Securities Act of 1933

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Section 3(a)(10)

Securities Exchange Act of 1934

Rule 13e-4 and Rule 102 of Regulation M

July 17, 2013

Jon S. Cohen

Snell & Wilmer L.L.P.

One Arizona Center

400 East Van Buren Street

Suite 1900

Phoenix, AZ 85004-2202

Response of the Division of Corporation Finance

and the Division of Trading and Markets

Re:

IMH Financial Corporation

File No. TP 13-09

Incoming letter dated July 17, 2013

We are responding to your letter requesting exemptive and no-action relief dated July

17, 2013, as supplemented by telephone conversations with the staff. To avoid having to

recite or summarize the facts set forth in your letter, our response is attached to the enclosed

photocopy of your correspondence. Capitalized terms have the same meanings as defined in

your letter.

Section 3(a)(10) of the Securities Act and Rule 13e-4 under the Exchange Act

The Division of Corporation Finance will not recommend enforcement action to the

Commission if IMH, in reliance on your opinion of counsel that the exemption under

Section 3(a)(10) of the Securities Act is available, issues the Exchange Notes in exchange for

shares of IMH Common Stock held by the Class members in the Notes Offering, each as

described in your letter, without registration under the Securities Act. In reaching this

position, we have noted that:

IMH Financial Corporation

Page 2

•

the Court will conduct a hearing on the fairness of the terms and conditions of the

Stipulation, including the issuance in the Notes Offering of Exchange Notes in

exchange for shares of IMH Common Stock held by the Class members;

the Court will approve the fairness of the terms and conditions of the Notes Offering

before issuance of the Exchange Notes in the Notes Offering pursuant to the

Stipulation;

all prospective recipients of the Exchange Notes in the Notes Offering have received

notice of the hearing regarding the Stipulation and will have the opportunity to be

heard at the hearing; and

IMH has advised the Court before the hearing that, if the Court approves the terms

and conditions of the Stipulation, its approval of the Stipulation will constitute the

basis for the issuance of the Exchange Notes in the Notes Offering without

registration under the Securities Act, in reliance on the exemption from registration

provided by Securities Act Section 3(a)(10).

Further, the Division will not recommend enforcement action to the Commission if

IMH undertakes and consummates the Notes Offering pursuant to the Stipulation as

described in your letter without compliance with Rule 13e-4 under the Exchange Act.

These positions are based on the representations made to the Division in your letter.

Any different facts or conditions might require the Division to reach different conclusions.

Further, this response expresses the Division’s position on enforcement action only and does

not express any legal conclusion on the questions presented.

Rule 102 of Regulation M

As described in your letter, IMH is engaged in a distribution of Convertible Notes

subject to Rule 102 of Regulation M pursuant to the Rights Offering. As a result, bids for or

purchases of the Convertible Notes or any other covered security, including IMH Common

Stock, by IMH or by an affiliated purchaser of IMH that are not specifically excepted or

exempted from the provisions of Rule 102 are prohibited during the restricted period

specified in Rule 102. 1 You seek an exemption from Rule 102 in order to permit IMH to

purchase IMH Common Stock in the Notes Offering as described in your letter.

The terms “covered security,” “affiliated purchaser,” and “restricted period” are

defined in Rule 100 of Regulation M.

IMH Financial Corporation

Page 3

In your letter, you represent the following:

•

Both offerings are being conducted pursuant to the Stipulation and settlement of the

CAC, which the Delaware Court of Chancery must approve the fairness of the terms

and conditions of;

Pursuant to the Stipulation, IMH is required to effect the Notes Offering and the

Rights Offering within 30 days after final approval of the settlement;

The exchange rate and the Terms of the Rights Offering were determined with

reference to two prior transactions related to the settlement at issue;

There is no trading market for any of the IMH Common Stock, Convertible Notes, or

Exchange Notes;

The terms of the Notes Offering, including the pricing of the exchange rate and the

relationship of that pricing to the Rights Offering pricing, will be fully disclosed to

the Class members eligible to participate in the Rights Offering;

The Rights Offering, while limited to accredited investors, is not intended to favor

any special sub-group of IMH shareholders;

The purchase of the IMH Common Stock in the Notes Offering is not for the purpose

of manipulating the Rights Offering; and

Except as otherwise exempted, IMH will comply with Regulation M.

Based on the facts and representations you have made, the purchase of IMH Common

Stock in the Notes Offering does not appear to result in any of the abuses that Rule 102 is

designed to prevent. Accordingly, on the basis of these facts and representations, but without

necessarily concurring in your analysis, the Commission hereby grants IMH an exemption

from Rule 102 of Regulation M pursuant to paragraph (e) thereof to permit IMH to purchase

IMH Common Stock in the Notes Offering as described. This exemptive relief is

conditioned on the Delaware Court of Chancery approving the fairness of the terms and

conditions of the Stipulation and settlement of the CAC.

The foregoing exemption from Rule 102 of Regulation M is based solely on your

representations and the facts presented to the Staff and is strictly limited to the application of

this rule to the proposed transactions. Such transactions should be discontinued, pending

presentation of the facts for our consideration, in the event that any material change occurs

with respect to any of those facts or representations.

In addition, your attention is directed to the anti-fraud and anti-manipulation

provisions of the Exchange Act, including Sections 9(a) and 10(b), and Rule 10b-5

thereunder. Responsibility for compliance with these and any other applicable provisions of

the federal securities laws must rest with the participants in the various transactions. The

Division of Trading and Markets expresses no view with respect to any other questions that

the proposed transactions may raise, including, but not limited to, the adequacy of disclosure

IMH Financial Corporation

Page 4

concerning, and the applicability of any other federal or state laws to, the proposed

transactions.

Sincerely,

Mark F. Vilardo

Special Counsel

Office of Chief Counsel

Nicholas P. Panos

Senior Special Counsel

Office of Mergers and Acquisitions

For the Commission,

by the Division of Trading and Markets,

pursuant to delegated authority, 2

Josephine J. Tao

Assistant Director

17 CFR 200.30-3(a)(6).

Snell &\Øilmer

DËNVER

LAS VEGAS

L.L.P.

LOS ANGELES

LAW OFFICES

LOS CABOS

One Arizona Center

400 East Van Buren Street

oRANcE COUNTY

PHOENIX

Suite 1900

Phoenix, Arizona 8500 4 -2202

RENO

SALTLAKECITY

602.382.6000

602.382.6070 (Fax)

www.swlaw.com

TUCSON

July 17,2013

VIA E-MAIL

SEC Division of Corporation Finance

Office of Chief Counsel

Mail Stop 4561

Securities Act of 1933, as amended Section 3(aX10)

Michele M. Anderson

Nicholas P. Panos

Offrce of Mergers and Acquisitions

Division of Corporation Finance

Securities and Exchange Act of 1934, as

amended - Rule l3e-4

Josephine Tao

Securities and Exchange Act of 1934, as

amended - Rule 102 of Regulation M

Division of Trading and Markets

Mail Stop 7010

100 F Street, NE

Washington, DC 20549

Re: IMH Financial Corporation

Ladies and Gentlemen:

We are writing on behalf of IMH Financial Corporation, Inc., a Delaware corporation

("IMH" or the "Corporation"), with respect to a proposed "Notes Offering," as defined in that

certain Stipulation and Agreement of Compromise, Settlement and Release (the "Stipulation")

by and among the following: (i) Defendants IMH, Investors Mortgage Holdings Inc.

(':Manager"), IMH Holdings, LLC ("Holdings"), IMH Secured Loan Fund LLC (the "Fund"),

Shane Albers ("Albers"), V/illiam Meris ("Meris") and Steven Darak ("Darak") (collectively

"Defendants"); (ii) Plaintiffs IRA FBO Dennis Miceli, Charlotte Wood, and Howard Weitz IRA

(collectively "Class Plaintiffs"), on their own behalf and on behalf of a Class as defined below;

and (iii) interested non-parties New World Realty Advisors, LLC ("N\ilRA"), NWRA Ventures

\ LLC ("NW Capital"), and their affiliates, members, and employees (collectively "Interested

Non-Parties," and together with the Defendants and the Class Plaintiffs, the "Settling Parties").

snell & wilmer is a member of LEX MUNDI, The Lead¡ng Assoc¡ation of lndependent Law Firms

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Snell ô'r.\Øilmer

L.L.P

Securities and Exchange Commission

July 17,2073

Page 2

The Stipulation (excluding its exhibits) is attached hereto as Exhibit A. As part of this

settlement, which is subject to final court approval, IMH is required to commence a $20 million

"Notes Offering" by which the Class members will have the option to exchange an aggregate of

2,493,765 shares of IMH Class B and C Common Stock for notes (the "Exchange Notes"), at an

exchange rate of one share for $8.02 in Exchange Notes (in25 shares lots). The Stipulation and

the Notes Offering are described in more detail below.

I. Request.

By this letter, we respectfully request confirmation from the staff of the Division of

Corporation Finance (the "Staff') that, based on the facts and circumstances set forth below, it

will not recommend any enforcement action to the Securities and Exchange Commission (the

"SEC") if IMH undertakes the Notes Offering pursuant to the Stipulation, and issues and sells

the Exchange Notes (a) without registration under the Securities Act of 1933, as amended (the

"securities Act"), in reliance on the exemption therefrom provided by Section 3(aX10) thereof,

and (b) without compliance with Rule l3e-4 under the Securities Exchange Act of 1934, as

amended (the "Exchange Act"). In addition, we request that the staff of the Division of Trading

and Markets (the "Division") grant IMH an exemption from the prohibitions of Rule 102(a) of

Regulation M under the Exchange Act with respect to IMH's acquisition of its Class B and C

Common Stock in the Notes Offering in advance of the Rights Offering described below,

pursuant to the authority provided by Rule 102(e) of Regulation M'

IMH has provided us with, and has authorized us to make on their behalf, the factual

representations about them and the transactions set forth in this letter'

II. Background

The Corporation

IMH is a reporting company pursuant to Section 12(g) of the Exchange Act. Its most

recent filing under the Exchange Act was the Form 10-Q for the quarterly period ended

March 31,2013. IMH's predecessor entity, IMH Secured Loan Fund, LLC, or the Fund, was

organized in May 2003 and commenced operations in August2003, focusing on investments in

senior short-term whole commercial real estate mortgage loans collateralized by first mortgages

on real property. The Fund was externally managed by Investors Mortgage Holdings, Inc. (the

"Managèr"j, which was incorporated in Arizona in June 1997. On June 18,2010, following

approval by members representing 89Yo of membership units of the Fund voting on the matter,

thé Fund became internally-managed through the acquisition of the Manager and conversion into

a Delaware corporation in a series of transactions that are referred to as the Conversion

Transactions. In the Conversion Transactions, each membership unit in the Fund was converted

into 220.3419 shares of IMH Class B or Class C Common Stock. This conversion transaction

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L.L,P.

Securities and Exchange Commission

July 17 ,2013

Page 3

was hled with the Commission on Form S-4 Registration Statement (File No. 333-164087) on

December 31,2009 and declared effective by the Commission on May 14,2010.

Following the Conversion Transactions, IMH authorized stock is divided into the

following classes (and subclasses) :

Class

Common Stock, par value $0.01

Class B Common Stock, par value

$0,01: (divided into four subclasses)

Class B-1

Class B-2

Class B-3

Class B-4

Class C Common Stock

Class D Common Stock

Series A Preferred Stock, par value

$0.01

rAs of December 3I,2012.

Authorized Shares

Shares Issued and

150,208,500

Outstandingl

50,000

r6,994,744

4,023,400

9,165,700

78r,644

15,803,212

r6,994,144

3,8r1,342

3,81r,342

7,735,169

627,579

7,878,7102

838,448

As provided in the Certificate of Designation for the Series A Preferred Stock, this

number is subject to increase or decrease to reflect the shares actually issued upon any

conversion of the NW Capital loan and the Convertible Notes. The Company estimates that if

$10,000,000 of Convertible Notes are issued, a maximum of 9,303,429 of SeriesA Prefened

Stock could be issued upon conversion of the NW Capital loan and the Convertible Notes based

on the estimated maximum potential outstanding principal and deferred interest through

maturity.

Shares of Class B and C Common Stock were issued in the Conversion Transactions to

holders of interests in the Fund. In the Conversion Transactions, a holder of Fund interests could

elect to receive either Class B or Class C Common Stock. If a holder elected to receive Class B

Common Stock, it received 25o/o of such shares as Class B-l shares,25o/o as Class B-2 shares,

and 50Yo as Class B-3 shares. The total number of authorized shares of each such subclass

actually issued was based upon the elections made by IMH shareholders to receive either shares

of Class B or Class C Common Stock in the Conversion Transactions'

The shares of Class B and C Common Stock are subject to transfer restrictions that are

described in the Corporation's Certificate of Incorporation. Generally, the transfer restrictions

will end at a specified period of time after the Corporation effects an initial public offering or the

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L,L.P

Securities and Exchange Commission

July 17,2013

Page 4

Corporation advises its shareholders that the Board of Directors has determined not to pursue an

initial public offering. The principal difference between the subclasses of Class B Common

Stock ir ttt. length of the transfer restriction period required for each such subclass. The Class

B-4 shares were issued solely to the Corporation's insiders, Mt. Albers and Mr' Meris, in the

Conversion Transactions, and are subject to additional transfer restrictions and other restrictions

that are not applicable to the other classes or subclasses of common securities. When the transfer

restrictions lapse, the Class B and C Common Stock can be convefted into shares of Common

Stock. In certain cases, Class C Common Stock may be converted into Class B Common Stock.

The Class D Common Stock will be issued in exchange for Class B and C Common Stock that

have been submitted for conversion but for which the holder has not provided a representation

that it has complied with the applicable transfer restrictions on such stock.

The transfer restrictions are enforced through a custodian, who maintains book entry

records of holders of the shares of Class B and C Common Stock until those shares are converted

into shares of Common Stock.

