Filing Details

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

(1)	Consists of shares of the Issuer’s common stock issuable upon conversion of 5,595,148 shares of Series B-2 Cumulative Convertible Preferred Stock held by JPMorgan Chase Funding Inc.

 

 

1	NAMES OF REPORTING PERSONS   JPMorgan Chase Funding Inc.
	I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
	13-3471824
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP			(a)	☐
				(b)	☒
3	SEC USE ONLY
4	SOURCE OF FUNDS (SEE INSTRUCTIONS)
	WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)				☐
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER
			0
		8	SHARED VOTING POWER
			5,595,148 (1)
		9	SOLE DISPOSITIVE POWER
			0
		10	SHARED DISPOSITIVE POWER
			5,595,148 (1)
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	5,595,148 (1)
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES				☐
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	25.77% (2)
14	TYPE OF REPORTING PERSON
	CO

 

(1)	Consists of shares of the Issuer’s common stock issuable upon conversion of 5,595,148 shares of Series B-2 Cumulative Convertible Preferred Stock held by JPMorgan Chase Funding Inc.

 

Item 1. Security and Issuer.

The class of securities to which this statement on Schedule 13D relates is common stock, par value $0.01 per share (“Common Stock”), of IMH Financial Corporation, a Delaware corporation (the “Issuer”). The principal executive offices of the Issuer are located at 7001 N. Scottsdale Road, #2050, Scottsdale, Arizona 85253.

Item 2. Identity and Background.

This Schedule 13D is being filed by JPMorgan Chase & Co., a Delaware corporation (“JPMorgan Chase”), on behalf of itself and its wholly owned indirect subsidiary, JPMorgan Chase Funding Inc., a Delaware corporation (“JPM Funding”, and together with JPMorgan Chase, the “Filing Parties”) pursuant to a Joint Filing Agreement, dated as of April 21, 2017, a copy of which is attached as Exhibit 99.1 hereto. The business address of each of the Filing Parties is 270 Park Avenue, New York, New York 10017. JPMorgan Chase is a financial holding company. JPM Funding engages in activities permitted for a subsidiary of a financial holding company, including investing in debt and equity securities. JPMorgan Chase is not controlled by any person or persons.

Neither the present filing nor anything contained herein shall be construed as an admission that any of the Filing Parties constitutes a “person” for any purpose other than for compliance with Section 13(d) of the Securities Exchange Act of 1934, as amended.

Set forth on Schedule I to this Schedule 13D, and incorporated herein by reference, is the name, residence or business address, present principal occupation or employment (and the name, principal business and address of any corporation or other organization in which such employment is conducted) and citizenship of each director and executive officer of the Filing Parties.

During the last five years, none of the Filing Parties, nor, to the knowledge of each of the Filing Parties, any of the persons listed on Schedule I hereto, (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) except as set forth on Schedule II hereto, has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree, or final order enjoining future violations of, or prohibiting or mandating activities subject to federal or state securities laws or finding any violation with respect to such laws.

Item 3. Source and Amount of Funds or Other Consideration.

On April 11, 2017, JPM Funding purchased 5,595,148 shares of the Issuer’s Series B-2 Cumulative Convertible Preferred Stock (the “B-2 Preferred Shares”) from SRE Monarch, LLC (“SRE Monarch”) pursuant to that certain Preferred Stock Purchase Agreement, dated April 11, 2017 (“Purchase Agreement”), among the Issuer, JPM Funding and SRE Monarch for an aggregate purchase price of $25,270,000 paid out of working capital.

In connection with the consummation of the transactions contemplated by the Purchase Agreement, the Issuer’s board of directors (the “Board”) approved, and the Issuer adopted and on April 11, 2017 filed with Secretary of State of the State of Delaware, the Amended and Restated Certificate of Designation of the Cumulative Convertible Series B-1 Preferred Stock and Cumulative Convertible Series B-2 Preferred Stock (“Restated Certificate of Designation”). The number of shares of common stock issuable upon conversion of the B-2 Preferred Shares is subject to adjustment as provided in the Restated Certificate of Designation. The Restated Certificate of Designation provides that each B-2 Preferred Share is convertible, at the election of the holder thereof, into a number of shares of Common Stock determined by dividing (i) the sum of (a) $3.2171 (the “Original Price”) and (b) all accrued and unpaid dividends thereon by (ii) the then effective conversion price (initially the Original Price, as adjusted from time to time in accordance with the terms of the Restated Certificate of Designation, the “Conversion Price”). In addition, all outstanding B-2 Preferred Shares will automatically be converted into shares of the Issuer’s common stock at the then effective Conversion Price upon the closing of a sale of shares of common stock at a price equal to or greater than two and a quarter times (2.25x) the Original Price (subject to adjustment in accordance with the Restated Certificate of Designation), in a firm commitment underwritten public offering and listing of the common stock on a national securities exchange, pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), resulting in at least $75,000,000 of gross proceeds to the Issuer. As of the date hereof, the B-2 Preferred Shares are convertible into, and the Filing Parties may be deemed to beneficially own, 5,595,148 shares (the “Conversion Shares”) of the Issuer’s common stock issuable upon conversion of the B-2 Preferred Shares.

