt could have a material adverse effect on our future earnings and cash flows available for the payment of interest.

In addition, under Section 382 of the Code a corporation that undergoes an "ownership change" (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period) is subject to limitation on its ability to utilize its pre-change net operating loss carry-forwards, or net operating losses, to offset future taxable income. Recent changes in our stock ownership triggered an ownership change, and as a result, our ability to utilize our net operating losses to offset income has been substantially limited.

New U.S. tax legislation could adversely affect our business.

On December 22, 2017, Congress enacted the "Tax Cuts and Jobs Act" (the "TCJA"). The TCJA is complex and includes significant amendments to the Code, including amendments that drastically change the taxation of offshore earnings and the deductibility of interest. The Company is currently assessing the impact of the TCJA on its business and consolidated financial statements. In connection with that ongoing assessment, the Company has identified at least five provisions that may have a material and adverse effect on its business.

First, the TCJA generally will require the Company to include in income with respect to its 2017 taxable year any undistributed and previously untaxed earnings of its foreign subsidiaries, subject to adjustments.

Second, going forward, the TCJA generally will subject the Company to a current U.S. tax on any undistributed earnings of its foreign subsidiaries to the extent such earnings are considered to be "global intangible low-taxed income" ("GILTI"), subject to certain deductions and adjustments.

Third, the TCJA generally will disallow the Company's U.S. interest deductions going forward to the extent such deductions exceed 30% of its U.S. "adjusted taxable income" (which will be roughly equivalent to earnings before interest, tax, depreciation and amortization ("EBITDA") through 2022 and to earnings before interest and tax ("EBIT") thereafter).

Fourth, any net operating loss incurred by the Company in taxable years beginning after December 31, 2017 cannot offset more than 80% of the Company’s taxable income in any tax year.

Finally, the TCJA significantly amends Section 162(m) of the Code. Pursuant to Section 162(m) of the Code, the Company may not deduct compensation of more than $1.0 million paid to the Company’s "covered employees," which includes (i) any individual who at any time during the taxable year is a chief executive officer, chief financial officer, or an employee whose total compensation for the tax year is required to be reported to stockholders because he or she is among the three highest compensated officers for the tax year, other than the chief executive officer or chief financial officer, and (ii) any person who was a covered employee at any time after December 31, 2016.

Prior to January 1, 2018, certain grants may have qualified as "performance-based compensation" and, as such, would be exempt from the $1.0 million limitation on deductible compensation. The TCJA eliminated the performance-based compensation exception with respect to tax years beginning on or after January 1, 2018. However, the TCJA provides a transition rule with respect to remuneration which is provided pursuant to a written binding contract which was in effect on November 2, 2017 and which was not materially modified after that date. These, and other provisions of the TCJA, may have a material and adverse impact on the Company's business and financial condition and the value of the Company's common shares. The Company is continuing to assess the impact of the TCJA. Holders should consult their tax advisors about the TCJA and its potential impact on their ownership of its common stock.

We may not have the cash necessary to repurchase the 5.0% Convertible Notes and the 8.50% Senior Secured Notes.

We have issued $75.8 million in aggregate principal amount of 5.0% Convertible Notes (the "New Convertible Notes") and $35.0 million in 8.5% Senior Secured Notes. The New Convertible Note Indenture provides for customary events of default, which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the New Convertible Note Indenture; defaults or failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the New Convertible Note Indenture, the trustee or the holders of at least 25% in aggregate principal amount of the New Convertible Notes then outstanding may declare all unpaid principal plus accrued interest on the New Convertible Notes immediately due and payable, subject to certain conditions set forth in the New Convertible Note Indenture. In addition, holders of the New Convertible Notes may require the Company to repurchase the New Convertible Notes upon the occurrence of certain designated events at a repurchase price of 100% of the principal amount of the New Convertible Notes, plus accrued and unpaid interest.

The 8.5% Senior Secured Notes must be redeemed in full upon additional issuances of debt by the Company in each case, at a price equal to 100% of the principal amount redeemed plus (i) accrued and unpaid interest on the 8.5% Senior Secured Notes redeemed up to the date of redemption, and (ii) the Applicable Premium, if any, as defined in the Amended and Restated Senior Secured Indenture. Upon a change of control, the Company will be required to make an offer to holders of the 8.5% Senior Secured Notes to repurchase the 8.5% Senior Secured Notes at a price equal to 107.5% of their principal amount, plus accrued and unpaid interest up to the date of redemption.

The Amended and Restated Senior Secured Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the Amended and Restated Senior Secured Indenture; defaults in failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the Amended and Restated Senior Secured Indenture, the trustee or the holders of at least 25% in aggregate principal amount of the 8.5% Senior Secured Notes then outstanding may declare the principal of and accrued but unpaid interest, plus a premium, if any, on all the 8.5% Senior Secured Notes immediately due and payable, subject to certain conditions set forth in the Amended and Restated Senior Secured Indenture.

However, we may not have enough available cash to make a required repurchase of the New Convertible Notes or the 8.5% Senior Secured Notes at the applicable time, and may not be able to obtain the necessary financing on favorable terms. In addition, our ability to repurchase the New Convertible Notes or the 8.5% Senior Secured Notes may be limited by law or by the agreements governing our other indebtedness that exist at the time of the repurchase, as the case may be. Our failure to repurchase the New Convertible Notes or the 8.5% Senior Secured Notes when required by their indenture would constitute a default, which could also lead to a default under the agreements governing our other indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and to repurchase the New Convertible Notes or the 8.5% Senior Secured Notes. Any such default would have a material adverse effect on our business, prospects, financial condition and operating results.

Interest on the New Convertible Notes and on the 8.5% Senior Secured Notes is due semi-annually and quarterly, respectively.

Risks Related to Our Business

We have been experiencing net losses and expect that net losses could continue for an uncertain period. If we continue to operate at a loss, our business may not be financially viable.

For the year ended December 31, 2017, our net loss from continuing operations was $3.2 million. We have now reported 3 consecutive loss years with an accumulated deficit of $136.0 million. As of December 31, 2017, our cash balance was $31.3 million and certificates of deposit were $1.0 million. We had net working capital of $55.3 million, outstanding debt of $441.1 million and we had life settlement assets of $567.5 million. If we do not succeed in our business plan’s objectives to achieve profitability, our business might continue to experience losses and may not be sustainable in the future.

Our success in operating our life finance business is dependent on making accurate assumptions about life expectancies and maintaining adequate cash balances to pay premiums.

We are responsible for paying all premiums necessary to keep the policies in our portfolio in force and prevent them from lapsing. We estimate that we will need to pay $140,000 in premiums to keep our current portfolio of life insurance policies that are not pledged as collateral under the White Eagle Revolving Credit Facility in force through 2019. As of December 31, 2017, we had approximately $31.3 million of cash and cash equivalents and certificates of deposit of $1.0 million; of this amount, approximately $18.1 million is available to pay premiums on the 2 unencumbered policies and general expenses, with approximately $13.1 million being restricted by the White Eagle Revolving Credit Facility. By using cash reserves to pay premiums for retained life insurance policies, we will have less cash available for other business purposes. Therefore, our cash flows and the required amount of our cash reserves to pay premiums is 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. A life expectancy obtained on an insured for a life insurance policy may not 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 or other health care providers 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 life expectancy valuations underestimate the longevity of the insureds, the actual maturity date of the life insurance policies may be farther in the future than projected. Consequently, we may not have sufficient cash for payment of insurance premiums or to service our indebtedness. The extension of time to receive a return on our policies could have a material adverse effect on our business, financial condition and results of operations.

The use of third party service providers may have an adverse effect on the operations of the Company.

Our business relies significantly on the use of third party service providers to support our day to day business operations. Any significant changes in prices these providers charge may have a material impact on our financial results. In addition, any reduction in service levels among our third party service providers, including delays or disruption of services may have an adverse effect on the operations of the Company.

Recent and future increases to the premiums due on life insurance policies that we own have adversely affected and will adversely affect the fair value and our returns on such life insurance policies.

To keep the life insurance policies that we own in force, insurance premiums must be paid in a timely manner. Projected premium payments are a critical component of our fair value estimates, and any increase in expected premiums will likely decrease the fair value of a given life insurance policy and adversely affect the return on that policy. Commencing in the third quarter of 2015, 24 of our policies became subject to a cost of insurance increase, there was no cost of insurance increase during the year ended December 31, 2017. Further cost of insurance increases may cause our projected premium payments to significantly increase, adversely affect the loan to value ratios under the White Eagle Revolving Credit Facility and otherwise could have an adverse, material effect on our business, results of operations and the value of any affected policies.

The premiums necessary to maintain our life finance assets are expected to increase if we were to acquire additional policies.

The premiums necessary to keep our policies in force may increase. Assuming no maturities in 2018, we would need to pay $141,000 in premiums in 2018 to maintain the policies owned as of December 31, 2017 that are not pledged under the White Eagle Revolving Credit Facility. For the 606 policies pledged as collateral under the White Eagle Revolving Credit Facility, White Eagle is eligible to borrow under the White Eagle Revolving Credit Facility to pay the estimated $94.2 million in premiums for 2018 (assuming no maturities), so long as the applicable borrower maintains compliance with the borrowing base formula determined by the lender. If White Eagle is unable to draw under the White Eagle Revolving Credit Facility, it may not be able to sustain the policies it owns, which could lead to lapses or an event of default under the White Eagle Revolving Credit Facility. See "Liquidity and Capital Resources" under Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Contractions in the market for life insurance policies could make it more difficult for us to opportunistically sell policies that we own and may make it more difficult to borrow under the White Eagle Revolving Credit Facility.

A potential sale of a life insurance policy owned by us depends significantly on the 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. For example, the secondary and tertiary markets for life insurance policies incurred a significant slowdown in 2008, which lasted several years. Historically, 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. Changes in the value of the United States dollar and corresponding exchange rates, as well as changes to the ratings of United States life insurers can cause foreign investors to suffer a reduction in the value of their United States dollar denominated investments and reduce their demand for such products, which could make it more difficult for us to opportunistically sell our life insurance policies.

The ability of White Eagle to continue to draw borrowings under the White Eagle Revolving Credit Facility is controlled by a borrowing base formula. To the extent the above noted and other factors result in market contractions, they will likely also negatively impact the value of the policies owned by White Eagle, which could decrease the borrowing base under the facility.

If White Eagle is unable to draw under the White Eagle Revolving Credit Facility, it may not be able to sustain the policies it owns, which could lead to lapses or an event of default under the White Eagle Revolving Credit Facility.

Our fair value assumptions are inherently subjective and, if the fair value of our life insurance policies decreases, we will report losses with respect to these policies.

When we obtain ownership of a life insurance policy, we record the policy as an investment in life settlements at the transaction price as of the date of acquisition. At the end of each reporting period, we re-value the life insurance policies we own. To the extent that the calculation results in an adjustment to the fair value of the policy, we record this as a change in fair value of our life insurance policies. This evaluation of the fair value of life insurance policies is inherently subjective as it requires estimates and assumptions that are susceptible to significant revision as more information becomes available. Using our valuation model, we determine the fair value of life insurance policies on a discounted cash flow basis. The most significant assumptions that we estimate are the life expectancy of the insured, expected premium payments and the discount rate. The discount rate is based upon 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. Third party life expectancy providers review and analyze the medical records of an insured and provide us with a life expectancy estimate based on the insured’s health. We then calculate a mortality impairment factor for the insured as that factor which, when applied to our mortality table, reproduces the same life expectancy provided for that insured. We use the resulting mortality impairment factor to generate a series of probabilistic future cash flows for the policy, which we then discount and aggregate to arrive at the fair value of the policy. If we are unable to accurately estimate any of these factors, we may have to write down the fair value of our life settlements, which could materially and adversely affect our results of operations and our financial condition. See, "Our success in operating our life finance business is dependent on making accurate assumptions about life expectancies and maintaining adequate cash balances to pay premiums," under Item 1A, "Risk Factors."

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 or a challenge to insurable interest 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.

If the calculation of fair value results in a decrease in value, we record this reduction as a loss. If we determine that it is appropriate to increase the discount rate or adjust other inputs to our fair value model, if we are otherwise unable to accurately estimate the assumptions in our valuation model, or if other factors cause the fair value of our life insurance policies to decrease, the carrying value of our assets may be materially adversely affected and may materially and adversely affect our business, financial condition and results of operations.

The life insurance policies that we own 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.

All states require that the initial purchaser of a new life insurance policy insuring the life of an individual have an "insurable interest," meaning a stake in the insured’s health and wellbeing, rather than the insured’s death, 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. Even if the insurance company cannot void or rescind the policy, 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.

Many states have enacted statutes prohibiting stranger-originated life insurance, or STOLI, in which an individual purchases a life insurance policy with the intention of selling it to a third-party investor, who lacks an insurable interest in the insured’s life. 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. Additionally, if an insurance carrier alleges that there were misrepresentations or fraud in the application process for an insurance policy, they may sue us or others to contest or rescind that policy. Decisions in Florida have increased the risk that challenges to premium financed policies may be decided in favor of the issuing insurance company. Moreover, because life insurance policies we own were originated in the same or a similar manner and in a limited number of states, there is a heightened risk that an adverse court decision or other challenge or determination by a regulatory or other interested party with

respect to a policy could have a material adverse effect on a significant number of other policies. If a policy that we own is subject to a successful contest or rescission, the fair value of the policy could be reduced to zero, negatively impacting the discount rates used to value our portfolio generally and our ability to sell policies. Generally, life insurance policies may only be rescinded by the issuing life insurance company within the contestability period, which, in most states is two years. Lack of insurable interest can in some instances form the basis of loss of right to payment under a life insurance policy for many years beyond the contestability period and insurance carriers have been known to challenge claims for death benefits for more than five years from issuance of the policy.

From time to time, insurance carriers have challenged the validity of policies owned by us or that once served as the underlying collateral for a premium finance loan made by us. See "Litigation" under Note 17, "Commitments and Contingencies" to our consolidated financial statements. We believe the USAO Investigation (as defined below) and the SEC Investigation (as defined below) have caused us to experience more challenges to policies by insurers attempting to use such investigations and the Non-Prosecution Agreement (as defined below) as grounds for rescinding or contesting a policy. Any such future challenges may result in uncertainty over title and collectability, increased costs, delays in payment of life insurance proceeds or even the voiding of a policy, and could have a material adverse effect on the ability of the Company to comply with the covenants in the agreements governing our indebtedness, our business, financial condition and results of operations.

Additionally, if an insurance company successfully rescinds or contests a policy, the insurance company may not be required to refund all or, in some cases, any of the insurance premiums paid for the policy. While defending an action to contest or rescind a policy, premium payments may have to continue to be made to the life insurance company. Hence, in the case of a contest or rescission, premiums paid to the carrier (including those paid during the pendency of a contest or rescission action) may not be refunded. If they are not, we may suffer a complete loss with respect to a policy, 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 on life insurance applications, which increases the risk of contest, rescission or non-cooperation by issuing life insurance carriers.

While fraud and misrepresentation by applicants and potential insureds in completing life insurance applications exist generally in the life insurance industry (especially with respect to the health and medical history and condition of the potential insured as well as the applicant’s net worth), such risk of fraud and misrepresentation may be heightened in connection with life insurance policies for which the premiums are financed through premium finance loans. In particular, there is a risk that applicants and potential insureds may not have truthfully or completely answered questions related to whether the life insurance policy premiums would 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 life insurance policies. Such risk may be further increased to the extent life insurance agents communicated to applicants and potential insureds regarding potential premium finance arrangements or transfers of life insurance policies through payment defaults under premium finance loans. In the ordinary course of our legacy premium finance business, our sales team received 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. Consequently, notwithstanding the representations and certifications obtained from the policyholders, insureds and the life insurance agents, there is a risk that insurance carriers, the estates or heirs of insureds, or others could contest policies we acquired through foreclosures of premium finance loans based on fraud or misrepresentation as to any information provided to the life insurance company, including the life insurance application. See "Litigation" under Note 17, "Commitments and Contingencies" to the accompanying consolidated financial statements.

Misrepresentations, fraud, omissions or lack of insurable interest can also, in some instances, form the basis of loss of right to payment under a life insurance policy. Based on statements made in the Non-Prosecution Agreement, there is a risk that policies that we own may increasingly be challenged by insurance carriers and the estates or heirs of insureds. Any such challenges to the policies may result in increased costs, delays in payment of life insurance proceeds or even the voiding of a policy, a reduction in the fair value of a policy and could have a material adverse effect on our business, financial condition and results of operations.

As of December 31, 2017, of the 608 policies in our life settlement portfolio, 530 policies were previously premium financed.

Delays in payment and non-payment of life insurance policy proceeds can occur for many reasons and any such delays 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 that once held 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, usury, contestability or suicide provisions in a policy. The statements in the Non-Prosecution Agreement may make such delays more likely and may increase challenges by carriers to paying out death claims or challenges by families of insureds to policy proceeds. 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.

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

There are a number of finance companies and investors that compete with us in the life finance industry. Many are significantly larger and possess considerably greater financial, marketing, management and other resources than we do. The life finance business could also prove attractive to new entrants. As a consequence, competition in this sector may increase. Increased competition could result in increased acquisition costs, changes to discount rates, margin compression and/or less favorable financing terms, each of which could materially adversely affect our income, which would have a material adverse effect on our business, financial condition and results of operations.

If a regulator or court decides that trusts that were formed to own the life insurance policies that once served 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.

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, such 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 loan, we generally acquired 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 or policy owner did not have an insurable interest in the life of the insured or that we, as lender, only have a limited insurable interest. 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 on our investment in life settlements. Any such loss or losses could 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 that issued the policies in comprising our portfolio. 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 could 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 that issued the policies that we own. We assume the credit risk associated with life insurance policies issued by various life insurance companies. The failure or bankruptcy of any such life insurance or annuity company could have a material adverse impact on our financial condition and results of operation. 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 that we own. In such event, we would experience a loss of our investment in such life insurance policies, which could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock may be negatively affected.

We are subject to Section 404 of the Sarbanes-Oxley Act (SOX), which requires us to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. We have consumed and will continue to consume management resources and incur expenses for SOX compliance on an ongoing basis. In addition, as we have reduced

the number of our employees and moved certain of our operations to foreign subsidiaries, we have increased our reliance on third parties for various aspects of our internal controls. If we identify material weaknesses in our internal control over financial reporting, or if we are unable to comply with the requirements of Section 404 in a timely manner or are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock could be negatively affected, and we could become subject to investigations by the SEC, or other regulatory authorities, which could require additional financial and management resources.

Changes to statutory, licensing and regulatory regimes governing life settlements could have a material adverse effect on our activities and income.

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 that stand behind the insurance policies that we own, which could have a material adverse impact on our business activities and income. The SEC issued a task force report in July 2010 recommending that sales of life insurance policies in life settlement transactions be regulated as securities for purposes of the federal securities laws. To date, the SEC has not made such a recommendation to Congress. However, if the statutory definitions of "security" were amended to encompass life settlements, we could become subject to additional extensive regulatory requirements under the federal securities laws, including the obligation to register sales and offerings of life settlements with the SEC as public offerings under the Securities Act of 1933 and, potentially, the obligation to register as an "investment company" pursuant to the Investment Company Act of 1940. Any legislation implementing such regulatory change or a change in the transactions that are characterized as life settlement transactions could lead to significantly increased compliance costs, increased liability risk and adversely affect our ability to acquire or sell life insurance policies in the future, which could have a material adverse effect on our business, financial condition and results of operations.

Under the current Presidential administration and U.S. Congress, we expect that there may be many changes to existing U.S. laws, regulations, and standards that may affect our business. Because of the uncertainty regarding existing law, we cannot quantify or predict with any certainty the likely impact of such change on our business model, prospects, financial condition or results of operations. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislation.

Our former structured settlements business may expose us to future claims or contingent liabilities.

Pursuant to the terms of the asset purchase agreement we entered into in connection with the sale of our structured settlements business, we sold substantially all of that business’ operating assets in 2013 while retaining substantially all of its liabilities. In addition, we agreed to indemnify the purchaser for certain breaches of representations and warranties regarding us and various aspects of that business. Many of our indemnification obligations are subject to time and maximum liability limitations, however, in some instances our indemnification obligations are not subject to any limitations. Significant indemnification claims by the purchaser or other claims or contingent liability related to our former structured settlement business could materially and adversely affect our business, financial condition and results of operations.

Failure to maintain the security of personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information, or a violation of our privacy and security policies with respect to such information, could adversely affect us.

In connection with our business, we collect and retain significant volumes of certain types of personally identifiable and other information pertaining to insureds and counterparties. The legal, regulatory and contractual environment surrounding information security and privacy is constantly evolving. A significant actual or potential theft, loss, fraudulent use or misuse of customer, counterparty, employee or our data by cybercrime or otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in significant costs, fines, penalties, litigation or regulatory action.

Disasters, disruptions and other impairment of our information technologies and systems could adversely affect our business.

Our businesses depend upon the use of sophisticated information technologies and systems, including third party hosted services and data facilities that we do not control. While we have developed certain disaster recovery plans and backup systems, these plans and systems are not fully redundant. A system disruption caused by a natural disaster, cybercrime or other impairment could have a material adverse effect on our results of operations and may cause delays, loss of critical data and reputational harm, and could otherwise prevent us from servicing our portfolio of life insurance policies.

Risks Related to Our Common Stock

Provisions in our executive officers’ employment agreements 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 certain of our executive officers. These agreements provide for substantial payments upon the occurrence of certain triggering events, including a material diminution of base salaries or responsibilities. These payments may deter any transaction that would result in a change in control, which could diminish the price of our common stock.

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.

The market price of our stock has been highly volatile.

The market price of our common stock has fluctuated and could fluctuate substantially in the future. This volatility may subject our stock price to material fluctuations due to the factors discussed in this Risk Factors section, and other factors including market reaction to the estimated fair value of our portfolio; our capital structure; cash position; our ability to service our debt; rumors or dissemination of false information; changes in coverage or earnings estimates by analysts; our ability to meet analysts’ or market expectations; and sales of common stock by existing shareholders. A decline in the market price of our common stock could adversely affect our ability to raise capital by issuing additional securities.

The conversion rate for the Convertible Notes will be adjusted in connection with a make-whole fundamental change.

The provisions of the New Convertible Note Indenture include a make-whole provision to compensate the Company’s debt holders for the lost option time value and forgone interest payments upon the Company experiencing a Fundamental Change (as defined in the New Convertible Note Indenture). These Fundamental Changes revolve around change in beneficial ownership, the consummation of specified transactions which result in the conversion of common stock into other assets or the sale, transfer or lease of all or substantially all of the Company’s assets, a majority change in the composition of the Company’s Board of Directors, the Company’s stockholders' approval of any plan for liquidation of dissolution of the Company, and the Common Stock ceasing to be listed or quoted on a Trading Market (as defined under the New Convertible Notes). The number of incremental additional shares to be issued as a result of a Fundamental Change is based on a table which calculates the adjustment based on the inputs of time and share value. Such increase in the conversion rate will dilute the ownership interest of our common stock shareholders.

Provisions in our articles of incorporation and bylaws, as well as the Board Rights agreements entered into as part of our recent recapitalization, 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.

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. In addition, our bylaws require that in order to be eligible to nominate or propose for nomination a candidate for election as a director, a shareholder must own at least one percent of the Company's outstanding shares of common stock for no less than twelve months.

Certain laws of the State of Florida could impede a change of control, which could diminish the price of our common stock.

As a Florida corporation, we are subject to the Florida Business Corporation Act, which provides that a person who acquires shares in an "issuing public corporation," as defined in the statute, in excess of certain specified thresholds generally

will not have any voting rights with respect to such shares, unless such voting rights are approved by the holders of a majority of the votes of each class of securities entitled to vote separately, excluding shares held or controlled by the acquiring person. The Florida Business Corporation Act also contains a statute which provides that an affiliated transaction with an interested shareholder generally must be approved by (i) the affirmative vote of the holders of two thirds of our voting shares, other than the shares beneficially owned by the interested shareholder, or (ii) a majority of the disinterested directors.

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, 10% or more 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 that may have been acquired in violation of the applicable Florida law. 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 counterparties, creditors, shareholders or the public.

Due to delisting our common stock from the New York Stock Exchange ("NYSE"), you may find it difficult to dispose of your shares and our share price may be adversely affected.

On January 23, 2017, we voluntarily delisted our common stock from the NYSE, and on February 3, 2017, the trading of our common stock began on the over-the-counter market, OTCQB. Such trading could reduce the market liquidity of our common stock. As a result, investors may find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock, and our ability to raise future capital through the sale of the shares of our common stock or other securities convertible into or exercisable for our common stock could be severely limited.

Trading in our common stock might also become subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a "penny stock" (generally, any equity security not listed on a national securities exchange or quoted on The NASDAQ Stock Market that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of stockholders to borrow against or "margin" low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock, thereby negatively impacting the share price of our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our offices are located at 5355 Town Center Road, Suite 701, Boca Raton, Florida 33486 and consist of approximately 11,000 square feet of leased office space. We consider our facilities to be adequate for our current operations.

Item 3. Legal Proceedings

For a description of legal proceedings, see "Litigation” under Note 17, "Commitments and Contingencies" to the accompanying consolidated financial statements.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

During the year ended December 31, 2017, shares of our common stock were traded on the OTC Market Group’s OTCQB marketplace under the trading symbol "EMGC."

The following table shows the high and low sales prices for our common stock for the periods indicated, as reported by the OTC:



	2017
	High		Low
1st Quarter	$	1.41	$	0.20
2nd Quarter	$	0.35	$	0.27
3rd Quarter	$	0.54	$	0.27
4th Quarter	$	0.49	$	0.32



	2016
	High		Low
1st Quarter	$	4.54	$	3.49
2nd Quarter	$	4.59	$	3.10
3rd Quarter	$	4.42	$	2.85
4th Quarter	$	3.15	$	1.11

As of March 12, 2018, we had 8 holders of record of our common stock and the closing stock price was $0.41.

Dividend Policy

We have never paid any cash dividends on our common stock and 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. 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.

We are a holding company and have no direct operations. Our ability to pay dividends in the future depends on the ability of our operating subsidiaries to pay dividends to us. Certain of our debt arrangements, including the White Eagle Revolving Credit Facility, restrict the ability of certain of our special purpose subsidiaries to pay dividends. In addition, future debt arrangements may contain prohibitions or limitations on the payment of dividends.

Equity Compensation Plans

On June 27, 2017, the shareholders of the Company voted to amend, and the Company amended, the Amended and Restated 2010 Omnibus Incentive Plan (as amended, the "Omnibus Plan") to increase the number of shares authorized for issuance thereunder by 9,900,000 shares. Awards under the Omnibus Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance units, and shares of common stock, restricted stock, restricted stock units or other stock-based awards as determined by the compensation committee of the Company's board of directors. The Omnibus Plan provides for an aggregate of 12,600,000 shares of common stock to be reserved for issuance under the Omnibus Plan, subject to adjustment as provided in the Omnibus Plan. See Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for additional information.

Recent Sales of Unregistered Securities

There are no recent sales of unregistered securities that have not been previously included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

Purchases of Equity Securities

There were no purchases during the year ended December 31, 2017.

Item 6. Selected Financial Data

The following table sets forth our selected historical consolidated financial and operating data as of such dates and for such periods indicated below. These selected historical 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 Annual Report on Form 10-K, including Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes.

The selected historical statement of operations data and balance sheet data for the last five years were derived from our audited consolidated financial statements and reflect the retroactive revision to reflect the classification of our structured settlement business as discontinued operations.



	Historical
	Years Ended December 31,
	2017			2016			2015			2014			2013
	(in thousands, except share and per share data)
Income
(Loss) gain on life settlements, net	—			—			(41		)	(426		)	(1,990		)
Change in fair value of life settlements	51,551			864			46,717			44,128			88,686
Servicing fee income	—			—			—			—			310
Other income	322			251			215			114			2,072
Total income	51,873			1,115			46,891			43,816			89,078
Expenses
Interest expense	32,797			29,439			27,286			16,245			13,657
Change in fair value of Revolving Credit Facilities	4,501			(1,898		)	12,197			(5,472		)	(9,373		)
Loss on extinguishment of debt	2,018			554			8,782			—			3,991
Change in fair value of conversion derivative liability	—			—			—			6,759			—
(Gain) loss on loan payoffs and settlements, net	—			—			—			—			(65		)
Amortization of deferred costs	—			—			—			—			7
Personnel costs	5,069			6,070			6,384			8,763			8,177
Legal fees	3,721			6,427			20,739			13,620			11,701
Professional fees	4,445			7,081			7,133			5,254			5,281
Insurance	783			835			1,275			1,667			1,953
Other selling, general and administrative expenses	1,777			2,036			2,194			2,006			1,887
Total expenses	55,111			50,544			85,990			48,842			37,216
(Loss) income from continuing operations before income taxes	(3,238		)	(49,429		)	(39,099		)	(5,026		)	51,862
(Benefit) provision for income taxes	—			—			(8,719		)	125			39
Net (loss) income from continuing operations	$	(3,238	)	$	(49,429	)	$	(30,380	)	$	(5,151	)	$	51,823
Discontinued Operations:
(Loss) Income from discontinued operations, net of income taxes	(271		)	(260		)	(644		)	(601		)	2,198
Gain on disposal of discontinued operations, net of income taxes	—			—			—			—			11,311
Benefit for income taxes	—			—			—			232			—
Net (loss) income from discontinued operations	(271		)	(260		)	(644		)	(369		)	13,509
Net (loss) income	$	(3,509	)	$	(49,689	)	$	(31,024	)	$	(5,520	)	$	65,332
(Loss) earnings per share:
Basic and diluted (loss) earnings per common share
Continuing operations	$	(0.04	)	$	(1.79	)	$	(1.22	)	$	(0.24	)	$	2.44
Discontinued operations	$	—		$	(0.01	)	$	(0.03	)	$	(0.02	)	$	0.64
Net (loss) income	$	(0.04	)	$	(1.80	)	$	(1.25	)	$	(0.26	)	$	3.08
Weighted average shares outstanding:
Basic and diluted (1)	82,323,050			27,660,711			24,851,178			21,354,567			21,216,487


(1)	As of December 31, 2017, there were 158,495,399 and 157,887,399 shares of common stock issued and outstanding, respectively, and 608,000 shares of treasury stock.



	Historical
	December 31,
	2017			2016			2015			2014			2013
	(In thousands except share data)
ASSETS
Assets
Cash and cash equivalents	18,131			$	2,246		$	12,946		$	51,166		$	14,722
Cash and cash equivalents (VIE)	13,136			9,072			7,395			3,751			7,977
Restricted cash	—			—			—			—			13,506
Certificate of deposit	1,010			6,025			2,501			—			—
Prepaid expenses and other assets	617			1,112			1,017			1,502			1,331
Prepaid expenses and other assets (VIE)	53			—			—			—			—
Deposits—other	1,377			1,347			1,347			1,340			1,597
Deposits on purchases of life settlements	—			—			—			1,630			—
Structured settlement receivables at estimated fair value, net	—			—			—			384			660
Structured settlement receivables at cost, net	—			—			—			597			797
Investment in life settlements, at estimated fair value	750			680			11,946			82,575			48,442
Investment in life settlements, at estimated fair value (VIE)	566,742			497,720			449,979			306,311			254,519
Receivable for maturity of life settlements (VIE)	30,045			5,000			18,223			4,000			2,100
Fixed assets, net	145			232			322			355			74
Investment in affiliates (VIE)	2,384			2,384			2,384			2,384			2,378
Total assets	$	634,390		$	525,818		$	508,060		$	455,995		$	348,103
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses	2,015			$	2,590		3,051			6,140			2,977
Accounts payable and accrued expenses (VIE)	753			593			419			423			341
Other liabilities	451			359			360			1,256			21,221
Interest payable—8.5% Convertible Notes (Note 10)	46			2,272			2,272			2,272			—
8.5% Convertible Notes, net of discount and deferred debt costs (Note 10)	1,098			60,535			56,812			51,945			—
Interest payable - 5.0% Convertible Notes (Note 11)	1,432			—			—			—			—
5.0% Convertible Notes, net of discount and deferred debt costs (Note 11)	68,654			—			—			—			—
Interest payable—15.0% Senior Secured Notes (Note 12)	—			213			—			261			—
15.0% Senior Secured Notes, net of deferred debt costs (Note 12)	—			29,297			—			—			—
Interest payable - 8.5% Senior Secured Notes (Note 13)	132			—			—			—			—
8.5% Senior Secured Notes, net of deferred debt costs (Note 13)	33,927			—			—			—			—
12.875% Secured Notes, net of discount and deferred debt costs	—			—			—			24,036			—
White Eagle Revolving Credit Facility, at estimated fair value (VIE)	329,240			257,085			169,131			145,831			123,847
Red Falcon Revolving Credit Facility, at estimated fair value (VIE)	—			—			55,658			—			—
Income taxes payable	—			—			—			—			6,295
Deferred tax liability	—			—			—			8,728			—
Total liabilities	437,748			352,944			287,703			240,892			154,681
Stockholders’ Equity
Common stock (par value $0.01 per share, 415,000,000 and 80,000,000 authorized at December 31, 2017 and 2016; 158,495,399 issued and 157,887,399 outstanding at December 31, 2017; 29,021,844 issued and 28,413,844 outstanding as of December 31, 2016, 28,130,508 issued and 27,522,508 outstanding as of December 31, 2015, 21,402,990, 21,237,166, and 21,206,121 issued and outstanding as of December 31, 2014 and 2013 respectively)	1,585			290			281			214			212
Preferred stock, $0.01 par value (40,000,000 authorized; 0 issued and outstanding as of December 31, 2017,2016, 2015, 2014 and 2013)	—			—			—			—			—
Treasury stock (608,000 shares as of December 31, 2017 and 2016 and 2015, and 0 shares as of December 31, 2014, 2013)	(2,534		)	(2,534		)	(2,534		)	—			—
Additional paid-in-capital	333,629			307,647			305,450			266,705			239,506
Accumulated deficit	(136,038		)	(132,529		)	(82,840		)	(51,816		)	(46,296		)
Total stockholders’ equity	196,642			172,874			220,357			215,103			193,422
Total liabilities and stockholders’ equity	$	634,390		$	525,818		$	508,060		$	455,995		$	348,103

Selected Operating Data (dollars in thousands):



	For the Year Ended December 31,
	2017			2016			2015		2014
Period Acquisitions—Policies Owned
Number of policies acquired	—			1			43		16
Average age of insured at acquisition	—			90.3			85.0		85.2
Average life expectancy—Calculated LE (Years)	—			2.3			5.4		5.9
Average death benefit	$	—		$	690		$	2,811	$	4,444
Aggregate purchase price	$	—		$	16		$	30,695	$	16,296

End of Period—Policies Owned
Number of policies owned	608			621			632		607
Average age of insured	83.4			82.4			81.4		80.4
Average death benefit per policy	$	4,738		$	4,745		$	4,714	$	4,829
Average life expectancy—Calculated LE (Years)	8.3			9.0			9.9		10.7
Aggregate death benefit	$	2,880,487		$	2,946,511		$	2,979,352	$	2,931,066
Aggregate fair value	$	567,492		$	498,400		$	461,925	$	388,886
Monthly premium—average per policy	$	12.3		$	11.0		$	9.1	$	7.8

Period Maturities
Number of policies matured	13			12		2	17		7
Average age of insured at maturity	82.8		85.2	85.7		86.8	85.0		80.1
Average life expectancy - Calculated LE (Years)	4.5		1.8	3.4		5.4	6.4		7.1
Aggregate death benefit	$	67,177		$	37,460		$	67,403	$	25,500
Gains on maturity	$	35,891		$	17,876		$	47,940	$	16,413
Proceeds collected	$	42,131		$	50,460		$	53,454	$	23,600

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the information contained in other sections of this Annual Report on Form 10-K, particularly under the headings “Risk Factors,” “Selected Financial Data” and “Business.” This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. The statements in this discussion and analysis concerning expectations regarding our future performance, liquidity and capital resources, as well as other non-historical statements in this discussion and analysis, are forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.” These forward-looking statements are subject to numerous risks and uncertainties, including those described under “Risk Factors.” Our actual results could differ materially from those suggested or implied by any forward-looking statements.