Messrs. Albers and Meris were the directors of IMH following the consummation of the

Conversion Transactions and were previously the directors of the Manager. Mr' Albers resigned

as a director effective June 7, 2011. Mr. Darak has been the Chief Financial Officer, Treasurer,

and Secretary of IMH since the consummation of the Conversion Transactions and was the Chief

Financial Officer of the Manager before that time. Mr. Darak was appointed as a director on

April 6,201L

On June 7,2011, IMH entered into and closed the funding of a $50.0 million senior

secured convertible loan with NV/ Capital (the "NW Capital loan"). The NW Capital loan is

convertible into IMH Series A Preferred Stock aI any time prior to maturity at an initial

conversion rate of 104.3 shares of Series A Preferred Stock per $1,000 principal amount of the

loan, subject to adjustment. The Series A Preferred Stock is convertible into Common Stock on

a share for share basis, again subject to adjustment in certain cases. The loan is severally, but not

jointly, guaranteed by substantially all of the existing and future subsidiaries of IMH, subject to

tertain exceptions and releases, and is secured by a security interest in substantially all of IMH's

assets.

In connection with the NW Capital loan, effective June 7,2011, Mr. Albers resigned

from his position as Chief Executive Officer and director pursuant to the terms of a Separation

Agreement and General Release. In connection with Mr. Albers' resignation, IMH consented to

thé transfer of all of Mr. Albers' holdings in IMH to an affiliate of NV/ Capital. As a result, the

aff,rliate acquired I,423 shares of Class B-1 Common Stock, 1,423 shates of Class B-2 Common

Stock, 2,849 shares of Class B-3 Common Stock, and 313,789 shares of Class B-4 Common

Stock for $8.02 per share.

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L,L.P

Securities and Exchange Commission

July 17 ,2013

Page 5

In addition to the above restrictions, the IMH Bylaws provide that all of IMH's equity

shares and certain convertible debt are subject to transfer restrictions intended to protect certain

IMH tax benefits.

The Litigation

Various disputes have arisen relating to the consent solicitation/prospectus used in

connection with seeking member approval of the Conversion Transactions. Three proposed class

action lawsuits were filed in the Delaware Court of Chancery (on May 25,2010, June 14, 2010,

and June I7, 2010) against IMH and certain affiliated individuals and entities. The May 25 and

June 14, 2010 lawsuits contain similar allegations, claiming, in general, that fiduciary duties

owed to Fund members and to the Fund were breached because, among other things, the

Conversion Transactions were unfair to Fund members, constituted self-dealing, and because the

information provided about the Conversion Transactions and related disclosures was false and

misleading. The June 17, 2010 lawsuit focuses on whether the Conversion Transactions

constitutea a "roll up" transaction under the Fund's operating agreement, and seeks damages for

breach of the operating agreement.

An action also was filed on June 14, 2010 in the Delaware Court of Chancery against

IMH and certain affiliated individuals and entities by Fund members Ronald Tucek and Cliff

Ratliff and LGM Capital Partners, LLC. This lawsuit claimed, among other things, that certain

fiduciary duties were breached during the proxy solicitation for the Conversion Transactions'

All of the separate proxy claims have been settled or dismissed.

The parties in the four above-referenced actions were ordered to consolidate the four

actions for alt purposes by the Delaware Court of Chancery (hereafter, the "Court"), which also

ordered that a consolidated complaint be filed, to be followed by consolidated discovery' On

July 1 5,2011, plaintiffs filed an amended consolidated complaint entitled "Verified Amended

aná Suppl"-.ntul Consolidated Class Action Complaint" ("CAC"). On August 29, 2017,

defendants filed a Motion to Dismiss in Part the CAC. Plaintifß filed their brief in opposition on

September 28,2071 and defendants hled their reply brief on November 2,2071. Oral argument

on the Corporation's motion to dismiss was scheduled to take place on February 73,2012,

On January 31, 2072, the Corporation reached a tentative settlement in principle to

resolve all claims asserted by the class plaintiffs in the CAC. The tentative settlement in

principle,

memorialized in a Memorandum of Understanding ("MOU") previously filed with the

^Corpoìation's

Form 8-K dated February 6, 2012, was subject to certain class certification

.o.ràitionr, confirmatory discovery, and final court approval (including a fairness hearing).

Following confirmatory discovery, the parties entered into the Stipulation, which lays out in

more detáil the principles for f,rnal settlement of the CAC originally established in the MOU'

The Stipulation iontemplates a full release and settlement of all claims against IMH and the

t4130423 20

Snell &\Tilmer

-L.L.PSecurities and Exchange Commission

July 17,2013

Page 6

other defendants in connection with the claims made in the CAC. The key elemenis of the

Stipulation are described in more detail below.

Description of the StiPulation

Settlement Terms.

The following are some of the key elements of the settlement:

IMH is required to make the $20.0 million Notes Offering of 4o/o five-year

subordinated notes to members of the Class in exchange lor 2,493,765 shares of

IMH common stock at an exchange rate of $8.02 per share. The Notes Offering is

described in more detail below.

IMH is required to offer to Class members who are accredited investors $10.0

million of new convertible notes (the "Convertible Notes") with the same

financial terms as the convertible notes previously issued to NW Capital pursuant

to the NW Capital loan, but subject to an intercreditor agreement between the

trustee for the Convertible Notes and NV/ Capital (the "Rights Offering").

IMH will deposit $1.570 million in cash into a settlement escrow account (less

approximately $0.225 million to be held in a reserve escrow account that is

u-uãilubl. for use by IMH to fund its defense costs for other unresolved litigation

arising out of or related to the Conversion Transactions). To the extent that funds

remain in the settlement escrow account after payment of notice and

administration costs, taxes, and any amounts awarded by the Court for attorneys'

fees and expenses or to class plaintiffs, they will be distributed to Class members

in proportion to the number of IMH shares held by them as of June 23,2070.

IMH will enact certain agreed upon corporate governance enhancements,

including the appointment of two independent directors to its board of directors

within six months following final approval by the Court of the Stipulation and the

establishment of a five-person investor advisory committee (which may not be

dissolved until such time as IMH has established a seven-member board of

directors with at least a majority of independent directors).

t4'ì30423 20

The NWRA consulting contract dated as of February 28,201 1 must be terminable

by the IMH board of directors upon payment in full of the NW Capital loan unless

that loan has been converted into preferred or common equity.

Snell &\Øilmer

L.L.P

Securities and Exchange Commission

July 17,2013

Page 7

Mr. Meris and Darak must agree to additional restrictions on the future sale or

redemption of their IMH common stock and IMH may not award new stock

options to them pursuant to the 2010 Stock Incentive Plan in 2013 .

Description of the Class.

Pursuant to the Stipulation, the Court has certified the following non-opt out settlement

class (the "Class"):

[A]ll former Unitholders of the Fund who were record holders as of May 13,2010, and

whose Units have been converted into shares of IMH pursuant to the Conversion

Transaction. Excluded from the Settlement Class shall be the Defendants herein, any

entity in which any Defendant has a controlling interest; the officers, directors, affiliates,

legai representatives, heirs, successors, subsidiaries, and/or assigns ofany such individual

oientity; and any of the broker-dealers (or any of their agents or representatives) which

sold Units to Class Plaintiffs or the members of the Class'

Notes Offering.

Within 30 days after final approval of the proposed settlement, subject to compliance

with securities and other applicable laws and regulations, the Corporation will commence the

Rights Offering described above and will also commence a $20 million Notes Offering in which

the Class members will have the option to exchange an aggregate of up to 2,493,765 shares of

their IMH Common Stock for Exchange Notes, at an exchange rate of one share for $8'02 in

Exchange Notes in increments of 25 shares. The $8.02 exchange rate price is the same price

paid to Mr. Albers for his stock by an affiliate of NW Capital in connection with his separation

irom IMH in June of 2011 , as described above. The genesis of the pricing of such purchase from

Mr. Albers and the relationship of that pricing to the current value of the Corporation's Common

Stock will be described in the disclosures for the Notes Offering. The purpose of the Notes

Offering is to provide Class members with an opportunity to trade certain of their Common

Stock for Exchange Notes.

The Notes Offering is subject to the following terms:

(i) each Exchange Note will have a 5 year maturity, with a 4o/o pet alìnum non-cumulative

coupon, payable quarterly;

(ii) the Exchange Notes will be subordinate in payment and priority to the NW Capital

loan and the Convertible Notes that may be issued pursuant to the Rights Offering, as well as

other senior indebtedness of the Corporation, and will continue to be subordinate in payment and

priority to any shares of IMH Series A Preferred Stock into which the NW Capital loan and

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L.L.P

Securities and Exchange Commission

July 17,2013

Page 8

Convertible Notes are converted. Essentially, no payments can be made on the Exchange Notes

until the NW Capital loan and the Convertible Notes are paid in full (or in the event that they

have been converted into Series A Preferred Stock, while the Series A Preferred Stock is still

outstanding), except regular payments of interest can be made as long as certain conditions have

not occurred. In addition, pursuant to an Agreement that will be entered into between NW

Capital and the trustee for the Exchange Notes, it is contemplated that the Exchange Notes and

substantially all rights with respect to the Exchange Notes will be collaterally assigned to NV/

capital acting for itself and the holders of the convertible Notes;

(iii) IMH may not enter into any senior debt obligation that expressly provides that the

redemption of the Exchange Notes would constitute an event of default on such senior debt

obligation, but such senior debt obligation may have customary affirmative and restrictive

covenants relating to, among other matters, tangible net worth, debt service coverage, and

liquidity;

(iv) the Corporation will only be authorized to issue additional debt senior to the

Exchange Notes so long as the amount of total shareholders' equity after such issuance is greater

than twice the amount of the then outstanding aggregate principal amount of the Exchange

Notes;

(vi) the Exchange Notes will be held in book entry form by the Corporation's transfer

agent or another custodian and will be administered by a trustee for the Exchange Notes; and

(vii) the Exchange Notes may be transferred among Class members, subject to the

consent of IMH, which shall not be unreasonably withheld, and compliance with securities and

other applicable laws.

(viii) since the Exchange Notes will be issued for increments of 25 shares and in

increments of $100, each25 share exchange will result in a $0.50 fraction, which will be paid in

cash.

The Notes Offering will be made to all Class members on the following terms:

(i) the Corporation will offer an aggregate of $10 million in Exchange Notes to those

Class members who cast a vote "against" the Conversion Transactions which vote was received

by the Corporation by June 23,2010 (the "No Vote Pool");

(ii) the Corporation will offer $10 million in Exchange Notes to all other Class members

(the "Open Pool");

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L.L.P

Securities and Exchange Commission

July 17,2013

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(iii) Class members will have the right to exchange their shares of common stock

designated for exchange in their respective pools on a pro rata basis;

(iv) if the Open Pool is not fully subscribed and the No Vote Pool is oversubscribed, then

any oversubscribed exchange requests of "no voters" will be satisfied by the notes that remain

unsubscribed in the Open Pool on apro-rata basis;

(iv) if the No Vote Pool is not fully subscribed and the Open Pool is oversubscribed, then

the oversubscribed exchange requests of the Open Pool will be satisfied by the notes that remain

unsubscribed in the No Vote Pool on a pro-rata basis;

(v) to the extent that any amount of the two pools (i.e., $20 million) remains unsubscribed

after all exchange requests have been satisf,red, such unsubscribed Exchange Notes will not be

issued; and

(vi) the allocation of the Exchange Notes between the two pools will be administered by

the trustee for the Exchange Notes or another exchange agent selected by the Corporation.

On March 21,2013, the Settling Parties obtained a Scheduling Order from the Court that,

among other things, approved the form of Notice of the proposed settlement of the CAC to the

Classlthe "Notice") and provided for a fairness hearing to be held on June 20,2013. The Notice

was mailed to Class members on April 17 ,2013 by an independent Claims Administrator. Three

Class members timely filed a notice of intention to appear at the faimess hearing and the Court

decided to extend the fairness hearing date to July 1 8,2013 so that those parties and IMH would

have adequate time to prepare for the hearing,

IMH will file an Application For Qualification of Indenture Under the Trust Indenture

Act of 1939, on Form T-3, before the Notes Offering is commenced and will not close any

portion of the Notes Offering until the Form T-3 is effective.

III. Discussion of the Section 3(aX10) Exemption

The Notes Offering will be conducted in reliance upon Section 3(a)(10) of the Securities

Act, which provides an exemption from the registration requirements of Section 5 of the

Securities Act for, in relevant part:

[A]ny security which is issued in exchange for one or more bona fide outstanding

iecurities, claims or property interests, or partly in such exchange and partly for cash,

where the terms and conditions of such issuance and exchange are approved, after a

hearing upon the fairness of such terms and conditions at which all persons to whom it is

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Securities and Exchange Commission

July 17,2013

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proposed to issue securities in such exchange shall have the right to appear, by any court

Staff Legal BulletinNo.3A (CF), dated June 18,2008 (the "staff Bulletin"), provides

the Division of Corporation Finance's views regarding the requirements of the Section 3(a)(10)

exemption. pursuant to the Staff Bulletin, before the issuer can rely on the Section 3(aX10)

exemption, the following conditions must be met:

The securities must be issued in exchange for securities, claims, or property

interests; they cannot be offered for cash.

Application to the Notes Offering: The Exchange Notes will be issued in

exchange for IMH Common Stock held by the Class members and the release of

claims émbodied in the Stipulation. The Exchange Notes are the only offering for

which 3(a)(10) will be relied upon. There will be no cash payable by Class

members in the exchange, nor is the Rights Offering part of the exchange.

Accordingly, there will be an issuance of securities in exchange for other securities,

claims, or ProPertY interests.

A couft or authorized governmental agency must approve the fairness of the terms

and conditions of the exchange.

Application to the Notes Offering: The Stipulation, and the settlement of the

CAC, must be approved by the Delaware Court of Chancery'

The reviewing court or authorized governmental entity must hnd, before

approving the transaction, that the terms and conditions of the exchange are fair to those to

whom securities will be issued.

