JMP Group LLC
JMP Group Inc. (Form: 10-Q, Received: 06/21/2007 17:12:26)
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q

 


(Mark One)

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

For the quarterly period ended March 31, 2007

OR

 

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

For the transition period from              to             

Commission File Number: 001-33448

 


JMP Group Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware   20-1450327

(State or Other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

600 Montgomery Street, Suite 1100, San Francisco, California 94111

(Address of principal executive offices)

Registrant’s telephone number: (415) 835-8900

 


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

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

Large Accelerated Filer   ¨     Accelerated Filer   ¨     Non-Accelerated Filer   x

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

The number of shares of the Registrant’s common stock, par value $0.001 per share, outstanding as of June 21, 2007 was 22,025,341.

 



Table of Contents

TABLE OF CONTENTS

 

         Page
Number

Available Information

   1

PART I .

 

FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements – JMP Group LLC and Subsidiaries (Unaudited)

  
 

Consolidated Statements of Financial Condition— March 31, 2007 (Unaudited) and December 31, 2006

   2
 

Consolidated Statements of Income— Three Months ended March 31, 2007 and 2006 (Unaudited)

   3
 

Consolidated Statements of Cash Flows— Three Months ended March 31, 2007 and 2006 (Unaudited)

   4
 

Notes to Consolidated Financial Statements

   5

Item 1A.

 

Financial Statements – JMP Holdings Inc. (Unaudited)

  
 

Statements of Financial Condition— March 31, 2007 (Unaudited) and December 31, 2006

   21
 

Statements of Income— Three Months ended March 31, 2007 and 2006 (Unaudited)

   22
 

Statements of Cash Flows— Three Months ended March 31, 2007 and 2006 (Unaudited)

   23
 

Notes to Financial Statements

   24

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   36

Item 4.

 

Controls and Procedures

   36

PART II.

 

OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

   37

Item 1A.

 

Risk Factors

   37

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

   37

Item 3.

 

Defaults Upon Senior Securities

   37

Item 4.

 

Submission of Matters to a Vote of Security Holders

   37

Item 5.

 

Other Information

   37

Item 6.

 

Exhibits

   37

SIGNATURES

   38

EXHIBIT INDEX

   39

 

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AVAILABLE INFORMATION

JMP Group Inc. is required to file current, annual and quarterly reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the Exchange Act), with the Securities and Exchange Commission (SEC). You may read and copy any document JMP Group Inc. files with the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at http://www.sec.gov, from which interested persons can electronically access JMP Group Inc.’s SEC filings.

JMP Group Inc. will make available free of charge through its internet site http://www.jmpg.com, via a link to the SEC’s internet site at http://www.sec.gov, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Forms 3, 4 and 5 filed by or on behalf of directors, executive officers and certain large stockholders, and any amendments to those documents filed or furnished pursuant to the Exchange Act. These filings will become available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

JMP Group Inc. also makes available, in the Investor Relations section of its website, its (i) corporate governance guidelines, (ii) its code of business conduct and ethics, and (iii) the charters of the audit, compensation, and corporate governance and nominating committees of its board of directors. You will need to have Adobe Reader software installed on your computer to view these documents, which are in PDF format. These documents, as well as the information on the website of JMP Group Inc., are not a part of this quarterly report.

 

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PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

JMP GROUP LLC AND SUBSIDIARIES

Consolidated Statements of Financial Condition

March 31, 2007 and December 31, 2006

 

          March 31, 2007    December 31, 2006
          (unaudited)     

Assets

      

Cash and cash equivalents

    $ 38,180,141    $ 52,328,804

Restricted cash and deposits (includes cash on deposit with clearing broker of $255,336 at March 31, 2007 and December 31, 2006 ) (Note 12)

      9,258,945      8,894,303

Receivable from clearing broker

      1,884,472      1,519,623

Investment banking fees receivable, net of allowance for doubtful accounts of $23,730 and $294,905, respectively

      4,035,629      7,962,260

Marketable securities owned, at market value (Note 4)

      12,605,068      11,949,187

Other investments (Note 4)

      16,286,858      15,244,523

Fixed assets, net (Note 5)

      2,290,234      2,625,402

Other assets

      3,887,578      3,174,901
              

Total assets

    $ 88,428,925    $ 103,699,003
              
    Pro Forma
March 31,
2007
          
    (unaudited)
(Note 20)
          

Liabilities and Members’ Equity

      

Liabilities

      

Marketable securities sold, but not yet purchased, at market value

  $ 8,013,967     $ 8,013,967    $ 7,480,889

Accrued compensation

    7,465,270       7,465,270      26,446,917

Other liabilities

    7,074,973       7,074,973      4,366,157

Distribution payable

    14,400,000       —        —  

Redeemable Class A member interests (Note 7)

    11,885,218       11,885,218      12,913,769
                    

Total liabilities

    48,839,428       34,439,428      51,207,732
                    

Commitments and contingencies (Note 12 and 15)

      

Minority interest

    6,095,733       6,095,733      5,739,459
                    

Members’ Equity (Note 9)

      

Class A common interests

    12,263,020       12,263,020      11,861,848

Class B common interests

    31,650,177       31,650,177      31,650,177

Additional paid in capital—stock options

    810,124       810,124      268,635

(Distributions in excess of accumulated earnings)/Retained earnings

    (11,229,557 )     3,170,443      2,971,152
                    

Total members’ equity

    33,493,764       47,893,764      46,751,812
                    

Total liabilities and members’ equity

  $ 88,428,925     $ 88,428,925    $ 103,699,003
                    

See accompanying notes to consolidated financial statements.

 

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JMP GROUP LLC AND SUBSIDIARIES

Consolidated Statements of Income

Three Months ended March 31, 2007 and 2006

(Dollars except share and per share data)

 

     Three Months Ended March 31,  
     2007     2006  
     (unaudited)     (unaudited)  

Revenues

    

Investment banking

   $ 11,493,259     $ 10,386,450  

Brokerage

     8,631,567       6,887,174  

Asset management fees

     888,038       889,571  

Principal transactions

     (68,214 )     125,210  

Interest and dividends

     770,892       460,930  

Other income

     198,075       24,698  
                

Total revenues

     21,913,617       18,774,033  
                

Expenses

    

Compensation and benefits

     12,830,903       11,399,755  

Income allocation and accretion – Redeemable Class A member interests

     3,049,535       1,832,132  

Administration

     1,000,298       1,273,473  

Brokerage, clearing and exchange fees

     1,138,647       910,581  

Travel and business development

     696,986       736,366  

Communications and technology

     941,400       801,423  

Occupancy

     466,391       446,776  

Professional fees

     225,416       200,662  

Depreciation

     356,517       420,168  

Interest and dividend expense

     504,178       341,260  

Other

     (257,413 )     (702 )
                

Total expenses

     20,952,858       18,361,894  
                

Income before minority interest

     960,759       412,139  

Minority interest

     135,478       —    
                

Net income attributable to Class A and Class B common interests

   $ 825,281     $ 412,139  
                

Net income per unit-Class A common interests

    

Basic

   $ 0.18     $ 0.11  

Diluted

   $ 0.17     $ 0.11  

Weighted average units outstanding-Class A common interests

    

Basic

     2,381,410       1,430,846  

Diluted

     2,440,524       1,430,846  

Net income per unit-Class B common interests

    

Basic

   $ 0.18     $ 0.11  

Diluted

   $ 0.17     $ 0.11  

Weighted average units outstanding-Class B common interests

    

Basic

     2,300,000       2,300,000  

Diluted

     2,357,093       2,300,000  

Pro Forma Consolidated Statement of Income Information – C-Corp (unaudited) (Note 20):

    

Total revenues

   $ 21,913,617    

Pro forma total expenses

     18,946,415    

Minority interest

     135,478    
          

Pro forma income before tax

     2,831,724    

Pro forma taxes (42.0% assumed tax rate)

     (1,189,324 )  
          

Pro forma net income

   $ 1,642,400    
          

Basic net income per share:

    

Pro forma

   $ 0.11    

Pro forma as adjusted

   $ 0.10    

Pro forma weighted average shares of common stock outstanding:

    

Pro forma

     14,800,035    

Pro forma as adjusted

     16,331,532    

See accompanying notes to consolidated financial statements.

 

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JMP GROUP LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Three Months ended March 31, 2007 and 2006

 

     Three Months Ended March 31,  
     2007     2006  
     (unaudited)     (unaudited)  

Cash flows from operating activities

    

Net income attributable to Class A and Class B common interests

   $ 825,281     $ 412,139  

Adjustments to reconcile net income to net cash used in operating activities

    

Provision for doubtful accounts

     (261,985 )     849  

Change in fair value of other investments

     (594,031 )     (785,761 )

Depreciation and amortization of fixed assets

     356,517       420,168  

Minority interest

     135,478       —    

Stock based compensation expense

     562,289       21,278  

Net change in operating assets and liabilities

    

Decrease / (increase) in receivables

     3,823,767       (2,012,835 )

Increase in marketable securities

     (655,881 )     (1,552,033 )

Increase in restricted cash, deposits and other assets

     (1,077,319 )     (1,054,680 )

Increase in marketable securities sold, but not yet purchased

     533,078       291,242  

Decrease in accrued compensation and other liabilities

     (16,272,831 )     (22,219,574 )

Decrease in Redeemable Class A member interests

     (627,382 )     (1,984,058 )
                

Net cash used in operating activities

     (13,253,019 )     (28,463,265 )
                

Cash flows from investing activities

    

Purchases of fixed assets

     (21,349 )     (217,401 )

Purchases of other investments

     (700,000 )     (990,558 )

Sales of other investments

     251,696       3,085,577  
                

Net cash (used in) provided by investing activities

     (469,653 )     1,877,618  
                

Cash flows from financing activities

    

Distributions paid to Class A and Class B common interests

     (625,991 )     (1,666,619 )

Capital contributions of minority interest members

     200,000       —    
                

Net cash used in financing activities

     (425,991 )     (1,666,619 )
                

Net decrease in cash and cash equivalents

     (14,148,663 )     (28,252,266 )

Cash and cash equivalents, beginning of period

     52,328,804       61,724,672  
                

Cash and cash equivalents, end of period

   $ 38,180,141     $ 33,472,406  
                

Supplemental disclosures of cash flow information

    

Cash paid during the period for interest

   $ 487,063     $ 339,951  

Noncash financing activities

    

Issuance of Class A common interests

     401,172       —    

Issuance of JMPRT common stock

     20,800       —    

See accompanying notes to consolidated financial statements.

 

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JMP GROUP LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(unaudited)

1. Organization and Description of Business

JMP Group LLC, a Delaware limited liability company (the “Company”), was formed on April 12, 1999. The Company’s original name, Jolson Merchant Partners LLC, was changed to Jolson Merchant Partners Group LLC, effective January 1, 2000, and in June 2004, it was changed to JMP Group LLC. As of March 31, 2007, the Company operated pursuant to its Third Amended and Restated Limited Liability Company Operating Agreement dated as of August 18, 2004, as amended (the “Operating Agreement”).

The Company has historically conducted its business through a multi-member limited liability company. Effective May 16, 2007, the Company, in connection with the initial public offering of JMP Group Inc., effected an exchange of all the outstanding membership interests of the Company for shares of common stock of JMP Holdings Inc., a Delaware corporation. JMP Holdings Inc. changed its name to JMP Group Inc. As a result of the exchange, the Company became JMP Group Inc.’s wholly-owned subsidiary and JMP Group Inc. completed its initial public offering on May 16, 2007. This reorganization is described in greater detail in the Registration Statement on Form S-1 (File No. 333-140689) filed with the Securities and Exchange Commission (“SEC”) in connection with the initial public offering.

The Company conducts its brokerage business through its wholly owned subsidiary, JMP Securities LLC (“JMP Securities”) and its asset management business through its wholly owned subsidiary, JMP Asset Management LLC (“JMPAM”). JMP Securities is a U.S. registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. JMP Securities operates as an introducing broker and does not hold funds or securities for, or owe any money or securities to customers, and does not carry accounts for customers. All customer transactions are cleared through another broker-dealer on a fully disclosed basis. JMPAM is a registered investment advisor under the Investment Advisers Act of 1940 and provides investment management services for sophisticated investors in investment partnerships managed by JMPAM.

2. Summary of Significant Accounting Policies

Basis of Presentation

These consolidated financial statements and related notes are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10–Q and Article 10 of Regulation S–X. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2006 included in its Registration Statement on Form S-1 filed with the SEC (File No. 333-140689). These consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for the fair statement of the results for the interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year.

The consolidated accounts of JMP Group LLC include its wholly-owned subsidiaries JMP Securities and JMPAM, and its partially-owned subsidiaries JMP Realty Trust (“JMPRT”), Harvest Consumer Partners (“HCP”) and Harvest Technology Partners (“HTP”). All material intercompany accounts and transactions have been eliminated.

Minority interest relates to the interest of third parties in JMPRT and in the two asset management funds HCP and HTP.

JMPRT is a real estate investment trust that was formed in June 2006. As of March 31, 2007, the Company owned 50.1% of JMPRT and certain employee members owned 20.5%. JMPRT is managed by JMPAM. Because of the current ownership and management position, the Company consolidates JMPRT and records minority interest.

JMPAM is the general partner of HTP and HCP, each of which commenced operations during 2006. As of March 31, 2007, the Company and its affiliates, officers, and immediate family members provided 95.3% and 95.0%, respectively, of the invested capital in these funds. Due to this ownership and resulting control by the Company and related parties, HTP and HCP are consolidated in the Company’s financial statements. HTP and HCP account for their investments at fair value, which is consistent with the Company’s accounting policies for “Marketable securities owned, at market value” and “Marketable securities sold, but not yet purchased, at market value.” The base management fees and incentive fees earned by HTP and HCP are eliminated in consolidation.

 

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Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect both the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Revenue Recognition

Investment banking revenues , which include underwriting revenues, strategic advisory revenues and private placement fees, are recorded when the underlying transaction is completed under the terms of the relevant agreement. Underwriting revenues arise from securities offerings in which the Company acts as an underwriter and include management fees, selling concessions and underwriting fees, net of related syndicate expenses. Management fees and selling concessions are recorded on the trade date, which is typically the day of pricing an offering (or the following day) and underwriting fees, net of related syndicate expenses, at the time the underwriting is completed and the related income is reasonably determinable. For these transactions, management estimates the Company’s share of the transaction-related expenses incurred by the syndicate, and recognizes revenues net of such expense. On final settlement, typically 90 days from the trade date of the transaction, these amounts are adjusted to reflect the actual transaction-related expenses and the resulting underwriting fee. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. If management determines that a transaction is likely not to be completed, deferred expenses related to that transaction are expensed at that time. Strategic advisory revenues primarily include success fees on closed merger and acquisition transactions, as well as retainer fees, earned in connection with advising on both buyers and sellers transactions. Fees are also earned for related advisory work and other services such as providing fairness and valuation opinions. Strategic advisory revenues are recorded when the transactions or the services (or, if applicable, separate components thereof) to be performed are substantially complete, the fees are determinable and collection is reasonably assured. Private placement fees are recorded on the closing date of the transaction. Unreimbursed expenses associated with strategic advisory and private placement transactions, net of client reimbursements, are recorded as non-compensation expense.