Business Overview

Incorporated in Florida, Emergent Capital owns a portfolio of 608 life insurance policies, also referred to as life settlements, with a fair value of $567.5 million and an aggregate death benefit of approximately $2.9 billion at December 31, 2017. The Company primarily earns income on these policies from changes in their fair value and through death benefits.

Going Concern

Historically, the Company had incurred substantial losses and reported negative cash flows from operating activities of $34.9 million for the year ended December 31, 2017 and $45.6 million for the year ended December 31, 2016. As of December 31, 2017, we had approximately $31.3 million of cash and cash equivalents and certificates of deposit of $1.0 million; of this amount, approximately $18.1 million is available to pay premiums on the two unencumbered policies and other overhead expenses, with approximately $13.1 million being restricted by the White Eagle Revolving Credit Facility.

The Company’s ability to continue as a going concern is dependent on its ability to meet its liquidity needs through a combination of the receipt of death benefits from life insurance policy maturities, borrowings under the White Eagle Revolving Credit Facility, strategic capital market raises, policy sales (subject to certain asset sale restrictions) and cash on hand. During the year ended December 31, 2017, the Company entered into certain agreements for the purpose of recapitalizing the Company (as described below), and on July 28, 2017 and August 11, 2017, the Company consummated the Transactions (as described below). See Note 10, "8.5% Senior Unsecured Convertible Notes", Note 11 "5.0% Senior Unsecured Convertible Notes", Note 12, "15% Senior Secured Notes", Note 13, "8.5% Senior Secured Notes" and Note 18, "Stockholders' Equity" for further information. In considering the cash on hand at December 31, 2017 and management's projections for receipts of death benefits from policy maturities, we estimate that our liquidity and capital resources are sufficient for our current and projected financial needs for the next twelve months, at a minimum, from the date of filing this Form 10-K.

The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about our ability to continue as a going concern.

Recapitalization Transaction

On March 15, 2017 and May 12, 2017, the Company entered into a series of separate Master Transaction Agreements (together, the "Master Transaction Agreements") by and between the Company, PJC Investments, LLC, a Texas limited liability company ("PJC"), and each Consenting Convertible Note Holder that is a party to one or more Master Transaction Agreements ("Consenting Convertible Note Holders") regarding a series of integrated transactions with the intent to effect a recapitalization of the Company (the "Transaction"), which included an Amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of the Company's common stock, $0.01 par value (the "Common Stock"), a Common Stock Purchase Agreement, a Convertible Note Exchange Offer, a New Convertible Note Indenture providing for the issuance of New Convertible Notes, a Senior Note Exchange Offer, a New Senior Note Indenture providing for the issuance of New Senior Notes, a Senior Note Purchase Agreement, Warrants and certain other agreements and documents delivered in connection with the Transaction (each as defined in the Master Transaction Agreements). The Master Transaction Agreements and the transactions contemplated under the Master Transaction Agreements were unanimously approved by the Board of Directors of the Company on March 13, 2017.

On April 7, 2017, the Company entered into a series of amendments to the Master Transaction Agreements (the "MTA Amendments"), which amended each Master Transaction Agreement made as of March 15, 2017, as amended to date and from time to time, by and among the Company, PJC and the Consenting Convertible Note Holders party to each Agreement. The modifications as a result of the MTA Amendments are specified below.

On June 19, 2017, the Company entered into a series of amendments to the Master Transaction Agreements, as amended (the "Additional MTA Amendments"), which amended each Master Transaction Agreement made as of March 15, 2017 and May 12, 2017. The purpose of the Additional MTA Amendments was to modify the definition of "Investor" and amend the form of warrant attached as Exhibit E to the Master Transaction Agreements (the "Warrant") to, among other things, contemplate vesting of the Warrant to holders on a pro rata basis. The Additional MTA Amendments also extended the period by which Consenting Convertible Note Holders could tender into the Convertible Note Exchange Offer.

Under the Master Transaction Agreements, PJC and other parties agreed to certain undertakings, including: (i) PJC or its designees (the "Investors") purchasing up to 100% of the Company’s 15.0% Senior Secured Notes from the Consenting Senior Note Holders (as defined herein) pursuant to a Senior Note Purchase Agreement, (ii) PJC and/or the Investors purchasing $15.0 million in shares of Common Stock, pursuant to a Common Stock Purchase Agreement, and (iii) issuance to PJC and/or the Investors of warrants, as amended, to purchase up to 42,500,000 shares of Common Stock at an exercise price of $0.20 per share, for an aggregate purchase price of up to $8.5 million. Upon the closing of the proposed transactions, the Company’s Board of Directors would include four members representing PJC and/or the Investors and one member representing the Consenting Convertible Note Holders.

On April 18, 2017, the Company launched an exchange offer (the "Convertible Note Exchange Offer") to the existing holders of its outstanding 8.5% Senior Unsecured Convertible Notes due 2019 (the "Convertible Notes" or "8.5% Convertible Notes") to exchange their Convertible Notes for 5% Senior Unsecured Convertible Notes due 2023 (the "New Convertible Notes" or "5% Convertible Notes").

On May 15, 2017, the Company entered into a $1.5 million Promissory Note with PJC (the "Bridge Note"), to provide financing to fund the Company's continued operations with a maturity date of July 3, 2017. The Bridge Note was amended on June 28, 2017 (the "Amended and Restated Bridge Note") to (i) increase the principal amount thereunder to $3.3 million and (ii) extend the maturity date from July 3, 2017 to the earlier of (a) July 28, 2017 and (b) the date on which the Master Transaction Agreements are consummated. Approximately $2.8 million was drawn on the Amended and Restated Bridge Note during the year ended December 31, 2017, respectively. All outstanding principal and interest amounts due under the Amended and Restated Bridge Note were repaid on July 28, 2017 in connection with the consummation of the recapitalization transactions as described below.

On July 28, 2017, the Company consummated a series of integrated transactions to effect a recapitalization of the Company (the "Transaction Closing") pursuant to the Master Transaction Agreements.

As of December 31, 2017, the Company has incurred approximately $4.6 million in costs related to the recapitalization transactions, and of this amount, $1.2 million is included in 8.5% Senior Secured Notes, $2.5 million is recognized as interest expense for 8.5% Convertible Notes and $937,000 is recorded in Additional paid-in-capital on the consolidated balance sheet.

Common Stock Purchase Agreement

In connection with the Transaction Closing, the Company entered into a Common Stock Purchase Agreement (the "Stock Purchase Agreement") by and among the Company, PJC, certain investors jointly designated by PJC and Triax Capital Advisors LLC, a New York limited liability company ("Triax"), to be party to the Stock Purchase Agreement (collectively, the "Common Stock Investors"), and certain Convertible Note Holders that were a party to the Stock Purchase Agreement (collectively, the "Convertible Note Holder Purchasers," and together with PJC and the Common Stock Investors, the "Purchasers"). Pursuant to the Stock Purchase Agreement, the Company issued and sold to the Purchasers 115,000,000 shares (the "Stock Purchase Agreement Shares") of the Company’s common stock, $0.01 par value, at a price of $0.20 per share for an aggregate purchase price of $23.0 million, of which PJC and the Common Stock Investors purchased 75,000,000 Stock Purchase Agreement Shares for an aggregate purchase price of $15.0 million and the Convertible Note Holder Purchasers, pursuant to the previously announced rights offering which expired on July 26, 2017, purchased 40,000,000 Stock Purchase Agreement Shares for an aggregate purchase price of $8.0 million, of which PJC purchased 19,320,038 shares in connection with the exercise of rights assigned to it by certain Convertible Note Holder Purchasers. The Stock Purchase Agreement contained customary representations, warranties, and covenants.

Common Stock Purchase Warrants

In connection with the Transaction Closing, the Company issued Common Stock Purchase Warrants (the "Warrants") to certain investors jointly designated by PJC and Triax (collectively, the "Warrant Investors") to purchase up to an aggregate of 42,500,000 shares of the Common Stock at an exercise price of $0.20 per share (the "Warrant Shares").

The Warrants shall vest and become exercisable as follows: (i) with respect to 17,500,000 Warrant Shares, immediately upon the issuance of the Warrants, and (ii) with respect to the remaining 25,000,000 Warrant Shares, at later times tied to the conversion of Convertible Notes (as defined below) and New Convertible Notes (as defined below) outstanding upon the Transaction Closing into shares of Common Stock or, if earlier, upon the date that all Convertible Notes or New Convertible Notes are no longer outstanding. The Warrants have an eight year term. The Warrants are subject to anti-dilution adjustment provisions.

Convertible Note Exchange Offer

Convertible Notes were tendered in the Convertible Note Exchange Offer. The amount of Convertible Notes exchanged included approximately $73.0 million of principal outstanding prior to the exchange and approximately $2.8 million of interest paid in kind at the exchange date. The outstanding principal of the Convertible Notes after the exchange was approximately $1.2 million.

Second Supplemental Indenture for Convertible Notes

In connection with the Transaction Closing, the Company entered into a supplemental indenture (the "Supplemental Indenture") to that certain Indenture dated February 21, 2014 between the Company and U.S. Bank, National Association, as indenture trustee (as amended and supplemented or otherwise modified from time to time, the "Convertible Note Indenture") governing the Convertible Notes. The purpose of the Supplemental Indenture was to eliminate substantially all of the restrictive covenants, eliminate certain events of default, eliminate the covenant restricting mergers and consolidations and modify certain provisions relating to defeasance contained in the Convertible Note Indenture and the Convertible Notes (collectively, the "Proposed Amendments") promptly after the receipt of the requisite consents for the Proposed Amendments.

New Convertible Note Indenture and New Convertible Notes

In connection with the Transaction Closing, the Company caused to be issued the New Convertible Notes in an aggregate amount of approximately $75.8 million pursuant to an Indenture (the "New Convertible Note Indenture") between the Company and U.S. Bank, National Association, as indenture trustee. The terms of the New Convertible Notes are governed by the New Convertible Note Indenture, which provides, among other things, that the New Convertible Notes are unsecured senior obligations of the Company and will mature on February 15, 2023. The New Convertible Notes bear interest at a rate of 5% per annum from the issue date, payable semi-annually on August 15 and February 15 of each year, beginning on August 15, 2017.

Senior Secured Note Purchase Agreement

In connection with the Transaction Closing, PJC, certain investors jointly designated by PJC and Triax (the "Note Purchase Investors") and holders (the "Senior Secured Note Holders") representing 100% of the aggregate outstanding principal amount of the Company’s 15.0% Senior Secured Notes entered into a Note Purchase Agreement (the "Note Purchase Agreement"). Pursuant to the Note Purchase Agreement, the Note Purchase Investors purchased 100% of the 15.0% Senior Secured Notes held by each Senior Secured Note Holder for an aggregate purchase price equal to the face amount of such purchased 15.0% Senior Secured Notes. The Note Purchase Agreement contained customary representations, warranties, and covenants.

In connection with the Transaction Closing, the Company paid each Senior Secured Note Holder 5% of the face amount of the 15.0% Senior Secured Notes held by such Senior Secured Note Holder as of immediately prior to the Transaction Closing, plus all accrued but unpaid interest on such 15.0% Senior Secured Notes through the date of the Transaction Closing, pursuant to that certain Exchange Participation Agreement dated April 7, 2017 among the Company and Senior Secured Note Holders representing 100% of the aggregate outstanding principal amount of the 15.0% Senior Secured Notes.

Amended and Restated Senior Secured Note Indenture and 8.5% Senior Secured Notes

In connection with the Transaction Closing, the Company and Wilmington Trust, National Association, as indenture trustee (the "Senior Secured Note Trustee") entered into an Amended and Restated Senior Secured Note Indenture (the "Amended and Restated Senior Secured Indenture") to amend and restate the Indenture dated as of March 11, 2016 (as amended and supplemented or otherwise modified from time to time, the "Senior Secured Indenture") between the Company and the Senior Secured Note Trustee following the Company’s receipt of requisite consents of the holders of the 15.0% Senior Secured Notes. Pursuant to the terms of the Amended and Restated Senior Secured Indenture, the Company caused the cancellation of all outstanding 15.0% Senior Secured Notes and the issuance of 8.5% Senior Secured Notes due 2021 (the "8.5% Senior Secured Notes") in an aggregate amount of $30.0 million. The Amended and Restated Senior Secured Indenture provides, among other things, that the 8.5% Senior Secured Notes will be secured senior obligations of the Company and will mature on July 15, 2021. The 8.5% Senior Secured Notes will bear interest at a rate of 8.5% per annum, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on September 15, 2017.

Special Dividend Note

Prior to the Transaction Closing, Lamington Road Designated Activity Company, an Irish section 110 company and an indirect subsidiary of the Company ("Lamington"), issued a promissory note to Markley Asset Portfolio, LLC, a Delaware limited liability company and an indirect subsidiary of the Company ("Markley"), in a principal amount of $57.0 million. The amount represents distributions of earnings from Lamington's share of profits of White Eagle, to satisfy the Profit Participation Note issued by Markley to Lamington (the "Special Dividend Note"). The Special Dividend Note matures on July 28, 2027 and bears interest at an annual rate of 5.0%. The Company has the opportunity to repatriate funds through repayment of principal and interest on this note without a U.S. federal or state income tax liability. The Special Dividend Note between the two entities will eliminate in consolidation.

See Note 21, "Income Tax", to the accompanying consolidated financial statements for further information.

Securities Purchase Agreement

On August 11, 2017, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") by and between the Company and Brennan Opportunities Fund I LP ("Brennan"). Pursuant to the Securities Purchase Agreement, Brennan purchased from the Company (i) 12,500,000 shares (the "Brennan Shares") of Common Stock at a price of $0.40 per share for an aggregate purchase price of $5.0 million and (ii) $5.0 million principal amount of the Company’s 8.5% Senior Secured Notes (the "Brennan Notes," and together with the Brennan Shares, the "Brennan Securities"). The Securities Purchase Agreement contained customary representations, warranties, and covenants.

The sale of the Brennan Securities was consummated on August 11, 2017, as to 8,750,000 shares of Common Stock and $3.5 million principal amount of 8.5% Senior Secured Notes, and on August 14, 2017, as to 3,750,000 shares of Common Stock and $1.5 million principal amount of 8.5% Senior Secured Notes.

Other Events

Our indirect subsidiary, White Eagle, is the owner of 606 life insurance policies with an aggregate death benefit of approximately $2.9 billion and an estimated fair value of approximately $566.7 million at December 31, 2017. White Eagle pledged its policies as collateral to secure borrowings made under the White Eagle Revolving Credit Facility, which is used, among other things, to pay premiums on the life insurance policies owned by White Eagle. Borrowings under the White Eagle Revolving Credit Facility fund the payment of premiums on the life insurance policies that have been pledged as collateral for the respective facilities. See "Liquidity and Capital Resources" under Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

During the year ended December 31, 2017, 13 life insurance policies with face amounts totaling $67.2 million matured. The net gain on these maturities was $35.9 million. The gains related to maturities are included in income from changes in fair value of life settlement in the consolidated statement of operations for the year ended December 31, 2017. All 13 policies had served as collateral under the White Eagle Revolving Credit Facility. Proceeds from maturities totaling $42.1 million were received during the year ended December 31, 2017. Of this amount, approximately $37.1 million, inclusive of approximately $2.5 million collected during the year ended December 31, 2016, were utilized to repay borrowings, interest and expenses under the White Eagle Revolving Credit Facility during the year ended December 31, 2017, with approximately $7.8 million on account for White Eagle awaiting distribution through the waterfall. We continue to believe that there are accretive opportunities to grow our existing portfolio of life settlements and intend, subject to our liquidity needs and available cash, to selectively deploy capital in both the secondary and tertiary life settlement markets. Assuming we recognize no policy maturities, our estimated premiums for 2018 would be $94.4 million. White Eagle would be eligible to borrow approximately $94.2 million of this amount under the White Eagle Revolving Credit Facility to pay premiums on policies secured by the White Eagle Revolving Credit Facility to the extent that is does not exceed the facility limit of $370.0 million. Approximately $141,000 in estimated premiums required to maintain the policies not pledged as collateral under the White Eagle Revolving Credit Facility as of December 31, 2017.

Reduction in Force

On August 3, 2017 and August 11, 2017, as a reduction in force, the Company reduced its headcount from 20 employees to 12 employees which included two of the Company’s executive officers. During the year ended December 31, 2017, the Company recognized a onetime severance cost of approximately $1.0 million related to this reduction, and the amounts are being paid over a period of twelve months.

Critical Accounting Policies

Critical Accounting Estimates

The preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. We base our judgments, estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions and conditions. We evaluate our judgments, estimates and assumptions on a regular basis and make changes accordingly. We believe that the judgments, estimates and assumptions involved in the accounting for income taxes, the valuation of life settlements, the valuation of the debt owing under the White Eagle Revolving Credit Facility and the valuation of our conversion derivative liability formerly embedded within the Convertible Notes have the greatest potential impact on our financial statements and accordingly believe these to be our critical accounting estimates.

Fair Value Measurement Guidance

We follow ASC 820, Fair Value Measurements and Disclosures, which defines fair value as an exit price representing the amount that would be received if an asset were sold or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. Level 1 relates to quoted prices in active markets for identical assets or liabilities. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Our investments in life insurance policies and White Eagle Revolving Credit Facility debt are considered Level 3 as there is currently no active market where we are able to observe quoted prices for identical assets/liabilities and our valuation model incorporates significant inputs that are not observable. See Note 15, "Fair Value Measurements" to the accompanying consolidated financial statements for a discussion of our fair value measurement.

Fair Value Option

We have elected to account for life settlements using the fair value method. The fair value of the asset is the estimated amount that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We calculate the fair value of the asset using a present value technique to estimate the fair value of its life settlements. The Company currently uses a probabilistic method of valuing life insurance policies, which the Company believes to be the preferred valuation method in the industry. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. See Note 7, "Life Settlements (Life Insurance Policies)" and Note 15, "Fair Value Measurements" for further information.

We have elected to account for the debt under the White Eagle Revolving Credit Facility, which includes the interest in policy proceeds to the lender, using the fair value method. The fair value of the debt is the estimated amount that would have to be paid to transfer the debt to a market participant in an orderly transaction. We calculated the fair value of the debt using a discounted cash flow model taking into account the stated interest rate of the credit facility and probabilistic cash flows from the pledged policies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, our estimates are not necessarily indicative of the amounts that we, or holders of the instruments, could realize in a current market exchange. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. The use of assumptions and/or estimation methodologies could have a material effect on the estimated fair values.

Income Recognition

Our primary sources of income are in the form of changes in fair value of life settlements and gains on life settlements, net. Our income recognition policies for these sources of income are as follows:

•

Changes in Fair Value of Life Settlements—When the Company acquires certain life insurance policies we initially record these investments at the transaction price, which is the fair value of the policy for those acquired upon relinquishment or the amount paid for those policies acquired for cash. The fair value of the investment in insurance policies is evaluated at the end of each reporting period. Changes in the fair value of the investment based on

evaluations are recorded as changes in fair value of life settlements in our consolidated statement of operations. The fair value is determined on a discounted cash flow basis that incorporates 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 premium an investor in the policy would require. The Company recognizes income from life settlement maturities on the date we are in receipt of death notice or verified obituary of the insured. This income is the difference between the death benefits and fair values of the policy at the time of maturity.


•	Gain/Loss on Life Settlements, Net—The Company recognizes gains or losses from life settlement contracts that the Company owns upon the signed sale agreement and/or filing of ownership forms and funds transferred to escrow.

Deferred Debt Costs

Deferred debt costs include costs incurred in connection with acquiring and maintaining debt arrangements. These costs are directly deducted from the carrying amount of the liability in the consolidated balance sheets, are amortized over the life of the related debt using the effective interest method and are classified as interest expense in the accompanying consolidated statement of operations. These deferred costs are related to the Company's 8.5% Convertible Notes, 5% Convertible Notes and 8.5% Senior Secured Notes. The Company did not recognize any deferred debt costs on the Revolving Credit Facilities given all costs were expensed due to electing the fair value option in valuing the Revolving Credit Facilities.

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes. Under ASC 740, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies varies, adjustments to the carrying value of the deferred tax assets and liabilities may be required. Valuation allowances are based on the "more likely than not" criteria of ASC 740.

Our provision for income taxes results in an annual effective tax rate of 0% in 2017 compared to 0% in 2016. The accounting for uncertain tax positions guidance under ASC 740 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We recognize interest and penalties (if any) on uncertain tax positions as a component of income tax expense.

The Company recorded a liability for the conversion derivative liability attributed to the issuance of the Convertible Notes, a deferred tax asset of $6.5 million for the conversion derivative liability and a deferred tax liability of $6.5 million for the corresponding debt discount. As the changes in the fair value of the conversion derivative liability were included in earnings, the Company recorded additions to the deferred tax asset. At June 5, 2014, when the Company received shareholder approval to issue shares of common stock upon conversion of the Convertible Notes, the deferred tax asset attributed to the conversion derivative liability (net of allocated unamortized transaction costs) was $8.8 million. In accordance with ASC 815, the Company reclassified the deferred tax asset attributed to the conversion derivative liability (net of allocated unamortized transaction costs) to shareholders’ equity. See Note 10, "8.50% Senior Unsecured Convertible Notes" to the accompanying consolidated financial statements.

On December 22, 2017 the United States enacted the Tax Cuts and Jobs Act ("TCJA"). Effective for 2018, under certain circumstances, Section 245A enacted by the TCJA eliminates U.S. federal income tax on dividends received from foreign subsidiaries of domestic corporations under a new participation exemption. However, the TCJA also creates a new tax on certain taxed foreign income under new Section 951A. Specifically, income earned in excess of a deemed return on tangible assets held by a controlled foreign corporation (such excess called Global Intangible Low-Taxed Income ("GILTI") must now generally be included as U.S. taxable income on a current basis by its U.S. shareholders. Based on the Company’s life settlement assets held within Ireland, management expects the net income generated from these activities to qualify entirely as GILTI. On January 10, 2018, the FASB provided guidance on how to account for deferred tax assets and liabilities expected to reverse in future years as GILTI. The FASB provided that a company may either (1) elect to treat taxes due on future U.S. inclusions of GILTI as a current-period expense when incurred or (2) factor such amounts into the Company’s measurement of its deferred taxes. For ASC 740 purposes, the Company intends to adopt an accounting policy to treat any future GILTI

inclusion as a current-period expense instead of providing for U.S. deferred taxes on all temporary differences related to future GILTI items.

Stock-Based Compensation

We have adopted ASC 718, Compensation—Stock Compensation. ASC 718 addresses accounting for share-based awards, including stock options, restricted stock, performance shares and warrants, with compensation expense measured using fair value and recorded over the requisite service or performance period of the award. The fair value of equity instruments will be determined based on a valuation using an option pricing model that takes into account various assumptions that are subjective. Key assumptions used in the valuation will include the expected term of the equity award taking into account both the contractual term of the award, the effects of expected exercise and post-vesting termination behavior, expected volatility, expected dividends and the risk-free interest rate for the expected term of the award. Compensation expense associated with performance shares is only recognized to the extent that it is probable the performance measurement will be met.

Held-for-sale and discontinued operations

The Company reports a business as held-for-sale when management has approved or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the ensuing year and certain other specified criteria are met. A business classified as held-for-sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. Depreciation is not recorded on assets of a business classified as held-for-sale. Assets and liabilities related to a business classified as held-for-sale are segregated in the Consolidated Balance Sheet and major classes are separately disclosed in the notes to the Consolidated Financial Statements commencing in the period in which the business is classified as held-for-sale. The Company reports the results of operations of a business as discontinued operations if the business is classified as held-for-sale, the operations and cash flows of the business have been or will be eliminated from the ongoing operations of the Company as a result of a disposal transaction and the Company will not have any significant continuing involvement in the operations of the business after the disposal transaction. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statement of Operations for current and prior periods commencing in the period in which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell. During the fourth quarter of 2013, the Company sold substantially all of its structured settlements business. As a result, the Company has classified its structured settlement operating results as discontinued operations.

Foreign Currency

The Company owns certain foreign subsidiaries formed under the laws of Ireland and Bermuda. These foreign subsidiaries utilize the U.S. dollar as their functional currency. The foreign subsidiaries’ financial statements are denominated in U.S. dollars and therefore, there are no translation gains and losses resulting from converting the financial statements at exchange rates other than the functional currency. Any gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the subsidiaries’ functional currency) are included in income. These gains and losses are immaterial to the Company’s financial statements.

Accounting Changes

Note 2, "Summary of Significant Accounting Policies," of the Notes to Consolidated Financial Statements discusses accounting standards adopted in 2017, as well as accounting standards recently issued but not yet required to be adopted and the expected impact of these changes in accounting standards. Any material impact of adoption is discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements.

Consolidated Results of Operations

Results of Continuing Operations

2017 Compared to 2016

Net loss from continuing operations for the year ended December 31, 2017 was $3.2 million as compared to a loss of $49.4 million for the year ended December 31, 2016. There was no tax benefit for the year ended December 31, 2017. The following is our analysis of net loss for the year (in thousands).



	Year Ended December 31,
	2017			2016			Change		% Change
Income	$	51,873		$	1,115		$	50,758	4,552	%	increase
Expenses	55,111			50,544			4,567		9	%	increase
Net loss	$	(3,238	)	$	(49,429	)	$	46,191	(93	)%	decrease

Income for the year ended December 31, 2017 was comprised mainly of a gain on maturity of 13 life settlements of $35.9 million compared to a net gain of $17.9 million on maturity of 12 life settlements during the same period in 2016.

Our income for the year ended December 31, 2016 was significantly impacted by the adoption of the 2015 VBT, which resulted in a reduction in fair value of life settlements of approximately $17.6 million.

Total expenses from continuing operations for the year ended December 31, 2017 were mainly comprised of interest expense of $16.8 million on the White Eagle Revolving Credit Facility; $9.2 million on the 8.5% Convertible Notes; $2.1 million on the 5% Convertible Notes; $2.8 million on the 15% Senior Secured Notes; $1.4 million on the 8.5% Senior Secured Notes, $2.0 million loss on extinguishment of debt, and a change in the fair value of the White Eagle Revolving Credit Facility of $4.5 million.

Total expenses for the year ended December 31, 2016 were also significantly impacted by a $15.7 million gain for the change in fair value of the Revolving Credit Facilities which is associated with the adoption of the 2015 VBT.

Change in fair value of life settlements (in thousands)



	Year Ended December 31,
	2017		2016		Change		% Change
Change in fair value of life settlements	$	51,551	$	864	$	50,687	5,867	%	increase

During the year ended December 31, 2017, 13 life insurance policies with face amounts totaling $67.2 million matured, compared to 12 policies with face amounts of $37.5 million for the same period in 2016. The net gain of these maturities was $35.9 million and $17.9 million for 2017 and 2016, respectively, and is recorded as a change in fair value of life settlements in the consolidated statements of operations for the years ended December 31, 2017 and 2016. All 13 of the maturities served as collateral under the White Eagle Revolving Credit Facility. Proceeds from maturities totaling $42.1 million were received during the year ended December 31, 2017. Of this amount, approximately $37.1 million inclusive of approximately $2.5 million collected during the year ended December 31, 2016 were utilized to repay borrowings, interest and credit facility expenses under the White Eagle Revolving Credit Facility. The Company also recorded a $30.0 million receivable for maturity of life settlements at December 31, 2017 relating to policies pledged to the White Eagle Revolving Credit Facility.

During the year ended December 31, 2016, the Company changed its valuation technique when it decided to adopt the 2015 VBT, smoker and gender distinct tables, to determine the value of the policies. The resulting impact was a reduction in the fair value of the life settlements of approximately $17.6 million for the year ended December 31, 2016.

Other items impacting the change in fair value include updated life expectancies procured by the Company in respect of the insureds' lives and maturities. The updated life expectancy reports implied that, in the aggregate, the insureds’ health improved, therefore lengthening their life expectancies relative to the prior life expectancies, which resulted in a decrease in fair value.

The Company re-evaluates its discount rates at the end of each reporting period in order to reflect the estimated discount rates that could reasonably be used in a market transaction involving the Company's portfolio of life settlements. In doing so, consideration is given to the various factors influencing the rates, including credit exposure of the insurance company that issued the life insurance policy, and the estimated risk premium an investor in the policy would require, among other factors. At December 31, 2017, the Company determined that the weighted average discount rate calculated based on death benefit was 15.95% compared to 16.37% at December 31, 2016. This resulted in a positive impact for the change in fair value of our life settlement for the year ended December 31, 2017.

As of December 31, 2017, we owned 608 policies with an estimated fair value of $567.5 million compared to 621 policies with a fair value of $498.4 million at December 31, 2016, an increase of $69.1 million or 14%. Of the 608 policies, 606 policies were pledged to the White Eagle Revolving Credit Facility. During the year ended December 31, 2016, the Company purchased $3.1 million in additional death benefit by acquiring retained portions of policy benefits from 20 policies for approximately $1.4 million. In addition, we acquired one life insurance policy for the same period ended 2016, which resulted in a gain of approximately $262,000. As of December 31, 2017, the aggregate death benefit of our life settlements was $2.9 billion.

Of these 608 policies owned as of December 31, 2017, 530 were previously premium financed and are valued using discount rates that range from 15.50% – 21.00%. The remaining 78 policies are valued using discount rates that range from 14.50% – 17.50%. See Note 15, "Fair Value Measurements," to the accompanying consolidated financial statements.

Expenses (in thousands)



	Year Ended December 31,
	2017		2016			Change			% Change
Interest expense	$	32,797	$	29,439		$	3,358		11	%	increase
Loss on extinguishment of debt	2,018		554			1,464			264	%	increase
Change in fair value of Revolving Credit Facilities	4,501		(1,898		)	6,399			(337	)%	increase
SG&A expenses	15,795		22,449			(6,654		)	(30	)%	decrease
Total Expense	$	55,111	$	50,544		$	4,567		9	%	increase

Interest expense (in thousands)



	Year Ended December 31,
	2017		2016		Change			% Change
White Eagle Revolving Credit Facility	$	16,819	$	11,422	$	5,397		47	%	increase
Red Falcon Revolving Credit Facility	—		4,260		(4,260		)	(100	)%	decrease
8.5% Convertible Notes	9,206		9,737		(531		)	(5	)%	decrease
15% Senior Secured Notes	2,784		4,008		(1,224		)	(31	)%	decrease
5% Convertible Notes	2,107		—		2,107			100	%	increase
8.5% Senior Secured Notes	1,370		—		1,370			100	%	increase
Participation Interest - White Eagle Revolving Credit Facility	467		$	—	467			100	%	increase
Other	44		12		32			267	%	increase
Total Interest Expense	$	32,797	$	29,439	$	3,358		11	%	increase

Outstanding debt for the year ended December 31, 2017 included $329.0 million of outstanding principal on the White Eagle Revolving Credit Facility, $1.2 million of 8.5% Convertible Notes, $75.8 million of 5% Convertible Notes and $35.0 million of 8.5% Senior Secured Notes.

The Company's outstanding debt increased by $78.9 million from $362.1 million at December 31, 2016 to $441.1 million at December 31, 2017. The increase is mainly attributable to a net increase in principal of $67.7 million on the White Eagle Revolving Credit Facility, a $75.8 million increase in the 5% Convertible Notes, a $35.0 million increase in the 8.5% Senior Secured Notes, offset by a repayment of $30.0 million on the 15% Senior Secured Notes and a $69.5 million decrease in the 8.5% Convertible Notes.

Of the interest expense of $32.8 million for the year ended December 31, 2017, approximately $16.8 million represents interest paid on the White Eagle Revolving Credit Facility. The increase in interest expense resulted from an increase in the principal balance of the facility and an increase in the LIBOR floor from 1.69% to 2.11% at December 31, 2017. Interest expense also includes approximately $467,000 for participation interest on the Facility paid during the year ended December 31, 2017.

The Red Falcon Revolving Credit Facility (as defined below) which was held by one of our subsidiaries, Red Falcon Trust, was terminated in December 2016 and the policies were acquired by White Eagle, shows a decrease of approximately $4.3 million when compared to the year ended December 31, 2016. There was no interest expense for this facility during 2017 given the debt was fully repaid during the year ended December 31, 2016.

Interest expense on the 8.5% Convertible Notes totaled $9.2 million, including $4.2 million, $2.5 million,$2.1 million and $314,000 from interest, one time debt modification cost, amortizing debt discounts and originations costs, respectively, during the year ended December 31, 2017. Interest for the year ended December 31, 2017 included approximately $522,000 of additional interest paid in kind to note holders.

The Company recorded $2.1 million of interest expense on the 5.0% Convertible Notes, including $1.6 million, $432,000 and $64,000 from interest, amortization of debt discount and origination costs, respectively. The 5% Convertible Notes originated in 2017 and, therefore, there was no related interest expense during the year ended December 31, 2016.

The Company recorded $2.8 million of interest expense on the 15% Senior Secured Notes, including $2.6 million and $184,000 from interest and amortizing debt discounts, respectively, during the year ended December 31, 2017.

The Company recorded approximately $1.4 million of interest expense on the 8.5% Senior Secured Notes, which includes $1.3 million of interest and $98,000 of amortizing debt issuance costs. The 8.5% Senior Secured Notes originated in 2017 and, therefore, there was no related interest expense during the year ended December 31, 2017.

Of the interest expense of $29.4 million for the year ended December 31, 2016, approximately $11.4 million represents interest paid on the White Eagle Revolving Credit Facility and approximately $4.3 million was attributable to the Red Falcon Revolving Credit Facility. Interest included $388,000 and $297,000 of debt issuance costs for the White Eagle Revolving Credit Facility and the Red Falcon Revolving Credit Facility, respectively, which were not capitalized as a result of electing the fair value option for valuing these debt facilities, and $11.0 million and $4.0 million related to interest payments paid during the year ended December 31, 2016, respectively. The Red Falcon Revolving Credit Facility was fully repaid on December 29, 2016.

Interest expense on the Convertible Notes totaled $9.7 million of interest expense on the Convertible Notes, including $6.0 million, $3.2 million and $480,000 from interest, amortizing debt discounts and origination costs, respectively.

The Company recorded approximately $4.0 million of interest expense on the 15% Senior Secured Notes, which includes $3.7 million of interest and $356,000 of amortizing debt issuance costs, during the year ended December 31, 2016.

See Notes 8, "White Eagle Revolving Credit Facility," 9, "Red Falcon Revolving Credit Facility," 10, "8.50% Senior Unsecured Convertible Notes," 11, "5% Senior Unsecured Convertible Notes," 12, "15.0% Senior Secured Notes," and 13, "8.5% Senior Secured Notes," to the accompanying consolidated financial statements for further information.

Extinguishment of debt (in thousands)



	Year Ended December 31,
	2017		2016		Change		% Change
Loss on extinguishment of debt	$	2,018	$	554	$	1,464	264	%	increase
	$	2,018	$	554	$	1,464	264	%	increase

During the year ended December 31, 2017, approximately $2.0 million was recorded in loss on the extinguishment of debt for the 15.0% Senior Secured Notes, including $1.5 million and $518,000 related to prepayment penalty and write off of origination cost, respectively.

During the year ended December 31, 2016, the Company terminated the Red Falcon Revolving Credit Facility. The outstanding principal balance and unpaid interest due was paid upon termination of the facility on December 29, 2016 was $65.1 million. Approximately $554,000 was recorded as a loss on extinguishment of debt related to the early repayment of the facility. This includes the debt valuation allowance of $239,000 and costs incurred related to the facility termination of $315,000 at December 31, 2016.

See Notes 9 "Red Falcon Revolving Credit Facility," and 12 "15% Senior Secured Notes" of the accompanying consolidated financial statements.