Item 4. Purpose of Transaction.

The information set forth in Item 3 and Item 6 is incorporated herein by reference.

General

JPM Funding acquired the B-2 Preferred Shares, and the Filing Parties may therefore be deemed to have acquired beneficial ownership of the Conversion Shares, for investment purposes in the ordinary course of business pursuant to the Purchase Agreement.

The transactions contemplated by the Purchase Agreement will result, or have resulted, in certain actions specified in Items 4(a) through (j) of Schedule 13D, including changes in the Board, and changes in the Issuer’s charter, and may result in the acquisition of beneficial ownership of additional shares of common stock by the Filing Parties. The Filing Parties may review the Issuer’s operating, management, business affairs, capital needs and general industry and economic conditions, and, based on such review, the Filing Parties may, from time to time, determine to increase or decrease their respective beneficial ownership of common stock, vote to approve an extraordinary corporate transaction with regard to the Issuer or engage in any of the events set forth in Items 4(a) through (j) of Schedule 13D. Except as otherwise provided herein in connection with the transactions contemplated by the Purchase Agreement, the Filing Parties currently have no intention of engaging in any of the events set forth in Items 4(a) through (j) of Schedule 13D.

Preferred Directors and Voting Rights

Pursuant to the Restated Certificate of Designation, for so long as JPM Funding, its affiliates and transferees own at least 50% of the B-2 Preferred Shares, the holders of the B-2 Preferred Shares, voting as a single class, will be entitled to elect one member of the Issuer’s Board (the “Series B-2 Director”). The Restated Certificate of Designation also provides that, for so long as (i) JPM Funding, its affiliates and transferees own at least 50% and B-2 Preferred Shares and (ii) Juniper NVM, LLC and JCP Realty Partners, LLC (together, the “Juniper Entities”), their affiliates and transferees (collectively, “Juniper”) and JPM Funding, its affiliates and transferees own at least 50% of the Issuer’s Series B-1 Cumulative Convertible Preferred Stock, par value $0.01 (the “B-1 Preferred Shares” and, together with the B-2 Preferred Shares, the “Series B Preferred Stock”), the holders of the B-1 Preferred Shares and the holders of the B-2 Preferred Shares will have the right to elect an additional director (the “Series B Director”), who will be independent and serve on the audit and compensation committees of the Board. In the event Juniper ceases to own at least 50% of the B-1 Preferred Shares, and JPM Funding, its affiliates and transferees continue to own 50% of the B-2 Preferred Shares, JPM Funding, its affiliates and transferees will be entitled to designate the Series B Director. In the event of a vacancy in the director position held by the Chief Executive Officer of the Issuer, the holders of at least 85% of the then outstanding Series B Preferred Stock (the “Required Holders”) will be entitled to fill such vacancy until a replacement Chief Executive Officer is hired by the Issuer.

The Restated Certificate of Designation obligates the Issuer to use its best efforts to cause the nomination of a person designated by JPM Funding as the Series B-2 Director and a person designated by the mutual consent of JPM Funding and Juniper as the Series B Director. JPM Funding has designated a representative of JPM Funding as the initial Series B-2 Director.

In addition to the foregoing rights, except as otherwise required by applicable law, the holders of Series B Preferred Stock have the right to vote with the holders of the Issuer’s voting common stock on an as-converted basis on all matters on which holders of the voting common stock are entitled to vote. In addition, except with the vote of the Required Holders, the Restated Certificate of Designation provides that the Issuer may not amend, waive or repeal any provision of its certificate of incorporation or bylaws in a manner adverse to the holders of Series B Preferred Stock or enter into any agreement or plan of merger or consolidation with any other entity, unless, upon the consummation of such transaction, the Series B Preferred Stock remains outstanding and unchanged or is converted into equity interests of the surviving entity having the same relative rights, powers, preferences and privileges as provided in the Restated Certificate of Designation.