Brokerage revenues include (i) commissions resulting from equity securities transactions executed as agent or principal and are recorded on a trade date basis, (ii) related net trading gains and losses from market making activities and from the commitment of capital to facilitate customer orders and (iii) fees paid for equity research. The Company currently generates revenues from research activities through three types of arrangements. First, through what is commonly known as a “soft dollar” practice, a portion of a client’s commissions may be compensation for the value of access to our research. Those commissions are recognized on a trade date basis, as the Company has no further obligation. Second, a client may issue a cash payment directly to the Company for access to research. Third, the Company has entered into certain commission sharing or tri-party arrangements in which institutional clients execute trades with a limited number of brokers and instruct those brokers to allocate a portion of the commission to the Company or to issue a cash payment to the Company. In these commission sharing or tri-party arrangements, the amount of the fee is determined by the client on a case by case basis, agreed to by the Company and an invoice is sent to the payor. For the second and third types of arrangements, revenue is recognized and an invoice is sent once an arrangement exists, access to research has been provided, a specific amount is fixed or determinable, and collectibility is reasonably assured. None of these arrangements obligate clients to a fixed amount of fees for research, either through trading commissions or direct or indirect cash payments, nor do they obligate the Company to provide a fixed quantity of research or execute a fixed number of trades. Furthermore, the Company is not obligated under any arrangement to make commission payments to third parties on behalf of clients.

Principal transactions revenue includes realized and unrealized net gains and losses resulting from our principal investments in equity securities for the Company’s account and in equity linked warrants received from certain investment banking assignments. Principal transactions revenue also includes earnings (or losses) attributable to investment partnership interests held by our asset management subsidiary, JMPAM, which are accounted for under the equity method of accounting.

The Company’s principal transactions revenue for these categories for the quarters ended March 31, 2007 and 2006 are as follows:

 

     Three Months Ended
March 31,
 
     2007     2006  

Equity securities

   $ (476,635 )   $ (273,281 )

Warrants

     25,518       191,034  

Investment partnerships

     382,903       207,457  
                

Principal transactions revenue

   $ (68,214 )   $ 125,210  
                

Asset management fees include base management fees and incentive fees. The Company recognizes base management fees on a monthly basis over the period the investment services are performed. Base management fees earned by the Company are generally based on the fair value of assets under management and the fee schedule for each fund and account. Base management fees are

 

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calculated at the investor level using their quarter beginning capital balance adjusted for any contributions or withdrawals. Since base management fees are based on assets under management, significant changes in the fair value of these assets will have an impact on the fees earned by the Company in future periods. The Company also earns incentive fees that are based upon the performance of investment funds and accounts. Such fees are either a specified percentage of the total investment return of a fund or account or a percentage of the excess of an investment return over a specified highwater mark or hurdle rate over a defined performance period. For most funds, the highwater mark is calculated using the greatest value of a partner’s capital account as of the end of any performance period, adjusted for contributions and withdrawals. Incentive fees are recognized as revenue at the end of the specified performance period. The performance period used to determine the incentive fee is quarterly for the five hedge funds and annually for the two funds of hedge funds managed by JMPAM. The incentive fees are not subject to any contingent repayments to investors or any other clawback arrangements.

Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities or remaining maturities upon purchase of three months or less to be cash equivalents.

Restricted Cash and Deposits

Restricted cash consists of proceeds from short sales on deposit with brokers that cannot be removed unless the securities are delivered. Deposits consist of cash on deposit for operating leases as well as cash on deposit with JMP Securities’ clearing broker.

Receivable from Clearing Broker

The Company clears customer transactions through another broker-dealer on a fully disclosed basis. At March 31, 2007 and December 31, 2006, the receivable from clearing broker consisted solely of commissions related to securities transactions.

Investment Banking Fees Receivable

Investment banking fees receivable include receivables relating to the Company’s investment banking or advisory engagements. The Company records an allowance for doubtful accounts on these receivables on a specific identification basis.

Securities and Other Investments

Marketable securities owned and securities sold, but not yet purchased, consist of equity securities. These securities are carried at market value, which is based on quoted market prices, with unrealized gains and losses included in revenues as principal transactions. Such amounts are determined on a trade date basis.

Also included in marketable securities owned are warrants on public common stock that are received as a result of investment banking transactions and are valued at estimated fair value as determined by management. Warrants owned are valued at the date of issuance and marked-to-market as unrealized gains and losses until realized. Estimated fair value is determined using the Black-Scholes Option Valuation methodology adjusted for active market and other considerations on a case by case basis. Gains and losses on these investments are included in revenues as principal transactions. Because of the inherent uncertainty of valuations of warrants, estimated fair values may differ significantly from the value that would have been used had a ready market for the investments existed, and these differences could be material.

Other investments consist principally of investments in private investment funds managed by the Company or its affiliates as well as cash paid for a subscription in a private investment fund. Such investments held by non-broker-dealer entities are accounted for under the equity method based on the Company’s share of the earnings (or losses) of the investee. The financial position and operating results of the private investment funds are generally determined on an estimated fair value basis under the AICPA Audit and Accounting Guide: Investment Companies. Generally, securities are valued (i) at their last published sale price if they are listed on an established exchange or (ii) if last sales prices are not published, at the highest closing “bid” price (for securities held “long”) and the lowest closing “asked” price (for “short” positions) as recorded by the composite tape system or such principal exchange, as the case may be. Where the general partner determines that market prices or quotations do not fairly represent the value of a security in the investment fund’s portfolio (for example, if a security is a restricted security of a class that is publicly traded) the general partner may assign a different value. The general partner will determine the estimated fair value of any assets that are not publicly traded.

Fair Value of Financial Instruments

Substantially all of the Company’s financial instruments are recorded at fair value or contractual amounts that approximate fair value. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidating sale. Securities owned, other investments and securities sold, not yet purchased, are stated at fair value, with related changes in unrealized appreciation or depreciation reflected in the accompanying consolidated statements of income.

 

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Management believes that the net fair value of the receivable from clearing broker, investment banking fees receivable, and accrued compensation recognized on the Consolidated Statements of Financial Condition approximate their carrying value, because such instruments are short-term in nature, bear interest at current market rates, or are subject to frequent repricing. The fair value of the Redeemable Class A member interests recognized on the Consolidated Statements of Financial Condition is based on the amounts that the Company expects to be required to pay to an employee member upon resignation to redeem its Redeemable Class A member interests and is equal to the capital account of such employee member as maintained by the Company.

Fair value of the Company’s financial instruments is generally obtained from quoted market prices, broker or dealer price quotations, or alternative pricing methodologies that the Company believes offer reasonable levels of price transparency. To the extent certain financial instruments trade infrequently or are non-marketable securities and, therefore, do not have readily determinable fair values, the Company estimates the fair value of these instruments using various pricing models and the information available to the Company that it deems most relevant. Among the factors considered by the Company in determining the fair value of financial instruments are discounted anticipated cash flows, the cost, terms and liquidity of the instrument, the financial condition, operating results and credit ratings of the issuer or underlying company, the quoted market price of publicly traded securities with similar duration and yield, the Black-Scholes Option Valuation methodology adjusted for active market and other considerations on a case by case basis and other factors generally pertinent to the valuation of financial instruments.

Fixed Assets

Fixed assets represent furniture and fixtures, computer and office equipment and leasehold improvements, which are stated at cost less accumulated depreciation and amortization. Depreciation is computed on the straight-line basis over the estimated useful lives of the respective assets, ranging from three to five years.

Leasehold improvements are capitalized and amortized over the shorter of the respective lease terms or the estimated useful lives of the improvements.

The Company capitalizes certain costs of computer software developed or obtained for internal use and amortizes the amount over the estimated useful life of the software, generally not exceeding three years.

Income Taxes

As a limited liability company that is treated as a partnership for federal and state income tax purposes, the Company is not subject to federal and state income taxes, and accordingly, it does not provide for the federal and state income taxes in the financial statements. The Company is liable for state and local unincorporated business tax or franchise tax.

Stock Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) 123R, Share-Based Payment , using the modified prospective method. Under that method of adoption, the provisions of SFAS 123R are generally only applied to share-based awards granted subsequent to adoption. Prior to January 1, 2006, the Company accounted for stock-based compensation under SFAS 123, Accounting for Stock-Based Compensation. SFAS 123R requires measurement of compensation cost for equity classified stock-based awards at fair value on the date of grant and recognition of compensation expense over the service period for awards expected to vest. Such grants are recognized as expenses over the service period, net of estimated forfeitures.

Stock-based compensation includes stock options granted under the Company’s 2004 Equity Incentive Plan as well as changes in Redeemable Class A member interests, which are membership interests issued to the Company’s employee members and recorded as a liability. The Company uses the Black-Scholes option-pricing model to calculate the fair value of the options, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company’s options. These models also require subjective assumptions including future stock price volatility, dividend yield and expected time to exercise, which greatly affects the calculated values.

Reclassification

Certain balances from prior years have been reclassified in order to conform to the current year presentation, without impact on the Company’s financial position, income or cash flows.

3. Recent Accounting Pronouncements

SFAS No. 157, Fair Value Measurements (“SFAS 157”). In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, which will become effective for the Company on January 1, 2008. This standard establishes a consistent framework for measuring fair value in accordance with GAAP, and expands disclosures with respect to fair value measurements. The Company is assessing SFAS 157 to determine the financial impact, if any, on the Company’s consolidated financial statements.

 

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Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109 (“FIN 48”) . In June 2006, the FASB issued FIN 48, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007, and the Company determined that there was no material impact on the consolidated financial statements.

SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (“SFAS 159”). In February 2007, the FASB issued SFAS 159, which provides companies with an option to report selected financial assets and liabilities at fair value. It requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. In addition, unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company is currently evaluating SFAS 159 and has not yet determined the financial assets and liabilities, if any, for which the fair value option would be elected or the potential impact on the results of operations or financial condition if such election were made.

4. Securities and Other Investments

Marketable securities consist primarily of U.S. listed and over-the-counter equities, which are carried at market value. At March 31, 2007 and December 31, 2006, the cost basis of these securities were $12,481,226 and $11,592,593, respectively.

Securities sold, but not yet purchased, represent obligations of the Company to deliver a specific security at a contracted price and thereby create a liability to repurchase the security in the market at prevailing prices. Accordingly, these transactions involve, to varying degrees, elements of market risk, as the Company’s ultimate obligation to satisfy the sale of securities sold, but not yet purchased, may exceed the amount recognized in the consolidated statements of financial condition. At March 31, 2007 and December 31, 2006, proceeds from securities sold, but not yet purchased were $8,041,164 and $7,193,997, respectively.

Included in other investments are investments in partnerships in which one of the Company’s subsidiaries is the investment manager and general partner and an investment in a fund managed by a third party. The Company accounts for these investments using the equity method as described in Note 2. The Company’s proportionate share of those investments was $13,495,149 and $12,498,743 at March 31, 2007 and December 31, 2006, respectively. Substantially all of the investments of both HTP and HCP consist of long and short positions in publicly traded U.S. equity securities. Other investments also include warrants which were carried at fair value of $537,654 and $491,725 at March 31, 2007 and December 31, 2006, respectively. The Company recognized unrealized gains of $25,518 and $191,034 for these warrants for the three months ended March 31, 2007 and 2006, respectively.

The following table presents certain information with respect to those investment funds managed by JMPAM as of March 31, 2007:

 

          For Three Months Ended March 31,
2007
    

Company’s
Share of

Net Asset
Value

   Company’s
Share of
Change in
Fair Value
    JMPAM
Management
Fee
   JMPAM
Incentive
Fee

Hedge Funds

          

Harvest Opportunity Partners II

   $ 6,065,980    $ 1,480     $ 309,140    $ —  

Harvest Value Income Plus

     2,217,852      (29,148 )     40,814      —  

Harvest Small Cap Partners

     4,332,714      331,913       57,272      226,956

Harvest Consumer Partners*

     916,495      22,708       4,937      4,501

Harvest Technology Partners*

     594,299      39,049       3,199      8,835

Funds of Funds

          

JMP Masters Fund

     611,340      16,901       188,312      20,223

JMP Emerging Masters Fund

     N/A      N/A       22,556      2,012

REIT

          

JMP Realty Trust

     2,016,984      (21,931 )     14,997      —  

* HTP and HCP are consolidated and not included in Other Investments.

As of March 31, 2007, the contractual base management fees earned from each of these investment funds ranged between 1% and 2% of assets under management. The contractual incentive fees were generally 20%, subject to highwater marks, for the hedge funds, 5% to 10%, subject to highwater marks, for the funds of funds, and 25%, subject to a performance hurdle rate, for JMPRT.

 

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5. Fixed Assets

At March 31, 2007 and December 31, 2006, fixed assets consisted of the following:

 

     March 31, 2007     December 31, 2006  

Furniture and fixtures

   $ 1,247,728     $ 1,247,728  

Computer and office equipment

     2,685,774       2,664,425  

Leasehold improvements

     2,268,978       2,268,978  

Software

     438,931       438,931  
                

Less: accumulated depreciation

     (4,351,177 )     (3,994,660 )
                

Total fixed assets, net

   $ 2,290,234     $ 2,625,402  
                

Depreciation expense for three months ended March 31, 2007 and 2006 totaled $356,517 and $420,168, respectively.

6. Note Payable

On August 3, 2006, the Company entered into a revolving note with City National Bank for up to $30 million, replacing a prior $10 million annual revolving note. Each draw bears interest at the prime rate less 1.25% annually or at LIBOR plus 1.25% annually, at the election of the Company, and the note expires on June 30, 2008. The Company paid a closing fee of $75,000 and pays an annual unused commitment fee of 0.25% payable quarterly in arrears. The Company has the option to extend the term of the revolving note by one year or convert the outstanding balance to a three-year term loan. There are no periodic principal payments required for this facility until maturity. This facility is collateralized by a pledge of the Company’s assets, including its interests in each of JMP Securities and JMPAM. There was no outstanding note balance at March 31, 2007.

7. Redeemable Member Interests

Redeemable Class A Member Interests

Redeemable Class A member interests are issued to employees of the Company or its subsidiaries, and are entitled to share in the operating profits of the Company. Redeemable Class A member interests are identical in nature to Class A common interests issued to non-employee Class A common members, except that Class A common members are not subject to insider rules, as defined in the Operating Agreement. These insider rules provide, among other items, that the Company may redeem the employee member’s interest in the Company at any time, in whole or in part. In addition, the employee member may redeem his or her Redeemable Class A member interests in whole upon his or her resignation from providing services to the Company. In either such case (and excluding terminations for cause or upon events of default), the redemption price will be either of the following at the Company’s election: (i) the capital account balance of the employee member or (ii) the percent of “liquidation value” represented by such interest based on a valuation formula. Redeemable Class A member interests and Class A common interests combined represent 84.5% of the Company’s membership interests. Increases and decreases in Redeemable Class A member interests result in offsetting decreases and increases in Class A common interests. As a result, Redeemable Class A member interests represent a variable percentage of the Company’s total membership interests. Redeemable Class A member interests represented 68.3% and 74.8% of the Company’s membership interests as of March 31, 2007 and December 31, 2006, respectively.