Change in fair value of the Revolving Credit Facilities (in thousands)



	Year Ended December 31,
	2017		2016			Change		% Change
White Eagle Revolving Credit Facility	$	4,501	$	(1,389	)	$	5,890	(424	)%	increase
Red Falcon Revolving Credit Facility	—		(509		)	509		(100	)%	decrease
Total Change in Fair Value of Revolving Credit Facilities	$	4,501	$	(1,898	)	$	6,399	(337	)%	increase

At December 31, 2017, the White Eagle Revolving Credit Facility shows a loss of approximately $4.5 million compared to a gain of $1.4 million or the year ended December 31, 2016. This loss in 2017 is attributable to a combination of offsetting factors as discussed below:

During the year ended December 31, 2017, the fair value of the White Eagle Revolving Credit Facility was impacted by increased borrowings, the lengthening of life expectancies of certain insureds' underlying policies pledged under the White Eagle Revolving Credit Facility and a slight increase in the discount rate used to value the facility.

During the year ended December 31, 2016, the Company changed its valuation technique by adopting the 2015 VBT, smoker and gender distinct tables, to determine the value of the life insurance policies pledged as collateral in the facility. The resulting impact was a positive change in fair value of the White Eagle Revolving Credit Facility of approximately $14.7 million. This amount is shown as a reduction to our expenses on the statement of operations for the year ended December 31, 2016.

Change in fair value of Revolving Credit Facilities also includes a gain of $509,000 attributable to the Red Falcon Revolving Credit Facility for the year ended December 31, 2016.

The change resulting from the Company's adoption of the 2015 VBT resulted in a positive change in fair value of the Red Falcon Revolving Credit Facility of approximately $1.0 million. This amount is shown as a reduction to our expenses on the statement of operations for the year ended December 31, 2016. The Red Falcon Revolving Credit Facility was fully repaid on December 29, 2016.

The White Eagle Revolving Credit Facility is valued at December 31, 2017 using discount rates of 18.57% compared to 18.50% for the year ended December 31, 2016.

See Note 15, "Fair Value Measurements," to the accompanying consolidated financial statements.

Selling, general and administrative expenses (in thousands)



	Year Ended December 31,
	2017		2016		Change			% Change
Personnel costs	$	5,069	$	6,070	$	(1,001	)	(16	)%	decrease
Legal fees	3,721		6,427		(2,706		)	(42	)%	decrease
Professional fees	4,445		7,081		(2,636		)	(37	)%	decrease
Insurance	783		835		(52		)	(6	)%	decrease
Other SG&A	1,777		2,036		(259		)	(13	)%	decrease
Total SG&A Expense	$	15,795	$	22,449	$	(6,654	)	(30	)%	decrease

The decrease in SG&A expense was primarily the result of a decrease in legal expense of $2.7 million, a decrease in professional fees of $2.6 million, a decrease in personnel costs of $1.0 million, a decrease other SG &A of $259,000 and a decrease in insurance costs of $52,000.

On August 3, 2017 and August 11, 2017, as a reduction in force, the Company reduced its headcount from 20 employees to 12 employees, included in this reduction in force were two of the Company’s executive officers. During the year ended December 31, 2017, the Company recognized a onetime severance cost of approximately $1.0 million related to this reduction, which amounts are being paid over a period of twelve months.

2016 Compared to 2015

Net loss from continuing operations for the year ended December 31, 2016 was $49.4 million as compared to $30.4 million for the year ended December 31, 2015. Our net loss for the year ended December 31, 2015 included approximately $8.7 million in income tax benefit. There was no tax benefit for the year ended December 31, 2016. The following is our analysis of net loss for the period (in thousands).



	Year Ended December 31,
	2016			2015			Change			% Change
Income	$	1,115		$	46,891		$	(45,776	)	(98	)%	decrease
Expenses	50,544			85,990			(35,446		)	(41	)%	decrease
Income tax (benefit)	—			(8,719		)	8,719			(100	)%	decrease
Net loss	$	(49,429	)	$	(30,380	)	$	(19,049	)	63	%	increase

Income from continuing operations for the year ended December 31, 2015 was significantly higher due to the maturity of 17 policies with a net gain of approximately $47.9 million compared to 12 policies with a net gain of approximately $17.9 million for the year ended December 31, 2016. Our income for the year ended December 31, 2016 was also significantly impacted by the adoption of the 2015 VBT, which resulted in a reduction in fair value of life settlements of $17.6 million.

Our expenses from continuing operations for the year ended December 31, 2015 were significantly higher than 2016 due to legal expenses of $20.7 million compared to $6.4 million, change in fair value of the Revolving Credit Facilities of $12.2 million compared to a gain of $1.9 million and a loss on extinguishment of Secured Notes of $8.8 million compared to a loss on extinguishment of the Red Falcon Revolving Credit Facility of $554,000 for the years ended December 31, 2015 and December 31, 2016, respectively. Legal expenses for the year ended December 31, 2015 included approximately $6.5 million in payments relating to the Company's indemnification obligations for the conclusion of the USAO Investigation.

Our net loss for the year ended December 31, 2015 includes an income tax benefit of approximately $8.7 million.

There was no income tax benefit recognized during the year ended December 31, 2016.

See Notes 21, "Income Taxes," to the accompanying consolidated financial statements.

Change in Fair Value of Life Settlements (in thousands)



	Year Ended December 31,
	2016		2015		Change			% Change
Change in fair value of life settlements	$	864	$	46,717	$	(45,853	)	(98	)%	decrease

During the year ended December 31, 2016, 12 life insurance policies with face amounts totaling $37.5 million matured, compared to 17 policies with face amounts of $67.4 million for the same period in 2015. The net gain of these maturities was $17.9 million and $47.9 million for 2016 and 2015, respectively, and is recorded as a change in fair value of life settlements in the consolidated statements of operations for the years ended December 31, 2016 and 2015. Of these maturities, four served as collateral under the Red Falcon Revolving Credit Facility and eight served as collateral under the White Eagle Revolving Credit Facility. Proceeds from maturities totaling $50.5 million were received during the year ended December 31, 2016. Of this amount, approximately $40.5 million and $7.6 million were utilized to repay borrowings, interest and credit facility expenses under the White Eagle Revolving Credit Facility and the Red Falcon Revolving Credit facility, respectively, during the year ended December 31, 2016, and $2.5 million was used to repay interest and credit facility expenses under the White Eagle Revolving Credit Facility during 2017. Approximately $5.0 million in policy proceeds received at the end of 2015 were used to repay borrowings, interest, and expenses for White Eagle during 2016. The Company also recorded a $5.0 million receivable for maturity of life settlements at December 31, 2016 relating to a policy pledged to the White Eagle Revolving Credit Facility.

During the second quarter ended June 30, 2016, the Company changed its valuation technique and decided to adopt the 2015 VBT, smoker and gender distinct tables, to determine the value of the policies. The resulting impact was a reduction in the fair value of the life settlements of approximately $17.6 million for the year ended December 31, 2016.

Other items impacting the change in fair value include updated life expectancies procured by the Company in respect of the insured lives and maturities. The updated life expectancy reports implied that in aggregate, the insureds’ health improved, therefore lengthening their life expectancies relative to the prior life expectancies, which resulted in a decrease in fair value.

The change in fair value was further impacted by a reduction in estimated risk premium which drives our discount rate. The Company re-evaluates its discount rates at the end of each reporting period in order to reflect the estimated discount rates that could reasonably be used in a market transaction involving the Company's portfolio of life settlements. In doing so, consideration is given to the various factors influencing the rates, including credit exposure of the insurance company that issued the life insurance policy, and the estimated risk premium an investor in the policy would require, among other factors. In considering these factors, at December 31, 2016, the Company determined that the weighted average discount rate calculated based on death benefit was 16.37% compared to 17.02% at December 31, 2015. This resulted in a positive impact for the change in fair value of our life settlement for the year ended December 31, 2016.

As of December 31, 2016, the Company owned 621 policies with an estimated fair value of $498.4 million compared to 632 policies with a fair value of $461.9 million at December 31, 2015, an increase of $36.5 million or 8%. Of the 621 policies, 619 policies were pledged to the White Eagle Revolving Credit Facility. During the year ended December 31, 2016, the Company purchased $3.1 million in additional death benefit by acquiring retained portions of policy benefits from 20 policies for approximately $1.4 million. During the year ended December 31, 2016, the Company acquired one life insurance policy that resulted in a gain of approximately $262,000 compared to 43 policies during the same period in 2015 for a gain of $6.0 million. The gain related to acquisitions is included in income from changes in fair value of life settlement in the consolidated statements of operations for the year ended December 31, 2016. As of December 31, 2016, the aggregate death benefit of our life settlements was $2.9 billion.

Of these 621 policies owned as of December 31, 2016, 539 were previously premium financed and are valued using discount rates that range from 16.00% - 21.00%. The remaining 82 policies are valued using discount rates that range from 15.00% - 18.00%. See Note 15, "Fair Value Measurements," to the accompanying consolidated financial statements.

Loss on life settlements, net (in thousands)



	Year Ended December 31,
	2016		2015			Change		% Change
Loss on life settlements, net	$	—	$	(41	)	$	41	(100	)%	decrease

There were no policy sales during the year ended December 31, 2016. The loss in 2015 is related to one policy sale on net proceeds of $2.2 million.

Expenses (in thousands)



	Year Ended December 31,
	2016			2015		Change			% Change
Interest expense	$	29,439		$	27,286	$	2,153		8	%	increase
Loss on extinguishment debt	554			8,782		(8,228		)	(94	)%	decrease
Change in fair value of Revolving Credit Facilities	(1,898		)	12,197		(14,095		)	(116	)%	decrease
SG&A expenses	22,449			37,725		(15,276		)	(40	)%	decrease
Total Expense	$	50,544		$	85,990	$	(35,446	)	(41	)%	decrease

Interest expense (in thousands)



	Year Ended December 31,
	2016		2015		Change			% Change
White Eagle Revolving Credit Facility	$	11,422	$	9,239	$	2,183		24	%	increase
Red Falcon Revolving Credit Facility	4,260		4,860		(600		)	(12	)%	decrease
Convertible Notes	9,737		9,145		592			6	%	increase
15.0% Senior Secured Notes	4,008		—		4,008			100	%	increase
12.875% Senior Secured Notes	—		4,019		(4,019		)	(100	)%	decrease
Other	12		23		(11		)	(48	)%	decrease
Total Interest Expense	$	29,439	$	27,286	$	2,153		8	%	increase

Outstanding debt for the year ended December 31, 2016 includes $261.4 million of outstanding principal on the White Eagle Revolving Credit Facility, $70.7 million of Convertible Notes and $30.0 million of 15% Senior Secured Notes.

The Company's outstanding debt increased by $64.0 million from $298.2 million at December 31, 2015 to $362.1 million at December 31, 2016. The increase is mainly attributable to a net increase in principal of $89.3 million on the White Eagle Revolving Credit Facility and a $30.0 million increase in the 15% Senior Secured Notes, offset by a $55.4 million decrease in the principal balance of the Red Falcon Revolving Credit Facility debt which was terminated on December 29, 2016. During the year ended December 31, 2015, the Company redeemed the outstanding 12.875% Senior Secured Notes.

Interest expense on the Convertible Notes totaled $9.7 million, including $6.0 million, $3.2 million and $480,000 representing interest, amortization of debt discount and issuance costs, respectively. We recorded $4.0 million of interest expense on the 15% Senior Secured Notes, including $3.7 million and $356,000 from interest and amortizing debt discounts, respectively, during the year ended December 31, 2016.

Of the interest expense of $27.3 million for year ended December 31, 2015, approximately $9.2 million represents interest paid on the White Eagle Revolving Credit Facility, which included $6.7 million withheld from borrowings by the lender and $2.5 million paid by White Eagle. Approximately $4.9 million represents interest expense attributable to the Red Falcon Revolving Credit Facility, which includes approximately $3.3 million attributable to debt issuance costs not capitalized as a result of electing the fair value option for valuating this debt and an additional$1.6 million related to interest payments paid during the year ended December 31, 2015.

Interest expense on the Convertible Notes totaled $9.1 million including $6.0 million, $2.7 million and $404,000 representing interest, amortization of debt discount and issuance costs, respectively.

The Company recorded $4.0 million of interest expense on the 12.875% Senior Secured Notes, including $3.2 million, $265,000, $264,000, and $277,000 from interest, unused fees, amortizing debt discounts and issuance costs, respectively, during the year ended December 31, 2015.

See Notes 8, "White Eagle Revolving Credit Facility," 9, "Red Falcon Revolving Credit Facility," and 10, "8.50% Senior Unsecured Convertible Notes,"," to the accompanying consolidated financial statements.

Extinguishment of debt (in thousands)



	Year Ended December 31,
	2016		2015		Change			% Change
Extinguishment of debt	$	554	$	8,782	$	(8,228	)	(94	)%	decrease

During the year ended December 31, 2016, the Company terminated the Red Falcon Revolving Credit Facility. The outstanding principal balance and unpaid interest due and paid upon termination of the facility on December 29, 2016 was $65.1 million. Approximately $554,000 was recorded as a loss on extinguishment of debt related to the early repayment of the facility. This includes the debt valuation allowance of $239,000 and costs incurred related to the facility termination of $315,000 at December 31, 2016.

During the year ended December 31, 2015, the Company redeemed all of the outstanding 12.875% Senior Secured Notes and discharged the related Secured Note indenture. The Secured Notes were redeemed at 106% of their principal amount plus interest up to but excluding November 10, 2015. Approximately $8.8 million was expensed as extinguishment related to the early repayment of the Secured Notes for the year ended December 31, 2015. This included $5.2 million, $171,000, $1.7 million and $1.7 million related to interest and prepayment penalties, unused fees, write off of debt discount and write off of issuance cost.

See Note 9 "Red Falcon Revolving Credit Facility," of the accompanying consolidated financial statements.

Change in fair value of the Revolving Credit Facilities (in thousands)



	Year Ended December 31,
	2016			2015		Change			% Change
White Eagle Revolving Credit Facility	$	(1,389	)	$	11,926	$	(13,315	)	(112	)%	decrease
Red Falcon Revolving Credit Facility	(509		)	270		(779		)	(289	)%	decrease
Total Change in Fair Value of Revolving Credit Facilities	$	(1,898	)	$	12,196	$	(14,094	)	(116	)%	decrease

At December 31, 2016, the White Eagle Revolving Credit Facility shows a gain of approximately $1.4 million compared to a loss of $11.9 million for the year ended December 31, 2015. This gain in 2016 is attributable to a combination of offsetting factors as discussed below:

During the second quarter ended June 30, 2016, the Company changed its valuation technique by adopting the 2015 VBT, smoker and gender distinct tables, to determine the value of the life insurance policies pledged as collateral in the facilities. The resulting impact was a positive change in the cash flows which drives the change in fair value of the White Eagle Revolving Credit Facility of approximately $14.7 million.

On December 29, 2016, White Eagle entered into a second amendment to the Amended and Restated Loan and Security Agreement. As amended, the expected repayment term of the facility was increased by approximately 4 years with the lender's commitment expiring on December 31, 2031; prior to the amendment, the commitment was scheduled to expire on April 30, 2028. This extension has impacted the overall cash flow that drives the fair value calculation of the facility. In addition, 190 life settlement policies purchased from Red Falcon Trust and other affiliates of the Company were pledged as additional collateral under the facility. These policies have characteristics that are more aged, and, as a result, maturities are expected to occur earlier on these policies compared to the policies that existed in the White Eagle Revolving Credit Facility prior to this acquisition, which allows an earlier expected repayment, thus impacting the White Eagle Revolving Credit Facility duration. The amendment now requires the parent company to maintain a cash interest coverage ratio which, if not met, may provide the lender the option to sweep 100% of remaining maturity proceeds after all facility expenses and interest are satisfied. The Company believes that the presence of such covenant does lend some improvement in the overall risk profile of the facility after the amendment.

In considering the factors above, management felt it is reasonable to apply a onetime reduction in the discount rate. This one time reduction had a negative impact on the fair value of the White Eagle Revolving Credit Facility, which was offset by increased borrowings and lengthening of life expectancies of certain insureds underlying policies pledged as collateral in the facility. The White Eagle Revolving Credit Facility is valued at December 31, 2016 using a discount rate of 18.50% compared to 20.55% for the year ended December 31, 2015.

Change in fair value of Revolving Credit Facilities also includes a gain of $509,000 attributable to the Red Falcon Revolving Credit Facility for the year ended December 31, 2016. This facility was terminated on December 29, 2016.

See Note 15, "Fair Value Measurements," to the accompanying consolidated financial statements.

Selling, General and Administrative Expenses (in thousands)



	Year Ended December 31,
	2016		2015		Change			% Change
Personnel costs	$	6,070	$	6,384	$	(314	)	(5	)%	decrease
Legal fees	6,427		20,739		(14,312		)	(69	)%	decrease
Professional fees	7,081		7,133		(52		)	(1	)%	decrease
Insurance	835		1,275		(440		)	(35	)%	decrease
Other SG&A	2,036		2,194		(158		)	(7	)%	decrease
Total SG&A Expense	$	22,449	$	37,725	$	(15,276	)	(40	)%	decrease

The decrease in SG&A expense was primarily the result of a decrease in legal expense of $14.3 million, a decrease in insurance costs of $440,000and a decrease in personnel costs of $314,000.

During the year ended December 31, 2016, as part of a reduction in force, the Company reduced its headcount from 31 employees to 24 employees inclusive of two executives. The expense associated with this reduction was approximately $1.0 million for the year ended December 31, 2016 which related to separation costs.

Legal expenses for the year ended December 31, 2016 were $6.4 million compared to $20.7 million for the year ended December 31, 2015. Of the legal expense, approximately $1.7 million was associated with the USAO Investigation, SEC

Investigation, IRS Investigation and related matters for the year ended December 31, 2016, compared to $17.0 million for the year ended December 31, 2015. Amounts for 2015 mainly relate to the USAO Investigation, which was concluded at December 31, 2015.

See Note 17, "Commitments and Contingencies," to the accompanying consolidated financial statements.

Results of Discontinued Operations

2017 Compared to 2016



	Year Ended December 31,
	2017			2016			Change			% Change
Total income	$	33		$	12		$	21		175	%	increase
Total expenses	304			272			32			12	%	increase
Net loss	$	(271	)	$	(260	)	$	(11	)	4	%	increase

Net loss from our discontinued structured settlement operations for the year ended December 31, 2017 was $271,000 as compared to a net loss of $260,000 for the same period in 2016. Total income from our discontinued structured settlement operations was $33,000 compared to $12,000 for the year ended December 31, 2017 and 2016, respectively.

Total expenses from our discontinued structured settlement operations were $304,000 for the year ended December 31, 2017 compared to $272,000 incurred during the same period in 2016. This increase was attributable to a $138,000 increase in other SG&A, offset by a $93,000 decrease in legal fees.

2016 Compared to 2015



	Year Ended December 31,
	2016			2015			Change			% Change
Total income (loss)	$	12		$	81		$	(69	)	(85	)%	decrease
Total expenses	272			725			(453		)	(62	)%	decrease
Net loss	$	(260	)	$	(644	)	$	384		(60	)%	decrease

During the year ended December 31, 2015, our discontinued structured settlement operations sold 43 structured settlements for a loss of approximately $32,000 and received proceeds of approximately $920,000. There were no structured settlement sales during the year ended December 31, 2016.

Total expenses from our discontinued structured settlement operations were $272,000 for the year ended December 31, 2016 compared to $725,000 incurred during the same period in 2015. This decrease was attributable to a $497,000 decrease in legal fees.

Liquidity and Capital Resources

Our consolidated financial statements have been prepared assuming the realization of assets and the satisfaction of

liabilities in the normal course of business, as well as continued compliance with the covenants contained in the indentures governing our 8.5% Convertible Notes, 5% Convertible Notes, 8.5% Senior Secured Notes and other financing arrangements.

At December 31, 2017, we had approximately $31.3 million of cash and cash equivalents and certificates of deposit of $1.0 million. Of this amount, approximately $18.1 million was available to pay premiums on two policies that have not been pledged as collateral under the White Eagle Revolving Credit Facility and for other overhead expenses, with

approximately $13.1 million restricted pursuant to the White Eagle Revolving Credit Facility. We expect to meet our liquidity needs for the foreseeable future, to the extent we are able to do so, primarily through a combination of the receipt of death benefits from life insurance policy maturities, borrowings under the White Eagle Revolving Credit Facility, policy sales (subject to the asset sale restrictions in our debt arrangements) and cash on hand.

For the year ended December 31, 2017, we paid $84.7 million in premiums to maintain our policies in force. Of this amount, $84.6 million was paid by White Eagle through its borrowings. While the liquidity risk associated with the policies that have been pledged as collateral under the White Eagle Revolving Credit Facility has been mitigated, any distributions from available proceeds under the White Eagle Revolving Credit Facility will vary based on the respective, then current loan to value ratio. Accordingly, there can be no assurance as to when the proceeds from maturities of the policies pledged as collateral under the White Eagle Revolving Credit Facility will be distributed to the Company. Additionally, White Eagle cannot borrow under the facility to pay interest. To the extent there are insufficient collections from policy proceeds to cover these amounts, these required payments will stress our available cash. Assuming no policy maturities, as of December 31, 2017, we expect to pay $141,000 in premiums during 2018 on the two policies that have not been pledged under the White Eagle Revolving Credit Facility; however, any future cost of insurance increases may cause our projected premium payments to significantly increase and adversely affect the loan to value ratios under the White Eagle Revolving Credit Facility. Additionally, at December 31, 2017, we had $75.8 million, $35.0 million and $1.2 million and in aggregate principal amount of outstanding 5% Convertible Notes, 8.5% Senior Secured Notes and 8.5% Convertible Notes, which accrue interest at 5.0%, 8.5%, and 8.5%, respectively. Interest on the 5.0% Convertible Notes and the 8.5% Convertible Notes are due semi-annually while interest on the 8.5% Senior Secured Notes is due quarterly.

The Company’s ability to continue as a going concern is dependent on its ability to meet its liquidity needs through a combination of the receipt of death benefits from life insurance policy maturities, borrowings under the White Eagle Revolving Credit Facility, strategic capital market raises, policy sales (subject to certain asset sale restrictions) and cash on hand. During the year ended December 31, 2017, the Company entered into certain agreements for the purpose of recapitalizing the Company (as described below), and on July 28, 2017 and August 11, 2017, the Company consummated the Transactions. See Note 10, "8.5% Senior Unsecured Convertible Notes", Note 11 "5.0% Senior Unsecured Convertible Notes", Note 12, "15% Senior Secured Notes", Note 13, "8.5% Senior Secured Notes" and Note 18, "Stockholders' Equity" for further information. In considering the cash on hand at December 31, 2017 and management's projections for receipts of death benefits from policy maturities, we estimate that our liquidity and capital resources are sufficient for our current and projected financial needs for the next twelve months, at a minimum, from the date of filing this Form 10-K.

Financing Arrangements Summary

White Eagle Revolving Credit Facility

White Eagle is the borrower under a $370.0 million revolving credit facility, with Imperial Finance and Trading, LLC, as the initial servicer, the initial portfolio manager and guarantor, Lamington Road Bermuda Ltd., as portfolio manager, LNV Corporation, as initial lender, the other financial institutions party thereto as lenders, and CLMG Corp., as administrative agent for the lenders.

Borrowing availability under the White Eagle Revolving Credit Facility is subject to a borrowing base, which, among other items, is capped at 75% of the valuation of the policies pledged as collateral. This loan to value calculation is determined by the lenders with a high degree of discretion. At December 31, 2017, $41.0 million was undrawn and $4.1 million was available to borrow under the White Eagle Revolving Credit Facility. For a description of the facility see Note 8, "White Eagle Revolving Credit Facility - Borrowing Base & Availability," of the notes to Consolidated Financial Statements.

At December 31, 2017, the fair value of the debt under the White Eagle Revolving Credit Facility was $329.2 million. As of December 31, 2017, the borrowing base was approximately $333.2 million including $329.0 million in outstanding principal. Interest is calculated at LIBOR (subject to a floor of 1.5%) plus an applicable margin of 4.5% and is due quarterly. Interest totaling $16.8 million was paid during the year ended December 31, 2017, of which approximately $16.0 million was paid from policy proceeds with $782,000 paid by the Company. Approximately $467,000 was paid to the lender as participation interest during the year ended December 31, 2017. There are no scheduled repayments of principal prior to maturity although payments are due upon receipt of death benefits and distributed pursuant to the waterfall. At December 31, 2017, approximately $7.8 million included in cash and cash equivalents -VIE was on account with White Eagle for distribution through the waterfall.

On October 4, 2017, White Eagle Asset Portfolio, LP entered into an amendment to the Second Amended and Restated Loan and Security Agreement. The amendment changed the provisions over how participation of the proceeds from the maturity of the policies pledged as collateral under the White Eagle Revolving Credit Facility are distributed pursuant to a waterfall. The amendment included an exclusion from the Cash Interest Coverage Ratio of at least 2.0:1 for the period of July 1, 2017 through July 28th, 2017. The amendment allowed for the Company to participate in the waterfall distribution scheduled during October 2017. Approximately $570,000 was received by the Company from the waterfall distribution during the year ended December 31, 2017.

Based on the loan agreement, the LIBOR portion of the interest rate will re-adjust annually once the floor has exceeded 1.5%. The applicable rate will be dependent on the rate at the last business day of the preceding calendar year. Future increase in LIBOR could have a material adverse effect on the Company’s financial position and results of operations. At December 31, 2017, LIBOR was increased to 2.11%.

For a description of the White Eagle Revolving Credit Facility, Note 8, "White Eagle Revolving Credit Facility," of the notes to Consolidated Financial Statements.

8.50% Senior Unsecured Convertible Notes

At December 31, 2017, there was $1.2 million in aggregate principal amount of the Company’s 8.50% Senior Unsecured Convertible Notes due 2019 outstanding. For a description of the Convertible Notes see Note 10, "8.50% Senior Unsecured Convertible Notes," of the accompanying consolidated financial statement.

On March 15, 2017 and May 12, 2017, the Company entered into the Master Transaction Agreements regarding a series of integrated transactions with the intent to effect a recapitalization of the Company (the "Transaction") which included, among other transactions, a Convertible Note Exchange Offer and a New Convertible Note Indenture providing for the issuance of New Convertible Notes to be delivered in connection with the Transaction (each as defined in the Master Transaction Agreements).

As part of the Transaction, on April 18, 2017, the Company launched the Convertible Note Exchange Offer. At least 98% of the outstanding Convertible Notes were required to be tendered in the exchange offer as a condition to closing the Transaction.

On July 26, 2017, the Company’s Convertible Note Exchange Offer expired. At least 98% of the outstanding Convertible Notes were tendered in the Convertible Note Exchange Offer.

In connection with the Transaction Closing, the Company entered into a supplemental indenture (the "Supplemental Indenture") to the Convertible Note Indenture governing the Convertible Notes. The purpose of the Supplemental Indenture was to eliminate substantially all of the restrictive covenants, eliminate certain events of default, eliminate the covenant restricting mergers and consolidations and modify certain provisions relating to defeasance contained in the Convertible Notes Indenture and the Convertible Notes (collectively, the "Proposed Amendments") promptly after the receipt of the requisite consents for the Proposed Amendments.

5.0% Senior Unsecured Convertible Notes

At December 31, 2017, there was $75.8 million in aggregate principal amount of the Company’s 5.0% Senior Unsecured Convertible Notes due 2023 outstanding (the "New Convertible Notes" or "5% Convertible Notes"). For a description of the New Convertible Notes see Note 11, "5.0% Senior Unsecured Convertible Notes," of the accompanying consolidated financial statements for further information.

In connection with the Transaction Closing, the Company caused to be issued the New Convertible Notes in an aggregate amount of approximately $75.8 million pursuant to the New Convertible Note Indenture. The terms of the New Convertible Notes are governed by the New Convertible Note Indenture, which provides, among other things, that the New Convertible Notes are unsecured senior obligations of the Company and will mature on February 15, 2023. The New Convertible Notes bear interest at a rate of 5% per annum from the issue date, payable semi-annually on August 15 and February 15 of each year, beginning on August 15, 2017.

conversion rate for the New Convertible Notes denominated in $1,000 increments will be 500 shares of Common Stock per $1,000 principal amount of New Convertible Notes, which corresponds to an initial conversion price of approximately $2.00 per share of Common Stock. The initial conversion rate for the New Convertible Notes denominated in $1.00 increments will be 0.5 shares of Common Stock per $1.00 principal amount of New Convertible Notes, which corresponds to an initial conversion price of approximately $2.00 per share of Common Stock. The conversion rate will be subject to adjustment in certain circumstances.

The Company may redeem, in whole but not in part, the New Convertible Notes at a redemption price of 100% of the principal amount of the New Convertible Notes to be redeemed, plus accrued and unpaid interest and additional interest, if any, if and only if the last reported sale price of the Common Stock equals or exceeds 120% of the conversion price for at least 15 trading days in any period of 30 consecutive trading days. The Company may, at its election, pay or deliver as the case may be, to all Holders of the New Convertible Notes, either (a) solely cash, (b) solely shares of Common Stock, or (c) a combination of cash and shares of Common Stock.

The New Convertible Note Indenture provides for customary events of default, which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the New Convertible Note Indenture; defaults or failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the New Convertible Note Indenture, the trustee or the holders of at least 25% in aggregate principal amount of the New Convertible Notes then outstanding may declare all unpaid principal plus accrued interest on the New Convertible Notes immediately due and payable, subject to certain conditions set forth in the New Convertible Note Indenture. In addition, holders of the New Convertible Notes may require the Company to repurchase the New Convertible Notes upon the occurrence of certain designated events at a repurchase price of 100% of the principal amount of the New Convertible Notes, plus accrued and unpaid interest.

15% Senior Secured Notes

At December 31, 2017, the 15% Senior Secured Notes due 2018 were repaid in full (the "15% Senior Secured Notes"). For a description of the 15% Senior Secured Notes, see Note 12, "15% Senior Secured Notes," of the accompanying consolidated financial statements for further information.

8.5% Senior Secured Notes

At December 31, 2017, there was $35.0 million in aggregate principal amount of the Company’s 8.5% Senior Secured Notes due 2021 outstanding (the "8.5% Senior Secured Notes"). For a description of the 8.5% Senior Secured Notes see Note 13, "8.5% Senior Secured Notes," of the accompanying consolidated financial statements for further information.

In connection with the Transaction Closing, the Note Purchase Investors and the Senior Secured Note Holders representing 100% of the aggregate outstanding principal amount of the Company’s 15.0% Senior Secured Notes entered into the Note Purchase Agreement. Pursuant to the Note Purchase Agreement, the Note Purchase Investors purchased 100% of the 15% Senior Secured Notes held by each Senior Secured Note Holder for an aggregate purchase price equal to the face amount of such purchased 15.0% Senior Secured Notes. The Note Purchase Agreement contained customary representations, warranties, and covenants.

In connection with the Transaction Closing, the Company paid each Senior Secured Note Holder 5% of the face amount of the 15% Senior Secured Notes held by such Senior Secured Note Holder as of immediately prior to the Transaction Closing, plus all accrued but unpaid interest of such 15% Senior Secured Notes through the date of the Transaction Closing, pursuant to that certain Exchange Participation Agreement dated April 7, 2017 among the Company and Senior Secured Note Holders representing 100% of the aggregate outstanding principal amount of the 15% Senior Secured Notes.

In connection with the Transaction Closing, the Company and the Senior Secured Note Trustee entered into the Amended and Restated Senior Secured Indenture to amend and restate the Senior Secured Indenture between the Company and the Senior Secured Note Trustee following the Company’s receipt of requisite consents of the holders of the 15% Senior Secured Notes. Pursuant to the terms of the Amended and Restated Senior Secured Indenture, the Company caused the cancellation of all outstanding 15% Senior Secured Notes and the issuance of 8.5% Senior Secured Notes in an aggregate amount of $30.0 million. The Amended and Restated Senior Secured Indenture provides, among other things, that the 8.5% Senior Secured Notes will be secured senior obligations of the Company and will mature on July 15, 2021. The 8.5% Senior Secured Notes will bear interest at a rate of 8.5% per annum, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on September 15, 2017.

The Amended and Restated Senior Secured Indenture provides that the 8.5% Senior Secured Notes may be optionally redeemed in full by the Company at any time and must be redeemed in full upon additional issuances of debt by the Company in each case, at a price equal to 100% of the principal amount redeemed plus (i) accrued and unpaid interest on the 8.5% Senior Secured Notes redeemed up to the date of redemption, and (ii) the Applicable Premium, if any, as defined in the Amended and Restated Senior Secured Indenture. Upon a change of control, the Company will be required to make an offer to holders of the 8.5%Senior Secured Notes to repurchase the 8.5% Senior Secured Notes at a price equal to 107.5% of their principal amount, plus accrued and unpaid interest up to the date of redemption.

The Amended and Restated Senior Secured Indenture contains negative covenants restricting additional debt incurred by the Company, creation of liens on the collateral securing the 8.5%Senior Secured Notes, and restrictions on dividends and stock repurchases, among other things. The 8.5% Senior Secured Notes are secured by settlement proceeds, if any, received from certain litigation involving the Company, certain notes issued to the Company, and pledges of 65% of the equity interests in Blue Heron Designated Activity Company, OLIPP IV, LLC and Red Reef Alternative Investments, LLC.

On August 11, 2017, the Company entered into the Securities Purchase Agreement with Brennan. Pursuant to the Securities Purchase Agreement, Brennan purchased from the Company (i) 12,500,000 shares (the "Brennan Shares") of Common Stock at a price of $0.40 per share for an aggregate purchase price of $5.0 million and (ii) $5.0 million principal amount of the Company’s 8.5% Senior Secured Notes (the "Brennan Notes," and together with the Brennan Shares, the "Brennan Securities"). The Securities Purchase Agreement contained customary representations, warranties, and covenants.

At September 30, 2017, the outstanding principal of the 8.5% Senior Secured Notes is 35.0 million with a carrying value of $33.9 million, net of unamortized debt issuance cost of $1.1 million.

Subsequent Event

8.5% Senior Secured Notes Amendment

On January 10, 2018, the Company dissolved Red Falcon Trust, an indirect subsidiary of the Company ("Red Falcon"). On the same date, the Company also commenced the process of appointing a liquidator to liquidate Blue Heron Designated Activity Company, a direct subsidiary of the Company ("Blue Heron"). The completion of liquidation formalities of Blue Heron under Irish law is expected to take several months. Both Red Falcon and Blue Heron were inactive subsidiaries of the Company.

The Company had pledged 65% of the equity and certain other assets of Blue Heron in favor of the secured parties under the Amended and Restated Senior Secured Indenture. In connection with liquidation of Blue Heron, the Company and Wilmington Trust, National Association, as trustee under the Amended and Restated Senior Secured Indenture (the "Trustee"), entered into (i) the First Supplemental Indenture (the "First Supplemental Indenture"), dated as of January 10, 2018, to implement certain amendments to the Indenture and (ii) the Amendment to Pledge and Security Agreement ("Pledge and Security Amendment"), dated as of January 10, 2018, to implement certain amendments to the Pledge and Security Agreement ("Pledge and Security Agreement"), dated as of March 11, 2016, between the Company and Trustee. The First Supplemental Indenture and the Pledge and Security Amendment amend the Indenture and Pledge and Security Agreement, respectively, to: (i) remove from the assets pledged to the secured parties under the Amended and Restated Senior Secured Indenture, 65% of the equity and certain other assets of Blue Heron; and (ii) reflect the pledge by the Company, in favor of the secured parties under the Indenture, of the promissory note dated as of December 29, 2016 in the principal sum of $69.6 million issued by OLIPP IV, LLC to Blue Heron and subsequently assigned to the Company.

See Note 22, "Subsequent Events" of the notes to Consolidated Financial Statements.

15.0% Promissory Note

On May 15, 2017, the Company entered into a $1.5 million Promissory Note with PJC Investments, LLC (the "Bridge Note"), to provide financing to fund the Company's continued operations with maturity date of July 3, 2017. The Bridge Note was amended on June 28, 2017, (the "Amended and Restated Bridge Note") to (i) increase the principal amount under the Bridge Note to $3.3 million and (ii) extend the maturity date from July 3, 2017 to the earlier of (a) July 28, 2017 or (b) the date on which the Master Transaction Agreements are consummated. For a description of the Amended and Restated Bridge Note, see Note 14, "15% Promissory Notes," of the accompanying consolidated financial statements for further information.

All outstanding principal and interest amounts due under the Amended and Restated Bridge Note were repaid on July 28, 2017 in connection with the consummation of the Transaction Closing.