Application to the Notes Offering: Pursuant to Section 28 of the Stipulation, the

Court must approve the Stipulation following the fairness hearing, as fair,

reasonable, anà adequate and in the best interests of the Class. In addition, the

Court is requested to approve the terms of the Exchange Notes and the Notes

Offering, und th. substantive and procedural fairness of the same, and make a

specific finding that the terms and conditions of the Notes Offering are fair to the

Class members. Pursuant to Delaware Court of Chancery Rule 23(e) ("Rule

23(e)"), a class action must first be approved by the Court before it can be

dismissed or otherwise compromised. Rule 23(e) is designed to protect the due

process rights of Class members, ensure that the settlement represents a genuine

Ùargained-for exchange, and provide benefit to the members of the Class," See In

re Celera Corporation Shareholder Litigation,5g A.3d 418,434 (Del. 2012).

t4730423 20

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Securities and Exchange Commission

July 17,2013

Page I I

Before the Stipulation can be approved the Court "must make an independent

determination, through the exercise of its own business judgment, that the

fStipulation] is intrinsically fair and reasonable." See Goodrich v. E.F. Hutton

Group, Inc,, et, al,68l A.2d 1039, 1045 (Del. 1996). The Court will make its

determination as to both the procedural and substantive fairness of the Settlement.

See Prezant v. DeAngelis,636 A.2d915,921 (Del. 1994); see also Polk v. Good,

507 A.2d 531,536 (Del. 1986)(stating that, in examining a settlement, a coutl

must "look to the facts and circumstances upon which the claim is based, the

possible defenses thereto, and then exercise a form of business judgment to

determine the overall reasonableness of the settlement"). The Court's scrutiny of

the Stipulation will be more than cursory. Rome v, Archer,197 A.2d 49, 54 (Del

1964). Instead, given the fiduciary character of a class action and pursuant to

Rule 23(e), the Court must conduct a substantive review of the Stipulation to

determine if the Stipulation is intrinsically fair. Id. at 53; see also De Angelis v.

Salton/Maxim Housewares, Inc.,64I A.2d 834, 838 (Del. Ch. 1993) (stating that

the terms of a proposed settlement must be carefully examined by a court); In re

Amsted Indus, \nc.,521 A.2d 1104, 1107 (Del. Ch. 1986) (stating that a court's

review of a settlement involves substantive questions of whether the court has

sufÍicient knowledge of the strengths and weaknesses of the claims and defenses

to sensibly value the claims and whether the proposed settlement represents a fair

judgment of the value of the claims). The Court's final approval order will state

that the Court has approved the terms and conditions of the Stipulation and the

settlement of the CAC as procedurally and substantively fair. In approving the

settlement of the CAC, the Court will have the opportunity to review the

preliminary form of disclosure document that will be distributed in connection

with the Notes Offering, and that disclosure document will describe to Class

members the economic, tax, and other consequences of ownership of Notes. Our

analysis of the fairness hearing to be conducted by the Court is consistent with the

analysis of Rule 23(e) \n Alliance Capital Management Holding, L.P., et al.

(August 1,2002).

The reviewing court or authorized governmental entity must be advised before the

hearing that the issuer will rely on the Section 3(aX10) exemption based on the court's or

authorized governmental entity's approval of the transaction.

Application to the Notes Offering: Section 2 of the Stipulation contains

provisions relating to the application of the Section 3(aX10) exemption and

specifying that Court approval of the Notes Offering will form the basis of the

Corporation's reliance on the Section 3(aX10) exemption, Thus, IMH represents

to the Staff that it has advised the Court that it is relying on Section 3(aX10),

l4't30423 20

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Securities and Exchange Commission

July 17,2013

Page 12

The court or authorized governmental entity must hold a hearing before approving

the fairness of the terms and conditions of the transaction. The faimess hearing must be open to

everyone to whom securities would be issued in the proposed exchange. Adequate notice must

be glven to all those persons. There cannot be any improper impediments to the appearance by

those persons at the hearing.

Application to the Notes Offering: The Notes Offering will be available only to

Class members, and all Class members received adequate notice of the hearing

and have the opportunity to object in writing and to appear in person or through

counsel at the hearing. IMH represents to the Staff that there are no improper

impediments to Class members who wish to appear at the hearing. Notice of the

hearing, in the form approved by the Court, was given by mail by a Court

appointed independent Claims Administrator on April 17,2073 to Class members

who were preliminarily certified as such by the Court, based on the Corporation's

books and records and confirmed by the discovery conducted by CAC Class

Counsel. The notihcation procedures were approved by the Court in connection

with its approval of the form of Notice. The fairness hearing was initially

scheduled for June 20,2013 and has been extended by the Court to July 18, 2013'

Thus, the Notice was given more than 60 days prior to the initial hearing date so

that there were at least 45 days for shareholders to think about their position

before being required to give the 14-day appearance notice. The Staffhas granted

no-action requests where notice has been much less than 60 days, See Alliance

capital Management Holding, L.P., et al., supra (45 days notices). IMH

represents to the Staff that the Notice adequately advised Class members of

information necessary to allow them to exercise their rights to appear at the

fairness hearing. The Notice described the CAC and the Stipulation of settlement'

The Notice also contained specific instructions as to how any Class member could

object to or support the proposed settlement by frling a written statement or by

appearing in person or by attorney at the fairness hearing'

The Staff Bulletin also provides that the reviewing court making the fairness

determination must have suffrcient information before it to determine the value of both the

securities, claims, or interests to be surrendered and the securities to be issued in the proposed

transactions.l IMH represents to the Staff that sufhcient information for this purpose will be

available, At the faiiness hearing, Co-Lead Class Counsel will show the faimess of the

settlement, including the Notes Offering, noting the prior arms-length transaction with Mr.

Albers that set the piice for this transaction. In addition, Co-Lead Class Counsel will submit a

motion for approvãl of the settlement, with supporting affidavits, demonstrating that the

settlement is fair and reasonable and in the best interests of the Class. Thus, the Delaware Court

See Section a(B)(2) and footnote 16 of the Staff Bulletin'

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Securities and Exchange Commission

July 17,2013

Page 13

of Chancery will have suff,rcient information as to the value of the common stock to be

exchanged and the value of the Notes to be received.

The hearing will be open to the public, and any objectors to the settlement, including

Class members and Interested Non-Parties, have the right to attend and be heard consistent with

the orders of the Court. Class members must give at least 14 days advance written notice of their

objections and the grounds therefore, and, if they intend to appear at the hearing, their intention

to do so and the reasons why the members desire to appear and be heard, along with any

documents or writings such persons desire the Court to consider. Three Class members have

given such notice. However, in responding to other similar no action requests, the Staff has not

generally objected to such advance notice requirements. See, for example ICICI Bank Ltd. (Dec'

lZ,ZOO|); Digi"on Inc. (Aug. 19,1996); Canadian Pacific Ltd. (June 26,1996). In this case, the

Notice of the fairness hearing was mailed on April 77 , 2013, or more than 60 days prior to the

hearing. Thus, each Class member had at least 45 days to think about their position before being

required to give the 14 day appearance notice'

The Staff of the Commission has issued numerous no-action letters relating to the

issuance of securities in class action litigation settlements in reliance upon Section 3(a)(10) of

the Securities Act. See, e.g., Hanover Compressor Company (January 27, 2004); Alliance

Capital Management Holding, L.P., et al., supra; I.I.S. Intelligent Information Systems Limited

Partnership (October 8, 1998); Related Capital

GvfãV 9,2000); Equis Financial Group Limited

òo-pu.ry (September 30, 1996); Applied Magnetics Corporation (May 30, 1995); PrudentialBache EnergyProduction Inc. Q.{ovember 17, 1992); and Swanton Corporation (November 26,

e84).

IV. Discussion of Rule 13e-4

pursuant to Rule l3e-4 of the Exchange Act, an issuer with equity securities registered

under Section 12 or that is required to file periodic reports with the Commission pursuant to

Section 15(d) is required, in connection with any tender offer for its own equity securities, to

make certain discloiures and comply with other procedures with respect to such offers. The

provisions of Rule l3e-4 are intended to prevent fraudulent, deceptive, or manipulative acts in

connection with issuer tender offers, principally the time pressure and inadequate disclosures

'We

note that the Corporation is an "issuer" within the meaning

present in coercïve tender offers.

àf Rrt" l3e-a(a)(l) of the Exchange Act because it is a reporting company under Section 12, and

that the Corporation's existing common stock is an "equity security" within the meaning of Rule

3al1-1. Thus, since the Notes Offering is an invitation to Class members to tender common

stock for Exchange Notes, it might be considered to be an issuer tender offer.

the Notes Offering is not an "issuer tender offer" subject

It is our opinion, however, that'We

reached this conclusion based on our analysis of the

to Rule l3e-4 of the Exchange Act.

l4'130423 20

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L.L.P

Securities and Exchange Commission

July 17,2073

Page 74

factors expressed in \4/ellman v. Dickenson, 475 F. Supp' 783 (S.D.N .Y , 1979), af?d, 682 F,2d

355 (2d Cft. 1982), cert. Denie d, 460 U.S. 1069 (1983), and applied in subsequent cases by the

Commission and its Staff in determining what constitutes a tender offer, as well as the fact that

the terms of the Notes Offering will be fully disclosed to members of the Class 60 days prior to

the hearing pursuant to the Stipulation, as well as through periodic disclosures made by the

Corporation with the SEC. Thus, shareholders do not require additional information regarding

the Ñotes Offering at the time the Notes Offering commences. Because the Notes Offering is not

a tender offer, the structural protections generally afforded to shareholders in a tender offer under

the tender offer rules are unnecessary for the protection of the members of the Class'

Nevertheless, the Notes Offering provides that all members of the Class are eligible to

participate, on equal terms, and will have the right to revoke their decision prior to closing of the

Notes Offering.

An analysis of the factors set forth in the Wellman case demonstrates that the Notes

Offering should not be viewed as a tender offer.2 The V/ellman case provides an analysis of the

following factors to determine whether an offering is a tender offer:

Active and widespread solicitation of public security holders;

Solicitation for a substantial percentage of the outstanding securities;

Offer to purchase made at a premium over the prevailing market price;

Terms of the offer are firm rather than negotiable;

Offer is contingent on the tender of a fixed minimum number of shares, often

subject to a fixed maximum number of shares to be purchased;

Offer is only open for a limited period of time; and

Offerees are subject to pressure to sell their stock'

The Notes Offering is available to members of a limited and defined Class' Each

member of the Class will receive a disclosure document pursuant to the terms of the Stipulation

and otherwise will benefit from the procedural protections provided in the Stipulation. The

disclosures to be made will include substantive disclosures that will fully inform the investment

The absence ofone particular factor does not necessarily mean the non-existence ofan issuer tender

offer and depending úpon the circumstances involved in the particular case, one or more of the factors

and determinative than the others. See Wellman v' Dickinson, 47 5 F

may be found *o."

"o.p"lling

Supp. 783, 824 (S.D.N.Y.1979)'

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Securities and Exchange Commission

July 17,2013

Page 15

decisions to be made by the shareholders. The Corporation has and will continue to comply with

SEC regulations goveming public disclosure of material information in its periodic filings.'

Existing shareholders are acquainted with these disclosures already and compliance with Rule

L3e-4witt not provide any additional information to them about IMH. However, the Corporation

does not intend to engage in any other significant public communications about the Notes

Offering or the terms of the Stipulation or to actively solicit or encourage members of the Class

to partiðipate in the Notes Offering. The Notes Offering is for the purpose of settling the CAC

and is not being made in order to raise capital.

The maximum aggregate amount of shares that may be exchanged as part of the Notes

Offering is 2,493,765 shares of IMH Common Stock, which constitutes approximately only

14.8% of the Corporation's outstanding shares.

The Corporation's Common Stock is not currently listed or traded on any exchange and

trading of the ,liur.r is currently restricted. The exchange rate is set at $ 8 .02 in order to provide

Class members with an exchange rate equal to the price paid to Mr. Albers for his stock in

connection with his separation from IMH in June 20lL It was not set in relation to prevailing

market prices reported in an organized trading market, as such market does not exist for IMH

common stock.

The terms of the Notes Offering are the result of extensive negotiations with Plaintiffs'

counsel and remain subject to modification by the Court after the fairness hearing at which Class

members have the opportunity to be heard and present evidence.

The Notes Offering is not contingent on the exchange of a fixed minimum number of

shares. Class members may choose to exchange all or a portion of their shares on a pro rata

basis, subject to the maximum shares that may be exchanged'

It is contemplated that the Notes Offering will remain open for 30 days or more, and, in

any event at least 20 business days. Thus, even if the Notes Offering were considered as a tender

ofier, its terms are within the framework of Rule 13e-4(fl(2) and Rule 14e-l(a). Thus, no

additional protection is needed in this regard'

Based upon the foregoing, although the Notes Offering may possess certain of the

characteristics of a tender offer, it does not possess the majority of the elements established in

the Wellman case. In addition, it is well established that a judicially approved agreement, even if

it contemplates "what might technically be construed as a tender offer," is not subject to the

Williams Act. Brucker v. Thyssen-Bornemisza Europe N,V., 424 F. Supp. 679, 691 (S.D.N.Y.

None of the effects described in Rule l3e-3(a)(3)(ii) will result as a consequence of the Notes Offering,

even if fully subscribed, No relief from Rule l3e-3 is being requested hereby.

14730423,20

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Securities and Exchange Commission

July 17,2013

Page 16

lg76), aff'd sub nom., Brucker v. Indian Head, lnc,,559F.2d1202 (2d Cir'), cert, denied,434

u.s. 897 (t977).

In Brucker, the court rejected a claim that a notice of settlement would violate Sections

13(d), 13(e), 14(d), and 14(e) of the Exchange Act, and the rules promulgated under those

,..ìiãnr, sìating that "we think that these sections were not meant to apply to judicially approved

settlement agreements .,.." Brucker, 424 F. Supp. at 691. In coming to this conclusion, the court

took into acõount both legislative history and the underlying policies involved. In particular, the

court noted that "the overriding purpose of Congress in enacting this legislation was /o protect

the individual investor..." Id. (quoting Bath Industries Inc, u. ãlot,42lF,2d97,10g 17'h Cir.