Redeemable Class A member interests were accounted for as stock-based compensation under SFAS 123 until December 31, 2005 and SFAS 123R thereafter. Each holder of Redeemable Class A member interests is a party to the Operating Agreement which provides that an employee member may elect to redeem all, but not less than all, of their Redeemable Class A member interests without the Company’s consent in connection with such person’s resignation from the Company. Because the repurchase feature permits the employee to avoid bearing the risks and rewards normally associated with equity share ownership for a reasonable period of time and gives the Company no discretion to avoid transferring its cash or assets to the employee if the employee elects redemption, the Redeemable Class A Interests are classified as a liability. The liability amount for the Redeemable Class A member interests is measured at each balance sheet date based on the redemption amounts for the Class A member interests. The redemption amount for an employee member is the amount the Company is required to pay to an employee member upon resignation to redeem all his Redeemable Class A member interests as provided by the Operating Agreement. Management has determined that member interests would be redeemed at an amount equal to the capital account of such employee member as maintained by the Company. The pro rata share of the Company’s income allocated to Redeemable Class A member interests and any additional changes in the redemption amount of Redeemable Class A member interests are recorded as “Income allocation and accretion—Redeemable Class A member interests” in the Consolidated Statements of Income.

 

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The following table summarizes the activity for the Redeemable Class A member interests for the three months ended March 31, 2007 and the year ended December 31, 2006:

 

     Redeemable
Class A
Member
Interests
 

Balance at December 31, 2005

   $ 11,516,753  

Contributions

     4,643,527  

Redemptions

     (2,508,681 )

Income allocation and accretion

     10,663,934  

Distributions

     (11,401,764 )
        

Balance at December 31, 2006

   $ 12,913,769  

Contributions

     2,375,443  

Redemptions

     (3,319,652 )

Income allocation and accretion

     3,049,557  

Distributions

     (3,133,899 )
        

Balance at March 31, 2007

   $ 11,885,218  
        

8. Employee Benefits

All salaried employees and members of the Company are eligible to participate in the JMP Group 401(k) Plan (the “Plan”) after three months of employment. Participants may contribute up to the limits set by the United States Internal Revenue Service. There were no contributions by the Company during the three months ended March 31, 2007 and the year ended December 31, 2006.

9. Members’ Equity

Capital Accounts

A capital account is maintained for each member of JMP Group LLC. The account is increased by capital contributions, allocable share of net profit and any items of income or gain, and decreased by distributions, allocable share of net loss and any items of expense or loss.

Membership Classes

The Company is authorized to issue Class A common and Class B common interests. Subject to provisions in accordance with the Operating Agreement, the Company may issue additional units of certain classes of membership and may designate additional classes and series of interests.

Class A Common Interests

Class A common interests are issued to non-employee members, some of whom converted their Series A Convertible Preferred Units into Class A common interests in April 2004, and are entitled to share in the operating profits of the Company. Class A common interests and Redeemable Class A member interests combined represent 84.5% of the Company’s membership interests. Increases and decreases in Class A common interests result in offsetting decreases and increases in Redeemable Class A member interests. As a result, Class A common interests represent a variable percentage of the Company’s total membership interests. Class A common interests represented 16.2% and 9.7% of the Company’s membership interests as of March 31, 2007 and December 31, 2006, respectively.

Class B Common Interests

On August 18, 2004, the Company issued Class B common interests in a private offering to qualified institutional buyers and accredited investors. The Class B common interests outstanding were equal to 15.5% of the total outstanding common interests of the Company at the closing of the private offering. Class B common interests are identical in nature to Class A common interests, except for (i) the anti-dilution provision, which provides that the Class B membership interests will not be reduced by additional issuances of Class A common interests or Redeemable Class A member interests, and (ii) demand registration rights giving the holders of Class B common interests an annual vote to cause a corporate conversion of the Company, which would result in registration of the converted common interests with the SEC with subsequent listing on a national exchange or the over-the-counter market. Class B common interests represented 15.5% of the Company’s membership interests as of March 31, 2007 and December 31, 2006.

10. Equity Incentive Plan

On July 18, 2006, a total of 50,000 options were granted to two employees who were not members of the Company. The

 

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options have an exercise price of $12.50 per share, an exercise period of seven years and will vest and become exercisable 25% at each of the four subsequent anniversaries of the grant date. The fair value of the employee option grants has been estimated on the date of grant using the Black-Scholes Option Valuation methodology with the following assumptions: expected life of options of 4.70 years, risk-free interest rate of 5.10%, dividend yield of 4.4% and volatility of 28.0%. The dividend estimate was based on the recurring base dividend and special dividend estimated for 2006 and deemed to be representative for future periods. The Company used the volatility of comparable public companies to estimate the volatility. The fair value of the options granted in July 2006 is $2.03 for each option or $101,500 for all options granted.

On December 19, 2006, a total of 1,370,000 options were granted to a number of employee members and non-members of the Company. The options have an exercise price of $12.50 per share, an exercise period of seven years and will vest and become exercisable 25% at each of the four subsequent anniversaries of the grant date. The exercise price was equal to the estimated fair market value of the underlying Class B common interests, which was estimated based on (i) a trade of common stock of JMP Holdings Inc. at $12.50 between two unrelated third parties in the PORTAL market in November 2006 and (ii) a valuation analysis based on earnings multiples of publicly traded peer companies. The fair value of the employee option grants has been estimated on the date of grant using the Black-Scholes Option Valuation methodology with the following assumptions: expected life of options of 4.75 years, risk-free interest rate of 4.67%, dividend yield of 4.0% and volatility of 31.2%. The dividend estimate was based on the recurring base dividend and special dividend estimated for 2006 and deemed to be representative for future periods. The Company used the volatility of comparable public companies to estimate the volatility. The fair value of the options granted in December 2006 is $3.01 for each option or $3,971,364 for all options granted, with an annual estimated forfeiture rate of 1.5%.

On January 5, 2007, a total of 50,000 options were granted to several members and non-member employees of the Company. The options have an exercise price of $12.50 per share, an exercise period of seven years and will vest and become exercisable 25% on December 19, 2007 and 25% at each of the three subsequent anniversaries of this date. The exercise price was equal to the estimated fair market value of the underlying security on grant date. Such fair value was estimated by using the Black-Scholes Option Valuation methodology with the following assumptions: expected life of options of 4.75 years, risk-free interest rate of 4.67%, expected dividend yield of 4.0% and volatility of 31.2%. The dividend estimate was based on the recurring dividend yield and deemed to be representative for future periods. The Company used the volatility of comparable public companies to estimate the volatility. The fair value of the options granted in January 5, 2007 is $3.01 per option or $144,940 for all options granted, with an annual estimated forfeiture rate of 1.5%.

On January 31, 2007, a total of 25,000 options were granted to a member employee of the Company. The options have an exercise price of $12.50 per share, an exercise period of seven years and will vest and become exercisable 25% at each of the four subsequent anniversaries of this date. The exercise price was equal to the estimated fair market value of the underlying security on grant date. Such fair value was estimated by using the Black-Scholes Option Valuation methodology with the following assumptions: expected life of options of 4.75 years, risk-free interest rate of 4.67%, expected dividend yield of 4.0% and volatility of 31.2%. The dividend estimate was based on the recurring dividend yield and deemed to be representative for future periods. The Company used the volatility of comparable public companies to estimate the volatility. The fair value of the options granted in January 31, 2007 is $3.01 per option or $72,470 for all options granted, with an annual estimated forfeiture rate of 1.5%.

In connection with these grants, the Company records compensation expense over the graded vesting period of the options using the accelerated attribution method under FIN 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, which resulted in compensation expense of $542,402 and $20,943 for the three months ended March 31, 2007 and 2006, respectively. Additional compensation expense of $3,558,528 is expected to be recognized over a weighted average period of 3.7 years.

On March 26, 2007, the board of directors adopted the JMP Group Inc. 2007 Equity Incentive Plan, which was approved by the stockholders on April 12, 2007. JMP Group Inc. authorized the issuance of 4,000,000 shares of its common stock under this plan. This amount may be increased by any shares JMP Group Inc. purchases on the open market, or through any share repurchase or share exchange program and any shares that may be returned to the JMP Group LLC 2004 Equity Incentive Plan (“JMP Group 2004 Plan”) as a result of forfeiture, termination or expiration of awards; not to exceed a maximum aggregate number of shares of 2,960,000 shares under the JMP Group 2004 Plan.

 

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The following table summarizes the activity under the JMP Group 2004 Plan during the three month ended March 31, 2007 and 2006:

 

     Three Months Ended March 31,
     2007    2006
     Shares
Subject to
Option
    Average
Exercise
Price
   Shares
Subject to
Option
   Average
Exercise
Price

Options to purchase Class B common interests

          

Balance outstanding at beginning of period

     2,639,940     $ 11.44      1,242,140    $ 10.16

Options granted

     75,000       12.50      0      0

Options exercised

     0       0      0      0

Options forfeited

     (161,000 )     10.78      0      0

Options expired

     0       0      0      0

Balance outstanding at end of period

     2,553,940     $ 11.51      1,242,140    $ 10.16

Options exercisable at period end

     336,934     $ 10.74      50,000    $ 15.00

Weighted average fair value of options granted during the period

   $ 3.01     $ 12.50    $ 0    $ 0

The following table summarizes information about options outstanding to purchase Class B common interests at March 31, 2007:

 

Options Outstanding    Options Vested and Exercisable

Range of

Exercise

Prices

  

Number

Outstanding

  

Weighted

Average

Remaining

Contractual
Life in
Years

   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic
Value
   Number
Exercisable
  

Weighted

Average

Remaining

Contractual
Life in
Years

   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic
Value
$10.00 - $15.00    2,553,940    7.5    $ 11.51    $ 2,647,350    336,934    7.8    $ 10.74    $ 717,335
                                               
   2,553,940    7.5    $ 11.51    $ 2,647,350    336,934    7.8    $ 10.74    $ 717,335
                                               

11. Net Income per Unit Attributable to Class A and Class B Common Interests

The Company calculates net income per unit attributable to Class A and Class B common interests in accordance with SFAS 128, Earnings per Share . Basic net income per unit is calculated by dividing net income attributable to Class A and Class B common interests by the weighted average number of units of Class A and Class B common interests outstanding for the reporting period. Diluted net income per unit is computed similarly, except that it reflects the potential dilutive impact that would occur if dilutive securities were exercised or converted into membership interests. To determine an average market price for applying the treasury stock method, the Company estimated the fair market value of the Company’s Class B common interests based on trades of Class B common interests between third parties and earnings multiples for publicly traded comparables.

In August 2004, the Company issued 2,300,000 units of Class B common interests in a private offering, which represented 15.5% of the Company’s membership interests. Because there is a direct relationship between the number of Class B common interests outstanding and the ownership percentage in our equity, we were able to determine the number of units associated with the Class A common interests outstanding. As a result, the Company was able to determine net income per unit, based on an implied number of Class A common interests and an existing number of Class B common interests outstanding. Pursuant to SFAS 128, Earnings per Share , paragraph 133 and SEC Staff Accounting Bulletin Topic 4-C, the Company has reflected this capital structure for purposes of determining net income per unit in all periods presented.

As described in Note 7, the Redeemable Class A member interests are classified as liability due to the employee redemption rights, which represents a mandatory redemption feature. Therefore, Redeemable Class A member interests are excluded from computations of net income per unit and any amounts attributed to holders of Redeemable Class A member interests have been deducted to derive net income attributable to common interests.

 

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The computations for basic and diluted net income per unit for the three months ended March 31, 2007 and 2006 are set forth below:

 

     Three Months Ended March 31,
     2007    2006
     Class A
Common
   Class B
Common
   Class A
Common
   Class B
Common

Numerator for basic net income per unit attributable to Class A and
Class B common interests

   $ 419,816    $ 405,465    $ 158,063    $ 254,076

Denominator for basic net income per unit—weighted average number of
Class A and Class B common units outstanding

     2,381,410      2,300,000      1,430,846      2,300,000

Effect of potential dilutive securities:

           

Options to purchase Class B common interests

     59,113      57,093      0      0

Denominator for dilutive net income per unit—weighted average number of Class A and Class B common units outstanding and impact of potential dilutive securities

     2,440,524      2,357,093      1,430,846      2,300,000

Net income per unit attributable to Class A and Class B common interests

           

Basic

   $ 0.18    $ 0.18    $ 0.11    $ 0.11

Diluted

   $ 0.17    $ 0.17    $ 0.11    $ 0.11

For the three months ended March 31, 2007, the options to purchase Class B common interests had a dilutive effect on the net income per unit for both Class A common interests and Class B common interests because the additional Class B common interests underlying the options reduces the net income attributable to both classes of outstanding common interests on a pro rata basis. The total dilutive impact of 116,206 additional shares was therefore allocated based on the relative membership percentage represented by Class A common interests and Class B common interests and resulted in allocation of 59,113 diluted shares to Class A common interests and 57,093 diluted shares to Class B common interests. For the three months ended March 31, 2006, the options to purchase Class B common interests had no dilutive effect on the net income per unit because they were non-dilutive for the period.

12. Commitments and Contingencies

The Company leases office space in California, Illinois, Georgia, Massachusetts and New York under various operating leases. Rental expense for the three months ended March 31, 2007 and 2006 was $466,391 and $466,776, respectively. The California and New York leases included a period of free rent at the start of the lease for seven months and three months, respectively. Rent expense is recognized over the entire lease uniformly net of the free rent savings. The aggregate minimum future commitments of these leases are:

 

April 1, 2007 through December 31, 2007

   $ 1,436,038

2008

     1,962,938

2009

     2,250,368

2010

     2,250,368

2011

     1,629,198
      
   $ 9,528,910
      

In connection with its underwriting activities, JMP Securities enters into firm commitments for the purchase of securities in return for a fee. These commitments require JMP Securities to purchase securities at a specified price. Securities underwriting exposes JMP Securities to market and credit risk, primarily in the event that, for any reason, securities purchased by JMP Securities cannot be distributed at anticipated price levels. At March 31, 2007, JMP Securities had no open underwriting commitments.

The securities owned and the restricted cash as well as the cash held by the clearing broker, may be used to maintain margin requirements. At March 31, 2007 and December 31, 2006, the Company had $255,336 of cash on deposit with JMP Securities’ clearing broker. Furthermore, the securities owned may be hypothecated or borrowed by the clearing broker.

The Company has committed $10,260,000 in capital to JMPRT, of which, as of March 31, 2007, a total of $2,052,000 had been drawn. The Company has an additional capital commitment of $245,965 related to its investment in a private investment fund.