Ranking and Dividends

The Restated Certificate of Designation provides that, subject to the rights of holders of the Issuer’s Class B common stock, par value $0.01 per share (“Class B Common Stock”), to receive a special dividend pursuant to the Issuer’s certificate of incorporation, or the rights of any class of Senior Preferred Stock (as defined below) or Parity Stock (as defined below) approved by the Required Holders, all shares of the Issuer’s capital stock will be junior in rank to the Series B Preferred Stock with respect to dividends, distributions and payment upon the liquidation of the Issuer, certain mergers involving the Issuer, the sale of substantially all of the Issuer’s assets and certain changes in control of the Issuer. Without the prior written consent of the Required Holders, the Restated Certificate of Designation prohibits the Issuer from authorizing or issuing any shares of capital stock that rank (i) senior to the shares of Series B Preferred Stock in respect of the preferences as to dividends, distributions or payments upon a liquidation event, deemed liquidation event or redemption (collectively, the “Senior Preferred Stock”) or (ii) pari passu to the shares of Series B Preferred Stock in respect of the preferences as to dividends, distributions or payments upon a liquidation event, deemed liquidation event or redemption (collectively, the “Parity Stock”).

The Restated Certificate of Designation provides that each holder of a share of Series B Preferred Stock will be entitled to receive preferential dividends out of funds legally available therefor in an amount per share equal to (i) 8% of the Original Price per annum, (ii) 13% of the Original Price per annum immediately upon the occurrence of a Noncompliance Event (as defined in the Restated Certificate of Designation and described below) and, (iii) 18% of the Original Price per annum, if a Noncompliance Event remains uncured for a period of 180 days following a demand that the Series B Preferred Stock be redeemed, in each case, compounded quarterly. Dividends on each share of Series B Preferred Stock are cumulative and accrue whether or not declared, and will be payable in cash, quarterly in arrears when, as and if declared by the Board.

Subject to the right of the holders of the Class B Common Stock to receive a special dividend pursuant to the Issuer’s certificate of incorporation, no dividend (other than dividends payable in shares of voting common stock) may be paid on any capital stock of the Issuer during any fiscal year unless all accrued dividends on the Series B Preferred Stock have been paid in full, except that, commencing with the fiscal quarter ending September 30, 2014, the Restated Certificate of Designation permits the Board to authorize quarterly dividends on the Issuer’s voting common stock of up to $375,000 in aggregate, plus an amount to be paid to holders of the Series B Preferred Stock equal to the dividends that would have been payable to holders of the Series B Preferred Stock had such shares been converted into common stock; provided that certain conditions are satisfied, including, with respect to any such dividend payable after March 31, 2015, that the Issuer has had earnings before interest, taxes depreciation and amortization (EBITDA) of greater than $12 million in the aggregate over the four most recently completed fiscal calendar quarters.

In the event a special dividend is declared with respect to the Class B Common Stock, the holders of Series B Preferred Stock will be entitled to receive additional dividends on an “as converted” basis.

Without the prior written consent of the Required Holders of the Series B Preferred Stock, neither the Issuer nor any of its subsidiaries will be permitted to, (i) declare or pay any dividends on or make any other distribution in respect of any interest in it, (ii) make any capital contribution to or purchase, redeem, acquire or retire any securities in any entity, or (iii) cause or permit any reduction or retirement of the capital stock, partnership interests, membership interests of the Issuer and its subsidiaries, as applicable, subject to certain exceptions.

Liquidation Preference

In the event of a liquidation of the Issuer, certain mergers involving the Issuer, the sale of substantially all of the Issuer’s assets and certain changes in control of the Issuer, the Restated Certificate of Designation provides that the holders of Series B Preferred Stock will be entitled to be paid (out of available assets of the Issuer), and subject to the rights of any Senior Preferred Stock or Parity Stock, but before any payment to the holders of any other shares of the Issuer’s capital stock, an amount per share equal to 150% of the sum of (i) the Original Price, plus (ii) any dividends accrued and unpaid on the Series B Preferred Stock, whether or not declared. However, if a share of Series B Preferred Stock would be entitled to an amount greater than such liquidation preference if it had been converted into a share of common stock immediately prior to the applicable event, the share of Series B Preferred Stock will be entitled to the amount it would have received on an as-converted basis.

Preemptive Rights

Subject to limited exceptions described in the Restated Certificate of Designation, each holder of 10% or more of the outstanding shares of Series B Preferred Stock at the time of any future issuance of equity capital stock of the Issuer will have the preemptive right to purchase its pro rata share of equity capital stock of the Issuer issued in connection with such transaction.