At-The-Market Offering

On March 14, 2016, we filed a prospectus supplement with the SEC related to the offer and sale from time to time of our common stock at an aggregate offering price of up to $50.0 million through FBR Capital Markets & Co. and MLV & Co. LLC, as distribution agents. Sales of shares of our common stock under the prospectus supplement and the equity distribution agreement entered into with the distribution agents, if any, may be made in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act of 1933. We have agreed to pay the distribution agents a commission rate of up to 3% of the gross proceeds from the sale of any shares of common stock sold through the equity distribution agreement.

During the year ended December 31, 2017, the Company sold no shares of common stock under this prospectus supplement.

Cash Flows

The following table summarizes our cash flows, which includes both continuing and discontinued operations, from operating, investing and financing activities for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	Year Ended December 31,
	2017			2016			2015
Statement of Cash Flows Data:
Total cash (used in) provided by:
Operating activities	(34,847		)	$	(45,555	)	$	(54,348	)
Investing activities	(37,566		)	(26,120		)	(40,954		)
Financing activities	92,362			62,652			60,726
Increase/(decrease) in cash and cash equivalents	$	19,949		$	(9,023	)	$	(34,576	)

Operating Activities

During the year ended December 31, 2017, operating activities used cash of $34.9 million. Our net loss of $3.5 million was adjusted for the following: White Eagle Revolving Credit Facility financing costs and fees of $931,000, which represent fees associated with the White Eagle Revolving Credit Facility withheld by the lender and added to the outstanding loan balance, debt modification costs for the 8.5% Convertible Notes of $2.5 million, amortization of discount and deferred cost for the 8.5% Convertible Notes of $2.4 million, change in fair value of life settlement gains of $51.6 million that is mainly attributable to maturities of 13 policies; change in fair value of Revolving Credit Facility loss of $4.5 million that is mainly attributable to increased borrowings, the lengthening of life expectancies of certain insureds underlying policies pledged as collateral in the facility and an increase in the discount rates, and a net positive change in the components of operating assets and liabilities of $310,000. This $310,000 change in operating assets and liabilities is partially attributable to a $2.2 million decrease in interest payable on the 8.5% Convertible Notes, and a $213,000 decrease in interest payable on the 15.0% Senior Secured Notes, offset by a $1.4 million increase in interest payable on the 5.0% Convertible Notes.

During the year ended December 31, 2016, operating activities used cash of $45.6 million. Our net loss of $49.7 million

was adjusted for the following: White Eagle and Red Falcon Revolving Credit Facilities financing costs and fees of $1.0 million, which represent fees associated with the White Eagle and Red Falcon Revolving Credit Facilities withheld by the lender and added to the outstanding loan balance, amortization of discount and deferred cost for the Convertible Notes of $3.7 million, change in fair value of life settlement gains of $864,000 that is mainly attributable to the impact of adopting the 2015 VBT, offset by maturities of 12 policies; change in fair value of Revolving Credit Facilities gain of $1.9 million that is mainly attributable to the impact of adopting the 2015 VBT, increased borrowings, the lengthening of life expectancies of certain insureds underlying policies pledged as collateral in the facility, offset by a reduction in the discount rates, and a net positive change in the components of operating assets and liabilities of $121,000. This $121,000 change in operating assets and liabilities is partially attributable to a $213,000 increase in interest payable and a $161,000 increase in prepaid expenses and other assets, offset by a $287,000 decrease in accounts payable and accrued expenses.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2017 was $37.6 million and included proceeds of $42.1 million from maturity of 13 life settlements and $5.0 million for certificates of deposit. This was offset by $84.7 million for premiums paid on life settlements.

Net cash used in investing activities for the year ended December 31, 2016 was $26.1 million and included proceeds of $50.5 million from maturity of 12 life settlements. This was offset by $71.7 million for premiums paid on life settlements; $3.5 million for certificates of deposit and $1.4 million for purchase of life settlements.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2017 was $92.4 million and included $5.0 million of proceeds from the 8.5% Senior Secured Notes; $86.4 million of borrowings from the White Eagle Revolving Credit Facility; $2.8 million of borrowings from the 15% Promissory Note and $19.2 million from issuance of common stock . These were offset by $19.6 million in repayment of borrowings under the White Eagle Revolving Credit Facility and $1.3 million in payment of recapitalization transaction cost.

Net cash provided by financing activities for the year ended December 31, 2016 was $62.7 million and included $30.0 million of proceeds from the 15% Senior Secured Notes; $58.0 million of borrowings from the White Eagle Revolving Credit Facility; $19.7 million of borrowings from the Red Falcon Revolving Credit Facility and $1.8 million from issuance of common stock through the Company's "at the market" offerings. These were offset by $34.8 million in repayment of borrowings under the White Eagle Revolving Credit Facility and $10.5 million in repayment of borrowings under the Red Falcon Revolving Credit Facility.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2017 (in thousands):



	Total		Due in Less than 1 Year		Due 1-3 Years		Due 3-5 Years		More than 5 Years
Operating leases	$	699	$	248	$	451	$	—	$	—
White Eagle Revolving Credit Facility (1)	329,046		—		—		—		329,046
Interest payable (2)	5,814		5,814		—		—		—
8.5% Senior Unsecured Convertible Notes	1,194		—		1,194		—		—
8.5% Senior Secured Notes	35,000		—		—		35,000		—
5% Senior Unsecured Convertible Notes	75,837		—		—		—		75,837
	$	447,590	$	6,062	$	1,645	$	35,000	$	404,883


(1)	Please see Note 8, "White Eagle Revolving Credit Facility," to the accompanying consolidated financial statements.


(2)	Includes $4.2 million related to outstanding interest due for the White Eagle Revolving Credit Facility.

Inflation

Our assets and liabilities are, and will be in the future, interest-rate sensitive in nature. As a result, interest rates may influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation or changes in inflation rates. We do not believe that inflation had any material impact on our results of operations in the periods presented in our financial statements presented in this report.

Off-Balance Sheet Arrangements

At December 31, 2017, there were no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial instruments. The major components of market risk are credit risk, interest rate risk and foreign currency risk. As of December 31, 2017, we did not hold a material amount of financial instruments for trading purposes.

Credit Risk

Credit risk consists primarily of the potential loss arising from adverse changes in the financial condition of the issuers of the life insurance policies that we own. Although we may purchase life settlements from carriers rated below investment grade, to limit our credit risk, we generally only purchase life settlements issued by companies that are investment grade.

The following table provides information about the life insurance issuer concentrations that exceed 10% of total death benefit and 10% of total fair value of our life settlements as of December 31, 2017:



Carrier	Percentage of Total Fair Value		Percentage of Total Death Benefit		Moody’s Rating	S&P Rating
Lincoln National Life Insurance Company	22.4	%	19.5	%	A1	AA-
Transamerica Life Insurance Company	18.4	%	20.8	%	A1	AA-

Interest Rate Risk

At December 31, 2017, fluctuations in interest rates did not impact interest expense in the life finance business. The White Eagle Revolving Credit Facility accrues interest at LIBOR plus an applicable margin. LIBOR is subject to a floor of 1.5%.

Based on the White Eagle Revolving Credit Facility loan agreement, the LIBOR portion of the interest rate will re-adjust annually once the floor has exceeded 1.5%. The applicable rate will be dependent on the rate at the last business day of the preceding calendar year. At December 31, 2017, the applicable LIBOR rate was 2.11%.

Future increases in LIBOR could have a material adverse effect on the Company’s financial position and results of operations. Increases in LIBOR above the floors provided in the White Eagle Revolving Credit Facility, will also affect the calculation of the fair value of the debt under the White Eagle Revolving Credit Facility. Additional increases in interest rates may impact the rates at which we are able to obtain financing in the future.

We earn income on the changes in fair value of the life insurance policies we own. However, if the fair value of the life insurance policies we own decreases, we record this reduction as a loss.

As of December 31, 2017, we owned life settlements with a fair value of $567.5 million. A rise in interest rates could potentially have an adverse impact on the sale price if we were to sell some or all of these assets, which could also decrease the borrowing base available to White Eagle under the applicable White Eagle Revolving Credit Facility. There are several factors that affect the market value of life settlements, including the age and health of the insured, investors’ demand, available liquidity in the marketplace, duration and longevity of the policy, and interest rates. We currently do not view the risk of a decline in the sale price of life settlements due to normal changes in interest rates as a material risk.

Changes in interest rates may have a material impact on our borrowings costs and may also impact the investment returns we expect to achieve with respect to our life insurance policies.

Foreign Currency Exchange Rate Risk

Changes in the exchange rate between transactions denominated in a currency other than our foreign subsidiaries’ functional currency are immaterial to our operating results. Exposure to foreign currency exchange rate risk may increase over time as our business evolves.

Item 8. Financial Statements and Supplementary Data

The financial statements required by this Item are included in Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of December 31, 2017. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including to the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter ended December 31, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management’s report set forth on page F-2 is incorporated herein by reference.

Item 9B. Other Information

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information relating to the directors and officers of the Company, information regarding compliance with Section 16(a) of the Exchange Act and information regarding the audit committee and audit committee financial expert is incorporated herein by reference to the Company’s Proxy Statement for the 2018 Annual Meeting of Stockholders (the "Proxy Statement") to be filed within 120 days after December 31, 2017.

All of the Company’s directors, officers and employees must act in accordance with our Code of Ethics. A copy of the Code of Ethics is available on the Company’s website at www.emergentcapital.com in the "Investors/Newsroom" section, under the Corporate Governance tab. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding disclosure of an amendment to, or waiver from, a provision of this Code of Ethics with respect to its principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions, by posting such information on the Company’s website discussed above, unless a Form 8-K is otherwise required by law or applicable listing rules.

Item 11. Executive Compensation

The information regarding executive compensation is incorporated herein by reference to the Proxy Statement to be filed within 120 days after December 31, 2017.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information setting forth the security ownership of certain beneficial owners and management is hereby incorporated by reference to the Proxy Statement to be filed within 120 days after December 31, 2017.

Shown below is certain information as of December 31, 2017 regarding our equity compensation plan:



Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted- average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in other column)
Equity compensation plans approved by security holders	542,102	$	8.75	9,730,683
Equity compensation plans not approved by security holders	N/A	N/A		N/A
Total	542,102	$	8.75	9,730,683

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information relating to certain relationships and related transactions and director independence is incorporated herein by reference to the Proxy Statement to be filed within 120 days after December 31, 2017.

Item 14. Principal Accountant Fees and Services

The information relating to the principal accountant fees and expenses is incorporated herein by reference to the Proxy Statement to be filed within 120 days after December 31, 2017.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements:

Our consolidated financial statements identified in the accompanying Index to Financial Statements at page F-1 herein are filed as part of this Annual Report on Form 10-K.

(a)(2) Financial Statement Schedules: The schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

(a)(3) Exhibits

EXHIBIT INDEX

In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. The Agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:


•	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;


•	have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;


•	may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and


•	were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company’s other public files, which are available without charge through the SEC’s website at http://www.sec.gov.



Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date	Filed Herewith	SEC File #
3.1	Articles of Incorporation of Registrant, as amended				*
3.2	Amended and Restated Bylaws of Registrant, as amended.				*
4.1	Form of Common Stock Certificate.	S-1/A	4.1	11/10/10		333-168785
4.2	Indenture, dated as of February 21, 2014, by and among the Registrant and U.S. Bank, National Association, as indenture trustee.	8-K	4.1	02/21/14		001-35064
4.2.1	First Supplemental Indenture, dated as of March 13, 2017, by and among Emergent Capital, Inc. and U.S. Bank National Association	8-K	4.2	03/17/17		001-35064
4.2.2	Second Supplemental Indenture, dated as of July 28, 2017, by and among Emergent Capital, Inc. and U.S. Bank National Association.	8-K	4.2	08/01/17		001-35064
4.3	Indenture, dated as of July 28, 2017, by and among Emergent Capital, Inc. and U.S. Bank National Association.	8-K	4.3	08/01/17		001-35064
4.4	Indenture, dated as of March 11, 2016, by and among the Registrant and Wilmington Trust, National Association, as indenture trustee.	10-K	4.5	03/14/16		001-35064
4.4.1	First Supplemental Indenture, dated as of March 9, 2017, by and among Emergent Capital, Inc. and Wilmington Trust, National Association.	8-K	4.1	03/17/17		001-35064
4.4.2	Second Supplemental Indenture, dated as of May 15, 2017 between Emergent Capital, Inc. and Wilmington Trust, National Association, as indenture trustee.	10-Q	4.3	08/14/17		001-35064
4.4.2		10-Q	4.3	08/14/17

4.4.3

Third Supplemental Indenture, dated as of June 28, 2017 between Emergent Capital, Inc. and Wilmington Trust, National Association, as indenture trustee.

10-Q

4.4

08/14/17

001-35064

4.4.4

Amended and Restated Indenture, dated as of July 28, 2017, by and among Emergent Capital, Inc. and U.S. Bank National Association.

8-K

4.4

08/01/17

001-35064

4.5

Form of Common Stock Purchase Warrant, dated as of July 28, 2017.

8-K

4.1

08/01/17

001-35064

4.6

Form of Warrant to purchase common stock.

S-1/A

4.2

01/12/11

333-168785

4.7

Warrant Agreement related to Class Action Settlement.

10-K

4.3

03/14/16

001-35064

4.8

Bridge Note made in favor of PJC Investments, LLC dated May 15, 2017.

SC TO

(b)(3)

05/26/17

005-86093

4.9

Amended and Restated Bridge Note made in favor of PJC Investments, LLC, dated June 28, 2017.

SC TO

(b)(3) (A)

06/29/17

005-86093

4.10

Special Dividend Note, dated as of July 28, 2017, made by Lamington Road Designated Activity Company in favor of Markley Asset Portfolio, LLC.

8-K

4.5

08/01/17

001-35064

10.1†

Employment Agreement between the Registrant and Antony Mitchell dated November 8, 2010.

S-1/A

10.1

11/10/10

333-168785

10.1.1†

Mediation Agreement dated September 15, 2017 between Emergent Capital, Inc. and Antony Mitchell.

8-K

10.1

09/21/17

001-35064

10.1.2†

Separation Agreement between the Registrant and Anthony Mitchell dated October 23, 2017.

8-K

10.1

10/25/17

001-35064

10.2†

Amended & Restated Imperial Holdings 2010 Omnibus Incentive Plan.

Def 14A

04/08/15

001-35064

10.2.1†

Amendment to Amended & Restated Imperial Holdings 2010 Omnibus Incentive Plan.

Def 14A

6/9/2017

001-35064

10.2.2†

2010 Omnibus Incentive Plan Form of Stock Option Award Agreement.

10-Q

10.7

08/13/13

001-35064

10.2.3†

2010 Omnibus Incentive Plan Form Performance Share Award Agreement.

8-K

10.1

06/09/14

001-35064

10.2.4†

2010 Omnibus Incentive Plan Form Restricted Stock Unit Award Agreement

10.3††

Amended and Restated Loan and Security Agreement, dated May 16, 2014, among White Eagle Asset Portfolio, L.P., as borrower, Imperial Finance & Trading, LLC, as initial servicer, initial portfolio manager and guarantor, Lamington Road Bermuda Ltd., as portfolio manager, LNV Corporation, as initial lender, and CLMG Corp, as the administrative agent.

10-Q

10.1

07/30/14

001-35064

10.3.1

First Amendment, dated November 15, 2015, to Amended and Restated Loan and Security Agreement, dated May 16, 2014, among White Eagle Asset Portfolio, L.P., as borrower, Imperial Finance & Trading, LLC, as initial servicer, initial portfolio manager and guarantor, Lamington Road Bermuda Ltd., as portfolio manager, LNV Corporation, as initial lender, and CLMG Corp, as the administrative agent.

8-K

10.1

11/10/15

001-35064

10.3.2††

Second Amendment to Amended and Restated Loan and Security Agreement, dated December 29, 2016, by and among White Eagle Asset Portfolio, LP, as borrower, Imperial Finance and Trading, LLC, Lamington Road Bermuda, LTD, as Portfolio Manager, CLMG Corp., as Administrative Agent, and LNV Corporation, as Lender.

10-K

10.18

03/21/17

001-35064

10.3.3††

Second Amended and Restated Securities Account Control and Custodian Agreement, dated January 31, 2017, among White Eagle Asset Portfolio, LP, as borrower, Wilmington Trust, National Association, as securities intermediary and custodian, and CLMG Corp, as the administrative agent.

10-K

10.19

03/21/17

001-35064

10.3.4

First Amendment, dated as of October 4, 2017, to Second Amended and Restated Loan and Security Agreement dated January 31, 2017, by and among white Eagle Asset portfolio, LP, as borrower, Imperial Finance and Trading, LLC, Lamington Road Bermuda, LTD, as Portfolio Manager, CLMG Corp., as Administrative Agent, and LNV Corporation, as Lender.

10.4†

Employment Agreement between the Registrant and David Sasso dated December 31, 2013 and effective January 1, 2014.

10-Q

10.1

11/09/15

001-35064

10.5†

Employment Agreement between the Registrant and Miriam Martinez dated December 31, 2013 and effective January 1, 2014.

8-K

10.2

12/30/13

001-35064

10.5.1†

Employment Agreement between Imperial Finance and Trading, LLC and Miriam Martinez dated as of March 13, 2018.

10.6

Master Trust Indenture dated as of September 24, 2010 by and among Imperial Settlements Financing 2010, LLC as the Issuer, Portfolio Financial Servicing Company as the Initial Master Servicer, and Wilmington Trust Company as the Trustee and Collateral Trustee.

S-1/A

10.15

11/10/10

333-168785

10.6.1

Series 2010-1 Supplement dated as of September 24, 2010 to the Master Trust Indenture dated as of September 24, 2010 by and among Imperial Settlements Financing 2010, LLC as the Issuer, Portfolio Financial Servicing Company as the Initial Servicer, and Wilmington Trust Company as the Trustee and Collateral Trustee.

S-1/A

10.16

11/10/10

333-168785

10.7

Master Transaction Agreement, dated as of March 15, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Bulldog Investors LLC.

(d)(3)

6/7/2017

005-86093

10.7.1

Amendment to Master Transaction Agreement, dated as of April 7, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Bulldog Investors LLC.

(d)(4)

6/7/2017

005-86093

10.7.2

Amendment No. 2 to Master Transaction Agreement, dated as of June 19, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Bulldog Investors LLC.

(d)(16)

6/21/2017

005-86093

10.8

Master Transaction Agreement, dated as of March 15, 2017, by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and each of Ironsides P Fund L.P., and Ironsides Partners Special Situations Master Fund II L.P.

(d)(11)

6/7/2017

005-86093

10.8.1

Amendment to Master Transaction Agreement, dated as of April 7, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and each of Ironsides P Fund L.P. and Ironsides Partners Special Situations Master Fund II L.P.

(d)(12)

6/7/2017

005-86093

10.8.2

Amendment No. 2 to Master Transaction Agreement, dated as of June 19, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and each of Ironsides P Fund L.P. and Ironsides Partners Special Situations Master Fund II L.P.

(d)(20)

6/21/2017

005-86093

10.9

Master Transaction Agreement, dated as of March 15, 2017, by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and each of Nantahala Capital Partners Limited Partnership, Nantahala Capital Partners II Limited Partnership, Nantahala Capital Partners SI, LP, Blackwell Partners LLC - Series A, Silver Creek CS SAV, L.L.C. and Fort George Investments, LLC.

(d)(13)

6/7/2017

005-86093

10.9.1

Amendment to Master Transaction Agreement, dated as of April 7, 2017, by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and each of Nantahala Capital Partners Limited Partnership, Nantahala Capital Partners II Limited Partnership, Nantahala Capital Partners SI, LP, Blackwell Partners LLC - Series A, Silver Creek CS SAV, L.L.C. and Fort George Investments, LLC.

(d)(14)

6/7/2017

005-86093

10.9.2

Amendment No. 2 to Master Transaction Agreement, dated as of June 19, 2017, by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and each of Nantahala Capital Partners Limited Partnership, Nantahala Capital Partners II Limited Partnership, Nantahala Capital Partners SI, LP, Blackwell Partners LLC - Series A, Silver Creek CS SAV, L.L.C. and Fort George Investments, LLC.

(d)(21)

6/21/2017

005-86093

10.10

Master Transaction Agreement, dated as of March 15, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and NS Advisors, LLC.

(d)(7)

6/7/2017

005-86093

10.10.1

Amendment to Master Transaction Agreement, dated as of April 7, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and NS Advisors, LLC.

(d)(8)

6/7/2017

005-86093

10.10.2

Amendment No. 2 to Master Transaction Agreement, dated as of June 19, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and NS Advisors, LLC.

(d)(18)

6/21/2017

005-86093

10.11

Master Transaction Agreement, dated as of March 15, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Rangeley Capital, LLC.

(d)(5)

6/7/2017

005-86093

10.11.1

Amendment to Master Transaction Agreement, dated as of April 7, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Rangeley Capital, LLC.

(d)(6)

6/7/2017

005-86093

10.11.2

Amendment No. 2 to Master Transaction Agreement, dated as of June 19, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Rangeley Capital, LLC.

(d)(17)

6/21/2017

005-86093

10.12

Master Transaction Agreement, dated as of March 15, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Joel Lusman.

(d)(9)

6/7/2017

005-86093

10.12.1

Amendment to Master Transaction Agreement, dated as of April 7, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Joel Lusman.

(d)(10)

6/7/2017

005-86093

10.12.2

Amendment No. 2 to Master Transaction Agreement, dated as of June 19, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Joel Lusman.

(d)19)

6/21/2017

005-86093

10.13

Master Transaction Agreement, dated as of May 12, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Integrated Core Strategies (US) LLC.

(d)(15)

6/7/2017

005-86093

10.13.1

Amendment No. 1 to Master Transaction Agreement, dated as of June 19, 2017 by and among Emergent Capital, Inc., PJC Investments, LLC, a Texas limited liability company, and Integrated Core Strategies (US) LLC.

(d)(22)

6/21/2017

005-86093

10.14

Exchange Participation Agreement, dated as of April 7, 2017 by and among Emergent Capital, Inc. and the consenting holders of the Company’s 15.0% Senior Secured Notes Due 2018 party thereto.

10-Q

10.3

5/15/2017

001-35064

10.15

Consent and Forbearance Agreement, dated as of June 21, 2017 by and among Emergent Capital, Inc., Wilmington Trust, National Association, as indenture trustee, and holders of 100% of the aggregate principal amount of Emergent Capital, Inc.’s 15.0% Senior Secured Notes.

10-Q

10.22

8/14/2017

001-35064



10.16	Common Stock Purchase Agreement, dated as of July 28, 2017, by and among Emergent Capital, Inc., PJC Investments, LLC and the purchasers party thereto.	8-K	10.1	08/01/17		001-35064
10.17	Note Purchase Agreement, dated as of July 28, 2017, by and among PJC Investments, LLC, purchasers party thereto, and the holders of the Company’s 15.05% Senior Secured Notes due 2018.	8-K	10.2	08/01/17		001-35064

10.18	Registration Rights Agreement, dated as of July 28, 2017, by and among Emergent Capital, Inc., and the holders party thereto.	8-K	10.3	08/01/17		001-35064

10.19	Board Designation Agreement, dated as of July 28, 2017, by and between Emergent Capital, Inc. and Evermore Global Advisors, LLC.	8-K	10.4	08/01/17		001-35064

10.20	Board Designation Agreement, dated as of July 28, 2017, by and among Emergent Capital, Inc., PJC Investments, LLC and JSARCo, LLC.	8-K	10.5	08/01/17		001-35064

10.21	Board Designation Agreement, dated as of July 28, 2017, by and between Emergent Capital, Inc. and Opal Sheppard Opportunities Fund I LP.	8-K	10.6	08/01/17		001-35064

10.22	Board Designation Agreement, dated as of July 28, 2017, by and among Emergent Capital, Inc., Ironsides P Fund L.P. and Ironsides Partners Special Situations Master Fund II L.P.	8-K	10.7	8/1/2017		001-35064

10.23	Board Designation Agreement, dated as of July 28, 2017, by and between Emergent Capital, Inc. and Nantahala Capital Management, LLC.	8-K	10.8	8/1/2017		001-35064
10.26†	Employment Agreement between Imperial Finance and Trading, LLC and Jack Simony dated as of March 13, 2018.				*
10.27†	Employment Agreement between Imperial Finance and Trading, LLC and Harvey Werblowsky dated as of March 13, 2018.				*
10.28†	Commitment Letter from PJC Investments, LLC dated March 13, 2018.				*
10.24	Securities Purchase Agreement, dated as of August 11, 2017, by and between Emergent Capital, Inc. and Brennan Opportunities Fund I LP.	10-Q	10.31	8/14/2017		001-35064

10.25	Registration Rights Agreement, dated as of August 11, 2017, be and between Emergent Capital, Inc. and Brennan Opportunities Fund I LP.	10-Q	10.32	08/14/17		001-35064
21.1	Subsidiaries of the Registrant.				*

23.1	Consent of Grant Thornton LLP.				*
31.1	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				*

31.2	Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				*
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				*
					*

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

Interactive Data Files.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.TAX

XBRL Taxonomy Definition Linkbase Document 10.1 & 10.2

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

SBRL Taxonomy Extension Presentation Linkbase Document


††	Certain portions of the exhibit have been omitted pursuant to a confidential treatment order. An unredacted copy of the exhibit has been filed separately with the United States Securities and Exchange Commission pursuant to the request for confidential treatment.


*	Filed herewith.


†	Management compensatory arrangement.

Item 16. Form 10-K Summary

Not applicable

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




EMERGENT CAPITAL, INC.

By:	/S/ PATRICK J. CURRY
Name:	Patrick J. Curry
Title:	Chief Executive Officer

Date: March 13, 2018

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Patrick J. Curry, Miriam Martinez and Harvey Werblowsky, and each of them individually, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments to this Report together with all schedules and exhibits thereto, (ii) act on, sign and file with the Securities and Exchange Commission any and all exhibits to this Report and any and all exhibits and schedules thereto, (iii) act on, sign and file any and all such certificates, notices, communications, reports, instruments, agreements and other documents as may be necessary or appropriate in connection therewith and (iv) take any and all such actions which may be necessary or appropriate in connection therewith, granting unto such agents, proxies and attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, and hereby approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact, any of them or any of his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.




Signature	Title	Date

/S/ PATRICK J. CURRY	Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)	March 13, 2018
Patrick J. Curry		March 13, 2018

/S/ MIRIAM MARTINEZ	Chief Financial Officer and Secretary (Principal Financial Officer)	March 13, 2018
Miriam Martinez		March 13, 2018

/S/ JOSEPH E. SARACHEK	Director	March 13, 2018
Joseph E. Sarachek	Director	March 13, 2018

/S/ ROY J. PATTERSON	Director	March 13, 2018
Roy J. Patterson	Director	March 13, 2018

/S/ MATTHEW EPSTEIN	Director	March 13, 2018
Matthew Epstein	Director	March 13, 2018

/S/ ROBERT KNAPP	Director	March 13, 2018
Robert Knapp	Director	March 13, 2018

/S/ JAMES HUA	Director	March 13, 2018
James Hua	Director	March 13, 2018

INDEX TO FINANCIAL STATEMENTS

Audited Consolidated Financial Statements as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017 of Emergent Capital, Inc.



Managements’ Report on Internal Controls Over Financial Reporting	F-2

Report of Grant Thornton LLP, Independent Registered Public Accounting Firm	F-3

Consolidated Balance Sheets as of December 31, 2017 and 2016	F-4

Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015	F-5

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015	F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	F-7

Notes to Consolidated Financial Statements	F-8

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Rule 13a-15(f) in the Securities Exchange Act of 1934. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company’s evaluation under the framework in Internal Control—Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Emergent Capital, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Emergent Capital, Inc. (a Florida corporation) and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2008.

Fort Lauderdale, Florida

March 13, 2018

F-3

Emergent Capital, Inc.

CONSOLIDATED BALANCE SHEETS

December 31,



	2017			2016
	(In thousands except share data)
ASSETS
Assets
Cash and cash equivalents	$	18,131		$	2,246
Cash and cash equivalents (VIE)	13,136			9,072
Certificate of deposit	1,010			6,025
Prepaid expenses and other assets	617			1,112
Prepaid expenses and other assets (VIE)	53			—
Deposits - other	1,377			1,347
Life settlements, at estimated fair value	750			680
Life settlements, at estimated fair value (VIE)	566,742			497,720
Receivable for maturity of life settlements (VIE)	30,045			5,000
Fixed assets, net	145			232
Investment in affiliates (VIE)	2,384			2,384
Total assets	$	634,390		$	525,818
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses	$	2,015		$	2,590
Accounts payable and accrued expenses (VIE)	753			593
Other liabilities	451			359
Interest payable - 8.5% Convertible Notes (Note 10)	46			2,272
8.5% Convertible Notes, net of discount and deferred debt costs (Note 10)	1,098			60,535
Interest payable - 5.0% Convertible Notes (Note 11)	1,432			—
5.0% Convertible Notes, net of discount and deferred debt costs (Note 11)	68,654			—
Interest payable - 15.0% Senior Secured Notes (Note 12)	—			213
15.0% Senior Secured Notes, net of deferred debt costs (Note 12)	—			29,297
Interest payable - 8.5% Senior Secured Notes (Note 13)	132			—
8.5% Senior Secured Notes, net of deferred debt costs (Note 13)	33,927			—
White Eagle Revolving Credit Facility, at estimated fair value (VIE Note 3)	329,240			257,085
Total liabilities	437,748			352,944
Commitments and Contingencies (Note 17)
Stockholders’ Equity
Common stock (par value $0.01 per share, 415,000,000 and 80,000,000 authorized at December 31, 2017 and December 31, 2016; 158,495,399 issued and 157,887,399 outstanding at December 31, 2017; 29,021,844 issued and 28,413,844 outstanding as of December 31, 2016	1,585			290
Preferred stock (par value $0.01 per share, 40,000,000 authorized; 0 issued and outstanding as of December 31, 2017 and 2016)	—			—
Treasury Stock, net of cost (608,000 shares as of December 31, 2017 and 2016)	(2,534		)	(2,534		)
Additional paid-in-capital	333,629			307,647
Accumulated deficit	(136,038		)	(132,529		)
Total stockholders’ equity	196,642			172,874
Total liabilities and stockholders’ equity	$	634,390		$	525,818

The accompanying notes are an integral part of this financial statement.

F-4

Emergent Capital, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31,



	2017			2016			2015
	(in thousands, except share and per share data)
Income
(Loss) gain on life settlements, net	$	—		$	—		$	(41	)
Change in fair value of life settlements (Notes 7 & 15)	51,551			864			46,717
Other income	322			251			215
Total income	51,873			1,115			46,891
Expenses
Interest expense	32,797			29,439			27,286
Change in fair value of Revolving Credit Facilities (Notes 8, 9 & 15)	4,501			(1,898		)	12,197
Loss on extinguishment of debt	2,018			554			8,782
Personnel costs	5,069			6,070			6,384
Legal fees	3,721			6,427			20,739
Professional fees	4,445			7,081			7,133
Insurance	783			835			1,275
Other selling, general and administrative expenses	1,777			2,036			2,194
Total expenses	55,111			50,544			85,990
(Loss) income from continuing operations before income taxes	(3,238		)	(49,429		)	(39,099		)
(Benefit) provision for income taxes	—			—			(8,719		)
Net (loss) income from continuing operations	$	(3,238	)	$	(49,429	)	$	(30,380	)
Discontinued Operations:
(Loss) income from discontinued operations, net of income taxes	$	(271	)	$	(260	)	(644		)
Benefit for income taxes	—			—			—
Net (loss) income from discontinued operations	(271		)	(260		)	(644		)
Net (loss) income	$	(3,509	)	$	(49,689	)	$	(31,024	)
(Loss) earnings per share:
Basic and diluted (loss) earnings per common share
Continuing operations	$	(0.04	)	$	(1.79	)	$	(1.22	)
Discontinued operations	$	—		$	(0.01	)	$	(0.03	)
Net (loss) income	$	(0.04	)	$	(1.80	)	$	(1.25	)

Weighted average shares outstanding:
Basic and diluted	82,323,050			27,660,711			24,851,178

The accompanying notes are an integral part of this financial statement.

F-5

Emergent Capital, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2017, 2016 and 2015



	Common Stock				Treasury Stock				Additional Paid-in Capital			Accumulated Deficit			Total
	Shares		Amount		Shares	Amount			Additional Paid-in Capital			Accumulated Deficit			Total
	(in thousands, except share data)
Balance, January 1, 2015	21,402,990		$	214	—	$	—		266,705			$	(51,816	)	$	215,103
Net income (loss)	—		—		—	—			—			(31,024		)	(31,024		)
Stock-based compensation	41,259		—		—	—			490			—			490
Purchase of treasury stock, net of costs	—		—		608,000	(2,534		)	—			—			(2,534		)
Common stock issued for rights offering, net of costs	6,688,433		67		—	—			38,267			—			38,334
Retirement of common stock	(2,174	)	—		—	—			(12		)	—			(12		)
Balance, December 31, 2015	28,130,508		$	281	608,000	$	(2,534	)	$	305,450		$	(82,840	)	$	220,357
Net income (loss)	—		—		—	—			—			(49,689		)	(49,689		)
Stock-based compensation	265,212		3		—	—			408			—			411
Common stock issued through ATM, net	628,309		6		—	—			1,797			—			1,803
Retirement of common stock	(2,185	)	—		—	—			(8		)	—			(8		)
Balance, December 31, 2016	29,021,844		$	290	608,000	$	(2,534	)	307,647			$	(132,529	)	172,874
Net income (loss)	—		—		—	—			—			(3,509		)	(3,509		)
Stock-based compensation	1,991,132		20		—	—			388			—			408
Common stock issued, net	127,500,000		1,275		—	—			25,614			—			26,889
Retirement of common stock	(17,577	)	—		—	—			(20		)	—			(20		)
Balance, December 31, 2017	158,495,399		$	1,585	608,000	$	(2,534	)	$	333,629		$	(136,038	)	$	196,642

The accompanying notes are an integral part of this financial statement.