13. Regulatory Requirements

JMP Securities is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. JMP Securities had net capital of $21,581,004 and $33,936,970, which were $21,050,504 and $33,420,970 in excess of the required net capital of $530,500 and $516,000 at March 31, 2007 and December 31, 2006, respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was 0.12 to 1 and 0.10 to 1 at March 31, 2007 and December 31, 2006, respectively.

 

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Since all customer transactions are cleared through another broker-dealer on a fully disclosed basis, JMP Securities is not required to maintain a separate bank account for the exclusive benefit of customers in accordance with Rule 15c3-3 of the Securities and Exchange Commission.

14. Related Party Transactions

The Company earns base management fees and incentive fees from serving as investment advisor for partnerships and offshore investment companies in which it also owns an investment. Base management fees from these activities were $641,227 and $826,830 for three months ended March 31, 2007 and 2006, respectively. Also, incentive fees of $262,525 and $0 were earned by JMPAM from these partnerships and offshore investment companies for three the months ended March 31, 2007 and 2006, respectively.

On August 18, 2004, the Company entered into a Services Agreement with JMP Holdings Inc. whereby the Company will provide JMP Holdings Inc. with various corporate support services, which include certain tax, accounting, legal and administrative functions, and bear certain expenses, which include professional fees, director’s fees, corporate franchise tax and certain filing fees. As of March 31, 2007, JMP Holdings Inc. owned a 6.84% membership interest in the Company. As of March 31, 2007 and December 31, 2006, respectively, the Company had made non-interest bearing advances of $659,552 and $708,053 to JMP Holdings, Inc. to pay income taxes and other expenses.

15. Guarantees

JMP Securities has agreed to indemnify its clearing broker for losses that the clearing broker may sustain from the accounts of customers introduced by JMP Securities. Should a customer not fulfill its obligation on a transaction, JMP Securities may be required to buy or sell securities at prevailing market prices in the future on behalf of its customer. JMP Securities’ obligation under the indemnification has no maximum amount. All unsettled trades at March 31, 2007 had settled with no resulting liability to the Company. During the year ended December 31, 2006, the Company did not have a loss due to counterparty failure, and has no obligations outstanding under the indemnification arrangement as of March 31, 2007.

The Company is engaged in various investment banking and brokerage activities whose counterparties primarily include broker-dealers, banks and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. It is the Company’s policy to review, as necessary, the credit standing of each counterparty with which it conducts business.

16. Litigation

Due to the nature of its business, the Company is subject to various threatened or filed legal actions. For example, because we act as an underwriter or a financial advisor in the ordinary course of our business, we have in the past been, currently are and may in the future be subjected to class action claims that seek substantial damages.

In addition, defending employment claims against us could require the expenditure of substantial resources. Such litigation is inherently uncertain and the ultimate resolution of such litigation could be determined by factors outside of our control. Management, after consultation with legal counsel, believes that the currently known actions or threats will not result in any material adverse effect on the Company’s financial condition, results of operations or cash flows.

17. Financial Instruments with Off-balance Sheet Risk, Credit Risk or Market Risk

The majority of the Company’s transactions, and consequently the concentration of its credit exposure, is with its clearing broker. The clearing broker is also the primary source of short-term financing for the Company, which is collateralized by cash and securities owned by the Company and held by the clearing broker. The Company’s securities owned may be pledged by the clearing broker. In addition, as of March 31, 2007 and December 31, 2006, the Company held cash at the clearing broker and the prime broker in the amount of $41,924,781 and $50,372,618, respectively. The amount receivable from the clearing broker represents amounts receivable in connection with the trading of proprietary positions.

In addition to the clearing broker, the Company is exposed to credit risk from other brokers, dealers and other financial institutions with which it transacts business. In the event counterparties do not fulfill their obligations, the Company may be exposed to credit risk.

The Company’s trading activities include providing securities brokerage services to institutional clients. To facilitate these customer transactions, the Company purchases proprietary securities positions (“long positions”) in equity securities. The Company

 

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also enters into transactions to sell securities not yet purchased (“short positions”), which are recorded as liabilities on the statement of financial condition. The Company is exposed to market risk on these long and short securities positions as a result of decreases in market value of long positions and increases in market value of short positions. Short positions create a liability to purchase the security in the market at prevailing prices. Such transactions result in off-balance sheet market risk as the Company’s ultimate obligation to satisfy the sale of securities sold, not yet purchased may exceed the amount recorded in the statement of financial condition. To mitigate the risk of losses, these securities positions are marked to market daily and are monitored by management to assure compliance with limits established by the Company.

18. Business Segments

The Company’s business results are categorized into the following two segments: Broker-Dealer and Asset Management. The Broker-Dealer segment includes a broad range of services, such as underwriting and acting as a placement agent for public and private capital raising transactions and financial advisory services in M&A, restructuring and other strategic transactions. The Broker-Dealer segment also includes institutional brokerage services and equity research services to our institutional investor clients. The Asset Management segment includes the management of a broad range of pooled investment vehicles, including the Company’s hedge funds and funds of funds as well as the Company’s principal investments in public and private securities.

The accounting policies of the segments are consistent with those described in the Significant Accounting Policies in Note 2.

Revenue generating activities between segments are eliminated from the segment results for reporting purposes. These activities include fees paid by the Broker-Dealer segment to the Asset Management segment for the management of its investment portfolio.

The Company’s segment information for the three months ended March 31, 2007 and 2006 is prepared using the following methodology:

 

   

Revenues and expenses directly associated with each segment are included in determining income.

 

   

Revenues and expenses not directly associated with a specific segment are allocated based on the most relevant measures applicable, including headcount, revenues and other factors.

 

   

Each segment’s operating expenses include: a) compensation and benefits expenses that are incurred directly in support of the segments and b) other operating expenses, which include expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment and indirect support costs (including compensation and other operating expenses related thereto) for administrative services.

 

   

Corporate operating expenses include income allocation and accretion—Redeemable Class A member interests and interest expense payable on Redeemable Class A member interests. These expenses are not allocated to the segments, because Redeemable Class A member interests are capital to the Company as a whole and the income allocation is based on the Company’s consolidated results.

The Company evaluates segment results based on revenue and segment income.

 

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Segment Operating Results

Management believes that the following information provides a reasonable representation of each segment’s contribution to revenues, income and assets:

 

         Three Months Ended
March 31,
         2007    2006
         (in thousands)
Broker-Dealer  

Revenues

   $ 20,418    $ 17,655
 

Operating expenses

     16,323      15,309
               
 

Segment income

   $ 4,095    $ 2,346
               
 

Segment assets

   $ 62,041    $ 52,385
Asset Management  

Revenues

   $ 1,496    $ 1,119
 

Operating expenses

     1,297      883
               
 

Segment income

   $ 199    $ 236
               
 

Segment assets

   $ 26,388    $ 14,393
Corporate  

Operating expenses

   $ 3,469    $ 2,170
Consolidated Entity  

Revenues

   $ 21,914    $ 18,774
 

Operating expenses

     21,089      18,362
               
 

Net income

   $ 825    $ 412
               
 

Total assets

   $ 88,429    $ 66,778

19. Subsequent Events

Corporate Reorganization and Initial Public Offering

On May 16, 2007, JMP Group Inc. completed an initial public offering of its common stock on the New York Stock Exchange under the ticker symbol “JMP.” The Company issued 7,199,864 shares of common stock (including the exercise of the underwriters’ over-allotment option) and received net proceeds of approximately $71.2 million and selling shareholders sold 1,999,098 shares of common stock. In connection with the closing of the initial public offering of JMP Group Inc., a corporate reorganization was carried out in order to cause JMP Group Inc. to succeed to the business of JMP Group LLC. In connection with the corporate reorganization, the members of JMP Group LLC received shares of common stock of JMP Group Inc. in exchange for their membership interests in JMP Group LLC. The corporate reorganization is described in greater detail in the Company’s Registration Statement on Form S-1 (Commission file number 333-140689) filed with the Securities and Exchange Commission.

Member Distributions

In connection with its reorganization in May 2007, the Company made distributions to its members, in the amount of $17.5 million. The Company borrowed $14.5 million on May 11, 2007 on its revolving note with City National Bank to cover a portion of the distributions, which was repaid on May 16, 2007 with the proceeds from the initial public offering.

Accounting Impact of Exchange of Redeemable Class A Member Interests

In connection with the corporate reorganization, the Redeemable Class A member interests were exchanged into shares of the Company’s common stock and classified as equity. Because the Redeemable Class A member interests are accounted as liability under SFAS 123R prior to the reorganization, the Company will account for the exchange in its consolidated financial statements for the period ended June 30, 2007, as follows:

(i) The Company will record additional equity equal to $111.2 million for the 10.1 million shares of common stock exchanged for the Redeemable Class A member interests based on the initial public offering price of $11.00 per share; and

(ii) The Company will record a one-time non-cash expense as a component of “Income allocation and accretion – Redeemable Class A member interests” equal to approximately $99.3 million, which represents the difference between (a) the equity amount of $111.2 million recorded for the shares of common stock issued in exchange for the Redeemable Class A member interests and (b) the carrying amount prior to the reorganization of the Redeemable Class A member interest, which was $11.9 million as of March 31, 2007.

As a result of these two accounting entries, the Company will record additional equity in its consolidated statement of financial condition as of June 30, 2007, in an amount equal to the carrying amount of the Redeemable Class A member interest prior to the reorganization.

Restricted Stock Units Grant

In connection with the initial public offering, the Company granted an aggregate of 1,931,060 restricted stock units to its

 

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employees and independent directors. Each restricted stock unit represents the holder’s right to receive one share of JMP Group Inc.’s common stock. These units will vest on the anniversary of the grant date as follows: 0% after year 1, 25% after year 2, 35% after year 3, and 40% after year 4. Total compensation cost of $17.2 million will be recognized during the four-year vesting period.

Stock Options Vesting in the Initial Public Offering

In connection with the initial public offering, the vesting of 1,335,000 options that the Company granted in December 2006 and January 2007 accelerated and JMP Group Inc. will recognize $3.1 million in compensation expense related to the accelerated vesting.

Director and Officer Indemnification

In May 2007, the Company entered into agreements that provide indemnification to its directors, officers and other persons requested or authorized by the board of directors to take actions on behalf of the Company for all losses, damages, costs and expenses incurred by the indemnified person arising out of such person’s service in such capacity, subject to the limitations imposed by Delaware law. This agreement is in addition to the Company’s indemnification obligations under our bylaws.

Tax Indemnification Agreement and Related Matters

In connection with the initial public offering, the Company entered into a tax indemnification agreement to indemnify the members of JMP Group LLC against certain increases in taxes that relate to activities of JMP Group LLC and its affiliates prior to the offering. The Company does not intend to agree to indemnify any member for any tax matters identified by the Company which would require the recording of a loss contingency upon the completion of the offering. The tax indemnification agreement includes provisions that permit the Company to control any tax proceeding or contest which might result in being required to make a payment under the tax indemnification agreement.

Additional Public Company Costs

As a public company, the Company anticipates incurring additional and increased expenses that it has not historically had to incur, such as NYSE annual listing fees, annual franchise taxes associated with being incorporated in Delaware, insurance and professional fees.

20. Pro Forma Information (Unaudited)

Pro Forma Liabilities and Members’ Equity

The unaudited pro forma liabilities and members’ equity information as of March 31, 2007 presented on the face of the Company’s Consolidated Statement of Financial Condition, has been presented, in accordance with Staff Accounting Bulletin Topic 1:B.3, to reflect the planned distributions to members contemplated in connection with the Company’s initial public offering (see Note 19). The distributions comprise (i) $10,000,000 for earnings previously allocated to members for periods prior to 2006, and (ii) $4,400,000 for estimated income tax obligations of members attributable to performance bonus accruals. These distributions are not reflected on the historical balance sheet as of March 31, 2007, but would be significant relative to reported members’ equity.

Pro Forma Consolidated Statement of Income – C-Corp after Reorganization

The unaudited pro forma financial information for the three months ended March 31, 2007 presented on the face of the Company’s Consolidated Statements of Income is based upon the Company’s historical consolidated financial statements, as adjusted to reflect the reorganization transactions contemplated in connection with its initial public offering (see Note 19); in particular, the exchange of Redeemable Class A member interests and Class A and Class B common interests into common stock of JMP Group Inc., as though they had occurred on January 1, 2007.

The unaudited pro forma Consolidated Statement of Income information includes the add-back of the income allocation and accretion expense related to Redeemable Class A member interests which would not have been recorded if the Redeemable Class A member interests were converted into common stock in connection with the corporate reorganization. It also includes the add-back of interest expense related to Redeemable Class A member interests because, as a corporation, the Company will not pay any interest on employee members’ capital. Prior to the corporate reorganization the Company was a limited liability company and not subject to income taxes. The unaudited pro forma Consolidated Statement of Income information therefore also includes adjustments for income tax expense as if the Company had been a corporation at an assumed combined federal, state and local income tax rate of 42%. The pro forma number of common shares outstanding is based on the assumed exchange of Redeemable Class A member interests and Class A and Class B common interests into common stock of the Company in accordance with the Operating Agreement. The 2,300,000 basic units of Class B common interests outstanding for the three months ended March 31, 2007 represent 15.5% of the

 

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Company’s ownership and exchanged into common shares at an exchange ratio of one-for-one. Class A common interests and Redeemable Class A member interests are assumed to be exchanged into common by applying the same one-for-one exchange ratio to the respective ownership percentages represented by such interests.

The pro forma as adjusted number of common shares outstanding includes 1,531,497 additional shares that represent, in accordance with Staff Accounting Bulletin Topic 1:B.3, the number of shares sold in the Company’s initial public offering, the proceeds of which are assumed for the purpose of this calculation to have been used to pay the amount of the distributions in 2007 that are in excess of net income for the three months ended March 31, 2007, based on the initial public offering price of $11.00 per share.