1970)) (emphasis in original). In dismissing the plaintiffs' objections, the court held:

protected by the procedures

[T]he individual investors have been more than adequately

the individual investor has

where

judicially-approved

settlement,

followed in the instant

had full notification of the terms of the offer, the people or groups involved, the purpose

of the offer and the plans of the offeror. Thus we conclude that the filing requirement of

the Williams Act does not preclude this settlement'

Brucker, 424 F. Supp. at 692. The Brucker court's decision was followed in Gilbert v' Bagley,

492 F.Supp. 714 (M.D.N.C. 1980).

The Staff of the SEC has taken a position similar to that of the Brucker and Gilberl courts

in several no-action letters. See, e.g., Drummond Financial Corporation (October 24,2002);

Alliance Capital Management Holding, L.P., et al., supra; Equis Financial Group Limited

partnership, iupru; Related Capital Company, supra; Prudential-Bache Energy Production Inc.,

supra; and Swanton Corporation, supra,

The purpose of the filing requirements of the Exchange Act is to prevent fraudulent or

deceptive conduct through public diiclosure. Such conduct is prevented in this matter through

the safeguards inherent in the context of negotiating the terms of a settlement subject to court

approval and a fairness hearing.

V. Discussion of Rule 102 of Regulation M

Rule 102(a) of Regulation M provides that: "In connection with a distribution of

for

securities effected úy o. on behalf of anlssuer or selling security holder, it shall be unlawful

for,

bid

indirectly,

person,

directly

such person, o, uny affiliated purchaser of such

purchàse, or attempi to induce utty p.tron to bid for or purchase, a covered security during the

äpplicable restricted period...." Pursuant to Rule 100 of Regulation M, a "covered security"

("subject security"), or any reference

-Ëurrr any security tirat is the subject of a distribution

t4'730423 20

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L.L.P

Securities and Exchange Commission

Iúy 17,2013

Page 17

security, and a "reference security" includes any security into which a subject security can be

converted.

Pursuant to the Stipulation, the Corporation is required to effect the Notes Offering and

the Rights Offering within 30 days after final approval of the settlement. The Rights Offering

will be made only to accredited shareholders pursuant to Rule 506 of Regulation D, but may

arguably constitute a distribution of the Convertible Notes being offered. Since the Convertible

Nõtes aie convertible into Series A Preferred Stock and then into Common Stock, the preferred

and common stock would likely be considered reference securities, and thus covered securities,

in that distribution. Therefore, under Regulation M, the Corporation may not bid for or purchase

Common Stock during the restricted period for the Rights Offering. The Notes Offering will

constitute an offer to purchase Common Stock of the Corporation.

The term "restricted period" is defined in Rule 100 of Regulation M, and for the Rights

Offering will generally commence by reference to the date of the determination of the offering

price foi the Rights Offering. As described above, the Rights Offering is being made in order to

ãllo* shareholders who are Class members to purchase Convertible Notes on the same economic

terms as the NW Capital loan obtained by IMH in June of 201 1. Because the offering price of

the Rights Offering has already been determined, a technical application of Rule 102 would

appear to prevent the Notes Offering from occuning prior to the conclusion of the Rights

Off.ri.rg, nò matter how far in advance of the commencement of the Notes Offering the Rights

Offering is commenced.

Rule 102(e) of Regulation M authorizes the SEC to exempt a transaction from the

provisions of Rule 102. The Corporation respectfully requests that the Division, putsuant to the

àuthority provided in Rule 102(e) of Regulation M, grant the Corporation an exemption from the

prohibitions of Rule 102(a) of Regulation M to permit it to effect the repurchase of IMH

Common Stock under the Notes Offering prior to or at the same time as the Rights Offering,

pursuant to the Stipulation.

Regulation M is intended to preclude manipulative conduct by persons with an interest in

the outcome of an offering. See Release No. 34-38067 (December 20,1996). For the following

reasons, the Corporation believes that the Notes Offering does not give rise to a risk of market

manipulation u.rd that the application of the Rule 102(a) of Regulation M in this context would

not further its policies and purposes:

First, IMH represents to the Division that the Notes Offering is not intended to affect the

Rights Offering in any way and that, except as exempted pursuant to this request letter, IMH will

comply with Regulation M in full.

t4130423 20

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L.L.P

Securities and Exchange Commission

July 17,2013

Page 18

Second, there is no trading market for any of the IMH common stock, the Convertible

Notes, or the Exchange Notes and the Corporation has no plans to list its shares of IMH common

stock on any nationai securities exchange in the near term. Shares of the IMH Class B and C

Common Stock are subject to transfer restrictions for an indefinite period and in fact are held in

book entry form by a custodian during the transfer restriction period. The Notes Offering is

designed io provide Class members with an opportunity for some liquidity with respect to their

inveitment in IMH. The Notes Offering is only available to a limited and defined Class, the

members of which may elect to participate on a voluntary basis after full disclosure and a

fairness determination by the Court. The Rights Offering is limited to accredited investors. All

current IMH investors were accredited investors at the time of investment, however, so the

Rights Offering is not intended to favor any special sub-group of IMH shareholders'

Third, the Rights Offering and the Notes Offering are not connected. They are being

offered contemporanèously because CAC plaintiff s counsel felt that would be the most straight

forward upp.ouõh and be less confusing to Class members. The Court will, in effect, endorse this

conclusion in its expected flrnding that the Notes Offering is fair, both procedurally and

substantively. Both offerings will close contemporaneously, so there is no ability for an investor

to manipulaie his position by purchasing in the Rights Offering, converting the Convertible Note,

and then using thè common stock so acquired to participate in the Notes Offering. Also, the

Convertible Notes are subject to an Intercreditor Agreement with NW Capital, which document

entitles NW Capital to control the decision to convert.

Fourth, neither the exchange rate for the Notes Offering nor the terms of the Rights

Offering were or can be determined by reference to prices reported by an organized trading

market. The exchange rate and the Terms of the Rights Offering were instead determined with

reference to two prior transactions. The $8.02 exchange rate in the Notes Offering is identical to

the price paid to Mr. Albers for his stock by an affiliate of NW Capital in connection with his

sepáration from IMH in June of 201 1, as described above. Similarly, the financial terms of the

Rþhts Offering are based on the terms of the NW Capital loan, as described above'

Fifth, both the Notes Offering and the Rights Offering are subject to the approval of the

Court. In addition, the terms of the Notes Offering, including the pricing of the exchange rate

and the relationship of that pricing to the Rights Offering pricing, will be fully disclosed to the

Class members eligible to participate in the Rights Offering.

For these reasons, we believe that the Notes Offering, as described in the Stipulation,

would not have the manipulative effects that Rule 102 of Regulation M was designed to prevent'

VI. Conclusion

t4130423 20

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Securities and Exchange Commission

July 17,2013

Page 19

Based upon the foregoing analysis, in our opinion, if the Notes Offering is conducted as

provided in the Stipulation and as described above, the Notes Offering will be exempt from the

registration requirernents of Section 5 of the Securities Act pursuant to Section 3(aX10) thereof.

W-e respectfully request that the Staff confirm that this opinion is correct or, alternatively, that it

will not recommend any enforcement action by the SEC if the Notes Offering is made without

compliance with the registration provisions of the Securities Act. V/e also respectfully request

that the Staff concur with our conclusion that the Notes Offering is not a tender offer and

therefore will not recommend any enforcement action by the SEC if the Notes Offering is made

without compliance with Rule l3e-4 of the Exchange Act. In addition, we respectfully request

that the Division grant the Corporation an exemption from the application of Rule 102(a) of

Regulation M pursuant to the authority provided in Rule 102(e) of Regulation M to allow the

Notes Offering to occur prior to or at the same time as the Rights Offering or alternatively,

confirm that itwill not recommend enforcement action to the SEC if the Notes Offering occurs

prior to or at the same time as the Rights Offering. If for any reason you do not concur with any

of tn. opinions expressed in this letter, we respectfully request an opportunity to confer with

your prior to any written response.

We would appreciate your earliest possible attention to this matter in order to permit the

fairness hearing to be held on July 18,2013. If you have any questions about this request or

desire any additional information regarding the matters discussed in this letter, please call the

undersigned af (602) 382-6247 .

please acknowledge receipt of the foregoing by stamping and returning the enclosed

receipt copy of this letter in the self-addressed, stamped envelope enclosed for that purpose'

Very truly yours,

/s/ Jon S. Cohen

Jon S. Cohen

t4-730423 20

HFiled: Mær 1g 2ú13 03:33

Transaction lD 5tr 214725

Caso No.5516-C$

IN THE COURT OF CHANCERY OF THE STATE OF DEI,AWARE

In re IMI{ SBCURED LOAN FUND

UNITHOLDERS LITIGATION

)

Consol. C.A. No. 55r6-CS

STIPULATION AND AGREEMENÎ 8F

COMPROMISB, SET-TLEMENT AND RBLEASE

This Stipulation and Agreement of Compromise, Settlement and Release

(together with the attached Exhibits, which are incorporated by reference, the

"stipulation") is made and entered into as of this rgth day of March zor3, by and among

the following: (i) Defendants Investors Mortgage Holdings Inc. ("Manager"), IMH

Holdings, LLC ("Holdings"), IMH Secured Loan Fund LLC (the "Fund"), IMH Financial

Corporation ("IMH" or the "Company"), Shane Albers ("Albers"), William Meris

("Meris") and Steven Darak ("Darak") (collectiveþ "Defendants"); (ii) Plaintiffs IRA

FBO Dennis Miceli, Charìotte Wood, and Howard Weitz IRA (collectively "Class

Plaintiffs"), on their own behalf and on behalf of a Class as defined below; and (iii)

interested non-parties New World Realty Advisors, LLC ("NWRA"), NWRA Ventures I,

LLC ("NW Capital"), and their affiliates, mernbers, and employees (collectively

"Interested Non-Parties," and together with the Defendants and the Class Plaintiffs, the

"Settling Parties").

WHERFÁ.S, on December 3l, 2oo9, the Fund filed with the SEC a Form S-

4 prospectus/proxy consent solicitation for the certain transactions whereby the Fund

would be converted into IMH and whereby IMH would acquire Manager and Holdings

(the "Conversion Transactions");

WHEREAS, after multiple amendments to the Form S-4 (as amended, the

"Form S-4"), the prospectus/proxy consent solicitation became effective on May r4,

2OLOi

WHEREAS, by apploximately June 9, 2o\o, the Fund had obtained

suffìcient consents from Unitholders in the Fund to approve the Conversion

Transactions;

WHEREAS, on May 25, 2oro, a proposed class action was filed in the

Delaware Court of Chancery (the "Court") against the Defendants by Plaintiff IRA FBO

Dennis Miceli, styled IRA FBO Dennís Miceli, On Behalf Of ltself And Others Símílarly

Sítttated u. Inuestors Mortgoge Holdings, Inc. et al., C.A,. No. bSr6-VCS (the "Miceli

Action"), alleging, among other things, that the Defendants had breached fiduciary

duties owed to Fund members and to the Fund because the Conversion Transactions

were unfair to Fund members and constitutecl self-dealing and because the Form S-4

and/or information provided about the Form S-4 or Conversion Transactions were false

and misleading;

WHERBAS, on June 14, 2oto, a proposed class action was filed in the

Court against the Defenclants by Plaintiff Charlotte Wood, styled Charlotte Wood, On

Behalf Of The Wood Family Trust, And All Others Similarly Situated u. IMH Secured

Loan htnd, LLC, et a/., C,A. No. SS64-VCS (the "Wood Action"), alleging, among other

things, that the Defendants had breached fiduciary duties owed to Fund members and to

the Fund because the Conversion Transactions were unfair to Fund members and

constituted self-dealing and because the Form S-4 and/or information provided about

the Form S-4 or Conversion Transactions were false and misleading;

WHEREAS, on June L4, zo;.o, a complaint was filed in the Court against

certain of the Defendants by Plaintiffs Ronald Tucek ("Tbcek"), Cliff Ratliff ("Ratliff')

and LGM Capital Partners, LLC ("LGM"), styled Ronald Tucek et al. u. IMH Secured

Loan Fund, LLC et al., C.A.. No. SS6I-VCS (the "Tucek Action") alleging, among other

things, that the Defendants had breached certain fiduciary duties rendering the proxy

solicitation process unfair and seeking damages for proxy expenses incurred by LGM;

WHEREAS, on June L7, zoto, a proposed class action was filed in the

Court against the Defendants by Plaintiff Howard Weitz, IRA styled Howard Weítz,

IRA, On Behalf Of Itself And AII Those Símilarlg Situated u. IMH Secured Loan Fund,

LLC et c/., C.A. No. SSZ3-VCS (the "Weitz Action"), alleging, among other things, that

the Conversion Transactions constituted a "roll up" tlansaction under the Fund's

operating agreement and seeking clamages for breach of the operating agreement;

WHEREAS, the Conversion Transactions became effective on June t8,

2o1o, and each Unit in the Fund was converted into z2o.g4Lg shares in IMH;

WHEREAS, on October 25, 2o1o, the Court entered an order, among

things: (i) consolidating the Miceli, Wood, Weitz and Tucek Actions and designating the

caption as fn Re IMH Secured Loan Flmd Unitholders Lìtìgation, Civil Action No. 5516CS (the "Consolidated Delaware Action"); (ii) appointing Klafter Olsen & Lesser LLP

and Zwerling, Schachter & Zwerling, LLP as co-lead counsel for Class Plaintiffs ("CoLead Counsel") and authorizing Co-Lead Counsel to coordinate the prosecution of all

aspects of the Consolidated Delaware Action, including the negotiation of a settlement,

subject to approval of the Delaware Court of Chancery; and (iii) ordering that a

consolidated class action complaint be filed;

WHEREAS, a Verified Amended And Supplemental Consolidated Class

Action Complaint was filed on July 15, 2011 ("Consolidated Complaint"), alleging,

among other things, that: (i) the Defendants had breached fiduciary duties owed to

Fund members and to the Fund because the Conversion Transactions were unfair to

Fund members; (ii) the information provided about the Conversion Transactions and

related disclosures were false and misleading; (iii) the Fund members did not receive

the number of IMH shares specified in the Conversion Plan; (iv) the Conversion

Transactions constituted a "roll up" transaction under the Fund's operating agreement,

and thus constituted a breach of that agreement because the Unitholders did not receive

certain rights that would be triggered in the event of a "roll-up" transaction; and (v)