Redemption; Non-Compliance Events

The Restated Certificate of Designation provides that each holder of Series B Preferred Stock may require the Issuer to redeem such holder’s Series B Preferred Stock at any time after July 24, 2019 for a redemption price determined in accordance with the Restated Certificate of Designation. If at any time a holder of Series B Preferred Stock holds less than 15% of the shares initially acquired by it, the Issuer may redeem such holder’s Series B Preferred Stock for a redemption price determined in accordance with the Restated Certificate of Designation. The Required Holders may also demand that the Issuer redeem the Series B Preferred Stock following a Noncompliance Event. Under the Restated Certificate of Designation, “Noncompliance Events” include the following:

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated:  April 21, 2017

 

 

Name	Present Principal Occupation
Linda B. Bammann	Director of JPMorgan Chase & Co. and Retired Deputy Head of Risk Management of JPMorgan Chase & Co.
James A. Bell	Director of JPMorgan Chase & Co. and Retired Executive Vice President of the Boeing Company
Crandall C. Bowles	Director of JPMorgan Chase & Co. and Chairman Emeritus of The Springs Company
Stephen B. Burke	Director of JPMorgan Chase & Co. and Chief Executive Officer of NBCUniversal, LLC
Todd A. Combs	Director of JPMorgan Chase & Co. and Investment Officer of Berkshire Hathaway Inc.
James S. Crown	Director of JPMorgan Chase & Co. and President of Henry Crown and Company
Timothy P. Flynn	Director of JPMorgan Chase & Co. and Retired Chairman and Chief Executive Officer of KPMG
Laban P Jackson, Jr.	Director of JPMorgan Chase & Co. and Chairman and Chief Executive Officer of Clear Creek Properties, Inc.
Michael A. Neal	Director of JPMorgan Chase & Co. and Retired Vice Chairman of General Electric Company and Retired Chairman and Chief Executive Officer GE Capital
Lee R. Raymond	Director of JPMorgan Chase & Co. and Retired Chairman and Chief Executive Officer of Exxon Mobil Corporation
William C. Weldon	Director of JPMorgan Chase & Co. and Retired Chairman and CEO of Johnson & Johnson
James Dimon	Chairman of the Board, Chief Executive Officer and President
Ashley Bacon	Chief Risk Officer
John L. Donnelly	Head of Human Resources
Mary Callahan Erdoes	Chief Executive Officer of Asset & Wealth Management
Stacey Friedman	General Counsel
Marianne Lake	Chief Financial Officer
Douglas B. Petno	Chief Executive Officer of Commercial Banking
Daniel E. Pinto	Chief Executive Officer of the Corporate & Investment Bank
Gordon A. Smith	Chief Executive Officer of Consumer & Community Banking
Matthew E. Zames	Chief Operating Officer
Peter Scher	Head of Corporate Responsibility
Patrik Ringstroem	Head of Corporate Strategy

JPMorgan Chase entered into another settlement the on November 17, 2016 related to the same conduct referenced in the immediately preceding paragraph. JPMorgan Chase entered into a settlement with the Board of Governors of the Federal Reserve System (“FRB”) resulting in the FRB issuing an order (the “FRB Order”).  The FRB Order directs JPMorgan Chase to cease-and-desist such conduct and to pay a civil money penalty of $61,932,500 which was paid on November 17, 2016.  In addition, the FRB Order requires JPMorgan Chase to take the following steps: (a) submit an acceptable written plan, and timeline for implementation, to improve senior management’s oversight of JPMorgan Chase’s firm-wide compliance risk management program with regard to compliance with applicable U.S. laws and regulations and applicable internal policies and procedures in connection with the firm’s hiring of candidates who were referred, directly or indirectly, by foreign government officials and existing or prospective commercial clients (“Referral Hiring Practices”); (b) submit an acceptable written plan, and timeline for implementation, to enhance the effectiveness of JPMorgan Chase’s firm-wide compliance risk management program with regard to the oversight and implementation of anti-bribery processes and procedures in connection with the firm’s Referral Hiring Practices; and (c) submit an acceptable written plan, and timeline for implementation, to enhance the effectiveness of JPMorgan Chase’s compliance with internal policies and procedures as well as applicable U.S. laws and regulations in its Referral Hiring Practices.

In addition to the above matters, the Filing Parties have been involved in a number of other civil proceedings which concern matters arising in connection with the conduct of its business. Certain of such proceedings have resulted in findings of violations of federal or state securities laws. Such proceedings are reported and summarized in the JPMorgan Chase’s periodic reports on Forms 8-K, 10-Q and 10-K filed with the SEC, and in other regulatory reports, which descriptions are hereby incorporated by reference.