 

     For the Three Months Ended March 31, 2007  

(in thousands, except share and per share data)

   Historical    Pro Forma
Adjustments
For the
Reorganization
    Pro Forma, as
Adjusted For
the
Reorganization
    Pro Forma
Adjustments
For RSU
Grants
    Pro Forma, as
Adjusted
Total
 

Total revenues

   $ 21,913,617    $ 0     $ 21,913,617     $ 0     $ 21,913,617  
Expenses            

Compensation and benefits

     12,830,903        12,830,903       1,462,153 (7)     14,293,055  

Income allocation and accretion - Redeemable Class A member interests

     3,049,535      (3,049,535 ) (1)     —         —         —    

Administration

     1,000,298        1,000,298       —         1,000,298  

Brokerage, clearing and exchange fees

     1,138,647        1,138,647       —         1,138,647  

Interest and dividend expense

     504,178      (419,061 ) (2)     85,117       —         85,117  

Other expenses

     2,429,297        2,429,298       —         2,429,298  
                                       

Total expenses

     20,952,858      (3,468,596 )     17,484,263       1,462,153       18,946,415  

Minority Interest

     135,478      —         135,478       —         135,478  

Income before taxes

     825,281      3,468,596       4,293,876       (1,462,153 )     2,831,724  

Provision for income taxes

     —        (1,803,428 ) (3)     (1,803,428 )     614,104       (1,189,324 )
                                       

Net income

   $ 825,281    $ 1,665,168     $ 2,490,448     $ (848,049 )   $ 1,642,400  
                                       

Net income per unit-Class A common interests

           

Basic

   $ 0.18         

Diluted

   $ 0.17         

Weighted average units outstanding-Class A common interests

           

Basic

     2,381,410         

Diluted

     2,440,524         

Net income per unit-Class B common interests

           

Basic

   $ 0.18         

Diluted

   $ 0.17         

Weighted average units outstanding-Class B common interests

           

Basic

     2,300,000         

Diluted

     2,357,093         

Net income per share of common stock

           

Basic - pro forma

        $ 0.17       $ 0.11  

Diluted - pro forma

        $ 0.17       $ 0.11  

Weighted average shares of common stock outstanding

           

Basic - pro forma

          14,800,035 (4)       14,800,035  

Diluted - pro forma

          14,916,241 (5)       15,135,491 (5)(8)

Net income per share of common stock

           

Basic - pro forma as adjusted

        $ 0.15       $ 0.10  

Diluted - pro forma as adjusted

        $ 0.15       $ 0.10  

Weighted average shares of common stock outstanding

           

Basic - pro forma as adjusted

          16,331,532 (6)       16,331,532 (6)

Diluted - pro forma as adjusted

          16,447,738 (6)       16,666,988 (6)(8)

(1) As a limited liability company, income and paid profit distributions are allocated based on the pro rata ownership percentage to the holders of the Redeemable Class A member interests. As a corporation, the Redeemable Class A member interests will be exchanged into shares of the Company’s common stock and classified as equity. Therefore income allocation and accretion expense will not be recorded as an expense. In addition, the Company will no longer pay pro rata profit distributions to the holders of its membership interests, but instead will pay dividends, if any, to all its shareholders.
(2) As a limited liability company, interest payments based on contributed capital was made to the holders of the Redeemable Class A member interests. As a corporation, the Redeemable Class A member interests will be exchanged into shares of the Company’s common stock and the Company will no longer make interest payments to the holders of the Redeemable Class A member interests.

 

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(3) As a limited liability company, the Company was not subject to income taxes. An adjustment has been made to include assumed income taxes at an effective tax rate of 42%, reflecting assumed federal, state and local income taxes.
(4) Reflects an adjustment for the issuance of shares of the Company’s common stock to its members in exchange for their respective interests in JMP Group LLC in the corporate reorganization prior to the initial public offering. It does not reflect the planned grant of restricted stock units to a broad group of the Company’s employees in connection with the offering, with respect to which up to an aggregate of 1,931,060 shares of the Company’s common stock will be deliverable.
(5) Diluted shares of common stock includes the dilutive impact of 2,553,940 options to acquire Class B common interests converted at a one-for-one ratio for options to acquire shares of the Company’s common stock by application of the Treasury Stock method in accordance with SFAS 128, Earnings per Share .
(6) The pro forma as adjusted number of common shares outstanding includes 1,531,497 additional shares that represent, in accordance with Staff Accounting Bulletin Topic 1:B.3, the number of shares sold in the Company’s initial public offering, the proceeds of which are assumed for the purpose of this calculation to have been used to pay the amount of the distributions in 2007 that are in excess of net income for the three months ended March 31, 2007, based on the initial offering price of $11.00 per share.

The distributions scheduled after March 31, 2007 in excess of net income for the three months ended March 31, 2007 are comprised of the following components:

 

     ($ in thousands)

Distribution of earnings allocated to members in periods prior to 2006

   $ 10,000

Distributions for estimated tax obligations

     4,400

Profit distributions to Redeemable Class A member interests paid in the first quarter of 2007

     3,134
      

Capital distributions to the date of the offering

   $ 17,534

Net income for the three months ended March 31, 2007

     687
      

Distributions in excess of net income

   $ 16,847
      

 

(7) Reflects the compensation expense related to 1,931,060 restricted stock units granted in connection with the initial public offering and recognized in accordance with FAS 123R. The compensation expense equals the amount expected to be recognized during the first three months after the grant date, assuming that the restricted stock units were granted on January 1, 2007.
(8) Diluted shares of common stock includes the dilutive impact of 1,931,060 restricted stock units granted in connection with this offering by application of the Treasury Stock method in accordance with SFAS 128, Earnings per Share , based on the grant date price of $11.00 per share.

 

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JMP HOLDINGS INC.

Statements of Financial Condition

March 31, 2007 and December 31, 2006

 

     March 31, 2007    December 31, 2006
     (unaudited)     

Assets

     

Cash and cash equivalents

   $ 73,334    $ 71,347

Receivables and prepaids

     14,024      64,655

Investment in JMP Group LLC (Note 4)

     15,386,218      15,207,095

Deferred tax asset

     242,933      242,933
             

Total assets

   $ 15,716,509    $ 15,586,030
             

Liabilities and Stockholders’ Equity

     

Liabilities

     

Other liabilities

   $ 21,748    $ 21,077

Accrued income taxes

     124,138      46,889

Due to JMP Group LLC

     659,552      708,053
             

Total liabilities

     805,438      776,019
             

Stockholders’ equity

     

Common stock, $0.001 par value, 1,500,000 shares authorized and 1,012,999 shares issued and outstanding

     1,013      1,013

Additional paid in capital

     14,227,555      14,227,555

Retained earnings

     682,503      581,443
             

Total stockholders’ equity

     14,911,071      14,810,011
             

Total liabilities and stockholders’ equity

   $ 15,716,509    $ 15,586,030
             

See accompanying notes to consolidated financial statements.

 

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JMP HOLDINGS INC.

Statements of Income

Three Months Ended March 31, 2007 and 2006

 

       Three Months Ended March 31,  
     2007     2006  
     (unaudited)     (unaudited)  

Revenues

    

Equity in earnings of JMP Group LLC

   $ 314,395     $ 155,067  
                

Total revenues

     314,395       155,067  
                

Expenses

    

Administration

     5,375       6,079  

Professional fees

     7,075       3,500  

Expenses reimbursed by JMP Group LLC (Note 3)

     (11,598 )     (8,923 )
                

Total expenses

     852       656  
                

Net income before provision for income taxes

     313,543       154,411  

Income tax provision

     128,396       67,367  
                

Net income

   $ 185,147     $ 87,044  
                

Net income per common share, basic and diluted

   $ 0.18     $ 0.09  

Shares used in computing basic and diluted net income per common share

     1,012,999       1,012,999  

See accompanying notes to consolidated financial statements.

 

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JMP HOLDINGS INC.

Statements of Cash Flows

Three Months Ended March 31, 2007 and 2006

 

     Three Months Ended
March 31,
 
     2007     2006  
     (unaudited)     (unaudited)  

Cash flows from operating activities

    

Net income

   $ 185,147     $ 87,044  

Adjustments to reconcile net income to net cash provided by operating activities

    

Equity in earnings of JMP Group LLC

     (314,395 )     (155,067 )

Net expenses paid by JMP Group LLC

     205       4,682  

Distributions received from JMP Group LLC

     135,067       381,189  

Net change in assets and liabilities

    

(Decrease) / increase in accrued income taxes

     77,249       (327,550 )

(Decrease) / increase in receivables and prepaids

     50,631       (161,047 )

Decrease / (increase) in other liabilities and due to affiliates

     (47,830 )     361,743  
                

Net cash provided by operating activities

     86,074       190,994  
                

Cash flows from investing activities

    

Net cash (used in) provided by investing activities

     —         —    
                

Cash flows from financing activities

    

Dividends paid to shareholders

     (84,087 )     (228,713 )
                

Net cash used in financing activities

     (84,087 )     (228,713 )
                

Net increase / (decrease) in cash and cash equivalents

     1,987       (37,719 )

Cash and cash equivalents, beginning of period

     71,347       37,720  
                

Cash and cash equivalents, end of period

   $ 73,334     $ 1  
                

Supplemental disclosures of cash flow information

    

Cash paid during the period for taxes

   $ 16,928     $ 544,500  

Noncash financing activities

    

Issuance of common stock

   $ —       $ 1,922,228  

Noncash investing activities

    

Investment in JMP Group LLC

   $ —       $ (1,922,228 )

See accompanying notes to consolidated financial statements.

 

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JMP HOLDINGS INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 2007

(unaudited)

1. Organization and Description of Business

JMP Holdings Inc. (“JMP Holdings”) is a Delaware corporation established to enable investors to invest through a corporate entity in the Class B Common Interests of JMP Group LLC issued in a private offering in August 2004. JMP Holdings commenced its operations on August 12, 2004. JMP Holdings’ only significant asset is an investment in JMP Group LLC, comprised of the member interests of JMP Group LLC purchased with the net proceeds from the JMP Holdings’ common stock offering in August 2004. As of March 31, 2007, JMP Holdings owned 6.84% of the member interests of JMP Group LLC.

In connection with the closing of JMP Group Inc.’s initial public offering on May 16, 2007, JMP Group Inc. succeeded to the business of JMP Group LLC and its members became stockholders of JMP Group Inc. pursuant to an exchange of all of the outstanding membership interests of JMP Group LLC for shares of common stock of JMP Holdings. In addition, outstanding options to purchase Class B common interests of JMP Group LLC were converted into options to purchase shares of common stock of JMP Holdings with the same terms and conditions as under the pre-existing options agreements. JMP Holdings also changed its name to JMP Group Inc. As a result of the exchange, JMP Group LLC became JMP Group Inc.’s wholly-owned subsidiary.

2. Summary of Significant Accounting Policies

Basis of Presentation

These financial statements and related notes are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10–Q and Article 10 of Regulation S–X. These financial statements should be read in conjunction with JMP Holding’s financial statements and notes thereto for the year ended December 31, 2006 included in its Registration Statement on Form S-1 filed with the SEC (File No. 333-140689). These financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for the fair statement of the results for the interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.

Cash Equivalents

JMP Holdings considers all highly liquid investments with original maturities, or remaining maturities upon purchase, of three months or less to be cash equivalents.

Revenue Recognition

Equity income consists of allocated membership income from JMP Group LLC and is recognized under the equity method of accounting pursuant to EITF Topic No. D-46.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes , which requires the recognition of deferred tax assets and liabilities based upon temporary differences between the financial reporting and tax bases of our assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not the portion or all of the deferred tax assets will not be realized.

 

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3. Related Party Transactions

On August 18, 2004, JMP Holdings entered into a Services Agreement with JMP Group LLC whereby JMP Group LLC will provide JMP Holdings with various corporate support services, which include certain tax, accounting, legal and administrative functions. In addition, JMP Group LLC bears certain expenses, which include professional fees, director’s fees, corporate franchise tax and certain filing fees. The amounts are reflected as expenses reimbursed by JMP Group LLC on the income statements. As of March 31, 2007 and December 31, 2006, respectively, $659,552 and $708,053 were due to JMP Group LLC, which represent amounts advanced to JMP Holdings to pay income taxes and other expenses.

On January 1, 2006, an investor in JMP Group LLC exchanged 133,333 units of Class B common interest in JMP Group LLC for 133,333 shares in JMP Holdings. The transaction increased the Company’s ownership percentage in JMP Group LLC and was recorded in Stockholders’ Equity. The value of the additional shares issued by JMP Holdings was based on the investor’s capital account value in JMP Group LLC at January 1, 2006.

4. Investment in JMP Group LLC

The table below presents summary financial information of JMP Group LLC as of March 31, 2007 and December 31, 2006 and for the quarters ended March 31, 2007 and 2006. At March 31, 2007 and March 31, 2006 the percentage of JMP Group LLC owned by JMP Holdings was 6.84%, respectively.

 

     March 31,
2007
  

December 31,

2006

Total assets

   $ 88,428,925    $ 103,699,003

Redeemable Class A member interests

     11,885,218      12,913,769

Total liabilities

     34,439,428      51,207,732

Minority interest

     6,095,733      5,739,459

Total members’ equity

     47,893,764      46,751,812

Net income

     825,281      412,139

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read together with the unaudited consolidated financial statements and the related notes included elsewhere in this report. For additional context in which to understand our financial condition and results of operations, refer to the MD&A for the fiscal year ended December 31, 2006 contained in our Registration Statement on Form S-1 (Commission File No. 333-140689).

Cautionary Statement Regarding Forward Looking Statements

This MD&A and other sections of this report contain forward looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events that we believe to be reasonable. There are or may be important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the historical or future results, level of activity, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption “Risk Factors” in our Registration Statement on Form S-1 (File No. 333-140689). We are under no duty to update any of these forward-looking statements after the date of filing of this report to conform such forward-looking statements to actual results or revised expectations.

Overview

We are a full-service investment banking and asset management firm headquartered in San Francisco. We have a diversified business model with a focus on small and middle-market companies and provide:

 

   

investment banking, including corporate finance, mergers and acquisitions and other strategic advisory services, to corporate clients;

 

   

sales and trading, and related brokerage services to institutional investors;

 

   

proprietary equity research in our six target industries; and

 

   

asset management products and services to institutional investors, high net-worth individuals and for our own account.

Components of Revenues

We derive revenues primarily from fees earned from our investment banking business, net commissions on our trading activities in our sales and trading business, and asset management fees in our asset management business. We also generate revenues from principal transactions, interest, dividends, and other income.

Investment Banking

We earn investment banking revenues from underwriting securities offerings, arranging private placements and providing advisory services in mergers and acquisitions and other strategic advisory assignments.

Underwriting Revenues

We earn underwriting revenues from securities offerings in which we act as an underwriter, such as initial public offerings and follow-on equity offerings. Underwriting revenues include management fees, underwriting fees and selling concessions. We record underwriting revenues, net of related syndicate expenses, at the time the underwriting is completed. In syndicated underwritten transactions, management estimates our share of transaction-related expenses incurred by the syndicate, and we recognize revenues net of such expense. On final settlement by the lead manager, typically 90 days from the trade date of the transaction, we adjust these amounts to reflect the actual transaction-related expenses and our resulting underwriting fee. We receive a higher proportion of total fees in underwritten transactions in which we act as a lead manager.

 

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Strategic Advisory Revenues

Our strategic advisory revenues primarily include success fees on closed merger and acquisition transactions, as well as retainer fees, earned in connection with advising both buyers and sellers transactions. We also earn fees for related advisory work and other services such as providing fairness and valuation opinions. We record strategic advisory revenues when the transactions or the services (or, if applicable, separate components thereof) to be performed are substantially complete, the fees are determinable and collection is reasonably assured.

Private Placement Revenues

We earn agency placement fees in non-underwritten transactions such as private placements of equity securities, private investments in public equity, or PIPEs, Rule 144A private offerings and trust preferred securities offerings. We record private placement revenues on the closing date of the transaction.

Since our investment banking revenues are generally recognized at the time of completion of each transaction or the services to be performed, these revenues typically vary between periods and may be considerably affected by the timing of the closing of significant transactions.