Defendants were unjustly enriched (collectively, the "Class Claims");

WHEREAS, the Consolidated Complaint also alleged, in a separate cause

of action, a claim for proxy expenses specific solely to the Plaintiffs in the Tucek Action

(the "Proxy Claim");

WHBRBAS, Defendants moved to dismiss certain claims asserted in the

Consolidated Complaint;

WHEREAS, on October 10, 2011, Tucek and Ratliff dismissed their Proxy

Claim leaving only LGM alleging a Proxy Claim;

WHEREAS, Defendants' motion to dismiss remained pending in

November zott when the Settling Parties commenced negotiations to settle the Class

Claims;

WHBREAS, the Proxy Claim has been settled pursuant to a separate

Settlement Agreement and has been dismissed with prejudice;

WHEREAS, Defendants Albers, Meris and Darak are parties to

indemnification agreements with IMH;

WHEREAS, the payment of cash consideration as part of this Stipulation

will exhaust Defendants' applicable insurance coverage;

WHERBAS, if the Consolidated Delaware Action were not resolved,

Defendants' insurance coverage would likely be exhausted during the discovery phase of

this litigation;

WHEREAS, once the insurance coverage is exhausted, the continued

defense or eventual resolution of the Consolidated Delaware Action or any other

litigation may have a detrimental effect on IMH and Class members;

WHEREAS, it is in the best interest of the Class members to resolve the

Class Claims on the terms set forth herein in order to preserve IMH's capital and permit

it to continue with its business plan;

WHEREAS, on January 31, 2otz, the Settling Parties executed a

Memoranclum of Understanding ("MOU") containing the terms of the Settling Parties'

agreement in principle to resolve the Class Claims, subject to certain class certification

conditions, confìrmatory discovery and final court approval;

WHEREAS, the MOU was filed with the Court and attached to IMH's

Form 8-K that was filed with the Securities and Exchange Commission (the "SEC") on

February 6, zotz;

WHBREAS, Class Plaintiffs have conducted Confirmatory Discovery,

during which Defendants have produced to Class Plaintiffs more than L7,ooo pages of

documents and Class Plaintiffs have taken the testimony of four wihesses on various

topics, including but not limited to: (i) the Manager's decision to enter into the

Conversion Transactions; (ii) the valuation of the Manager and Holdings in connection

with the Conversion Transactions; (iii) the valuation of the Fund; and (iv) the

Company's decision to enter into certain loan and consulting agreements with NW

Capital and NWRA, respectively;

WHEREAS, Co-Lead Counsel acknowledge that they have reviewed the

Confirmatory Discovery and determined that the information contained therein

confirms that the proposed settlement of the Class Claims is fair and reasonable to, and

in the best interests of, the members of the Class;

NOW THEREFORE, IT IS HEREBY STIPUI,ATED, CONSENTED TO

AND AGREED, by the Settling Parties, subject to the approval of the Court and pursuant

to Delaware Court of Chancery Rule z3 ancl the other conditions set forth herein, for

good and valuable consideration, the sufñciency of which is hereby acknowledged, that

the Consolidated Delaware Action shall be finally and fully settled, compromised,

released and dismissed, on the merits and with prejudice, on the terms set forth below

(the "Settlement").

CONSIDERATION

Notes Offering

Within go days after Final Approval (as later defined), subject to

compliance with securities and other applicable laws and regulations, including any

updates to IMH's fïnancial statements required by the SEC or applicable accounting

principles, and receipt of a favorable "no action" letter from the SEC as described below,

IMH shall commence with a $zo million notes offering, pursuant to offering documents

substantially in the form attached as Exhibit A (the "Notes Offering"), by which the

Class members shall have the option to exchange an aggregate of 2,49g,765 IMH shares

for notes (the "shareholder Notes"), at an exchange rate of one share for $8,o2 in

Shareholder Notes on the following terms:

a, Each Shareholder Note shall have a S year maturity, with a {% per annum

non-cumulative coupon, payable quarterly, subject to the terms of the

Agreement (substantially in the form attached as Exhibit B) between NW

Capital and the indenture trustee for the Shareholder Notes identified in

subparagraph (Ð below.

b. The Shareholdel Notes shall be subordinated in payment and priority to

IMH's debt resulting from a loan from NW Capital dated June 7, zorr and

all amendments thereto ("NW Capital Loan"¡' and the Convertible Notes

issued pursuant to the Rights Offering (as described in 1Jg below) and shall

continue to be subordinated in payment and priority to any shares of IMH

preferred stock into which the NW Capital Loan and Convertible Notes

are c.onverted (collectively, together with any additional senior debt

obligation now existing or subsequently incurred by IMH, the "Senior

Obligations"), in whole or in part, as set forth in and pursuant to the

Agreement.

c. Subject to the terms of the Agreement (substantially in the form attached

as Exhibit B,) redemption of the Shareholder Notes shall be as follows:

i. (a) So% of the principal amount of each Shareholder Note shall be

payable four years after issue, so long as the Company has cash or

cash equivalents in the amount of at least $ro million plus two

The NW Capital Loan agreement can be found at

http ://sec.gov/Archiv es I edgar I dalaI qg7 4og I ooott44zo 4LLo247t6 I vzt9693_ex1oz.htm.

times the trailing net operating expenses for the prior rz month

period and has an operating profit defined as net earnings plus

depreciation for the prior rz month period; prouíded, howeuer,lhat

the Company shall not be in default on a Senior Obligation or by

virtue of making the payment shall not become in default on such a

Senior Obligation; and (b) five years after issue, the remaining

principal and any interest due on each Shareholder Note shall be

paid; prouided, howeuer, that the Company shall not be in default

on a Senior Obligation or by virtue of making the payment shall not

become in default on such a Senior Obligation.

ii. (a) All of the outstanding Shareholder Notes shall be redeemed

upon the consummation of a public offering by IMH in an amount

not less than $rbo million; or (b) at any time in the discretion of

IMH with any remaining principal and accrued interest or interest

then due.

d. IMH shall not enter into any Senior Obligation that expressly provides

that the redemption of the Shareholder Notes shall constitute an event of

default on such Senior Obligation, but such Senior Obligation shall not be

prohibited from having customary affìrmative and restrictive covenants

relating to, among other matters, tangible net worth, debt service coverâge

and liquidity.

e. IMH shall only be authorized to issue additionaì debt senior to the

Shareholder Notes so long as the amount of total shareholders' equity after

such issuance is greater than twice the amount of the then outstanding

aggregate principal amount of the Shareholder Notes.

f. The Shareholder Notes shall be held in book entry form by the Company's

transfer agent or by the Shareholder Notes Trustee (defined below), or

another agent appointed by the Company and shall be administered by

Wells Fargo Bank, N.4., or its successor, as " Shareholder Notes Trustee."

The Trustee's, transfer agent's or other agent's reasonable and customary

expenses shall be borne by the Company.

g. The Shareholder Notes may be transferred among Class members, subject

to the consent of IMH, which shall not be unreasonably withheld, and

securities and other applicable laws (it being expressly agreed to and

acknowledged that IMH may require a purported transferee to provide

IMH with a legal opinion with respect to the proposed transfer il in its

reasonable opinion, IMH believes that such transfer may not be exempt

from registration under federal and applicable state securities laws and

regulations).

h. The Company, alone or through its agents, shall be responsible for

providing appropriate communications to CÌass members who elect to

subscribe to the Notes Offering regarding the exchange of IMH shares into

Shareholder Notes and to effect such exchange.

i. All reasonable care will be taken by all parties in the implementation of the

Notes Offering to presere IMH's built-in tax losses.

j. The Notes Offering shall be made to all members of the Class on the

following terms:

i. The Company shall offer an aggregate of $ro million in Shareholder

Notes to those Class members who cast a vote "against" the

Conversion Transaction and whose votes IMH received by June

29, 2oLo (the "No Vote Pool").

ii. The Company shall offer $ro million in Shareholder Notes to all

other Class members (the "Open Pool").

iii, Class members will have the right to exchange their shares in their

respective Shareholder Notes pool on a pro rata basis.

iv. If the Open Pool is not exhausted and the No Vote Pool is

oversubscribed, then the oversubscribed exchange requests of "no

voters" shall be satisfied by the excess in the Open Pool on a pro

rafc basis.

v. If the No Vote Pool is not exhausted and the Open Pool is

oversubsclibed, then the oversubscribed exchange requests of the

Open Pool shall be satisfied by the excess in the No Vote Pool on a

pro rata basis.

vi. To the extent that any amount of the two Shareholder Notes Pools

(i.ø., $zo million) remains after all exchange requests pursuant to

subparagraphs (jXi)-(iv) above have been satisfied, such excess

Shareholder Notes shall not be issued.

vii. The allocation of the Shareholder Notes in the two pools shall be

administered by the Trustee or another exchange agent selected by

the Company.

k. The Shareholder Notes shall be deemed in default upon the occurrence of

the following:

i. the non-payment of quarterly interest when due, after customary

notice and the failure to cure the non-payment within one quarter

of the non-payment;

ii. the non-payment of the amortization payment in year 4 (provided

in ft(cXiXa) above) if due and applicable, except if making such

payment will cause an event of default on a Senior Obligation of

IMH;

iii. the non-payment of principal and interest on maturity (provided

inlr(cXiXb), above) except if making such payment will cause an

event of default on a Senior Obligation of IMH;

iv. the insolvency or bankruptcy of IMH; or

v. such other default provisions that are included in the Shareholder

Notes.

vi. An event of default on the Shareholder Notes shall trigger an

obligation by IMH to repay the Shareholder Notes in full plus any

accrued interest, subject to the subordination provisions of the

Shareholder Notes; prouided, hou)euer, that the Company shall not

be in default on a Senior Obligation or by virtue of making the

payment shall not become in default on such a Senior Obligation. It

shall also trigger those rights and protections (upon an event of

default) set forth in the Indenture for the Shareholder Notes and

form of Shareholder Notes, attached hereto as Exhibits C and D.

In offering the Shareholder Notes, IMH intends to rely on Section g(axto)

of the Securities Act of 1933, as amended (the "securities Act"), to exempt the

Shareholcler Notes from the registration requirements of the Securities Act.

SBC interpretation of Section 3(a)(ro) requires that the reviewing

Court must approve the fairness of the terms and conditions of the

Shareholder Notes and the Notes Offering. Among other things, the

reviewing court must (i) find, before approving the transaction, that

the terms and conditions of the Sharehoìder Notes and Notes

Offering are fair to those to whom securities will be issued ancl (ii)

be advised before the hearing that the issuer will rely on the Section

S(axro) exemption based on the Court's approval of the

transaction. The Court must hold a hearing before approving the

substantive and procedural fairness of the transaction that is open

to everyone to whom securities would be issued in the proposed

exchange. Adequate notice must be given to all those persons and

there cannot be any imploper impediments to the appearance by

those persons at the hearing. The Court must have sufficient

information before it to determine the value of both the securities,

claims, and interests to be surrendered and tlle securities to be

issued in the proposed transaction.

IMH intends to request a "no action" Ietter from the SEC with

respect to its reliance on Section S(axto) and the Notes Offering is

conditioned on receipt of a favorable response from the SEC with

respect to such letter prior to the fairness hearing, as well as on the

satisfaction of the above conditions and other conditions of Section

S(axto) to the reasonable satisfaction of IMH,

Riehts Offerine

Within 3o days after Final Approval, subject to compliance with securities

and other applicable laws and regulations, including any updates to IMH financial

statements required by the SBC or applicable accounting principles, IMH shall

commence a convertible notes (the "Convertible Notes") rights offering in the aggregate

amount of $ro million (pursuant to the Rights Offering Circular, Indenture and Note

substantially in the forms attached as Exhibit E; the "Rights Offering") as initiaþ

announced on or about June 7, 2o1r., to accredited investors under Regulation D

promulgated by the SEC, provided, however, that the Rights Offering will only be

available to satisfu purchase requests by Class members (unless undersubscribed by

them) who certifo their accredited investor status and the Convertible Notes will be on

economic terms identical to those provided to NW Capital as a part of the NW Capital

Loan (e.g., same coupon rate and terms, same maturity, same collateral pool), and

subject to an inter-creditor agreement substantially in the form attached as Exhibit F,

between The Bank of New York Mellon or its successor ("Rights Offering Trustee")

ancl NW Capital (and/or any successor noteholders or assigns) as lead lender, The

Rights Offering shall be conducted as follows:

a. Class members shall be entitled to purchase Convertible Notes with the

same financial terms as the note evidencing the NW Capital Loan,

provided that the Convertible Notes shall only be converted into Series A

Preferred Stock if NW Capital exercises its option pursuant to Section ro,r

of the Loan Agreement dated as of June T,2oLL between IMH and NW

Capital to effect such conversion in the same proportion as NW Capital

exercises that right.

b. The Rights Offering shall be limited in the first instance to all accredited

investor members of the Class. Only after alÌ accredited investor members

of the Class have had a full opportunity to participate in the Rights

Offering will NW Capital have the option to purchase any of the remaining

Convertible Notes. Any unsubscribed Convertible Notes will not be issued.

c. IMH may not use the proceeds of the Rights Offering to repay any NW

Capital indebtedness.

d. Either the transfer agent or the Rights Offering Trustee or another agent

appointed by the Company shall hold the Convertible Notes in book entry

form. The Rights Offering Trustee's, transfer agent's or otìer agent's

reasonable and customary expenses shall be borne by the Company.

e. The Company, alone ol through its agents, shall be responsible for

facilitating the purchase of Convertible Notes by those Class members who

elect to subscribe to the Rights Offering and providing appropriate notice

of Class members' respective ownership interests in the Convertible Notes

to such Class members. All reasonable care will be taken by all parties in

the implementation of the Rights Offering to preserve IMH's built-in tax

losses.

Class members shall be permitted, at their election, to participate in either

the Notes Offering described in Paragraph r above, the Rights Offering described in

Paragraph 3 above, or both, or neither, and may do so in whole or in part.