F-6

Emergent Capital, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,



	2017				2016			2015
					(In thousands)
Cash flows from operating activities
Net (loss) income	$	(3,509	)		$	(49,689	)	$	(31,024	)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	102				108			113
Red Falcon Revolving Credit Facility origination cost	—				297			3,329
White Eagle Revolving Credit Facility origination cost	—				388			—
Revolving Credit Facilities financing cost and fees withheld by lender	931				1,020			7,493
8.5% Convertible Notes debt modification costs	2,537				—			—
Amortization of discount and deferred debt costs for 8.5% Convertible Notes	2,433				3,724			3,132
Amortization of deferred debt costs for 15% Senior Secured Notes	184				348			—
Amortization of discount and deferred debt costs for 12.875% Secured Notes	—				—			541
Amortization of discount and deferred cost for 5.0% Convertible Notes	496				—			—
Amortization of deferred costs for 8.5% Senior Secured Notes	98				—			—
Stock-based compensation	388				403			490
Change in fair value of life settlements	(51,551		)		(864		)	(46,717		)
Unrealized change in fair value of structured settlements	—				—			(20		)
Change in fair value of Revolving Credit Facilities	4,501				(1,898		)	12,197
Loss on life settlements	—				—			41
Interest income	(76		)		(67		)	(87		)
Loss on extinguishment of debt	2,018				554			8,782
Interest Paid in Kind on Senior Unsecured Convertible Notes	6,288				—			—
Deferred tax liability	—				—			(8,729		)
Change in assets and liabilities:
Deposits—other	(30		)		—			(654		)
Structured settlement receivables	—				—			1,065
Prepaid expenses and other assets	323				161			(74		)
Accounts payable and accrued expenses	779				(287		)	(3,105		)
Other liabilities	116				34			(860		)
Interest payable- 8.5 % Convertible Notes	(2,226		)		—			—
Interest payable - 15% Senior Secured Notes	(213		)		213			—
Interest payable - 5.0% Convertible Notes	1,432				—			—
Interest payable - 8.5% Senior Secured Notes	132				—			—
Interest payable - 12.875% Secured Notes	—				—			(261		)
Net cash used in operating activities	(34,847		)		(45,555		)	(54,348		)
Cash flows from investing activities
Purchase of fixed assets, net of disposals	(4		)		(9		)	(69		)
Certificate of deposit	5,025				(3,500		)	(2,501		)
Premiums paid on life settlements	(84,718		)		(71,681		)	(64,923		)
Purchases of life settlements	—				(1,390		)	(29,065		)
Proceeds from sale of life settlements, net	—				—			2,150
Proceeds from maturity of life settlements	42,131				50,460			53,454
Net cash used in investing activities	(37,566		)		(26,120		)	(40,954		)
Cash flows from financing activities
Repayment of borrowings under White Eagle Revolving Credit Facility	(19,633		)		(34,799		)	(43,241		)
Repayment of borrowings under Red Falcon Revolving Credit Facility	—				(10,452		)	(4,378		)
Borrowings from White Eagle Revolving Credit Facility	86,356				57,978			47,146
Borrowings from Red Falcon Revolving Credit Facility	—				19,673			5,741
Borrowings under 15.0% Promissory Note	2,763				—			—
Proceeds from rights offering, net	—			—	—			38,334
Proceeds from issue of common stock, net	19,188				1,803			—
Proceeds from 15% Senior Secured Notes	—				30,000			—
Proceeds from Secured Notes, net	—				—			23,750
Proceeds from 8.5% Senior Secured Notes	5,000				—			—
Purchase of treasury shares	—				—			(2,534		)
Payment under finance lease obligations	(25		)		(35		)	(34		)
Payment of Recapitalization Transaction closing cost	(1,287		)		—			—
Extinguishment of Secured Notes	—				—			(3,570		)
Extinguishment of Red Falcon Revolving Credit Facility	—				(315		)	—
Red Falcon Revolving Credit Facility origination costs	—				(150		)	(483		)
15% Senior Secured Notes origination cost	—				(1,051		)	—
Secured Notes deferred debt costs	—				—			(5		)
Net cash provided by financing activities	92,362				62,652			60,726
Net increase/(decrease) in cash and cash equivalents	19,949				(9,023		)	(34,576		)
Cash and cash equivalents, at beginning of the year	11,318				20,341			54,917
Cash and cash equivalents, at end of the year	$	31,267			$	11,318		$	20,341
Supplemental disclosures of cash flow information:
Cash paid for interest during the period	$	21,379			$	24,337		$	13,802
Supplemental disclosures of non-cash financing activities:
Interest Paid in Kind on 8.5% Senior Unsecured Convertible Notes	$	6,288			$	—		$	—
Interest payment and fees withheld from borrowings by lender	$	931			$	1,020		$	7,493
Repayment of 15.0 % Senior Secured Notes principal, interest and penalty through Recapitalization Transaction	$	31,675			$	—		$	—
Issue of 8.5% Senior Secured Notes through Recapitalization Transaction	$	30,000			$	—		$	—
Repayment of 15% Promissory Note principal and interest through Recapitalization Transaction	$	2,799			$	—		$	—
Recapitalization Transaction closing cost and other costs withheld from proceeds	$	4,338			$	—		$	—
Red Falcon Revolving Credit Facility origination cost paid to lender	$	—			$	—		$	2,200
Repayment of Secured Notes by lender of Red Falcon Revolving Credit Facility	$	—			$	—		$	51,800
Borrowings under Red Falcon Revolving Credit Facility	$	—			$	—		$	54,000
Repayment of Red Falcon Revolving Credit Facility through borrowings by White Eagle Revolving Credit Facility	$	—			$	64,965		$	—

The accompanying notes are an integral part of this financial statement.

F-7

Emergent Capital, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

NOTE 1—ORGANIZATION AND DESCRIPTION OF BUSINESS ACTIVITIES

Emergent Capital, Inc. was founded in December 2006 as a Florida limited liability company, Imperial Holdings, LLC, and converted into Imperial Holdings, Inc. on February 3, 2011 in connection with the Company’s initial public offering. Effective September 1, 2015, the name was changed to Emergent Capital, Inc. (with its subsidiary companies, the "Company" or "Emergent Capital").

Emergent Capital, through its subsidiary companies, owns a portfolio of 608 life insurance policies, also referred to as life settlements, with a fair value of $567.5 million and an aggregate death benefit of approximately $2.9 billion at December 31, 2017. The Company primarily earns income on these policies from changes in their fair value and through death benefits. 606 of these policies, with an aggregate death benefit of approximately $2.9 billion and a fair value of 566.7 million at December 31, 2017 are pledged under a $370.0 million, revolving credit agreement (the "White Eagle Revolving Credit Facility") entered into by the Company’s indirect subsidiary, White Eagle Asset Portfolio, LP ("White Eagle"). At December 31, 2017, two policies owned by the Company, with an aggregate death benefit of approximately $12.0 million and a fair value of $750,000 were not pledged as collateral under the White Eagle Revolving Credit Facility.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, all of its wholly-owned subsidiary companies and its special purpose entities, with the exception of Imperial Settlements Financing 2010, LLC ("ISF 2010"), an unconsolidated special purpose entity which is accounted for using the cost method of accounting. The special purpose entity has been created to fulfill specific objectives. All significant intercompany balances and transactions have been eliminated in consolidation, including income from services performed by subsidiary companies in connection with the White Eagle Revolving Credit Facility. Notwithstanding consolidation, as referenced above, White Eagle is the owner of 606 policies, with an aggregate death benefit of approximately $2.9 billion and an estimated fair value of approximately $566.7 million.

Going Concern

Historically, the Company has incurred substantial losses and reported negative cash flows from operating activities of $34.8 million, $45.6 million and $54.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, we had approximately $31.3 million of cash and cash equivalents and certificates of deposit of $1.0 million; of this amount, approximately $19.1 million is available to pay premiums on the 2 unencumbered policies and other overhead expenses, with approximately $13.1 million being restricted by the White Eagle Revolving Credit Facility.

The Company’s ability to continue as a going concern is dependent on its ability to meet its liquidity needs through a combination of the receipt of death benefits from life insurance policy maturities, borrowings under the White Eagle Revolving Credit Facility, strategic capital market raises, policy sales (subject to certain asset sale restrictions) and cash on hand. During the year ended December 31, 2017, the Company entered into certain agreements for the purpose of recapitalizing the Company, and on July 28, 2017 and August 11, 2017, the Company consummated the Transactions (as defined below). See Note 10, "8.5% Senior Unsecured Convertible Notes", Note 11 "5.0% Senior Unsecured Convertible Notes", Note 12, "15% Senior Secured Notes", Note 13, "8.5% Senior Secured Notes" and Note 18, "Stockholders' Equity" for further information. In considering the cash on hand at December 31, 2017 and management's projections for receipts of death benefits from policy maturities, we estimate that our liquidity and capital resources are sufficient for our current and projected financial needs for the next twelve months, at a minimum, from the date of filing this Form 10-K.

The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about the Company’s ability to continue as a going concern.

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Discontinued Operations

On October 25, 2013, the Company sold substantially all of the assets comprising its structured settlement business. As a result, the Company has discontinued segment reporting and classified its operating results of the structured settlement business, net of income taxes, as discontinued operations. The accompanying consolidated statements of operations for each of the three years in the period ended December 31, 2017, 2016 and 2015 and the related notes to the consolidated financial statements reflect the classification of its structured settlement business operating results, net of tax, as discontinued operations. See Note 6, "Discontinued Operations," of the accompanying consolidated financial statements for further information. Unless otherwise noted, the following notes refer to the Company’s continuing operations.

Ownership of Life Insurance Policies

In the ordinary course of our legacy premium finance business, a large portion of our borrowers defaulted by not paying off their loans and relinquished ownership of their life insurance policies to us in exchange for our release of the obligation to pay amounts due. We also buy life insurance policies in the secondary and tertiary markets. We account for life insurance policies that we own as life settlements (life insurance policies) in accordance with ASC 325-30, Investments in Insurance Contracts, which requires us to either elect the investment method or the fair value method. The election is made on an instrument-by-instrument basis and is irrevocable. We have elected to account for these life insurance policies as investments using the fair value method.

We initially record life settlements at the transaction price. For policies acquired upon relinquishment by our borrowers, we determined the transaction price based on fair value of the acquired policies at the date of relinquishment. The difference between the net carrying value of the loan and the transaction price is recorded as a gain (loss) on loan payoffs and settlement. For policies acquired for cash, the transaction price is the amount paid.

Valuation of Insurance Policies

Our valuation of insurance policies is a critical component of our estimate of the fair value of our life settlements (life insurance policies). We currently use a probabilistic method of valuing life insurance policies, which we believe to be the preferred valuation method in the industry. The most significant assumptions are the Company’s estimate of the life expectancy of the insured and the discount rate. See Note 15, "Fair Value Measurements" of the accompanying consolidated financial statements.

Fair Value Measurement Guidance

We follow ASC 820, Fair Value Measurements and Disclosures, which defines fair value as an exit price representing the amount that would be received if an asset were sold or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. Level 1 relates to quoted prices in active markets for identical assets or liabilities. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Our investments in life insurance policies and debt under the Revolving Credit Facilities are considered Level 3 as there is currently no active market where we are able to observe quoted prices for identical assets/liabilities and our valuation model incorporates significant inputs that are not observable. See Note 15, "Fair Value Measurements" of the accompanying consolidated financial statements.

Fair Value Option

We have elected to account for life settlements using the fair value method. The fair value of the asset is the estimated amount that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We calculate the fair value of the asset using a present value technique to estimate the fair value of the life settlements. The Company currently uses a probabilistic method of valuing life insurance policies, which the Company believes to be the preferred valuation method in the industry. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. See Note 7, "Life Settlements (Life Insurance Policies)" and Note 15, "Fair Value Measurements" of the accompanying consolidated financial statements.

We have elected to account for the debt under the White Eagle Revolving Credit Facility, which includes the interests in policy proceeds to the lender, using the fair value method. The fair value of the debt is the estimated amount that would have to

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be paid to transfer the debt to a market participant in an orderly transaction. We calculated the fair value of the debt using a discounted cash flow model taking into account the stated interest rate of the credit facility and probabilistic cash flows from the pledged policies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, our estimates are not necessarily indicative of the amounts that we, or holders of the instruments, could realize in a current market exchange. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. The use of assumptions and/or estimation methodologies could have a material effect on estimated fair values.

Income Recognition from Continuing Operations

Our primary sources of income from continuing operations are in the form of changes in fair value and gains on life settlements, net. Our income recognition policies for these sources of income are as follows:

•

Changes in Fair Value of Life Settlements—When the Company acquires certain life insurance policies, we initially record these investments at the transaction price, which is the fair value of the policy for those acquired upon relinquishment or the amount paid for policies acquired for cash. The fair value of the investment in insurance policies is evaluated at the end of each reporting period. Changes in the fair value of the investment are recorded as changes in fair value of life settlements in our consolidated statement of operations. The fair value is determined on a discounted cash flow basis that incorporates 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 premium an investor in the policy would require. The Company recognizes income from life settlement maturities on the date we are in receipt of death notice or verified obituary of the insured. This income is the difference between the death benefit and fair value of the policy at the time of maturity.


•	Loss on Life Settlements, Net—The Company recognizes gains or losses from the sale of life settlement contracts that the Company owns upon the signed sale agreement and/or filing of ownership forms and funds transferred to escrow.

Income Taxes

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 requires, unless certain conditions exists, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. The Company adopted ASU 2013-11 effective January 1, 2014, which required the Company to reclassify a $6.3 million current liability for unrecognized tax benefits to deferred taxes. As of December 31, 2017, the Company has determined that the deferred tax assets that gave rise to this reclassification are worthless due to effects of the ownership change and should be written off. As such, the $6.3 million deferred tax liability for unrecognized tax benefits has also been reversed during the current year.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities, along with any related valuation allowances be classified as a net noncurrent asset or liability in the balance sheet based on a jurisdictional basis. The new guidance became effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those years. The adoption of this guidance only affects the presentation of deferred taxes in the Company’s consolidated balance sheets.

In March 2016, the FASB issued ASU No. 2016-09, "Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" as part of its Simplification Initiative. The guidance simplifies several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, these amendments became effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption was permitted including adoption in an interim period, as long as any adjustment is reflected as of the beginning of the fiscal year that includes the interim period. The Company adopted this guidance during the year ended December 31, 2017. The adoption of this ASU did not impact the consolidated financial statements or related disclosures.

In October 2016, the FASB issued ASU No. 2016-16 Income Taxes (Topic 740): Intra-entity transfers of assets other than inventory ("ASU 2016-16"). Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The Board decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this Update eliminate the exception for an intra-entity transfer of an asset other than inventory. For public business entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2017,

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including interim reporting periods within those annual reporting periods. We are currently evaluating whether the adoption of this new guidance will have a significant impact on our consolidated financial statements and related disclosures.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and all highly liquid instruments with an original maturity of three months or less, when purchased. The Company maintains the majority of its cash in several operating accounts with two commercial banks. Balances on deposit are insured by the Federal Deposit Insurance Corporation ("FDIC"). However, from time to time, the Company’s balances may exceed the FDIC insurable amount at its banks.

Certificate of Deposit

The Company maintains a portion of its operating funds in certificate of deposit. At December 31, 2017 and 2016, the carrying amount of the certificate of deposits was $1 million and $6.0 million, respectively, which approximates fair value. The certificate of deposit matures on September 22, 2018 and bears interest at a rate of 0.2%.

Deferred Debt Costs

Deferred debt costs include costs incurred in connection with acquiring and maintaining debt arrangements. These costs are directly deducted from the carrying amount of the liability in the consolidated balance sheets, are amortized over the life of the related debt using the effective interest method and are classified as interest expense in the accompanying consolidated statements of operations. These deferred costs are related to the Company's 8.5% Convertible Notes, 5% Convertible Notes and 8.5% Senior Secured Notes. The Company did not recognize any deferred debt costs on the White Eagle Revolving Credit Facility given all costs were expensed due to electing the fair value option in valuing the White Eagle Revolving Credit Facility.

Treasury Stock

The Company accounts for its treasury stock using the treasury stock method as set forth in ASC 505-30, Treasury Stock. Under the treasury stock method, the total amount paid to acquire the stock is recorded and no gain or loss is recognized at the time of purchase. Gains and losses are recognized at the time the treasury stock is reinstated or retired and are recorded in additional paid in capital or retained earnings. At December 31, 2017 and 2016, the Company owned 608,000 shares of treasury stock.

Stock-Based Compensation

We have adopted ASC 718, Compensation—Stock Compensation. ASC 718 addresses accounting for share-based awards, including stock options, restricted stock, performance shares and warrants, with compensation expense measured using fair value and recorded over the requisite service or performance period of the award. The fair value of equity instruments awarded will be determined based on a valuation using an option pricing model that takes into account various assumptions that are subjective. Key assumptions used in the valuation will include the expected term of the equity award taking into account both the contractual term of the award, the effects of expected exercise and post-vesting termination behavior, expected volatility, expected dividends and the risk-free interest rate for the expected term of the award. Compensation expense associated with performance shares is only recognized to the extent that it is probable the performance measurement will be met.

Earnings Per Share

The Company computes net income per share in accordance with ASC 260, Earnings Per Share. Under the provisions of ASC 260, basic net income per share is computed by dividing the net income available to common shareholders by the weighted average common shares outstanding during the period. Diluted net income per share adjusts basic net income per share for the effects of stock options, warrants, convertible notes and restricted stock awards only in periods in which such effect is dilutive. ASC 260 also requires the Company to present basic and diluted earnings per share information separately for each class of equity instruments that participate in any income distribution with primary equity instruments.

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Held-for-sale and discontinued operations

We report a business as held-for-sale when management has approved or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the ensuing year and certain other specified criteria are met. A business classified as held-for-sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. Depreciation is not recorded on assets of a business classified as held-for-sale. Assets and liabilities related to a business classified as held-for-sale are segregated in the Consolidated Balance Sheet and major classes are separately disclosed in the notes to the Consolidated Financial Statements commencing in the period in which the business is classified as held-for-sale. We report the results of operations of a business as discontinued operations if the business is classified as held-for-sale, the operations and cash flows of the business have been or will be eliminated from the ongoing operations of the Company as a result of a disposal transaction and we will not have any significant continuing involvement in the operations of the business after the disposal transaction. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statement of Operations for current and prior periods commencing in the period in which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell. During the fourth quarter of 2013, we sold substantially all of our structured settlements business. As a result, we have classified our structured settlement operating results as discontinued operations.

Foreign Currency

We own certain foreign subsidiary companies formed under the laws of Ireland, Bahamas and Bermuda. These foreign subsidiary companies utilize the U.S. dollar as their functional currency. The foreign subsidiary companies' financial statements are denominated in U.S. dollars and therefore, there are no translation gains and losses resulting from converting the financial statements at exchange rates other than the functional currency. Any gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the subsidiary companies functional currency) are included in income. These gains and losses are immaterial to our financial statements.

Use of Estimates

The preparation of these consolidated financial statements, in conformity with generally accepted accounting principles in the United States of America ("GAAP"), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from these estimates and such differences could be material. Significant estimates made by management include income taxes, the valuation of life settlements, the valuation of the debt owing under the White Eagle Revolving Credit Facility and the valuation of equity awards.

Risks and Uncertainties

In the normal course of business, the Company encounters economic, legal and longevity risk. There are two main components of economic risk that could potentially impact the Company: market risk and concentration of credit risk. Market risk for the Company includes interest rate risk. Market risk also reflects the risk of declines in valuation of the Company’s life settlements, including declines caused by the selection of increased discount rates associated with the Company’s fair value model for life settlements. It is reasonably possible that future changes to estimates involved in valuing life settlements could change and result in material effects to the future financial statements. Concentration of credit risk includes the risk that an insurance carrier who has issued life insurance policies held by the Company in its portfolio, does not remit the amount due under those policies due to the deteriorating financial condition of the carrier or otherwise. Legal risk includes the risk that statutes define or courts interpret insurable interest in a manner adverse to the Company’s ownership rights in its portfolio of life insurance policies and the risk that courts allow insurance carriers to retain premiums paid by the Company in respect of insurance policies that have been successfully rescinded or contested. Longevity risk refers to the risk that the Company does not experience the mortalities of insureds in its portfolio of life insurance policies that are anticipated to occur on an actuarial basis in a timely manner, which would result in the Company expending additional amounts for the payment of premiums.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with

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Customers," which converges the FASB and the International Accounting Standards Board ("IASB") standard on revenue recognition. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. In April 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year. As a result, the provisions of this ASU are now effective for interim and annual periods beginning after December 15, 2017. The Company does not expect that this guidance will have a material impact on its financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. This ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect that this guidance will have a material impact on its financial position, results of operations or cash flows.

In March 2016, the FASB issued ASU No. 2016-06, "Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments." Topic 815 requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract (the "clearly and closely related" criterion). The guidance in this ASU intends to resolve the diversity in practice resulting from the application of the existing four-step decision sequence defined in ASC 815-15-25-42 to call (put) options that can accelerate the repayment of principal on a debt instrument if they meet the clearly and closely related criterion by clarifying that an entity is required to perform only the four-step decision sequence. The entity does not have to separately assess whether the event that triggers its ability to exercise the contingent option is itself indexed only to interest rates or credit risk. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods beginning after December 15, 2018. Early adoption is permitted including adoption in an interim period, as long as any adjustment is reflected as of the beginning of the fiscal year that includes the interim period. The Company does not expect that this guidance will have a material impact on its financial position, results of operations or cash flows.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." This ASU provides specific guidance on eight cash flow classification issues that are either unclear or not included in current GAAP. These cash flow classification issues include debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company does not expect that this guidance will have a material impact on its financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805)," to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses by clarifying the definition of a business. The definition of a business affects many areas of accounting including acquisition, disposals, goodwill and consolidation. This amendment covers Phase 1 of a three phase project. The update is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments in this update should be applied prospectively on or after the effective date. We are currently evaluating the impact that the adoption of this ASU will have on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting" to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for annual periods beginning on or after December 15, 2017. Early adoption was permitted. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In August 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-12, "Derivatives and Hedging (Topic 815)," which simplifies and clarifies the accounting and disclosure for hedging activities by more closely aligning the results of

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cash flow and fair value hedge accounting with the risk management activities of an entity. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. We do not expect this standard to have an impact on our consolidated financial position, results of operations or cash flows.

Adopted Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, "Disclosures of Uncertainties About an Entity’s Ability to Continue as a Going Concern." The standard provides guidance around management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted this guidance during the year ended December 31, 2017. Management has performed a going concern analysis of the Company's liquidity needs and the appropriate disclosures have been incorporated in the accompanying consolidated financial statements for the year ended December 31, 2017.

In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classifications of Deferred Taxes," which aligns the FASB and the IASB standard for financial statement presentation of deferred income taxes. To simplify the presentation of deferred income taxes, this standard requires that deferred tax assets and liabilities be presented as noncurrent on the balance sheet. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption was permitted, including adoption in an interim period. The Company adopted this guidance during the year ended December 31, 2017 and it did not have any material impact on our financial position, results of operations or cash flows.

In March 2016, the FASB issued ASU No. 2016-09, "Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" as part of its Simplification Initiative. The guidance simplifies several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, these amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption was permitted including adoption in an interim period, as long as any adjustment is reflected as of the beginning of the fiscal year that includes the interim period. The adoption of this ASU did not impact the consolidated financial statements or related disclosures.

NOTE 3—CONSOLIDATION OF VARIABLE INTEREST ENTITIES

The Company evaluates its interests in variable interest entities ("VIEs") on an ongoing basis and consolidates those VIEs in which it has a controlling financial interest and is thus deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be potentially significant to the VIE.

The following table presents the consolidated assets and consolidated liabilities of VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated in the Company’s financial statements as of December 31, 2017 and 2016, as well as non-consolidated VIEs for which the Company has determined it is not the primary beneficiary (in thousands):



	Primary Beneficiary				Not Primary Beneficiary
	Consolidated VIEs				Non-consolidated VIEs
	Assets		Liabilities		Total Assets		Maximum Exposure To Loss
December 31, 2017	$	609,976	$	329,993	$	2,384	$	2,384
December 31, 2016	$	511,792	$	257,678	$	2,384	$	2,384

As of December 31, 2017, 606 life insurance policies owned by White Eagle with an aggregate death benefit of approximately $2.9 billion and an estimated fair value of approximately $566.7 million were pledged as collateral under the White Eagle Revolving Credit Facility. In accordance with ASC 810, Consolidation, the Company consolidated White Eagle in its financial statements for the years ended December 31, 2017 and 2016.

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Imperial Settlements Financing 2010, LLC ("ISF 2010"), which was formed as an affiliate of the Company to serve as a special purpose financing entity to allow the Company to sell structured settlements and assignable annuities, is a non-consolidated special purpose financing entity, as well as a non-consolidated VIE for which the Company has determined it is not the primary beneficiary. Approximately $2.4 million is included in investment in affiliates in the accompanying balance sheet as of December 31, 2017 and December 31, 2016, respectively.

NOTE 4—EARNINGS PER SHARE

As of December 31, 2017, 2016 and 2015, there were 158,495,399, 29,021,844 and 28,130,508 shares of common stock issued, respectively, and 157,887,399, 28,413,844, and 27,522,508 of shares of common stock outstanding, respectively. Outstanding shares as of December 31, 2017, 2016 and 2015 have been adjusted to reflect 608,000 treasury shares.

Basic net income per share is computed by dividing the net earnings attributable to common shareholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding, increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Conversion or exercise of the potential common shares is not reflected in diluted earnings per share unless the effect is dilutive. The dilutive effect, if any, of outstanding common share equivalents is reflected in diluted earnings per share by application of the treasury stock method and if-converted method, as applicable.

The following tables reconcile actual basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 (in thousands except per share data).



	2017			2016			2015
	(1)			(2)			(3)
Loss per share:
Numerator:
Net (loss) income from continuing operations	$	(3,238	)	$	(49,429	)	$	(30,380	)
Net (loss) income from discontinued operations	(271		)	(260		)	(644		)
Net (loss) income	$	(3,509	)	$	(49,689	)	$	(31,024	)
Basic and diluted (loss) income per common share:
Basic and diluted (loss) income per share from continuing operations	$	(0.04	)	$	(1.79	)	$	(1.22	)
Basic and diluted (loss) income per share from discontinued operations	$	—		$	(0.01	)	$	(0.03	)
Basic and diluted (loss) income per share available to common shareholders	$	(0.04	)	$	(1.80	)	$	(1.25	)

Denominator:
Basic and diluted	82,323,050			27,660,711			24,851,178

(1)

The computation of diluted EPS does not include 542,102 options, 48,740,521 warrants, 2,102,522 shares of restricted stock, and up to 37,918,483 shares of underlying common stock issuable upon conversion of the 5% Convertible Notes (as defined below) and up to 181,249 shares of underlying common stock issuable upon conversion of the 8.5% Convertible Notes (as defined below) for the year ended December 31, 2017, as the effect of their inclusion would have been anti-dilutive.


(2)	The computation of diluted EPS did not include 763,594 options, 6,240,521 warrants, 265,212 shares of restricted stock and up to 10,738,165 shares of underlying common stock issuable upon conversion of the Convertible Notes for the year ended December 31, 2016, as the effect of their inclusion would have been anti-dilutive.


(3)	The computation of diluted EPS did not include 774,394 options and 6,240,521 warrants, 41,259 shares of restricted stock, up to 10,738,165 shares of underlying common stock issuable upon conversion of the Convertible Notes, and 319,500 performance shares for the year ended December 31, 2015, as the effect of their inclusion would have been anti-dilutive.

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NOTE 5—STOCK-BASED COMPENSATION

On June 27, 2017, the shareholders of the Company voted to amend, and the Company amended, the Amended and Restated 2010 Omnibus Incentive Plan (as amended, the "Omnibus Plan") to increase the number of shares authorized for issuance thereunder by 9,900,000 shares. Awards under the Omnibus Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance units, and shares of common stock, restricted stock, restricted stock units or other stock-based awards as determined by the compensation committee of the Company's board of directors. The Omnibus Plan has an aggregate of 12,600,000 shares of common stock authorized for issuance thereunder, subject to adjustment as provided therein.

Options

As of December 31, 2017, all options to purchase shares of common stock issued by the Company were fully vested. There was no stock-based compensation expense relating to stock options granted under the Omnibus Plan during years ended December 31, 2017 and 2016. The Company recognized approximately $238,000 in stock-based compensation expense relating to stock options granted under the Omnibus Plan during the year ended December 31, 2015.

As of December 31, 2017, options to purchase 542,102 shares of common stock were outstanding under the Omnibus Plan at a weighted average exercise price of $8.75 per share. The following table presents the activity of the Company’s outstanding stock options of common stock for the year ended December 31, 2017:



Common Stock Options	Number of Shares		Weighted Average Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding, January 1, 2017	763,594		$	8.52	2.47	$	—
Options granted	—		—		—
Options exercised	—		—		—
Options forfeited	(221,492	)	9.01		—
Options expired	—		—		—
Options outstanding, December 31, 2017	542,102		$	8.75	1.33	$	—
Exercisable at December 31, 2017	542,102		8.75		1.33
Unvested at December 31, 2017	—		$	—	—	$	—

As of December 31, 2017, all outstanding stock options had an exercise price above the fair market value of the common stock on that date. There are no remaining unamortized amounts to be recognized on these options.

Restricted Stock

The Company incurred additional stock-based compensation expense of approximately $388,000, $411,000, and $252,000 relating to restricted stock granted to its board of directors and certain employees during the years ended December 31, 2017, 2016, and 2015, respectively.

Under the Omnibus Plan, 41,259 shares of restricted stock granted to the Company's directors during 2015 vested during the year ended December 31, 2016. The fair value of the restricted stock was valued at $255,000 based on the closing price of the Company’s shares on the day prior to the grant date. The Company incurred stock-based compensation expense of approximately $0, $103,000 and $144,000 related to these 41,259 shares of restricted stock during the years ended December 31, 2017, 2016 and 2015, respectively.

During the year ended December 31, 2016, the Company granted 65,212 shares of restricted stock to its directors under the Omnibus Plan, which are subject to a one year vesting period that commenced on the date of grant. The fair value of the restricted stock was valued at approximately $255,000 based on the closing price of the Company’s shares on the date prior to the grant date. The Company incurred stock-based compensation expense related to these 65,212 shares of restricted stock of approximately $106,000 and $141,000 during the years ended December 31, 2017 and 2016, respectively. The 65,212 shares of restricted stock vested during the year ended December 31, 2017.

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During the year ended December 31, 2016, the Company granted 200,000 shares of restricted stock units to certain employees under the Omnibus Plan, which are subject to a two year vesting period that commenced on the date of grant. The fair value of the unvested restricted stock was valued at approximately $674,000 based on the closing price of the Company's shares on the day prior to the grant date. The Company incurred stock-based compensation expense of approximately $215,000 and $168,000 related to these 200,000 shares of restricted stock during the years ended December 31, 2017 and 2016, respectively. Approximately 46,000 and 60,000 shares of restricted stock were vested and forfeited, respectively, during the year ended December 31, 2017, with 94,000 remaining unvested at December 31, 2017.

During the year ended December 31, 2017, the Company granted 51,132 shares of restricted stock to its directors under the Omnibus Plan, which are subject to a one year vesting period that commenced on the date of grant. The fair value of the unvested restricted stock was valued at approximately $17,000 based on the closing price of the Company’s shares on the date prior to the grant date. The Company incurred stock-based compensation expense related to these 51,132 shares of restricted stock of approximately $17,000 during year ended December 31, 2017. Approximately 42,610 shares of restricted stock vested during the year ended December 31, 2017 with 8,522 remaining unvested at December 31, 2017.

During the year ended December 31, 2017, the Company granted 2,000,000 shares of restricted stock units to certain employees under the Omnibus Plan, which are subject to a two year vesting period that commenced on the date of grant. The fair value of the unvested restricted stock was valued at approximately $745,000 based on the closing price of the Company's shares on the day prior to the grant date. The Company incurred stock-based compensation expense of approximately $51,000 related to these 2,000,000 shares of restricted stock during the year ended December 31, 2017.

The following table presents the activity of the Company’s unvested restricted stock for the year ended December 31, 2017:



Common Unvested Shares	Number of Shares
Outstanding January 1, 2017	265,212
Granted	2,051,132
Vested	(153,822	)
Forfeited	(60,000	)
Outstanding December 31, 2017	2,102,522

The aggregate intrinsic value of the awards of 8,522, 94,000 and 2,000,000 shares is $3,000, $28,200 and $600,000, respectively, and the remaining weighted average life of these awards is 0.57 years, 0.24 years and 0.92 years, respectively, as of December 31, 2017. As of December 31, 2017, a total of $783,000 in stock based compensation remained unrecognized.

Performance Shares

During 2014, the Company awarded 323,500 target performance shares for restricted common stock to its directors and certain employees, of which 150,000 shares were subject to shareholder approval of the Omnibus Plan, which was obtained at the Company’s 2015 annual meeting on May 28, 2015. The issuance of the performance shares was contingent on the Company’s financial performance, as well as the performance of the Company’s common stock through June 30, 2016, with the actual shares to be issued ranging between 0 – 150% of the target performance shares. Given that the Company's financial performance goal was not achieved during the year ended December 31, 2017, the remaining performance shares have been forfeited. At December 31, 2016, the Company determined that it was not probable that the performance conditions would be achieved and no related expense was recognized for the year then ended.

Warrants

On February 11, 2011, three shareholders received warrants that may be exercised for up to a total of 4,240,521 shares of the Company’s common stock at a weighted average exercise price of $14.51 per share. The warrants will expire seven years after the date of issuance. At December 31, 2017, all 4,240,521 warrants remained outstanding and are exercisable as they are fully vested.

In connection with a settlement of class action litigation arising in connection with the investigation by the U.S. Attorney's Office for District of New Hampshire ("USAO") into the Company's now legacy premium finance business (the "USAO Investigation"), the Company issued warrants to purchase 2,000,000 shares of the Company’s stock into an escrow

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account in April of 2014. The estimated fair value as of the measurement date of such warrants was $5.4 million, which is included in stockholders’ equity. The warrants were distributed in October 2014 and have a five-year term from the date they were distributed to the class participants with an exercise price of $10.75. The Company is obligated to file a registration statement to register the shares underlying the warrants with the SEC if shares of the Company’s common stock have an average daily trading closing price of at least $8.50 per share for a 45 day period. The warrants will be exercisable upon effectiveness of the registration statement.

On July 28, 2017, in connection with the recapitalization transaction, the Company issued common stock warrants to certain investors to purchase up to an aggregate of 42,500,000 shares of the Company’s common stock at an exercise price of $0.20 per share (the "Warrant Shares"). The warrants shall vest and become exercisable as follows: (i) with respect to 17,500,000 Warrant Shares, immediately upon the issuance of the warrants, and (ii) with respect to the remaining 25,000,000 Warrant Shares, at later times tied to the conversion of the Convertible Notes and New Convertible Notes (each as defined below) outstanding on July 28, 2017 into shares of the Company’s common stock or, if earlier, upon the date that all Convertible Notes or New Convertible Notes are no longer outstanding. The warrants have an eight year term. The number of Warrant Shares is subject to anti-dilution adjustment provisions.

NOTE 6—DISCONTINUED OPERATIONS

On October 25, 2013, the Company sold substantially all of the operating assets comprising its structured settlement business to Majestic Opco LLC pursuant to an Asset Purchase Agreement. No structured settlement receivables were sold and no on-balance sheet liabilities were transferred in connection with the sale. On August 18, 2015, the Company sold its remaining structured settlement receivables asset for $920,000 to the buyer of its operating assets.

As a result of the sale of its structured settlements business, the Company reclassified its structured settlement business operating results as discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented.

Operating results related to the Company’s discontinued structured settlement business are as follows:



	Year Ended December 31,
	2017			2016			2015
	(in thousands)
Total income	$	33		$	12		$	81
Total expenses	304			272			725
Income (loss) before income taxes	(271		)	(260		)	(644		)
Income tax benefit	—			—			—
Income (loss) from discontinued operations, net of income taxes	$	(271	)	$	(260	)	$	(644	)

NOTE 7—LIFE SETTLEMENTS (LIFE INSURANCE POLICIES)

The Company accounts for policies it acquires using the fair value method in accordance with ASC 325-30-50 Investments—Other—Investment in Insurance Contracts. Under the fair value method, the Company recognizes the initial investment at the purchase price. For policies that were relinquished in satisfaction of premium finance loans at maturity, the initial investment is the loan carrying value. For policies purchased in the secondary or tertiary markets, the initial investment is the amount of cash outlay at the time of purchase. At each reporting period, the Company re-measures the investment at fair value in its entirety and recognizes changes in the Statements of Operations in the periods in which the changes occur.

As of December 31, 2017 and 2016, the Company owned 608 and 621 policies, respectively, with an aggregate estimated fair value of life settlements of $567.5 million and $498.4 million, respectively.

The weighted average life expectancy calculated based on death benefit of insureds in the policies owned by the Company at December 31, 2017 was 8.3 years. The following table describes the Company’s life settlements as of December 31, 2017 (dollars in thousands):

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Remaining Life Expectancy (In Years)*	Number of Life Settlement Contracts	Fair Value		Face Value
0-1	9	$	29,520	$	36,474
1-2	13	30,362		42,718
2-3	25	46,609		92,780
3-4	32	68,439		168,946
4-5	60	98,516		281,865
Thereafter	469	294,046		2,257,704
Total	608	$	567,492	$	2,880,487

*Based on remaining life expectancy at December 31, 2017, as derived from reports of third party life expectancy providers, and does not indicate the timing of expected death benefits. See "Life Settlements," in Note 15, "Fair Value Measurements," of the accompanying consolidated financial statements.