Brokerage Revenues

Our brokerage revenues include commissions paid by customers from brokerage transactions in exchange listed and over-the-counter, or OTC, equity securities. Commissions are recognized on a trade date basis. Brokerage revenues also include net trading gains and losses which result from market making activities and from our commitment of capital to facilitate customer transactions. Our brokerage revenues may vary between periods, in part depending on commission rates, trading volumes and our ability to continue to deliver research and other value-added services to our clients. The ability to execute trades electronically, through the Internet and through other alternative trading systems has increased pressure on trading commissions and spreads. We expect this trend toward alternative trading systems, and pricing pressures in our brokerage business to continue. We are, to some extent, compensated through brokerage commissions for the value of research and other value added services we deliver to our clients. These “soft dollar” practices have been the subject of discussion among regulators, the investment banking community and our sales and trading clients. In particular, commission sharing arrangements have been adopted by some large institutional investors. In these arrangements, these institutional investors concentrate their trading with fewer “execution” brokers and pay a fixed amount for execution with an additional amount set aside for payments to other firms for research or other brokerage services. Accordingly, we may experience reduced (or eliminated) trading volume with such investors but may be compensated for our research and sales efforts through allocations of the designated amounts. Depending on the extent to which we adopt this practice and depending on our ability to reach arrangements on terms acceptable to us, this trend would likely impair the revenues and profitability of our commission business by negatively affecting both volumes and trading commissions in our commission business.

Asset Management Fees

Asset management fees include base management fees and incentive fees earned from managing investment partnerships sponsored by us and investment accounts owned by clients. Base management fees earned by us are generally based on the fair value of assets under management and the fee schedule for each fund and account. We also earn incentive fees that are based upon the performance of investment funds and accounts. Such fees are based on a percentage of the excess of an investment return over a specified highwater mark or hurdle rate over a defined performance period.

Our asset management revenues are subject to fluctuations due to a variety of factors that are unpredictable, including the overall condition of the economy and the securities markets as a whole and our core sectors. These conditions can have a material affect on the inflows and outflows of assets under management, and the performance of our asset management funds. For example, a significant portion of the performance-based or incentive revenues that we recognize are based on the value of securities held in the funds we manage. The value of these securities includes unrealized gains or losses that may change from one period to another.

In addition, employees typically pay one-half the amount of fees charged to outside limited partners and portfolio managers do not pay any fees with regard to their investments in the funds they manage.

Principal Transactions

Principal transactions revenues includes realized and unrealized net gains and losses resulting from our principal investments, which includes investments in equity securities for our own account and as the general partner of funds managed by us, warrants we may receive from certain investment banking assignments, as well as limited partner investments in private funds managed by third parties. We leverage our asset management expertise by investing a portion of our capital in a portfolio of equity securities managed by JMP Asset Management and in side-by-side investments in the funds managed by us. In certain cases, we also co-invest alongside our institutional clients in private transactions resulting from our investment banking business.

 

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Interest, Dividends and Other Income

Interest, dividends and other income includes interest and dividend income generated by our liquid assets and principal investments. Other income also includes fees earned to raise capital for third-party investment partnerships, or funds.

Components of Expenses

We classify our expenses as compensation and benefits, income allocation and accretion/(dilution)—Redeemable Class A member interests, administration expense, brokerage, clearing and exchange fees, interest and dividend expense and other expenses. A significant portion of our expense base is variable, including compensation and benefits, brokerage and clearance, communication and data processing, and travel and entertainment expenses.

Compensation and Benefits

Compensation and benefits is the largest component of our expenses and includes employee and managing director base pay, performance bonuses, sales commissions, related payroll taxes, medical and benefits expenses, as well as expenses for contractors and temporary employees. While members of a limited liability company are typically compensated through pro rata profit distributions, our employee members receive the majority of their compensation in the form of individual performance-based bonuses. As is the widespread practice in our industry, we pay bonuses on an annual basis, which for senior professionals typically make up a large portion of their total compensation. Compensation is accrued based on a ratio of total compensation and benefits to total revenues. We accrue for the estimated amount of these bonus payments ratably over the applicable service period. Bonus payments may have a greater impact on our cash position and liquidity in the periods in which they are paid than would otherwise be reflected in our consolidated statements of income. We expect that our compensation and benefits expense, excluding equity-based awards made prior to and in connection with our initial public offering, will be approximately 60% of revenues each year, although we may change this rate at any time.

Income Allocation and Accretion/(Dilution)—Redeemable Class A Member Interests

Redeemable Class A member interests are issued to our employee members and are entitled to share in our income. Each holder of the Redeemable Class A member interest was a party to our Third Amended and Restated Limited Liability Company Agreement, as amended, which provides that an employee member may elect to redeem his or her Redeemable Class A member interests without our consent in connection with such person’s resignation from us. Because of this repurchase feature the Redeemable Class A member interests are classified as a liability and measured at each balance sheet date based on the redemption amounts for the Redeemable Class A member interests. The redemption amount for an employee member is the amount we are required to pay to an employee member upon resignation to redeem all of his or her Redeemable Class A member interests and is equal to the capital account of such employee member as maintained by us.

Redeemable Class A member interests are accounted for as stock-based compensation and classified as a liability. As a result, the share of our income allocated to Redeemable Class A member interests, based on the membership percentage owned, and any additional changes in the redemption amount of Redeemable Class A member interests are recorded as “Income allocation and accretion/(dilution)—Redeemable Class A member interests” in our consolidated statements of income.

In connection with our corporate reorganization in May 2007, the Redeemable Class A member interests were exchanged into shares of our common stock and classified as equity. Because the Redeemable Class A member interests were accounted as liability under SFAS 123R prior to the corporate reorganization, we will account for the exchange in our consolidated financial statements for the periods ended June 30, 2007, as follows:

(i) We will record additional equity equal to $111.2 million for the 10.1 million shares of common stock exchanged for the Redeemable Class A member interests based on the initial public offering price of $11.00 per share; and

(ii) We will record a one-time non-cash expense as a component of “Income allocation and accretion – Redeemable Class A member interests” equal to approximately $99.3 million, which represents the difference between (a) the equity amount of $111.2 million recorded for the shares of common stock issued in exchange for the Redeemable Class A member interests and (b) the carrying amount prior to the corporate reorganization of the Redeemable Class A member interest, which was $11.9 million as of March 31, 2007.

As a result of these two accounting entries, we will record additional equity in our consolidated statement of financial condition as of June 30, 2007, in an amount equal to the carrying amount of the Redeemable Class A member interest prior to the corporate reorganization.

Administration

Administration expense primarily includes the cost of hosted conferences, non-capitalized systems and software expenditures, insurance, office supplies, recruiting, and regulatory fees.

 

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Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees include the cost of floor and electronic brokerage and execution, securities clearance, and exchange fees. We currently clear our securities transactions through Automatic Data Processing, Inc. Changes in brokerage, clearing and exchange fees fluctuate largely in line with the volume of sales and trading activity.

Interest and Dividend Expense

Interest and dividend expense consists primarily of interest paid on net capital contributed by our employee members, who receive interest payments at an annual rate equal to the Prime rate plus 100 basis points. To a lesser extent it results from short-term borrowings and dividend paying short positions in our principal investment portfolio. Because we completed our corporate reorganization on May 16, 2007, our Redeemable Class A member interests were exchanged into shares of our common stock and we will no longer make interest payments to holders of the Redeemable Class A member interests.

Other Expenses

Other operating expenses primarily include travel and business development, market data, occupancy, legal and accounting professional fees and depreciation.

Minority Interest

Minority interest relates to the interest of third parties in JMP Realty Trust and in the two asset management funds Harvest Consumer Partners and Harvest Technology Partners. JMP Realty Trust is a real estate investment trust that was formed in June 2006. JMP Realty Trust is managed by JMP Asset Management. Because of the current ownership and external management position, we consolidate JMP Realty Trust and record a minority interest. JMP Asset Management is also the general partner of Harvest Consumer Partners and Harvest Technology Partners. Due to the ownership and resulting control of JMP Asset Management and related parties, management believes that limited partners currently do not have substantive rights to remove the general partner and therefore these two funds are consolidated in the financial statements.

Results of Operations

Quarter Ended March 31, 2007, Compared to Quarter Ended March 31, 2006

Overview

Total revenues increased $3.1 million, or 16.7%, from $18.8 million for the quarter ended March 31, 2006 to $21.9 million for the quarter ended March 31, 2007. The increase was primarily due to increases in investment banking revenues of $1.1 million and brokerage revenues of $1.7 million.

Total expenses increased by $2.6 million, or 14.1%, from $18.4 million for the quarter ended March 31, 2006 to $21.0 million for the quarter ended March 31, 2007, primarily due to an increase in compensation and benefits resulting from higher total revenues, and also from an increase in income allocation and accretion/(dilution) due to higher income allocated to the Redeemable Class A member interests.

Net income increased $0.4 million, or 100.2%, from $0.4 million for the quarter ended March 31, 2006 to $0.8 million for the quarter ended March 31, 2007.

 

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The following table provides a comparison of our revenues and expenses for the periods presented:

 

     Three Months Ended March 31,    Period-to-Period Change  
     2007     2006    $ Change     % Change  
     (in thousands)  

Investment banking

   $ 11,493     $ 10,386    $ 1,107     10.7 %

Brokerage

     8,632       6,887      1,744     25.3 %

Asset management fees

     888       890      (2 )   (0.2 )%

Principal transactions

     (68 )     125      (193 )   N/A  

Interest, dividends and other income

     969       486      483     99.5 %
                             

Total revenues

     21,914       18,774      3,140     16.7 %
                             

Compensation and benefits

     12,831       11,400      1,431     12.6 %

Income allocation and accretion—Redeemable Class A member interests

     3,050       1,832      1,217     66.4 %

Administration

     1,000       1,273      (273 )   (21.5 )%

Brokerage, clearing and exchange fees

     1,139       911      228     25.0 %

Interest and dividend expense

     504       341      163     47.7 %

Other expenses

     2,429       2,605      (175 )   (6.7 )%
                             

Total expenses

     20,953       18,362      2,591     14.1 %
                             

Minority interest

     135       —        135     N/A  
                             

Net income

   $ 825     $ 412    $ 413     100.2 %
                             

Revenues

Investment Banking

Investment banking revenues increased $1.1 million, or 10.7%, from $10.4 million for the quarter ended March 31, 2006 to $11.5 million for the same period in 2007, and decreased as a percentage of total revenues from 55.3% to 52.4%, respectively. The increase in revenues reflects higher levels of activity in our strategic advisory and private placement businesses, partially offset by a decrease in our underwriting revenues. Our strategic advisory revenues increased $1.8 million, or 103.7%, from $1.7 million for the quarter ended March 31, 2006 to $3.5 million for the quarter ended March 31, 2007, due to an increase in both the number and size of strategic advisory transactions executed in the first quarter of 2007 compared to the first quarter of 2006. Private placement revenues increased $1.8 million, or 65.0%, from $2.8 million for the quarter ended March 31, 2006 to $4.6 million for the quarter ended March 31, 2007. The increase reflected higher revenues per transaction and was due to increased activity in both private placements of equity securities and in private investments in public equity, or PIPE transactions. Underwriting revenues decreased by $2.5 million, or 42.2%, from $5.9 million for the quarter ended March 31, 2006 to $3.4 million for the quarter ended March 31, 2007. We executed 10 public equity transactions in the quarter ended March 31, 2006 compared to 6 in the quarter ended March 31, 2007.

Brokerage Revenues

Brokerage revenues increased by $1.7 million, or 25.3%, from $6.9 million for the quarter ended March 31, 2006 to $8.6 million for the quarter ended March 31, 2007. The increase was a result of an increase in commission revenue, partially offset by higher net trading losses, for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006. The increase in commissions resulted from an increase in the volume of shares traded for customers, which rose 51.3% compared to the quarter ended March 31, 2006, due to increased trading activity with existing clients, and to the addition of new institutional clients during the period. The increase in net trading losses resulted from taking more frequent positions in greater amounts to facilitate customer trades, as well as increased market making activities. Brokerage revenues increased as a percentage of total revenues, from 36.7% for the quarter ended March 31, 2006 to 39.4% for the quarter ended March 31, 2007.

Asset Management Fees

Asset management fees were unchanged at $0.9 million for both the quarter ended March 31, 2006 and the quarter ended March 31, 2007. Asset management fees include both base management fees and incentive fees for our funds under management. Lower base management fees for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006 were offset by the opposite trend for incentive fees. Base management fees, which are earned based on assets under management at the beginning of the quarter (prorated for new investors during the quarter), fell from $0.9 million for the quarter ended March 31, 2006 to $0.6 million for the quarter ended March 31, 2007, as result of a shift in the composition of average assets under management from hedge funds to funds of funds, which charge lower base management fees, as well as a decline in average assets under management. However, by the end of those quarters, respectively, our assets under management increased from $209.1 million as of March 31, 2006 to $224.0 million as of March 31, 2007. Incentive fees increased from none in the quarter ended March 31, 2006 to $0.2 million in the quarter ended March 31, 2007, as a result of the improved performance of our families of funds. As a percentage of total revenues, asset management fees decreased from 4.7% for the quarter ended March 31, 2006 to 4.1% for the same period in 2007.

 

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Principal Transactions

Principal transaction revenues decreased $0.2 million from a gain of $0.1 million for the quarter ended March 31, 2006 to a loss of $0.1 million for the quarter ended March 31, 2007. The decrease was due to an increase in unrealized loss from equity investments in publicly-held securities of $0.2 million, and a decrease of $0.2 million in unrealized gain related to the value of warrant positions, both of which reflect the market performance of the companies that we are invested in or for which we hold warrants. The losses were partially offset by a gain of $0.2 million due to unrealized and realized gains in investment partnerships, attributable to the performance of the funds managed by us.

Interest, Dividends and Other Income

Interest, dividends and other income increased $0.5 million, or 99.5%, from $0.5 million for the quarter ended March 31, 2006 to $1.0 million for the same period in 2007. The increase was primarily attributable to higher market interest rates, more active cash management, and an increased capital allocation to our investment portfolio, which returned higher interest and dividend income as a percent of total invested capital. In addition, fees earned to raise capital for third-parties also contributed $0.2 million of the increase.

Expenses

Compensation and Benefits

Compensation and benefits, which includes salaries and performance bonus compensation to our employees and managing directors, increased $1.4 million, or 12.6%, from $11.4 million for the quarter ended March 31, 2006 to $12.8 million for the quarter ended March 31, 2007. The increase is primarily attributable to higher revenues, which increased 16.7% from the quarter ended March 31, 2006 to the quarter ended March 31, 2007. The increase was partially offset by a lower target compensation to revenue ratio used during the quarter ended March 31, 2007. As a percentage of revenues, compensation and benefits decreased from 60.7% of total revenues for the quarter ended March 31, 2006 to 58.6% for the same period in 2007.