Any conflict in the Notes or Rights Offering (including Exhibits A and E)

as described in this Stipulation and/or the Notice (Exhibit M) on the one hand and the

final Notes or Rights Offering Documents, on the other, shall be controlled by the final

Notes or Rights Offering documents.

Neither Class Plaintiffs nor Class Counsel make any representations about

the sufficiency or completeness of the form offering documents attached as Exhibits A

and E hereto pursuant to any state, federal, common or statutory law or regulations and

shall have no liability for the statements made in or omitted from the form offering

documents or the final offering documents.

The 3o day period after Final Approval, referred to in paragraphs r and, 3

hereof, to proceed with the Notes and Rights Offerings may be modified if, prior to the

consummation of those Offerings: (a) there is a credible threat of an actual lawsuit,

claim, counterclaim, action, proceeding, or investigation before any court,

governmental, regulatory or administrative agency or instrumentality challenging either

Offering; (b) a material change in IMH's financial condition or business model for

which either of the OfferÌngs would jeopardize IMH as a going concern, as determined

by AU-C gSTo (superseding AU 5341); or (c) if the SEC declines to issue the No-Action

Letter to which paragraph z above refers. In the event of such an occurrence, IMH will

promptþ notify Class Counsel. If the timing of the Offerings cannot be resolved so that

they can proceed within a reasonable period of time, Class Counsel and IMH will jointly

advise the Court. Further, in such event, at Class Counsel's election, the Settlement may

be terminated, in which case the Court shall be so advised and the Parties shall be

subject to the provisions ofparagraphs z3 and z4 hereof.

Cash Consideration

The Defendants shalì pay at least $r,345,ooo (the "Cash Consideration"),

pursuant to this Paragraph, and shall cause the Cash Consideration to be deposited into

an escrow account with Israel Discount Bank of New York (the "Settlement Escrow

Account"), within ro clays following the entry of the Scheduling Order by the Court, as

follows:

a. $5oo,ooo in cash on behalf of Albers.

b. $375,ooo in cash on behalf of Meris.

c, $zo,ooo in cash on behalf of Darak.

d. Defendant IMH shall contribute $6ZS,000, which may include amounts

paid flom applicable insurance coverage (the "Insurance Policy") to the

extent that any amount remains, as follows:

i. IMH shall contribute $4So,ooo, to be deposited into the Settlement

Escrow Account on the date specified above.

ii. Up to an additional $zz5,ooo may be added to the Cash

Consideration by IMH (the "Reserve"), which shall be deposited in

a separate escrow account with The Private Bank and Trust

Company (the "Reserve Escrow Account"), available to be used by

IMH for reasonable defense costs for other unresolved litigation

arising out of or related to the Conversion Transactions. These

defense costs will be disbursed pursuant to the terms of the Escrow

Agreement attached as Exhibit G. Such defense costs will terminate

upon the final adju,ilication (including appeal, if any) of all such

unresolved litigation. If any amount of the Reserve BscrowAccount

remains after such defense costs, such amount remaining in the

Resewe Escrow Account shall be paid into the Settlement Escrow

Account,

Funds deposited into the Settlement Escrow Account shall constitute the

"Settlement Fund."

e. In funding the amounts referred to in this Paragraph, IMH agrees to use

the available proceeds under the Insurance Policy in the first instance to

fund the Individual Defendants' cash contributions and thereafter, to the

extent there are remaining proceeds, to fund IMH's contribution, so as to

minimize or eliminate any burden upon IMH to make such contributions.

f. Taxes.

i. The Settling Parties, Co-Lead Counsel, and the Claims

Administrator (defined below) shall treat the Settlement Fund as

being at all relevant times a "qualified settlement fund" within the

meaning of Treas. R"g. $ r.4688-t. In addition, Co-Lead Counsel

and/or the Claims Administrator, respectively, shall timeþ make

such elections as are necessary or advisable to carry out the

provisions of this Stipulation, including the "relation-back election"

(as defined in Treas. Reg, $ r.4688-r) back to the earliest permitted

date. Such elections shall be made in compliance with the

procedures and requirements contained in such Treasury

regulations. It shall be the responsibility of Co-Lead Counsel and/or

the Claims Administrator to timely and properþ prepare and

deliver the necessary documentation for signature by all necessary

parties, and thereafter to cause the appropriate filing to occur.

ii.' For the purpose of $ 4688 ofthe Internal Revenue Code of 1986, as

amended, and the regulations promulgated thereunder, the

"administrator" shall be Co-Lead Counsel and/or the Claims

Administrator. Co-Lead Counsel and the Claims Administrator

shall timely and properly file all informational and other tax returns

necessary or advisable with respect to the Settlement Fund

(including, without limitation, the returns described in Treas, Reg.

5 r.+68B-e(k)), Such returns (as well as the election described in

Paragraph 8(Ð(Ð hereof) shall be consistent with this Paragraph

8(Ð(iÐ of the Stipulation and in all events shall reflect that all taxes

(including any estimated taxes, interest, or penalties) on the income

earned by the Settlement Fund shall be paid out of the Settlement

Fund as provided in Paragraph 8(0(iiÐ below.

iii. All (a) taxes (including any estimated taxes, interest, or penalties)

arising with respect to the income earned by the Settlement Fund,

including any taxes or tax detriments that may be imposed upon

Defendants with respect to any income earned by the Settlement

Fund for any period during which the Settlement Fund does not

qualify as a "qualified settlement fund" for federal or state income

tax purposes ("Taxes"); and (b) expenses and costs incurred in

connection with the operation and implementation of Paragraph 8

of the Stipulation (inclucling, without limitation, expenses of tax

attorneys or accountants relating to any tax returns to be filed or

filed, on behalf of the Settlement Fund, and mailing and distribution

costs and expenses relating to filing (or failing to file) the returns

described herein ("Tax Expenses")), shall be paid out of the

Settlement Fund; in no event shall Defendants have any

responsibility for or liability with respect to the Taxes or the Tax

Expenses. Further, Taxes and Tax Expenses shall be treated as, and

considered to be, a cost of administration of the Settlement Fund

and shall be timely paid by the Claims Administrator out of the

Settlement Fund without prior order from the Court, and the

Claims Administrator shall be obligated (notwithstanding anything

in this Stipulation to the contrary) to withhold from distribution to

Authorized Claimants any funds necessary to pay such amounts, or

to establish adequate reserves for any Taxes and Tax Expenses (as

well as any amounts that may be required to be withheld under

Treas. Reg. $ r.4688-z(rXz)). The Parties agree to cooperate with

each other and their tax attorneys and accountants to the extent

reasonably necessary to carry out these provisions of the

Stipulation.

If any amount of the Settlement Fund remains after payment of notice and

administration costs, taxes, and any amounts awarded by the Court for attorneys' fees

and expenses or to Class Plaintiffs (the "Net Settlement Fund"), such amount shall be

distributed to Class members in proportion to the number of shares in IMH they held as

ofJune 2g,2oLo,

10. In the event the settlement does not receive Final Approval, all amounts in

escrow shall be returned pursuant to the instructions of Defendants' counsel, less any

costs paid or incurred.

Changes to the Emplo}'ment Agreements of Individual Defendants

Meris and Darak

11. IMH shall not award any new stock options under the zoro Stock

Incentive Plan (approved in the Conversion Transaction) for fiscal years 2012 and zor3

to Meris and/or Darak. Moreover, IMH has not, prior to the date of this Stipulation,

awarded any stock options under the zoro Stock Incentive Plan for fiscal year 2oL2 to

Meris and/or Darak.

*A.,.dditiqnal RestEicIi"çnp...on., the Sale of IMH Stock by Individual

Defendants Meris and Darak

L2. Individual Defendants Meris and Darak have each executed the respective

agreements with IMH attached as Exhibits H and I, to the following effect:

a. If Individual Defendant Meris or Darak separates from IMH without cause

and seeks to have the restrictions on the sale of his Class B stock (i.e., B-t,

B-z and B-3 stock) lifted in order to sell or transfer that stock, then, a

determination must be made that the separation from IMH is in fact a

"termination" and not a resignation, and that the termination was

"without cause" (i) bV independent directors on the IMH Board of

Directors, or (ii) if there are no independent directors on the IMH Board of

Directors, then by an independent, nationally recognized employment

consultant or law firm.

b, Following an IPO, the restrictions on the Class B-4 stock owned by

Individual Defendants Meris and Darak shall not be lifted until after the

initial expiration of the restrictions on the Class B stock (i,e., B-r, B-z and

B-3 stock) as described in the Consent Solicitation/Prospectus and set

forth in the IMH Certificate of Incorporation.

c. IMH agrees that it will not redeem any stock owned by Individual

Defendants Meris and Darak while the Shareholder Notes remain

outstanding.

13. IMH shall appoint at least two (e) independent directors to the IMH Board

of Directors within 6 months after Final Approval.

Share Restrictions

l'4. Class Members agree to abide by any and all current or fufure restrictions

relating to the transfer of IMH's securities, equities or debt, which are established from

time to time by the IMH Board of Directors for the purpose of preserving IMH's built-in

tax losses; including but not limited to the Second Amended and Restated Bylaws of

IHM Financial Corporation.

Establishment "of Investor Advisory Committee

15. There shall be established a five (S) person Investor Advisory Committee

as follows:

a. The Investor Advisory Committee shall be comprised, to the extent there

are candidates, of one designee from each of the following groups:

i. investors with more than $S million invested in IMH shares;

ii. investors with $l million to $5 million invested in IMH shares;

iii. investors with less than $r million invested in IMH shares;

iv. registered investment advisors whose clients own IMH shares; and

v, owners of broker-dealers whose clients own IMH shares.

vi. As to the calculation of the dollar amount "invested" for purposes of

subparagraphs (aXi)-(iii), the amount "invested" shall be

determined by the aggregate amount of money the investor had

expended to purchase Units in the Fund held as of October 1, 2oo8.

b. The Notice and Investor Advisory Committee Questionnaire (attached as

Exhibit N) provide the procedure for Class members to provide

information to IMH regarding their qualifications and desire to sere as a

member on the Investor Advisory Committee. The Notice provides

information as to the obligations that a member of the Investor Advisory

Committee will undertake.

c. The IMH Board of Directors, with NW Capital's approval not to be

unreasonably withheld, shall appoint from among qualifiecl candidates,

including those Class members who seek appointment to the Investor

Advisory Committee, the members of the InvestorAdvisory Committee.

d, The Investor Advisory Committee shall meet with members of the IMH

Board of Directors and/or management not less than once every four (4)

months. The Company will present its relevant plans and actions to the

Investor Advisory Committee which shaìl provide input as appropriate.

However, the Investor Advisory Committee shall have no authority to bind

or direct the actions of the Company, the Board, or IMH management.

e. It shall be a condition of service on the Investor Advisory Committee that

members be required to execute an appropriate confidentiality and non-

disclosure agreement and agree to be bound by the Company's insider

,,,)

tr.ading policy and all rules and regulations regarding confidentiality and

the non-disclosure of material, non-public information'

f. The Company shall provide the members of the Investor Advisory

Committee with, as appropriate, indemnification and insurance coverage

for their actions taken on and as a member of the Investor Advisory

Committee; further the Company shall provide the members of the

Investor Advisory CommitLee with an appropriate fee and reimbursement

of reasonable expenses necessary to perform their services on the Investor

Advisory Committee.

g. The Investor Advisory Committee may not be terminated until the

appointment of a full board of directors (consisting of at least 7 members)

with a rnajority of independent directors. The fully constituted IMH Board

of Directors, in its discretion, may terminate or retain the Investor

Advisory Committee for any period of time thereafter,

Modificatiqn .of New World Realty Advisors, LLC's Consulting

ContrAct

:,6, NWRA and IMH agree (per the Consent attached hereto as Exhibit J) that

the NWRA consulting contract dated as of February 28, zott shall be

terminable by the IMH Board of Directors upon the repayment in full of the

NW Capital indebtedness, provided, however, that the indebtedness has not

been converted to preferred or common equity. At present, the IMH Board

of Directors may not terminate such contract even if NW Capital is repaid

and has no further interest in IMH,

CI-ASS DEFINITI9N

77. The Settling Parties stipulate to and seek certification of a non-opt out

Settlement Class pursuant to Court of Chancery Rule z3(a) and (bXt) as follows (the

"Class"):

all former Unitholders of the Fund who were record holders as of May r3,

2o1o, and whose Units have been converted into shares of IMH pursuant

to the Conversion Transaction. Excluded from the Settlement Class shall

be the Defendants herein, any entity in which any Defendant has a

controlling interest; the ofñcers, directors, affiliates, legal representatives,

heirs, successors, subsidiaries, and/or assigns of any such individual or

entity; and any of the broker-dealers (or any of their agents or

representatives) which sold Units to Class Plaintiffs or the members of the

Class.