The weighted average life expectancy calculated based on death benefit of insureds in the policies owned by the Company at December 31, 2016 was 9.0 years. The following table describes the Company’s life settlements as of December 31, 2016 (dollars in thousands)



Remaining Life Expectancy (In Years)*	Number of Life Settlement Contracts	Fair Value		Face Value
0-1	4	$	16,280	$	19,497
1-2	14	35,019		52,093
2-3	14	31,300		57,274
3-4	31	44,096		114,449
4-5	40	57,792		172,157
Thereafter	518	313,913		2,531,041
Total	621	$	498,400	$	2,946,511

*Based on remaining life expectancy at December 31, 2016, as derived from reports of third party life expectancy providers, and does not indicate the timing of expected death benefits. See "Life Settlements," in Note 15, "Fair Value Measurements," of the accompanying consolidated financial statements.

Estimated premiums to be paid for each of the five succeeding fiscal years and thereafter to keep the life insurance policies in force as of December 31, 2017, are as follows (in thousands):



2018	$	89,963
2019	97,420
2020	100,343
2021	100,015
2022	96,541
Thereafter	784,442
	$	1,268,724

The amount of $1.27 billion noted above represents the estimated total future premium payments required to keep the life insurance policies in force during the life expectancies of all the underlying insured lives and does not give effect to projected receipt of death benefits. The estimated total future premium payments could increase or decrease significantly to the extent that insurance carriers increase the cost of insurance on their issued policies or that actual mortalities of insureds differs from the estimated life expectancies.

NOTE 8—WHITE EAGLE REVOLVING CREDIT FACILITY

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Effective April 29, 2013, White Eagle entered into a 15-year revolving credit agreement with LNV Corporation, as initial lender, Imperial Finance & Trading, LLC, as servicer and portfolio manager and CLMG Corp., as administrative agent. Proceeds from the initial advance under the facility were used, in part, to retire a bridge facility and to fund a payment to the lender protection insurance provider to release subrogation rights in certain of the policies pledged as collateral for the White Eagle Revolving Credit Facility. On May 16, 2014, White Eagle Asset Portfolio, LLC converted from a Delaware limited liability company to White Eagle Asset Portfolio, LP, a Delaware limited partnership (the “Conversion”) and all of its ownership interests were transferred to an indirect, wholly-owned Irish subsidiary of the Company. In connection with the Conversion, the White Eagle Revolving Credit Facility was amended and restated among White Eagle, as borrower, Imperial Finance and Trading, LLC, as the initial servicer, the initial portfolio manager and guarantor, Lamington Road Bermuda Ltd., as portfolio manager, LNV Corporation, as initial lender, the other financial institutions party thereto as lenders, and CLMG Corp., as administrative agent for the lenders. The White Eagle Revolving Credit Facility was amended on November 9, 2015. As amended, the White Eagle Revolving Credit Facility may provide earlier participation in the portfolio cash flows if certain loan to value ("LTV") ratios are achieved. Additionally, the maximum facility limit was reduced from $300.0 million to $250.0 million, and the interest rate under the facility was increased by 50 basis points.

On December 29, 2016, White Eagle entered into a Second Amendment to the Amended and Restated Loan and Security Agreement ("White Eagle Second Amendment") and on January 31, 2017, as required by the terms of the White Eagle Amendment, White Eagle executed the Second Amended and Restated Loan and Security Agreement, dated January 31, 2017, which consolidated into a single document the amendments evidenced by the White Eagle Amendment and all previous amendments.

As amended, the White Eagle Revolving Credit Facility adjusted the loan-to-value ("LTV") ratios which directed cash flow participation and became subjected to achieving certain financial metrics, as more fully described below under "Amortization & Distributions." Pursuant to the White Eagle Second Amendment, 190 life settlement policies purchased from wholly owned subsidiaries of the Company were pledged as additional collateral under the facility for an additional policy advance of approximately $71.1 million. The maximum facility limit was increased to $370.0 million and the term of the facility was extended to December 31, 2031. Additional loan terms and amendment changes are more fully described in the sections that follow.

On October 4, 2017, White Eagle entered into an amendment to the Second Amended and Restated Loan and Security Agreement. The amendment changed the provisions over how participation of the proceeds from the maturity of the policies pledged as collateral under the White Eagle Revolving Credit Facility are distributed pursuant to a waterfall. The amendment included an exclusion from the cash interest coverage ratio of at least 2.0:1 for the period of July 1, 2017 through July 28, 2017. As a result of the amendment, the Company was able to participate in the waterfall distribution scheduled during October 2017.

General & Security. The White Eagle Revolving Credit Facility provides for an asset-based revolving credit facility backed by White Eagle’s portfolio of life insurance policies with an aggregate lender commitment of up to $370.0 million, subject to borrowing base availability. 606 life insurance policies with an aggregate death benefit of approximately $2.9 billion and an estimated fair value of approximately $566.7 million are pledged as collateral under the White Eagle Revolving Credit Facility at December 31, 2017. In addition, the equity interests in White Eagle have been pledged under the White Eagle Revolving Credit Facility.

Borrowing Base. Borrowing availability under the White Eagle Revolving Credit Facility is subject to a borrowing base, which at any time is equal to the lesser of (A) the sum of all of the following amounts that have been funded or are to be funded through the next distribution date (i) the initial advance and all additional advances to acquire additional pledged policies that are not for ongoing maintenance advances, plus (ii) 100% of the sum of the ongoing maintenance costs, plus (iii) 100% of fees and expense deposits and other fees and expenses funded and to be funded as approved by the required lenders, less (iv) any required payments of principal and interest previously distributed and to be distributed through the next distribution date; (B) 75% of the valuation of the policies pledged as collateral as determined by the lenders; (C) 50% of the aggregate face amount of the policies pledged as collateral (excluding certain specified life insurance policies); and (D) the then applicable facility limit. At December 31, 2017, $41.0 million was undrawn and $4.1 million was available to borrow under the White Eagle Revolving Credit Facility. The amount available to borrow is calculated based on and limited to the premium payments and expenses if any, that are due as of the calculation date. In essence, what is available, is what is required to pay expenses and keep the policies in force as of the calculation date.

Amortization & Distributions. Proceeds from the maturity of the policies pledged as collateral under the White Eagle Revolving Credit Facility are distributed pursuant to a waterfall. After distributions for premium payments, fees to service

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providers and payments of interest, a percentage of the collections from policy proceeds are to be paid to the Company, which will vary depending on the then LTV ratio as illustrated below where the valuation is determined by the lenders:



LTV	Premiums, Interest & Other Fees	Principal	Distribution to White Eagle - 55%	Lender Participation - 45%
N/A	100%	—%	—%	—%
>65%	N/A	100%	—%	—%
50-65%	N/A	70%	16.5%	13.5%
35-50%	N/A	55%	24.8%	20.3%
0-35%	N/A	45%	30.3%	24.8%

Provided that (i) if (a) the Company failed to maintain a cash interest coverage ratio of at least 2.0:1 at any time during the immediately preceding calendar quarter or (b) the Company fails to take steps to improve its solvency in a manner acceptable to the required lenders (as determined in their sole and absolute discretion), then the cash flow sweep percentage to the lenders shall equal one-hundred percent (100%) and (ii) if such distribution date occurs on or after December 29, 2025, then the cash flow sweep percentage shall equal one-hundred percent (100%). As of December 31, 2017, the cash interest coverage ratio was 3.52:1 and the loan to value ratio was 63%, as calculated using the lenders' valuation.

The cash interest coverage ratio is the ratio of (i) consolidated cash and cash equivalents maintained by the Company to (ii) the aggregate interest amounts that will be due and payable in cash on (x) the $35.0 million 8.5% Senior Secured Notes due July 15, 2021 (and any notes issued by the Company or any of its Affiliates in connection with refinancing, replacing, substituting or any similar action with respect to any such notes), the $75.8 million 5.0% Convertible Notes due February 15, 2023 (and any notes issued by the Company or any of its Affiliates in connection with refinancing, replacing, substituting or any similar action with respect to any such notes), and the $1.2 million 8.50% Convertible Notes due February 15, 2019 (and any notes issued by the Company or any of its Affiliates in connection with refinancing, replacing, substituting or any similar action with respect to any such notes) and (y) any additional indebtedness issued by the Company after December 29, 2016, in each case, during the twelve month period following such date of determination. See Note 10, "8.50% Senior Unsecured Convertible Notes", Note 11, "5.0% Senior Unsecured Convertible Notes" and Note 13, "8.5% Senior Secured Notes", to the accompanying consolidated financial statements for further information.

With respect to approximately 25% of the face amount of policies pledged as collateral under the White Eagle Revolving Credit Facility, White Eagle has agreed that if policy proceeds that are otherwise due are not paid by an insurance carrier, the foregoing distributions will be altered such that the lenders will receive any "catch-up" payments with respect to amounts that they would have received in the waterfall prior to distributions being made to White Eagle. During the continuance of events of default or unmatured events of default, the amounts from collections of policy proceeds that might otherwise be paid to White Eagle will instead be held in a designated account controlled by the lenders and may be applied to fund operating and third party expenses, interest and principal, "catch-up" payments or percentage payments that would go to the lenders as described above.

Assuming no event of default, funds on account from policy proceeds shall be distributed in specified stages of priority. For the year ended December 31, 2017, approximately $37.1 million of proceeds received from the maturity of policies pledged under the White Eagle Revolving Credit Facility, were distributed through the waterfall in the following stages of priority (in thousands):

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	December 31, 2017		December 31, 2016
Clause	Amount				Use of Proceeds
First:	$	313	$	239	Custodian and Securities Intermediary
Second:	—		—		White Eagle - Ongoing Maintenance Cost Reimbursable
Third:	—		—		Administrative Agent - Protective Advances
Fourth:	39		53		Administrative Agent - Administrative Agent Fee and Legal Expense Reimbursement
Fifth:	16,037		10,932		Administrative Agent - Accrued and Unpaid Interest
Sixth:	19,633		34,799		Administrative Agent - Required Amortization
Seventh:	—		—		Administrative Agent - Amortization Shortfall
Eighth:	467		—		Administrative Agent - Participation Interest
Ninth:	—		—		Reserved
Tenth:	—		—		Administrative Agent Aggregate Unpaid Participation Interest
Eleventh:	—		—		Administrative Agent - Remaining Available Amount After Clause First to Tenth
Twelfth:	—		—		Wilmington Trust - Custodian and Securities Intermediary - Unpaid Fees
Thirteenth:	570		—		Borrower - Any Remaining Available Amount After Clause First to Twelfth
Total Distributions	$	37,059	$	46,023

Approximately $2.5 million of the amount distributed during the year ended December 31, 2017 was from maturity proceeds collected during the year ended December 31, 2016.

The below is a reconciliation of proceeds collected by the White Eagle Revolving Credit Facility and distributed through the waterfall as shown above (in thousands):



Face value collected in 2016 and distributed in 2017	$	2,480
Face value collected in 2017 and distributed in 2017	34,372
Face value collected in 2017 and distributed in 2018	7,759
Other collections*	247
Total collection in 2017	44,858
Less: Total waterfall distribution in 2017	(37,059		)
Total to be distributed in 2018	$	7,799

*Includes refund of premiums and interest earned on maturity proceeds

Use of Proceeds. Generally, ongoing advances may be made for paying premiums on the life insurance policies pledged as collateral and to pay the fees of service providers. Effective with the White Eagle Amendment on November 9, 2015, ongoing advances may no longer be used to pay interest, which will now be paid by White Eagle if there is not otherwise sufficient amounts available from policy proceeds to be distributed to pay interest expense pursuant to the waterfall described above in "Amortization and Distributions." Subsequent advances and the use of proceeds from those advances are at the discretion of the lenders. During the years ended December 31, 2017 and 2016, advances for premium payments and fees to service providers amounted to (in thousands):

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	December 31,
	2017		2016
Amount drawn for premium payments	$	84,889	$	51,342
Amount drawn in fees to service providers	2,398		1,721
Amount drawn for Red Falcon policies purchase	—		71,079
Total amount drawn	$	87,287	$	124,142

Interest. Borrowings under the White Eagle Revolving Credit Facility bear interest at a rate equal to LIBOR or, if LIBOR is unavailable, the base rate, in each case plus an applicable margin of 4.50%, which was increased from 4.00% pursuant to the November 9, 2015 amendment, and subject to a rate floor component equal to the greater of LIBOR (or the applicable rate) and 1.5%. The base rate under the White Eagle Revolving Credit Facility equals the sum of (i) the weighted average of the interest rates on overnight federal funds transactions or, if unavailable, the average of three federal funds quotations received by the Agent plus 0.75% and (ii) 0.5%. Based on the loan agreement, the LIBOR portion of the interest rate will re-adjust annually, once the floor has exceeded 1.5%. The applicable rate will be dependent on the rate at the last business day of the preceding calendar year. On December 29, 2017, the LIBOR floor increased from 1.69% to 2.11%. The effective rate at December 31, 2017 was 6.61% compared to 6.19% at December 31, 2016.

Interest paid during the period is recorded in the Company’s consolidated financial statements. Accrued interest is reflected as a component of the estimated fair value of the White Eagle Revolving Credit Facility debt. The below table shows the composition of interest for the year ended December 31, 2017 and December 31, 2016 (in thousands):



	December 31,
	2017		2016
Interest paid through waterfall	$	16,037	$	10,932
Interest paid by White Eagle	782		103
Debt issuance cost	—		388
Participation interest paid through waterfall	467		—
Total interest expense	$	17,286	$	11,423

Maturity. Effective with the White Eagle Second Amendment, the term of the White Eagle Revolving Credit Facility expires December 31, 2031, which is also the scheduled commitment termination date (though the lenders’ commitments to fund borrowings may terminate earlier in an event of default). The lenders’ interests in and rights to a portion of the proceeds of the policies does not terminate with the repayment of the principal borrowed and interest accrued thereon, the termination of the White Eagle Revolving Credit Facility or expiration of the lenders’ commitments.

Covenants/Events of Defaults. The White Eagle Revolving Credit Facility contains covenants and events of default that are customary for asset-based credit agreements of this type, but also include cross defaults under the servicing, account control, contribution and pledge agreements entered into in connection with the White Eagle Revolving Credit Facility (including in relation to breaches by third parties thereunder), certain changes in law, changes in control of or insolvency or bankruptcy of the Company and relevant subsidiary companies and performance of certain obligations by certain relevant subsidiary companies, White Eagle and third parties. Effective with the White Eagle Second Amendment, and as described above in "Amortization and Distributions", the White Eagle Revolving Credit Facility contains a financial covenant requiring White Eagle to maintain a cash interest coverage ratio of at least 1.75:1 commencing after June 30, 2019. Failure to maintain this ratio for 60 consecutive days after June 30, 2019 constitutes an event of default. There is no cash interest coverage ratio requirement that would result in an event of default prior to this date; however, any failure to maintain a cash interest coverage ratio of at least 2.0:1 does impact the cash flow sweep percentage for proceeds distributed through the waterfall. As of December 31, 2017, the cash interest coverage ratio was 3.52:1. The White Eagle Revolving Credit Facility also contains certain tests relating to asset maintenance, performance and valuation, the satisfaction of which will be determined by the lenders with a high degree of discretion.

Remedies. The White Eagle Revolving Credit Facility and ancillary transaction documents afford the lenders a high degree of discretion in their selection and implementation of remedies, including strict foreclosure, in relation to any event of default, including a high degree of discretion in determining whether to foreclose upon and liquidate all or any pledged

F-23

policies, the interests in White Eagle, and the manner of any such liquidation. White Eagle has limited ability to cure events of default through the sale of policies or the procurement of replacement financing.

The Company elected to account for the debt under the White Eagle Revolving Credit Facility in accordance with ASC 820, which includes the 45% interest in policy proceeds to the lender, using the fair value method. The fair value of the debt is the amount the Company would have to pay to transfer the debt to a market participant in an orderly transaction. The Company calculated the fair value of the debt using a discounted cash flow model taking into account the stated interest rate of the credit facility and probabilistic cash flows from the pledged policies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.

At December 31, 2017, the fair value of the outstanding debt was $329.2 million and the borrowing base was approximately $333.2 million, which includes $329.0 million of outstanding principal. Approximately $4.1 million was available to borrow under the White Eagle Revolving Credit Facility.

There are no scheduled repayments of principal prior to maturity although payments are due upon the next distribution date following the receipt of death benefits and distributed pursuant to the waterfall as described above. At December 31, 2017, approximately $7.8 million included in restricted cash was on account with White Eagle awaiting distribution through the waterfall.

NOTE 9—RED FALCON REVOLVING CREDIT FACILITY

Effective July 16, 2015, Red Falcon Trust ("Red Falcon"), a Delaware statutory trust formed by Blue Heron Designated Activity Company ("Blue Heron"), a wholly-owned Irish subsidiary of the Company, entered into a revolving loan and security agreement (together with its ancillary documents, the "Red Falcon Revolving Credit Facility," and together with the White Eagle Revolving Credit Facility, the "Revolving Credit Facilities") with LNV Corporation, as initial lender, the other lenders party thereto from time to time, Imperial Finance & Trading, LLC, as guarantor, Blue Heron as portfolio administrator and CLMG Corp., as administrative agent. On July 15, 2016, the Company amended its Red Falcon Revolving Credit Facility (the "Red Falcon Amendment"). Pursuant to the amendment, six additional policies and additional portions of 20 policies that were previously pledged in part as collateral under the initial credit agreement were pledged for an additional policy advance. Amounts advanced to Red Falcon following effectiveness of the amendment to the credit agreement were approximately $3.0 million.

On December 29, 2016, the Red Falcon Revolving Credit Facility was terminated (the "Facility Termination"). The policies pledged under the Red Falcon Revolving Credit Facility were sold to White Eagle, a subsidiary of the Company, in exchange for a distribution of cash totaling $65.1 million, which was used to repay all outstanding principal and interest due under the Red Falcon Revolving Credit Facility. The significant terms in effect through the termination date are included below.

General & Security. The Red Falcon Revolving Credit Facility provided for a revolving credit facility backed by Red Falcon’s portfolio of life insurance policies with an initial aggregate lender commitment of up to $110.0 million, subject to borrowing base availability. As of December 31, 2017, all life insurance policies previously owned by Red Falcon and pledged as collateral under the Red Falcon Revolving Credit Facility were sold to White Eagle, an affiliate of the Company. See Note 8, "White Eagle Revolving Credit Facility," to the accompanying consolidated financial statements for further information regarding the Company's portfolio subsequent to the Facility Termination.

Borrowing Base & Availability. Revolving credit borrowings were permitted for a five-year period with the loans under the Red Falcon Revolving Credit Facility maturing on July 15, 2022. Borrowing availability under the Red Falcon Revolving Credit Facility was subject to a borrowing base, which at any time was equal to the lesser of (A) the sum of all of the following amounts that were funded or were to be funded through the next distribution date (i) the initial advance and all additional advances in respect of newly pledged policies that were not for ongoing maintenance advances, plus (ii) 100% of the sum of the ongoing maintenance costs, less (iii) any required amortization payments previously distributed and which were to be distributed through the next distribution date; (B) 60% of the valuation of the policies pledged as collateral as determined by the lenders; (C) 45% of the aggregate face amount of the policies pledged as collateral; and (D) $110 million. All outstanding principal and interest was repaid in connection with the Facility Termination as of December 31, 2016

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Amortization & Distributions. Proceeds from the policies pledged as collateral under the Red Falcon Revolving Credit Facility were distributed pursuant to a waterfall with, subject to yield maintenance provisions, 5% of policy proceeds directed to the lenders. Thereafter proceeds were directed to pay fees to service providers and premiums with any remaining proceeds directed to pay outstanding interest and required amortization of 8% per annum on the greater of the then outstanding balance of the loan or the initial advance. Generally, after payment of interest and required amortization, a percentage of the collections from policy proceeds were to be paid to the lenders, which will varied depending on the then LTV as follows: (1) if the LTV was equal to or greater than 50%, all remaining proceeds were to be directed to the lenders to repay the then outstanding principal balance; (2) if the LTV was less than 50% but greater than or equal to 25%,65% of the remaining proceeds were to be directed to the lenders to repay the then outstanding principal balance; or (3) if the LTV was less than 25%, 35% of the remaining proceeds were to be directed to the lenders to repay the then outstanding principal balance, in each case, with remaining proceeds directed to Red Falcon. To the extent there were not sufficient remaining proceeds in the waterfall to satisfy the amount of required interest and amortization then due, Red Falcon would have had to pay any such shortfall amount.

Assuming no event of default, funds on account from policy proceeds shall be distributed in specified stages of priority. For the year ended December 31, 2016, approximately $7.6 million of proceeds received from the maturity of policies which were pledged under the Red Falcon Revolving Credit Facility were distributed through the waterfall in the following stages of priority (in thousands):



Clause	Amount		Distribution of Proceeds
First:	$	378	Administrative Agent - 5% Contingent Interest
Second:	37		Servicer, Custodian and Securities Intermediary Fees
Third:	15		Portfolio Manager Fees
Fourth:	—		Administrative Agent - Protective Advances
Fifth:	47		Administrative Agent Fees
Sixth:	537		Accrued and Unpaid Interest
Seventh:	756		Lender - Repayment of Principal - 0.5% of Proceeds
Eighth:	5,787		Lender - Repayment of Principal - LTV over 50%
Ninth:	—		Unpaid Servicer, Custodian and Securities Fees
Tenth:	—		Red Falcon
Total Distributions	$	7,557

Initial Advance and Use of Proceeds. Amounts advanced to Red Falcon following effectiveness of the Red Falcon Revolving Credit Facility were approximately $54.0 million with certain of the proceeds used to pay transaction expenses and to purchase the policies pledged as collateral under the Red Falcon Revolving Credit Facility from certain affiliates of the Company, who then made a distribution to the Company which was used to redeem the Company's 12.875% Secured Notes. Generally, ongoing advances may have been made for paying premiums on the life insurance policies pledged as collateral, and to pay the fees of service providers. Subsequent advances in respect of newly pledged policies are at the discretion of the lenders.

Interest. Borrowings under the Red Falcon Revolving Credit Facility bore interest at a rate equal to LIBOR or, if LIBOR was unavailable, the base rate, in each case plus an applicable margin of 4.50% and subject to a rate floor of 1.0%. The base rate under the Red Falcon Revolving Credit Facility equaled the sum of (i) the weighted average of the interest rates on overnight federal funds transactions or, if unavailable, the average of three federal funds quotations received by the Agent plus 0.75% and (ii) 0.5%. Based on the loan agreement, the LIBOR portion of the interest rate readjusted monthly, once the floor had exceeded 1.0%. The applicable rate was dependent on the rate at the last business day of the immediately preceding calendar month. During the year ended December 31, 2016, the LIBOR floor increased from 1.0% to 1.64% prior to the Facility Termination.

Interest expense paid during the period is recorded in the Company’s consolidated financial statements. Interest expense on the facility was $4.3 million and included $297,000 in debt issuance cost which was not capitalized as a result of electing the fair value option for valuing this debt and $4.0 million relating to interest payments paid by Red Falcon for the year ended December 31, 2016.

Maturity and Early Extinguishment. The original term of the Red Falcon Revolving Credit Facility expired July 15, 2022. On December 29, 2016 Red Falcon terminated the facility and repaid all outstanding principal and interest in the amount of

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$65.1 million. Approximately $554,000 was recorded as a loss on extinguishment of debt related to the early repayment of the facility. This includes the debt valuation allowance of $239,000 and costs incurred related to the facility termination of $315,000 at December 31, 2016.

Covenants/Events of Defaults. The Red Falcon Revolving Credit Facility contained covenants and events of default, including those that are customary for asset-based credit facilities of this type and including cross defaults under the servicing, portfolio management and sales agreements entered into in connection with the Red Falcon Revolving Credit Facility, changes in control of or insolvency or bankruptcy of the Company and relevant subsidiary companies and performance of certain obligations by certain relevant subsidiary companies, Red Falcon and third parties. The Red Falcon Revolving Credit Facility did not contain any financial covenants, but did contain certain tests relating to asset maintenance, performance and valuation with determinations as to the satisfaction of such tests involving determinations made by the lenders with a high degree of discretion.

The Company elected to account for the debt under the Red Falcon Revolving Credit Facility using the fair value method in accordance with ASC 820. The fair value of the debt is the amount the Company would have to pay to transfer the debt to a market participant in an orderly transaction. The Company calculated the fair value of the debt using a discounted cash flow model taking into account the stated interest rate of the credit facility and probabilistic cash flows from the pledged policies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. The use of different assumptions and/or estimation methodologies could have had a material effect on the estimated fair values.

At December 31, 2017, there was no outstanding principal and interest as the Red Falcon Revolving Credit Facility had been fully repaid on December 29, 2016.

NOTE 10—8.50% SENIOR UNSECURED CONVERTIBLE NOTES

In February 2014, the Company issued $70.7 million in an aggregate principal amount of 8.50% senior unsecured convertible notes due 2019 (the "Convertible Notes" or "8.5% Convertible Notes"). The Convertible Notes were issued pursuant to an indenture dated February 21, 2014, between the Company and U.S. Bank National Association, as trustee (the "Convertible Note Indenture").

The Convertible Notes are general senior unsecured obligations and rank equally in right of payment with all of the Company's other existing and future senior unsecured indebtedness. The Convertible Notes are effectively subordinate to all of the Company's secured indebtedness to the extent of the value of the assets collateralizing such indebtedness. The Convertible Notes are not guaranteed by the Company's subsidiaries.

The maturity date of the Convertible Notes is February 15, 2019. The Convertible Notes accrue interest at the rate of 8.50% per annum on the principal amount of the Convertible Notes, payable semi-annually in arrears on August 15 and February 15 of each year.

The Convertible Notes are convertible into shares of common stock at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. Initially, the Convertible Notes were convertible into shares of common stock at a conversion rate of 147.9290 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of $6.76 per share of common stock). In the second quarter of 2015, the conversion rate was adjusted to 151.7912 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of $6.59 per share of common stock) in connection with an anti-dilution adjustment triggered by a rights offering that resulted in the issuance of 6,688,433 shares of the Company’s common stock.

On and after February 15, 2017 and prior to the maturity date, the Company may redeem for cash all, but not less than all, of the Convertible Notes if the last reported sale price of the Company’s common stock equals or exceeds 130% of the applicable conversion price for at least 20 trading days during the 30 consecutive trading day period ending on the trading day immediately prior to the date the Company delivers notice of the redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes, plus any accrued and unpaid interest to, but excluding, the redemption date. In addition, a make-whole fundamental change occurs prior to the maturity date, and a holder elects to convert its Convertible Notes in connection therewith, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares of common stock for holders who convert their notes prior to the redemption date.

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The Company determined that an embedded conversion option existed in the Convertible Notes that was required to be separately accounted for as a derivative under ASC 815 which required the Company to bifurcate the embedded conversion option, record it as a liability at fair value and record a debt discount by an equal amount. Upon receipt of shareholder approval to issue shares of common stock upon conversion of the Convertible Notes in an amount that exceeded applicable New York Stock Exchange limits for issuances without shareholder approval, the Company reclassified the embedded conversion derivative liability to equity. The Convertible Notes are recorded at accreted value and will continue to be accreted up to the par value of the Convertible Notes at maturity.

On February 14, 2017, the Company solicited consents (the "Consent Solicitation") to issue additional 8.50% Convertible Notes (the "Additional Convertible Notes") in lieu of a cash payment of interest on February 15, 2017 (the "2017 Interest Payment Date") to holders of the Convertible Notes.

On March 14, 2017, the Company issued Additional Convertible Notes for an aggregate principal amount of $3.5 million following the Company’s receipt of the requisite consents of the holders of approximately 98% of the aggregate principal amount of Convertible Notes (the "Consenting Holders"), pursuant to the Consent Solicitation, whereby each Consenting Holder agreed to accept Additional Convertible Notes in lieu of a cash payment of interest on the Convertible Notes due on the 2017 Interest Payment Date. All Additional Convertible Notes issued by the Company to Consenting Holders were issued under the Convertible Note Indenture and such Additional Convertible Notes have identical terms to the existing Convertible Notes. Interest on the Additional Convertible Notes will accrue from February 15, 2017.

On March 15, 2017 and May 12, 2017, the Company entered into a series of separate Master Transaction Agreements (the "Master Transaction Agreements") by and among the Company, PJC Investments, LLC, a Texas limited liability company ("PJC") and each such Consenting Convertible Note Holder that is a party to such Master Transaction Agreement regarding a series of integrated transactions with the intent to effect a recapitalization of the Company (the "Transaction") which included, among other transactions, a Convertible Note Exchange Offer and a New Convertible Note Indenture providing for the issuance of New Convertible Notes to be delivered in connection with the Transaction (each as defined in the Master Transaction Agreements).

As part of the Transaction, on April 18, 2017, the Company launched an exchange offer (the "Convertible Note Exchange Offer") to the existing holders of its outstanding Convertible Notes for 5.0% Senior Unsecured Convertible Notes due 2023 (the "New Convertible Notes" or "5% Convertible Notes"). At least 98% of the holders of the Convertible Notes were required to tender in the Convertible Note Exchange Offer as a condition to closing the Transaction.

On July 26, 2017, the Company’s offer to exchange its outstanding $74.2 million aggregate principal amount of Convertible Notes for its New Convertible Notes expired. Holders of at least 98% of the Convertible Notes tendered in the Convertible Note Exchange Offer. On July 28, 2017, the Company consummated a series of integrated transactions to effect a recapitalization of the Company (the "Transaction Closing") pursuant to the Master Transaction Agreements, which transactions included the consummation of the Convertible Note Exchange Offer. The amount exchanged included approximately $73.0 million of principal outstanding prior to the exchange and approximately $2.8 million of interest paid in kind at the exchange date. The outstanding principal amount of the Convertible Notes remaining after the exchange was approximately $1.2 million.

In connection with the Transaction Closing, the Company entered into a supplemental indenture (the "Supplemental Convertible Note Indenture") to the Convertible Note Indenture governing the Convertible Notes. The purpose of the Supplemental Convertible Note Indenture was to eliminate substantially all of the restrictive covenants, eliminate certain events of default, eliminate the covenant restricting mergers and consolidations and modify certain provisions relating to defeasance contained in the Convertible Note Indenture and the Convertible Notes (collectively, the "Proposed Amendments") promptly after the receipt of the requisite consents for the Proposed Amendments.

The Company performed an assessment of the modification of the Convertible Notes under ASC 470, Debt, and determined the transaction is a troubled debt restructuring. The Company did not recognize any gain as a result of the restructuring, therefore, approximately $7.7 million was reclassified to the New Convertible Notes, including $6.7 million and $1.0 million related to debt discount and origination cost, respectively. Additionally, approximately $2.5 million was expensed as a onetime debt modification cost. See Note 11 "5.0% Senior Unsecured Convertible Notes" for a description of the changes in terms of the note.

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As of December 31, 2017, the carrying value of the Convertible Notes was $1.1 million, net of unamortized debt discounts and deferred debt costs of $84,000 and $12,000, respectively. These are being amortized over the remaining life of the Convertible Notes using the effective interest method.

The Company recorded $9.2 million of interest expense on the Convertible Notes, including $4.2 million, $2.5 million, $2.1 million and $314,000 from interest, one time debt modification cost, amortizing debt discounts and originations costs, respectively, during the year ended December 31, 2017. Interest for the year ended December 31, 2017 included approximately $522,000 of additional interest paid in kind to note holders.

For the year ended December 31, 2016, the Company recorded $9.7 million of interest expense on the Convertible Notes, including $6.0 million, $3.2 million and $480,000 from interest, amortizing debt discounts and origination costs, respectively.

NOTE 11— 5.0% SENIOR UNSECURED CONVERTIBLE NOTES

On July 26, 2017, the Company’s Convertible Note Exchange Offer expired. Holders of at least 98% of the Convertible Notes tendered in the Convertible Note Exchange Offer.

In connection with the Transaction Closing, the Company caused to be issued the New Convertible Notes in an aggregate amount of approximately $75.8 million pursuant to an Indenture (the "New Convertible Note Indenture") between the Company and U.S. Bank, National Association, as indenture trustee. The terms of the New Convertible Notes are governed by the New Convertible Note Indenture, which provide, among other things, that the New Convertible Notes are unsecured senior obligations of the Company and will mature on February 15, 2023. The New Convertible Notes bear interest at a rate of 5% per annum from the issue date, payable semi-annually on August 15 and February 15 of each year, beginning on August 15, 2017.

Holders of New Convertible Notes may convert their New Convertible Notes at their option on any day prior to the close of business on the second scheduled trading day immediately preceding February 15, 2023. Upon conversion, the Company will deliver shares of Common Stock, together with any cash payment for any fractional share of Common Stock. The initial conversion rate for the New Convertible Notes denominated in $1,000 increments will be 500 shares of Common Stock per $1,000 principal amount of New Convertible Notes, which corresponds to an initial conversion price of approximately $2.00 per share of Common Stock. The initial conversion rate for the New Convertible Notes denominated in $1.00 increments will be 0.5 shares of Common Stock per $1.00 principal amount of New Convertible Notes, which corresponds to an initial conversion price of approximately $2.00 per share of Common Stock. The conversion rate will be subject to adjustment in certain circumstances.

The provisions of the New Convertible Note Indenture include a make-whole provision to compensate the Company’s debt holders for the lost option time value and forgone interest payments upon the Company experiencing a Fundamental Change (as defined in the New Convertible Note Indenture). These Fundamental Changes revolve around change in beneficial ownership, the consummation of specified transactions which result in the conversion of common stock into other assets or the sale, transfer or lease of all or substantially all of the Company’s assets, a majority change in the composition of the Company’s Board of Directors, the Company’s stockholders approval of any plan for liquidation of dissolution of the Company, and the Common Stock ceasing to be listed or quoted on a Trading Market . The number of incremental additional shares to be issued as a result of a Fundamental Change is based on a table which calculates the adjustment based on the inputs of time and share value.

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to repurchase the New Convertible Notes upon the occurrence of certain designated events at a repurchase price of 100% of the principal amount of the New Convertible Notes, plus accrued and unpaid interest.

The New Convertible Note Indenture, among other things includes provisions such as the Company’s failure to timely file any document or report that is required to be filed with the SEC, as well as a registration statement covering the re-sale by holders of the New Convertible Notes not being declared effective by the SEC; the Company’s failure to cure such a default within 14 days after the occurrence will result in the Company being required to pay additional interest in cash.

Additional interest on the New Convertible Notes will accrue with respect to the first 90-day period (or portion thereof) following the restricted transfer triggering date, which is 120 days after the last date on which any securities are originally issued under the New Convertible Note Indenture or a registration statement regarding the resale by the holders of the securities or holders of any shares of common stock issuable upon conversion. For each day that a restricted transfer default is continuing at a rate equal to 0.25% per annum of the principal amount of New Convertible Notes, which rate will increase by an additional 0.25% per annum of the principal amount of the New Convertible Notes for each subsequent 90- day period (or portion thereof) while a restricted transfer default is continuing until all restricted transfer defaults have been cured, up to a maximum of 0.5% of the principal amount of the securities. Following the cure of all restricted transfer defaults, the accrual of additional interest arising from restricted transfer defaults will cease.

The New Convertible Note Indenture states that the sole remedy for an event of default relating to the failure by the Company to comply with the provisions of the New Convertible Note Indenture requiring timely reporting by the Company and for any failure to comply with Section 314(a)(1) of the Trust Indenture Act shall, for the first 365 days after the occurrence of such an Event of Default, consist exclusively of the right to receive special interest on the New Convertible Notes at an annual rate equal to 0.5% of the principal amount of the New Convertible Notes.

As of December 31, 2017, the carrying value of the New Convertible Notes was $68.7 million, net of unamortized debt discounts and origination costs of $6.3 million and $927,000, respectively. These are being amortized over the remaining life of the New Convertible Notes using the effective interest method.

During the year ended December 31, 2017, the Company recorded $2.1 million of interest expense on the New Convertible Notes, including $1.6 million, $432,000 and $64,000 from interest, amortization of debt discount and origination costs, respectively.

NOTE 12—15% SENIOR SECURED NOTES

On March 11, 2016, the Company, as issuer, entered into an indenture with Wilmington Trust Company, as indenture trustee (the "Senior Secured Indenture"). The Senior Secured Indenture provides for the issuance of up to $30.0 million in senior secured notes (the "Senior Secured Notes"), of which approximately $21.2 million were issued on the Initial Closing Date with an additional $8.8 million issued on March 24, 2016. The 15% Senior Secured Notes were purchased in private transactions exempt from the registration requirements of the Securities Act of 1933, as amended, under the note purchase agreements with certain accredited investors and/or non U.S. persons, including certain members of the Company's board of directors, management and their affiliates, who purchased approximately $3.3 million of the 15% Senior Secured Notes issued on the Initial Closing Date.