Income Allocation and Accretion/(Dilution)

Income allocation and accretion/(dilution) increased $1.2 million, or 66.4%, from $1.8 million for the quarter ended March 31, 2006 to $3.0 million for the quarter ended March 31, 2007, due primarily to higher income that was allocated to the Redeemable Class A member interests. Income allocation and accretion/(dilution) increased from 9.8% of total revenues for the year ended March 31, 2006 to 13.9% for the same period in 2007.

Administration

Administration expenses decreased $0.3 million, or 21.5%, from $1.3 million for the quarter ended March 31, 2006 to $1.0 million for the quarter ended March 31, 2007. The decrease was due primarily to the change in timing of our annual San Francisco research conference from March in 2006 to May in 2007. Administration expense decreased from 6.8% of total revenues for the quarter ended March 31, 2006 to 4.6% for the same period in 2007.

Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees increased $0.2 million, or 25.0%, from $0.9 million for the quarter ended March 31, 2006 to $1.1 million for the quarter ended March 31, 2007. The increase was primarily due to an increase in trading activity in our sales and trading business as shares traded for customer accounts increased from 171.7 million shares for the quarter ended March 31, 2006 to 259.8 million shares for the quarter ended March 31, 2007. As a percentage of total revenues, our brokerage, clearing and exchange fees increased from 4.9% for the quarter ended March 31, 2006 to 5.2% for the same period in 2007.

Interest and Dividend Expense

Interest and dividend expense increased $0.2 million, or 47.7%, from $0.3 million for the quarter ended March 31, 2006 to $0.5 million for the quarter ended March 31, 2007. The increase was due to an increase in net contributed capital of Redeemable Class A member interests entitled to interest payments, primarily as a result of contributions by new members, as well as an increase in the average Prime rate used to determine the interest payments. In addition, higher dividend expense resulted from increased short positions in our investment portfolio during this time. As a percentage of total revenues, interest and dividend expense increased from 1.8% for the quarter ended March 31, 2006 to 2.3% for the same period in 2007.

Other Expenses

Other expenses decreased $0.2 million, or 6.7%, from $2.6 million for the quarter ended March 31, 2006 to $2.4 million for

 

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the quarter ended March 31, 2007. The decrease in other expenses was due primarily to the settlement of a previously reserved receivable during this period. The decrease was partially offset by an increase in communications expenses related to the build-out of operations in our new office locations, and in market data expenses, which grew from the addition of new employees as well as from higher costs of services during the first quarter of 2007. As a percentage of total revenues, our other expenses decreased from 13.9% for the quarter ended March 31, 2006 to 11.1% for the same period in 2007.

Minority Interest

There was no minority interest for the quarter ended March 31, 2006 compared to a $0.1 million minority interest for the quarter ended March 31, 2007. This minority interest relates to the inception of JMP Realty Trust, which was formed in June 2006, and to the consolidation of the two funds, Harvest Consumer Partners and Harvest Technology Partners.

Liquidity and Capital Resources

We have historically satisfied our capital and liquidity requirements primarily through member contributions from our managing directors and outside investors and internally generated cash from operations. Most of our operating cash flow is generated from our investment banking and brokerage revenues and is invested in cash and cash equivalents, marketable securities or other investments, and partnerships in which JMP Asset Management is the investment manager.

Our balance sheet is relatively liquid and unleveraged. As of March 31, 2007, we had liquid assets of $56.2 million, primarily consisting of cash and cash equivalents, marketable securities and other investments (mainly investments in funds managed by JMP Asset Management). We have a $30 million revolving line of credit with City National Bank, which had no balance outstanding as of March 31, 2007.

JMP Securities, our wholly-owned subsidiary and a registered securities broker-dealer, is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule. We use the basic method permitted by the Uniform Net Capital Rule to compute net capital, which generally requires that the ratio of aggregate indebtedness to net capital shall not exceed 15 to 1. SEC regulations also provide that equity capital may not be withdrawn or cash dividends paid if certain minimum net capital requirements are not met. At March 31, 2007, JMP Securities’ net capital under the SEC’s Uniform Net Capital Rule was $21.6 million, or $21.1 million in excess of the minimum required net capital.

The timing of bonus compensation payments to our employees and managing directors may significantly affect our cash position and liquidity from period to period. While our employees and managing directors are generally paid salaries semi-monthly during the year, bonus compensation payments, which make up a larger portion of total compensation, are generally paid once a year. Bonus compensation payments for a given year are generally paid at the end of January of the following year.

As of March 31, 2007, we had an outstanding capital commitment to JMP Realty Trust of $8.2 million, which can be called by JMP Realty Trust at any time. We currently have one other capital commitments to a fund managed by a third party in the amount of $0.2 million. However, in the future we may also commit our capital to other principal investments managed by us or third parties, or in other securities, as opportunities arise.

On May 16, 2007, JMP Group Inc. closed an initial public offering of its common stock, raising net proceeds of approximately $71.2 million. In connection with our corporate reorganization related to the initial public offering, we made distributions in May 2007 to our employee members, in the amount of $17.5 million. We borrowed $14.5 million from our revolving note at City National Bank to cover a portion of the distribution, and we subsequently repaid the note with proceeds from the initial public offering. The remaining proceeds have been used as follows: (i) approximately $15.0 million was invested in our investment funds and (ii) approximately $41.7 million remains invested in highly liquid investments with maturities of three months or less.

Subject to legally available funds, we intend to pay a quarterly cash dividend, commencing with the second quarter of 2007, which will be prorated for the portion of that period subsequent to the completion of our initial public offering. The declaration of this and any other dividends and, if declared, the amount of any such dividend, will be subject to the ability of our subsidiaries to provide cash to us. The declaration and payment of any future dividends will be at the sole discretion of our board of directors. Our board of directors will take into account our finance performance, earnings, liquidity, the operating performance of our segments, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including JMP Group LLC), and such other factors as our board of directors may deem relevant. See “Dividend Policy” in the Registration Statement on Form S-1 filed with the SEC (File No. 333-140689).

Because of the nature of our investment banking and sales and trading businesses, liquidity is important to us. Accordingly, we regularly monitor our liquidity position, including our cash and net capital positions. We believe that our available liquidity and current level of equity capital, combined with the net proceeds to us from the initial public offering and funds anticipated to be provided by our operating activities, will be adequate to meet our liquidity and regulatory capital requirements for the next 12 months.

 

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Cash Flows

Three months ended March 31, 2007

Cash decreased by $14.1 million for the three months ended March 31, 2007, primarily as a result of cash used in operating activities.

Our operating activities used $13.3 million of cash from net income of $0.8 million, adjusted for the cash used in the change in operating assets and liabilities of $14.3 million, offset by $0.2 million provided by non-cash revenue and expense items. The decrease in operating assets and liabilities was primarily due to payout of 2006 year-end bonuses in the first quarter of 2007.

Our investing activities used $0.5 million, which consisted mostly of $0.4 million of net purchases of other investments.

Our financing activities used $0.4 million of cash primarily due to distributions to our common members.

Three months ended March 31, 2006

Cash decreased by $28.3 million for the three months ended March 31, 2006, primarily as a result of cash used in operating activities.

Our operating activities used $28.5 million of cash from net income of $0.4 million, adjusted for the cash used in the change in operating assets and liabilities of $28.5 million and by non-cash revenue and expense items of $0.3 million. The decrease in operating assets and liabilities was primarily due to payout of 2005 year-end bonuses in the first quarter of 2006.

Our investing activities provided $1.9 million, which consisted mostly of $2.1 million of net sales of other investments.

Our financing activities used $1.7 million of cash due to distributions to our common members.

Contractual Obligations

The following table provides a summary of our contractual obligations as of March 31, 2007:

 

Payments Due by Period

(in thousands)

     Total      2007      2008      2009      2010      2011

Operating lease obligations

     $ 9,529      $ 1,436      $ 1,963      $ 2,250      $ 2,250      $ 1,629

Other contractual obligations (1)(2)

       —          —          —          —          —          —  
                                                     

Total

     $ 9,529      $ 1,436      $ 1,963      $ 2,250      $ 2,250      $ 1,629
                                                     

(1) Excludes a capital commitment to JMP Realty Trust of $8.2 million and $0.2 million for a private investment fund managed by a third party as of March 31, 2007, which can be called at any time by the manager.
(2) Excludes potential obligations for the redemption of Redeemable Class A member interests upon termination of an employee member, the amount and timing of which cannot be determined at this time.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of March 31, 2007. However, as described below under “Market Risk—Credit Risk,” through indemnification provisions in our clearing agreements with our clearing broker, customer activities may expose us to off-balance sheet credit risk, which we seek to mitigate through customer screening and collateral requirements.

Qualitative and Quantitative Disclosures About Market Risk

Market Risk

Market risk represents the risk of loss that may result from the change in value of a financial instrument due to fluctuations in its market price. Market risk may be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities and/or at normal bid-offer spreads. Our exposure to market risk is directly related to our role as a financial intermediary in customer trading and to our market making and investment activities. Market risk is inherent in financial instruments.

Even though we trade in equity securities as an active participant in both listed and OTC markets and we make markets in over two hundred stocks, we typically maintain very few securities in inventory overnight to minimize market risk. In addition, we act as agent rather than principal whenever we can and may use a variety of risk management techniques and hedging strategies in the ordinary course of our trading business to manage our exposures. Historically, in connection with our principal investments in

 

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publicly-traded equity securities, we have engaged in short sales of equity securities to offset the risk of purchasing other equity securities. In the future, we may utilize other hedging strategies such as equity derivative trades, although we have not engaged in derivative transactions in the past.

In connection with our sales and trading business, management evaluates the amount of risk in specific trading activities and determines our tolerance for such activities. Management monitors risks in its trading activities by establishing limits for the trading desk and reviewing daily trading results, inventory aging, and securities concentrations. Typically, market conditions are evaluated and transaction details and securities positions are reviewed. These activities seek to ensure that trading strategies are within acceptable risk tolerance parameters. Activities include price verification procedures, position reconciliations and reviews of transaction bookings. We believe these procedures, which stress timely communications between traders, trading management and senior management, are important elements of the risk management process.

Equity Price Risk

Equity price risk represents the potential loss in value due to adverse changes in the level or volatility of equity prices. We are exposed to equity price risk through our trading activities in both listed and OTC equity markets and security positions in our principal investment portfolio. We attempt to reduce the risk of loss inherent in our inventory of equity securities by establishing position limits, monitoring inventory turnover and entering into hedging transactions designed to mitigate our market risk profile.

Our marketable securities owned consist of long positions in equity securities and were recorded at a fair value of $12.6 million as of March 31, 2007. Our marketable securities sold but not yet purchased consist of short positions and were recorded at a fair value of $8.0 million as of March 31, 2007. The net potential loss in fair value for our marketable securities portfolio as of March 31, 2007, using a hypothetical 10% decline in prices, is estimated to be approximately $0.5 million. In addition, as of March 31, 2007, we have invested $11.6 million of our own capital in our funds, which invest primarily in publicly traded equity securities. The net potential loss in fair value for our investments at March 31, 2007, using a hypothetical 10% decline in the funds’ investment portfolios, is estimated to be approximately $1.2 million.

Interest Rate Risk

Interest rate risk represents the potential loss from adverse changes in market interest rates. As we may hold U.S. Treasury securities and other fixed income securities and may incur interest-sensitive liabilities from time to time, we are exposed to interest rate risk arising from changes in the level and volatility of interest rates and in the shape of the yield curve.

Credit Risk

Our broker-dealer subsidiary places and executes customer orders. The orders are then settled by an unrelated clearing organization that maintains custody of customers’ securities and provides financing to customers.

Through indemnification provisions in our agreement with our clearing organization, customer activities may expose us to off-balance-sheet credit risk. We may be required to purchase or sell financial instruments at prevailing market prices in the event a customer fails to settle a trade on its original terms or in the event cash and securities in customer margin accounts are not sufficient to fully cover customer obligations. We seek to control the risks associated with brokerage services for our customers through customer screening and selection procedures as well as through requirements that customers maintain margin collateral in compliance with governmental and self-regulatory organization regulations and clearing organization policies.

Inflation Risk

Because our assets are generally liquid in nature, they are not significantly affected by inflation. However, the rate of inflation affects such expenses as employee compensation and communications charges, which may not be readily recoverable in the prices of services we offer. To the extent inflation results in rising interest rates and has other adverse effects on the securities markets, it may adversely affect our combined financial condition and results of operations in certain businesses.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and of revenues and expenses during the reporting periods. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. The use of different estimates and assumptions could produce materially different results. For example, if factors such as those described in “Risk Factors” cause actual events to differ from the assumptions we used in applying the accounting policies, our results of operations, financial condition and liquidity could be adversely affected.

Our significant accounting policies are summarized in Note 2 to our consolidated financial statements included elsewhere in

 

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this report. On an ongoing basis, we evaluate our estimates and assumptions, particularly as they relate to accounting policies that we believe are most important to the presentation of our financial condition and results of operations. We regard an accounting estimate or assumption to be most important to the presentation of our financial condition and results of operations where:

 

   

the nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

 

   

the impact of the estimate or assumption on our financial condition or operating performance is material.

Using the foregoing criteria, we believe the following to be our critical accounting policies:

Valuation of Financial Instruments

Substantially all of our financial instruments are recorded at fair value or contract amounts that approximate fair value. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. “Marketable securities owned” and “other investments” including warrant positions and investments in partnerships in which JMP Asset Management is the general partner, are stated at fair value, with related changes in unrealized appreciation or depreciation reflected in the line item “principal transactions” in our consolidated statements of income.

As of March 31, 2007, our marketable securities and other investments totaled $28.9 million. The fair value of $26.0 million of our marketable securities and other investments was determined from quoted market prices or broker or dealer price quotations, which involves no subjective judgment. Of our other investments, $0.5 million consisted of warrants, for which we utilized the Black-Scholes options valuation model. In addition, $2.4 million of our other investments are invested in general partnership interests of funds of hedge funds or limited partnership interests which in each category third party general partners determine the fair value of the underlying investments. Accordingly, we do not exercise discretion in determining the fair value of our other investments. Because many of the securities in the portfolios of these funds may trade infrequently or are non-marketable securities and, therefore, do not have readily determinable fair values, the third party general partner estimates the fair value of these securities using various pricing models and the information available. Among the factors that they consider in determining the fair value of the underlying financial instruments are discounted anticipated cash flows, the cost, terms and liquidity of the instrument, the financial condition, operating results and credit ratings of the issuer or underlying company, the quoted market price of publicly traded securities with similar duration and yield and other factors generally pertinent to the valuation of financial instruments.