RBLEASB

18. (a) Upon Final Approval, and in consideration of the terms and conditions

herein, the sufficiency and fairness and receipt of which are acknowledged, and except

for the rights ancl obligations created by this Stipulation, all Class members and their

agents, officers, directors, employees, shareholders, parents, subsidiaries, affiliates,

predecessors, inside 'and outside attorneys, executors, successors, heirs, assigns,

administrators, agents and representatives, shall have fully, finally ancl forever released,

waived and discharged Defenclants, Defendants' agents, officets, directors, employees,

shareholders (other than Class members), parents, subsidiaries, affiliates, predecessors,

inside and outside attorneys, executors, successors, heirs, assigns, administrators,

insurers, consultants and representatives (including, but not limited to, tJle Interested

Non-Parties and/or any of their affiliates, but not any broker-dealers (or any of their

agents or representatives) that sold Units in the Fund) (collectively, the "Released

Parties") from any and all claims, rights, demands in law or equity, charges, complaints,

actions, causes of action, arbitrations or suits of any kind or nature, known or unknolvn,

that have accrued or may hereafter accrue (including but not limited to those seeking

damages and/or injunctive, declaratory, and/or other non-monetary relief, however

described), that are based upon, arise out of, relate in any way to, or involve, directly or

indirectly, any of the actions, transactions, occurrences, statements, representations,

misrepresentations, omissions, allegations, facts, practices, events, claims or any other

rnatters, things or causes whatsoever, or any series thereof, that have occurred on or

before the date of the MOU and were, could have been, or in the future can or might be

alleged, asserted, set forth, claimed, embraced, involved, or referred to in, or related to,

directly or indirectly, the Cìass Claims asserted in the Consolidated Delaware Action or

the subject matter of the Class Claims asserted in the Consolidated Delaware Action, in

any court, tribunal, forum or proceeding, including, without limitation, any and all

claims which are based upon, arise out of, relate in any way to, or involve, directly or

indirectly:

i. any deliberations or negotiations in connection with the Conversion

Transactions, including the process of deliberation or negotiation of

any of the managers, officers, directors or advisors;

ii. the Conversion Transactions or the conversion of any Units in

connection therewith;

iii. the consideration received by Class members in connection with the

Conversion Transactions;

iv. the Form S-4, the Final Proxy/Prospectus, the Supplemental

Disclosures or any other disclosures, SEC filings, public fìlings,

periodic reports, press releases, proxy statements or other

statements issued, made available or filed relating, directly or

indirectþ, to the Conversion Transactions, including without

limitation, claims under any and all federal securities laws

(including those within the exclusive jurisdiction of the federal

courts) or state disclosure law;

v. any fiduciary obligations of the Released Parties in connection with

the Conversion Transactions;

vi. the fees, expenses or costs incurred in prosecuting, defending, or

settling the Consolidated Delaware Action;

vii. any of the allegations in any complaint or amendment(s) thereto

filed in the Consolidated Delaware Action;

viii. the "Employment Separation and General Release Agreement

(Shane Albers)," dated April 20, 2oLt, including all exhibits

attached thereto;

ix. the NW Capital loan or the NWRA advisory agreement between

IMH and NW Capital and/or NWRA, respectively, and/or any of

their affiliates; or

x. any deliberations, negotiations, representations, omissions or other

conduct leading to the execution of the MOU, the Stipulation

and/or the Settlement.

(Collectively, the "Released Claims.")

b. The Settling Parties agree that the scope of the Released Claims does not

include:

any separate claims for defamation by individual Class members

that were the subject of litigation pending as of December 1, 2011;

ii,

any claims by Class members against any broker-dealers (or any

of their agents or representatives) who sold Units in the Fund (but

this exception does not apply to or preserve any Released Claims

against any Released Parties);

iii. the Proxy Claim which is subject to a separate settlement

agreement and which has been dismissed with prejudice;

iv.

enforcement of this Stipulation, or any orders by the Court in

furtherance thereof.

c. Upon Final Approval, Defendants shall have fully, finally and forever

released, waived and discharged any claims against any of the Class

Plaintiffs, or their counsel, and/or members of the Class, known or

unknown, arising out of or relating to the prosecution or resolution of the

Class Claims in the Consolidated Delaware Action, or that would have

been compulsory counterclaims.

d. The releases contemplated by this Stipulation and the Released Claims

extend to Unknown Claims. "lfnknown Claims" means any claim that

Settling Plaintiffs or any Class member do not know or suspect exists in

his, her or its favor at the time of the release of the Released Claims as

against the Released Parties, including without limitation those which, if

known, might have affected the decision to enter into the Stipulation. With

respect to any of the Released Claims, the Settling Parties stipulate and

agree that upon Final Approval, Settling Plaintiffs and each Class member

shall be deemed to have and by operation of the Final Judgment shall have

expressly waived, relinquished and releasecl any and all provisions, rights

'r'7

and benefits conferred by or under Cal. Civ. Code $ L542 or any law of the

United States or any state of the United States or territory of the United

States, or plincipìe of common law, which is similar, comparable or

equivalent to Cal, Civ. Code 5 1542, which provides:

.,A GI]NtrRAL RELEASE DOES NOT EX'TEND TO CLAIMS WHICH THE

CREDITOR DOES NOT KNOW OR SUSPECT EXIST IN HIS OR HER

FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF

KNOWN BY HIM OR HER MUST HAVE MATERIALI-Y AFFECTED HIS

OR I]ER SETTLEMENT \ryITII THE DEBTOR.''

Settling Plaintiffs acknowledge, and the members of the Class by operation

of law shall be deemed to have acknowledged, that they may discover facts

in addition to or different from those now known or believed to be true

with respect to the Released Claims, but that it is the intention of Settling

Plaintiffs, and by operation of law the members of the Class, to completely,

fully, finally and forever extinguish any and all Released Claims, known or

unknown, suspected or unsuspected, which now exist, or heretofore

existed, or may hereafter exist, and without regard to the subsequent

discovery of additional or different facts. Settling Plaintiffs acknowledge,

and the members of the Class by operation of law shall be deemed to have

acknowledged, that the inclusion of "Unknown Claims" in the definition of

"Released Claims" was sepaÌ'ately bargained for and was a material

element of the Stipulation and was relied upon by each and all of

Defendants in entering into the Stipulation.

NO ApMTSSTON/CONCESSION

19. All the Defendants have vigorously denied and continue to vigorously deny

any wrongdoing or liability with respect to all claims asserted in the Released Claims,

including any allegations that they have committed any violations of law, that they have

acted improperþ in any way, and/or that they have any liability or owe any damages of

any kind to Class Plaintiffs or the Class, but are entering into this Stipulation solely

because they consider it desirable that the Released Claims be settled and dismissed

with prejudice in order to, among other things, eliminate the burden, inconvenience,

expense, risk and distraction of further litigation, and finally put to rest and terminate

all the Released Claims which were or could have been asserted against Defendants in

the Consolidated Delaware Action, and thereby continue to effectuate IMH's business

plan.

20, Class Plaintiffs and their counsel have vigorously asserted and continue to

vigorously assert that the claims Class Plaintiffs have asseted have legal merit. Class

Plaintiffs and their counsel enter into this Stipulation because (a) they recognize that

there are legal and factual defenses to the claims asserted in the Consolidated Delaware

Action that Defendants have raised and might have raised throughout the pendency of

the Consolidated Delaware Action; and (b) the Settlement is fair, reasonable, adequate,

and in the best interests of Class Plaintiffs and the Class, including in light of the

financial risks continued prosecution of the action would have to IMH.

21. It is the intent of the Settling Parties that this Stipulation not be used for

âny purpose other than to enforce the provisions of this Stipulation or the provisions of

any related agreement, release, or exhibit hereto, or in order to support a defense of res

judicata, collateral estoppel, accord and satisfaction, release, or other theory of claim

preclusion and/or issue preclusion or similar defense, Therefore, pursuant to this

Stipulation, as ordered by this Court, and pursuant to the Delaware Rules of Evidence,

the Settling Parties agree that the fact of entering into or carrying out this Stipulation,

the exhibits hereto, and all negotiations, discussions, actions and proceedings in

connection with this Stipulation, as well as the Stipulation and the Settlement itselt

shall not constitute, be construed as, offered into evidence as, or deemed to be evidence

of, a presumption, concession or an admission by any Settling Party, of any fault,

liability or wrongdoing or lack of any fault, liability or wrongdoing, as to any facts or

Released Claims alleged or assertecl in the Consolidated Delaware Action or any other

actions or proceedings, and shall not be interpreted, construed, deemed, involved,

invoked, offered or received in evidence or otherwise used by any person, in the

Consolidated Delaware Action or any other action or ploceeding, whether civil, criminal

or administrative, except as set forth herein.

22, 'Ihis Stipulation shall not be legaþ binding upon any party unless and

untiì this Stipulation is executed by all of the Settling Parties, and is subject to and

expressly conditioned upon: (a) the entry by tlle Court of the Final Order and Judgment

in substantially the form attached hereto as Exhibit K; (b) the entry by the Court of the

Scheduling Order in substantially the form attached hereto as Exhibit L; (c) dismissai

with prejudice of the Released Claims as to all mernbers of the Class (including Class

Plaintiffs); and (d) Final Approval (as defined below in Paragraph zq).

2g. If the Court fails to approve the Stipulation in accordance with the terms

described herein, and unless counsel for each of the Settling Parties, within ten (ro)

business days from any such terminating event agrees in writing to present to the Court

for approval a modifìcation to this Stipulation then all Settling Parties in their sole

judgment and discretion may agree: (a) this Stipulation (including Bxhibits hereto)

and/or the MOU shall be null and void and of no force and effect; and (b) the Settling

Parties shall be deemed to have excused per{ormance of any obligation owed to or by

any Settling Party pursuant to any orders that may have been entered by the Delaware

Court in connection with the Stipulation (including Exhibits hereto) and/or the MOU.

24. In any event of nullification as described in Paragraph 7 or 23, the Settling

Parties shall be deemed to be in the position they were in prior to the execution of the

MOU and the statements made herein and in connection with the negotiation of the

MOU, this Stipulation, the Bxhibits to this Stipulation, and/or the Settlement shall not

be deemed to prejudice in any way the positions of the Settling Parties with respect to

the Class Claims, or to constitute an admission of fact of wrongdoing by any Settling

Party, shall not be used nor entitle any Settling Party to recover any fees, costs or

expenses incurred in connection with the Consolidated Delaware Action.

25. Class Plaintiffs and their counsel represent and warrant that Class

Plaintiffs are IMH shareholders, and were Unitholders in the Fund, at all pertinent and

relevant times, and that none of Class Plaintiffs' claims or causes of action that are

referred to in this Stipulation or that could have been asserted in the Consolidated

Delaware Action have been assigned, encumbered, or in any manner transferred in

whole or in part.

26, The Settling Parties represent and agree that the terms of the Stipulation

were negotiated at arm's length and in good faith by their respective counsel, and reflect

a settlement that was reached voluntarily based upon adequate information and

sufficient confirmatory discovery and aftel consultation with experienced legal counsel.

This Stipulation, together with all Exhibits, shall be deemed to have been mutually

prepared by the Settling Parties and shall not be construed against any of them by

reason of authorship.

27. As soon as practicable after the execution of the Stipulation, the Settling

Parties shall seek entry of a Scheduling Order (substantially in the form attached hereto

as Exhibit L; the "scheduling Order"): (a) providing, among other things, that the

Consolidated Delaware Action shall proceed as a class action on behalf of the Class

clefined in Paragraph t7, above; (b) approving the form of Notice of the proposed

settlement of the Class Action to the Class (substantially in the same form attached

hereto as Exhibit M; the "Notice"); (c) approving the Investor Advisory Committee

Questionnaire (substantially in the form attached hereto as Exhibit N; the

"Questionnaire"); (d) enjoining prosecution of any Released Claims pending Final

Approval; (e) directing that Notice and the Questionnaire be provided to members of the

Class; and (Ð scheduling a fairness hearing to consider final approval of the Settlement.

28. If the Court approves the Settlement following the fairness hearing

(including any modification to the Stipulation made as provided for herein) as fair,

reasonable and adequate and in the best interest of the Class and makes the fairness

determination described in Paragraph z, the Parties shall jointly request the Court to

enter a Final Order and Judgment substantially in the form attached hereto as Exhibit

K: (a) approving the Settlement; (b) unconditionally certifying the Class as defined in

Paragraph 16; (c) providing for the full and complete discharge, dismissal with prejudice

on the merits, settlement and release of all Released Claims, as defined in Paragraph 18.

29, "Final Approval" of this Settlement means that the Court has entered the

Final Order and Judgment in substantially the form attached as Exhibit K, and that

either: (a) the time for a motion to alter or amend, and for rehearing or reconsideration,

appellate review, and review by petition for certiorarf has expired, and no motion to

alter or amend or for rehearing, reconsideration and/or notice of appeal or petition for

certí.orari has been filed; or (b) if rehearing, reconsideration, appellate review or

petition for certiorari has been sought, after all avenues of rehearing, reconsideration,

reconsideration, appellate review or review by petition f.or certiorarÍ have been

exhausted and no further rehearing, reconsideration, appellate review or review by

petition for certiorari is permitted, or the time for seeking such has expired, and the

Judgment has not been modified, amended or reversed in any way, provided, however,

and notwithstanding any provision to the contrary in this Stipulation, Final Approval

shall not include the approval of attorneys' fees and the reimbursement of expenses to

Class Plaintiffs' Counsel as provided in Paragraphs g9-42 below, and any appeal related

thereto.

ApMTNTSTRATTON AND CALCUT.ATTON OF Cr-ArMS AND SUPERVISTON

ANp._pJSTßrÞIJTIçIy*O,FTH4SEIII-EMENTFIIND

30, RSM McGladrey, Inc. is hereby designated as the Claims Administrator,

subject to approval of the Court. (If for any reason RSM McGladrey, Inc. is unable to

serve or is not approved by the Court, Co-Lead Counsel shall designate a similarþ

situated fTrm as Claims Administrator, subject to the approval of the Court). The Claims

Adrninistrator, subject to such supervision and direction of the Court and Co-læad

Counsel as may be necessary or as circumstances may require, shall administer,

adjudicate, and calculate the claims submittedby members of the Class.

31. Defendants shall provide, or cause to be provided, to Co-Lead Counsel, to

the applicable Trustee or other exchange or subscription agent of the Company, and to

the Claims Administrator, a list of all former Unitholders of the Fund who were record

holders as of May 13, 2o1o, as provided in the Class definition in Paragraph t7, for

providing notice to the members of the Class. Co-Lead Counsel and/or the Claims

Administrator shall be responsible for providing the Notice and Questionnaire to Class

members. All costs associated with providing the Notice and Questionnaire shall be

paid in accordance with Paragraph 32.

92. The Settlement Fund shall be applied as follows:

a, to pay all the costs and expenses reasonably and actually incurred in

connection with providing the Notice, locating Class members, assisting

with the completion of the Questionnaire, administering and clistributing

any portion of the Settlement Fund to Authorized Claimants, and paying

escrow fees and costs, if any;

b. to pay the Taxes and Tax Expenses described above;

c. to pay Co-Lead Counsels' attorneys' fees and expenses with interest,

consistent with Paragraphs Bg-42, if and to the extent allowed by the

Court; and

d. to distribute, if all conditions to distribution are met and the Court

approves, any remaining portion of the Settlement Fund to Class members

oî apro rata basis as set forth in Paragraph 9, above.