During the year ended December 31, 2017, the Company entered into three supplemental indentures with the Senior Secured Note Trustee as follows:

On February 21, 2017, the first supplemental indenture amended and restated the Senior Secured Indenture to: (i) amend the definition of "Permitted Indebtedness" to include all Additional Convertible Notes issued by the Company after February 14, 2017, in lieu of a cash payment of interest due to the holders of the Convertible Notes, and (ii) add Section 4.07(e) to restrict the Company from increasing the interest rate payable on the Convertible Notes.

On May 15, 2017, the second supplemental indenture amended and restated the Senior Secured Indenture to amend the definition of "Permitted Indebtedness" to include the Bridge Note (as defined below) in the original principal amount of $1.5 million, made by the Company in favor of PJC Investments, LLC.

On June 28, 2017, the third supplemental indenture amended and restated the Senior Secured Indenture to: (i) modify the definition of "Permitted Indebtedness" to include the increased principal amount of $3.3 million pursuant to the Amended and Restated Bridge Note (as defined below) and (ii) amend the definition of "Payment Date," so that beginning with and including July 14, 2017, the interest payment date occurs monthly, as opposed to quarterly.

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Interest on the 15% Senior Secured Notes accrues at 15.0% per annum payable quarterly and all 15% Senior Secured Notes will mature on September 14, 2018 (the "Maturity Date"). The 15% Senior Secured Notes may be optionally redeemed in full at any time and must be redeemed in full upon additional issuances of debt by Emergent Capital, Inc., in each case, at a price equal to 100% of the principal amount redeemed plus (i) accrued and unpaid interest on the 15% Senior Secured Notes redeemed up to the date of redemption, and (ii) the present value, as of the date of redemption of all remaining interest payments to the Maturity Date using a discount rate equal to the yield to maturity at the time of computation on the US treasury security with a constant maturity most nearly equal to the period from the redemption date to the Maturity Date plus 50 basis points. Upon a change of control, the Company will be required to make an offer to holders of the Senior Secured Notes to repurchase the Senior Secured Notes at a price equal to 107.5% of their principal amount.

The 15% Senior Secured Notes contain negative covenants restricting additional debt incurred by Emergent Capital, Inc., creation of liens on the collateral securing the 15% Senior Secured Notes, and restrictions on dividends and stock repurchases. The 15% Senior Secured Notes are secured by settlement proceeds, if any, received from certain litigation involving the Company, certain notes issued to the Company and a pledge of 65% of the equity interests in Blue Heron Designated Activity Company, OLIPP IV, LLC and Red Reef Alternative Investments, LLC.

On or about April 7, 2017, the Company entered into an Exchange Participation Agreement (the "Participation Agreement") with holders (the "Consenting Senior Note Holders") representing 100% of the aggregate outstanding principal amount of the Company's 15.0% Senior Secured Notes. Pursuant to the Participation Agreement, each Consenting Senior Note Holder agreed to enter into a Senior Note purchase agreement with PJC or its designee to sell 100% of the aggregate principal amount of the New Senior Notes that are to be issued to such Consenting Senior Note Holder at a price equal to 100% of the face amount of each New Senior Note purchased. In connection with the Transaction Closing, the Company agreed to pay each Consenting Senior Note Holder 5.0% of the face amount of the 15.0% Senior Secured Notes held by such Consenting Senior Note Holder, plus all accrued but unpaid interest under such 15.0% Senior Secured Notes through the date of the Transaction Closing.

On June 15, 2017, the Company did not make an interest payment of $1.2 million (the "Interest Payment") due June 15, 2017 (the "Interest Payment Date") on the Company’s 15.0% Senior Secured Notes, of which $30.0 million principal amount was outstanding on that date. On June 21, 2017, the Company, the Consenting Senior Note Holders and the Senior Secured Note Trustee, entered into a Consent and Forbearance Agreement (the "Forbearance Agreement") relating to Senior Secured Indenture between the Company and the Senior Secured Note Trustee. Pursuant to the Forbearance Agreement, the Consenting Senior Note Holders agreed to: (i) extend the Interest Payment that would otherwise be due and payable on the Interest Payment Date to June 30, 2017 and (ii) forbear from exercising their rights and remedies against the Company solely with respect to a certain event of default under the Senior Secured Indenture (the "Specified Default") during the period commencing on June 15, 2017 and ending on the date that is the earlier of (a) July 1, 2017 and (b) the date on which any other breach of any Transaction Documents (as defined in the Senior Secured Indenture) by the Company occurs (the "Termination Date"); provided that if the Company made the Interest Payment in full in accordance with the Senior Secured Indenture prior to the Termination Date, the Specified Default shall be waived. On June 29, 2017, the Company made the Interest Payment in full and the Specified Default was deemed waived.

All outstanding principal and interest amounts due under the 15.0% Senior Secured Note were repaid on July 28, 2017 in connection with the consummation of the Transaction Closing.

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As a result of the Transaction Closing, approximately $2.0 million was expensed as extinguishment related to early repayment of the facility, including $1.5 million and $518,000 related to prepayment penalty and write off of origination cost, respectively.

The Company recorded approximately $2.8 million of interest expense on the 15% Senior Secured Notes, which includes $2.6 million of interest and $184,000 of amortizing debt issuance costs, during the year ended December 31, 2017.

NOTE 13—8.5% SENIOR SECURED NOTES

In connection with the Transaction Closing, the Company and the Senior Secured Note Trustee entered into an Amended and Restated Senior Secured Note Indenture (the "Amended and Restated Senior Secured Indenture") to amend and restate the Senior Secured Indenture between the Company and the Senior Secured Note Trustee following the Company’s receipt of requisite consents of the holders of the 15% Senior Secured Notes. Pursuant to the terms of the Amended and Restated Senior Secured Indenture, the Company caused the cancellation of all outstanding 15% Senior Secured Notes and the issuance of 8.5% Senior Secured Notes due 2021 (the "8.5% Senior Secured Notes") in an aggregate amount of $30.0 million. The Amended and Restated Senior Secured Indenture provides, among other things, that the 8.5% Senior Secured Notes will be secured senior obligations of the Company and will mature on July 15, 2021. The 8.5% Senior Secured Notes will bear interest at a rate of 8.5% per annum, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on September 15, 2017. Certain holders of the Company's securities that are party to Board Designation Agreements (as discussed below), purchased approximately $24.5 million of the 8.5% Senior Secured Notes that were issued in exchange for 15% Senior Secured Notes during the year ended December 31, 2017.

The Amended and Restated Senior Secured Indenture provides that the 8.5% Senior Secured Notes may be optionally redeemed in full by the Company at any time and must be redeemed in full upon additional issuances of debt by the Company in each case, at a price equal to 100% of the principal amount redeemed plus (i) accrued and unpaid interest on the 8.5% Senior Secured Notes redeemed up to the date of redemption, and (ii) the Applicable Premium, if any, as defined in the Amended and Restated Senior Secured Indenture. Upon a change of control, the Company will be required to make an offer to holders of the 8.5% Senior Secured Notes to repurchase the 8.5% Senior Secured Notes at a price equal to 107.5% of their principal amount, plus accrued and unpaid interest up to the date of redemption.

The Amended and Restated Senior Secured Indenture contains negative covenants restricting additional debt incurred by the Company, creation of liens on the collateral securing the 8.5% Senior Secured Notes, and restrictions on dividends and stock repurchases, among other things. The 8.5% Senior Secured Notes are secured by settlement proceeds, if any, received from certain litigation involving the Company, certain notes issued to the Company, and pledges of 65% of the equity interests in Blue Heron Designated Activity Company, OLIPP IV, LLC and Red Reef Alternative Investments, LLC.

F-31

At December 31, 2017, the outstanding principal of the 8.5% Senior Secured Notes is $35.0 million with a carrying value of $33.9 million, net of unamortized debt issuance cost of $1.1 million.

During the year ended December 31, 2017, the Company recorded approximately $1.4 million of interest expense on the 8.5% Senior Secured Notes, which includes $1.3 million of interest and $98,000 of amortizing debt issuance costs.

Subsequent Events

8.5% Senior Secured Notes Amendment

NOTE 14—15.0% PROMISSORY NOTE

The Bridge Note was amended on June 28, 2017 (the "Amended and Restated Bridge Note") to (i) increase the principal amount under the Bridge Note to $3.3 million and (ii) extend the maturity date from July 3, 2017 to the earlier of (a) July 28, 2017 or (b) the date on which the Master Transaction Agreements are consummated.

Under the Amended and Restated Bridge Note, the Company may request an advance of funds, and PJC shall make an advance to the Company, provided that (i) the aggregate amount of outstanding advances shall not exceed $3.3 million and (ii) the Company’s proposed budgeted use of proceeds for such advance is reasonably acceptable to PJC.

Advances under the Amended and Restated Bridge Note bear interest at an annual rate of 15%.

The Amended and Restated Bridge Note includes certain default provisions customary to bridge financing facilities of this type which are subject to customary grace periods, including, among others, (i) defaults related to payment failures; (ii) failure to comply with covenants; (iii) any material misrepresentation of fact made or deemed made by or on behalf of the Company; (iv) failure by the Company to comply with any of its obligations under any Master Transaction Agreement; (v) defaults in payment of any indebtedness of the Company that continues after the applicable grace or cure period; (vi) bankruptcy and related events and; (vii) change of control without the prior written consent of PJC. Default interest accrues at an annual rate of 17%. The Amended and Restated Bridge Note contains certain affirmative and negative covenants customary for bridge financing facilities of this type.

In consideration for the Bridge Note and pursuant to a fee letter agreement by and between the Company and PJC dated May 15, 2017, the Company agreed to pay an additional termination fee equal to $1.5 million in the event that the Company becomes obligated to pay certain termination fees pursuant to certain termination provisions under the Master Transaction Agreements.

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The Company drew approximately $2.8 million on the Amended and Restated Bridge Note and recorded interest expense of approximately $36,000 during the year ended December 31, 2017.

All outstanding principal and interest amounts due under the Amended and Restated Bridge Note were repaid on July 28, 2017 in connection with the Transaction Closing.

NOTE 15—FAIR VALUE MEASUREMENTS

The Company carries life settlements and debt under the Revolving Credit Facilities at fair value as shown in the consolidated balance sheets. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are classified based on the following fair value hierarchy:

Level 1—Valuation is based on unadjusted quoted prices in active markets for identical assets and liabilities that are accessible at the reporting date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2—Valuation is determined from pricing inputs that are other than quoted prices in active markets that are either directly or indirectly observable as of the reporting date. Observable inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and interest rates and yield curves that are observable at commonly quoted intervals.

Level 3—Valuation is based on inputs that are both significant to the fair value measurement and unobservable. Level 3 inputs include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value generally require significant management judgment or estimation.

Assets and liabilities measured at fair value on a recurring basis

The balances of the Company’s assets measured at fair value on a recurring basis as of December 31, 2017, are as follows (in thousands):



	Level 1		Level 2		Level 3		Total Fair Value
Assets:
Investment in life settlements	$	—	$	—	$	567,492	$	567,492
	$	—	$	—	$	567,492	$	567,492

The balances of the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2017, are as follows (in thousands):



	Level 1		Level 2		Level 3		Total Fair Value
Liabilities:
White Eagle Revolving Credit Facility	$	—	$	—	$	329,240	$	329,240
	$	—	$	—	$	329,240	$	329,240

The balances of the Company’s assets measured at fair value on a recurring basis as of December 31, 2016, are as follows (in thousands):



	Level 1		Level 2		Level 3		Total Fair Value
Assets:
Investment in life settlements	$	—	$	—	$	498,400	$	498,400
	$	—	$	—	$	498,400	$	498,400

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The balances of the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2016, are as follows (in thousands):



	Level 1		Level 2		Level 3		Total Fair Value
Liabilities:
White Eagle Revolving Credit Facility	$	—	$	—	$	257,085	$	257,085
	$	—	$	—	$	257,085	$	257,085

The Company categorizes its investment in life settlement portfolio in two classes, non-premium financed and premium financed. In considering the categories, historically, it has generally believed that market participants would require a lower risk premium for policies that were non-premium financed, while a higher risk premium would be required for policies that were premium financed; the Company believes that this risk premium has been declining.



($ in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at 12/31/17		Aggregate death benefit 12/31/2017		Valuation Technique	Unobservable Input	Range (Weighted Average)
Non-premium financed	$	101,591	$	305,963	Discounted cash flow	Discount rate	14.50% - 17.50%
						Life expectancy evaluation	5.3 years
Premium financed	$	465,901	$	2,574,524	Discounted cash flow	Discount rate	15.50% - 21.00%
						Life expectancy evaluation	8.6 years
Life settlements	$	567,492	$	2,880,487	Discounted cash flow	Discount rate	15.95%
						Life expectancy evaluation	8.3 years
White Eagle Revolving Credit Facility	$	329,240	$	2,868,487	Discounted cash flow	Discount rate	18.57%
						Life expectancy evaluation	8.3 years

Following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a recurring basis and within the fair value hierarchy.

Life settlements—The Company has elected to account for the life settlement policies it acquires using the fair value method. The Company uses a present value technique to estimate the fair value of its life settlements, which is a Level 3 fair value measurement as the significant inputs are unobservable and require significant management judgment or estimation. The Company currently uses a probabilistic method of valuing life insurance policies, which the Company believes to be the preferred valuation method in the industry. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate.

The Company provides medical records for each insured to LE providers. Each LE provider reviews and analyzes the medical records and identifies all medical conditions it feels are relevant to the life expectancy determination of the insured. Debits and credits are assigned by each LE provider to the individual’s health based on identified medical conditions which are derived from the experience of mortality attributed to relevant conditions in the portfolio of lives that the LE provider monitors. The health of the insured is summarized by the LE provider into a life assessment of the individual’s life expectancy expressed both in terms of months and in mortality factor. The mortality factor represents the degree to which the given life can be considered more or less impaired than a life having similar characteristics (e.g. gender, age, smoking, etc.). For example, a standard insured (the average life for the given mortality table) would carry a mortality rating of 100%. A similar but impaired life bearing a mortality rating of 200% would be considered to have twice the chance of dying earlier than the standard life relative to the LE provider’s population. Since each provider’s mortality factor is based on its own mortality table, the Company calculates its own factors to apply to the table selected by the Company.

The Company calculates mortality factors so that when applied to the mortality table selected by the Company, the resulting LE equals the LE provided by each LE provider. The resulting mortality factors are then blended to determine a factor for each insured.

A mortality curve is then generated based on the calculated mortality factors and the rates from the Company selected mortality table to generate the best estimated probabilistic cash flow stream. The net present value of the cash flows is then calculated to determine the policy value.

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If the insured dies earlier than expected, the return will be higher than if the insured dies when expected or later than expected. The calculation allows for the possibility that if the insured dies earlier than expected, the premiums needed to keep the policy in force will not have to be paid. Conversely, the calculation also considers the possibility that if the insured lives longer than expected, more premium payments will be necessary.

Since the quarter ended September 30, 2012, and prior to June 30, 2016, the Company used the 2008 Valuation Basic tables, smoker distinct ("2008 VBT"), mortality tables developed by the U.S. Society of Actuaries (the "SOA"). The mortality tables are created based on the expected rates of death among different groups categorized by factors such as age and gender.

During 2015, the SOA released new versions of the Valuation Basic Tables, (the "2015 VBT"). The 2015 VBT is based on a much larger dataset of insured lives, face amount of policies and more current information compared to the dataset underlying the 2008 Valuation Basic Table. The new 2015 VBT dataset includes 266 million policies compared to the 2008 VBT dataset of 75 million. The experience data in the 2015 VBT dataset includes 2.55 million claims on policies from 51 insurance carriers. Life experiences implied by the 2015 VBT are generally longer for male and female nonsmokers between the ages of 65 and 80, while smokers and insureds of both genders over the age of 85 have significantly lower life expectancies. During the year ended December 31, 2016, the Company changed its valuation technique and decided to adopt the 2015 VBT, smoker and gender distinct tables, to determine the value of the policies. The table shows lower mortality rates in the earlier select periods at most ages, so while the Company continues to fit the life expectancies from the LE providers to the 2015 VBT, the change in the mortality curve changes the timing of the Company’s expected cash flow streams.

Future changes in the life expectancies could have a material adverse effect on the fair value of the Company’s life settlements, which could have a material adverse effect on its business, financial condition and results of operations.

Life expectancy sensitivity analysis

If all of the insured lives in the Company’s life settlement portfolio lived six months shorter or longer than the life expectancies provided by these third parties, the change in estimated fair value would be as follows (dollars in thousands):



Life Expectancy Months Adjustment	Value		Change in Value
+6	$	479,016	$	(88,476	)
-	$	567,492	—
-6	$	660,720	$	93,228

Discount rate

The Company re-evaluates its discount rates at the end of every reporting period in order to reflect the estimated discount rates that could reasonably be used in a market transaction involving the Company’s portfolio of life settlements. In doing so, consideration is given to the various factors influencing the rates, including risk tolerance and market activity. The Company relies on management insight, engages third party consultants to corroborate its assessment, engages in discussions with other market participants and extrapolates the discount rate underlying actual sales of policies. In considering these factors, at December 2017, the Company determined that the weighted average discount rate calculated based on death benefit was 15.95%, compared to 16.37% at December 31, 2016.

At one time, due to the Company’s association with the USAO Investigation and certain civil litigation involving the Company, the Company believed that, when given the choice to invest in a policy that was associated with the Company’s premium finance business and a similar policy without such an association, all else being equal, an investor would have generally opted to invest in the policy that was not associated with the Company’s premium finance business. However, since the Company entered into a non-prosecution agreement with the USAO, investors have required less of a risk premium to transact in policies associated with the Company’s legacy premium finance business. With passage of time, and resolution of litigations, the Company now believes investors no longer require a greater risk premium for policies associated with the Company's premium finance business than the risk premium otherwise required for policies that were premium financed. In general, the Company believes that the risk premium an investor would require to transact in a policy that has been premium financed versus a policy

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without premium financing is lessening in the current market environment and further expects that, with the passage of time, investors will continue to require less of a risk premium to transact in policies that had been premium financed.

Credit exposure of insurance company

The Company considers the financial standing of the issuer of each life insurance policy. Typically, we seek to hold policies issued by insurance companies that are rated investment grade by the top three credit rating agencies. At December 2017, the Company had 19 life insurance policies issued by three carriers that were rated non-investment grade as of that date. In order to compensate a market participant for the perceived credit and challenge risks associated with these policies, the Company applied an additional 300 basis point risk premium.

The following table provides information about the life insurance issuer concentrations that exceed 10% of total death benefit and 10% of total fair value of the Company's life settlements as of December 31, 2017:



Carrier	Percentage of Total Fair Value		Percentage of Total Death Benefit		Moody’s Rating	S&P Rating
Lincoln National Life Insurance Company	22.4	%	19.5	%	A1	AA-
Transamerica Life Insurance Company	18.4	%	20.8	%	A1	AA-

Estimated risk premium

As of December 31, 2017, the Company owned 608 policies with an estimated fair value of $567.5 million. Of these 608 policies, 530 were previously premium financed and are valued using discount rates that range from 15.50% to 21.00%. The remaining 78 policies, which are non-premium financed, are valued using discount rates that range from 14.50% to 17.50%. As of December 31, 2017, the weighted average discount rate calculated based on death benefit used in valuing the policies in the Company's life settlement portfolio was 15.95%.

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 premium an investor in the policy would require. The extent to which the fair value could vary in the near term has been quantified by evaluating the effect of changes in the weighted average discount rate on the death benefit used to estimate the fair value. If the weighted average discount rate was increased or decreased by 1/2 of 1% and the other assumptions used to estimate fair value remained the same, the change in estimated fair value would be as follows (dollars in thousands):

Market interest rate sensitivity analysis



Weighted Average Rate Calculated Based on Death Benefit	Rate Adjustment		Value		Change in Value
15.45%	-0.50	%	$	581,538	$	14,046
15.95%	—		$	567,492	$	—
16.45%	0.50	%	$	554,001	$	(13,491	)

Future changes in the discount rates we use to value life insurance policies could have a material effect on the Company's yield on life settlement transactions, which could have a material adverse effect on our business, financial condition and results of our operations.

At the end of each reporting period we re-value the life insurance policies using our valuation model in order to update our estimate of fair value for investments in policies held on our balance sheet. This includes reviewing our assumptions for discount rates and life expectancies as well as incorporating current information for premium payments and the passage of time.

White Eagle Revolving Credit Facility —As of December 31, 2017, 606 policies are pledged by White Eagle to serve as collateral for its obligations under the White Eagle Revolving Credit Facility. Absent an event of default under the White Eagle Revolving Credit Facility, ongoing borrowings will be used to pay the premiums on these policies and certain approved third party expenses. As more fully described in Note 8, "White Eagle Revolving Credit Facility," proceeds from the maturity of the policies pledged as collateral under the White Eagle Revolving Credit Facility are distributed pursuant to a waterfall. After

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premium payments, fees to service providers and payments of interest, a percentage of the collections from policy proceeds are to be paid to the Company, which will vary depending on the then LTV ratio.

The Company elected to account for the debt under the White Eagle Revolving Credit Facility in accordance with ASC 820, which includes the 45% interest in policy proceeds payable to the lender, using the fair value method. The fair value of the debt is the amount the Company would have to pay to transfer the debt to a market participant in an orderly transaction. We calculated the fair value of the debt using a discounted cash flow model taking into account the stated interest rate of the White Eagle Revolving Credit Facility and probabilistic cash flows from the pledged policies. Accordingly, our estimates are not necessarily indicative of the amounts that we, or holders of the instruments, could realize in a current market exchange. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.

During the year ended December 31, 2016, the Company changed its valuation technique by adopting the 2015 VBT, smoker and gender distinct tables, to determine the value of the life insurance policies pledged as collateral in the facility. The table shows lower mortality rates in the earlier select periods at most ages, so while the Company continues to fit the life expectancies from the LE providers to the 2015 VBT, the change in the mortality curve changes the timing of the Company’s expected cash flow streams, which resulted in an increase in projected borrowings.

Life expectancy sensitivity analysis of the White Eagle Revolving Credit Facility

A considerable portion of the fair value of the White Eagle Revolving Credit Facility is determined by the timing of receipt of future policy proceeds. Should life expectancies lengthen such that policy proceeds are collected further into the future, the fair value of this debt will decline. Conversely, should life expectancies shorten, the fair value of this debt will increase. Considerable judgment is required in interpreting market data to develop the estimates of fair value.

If all of the insured lives in the life settlement portfolio pledged under the White Eagle Revolving Credit Facility live six months shorter or longer than the life expectancies used to calculate the estimated fair value of the White Eagle Revolving Credit Facility debt, the change in estimated fair value would be as follows (dollars in thousands):



Life Expectancy Months Adjustment	Fair Value of White Eagle Revolving Credit Facility		Change in Value
+6	$	270,304	$	(58,936	)
-	$	329,240	—
-6	$	369,499	$	40,259

Future changes in the life expectancies could have a material effect on the fair value of the White Eagle Revolving Credit Facility, which could have a material adverse effect on its business, financial condition and results of operations.

Discount rate of the White Eagle Revolving Credit Facility

The discount rate incorporates current information about market interest rates, credit exposure to insurance companies and the Company’s estimate of the return a lender lending against the policies would require.

Market interest rate sensitivity analysis of the White Eagle Revolving Credit Facility

The extent to which the fair value of the White Eagle Revolving Credit Facility could vary in the near term has been quantified by evaluating the effect of changes in the weighted average discount. If the weighted average discount rate were increased or decreased by 1/2 of 1% and the other assumptions used to estimate fair value remained the same, the change in estimated fair value of the White Eagle Revolving Credit Facility as of December 31, 2017 would be as follows (dollars in thousands):

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Discount Rate	Rate Adjustment		Fair Value of White Eagle Revolving Credit Facility		Change in Value
18.07%	-0.50	%	$	336,708	$	7,468
18.57%	—		$	329,240	$	—
19.07%	0.50	%	$	322,045	$	(7,195	)

Future changes in the discount rates could have a material effect on the fair value of the White Eagle Revolving Credit Facility, which could have a material adverse effect on its business, financial condition and results of its operations.

At December 31, 2017, the fair value of the debt was $329.2 million and the outstanding principal was approximately $329.0 million.

Red Falcon Revolving Credit Facility—During the year ended December 2016, the Company terminated the Red Falcon Revolving Credit Facility and repaid all outstanding principal and interest. At December 31, 2017, all policies that were pledged by Red Falcon to serve as collateral for its obligations under the Red Falcon Revolving Credit Facility were sold to White Eagle.

Prior to the Facility Termination, proceeds from the policies pledged as collateral under the Red Falcon Credit Facility were distributed pursuant to a waterfall with, subject to yield maintenance provisions, 5% of policy proceeds directed to the lenders. Thereafter proceeds were directed to pay fees to service providers and premiums with any remaining proceeds directed to pay outstanding interest and required amortization of 8% per annum on the loan. Generally, after payment of interest and required amortization, a percentage of the collections from policy proceeds were to be paid to the lenders to repay the then outstanding principal balance, which varied depending on the then loan to value ratio as more fully described in Note 9,"Red Falcon Revolving Credit Facility." The Company had elected to account for this long-term debt using the fair value method. The fair value of the debt is the amount the Company would have to pay to transfer the debt to a market participant in an orderly transaction. The Company calculated the fair value of the debt using a discounted cash flow model taking into account the stated interest rate of the Red Falcon Revolving Credit Facility and probabilistic cash flows from the pledged policies. Accordingly, the Company’s estimates were not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. The most significant assumptions were the estimates of life expectancy of the insured and the discount rate. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.

During the year ended December 31, 2016, the Company changed its valuation technique by adopting the 2015 VBT, smoker and gender distinct tables, to determine the value of the life insurance policies pledged as collateral in the facility. The table shows lower mortality rates in the earlier select periods at most ages, so while the Company continues to fit the life expectancies from the LE providers to the 2015 VBT, the change in the mortality curve changes the timing of the Company’s expected cash flow streams, which resulted in an increase in projected borrowings.

8.5% Convertible Notes—The Company determined that an embedded conversion option in the Convertible Notes was required to be separately accounted for as a derivative under Accounting Standards Codification 815, Derivatives and Hedging ("ASC 815"). ASC 815 required the Company to bifurcate the embedded conversion option and record it as a liability at fair value and reduce the debt liability by a corresponding discount of an equivalent amount. The Company used a Black Scholes pricing model that incorporates present valuation techniques and reflect both the time value and the intrinsic value of the embedded conversion option to approximate the fair value of the conversion derivative liability at the end of each reporting period. This model required assumptions as to expected volatility, dividends, terms, and risk free rates.

In accordance with ASC 815, upon receipt of shareholder approval the Company reclassified the embedded derivative to stockholders’ equity along with unamortized transaction costs proportionate to the allocation of the initial debt discount and the principal amount of the Convertible Notes. The Convertible Notes continue to be recorded at accreted value up to the par value of the Convertible Notes at maturity.

On July 26, 2017, the Company’s Convertible Note Exchange Offer to exchange its outstanding $74.2 million aggregate principal amount of Convertible Notes for its New Convertible Notes expired. Holders of at least 98% of the Convertible Notes tendered in the Convertible Note Exchange Offer. The amount of Convertible Notes exchanged included approximately $73.0 million of principal outstanding prior to the exchange and approximately $2.8 million of interest paid in kind at the exchange date. The outstanding principal of the Convertible Notes after the exchange was approximately $1.2 million.

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See Note 10, "8.50% Senior Unsecured Convertible Notes," of the accompanying consolidated financial statements for further information. Although the Company believes its valuation method is appropriate, the use of different methodologies or assumptions to determine the fair value could result in different fair values.

Changes in Fair Value

The following table provides a roll-forward in the changes in fair value for the year ended December 31, 2017, for all assets for which the Company determines fair value using a material level of unobservable (Level 3) inputs, which consists solely of life settlements (in thousands):



Life Settlements:
Balance, January 1, 2017	$	498,400
Purchase of policies	—
Change in fair value	51,551
Matured/lapsed/sold polices	(67,177		)
Premiums paid	84,718
Transfers into level 3	—
Transfers out of level 3	—
Balance, December 31, 2017	$	567,492
Changes in fair value included in earnings for the period relating to assets held at December 31, 2017	$	12,848

The following table provides a roll-forward in the changes in fair value for the year ended December 31, 2017, for the White Eagle Revolving Credit Facility for which the Company determines fair value using a material level of unobservable (Level 3) inputs (in thousands):



White Eagle Revolving Credit Facility:
Balance, January 1, 2017	$	257,085
Draws under the White Eagle Revolving Credit Facility	87,287
Payments on White Eagle Revolving Credit Facility	(19,633		)
Unrealized change in fair value	4,501
Transfers into level 3	—
Transfer out of level 3	—
Balance, December 31, 2017	$	329,240
Changes in fair value included in earnings for the period relating to liabilities at December 31, 2017	$	4,501

The following table provides a roll-forward in the changes in fair value for the year ended December 31, 2016, for all assets for which the Company determines fair value using a material level of unobservable (Level 3) inputs, which consists solely of life settlements (in thousands):



Life Settlements:
Balance, January 1, 2016	$	461,925
Purchase of policies	16
Retained death benefits acquisitions	1,374
Change in fair value*	864
Matured/lapsed/sold polices	(37,460		)
Premiums paid	71,681
Transfers into level 3	—
Transfers out of level 3	—
Balance, December 31, 2016	$	498,400
Changes in fair value included in earnings for the period relating to assets held at December 31, 2016	$	(17,442	)

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*Change in the mortality curve after adoption of the 2015 VBT resulted in approximately $17.6 million reduction in the fair value of life settlements.

The following table provides a roll-forward in the changes in fair value for the year ended December 31, 2016, for the White Eagle Revolving Credit Facility for which the Company determines fair value using a material level of unobservable (Level 3) inputs (in thousands):



White Eagle Revolving Credit Facility:
Balance, January 1, 2016	$	169,131
Draws under the White Eagle Revolving Credit Facility	124,142
Payments on White Eagle Revolving Credit Facility	(34,799		)
Unrealized change in fair value	(1,389		)
Transfers into level 3	—
Transfer out of level 3	—
Balance, December 31, 2016	$	257,085
Changes in fair value included in earnings for the period relating to liabilities at December 31, 2016	$	(1,389	)

The following table provides a roll-forward in the changes in fair value for the year ended December 31, 2016, for the Red Falcon Revolving Credit Facility for which the Company determines fair value using a material level of unobservable (Level 3) inputs (in thousands):



Red Falcon Revolving Credit Facility
Balance, January 1, 2016	$	55,658
Subsequent draws under the Red Falcon Revolving Credit Facility	20,029
Payments on Red Falcon Revolving Credit Facility	(75,417		)
Unrealized change in fair value	(509		)
Extinguishment	239
Transfers into level 3	—
Transfer out of level 3	—
Balance, December 31, 2016	$	—
Changes in fair value included in earnings for the period relating to liabilities at December 31, 2016	$	—

There were no transfers of financial assets or liabilities between levels of the fair value hierarchy during the years ended December 31, 2017 and 2016.

Other Fair Value Considerations—Carrying value of certificate of deposits, prepaid expenses and other assets, receivable for maturity of life settlements, investment in affiliates, Senior Secured Notes, accounts payable and accrued expenses approximate fair value due to their short-term maturities and/or low credit risk.

NOTE 16—SEGMENT INFORMATION

On October 25, 2013, the Company sold its structured settlement business, which was previously reported as an operating segment. The operating results related to the Company’s structured settlement business have been included in discontinued operations in the Company’s Consolidated Statements of Operations for all periods presented and the Company has discontinued segment reporting. See, Note 6 "Discontinued Operations" to the accompanying consolidated financial statements.

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NOTE 17—COMMITMENTS AND CONTINGENCIES

Lease Agreements

The Company leases office space under a lease that commenced on October 1, 2014. The lease expires on September 30, 2020. The annual base rent is $246,000, with a provision for a 3% increase on each anniversary of the rent commencement date. Rent expense was approximately $407,000, $412,000 and $423,000 for the years ended December 31, 2017, 2016 and 2015, respectively.

Future minimum payments under operating leases for each of the three succeeding years subsequent to December 31, 2017 are as follows (in thousands):



December 31,
2018	$	248
2019	255
2020	196
	$	699

Employment Agreements

The Company does not have any general policies regarding the use of employment agreements, but has and may, from time to time, enter into such a written agreement to reflect the terms and conditions of employment of a particular named executive officer, whether at the time of hire or thereafter. The Company has entered into employment agreements with certain of its officers, including during the year ended December 31, 2017, with the former chief executive officer, whose agreement provided for substantial payments in the event that the executive terminated his employment with the Company due to a material change in the geographic location where the chief executive officer performs his duties or upon a material diminution of his base salary or responsibilities, with or without cause. These payments are equal to three times the sum of the chief executive officer’s base salary and the average of the preceding three years’ annual cash bonus.

CEO Separation Agreement

On August 10, 2017, Antony Mitchell, then the Chief Executive Officer of the Company and a member of the Company's board of directors, notified the Company of his intention to terminate his employment agreement with the Company, effective as of a date to be determined in accordance with the terms of such agreement. On September 15, 2017, the Company entered into a Mediation Agreement with Mr. Mitchell, pursuant to which Mr. Mitchell agreed, among other things, to negotiate and enter into a separation agreement providing for his resignation from the position of Chief Executive Officer and from the Company's board of directors, in each case of the Company and its subsidiaries, no later than September 22, 2017.

On October 23, 2017, the Company entered into a Separation Agreement (the "CEO Separation Agreement") with Antony Mitchell, pursuant to which Mr. Mitchell resigned from the position of Chief Executive Officer and as a director of the Company and its subsidiaries effective October 23, 2017. The CEO Separation Agreement obligates the Company to indemnify Mr. Mitchell for his legal fees of $150,000, which amount is recognized in the consolidated statement of operations for the year ended December 31, 2017.

Litigation

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. When a loss contingency related to a litigation or regulatory matter is deemed to be

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both probable and estimable, the Company will establish an accrued liability with respect to such loss contingency and record a corresponding amount of litigation-related expense. The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability.

SEC Investigation

On February 17, 2012, the Company received an initial subpoena issued by the staff of the SEC seeking documents from 2007 through the date of the subpoena, generally related to the Company’s premium finance business and corresponding financial reporting (the "SEC Investigation"). The SEC was investigating whether any violations of federal securities laws had occurred and the Company fully cooperated with the SEC regarding the matter. On December 27, 2016, the Company received notification from the SEC that it had concluded its investigation as to the Company and did not intend to recommend an enforcement action against the Company.

Sun Life

On April 18, 2013, Sun Life Assurance Company of Canada ("Sun Life") filed a complaint against the Company and several of its affiliates in the United States District Court for the Southern District of Florida, entitled Sun Life Assurance Company of Canada v. Imperial Holdings, Inc., et al. ("Sun Life Case"), asserting, among other things, that at least 28 life insurance policies issued by Sun Life and owned by the Company through certain of its subsidiary companies were invalid. The Sun Life complaint, as amended, asserted the following claims: (1) violations of the federal Racketeer Influenced and Corrupt Organizations ("RICO") Act, (2) conspiracy to violate the RICO Act, (3) common law fraud, (4) aiding and abetting fraud, (5) civil conspiracy to commit fraud, (6) tortious interference with contractual obligations, and (7) a declaration that the policies issued were void. Following the filing of a motion by the Company to dismiss the Sun Life Case, on December 9, 2014, counts (2), (4), (5), (6) and (7) of the Sun Life Case were dismissed with prejudice. The Company then filed a motion for summary judgment on the remaining counts. On February 4, 2015, the Court issued an order (the "Order") granting the Company’s motion for summary judgment on counts (1) and (3), resulting in the Company prevailing on all counts in the Sun Life Case.

On July 29, 2013, the Company filed a separate complaint against Sun Life in the United States District Court for the Southern District of Florida, captioned Imperial Premium Finance, LLC v. Sun Life Assurance Company of Canada ("Imperial Case"), which was subsequently consolidated with the Sun Life Case. The Imperial Case asserted claims against Sun Life for breach of contract, breach of the covenant of good faith and fair dealing, and fraud, and sought a judgment declaring that Sun Life is obligated to comply with the promises made by it in certain insurance policies. The Imperial complaint also sought compensatory damages amounting to at least $30 million and an award of punitive damages. On August 23, 2013, Sun Life moved to dismiss the complaint, but the Court denied Sun Life’s motion in early 2015. Subsequently, on February 26, 2015, Sun Life appealed the denial to the United States Court of Appeals for the Eleventh Circuit. The Company moved to dismiss Sun Life’s appeal and, on December 17, 2015, the Court of Appeals ruled in favor of the Company, dismissing Sun Life’s appeal. The Imperial Case therefore returned to the District Court.

On September 22, 2016, however, the District Court granted summary judgment in favor of Sun Life on the entirety of the Imperial Case. Subsequently, on January 12, 2017, the Company appealed the District Court’s decision, and on January 24, 2017, Sun Life filed its own notice of appeal. As part of these two appeals, the Court of Appeals will review every dispositive order issued by the District Court throughout the consolidated case. Per the Court of Appeals, oral argument will be scheduled in the near future.

In January 2018, oral argument was held in the Eleventh Circuit Court of Appeals and the decision is pending.

Other Litigation

Other litigation is defined as smaller claims or litigations that are neither individually nor collectively material. It does not include lawsuits that relate to collections.

The Company is party to various other legal proceedings that arise in the ordinary course of business, separate from normal course accounts receivable collections matters. Due to the inherent difficulty of predicting the outcome of these litigations and other legal proceedings, the Company cannot predict the eventual outcome of these matters, and it is reasonably possible that some of them could be resolved unfavorably to the Company. As a result, it is possible that the Company’s results of operations or cash flows in a particular fiscal period could be materially affected by an unfavorable resolution of pending litigation or contingencies. However, the Company believes that the resolution of these other proceedings will not, based on information currently available, have a material adverse effect on the Company’s financial position or results of operations.

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NOTE 18—STOCKHOLDERS’ EQUITY

During the second quarter of 2015, the Company issued 6,688,433 shares of common stock pursuant to a rights offering at a price of $5.75 per share.

In connection with the settlement of class litigation, the Company issued warrants to purchase two million shares of the Company’s stock into an escrow account in April 2014 and were distributed in October 2014. The estimated fair value at the measurement date of such warrants was $5.4 million, which is included in stockholder’s equity. The warrants have a five-year term from the date of their distribution with an exercise price of $10.75. The Company is obligated to file a registration statement to register the shares underlying the warrants with the SEC if shares of the Company’s common stock have an average daily trading closing price of at least $8.50 per share for a 45 day period. The warrants will be exercisable upon effectiveness of the registration statement.

The Company has reserved an aggregate of 12,600,000 shares of common stock under its Omnibus Plan, of which 542,102 options to purchase shares of common stock granted to existing employees were outstanding as of December 31, 2017, 233,215 shares of restricted stock had been granted to directors under the plan and 2,094,000 shares of restricted stock units had been granted to certain employees, with a total of 2,102,522 shares subject to vesting. There were 9,730,683 securities remaining for future issuance under the Omnibus Plan as of December 31, 2017.

On September 1, 2015, the Company announced that its Board of Directors authorized a $10.0 million share and note repurchase program. The program had a two-year expiration date, and authorized the Company to repurchase up to $10.0 million of its common stock and/or its Convertible Notes due 2019. During 2015, the Company purchased 608,000 shares for a total cost of approximately $2.5 million, which is an average cost of $4.17 per share, including transaction fees. As of December 31, 2017, the repurchase program has terminated.

On March 14, 2016, the Company filed a prospectus supplement with the SEC related to the offer and sale from time to time of the Company's common stock at an aggregate offering price of up to $50.0 million through FBR Capital Markets & Co. and MLV & Co. LLC, as distribution agents. Sales of shares of the Company's common stock under the prospectus supplement and the equity distribution agreement entered into with the distribution agents, if any, may be made in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act of 1933. The Company has agreed to pay the distribution agents a commission rate of up to 3% of the gross proceeds from the sale of any shares of common stock sold through the equity distribution agreement. During the year ended December 31, 2016, the Company sold 628,309 shares of common stock under this prospectus supplement at a weighted average price per share of $3.00, receiving proceeds net of commissions totaling approximately $1.8 million. Approximately $56,600 in commissions were paid in connection with the sales of shares.

Recapitalization Transactions

On July 28, 2017, the Company consummated a series of integrated transactions to effect a recapitalization of the Company (the "Transaction Closing") pursuant to the Master Transaction Agreements.

Common Stock Purchase Agreement

In connection with the Transaction Closing, the Company entered into a Common Stock Purchase Agreement (the "Stock Purchase Agreement") by and among the Company, PJC, certain investors jointly designated by PJC and Triax Capital Advisors LLC, a New York limited liability company ("Triax"), to be party to the Stock Purchase Agreement (collectively, the "Common Stock Investors"), and certain Convertible Note Holders that were a party to the Stock Purchase Agreement (collectively, the "Convertible Note Holder Purchasers," and together with PJC and the Common Stock Investors, the "Purchasers"). Pursuant to the Stock Purchase Agreement, the Company issued and sold to the Purchasers 115,000,000 shares (the "Stock Purchase Agreement Shares") of the Company’s common stock, $0.01 par value, at a price of $0.2 per share for an aggregate purchase price of $23.0 million, of which PJC and the Common Stock Investors purchased 75,000,000 Stock Purchase Agreement Shares for an aggregate purchase price of $15.0 million and the Convertible Note Holder Purchasers, pursuant to the previously announced rights offering which expired on July 26, 2017, purchased 40,000,000 Stock Purchase Agreement Shares for an aggregate purchase price of $8.0 million, of which PJC purchased 19,320,038 shares in connection with the exercise of rights assigned to it by certain Convertible Note Holder Purchasers. The Stock Purchase Agreement contained customary representations, warranties, and covenants.

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Common Stock Purchase Warrants

The Warrants shall vest and become exercisable as follows: (i) with respect to 17,500,000 Warrant Shares, immediately upon the issuance of the Warrants, and (ii) with respect to the remaining 25,000,000 Warrant Shares, at later times tied to the conversion of Convertible Notes (as defined below) and New Convertible Notes (as defined below) outstanding upon the Transaction Closing into shares of Common Stock or, if earlier, upon the date that all Convertible Notes or New Convertible Notes are no longer outstanding. The Warrants have an eight year term. The number of Warrant Shares is subject to anti-dilution adjustment provisions.

Articles Amendment

Effective on July 17, 2017, the Company filed an Articles of Amendment to Articles of Incorporation (the "Articles Amendment") to increase the authorized Common Stock from 80,000,000 shares to 415,000,000 shares. As previously disclosed, the Articles Amendment was approved by the Company’s shareholders at the Company’s 2017 Annual Meeting. The adoption of the Articles Amendment results in a greater number of shares of Common Stock available for issuance.

Board Designation Agreements

In connection with the Transaction Closing, the Company entered into a series of separate Board Designation Agreements (collectively, the "Board Designation Agreements") with each of (i) Evermore Global Advisors, LLC ("Evermore"), (ii) PJC and JSARCo, LLC (the "Board Rights Investors"), (iii) Opal Sheppard Opportunities Fund I LP ("Opal Sheppard"), (iv) Ironsides P Fund L.P. and Ironsides Partners Special Situations Master Fund II L.P. (together with Ironsides P Fund L.P., the "Ironsides Funds") and (v) Nantahala Capital Management, LLC ("Nantahala").

Pursuant to the Board Designation Agreement with Evermore (the "Evermore Designation Agreement"), subject to the terms and conditions set forth therein, Evermore shall have the right to designate one director to the Company’s Board of Directors (the "Board") whom the Board must add as a director of the Company contemporaneously with the Transaction Closing. At each meeting of the Company’s shareholders at which the election of directors is to be considered and Evermore holds the requisite Minimum Percentage (as defined in the Evermore Designation Agreement), Evermore shall have the right to designate one nominee whom the Board must nominate for election at such meeting.

Pursuant to the Board Designation Agreement with the Board Rights Investors (the "Investor Designation Agreement"), subject to the terms and conditions set forth therein, the Board Rights Investors shall have the right to designate three directors to the Board whom the Board must add as directors of the Company contemporaneously with the Transaction Closing, one of which shall be designated pursuant to the Opal Sheppard Agreement. At each meeting of the Company’s shareholders at which the election of directors is to be considered and the Board Rights Investors hold the requisite Minimum Percentage (as defined in the Investor Designation Agreement), the Board Rights Investors shall have the right to designate three nominees whom the Board must nominate for election at such meeting, one of which shall be designated pursuant to the Opal Sheppard Agreement so long as the Opal Sheppard Agreement is in effect.

Pursuant to the Board Designation Agreement with Opal Sheppard (the "Opal Sheppard Designation Agreement"), subject to the terms and conditions set forth therein, Opal Sheppard shall have the right to designate one director to the Company’s Board of Directors (the "Board") whom the Board must add as a director of the Company contemporaneously with the Transaction Closing. At each meeting of the Company’s shareholders at which the election of directors is to be considered, so long as the Board Rights Investors have the right to three designees and Opal Sheppard holds the requisite Minimum Percentage (as defined in the Opal Sheppard Designation Agreement), Opal Sheppard shall have the right to designate one nominee whom the Board must nominate for election at such meeting.

Pursuant to the Board Designation Agreement with the Ironsides Funds (the "Ironsides Designation Agreement"), subject to the terms and conditions set forth therein, the Ironsides Funds shall have the right to designate one director to the Board whom the Board must add as a director of the Company contemporaneously with the Transaction Closing. At each meeting of the Company’s shareholders at which the election of directors is to be considered and the Ironsides Funds hold the requisite Specified Percentage (as defined in the Ironsides Designation Agreement), the Ironsides Funds shall have the right to designate one nominee whom the Board must nominate for election at such meeting.

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Pursuant to the Board Designation Agreement with Nantahala (the "Nantahala Designation Agreement"), subject to the terms and conditions set forth therein, upon the termination of the Ironsides Designation Agreement in accordance with the terms thereof, Nantahala shall have the right to designate one director to the Board and, at each meeting of the Company’s shareholders at which the election of directors is to be considered and Nantahala holds the requisite Specified Percentage (as defined in the Nantahala Designation Agreement), Nantahala shall have the right to designate one nominee whom the Board must nominate for election at such meeting.

Change in Significant Holders

As a result of the consummation of the Master Transaction Agreements, on the date of the Transaction Closing, a change in significant holders of the Company's common stock occurred. PJC and Triax, together with certain of their affiliates, acquired beneficial ownership of approximately 38.9% of the outstanding Common Stock, based on their aggregate acquisition of 39,320,038 shares of Common Stock and warrants to purchase 27,150,000 shares of Common Stock. Other investors designated by PJC and Triax acquired beneficial ownership of approximately 43.6% of the outstanding Common Stock, based on their aggregate acquisition of 55,000,000 shares of Common Stock and warrants to purchase 13,350,000 shares of Common Stock. Additionally, pursuant to the Board Designation Agreements, PJC and Triax designated two of seven directors to the Company’s Board, two other investors designated a third new director and a fourth new director, and a fifth new director was designated by a holder of New Convertible Notes, collectively resulting in a change in the majority of the Company’s Board.

Securities Purchase Agreement

Registration Rights Agreement

In connection with the Transaction Closing, the Company entered into a Registration Rights Agreement (the "Registration Rights Agreement") with the Common Stock Investors, the Warrant Investors, the Convertible Note Holder Purchasers and each such holder of the Company’s New Convertible Notes that is a party to the Registration Rights Agreement (the "New Convertible Note Holders"). Pursuant to the Registration Rights Agreement, the Company is required to register the resale of the Stock Purchase Agreement Shares, Warrant Shares, the New Convertible Notes and the shares of Common Stock issued or issuable upon conversion of the New Convertible Notes in accordance with the terms of the New Convertible Note Indenture (collectively, the "Registrable Securities"). Under the Registration Rights Agreement, the Company will be required to prepare and file a shelf registration statement with the Securities and Exchange Commission (the "SEC") within 60 days of the Transaction Closing, and to use its best efforts to have the registration statement declared effective upon the earliest to occur of (i) the date that is 120 days after the Transaction Closing, (ii) the date that is two (2) business days after the date that the SEC communicates to the Company that it has no comments to the registration statement, and (iii) the date that is two (2) business days after the date that the SEC communicates to the Company that all comments with respect to the registration statement have been resolved. Pursuant to the Registration Rights Agreement, the Company must use all commercially reasonable efforts to keep the registration statement continuously effective until the date when all of the Registrable Securities covered by such registration statement have been sold. The Registration Rights Agreement also contains piggyback registration rights in favor of the Common Stock Investors, Convertible Note Holder Purchasers and the New Convertibles Note Holders and customary indemnification provisions.

On August 11, 2017, the Company entered into a Registration Rights Agreement with Brennan (the "Brennan Registration Rights Agreement"), pursuant to which the Company is required to register the resale of the Brennan Shares. The Brennan Registration Rights Agreement is substantially similar to the Registration Rights Agreement entered into in connection with the Transaction Closing.

In accordance with its obligations under the Registration Rights Agreement and New Convertible Note Indenture, on August 25, 2017 the Company filed a shelf registration statement on Form S-1 (the "Registration Statement") with the SEC to

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register for the re-sale by certain selling stockholders named therein of up to 207,918,483 shares of Common Stock and up to $75.8 million in aggregate principal amount of the New Convertible Notes. The SEC declared the Registration Statement effective on September 28, 2017.

NOTE 19—EMPLOYEE BENEFIT PLAN

The Company has adopted a 401(k) plan that covers employees that have reached 18 years of age and completed three months of service. The plan provides for voluntary employee contributions through salary deductions, as well as discretionary employer contributions. For the years ended December 31, 2017, 2016 and 2015, there were no employer contributions made.

NOTE 20—SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth our unaudited consolidated financial data regarding continuing operations for each quarter of fiscal 2017 and 2016 (in thousands). This information, in the opinion of management, includes all adjustments necessary, consisting only of normal and recurring adjustments, to state fairly the information set forth therein. Certain amounts previously reported have been reclassified to conform to the current presentation. These reclassifications had no net impact on the results of operations (in thousands).



	Fiscal 2017
	1st Quarter		2nd Quarter			3rd Quarter		4th Quarter
Total income	25,590		3,461			24,488		(1,666		)
(Loss)/income from continuing operations before taxes	1,884		(6,474		)	4,217		(2,865		)
Net (loss)/income from continuing operations	1,884		(6,474		)	4,217		(2,865		)
(Loss)/income per share from continuing operations:
Basic	$	0.07	$	(0.23	)	$	0.04	$	(0.02	)
Diluted	$	0.06	$	(0.23	)	$	0.03	$	(0.02	)	(1)



	Fiscal 2016
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Total income	8,454			(15,786		)	4,767			3,680
(Loss)/income from continuing operations before income taxes	(7,445		)	(9,775		)	(8,543		)	(23,666		)
Net (loss)/income from continuing operations	(7,445		)	(9,775		)	(8,543		)	(23,666		)
(Loss)/income per share from continuing operations:
Basic and diluted	$	(0.27	)	$	(0.36	)	$	(0.31	)	$	(0.84	)	(1)

(1)

The sum of the basic and diluted earnings per share amounts for each quarter in fiscal year 2017 and the basic and diluted for 2016 do not equal the amount presented in the statements of operations for the years ended December 31, 2017 and December 31, 2016 due to the Company having a net loss for the years ended December 31, 2017 and December 31, 2016 and therefore all common stock equivalents were antidilutive.

NOTE 21—INCOME TAXES

The provision (benefit) for income taxes from continuing operations consisted of (in thousands):

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	December 31, 2017			December 31, 2016			December 31, 2015
Continuing operations	$	—		$	—		$	(8,719	)
Discontinued operations	—			—			—
Provision (benefit) for income taxes	$	—		$	—		$	(8,719	)
Current
Federal	$	—		$	—		$	10
State	—			—			—
	$	—		$	—		$	10
Deferred
Federal	14,109			(16,550		)	(9,149		)
State	2,931			(1,292		)	(3,846		)
	17,040			(17,842		)	(12,995		)
Valuation allowance increase (decrease)	(17,040		)	17,842			4,266
	$	—		$	—		$	(8,729	)

Provision (benefit) for income taxes from continuing operations	$	—		$	—		$	(8,729	)

U.S. and foreign components of income (loss) from continuing operations before income taxes were as follows (in thousands):



	December 31, 2017			December 31, 2016			December 31, 2015
U.S.	$	(19,016	)	$	(23,405	)	$	(51,749	)
Foreign	15,778			(26,024		)	12,650
	$	(3,238	)	$	(49,429	)	$	(39,099	)

The Company’s actual provision (benefit) for income taxes from continuing operations differ from the federal expected income tax provision as follows (in thousands):



	2017					2016					2015
	Amount			Rate		Amount			Rate		Amount			Rate
Tax provision (benefit) at statutory rate	$	(1,134	)	35.00	%	$	(17,300	)	35.00	%	$	(13,685	)	35.00	%
Increase (decrease) in taxes resulting from:
State tax (net of federal benefit)	(679		)	20.98		(836		)	1.72		(1,617		)	4.14
Attribute reduction from ownership change	35,871			(1,107.45	)	—			—		—			—
Impact of rate changes	—			—		253			(0.50	)	23			(0.06	)
Litigation settlement	—			—		—			—		2,275			(5.82	)
Other permanent items	2			(0.07	)	4			(0.01	)	18			(0.05	)
Tax Cuts and Job Act Enactment	(17,199		)	530.99		—			—		—			—
Prior year true-ups	50			(1.54	)	—			—		—			—
Other	129			(3.99	)	37			(0.07	)	—			—
Valuation allowance (decrease) increase	(17,040		)	526.08		17,842			(36.14	)	4,267			(10.91	)
Provision (benefit) for income taxes	$	—		—	%	$	—		—	%	$	(8,719	)	22.30	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and tax liabilities were (in thousands):

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	December 31, 2017			December 31, 2016
Deferred tax assets:
Federal and state net operating loss carryforward	$	1,537		$	37,511
Unrealized gains on life settlements	4			—
Revolving Credit Facilities	—			7,024
Deferred gain	6,178			14,112
Other	1,281			1,930
Total gross deferred tax assets	9,000			60,577
Less valuation allowance	(5,522		)	(22,457		)
Total deferred tax assets	3,478			38,120
Deferred tax liabilities:
Unrealized gains on life and structured settlements	—			20,321
Gain on structured settlements deferred for tax purposes	2,466			3,655
Convertible debt discount	1,012			3,430
Deferred income	—			10,714
Total deferred tax liabilities	3,478			38,120
Total net deferred tax asset (liability)	$	—		$	—

The Company evaluates its deferred tax assets to determine if valuation allowances are required. In its evaluation, management considers taxable loss carryback availability, expectations of sufficient future taxable income, trends in earnings, existence of taxable income in recent years, the future reversal of temporary differences, and available tax planning strategies that could be implemented, if required. Valuation allowances are established based on the consideration of all available evidence using a more likely than not standard. Based on the Company’s evaluation, a deferred tax valuation allowance was established against its net deferred tax assets as of December 31, 2017. This valuation allowance was determined to be necessary as an offset to the full amount of the federal and state deferred tax asset.

The federal and state net operating loss carryovers ("NOLs") generated by the Company since its conversion to a corporation and remaining as of December 31, 2017 are approximately $113.8 million for federal income tax purposes and $119.1 million for state income tax purposes and expire beginning in 2031 (the NOL amounts include $11.2 million that were assumed from a prior reorganization transaction that involved a corporate shareholder and that were subject to Section 382 limitations). However, on July 28, 2017, as part of a series of integrated transactions to effectuate a recapitalization of the Company, the Company experienced an ownership change as described under Section 382 of the Internal Revenue Code. As a result of the ownership change, a significant portion of the Company’s cumulative U.S. federal and state NOLs of $97.5 million became unavailable to offset future taxable income. Management believes it is appropriate under the Company’s facts and circumstances to write off this amount, as well as the $11.2 million that had previously been subject to Section 382 limitations as the worthless portion of the deferred tax asset. The impact of the write-off will be offset by a decrease in the valuation allowance and should have no net impact on tax expense.

On December 22, 2017 the United States enacted the Tax Cuts and Jobs Act ("TCJA"). Under ASC 740, Income Taxes, the effects of new legislation are recognized upon enactment. Accordingly, recognition of the tax effects of the TCJA is required in the reporting periods that include December 22, 2017. Management has reviewed the legislation and addressed the provisions that are most relevant to its business, including the required accounting under ASC 740 for 2017. Due to the complexities inherent in the tax law changes, the SEC released Staff Accounting Bulletin (SAB) No. 118 on December 22, 2017 , to address the application of ASC 740 where a company does not have the requisite information available, prepared or analyzed in reasonable detail to properly account for items under the TCJA. The SAB has provided that where a company can make a reasonable estimate, it should record that estimate and make appropriate disclosures with updates during a measurement period of no more than a year from enactment. The Company has made its best estimate with respect to the estimated transition tax charge as of December 31, 2017 based on guidance available as of the date of this filing. Upon gathering all necessary data, interpreting any additional guidance from tax authorities, and completing the analysis, our provisional amount may be adjusted in the measurement period allowable in accordance with SAB 118. The key provisions of the TCJA that have factored into the determination of the Company’s tax position for the year ended December 31, 2017 are discussed below.

Corporate Tax Rate

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The TCJA reduced the corporate tax rate from 35% to 21% generally effective for tax years beginning after December 31, 2017. Consequently, management has remeasured its deferred tax inventory at December 31, 2017 using the new corporate tax rate. The Company estimates that this will result in a reduction in the value of its net deferred tax asset of approximately $3.3 million that will be fully offset by its valuation allowance. The Company did not remeasure its deferred tax items as of December 22, 2017 (the TCJA enactment date) and account for any changes thereon through the end of 2017 using the 35% rate versus the 21% rate as any effects would be immaterial to the financial statements.

Transition Tax

Under Section 965 as amended by the TCJA, a U.S. shareholder of a controlled foreign corporation ("CFC") must generally include in gross income as a deemed dividend, at the end of the CFC’s last tax year beginning before January 1, 2018, the U.S. shareholder’s share of certain undistributed and previously untaxed accumulated earnings and profits ("E&P"). The income inclusion can be offset by a deduction intended to result (in the case of a Corporation) in an effective U.S. federal income tax rate of either 15.5% or 8% of the gross income inclusion amount. The applicable rate of tax will depend on the CFC’s cash and non-cash positions at certain measurement dates. The Company’s Ireland-based foreign subsidiaries had untaxed accumulated E&P that was deemed distributed to the United States in accordance with the provisions of the Transition Tax. The aggregation of the net income inclusion under Section 465 with other operating losses resulted in a U.S. taxable loss for 2017 of $1.6 million. As such, the Transition Tax did not result in a federal cash tax liability for the Company. For state tax purposes, Florida law has historically not included actual or deemed dividends from foreign subsidiaries in its tax base. The Florida legislature has not yet convened to determine the extent to which it will conform to the provisions within the TCJA. The Company has assumed that Florida will continue this treatment, and the Company will monitor future legislative developments in this area and appropriately adjust its deferred taxes, if necessary. At this time, the Company has made a reasonable estimate of the impact the deemed repatriation transition tax will have for the year ended December 31, 2017. The final impact of the TCJA may differ from estimates, due to, among other things, changes in our interpretations and assumptions from additional guidance that may be issued by the IRS. Management will continue to monitor future guidance during the measurement period provided for by SAB No. 118 and adjust if necessary.

Global Intangible Low-Taxed Income ("GILTI")

Beginning in 2018, under certain circumstances, Section 245A enacted by the TCJA eliminates U.S. federal income tax on dividends received from foreign subsidiaries of domestic corporations under a new participation exemption. However, the TCJA also creates a new tax on certain taxed foreign income under new Section 951A. Specifically, income earned in excess of a deemed return on tangible assets held by a CFC (such excess called "GILTI") must now generally be included as U.S. taxable income on a current basis by its U.S. shareholders. In general, the gross income inclusion can be offset by a deduction in an amount up to 50% of the inclusion (through the end of 2025, thereafter the deduction is reduced to 37.5%) under certain circumstances. Based on the Company’s life settlement assets held within Ireland, management expects the net income generated from these activities to qualify entirely as GILTI.

On January 10, 2018, the FASB provided guidance on how to account for deferred tax assets and liabilities expected to reverse in future years as GILTI. The FASB provided that a company may either (1) elect to treat taxes due on future U.S. inclusions of GILTI as a current-period expense when incurred or (2) factor such amounts into the Company’s measurement of its deferred taxes. For ASC 740 purposes, the Company intends to adopt an accounting policy to treat any future GILTI inclusion as a current-period expense instead of providing for U.S. deferred taxes on all temporary differences related to future GILTI items. The Company has historically maintained U.S. deferred income taxes to account for outside basis differences in is foreign subsidiaries since the earnings from such subsidiaries were not indefinitely reinvested outside the United States. To transition to the new accounting policy, the Company has reversed a net deferred tax liability of $11.8 million pertaining to outside basis differences in its foreign subsidiaries and recorded a corresponding deferred tax benefit for 2017 as part of continuing operations.

Treatment of NOLs

The TCJA makes changes to the treatment of NOLs arising in taxable years beginning after December 31, 2017. Such NOLs may only offset up to 80% of current year taxable income. Furthermore, such losses may not be carried back to prior years, but can be carried forward indefinitely. The treatment of NOLs arising for the year ended December 31, 2017 will remain as under prior law. Based on the volatility in the Company’s earnings from year to year, the new NOL provisions could have an impact on the Company’s cash taxes in future years.

Other Tax disclosures

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The Company recorded a deferred tax asset for the increase in tax basis associated with the transfer of assets to subsidiaries located in Ireland. The net deferred asset with respect to these transactions is $6.2 million and $14.1 million for the years ended December 31, 2017 and December 31, 2016, respectively, which will serve as a tax benefit upon reversal as life settlements mature or are sold.

Generally, the amount of tax expense or benefit allocated to continuing operations is determined without regard to the tax effects of other categories of income or loss, such as other comprehensive income. However, an exception to the general rule is provided when, in the presence of a valuation allowance against deferred tax assets, there is a pretax loss from continuing operations and pretax income from other categories. In such instances, income from other categories must offset the current loss from operations, the tax benefit of such offset being reflected in continuing operations. For the year ended December 31, 2013, we increased our deferred tax valuation allowance from continuing operations by $56,000 to reflect the taxable income associated with unrealized gains in accumulated other comprehensive income.

Tax years prior to 2014 are no longer subject to IRS examination. Various state jurisdiction tax years remain open to examination.

Unrecognized Tax Benefits

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. A reconciliation of the total amounts of unrecognized benefits at the beginning and end of the period was as follows (in thousands):



	December 31, 2017			December 31, 2016		December 31, 2015
Balance as of beginning of period	$	6,295		$	6,295	$	6,295
Additions based on tax positions taken in the current year	—			—		—
Reductions of tax positions for prior years	(6,295		)	—		—
Balance as of end of period	$	—		$	6,295	$	6,295

The unrecognized benefit is reflected as a reduction of the deferred tax asset related to the federal and state NOLs. Due to the Section 382 limitation that will impact the future utilization of NOLs attributable to pre-ownership change periods, the NOLs that gave rise to the unrecognized tax benefit will be entirely forfeited. As such, the Company has written off the deferred tax asset and eliminated the liability for unrecognized tax benefits. The impact of reversing the unrecognized tax benefit will be offset by an increase to the valuation allowance and have no net impact to tax expense.

Repatriation of Foreign Income

Effective May 16, 2014 Lamington Road Limited, an Irish section 110 limited company and an indirect subsidiary of the Company ("Lamington") issued a promissory note to Markley Asset Portfolio, LLC a Delaware limited liability company and an indirect subsidiary of the Company ("Markley"), in a principal amount of $59.3 million. The amount was used by the Lamington as the partial purchase price of Markley’s interest in White Eagle. The annual interest rate on the Promissory Note is 8.5% and is due to be paid at the end of each calendar year; provided that any interest accrued at the end of a calendar year which is not paid within seven business days thereafter shall be capitalized and added to the outstanding principal balance. As of December 31, 2017, the outstanding principal balance was $80.1 million, which includes $20.8 million in capitalized interest expense.

Effective July 28, 2017, Lamington, issued a promissory note to Markley, in a principal amount of $57.0 million. The amount represents distributions of earnings from Lamington's share of profits of White Eagle, to satisfy the Profit Participation Note issued by Markley to Lamington Road (the "Special Dividend Note"). The Special Dividend Note matures on July 28, 2027 and bears interest at an annual rate of 5.0%, provided that any interest accrued at the end of a calendar year which is not paid within seven business days thereafter shall be capitalized and increased to the outstanding principal balance. For 2017, the Special Dividend Note will be treated as a distribution of previously taxed income for U.S. tax purposes to the extent that the Company recognized a deemed dividend under the Transition Tax provisions. Management has estimated that the recognition of the taxable dividend will not result in any cash taxes for 2017. Future principal repayments of the Special Dividend Note to the Company should not result in an additional U.S. tax liability. As of December 31, 2017, the outstanding principal balance was $57.7 million, which includes $665,000 in capitalized interest expense.

As of December 31, 2017, the Company had the opportunity to repatriate funds of approximately $137.8 million through these promissory notes without a U.S. federal or state income tax liability. Both promissory notes are eliminated in consolidation.

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NOTE 22—SUBSEQUENT EVENTS

Stock Purchase Agreement

On January 22, 2018, the Company entered into a stock purchase agreement (the "Agreement") with SB Holdings, Inc., a California corporation ("Holdings"), and Sherman, Clay & Co., an Indiana corporation and wholly-owned Subsidiary of Holdings ("Sherman, Clay") pursuant to which the Company agreed to purchase all of the issued and outstanding capital stock of Sherman, Clay from Holdings for an initial purchase price of 18,000,000 shares (the "Initial Shares") of the Company’s common stock of which 2,700,000 shares will be held back for up to 18 months from closing to offset potential indemnified claims. The initial purchase price is subject to increase pursuant to earn-outs based on financial performance during the first year after the acquisition closes (the "Additional Shares") and, together with the Initial Shares, the "Consideration Shares") as provided for in the Agreement.

The Agreement contains standard representations and warranties related to each party, and may be terminated prior to the closing under certain circumstances. The closing of the purchase of Sherman, Clay under the Agreement (the "Purchase") is subject to a number of closing conditions, including certain regulatory approvals and obtaining financing for working capital and general corporate purposes, and is anticipated to occur no later than the second quarter of 2018.

In connection with the consummation of the Purchase, the Company also agreed to, among other things, enter into a registration rights agreement pursuant to which it will register the resale of the Consideration Shares.

8.5% Senior Secured Notes Amendment

Amendments to Bylaws

On March 6, 2018, the Board of Directors of the Company approved an amendment to the Company’s bylaws, effective March 6, 2018, to require that, in order to be eligible to nominate or propose for nomination a candidate for election as a director, a shareholder must hold at least one percent (1%) of the Company’s outstanding shares of common stock for no less than twelve (12) months.

Employment Agreements

On March 13, 2018, Imperial Finance and Trading, Inc., a wholly-owned subsidiary of the Company ("Imperial"), entered into a new employment agreement with Miriam Martinez (the "Martinez Agreement"), pursuant to which Ms. Martinez will continue to serve as our Senior Vice President and Chief Financial Officer. The term of the Martinez Agreement commenced on March 13, 2018 and continues for one year, with automatic one-year extensions unless (x) either Ms. Martinez or Imperial gives written notice not to extend at least sixty (60)days’ prior to the end of the then-current term or (y) Ms. Martinez’s employment is terminated in accordance with the terms of the Martinez Agreement. The Martinez Agreement supersedes the employment agreement between the Company and Ms. Martinez from 2014. Pursuant to the Martinez Agreement, Ms.

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Martinez will receive an annual base salary of $275,000 subject to reviews and increases by the Board. Ms. Martinez may receive an annual bonus at the determination of the Board based on Company performance with goals to be established annually by the Board or as otherwise determined by the Board.

The Martinez Agreement further provides that Ms. Martinez is entitled to participate in all benefit plans provided to executives of the Company. If the Company terminates Ms. Martinez’s employment without cause or she resigns with Good Reason (as defined in the Martinez Agreement), the Martinez Agreement provides that she will be entitled to receive her base salary or $352,229, whichever is greater, through the twelve (12) months following such termination (the "Severance Period") as well as any bonus earned but not yet paid. If Ms. Martinez resigns for good reason, she will also be entitled to have the Company continue to pay its portion of healthcare premiums for plans in which she is participating immediately prior to the termination through the Severance Period. If such termination or resignation occurs within two years after a change in control (as defined in the Martinez Agreement), then in lieu of receiving his base salary as described above, Ms. Martinez would be entitled to receive (i) accrued vacation days, (ii) a lump sum payment equal to the sum of two times her then base salary, (iii) a portion of her bonus prorated through the termination date that would be due to her when bonus payments are otherwise made for the year in which the termination occurs, (iv) any unpaid portion of a bonus for the year preceding the termination, and (v) reimbursement of COBRA healthcare costs for up to 12 months.

On March 13, 2018, the Company entered into an employment agreement with Jack Simony (the "Simony Agreement"), pursuant to which Mr. Simony will continue to serve as Vice President and Chief Investment Officer of the Company. The term of the Simony Agreement commenced on March 13, 2018 and continues for one year, with automatic one-year extensions unless (x) either Mr. Simony or the Company gives written notice not to extend at least sixty (60) days’ prior to the end of the then-current term or (y) Mr. Simony’s employment is terminated in accordance with the terms of the Simony Agreement. Pursuant to the Simony Agreement, Mr. Simony will receive an annual base salary of $275,000.

The Simony Agreement further provides that Mr. Simony is entitled to participate in all benefit plans provided to executives of the Company. If the Company terminates Mr. Simony’s employment without cause or he resigns with Good Reason (as defined in the Simony Agreement), the Simony Agreement provides that he will be entitled to receive his base salary through the six (6) months following such termination (the "Severance Period") as well as any incentive bonus that has been declared or awarded to him for a prior fiscal year but has not yet been paid. If Mr. Simony resigns for good reason, he will also be entitled to have the Company continue to pay its portion of healthcare premiums for plans in which he is participating immediately prior to the termination through the Severance Period.

On March 13, 2018, the Company entered into an employment agreement with Harvey Werblowsky (the "Werblowsky Agreement"), pursuant to which Mr. Werblowsky will continue to serve as Vice President, Chief Legal Officer and General Counsel of the Company. The term of the Simony Agreement commenced on March 13, 2018 and continues for one year, with automatic one-year extensions unless (x) either Mr. Werblowsky or the Company gives written notice not to extend at least sixty (60) days’ prior to the end of the then-current term or (y) Mr. Werblowsky’s employment is terminated in accordance with the terms of the Werblowsky Agreement. Pursuant to the Werblowsky Agreement, Mr. Werblowsky will receive an annual base salary of $250,000.

The Werblowsky Agreement further provides that Mr. Werblowsky is entitled to participate in all benefit plans provided to executives of the Company. If the Company terminates Mr. Werblowsky’s employment without cause or he resigns with Good Reason (as defined in the Werblowsky Agreement), the Werblowsky Agreement provides that he will be entitled to receive his base salary through the six(6) months following such termination (the "Severance Period") as well as any incentive bonus that has been declared or awarded to him for a prior fiscal year but has not yet been paid. If Mr. Werblowsky resigns for good reason, he will also be entitled to have the Company continue to pay its portion of healthcare premiums for plans in which he is participating immediately prior to the termination through the Severance Period.

Commitment Letter

On March 13, 2018, the Company received a commitment letter from PJC Investments, LLC for an investment of up to $2.0 million under certain circumstances through March 15, 2019.

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