Any decision by the Court concerning the foregoing shall not affect the binding nature of

the Settlement on all Parties.

33. As soon as reasonably practicable after Final Approval, and in accordance

with the terms of Settlement, the Claims Administrator shall distribute pursuant to

paragraph 32 (d) any portion of the Settlement Fund not used to pay the amounts set

forth in Paragraph Sz (a)-(c).

g4. This is not a claims-made settlement and, if all conditions of the

Settlement are satisfied, no portion of the Settlement Fund will be returned unless

specifically provided herein.

gb. No Released Party shall have any responsibilþ for, interest in, or liability

whatsoever with respect to the making or overseeing any of the payments or

distributions for costs, fees or expenses in connection with the Settlement Fund, the

determination, administration, or calculation of claims, the payment or withholding of

Taxes or'I'ax Bxpenses, or any losses incurred in connection therewith.

36. No Class member shall have any claim against Co-Lead Counsel or the

Claims Administrator based on distributions made substantially in accordance with the

Settlement. No person shall have any claim whatsoever against Released Parties,

Released Parties' Counsel, the Shareholder Notes Trustee, the Rights Offering Trustee,

any exchange agent or subscription agent, and/or the Transfer Agent arising from or

related to any distributions made or not made from the Settlement Fund, or arising

from or related to the Notes Offering or the Rights Offering as long as their actions are

in accordance with applicable law and substantialiy in accordance with the Settlement.

ST. Upon Final Approval, any and all remaining interest or right of

Defendants in or to the Settlement Fund, if any, shall be absolutely and forever

extinguished except as otherwise set forth in this Stipulation.

AWAI(I) OF AT'TORNEYS' FEES, EXPENSES AND PAYMENTS TO CLASS

Pr,arNIlll.qs

38. Co-Lead Counsel and liaison class counsel (collectively, "Class Counsel")

will apply to the Court for distributions from the Settlement Fund and Shareholder

Notes for: (a) an award of attorneys' fees; plus (b) reimbursement of expenses, including

the fees of any experts or consultants incurred in connection with prosecuting the

Consolidated Delaware Action; (c) awards to Class Plaintiffs to be paid from any

attorneys'fees awarded; plus (d) any interest on such attorneys'fees, expenses and until

paid at the same rate and for the same periods as earned by the Settlement Fund (the

"Fee Application"). Defendants reserve their rights to be heard on Class Counsel's

application for an award of attorneys' fees.

3g.Attorneys' fees, and reimbursement of expenses to Class Counsel, in such

amounts as approved by the Court, shall be paid (a) from the Settlement

Fund within three (3) business days following entry of the Final Order and

Judgment in substantially the form attached as Exhibit K and (b)

Shareholder Notes at the time of the payments on such Notes.

Notwithstanding the existence of any timely-filed objections to Class

Counsel's application for an award of fees and expenses or the potential for,

or the pendency of, an appeal from any Order authorizing same, any cash

amounts approved by the Court of Chancery shall be paid to Class Counsel

following entry of the Final Order and Judgment in substantially the form

attached as Exhibit K subject to the obligation of such Class Counsel who

actualfy received payment of such fees or expenses to refund or pay back any

such amount, plus interest, in the event that: (i) the judgment or order

awarding fees and expenses is reversed or modified; or (ii) the Settlement is

canceled or terminated for any reason. In the event that Class Counsel

becomes obligated to repay all or some of such attorneys' fees or expenses,

Class Counsel who actually received payment of such fees shall, within ten

(ro) business days after receiving notice from Defendants' counsel or from a

court of appropriate jurisdiction, refund to the Settlement Fund such amount

of fees or expenses (or both) plus interest thereon at the same rate as earned

on the Settlement Fund. If the Settlement is canceled or terminated for any

reason and Class Counsel fails to make such refund to the Settlement Fund

within the time deadline provided above, Class Counsel who actuaþ received

payment of such fees will be obligated to 'reimburse Defendants all

reasonable attorneys'fees and costs incurred by Defendants in seeking to

recover the funds owed by Class Counsel. Neither Class Plaintiffs nor any

Class member shall have any right to terminate or withdraw from the

Stipulation and/or Settlement by reason of any order entered by the Court

relating to attorneys' fees and expenses, and the binding nature of the

Stipulation and/or Settlement shall not be affected by any order entered by

the Court relating to such matters.

4c. Except for the Cash Consideration specifically provided for in Paragraph 8

and the Trustee's and Transfer Agent's expenses as provided in Paragraphs r(f) and

3(d), no Released Parly shall have any obligation to pay or bear any amounts, expenses,

costs, damages, or fees to or for the benefit of Class Plaintiffs or any Class members in

connection with this Settlement, including but not limited to attorneys' fees and

expenses for any counsel to any Class member, or any costs of notice or settlement

administration or otherwise.

4r.

Neither a modification nor a reversal on appeal of the amount of fees,

costs and expenses awarded by the Court to Class Plaintiffs' Counsel, nor amount of

awards to Class Plaintiffs shall be deemed a material modification of the Settlement.

PR-ESS R-ELEASE AND NON-DISPARAGEMENT

42, The Settling Parties agree that the Press Release attached hereto as Exhibit

O will serve as the exclusive written statement to the press by any and all Settling Parties

concerning the settlement of the Class Claims. Nothing in this paragraph shall prevent

IMH from complying with any applicable securities law disclosure requirements, or

impose any delay or condition on such compliance or prevent Class Counsel from

providing information concerning the settlement on their respective web sites. Class

Plaintiffs and Class Counsel agree not to engage in any verbal or written communication

with third parties that disparages, defames, maligns, or harms the reputation of any of

the Released Parties. Class Plaintiffs and Class Counsel further agree not to publicþ

criticize or disparage any Released Party and not to privately criticize or disparage any

Released Party in a manner intended or reasonably calculated to result in public

embarrassment to, or injury to the reputation of, such Released Party. Each Released

Party agrees not to engage in any verbal or written communication with third parties

that disparages, defames, maligns, or harms the reputation of any of the Class Plaintiffs

or Class Counsel concelning this Action or the Settlement. Each Released Party further

agrees not to publicly criticize or disparage any Class Plaintiffs or Class Counsel and not

to privately criticize or disparage any Class Plaintiffs or Class Counsel in a manner

intended or reasonably calculated to result in public embarrassment to, or injury to the

reputation of, such Class Plaintiffs or Class Counsel concerning this Action or the

Settlement. Nothing herein is intended to prevent the truthful testimony of an

individual or of the representative of any entity in a proceeding or as otherwise required

by law.

MISCELLANEOUS

4g. The Settling Parties (a) acknowledge that it is their intent to consummate

this Stipulation; and (b) agree to cooperate to the extent reasonably necessary to

effectuate and implement all terms and conditions of the Stipulation and to exercise

their reasonable best efforts to accomplish the foregoing terms and conditions of the

Stipulation.

44. Class Plaintiffs and Co-Lead Counsel agree to assume the lead role in

moving the Court to approve this Settlement and in defending the Settlement against

any objections by Class members, and defending any appeal taken by an objecting Class

member.

45. Without further order of the Court, the Settling Parties may agree to

reasonable extensions of time to carry out any of the provisions of this Stipulation.

+6. The Stipulation, together \4rith the Bxhibits attached hereto, is a fully

integrated agreement and constitutes the entire agreement among the Settling Parties

with respect to the subject matter hereof, replaces and supersedes the MOU, and may be

amended or modifìed only by a written instrument signed by or on behalf of all

signatories hereto or their respective successors-in-interest'

47. This Stipulation, the Exhibits attached hereto, the Settlement, and all

disputes arising out of or relating thereto, whether in contract, tort or otherwise, shall be

governed by, and construed in accordance with, the laws of the State of Delaware,

without regard to principles of conflicts of laws.

+8. The Settling Parties agree that any dispute arising out of or relating in any

way to this Stipulation, the Exhibits hereto, and/or the Settlement (i) shall be brought,

heard and determined exclusively in this Court (provided that, in the event that subject

matter jurisdiction is unavailable in this Court, then all such claims shall be brought,

heard and determined exclusively in any other state or federal court sitting in

Wilmington, Delaware) and (ii) shall not be litigated or otherwise pursued in any other

forum or venue. THE SETTLING PARTIES EXPRESSLY WAIVE ANY RIGHT TO

DEMAND A JURY TRIAL AS TO ANY DISPUTE DESCRIBED IN THE PRECBDING

SENTENCE.

49. All of the Exhibits referred to herein and attached hereto shall be

incorporated by reference as though fully set forth herein.

So. To the extent permitted by law, all agreements made and orders entered

during the course of the Actions relating to the confidentiality of documents or

information shall survive this Stipulation.

51. Any waiver by any Settling Parlry of any breach of this Stipulation by any

other Party shall not be deemed a waiver of that or any other prior or subsequent breach

of any provision of this Stipulation by any other Settling Party.

Sz. This Stipulation may be executed in counterparts, including by signature

transmitted by email in PDF format or by facsimile. Each counterpart when so executed

shall be deemed to be an original, and all such counterparts together shall constitute the

same instrument. 'fhe undersigned signatories represent that they have authority from

their respective clients to execute this Stipulation, The terms of this Stipulation and the

Settlement shall inure to the benefit of and be binding upon the Settling Parties

(including all Class members) and their respective agents, executors, heirs, successors

and assigns, including any and all of the Defendants and Defendants' affiliates and any

corporation, partnership, or other entity into or with which any party hereto may merge,

consolidate or reorganize, provided that no Settling Party shall assign or delegate its

rights or responsibilities under this Stipulation without the prior written consent of the

other Settling Parties hereto.

IN WITNBSS WHEREOF, the Settling Parties intending to be legally

bound, have caused this stipulation to be executed and delivered by their duly

authorized attorneys dated as of March 19, zor3.

[Signatures begin on next page]

By:

(*zt7z)

Jr. (*zsq6)

(+ 4e98)

&Tikellis LLP

zzz Delaware Avenue, Suite rroo

Wilmington, DE 19899

Tel: (goz) 656-zgoo

-andBy:

Norman M. Monhait (+ro4o)

Rosenthal, Monhait & Goddess, P.A.

919 N.Market Street, Suite r4or

Citizens Bank Center

Wilmington, DE r98or

Tel: (goz) 656-++SS

Co - Delqwar e Liaís on Counsel

for Plaíntiffs

By:

Jeffrey C. Zweiling

ZWERLING, SCHACHTER & ZWERLING, LLP

4r Madison Avenue

NewYork, NY rooto

(ztz) zz3-39oo

-andBy:

Jeffrey A. Klafter

KLAFTER OLSEN & LESSER LLP

TWo International Drive, Suite g5o

Rye Brook, NewYork 1o57g

Tel: (gr+) gg4-92oo

Co - Lead Counsel

for Class Plaintíffs

By:

Pamela S. Tlkellis (*zt7z)

Robert J. Kriner, Jr. (+2546)

TiffanyJ. Cramer (* +gg8)

Chimicles &fikellis LLP

zzz Delaware Avenue, Suite rloö

Wilminglon, DE Lg$gg

Tel: (goz) 656-z5oo

*andBy:

Norman M Monhait (*ro+o)

Rosentlal, Monhait & Goddess, P.A'

919 N. Market Street, Suite r4or

Citizens Bank Center

Wilmington, DE r98or

Tel: (3oz) 656-¡p¡gS

Co-D elnutor e Líqíson Counselfor Pløíntíffs

By:

JeffreyC. Zwerling

ZWEÁLING, SCHÀCHTER & ZWERLINq LLP

4r MadisonAvenue

NewYork l',[Y rooro

(zrz) zz3-g9oo

-andBy:

$N&

LLP

TWo International Drive, Suite 35o

Rye Brooþ NewYork ro578

Tel: (gtq) 934'92oo

-I*ad Counsel for Clo.ss Plaíntiffs

Pamela S. fikellis (*zt7z)

Robert J. Kriner, Jr. (+zS+6)

Tiffany J. Cramer (# +gg9)

Chimicles & Tikellis LLP

zzzDelaware Avenue, Suite rroo

Wilmington, DE 19899

Tel: (Boz) 656-z5oo

-andBy:

Norman M. Monhait (#1o4o )

Rosenthal, Monhait & Goddess, P,A.

919 N.Market Street, Suite r4or

Citizens Bank Center

Wilmington, DE r98or

Tel: (3oz) 656-++ss

Co -Delaw ar e Liaison Couns el

for Plaintiffs

Byr

LLP

4r Maclison

NewYork, NY

(ztz) zzg-g9oo

-andBy:

Jeffrey A. Klafter

KI,AFTER OLSBN & LESSBRLLP

TWo International Drive, Suite 35o

Rye Brook, NewYork 1e.573

Tel: (9r4) 954-92oo

Co-Lead Counsel for Class Plaìntìffs

By:

D. Heins (#gooo)

fuidue$, D. Cordo (*qSSq)

Ashby & Geddes

5oo DelawareAvenue, Eth Floor

P.O. Box rr5o

Wilmington, Delaware r98 or

Tel: 9oz-654-1888

-andBy:

LLP

166o West and Street, Suite noo

Cleveland, OH 44ttg-t448

Tel: ar6-588-Zooa

Counselfor Defendants

By:

Robert Wertheimer

PAUL}TASTINGS LLP

7S East SSth Street

NewYork, NYroozz

Tel. zrz-g18-6ooo

Counselfor New World Realty Aduìsors, LLC andNWRAVenfltresI,LLC

APPENDIX T

TABLE OF EXHIBITS

Þx-hiþit

Dgcr+.ment

Shareholder Note Offering Circular

Shareholder Note Inter-Creditor Agreement

Shareholder Note Indenture

Shareholder Note

Rights Offering Circular, Rights Offering Indenture and Rights Offering

Note

Rights Offering Inter-Creditor Agreement

Reserve Escrow Account Agreement

Meris Restriction Agreement

Darak Restriction Agreement

NWRA Consent to modification of consulting contract

Final Order and Judgment

Scheduling Order

Notice

Investor Advisory Committee Qu estionnaire

Press Release

cLEVreeT 2004147v12

38276.000 I 5

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.