The following table summarizes our marketable securities and other investments, as presented in our consolidated statements of financial condition, by valuation methodology as of March 31, 2007:

 

     Marketable
Securities(1)(2)
    Other Investments(3)     Total Marketable
Securities
Owned and Other
Investments(2)
 

Fair Value Based on

     General
Partner in
Hedge Fund
    General
Partner in
Fund of
Hedge Fund
    Limited
Partner in
Private
Equity Fund
    Total Other
Investments
   

Quoted market prices

   100.0 %   78.7 %       78.7 %   83.4 %

Black-Scholes options valuation

   0.0 %         3.3 %   2.6 %

Valuation determined by third party general partners

       3.7 %   14.3 %   18.0 %   14.0 %
                                    

Total

   100.0 %   78.7 %   3.7 %   14.3 %   100.0 %   100.0 %
                                    

(1) Marketable securities owned and securities sold but not yet purchased consist mainly of U.S. listed and OTC equities.
(2) Marketable securities owned net of securities sold but not yet purchased.
(3) Other investments consist of general partnership interests in funds and funds of hedge funds managed by JMP Asset Management. The remaining amount is limited partnership interests in private investment funds managed by third parties that invest in predominately private securities, and to a lesser extent, warrants in public and private common stock.

Asset Management Investment Partnerships

Investments in partnerships include our general partnership interests in investment partnerships. Such investments are held by our asset management subsidiary and are accounted for under the equity method based on our proportionate share of the earnings (or losses) of the investment partnership. In accordance with the AICPA Audit and Accounting Guide for investment companies, these

 

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interests are carried at estimated fair value based on our capital accounts in the underlying partnerships. The net assets of the investment partnerships consist primarily of investments in marketable and non-marketable securities. The underlying investments held by such partnerships are valued based on quoted market prices or estimated fair value if there is no public market. Such estimates of fair value of the partnerships’ non-marketable investments are ultimately determined by our affiliates in their capacity as general partner. Due to the inherent uncertainty of valuation, fair values of these non-marketable investments may differ from the values that would have been used had a ready market existed for these investments, and the differences could be material. Adjustments to carrying value are made, if required by GAAP, if there are third-party transactions evidencing a change in value. Downward adjustments are also made, in the absence of third-party transactions, if the general partner determines that the expected realizable value of the investment is less than the carrying value.

We earn base management fees from the investment partnerships that we manage generally based on the net assets of the underlying partnerships. In addition, we are entitled to allocations of the appreciation and depreciation in the fair value of the underlying partnerships from our general partnership interests in the partnerships. Such allocations are based on the terms of the respective partnership agreements.

We are also entitled to receive incentive fee allocations from the investment partnerships when the return exceeds certain threshold returns. Incentive fees are recorded after the quarterly or annual investment performance period is complete and may vary depending on the terms of the fee structure applicable to an investor.

Legal and Other Contingent Liabilities

We are involved in various pending and potential complaints, arbitrations, legal actions, investigations and proceedings related to our business from time to time. Some of these matters involve claims for substantial amounts, including claims for punitive and other special damages. The number of complaints, legal actions, investigations and regulatory proceedings against financial institutions like us has been increasing in recent years. We have, after consultation with counsel and consideration of facts currently known by management, recorded estimated losses in accordance with SFAS 5, Accounting for Contingencies , to the extent that a claim may result in a probable loss and the amount of the loss can be reasonably estimated. The determination of these reserve amounts requires significant judgment on the part of management and our ultimate liabilities may be materially different. In making these determinations, management considers many factors, including, but not limited to, the loss and damages sought by the plaintiff or claimant, the basis and validity of the claim, the likelihood of successful defense against the claim and the potential for, and magnitude of, damages or settlements from such pending and potential complaints, legal actions, arbitrations, investigations and proceedings, and fines and penalties or orders from regulatory agencies.

If a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves during any period, our results of operations in that period and, in some cases, succeeding periods could be adversely affected.

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk are set forth under the caption “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.”

 

ITEM 4. Controls and Procedures

Our Management with the participation of the Chairman and Chief Executive Officer and the Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated our disclosure controls and procedures as of the end of the period covered by this report.

Based on that evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the current quarter covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the Chairman and Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

ITEM 1. Legal Proceedings

We are involved in a number of judicial, regulatory and arbitration matters arising in connection with our business. The outcome of matters we are involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on our results of operations in any future period and a significant judgment could have a material adverse impact on our financial condition, results of operations and cash flows. We may in the future become involved in additional litigation in the ordinary course of our business, including litigation that could be material to our business. However, we do not believe that we have any material legal or regulatory proceedings currently pending or threatened against us.

In accordance with SFAS No. 5, Accounting for Contingencies , we review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in liability and the amount of loss, if any, can be reasonably estimated. Generally, with respect to matters we are involved in, in view of the inherent difficulty of predicting the outcome of these matters, particularly in cases in which claimants seek substantial or indeterminate damages, it is not possible to determine whether a liability has been incurred or to reasonably estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no reserve is established until that time.

 

ITEM 1A. Risk Factors

The risk factors included in our Registration Statement on Form S-1 (Commission File No. 333-140689) continue to apply to us, and describe risks and uncertainties that could cause actual results to differ materially from the results expressed or implied by the forward-looking statements contained in this Quarterly Report. There have not been any material changes from the risk factors previously described in our Registration Statement on Form S-1.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 16, 2007, JMP Group Inc. completed an initial public offering of its common stock on the New York Stock Exchange under the ticker symbol “JMP.” JMP Group Inc. issued 7,199,864 shares of common stock (including the exercise of the underwriters’ over-allotment option) and received net proceeds of approximately $71.2 million and selling shareholders sold 1,999,098 shares of common stock. In connection with the closing of the initial public offering of JMP Group Inc., a corporate reorganization was carried out in order to cause JMP Group Inc. to succeed to the business of JMP Group LLC. In connection with the corporate reorganization, the members of JMP Group LLC received shares of common stock of JMP Group Inc. in exchange for their membership interests in JMP Group LLC. The reorganization transactions are described in greater detail in the Company’s Registration Statement on Form S-1 (Commission file number 333-140689) filed with the Securities and Exchange Commission. This issuance of shares of common stock was not registered under the Securities Act of 1933, as amended, because the shares were offered and sold in transactions exempt from registration pursuant to Section 4(2) of the Securities Act.

The net proceeds of our initial public offering have been used as follows: (i) approximately $14.5 million was used to fund distributions to employee members; (ii) approximately $15.0 million was invested in our investment funds and (iii) approximately $41.7 million remains invested in highly liquid investments with maturities of three months or less.

 

ITEM 3. Defaults Upon Senior Securities

None.

 

ITEM 4. Submission of Matters to a Vote of Security Holders

In the first quarter of 2007, we did not submit any matters to the vote of security holders of the Company.

 

ITEM 5. Other Information

None.

 

ITEM 6. Exhibits

See Exhibit Index.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: June 21, 2007

 

JMP Group Inc.

By:

 

/s/ Joseph A. Jolson

Name:

 

Joseph A. Jolson

Title:

 

Chairman and Chief Executive Officer

By:

 

/s/ Thomas B. Kilian

Name:

 

Thomas B. Kilian

Title:

 

Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit
Number
 

Description

  3.1   Fourth Amended and Restated Certificate of Incorporation of JMP Group Inc.
  3.2   Amended and Restated Bylaws of JMP Group Inc.
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

39


Exhibit 3.1

FOURTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

JMP GROUP INC.

JMP Group Inc., (the “Corporation”) a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

1. The name of the Corporation presently is JMP Group Inc. The Corporation originally incorporated under the name JMP Holdings Inc. and filed its original Certificate of Incorporation with the Secretary of State of the State of Delaware on July 26, 2004; the Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on August 11, 2004; the Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on August 17, 2004; the Third Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on April 1, 2005; the Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on December 4, 2006; the second Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 7, 2007.

2. This Fourth Amended and Restated Certificate of Incorporation has been duly adopted by the Board of Directors and stockholders of the Corporation in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware.

3. The text of the Certificate of Incorporation as amended or supplemented heretofore is further amended and restated hereby to read as set forth in full on Exhibit A attached hereto.

IN WITNESS WHEREOF, said Corporation has caused this Certificate to be signed by Janet L. Tarkoff, Chief Legal Officer and Secretary, this 14 th day of May, 2007.

 

JMP GROUP INC.

/s/ Janet L. Tarkoff

Janet L. Tarkoff
Chief Legal Counsel and Secretary


EXHIBIT A

FOURTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

JMP GROUP INC.

ARTICLE I

The name of the corporation is JMP Group Inc. (the “Corporation”).

ARTICLE II

The nature of the business of the Corporation and the objects or purposes to be transacted, promoted or carried on by it are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE III

The name of the registered agent of the Corporation in Delaware is The Corporation Trust Company. The address of the registered agent is 1209 Orange Street, in the City of Wilmington, 19801, County of New Castle. The registered agent is a Delaware corporation.

ARTICLE IV

The total number of shares of stock which the Corporation shall have authority to issue is One Hundred Ten Million (110,000,000), consisting of Ten Million (10,000,000) shares of preferred stock, par value $0.001 per share (“Preferred Stock”), and One Hundred Million (100,000,000) shares of common stock, par value $0.001 per share (“Common Stock”).

Any of the shares of Preferred Stock may be issued from time to time in one or more series. Subject to the limitations and restrictions in this Article IV, the Board of Directors or a Committee of the Board of Directors, to the extent permitted by law and the Bylaws of the Corporation or a resolution of the Board of Directors, by resolution or resolutions, is authorized to create or provide for any such series, and to fix the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation, the authority to fix or alter the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, rights and terms of redemption (including sinking and purchase fund provisions), the redemption price or prices, the dissolution preferences and the rights in respect to any distribution of assets of any wholly unissued series of Preferred Stock and the number of shares constituting any such series, and the designation thereof, or any of them and to increase or decrease the number of shares of any series so created, subsequent to the issue of that series but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

There shall be no limitation or restriction on any variation between any of the different series of Preferred Stock as to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof; and the several series of Preferred Stock may, except as hereinafter in this Article IV otherwise expressly provided, vary in any and all respects as fixed and determined by the resolution or resolutions of the Board of Directors or by Committee of the Board of Directors, providing for the issuance of the various series; provided, however, that all shares of any one series of Preferred Stock shall have the same designation, preferences and relative, participating, optional or other special rights and qualifications, limitations and restrictions.

Except as otherwise required by law, or as otherwise fixed by resolution or resolutions of the Board of Directors with respect to one or more series of Preferred Stock, the entire voting power and all voting rights shall be vested exclusively in the Common Stock, and each stockholder of the Corporation who at the time possesses voting power for any purpose shall be entitled to one vote for each share of such stock standing in his name on the books of the Corporation.


ARTICLE V

The Board of Directors is expressly authorized to make, alter or repeal the Bylaws of the Corporation.

ARTICLE VI

Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

ARTICLE VII

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

ARTICLE VIII

To the fullest extent permitted by Delaware statutory or decisional law, as amended or interpreted, no director of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. This Article VIII does not affect the availability of equitable remedies for breach of fiduciary duties.

ARTICLE IX

Subject to the rights of the holders of any series of Preferred Stock or any other series or class of stock as set forth in this Certificate of Incorporation to elect additional directors under specific circumstances, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing in lieu of a meeting of such stockholders.


Exhibit 3.2

AMENDED AND RESTATED

BYLAWS

OF

JMP GROUP INC.

a Delaware corporation


TABLE OF CONTENTS

 

              Page
ARTICLE 1 OFFICES    1
  Section 1.1    Registered Office.    1
  Section 1.2    Other Offices.    1
ARTICLE 2 STOCKHOLDERS’ MEETINGS    1
  Section 2.1    Place of Meetings.    1
  Section 2.2    Annual Meetings.    2
  Section 2.3    Special Meetings.    2
  Section 2.4    Notice of Meetings.    2
  Section 2.5    Quorum and Voting.    3
  Section 2.6    Voting Rights.    4
  Section 2.7    Voting Procedures and Inspectors of Elections.    4
  Section 2.8    List of Stockholders.    5
  Section 2.9    Stockholder Proposals at Annual Meetings.    6
  Section 2.10    Nominations of Persons for Election to the Board of Directors.    7
  Section 2.11    No Stockholder Action by Written Consent.    8
ARTICLE 3 DIRECTORS    8
  Section 3.1    Number and Term of Office.    8
  Section 3.2    Powers.    9
  Section 3.3    Vacancies.    9
  Section 3.4    Resignations and Removals.    9
  Section 3.5    Meetings.    10
  Section 3.6    Quorum and Voting.    10
  Section 3.7    Action Without Meeting.    11
  Section 3.8    Fees and Compensation.    11
  Section 3.9    Committees.    11
ARTICLE 4 OFFICERS    13
  Section 4.1    Officers Designated.    13
  Section 4.2    Tenure and Duties of Officers.    13
ARTICLE 5 SHARES OF STOCK    14
  Section 5.1    Form and Execution of Certificates.    14
  Section 5.2    Lost Certificates.    15

 

-i-


TABLE OF CONTENTS

(continued)

 

  Section 5.3    Transfers.    15
  Section 5.4    Fixing Record Dates.    15
  Section 5.5    Registered Stockholders.    16
ARTICLE 6 OTHER SECURITIES OF THE CORPORATION    16
ARTICLE 7 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS    17
  Section 7.1    Right to Indemnification.    17
  Section 7.2    Authority to Advance Expenses.    17
  Section 7.3    Right of Claimant to Bring Suit.    18
  Section 7.4    Provisions Nonexclusive.    18
  Section 7.5    Authority to Insure.    18
  Section 7.6    Survival of Rights.    19
  Section 7.7    Settlement of Claims.    19
  Section 7.8    Effect of Amendment.    19
  Section 7.9    Subrogation.    19
  Section 7.10    No Duplication of Payments.    19
ARTICLE 8 AMENDMENTS    19

 

-ii-


AMENDED AND RESTATED BYLAWS

OF

JMP GROUP INC.

These Amended and Restated Bylaws (the “Bylaws”) of JMP Group Inc., formerly JMP Holdings Inc., a Delaware corporation (the “Corporation”), are effective as of May 3, 2007, and hereby amend and restate the previous bylaws of the Corporation.

ARTICLE 1

OFFICES

Section 1.1 Registered Office.

The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. The name and address of the resident agent of the Corporation in Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.

Section 1.2 Other Offices.

The Corporation shall also have and maintain an office or principal place of business at 600 Montgomery Street, Suite 1100, San Francisco, CA 94111, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE 2

STOCKHOLDERS’ MEETINGS

Section 2.1 Place of Meetings.

(a) Meetings of stockholders may be held at such place, either within or without this State, as may be designated by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication.

(b) If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:

(1) Participate in a meeting of stockholders; and

 

1


(2) Be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation. “Remote communication” shall include telephone or other voice communications and electronic mail or other form of written or visual electronic communications.

Section 2.2 Annual Meetings.

The annual meetings of the stockholders of the Corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be fixed by resolution of the Board of Directors as determined by the Board of Directors.

Section 2.3 Special Meetings.

Special Meetings of the stockholders of the Corporation may be called for any purpose or purposes, at any time, by the Chairman of the Board or the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors.

Section 2.4 Notice of Meetings.

(a) Except as otherwise provided by law or the Certificate of Incorporation of the Corporation (as amended, the “Certificate of Incorporation”), written notice of each meeting of stockholders, specifying the place, if any, date and hour and purpose or purposes of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the Corporation, except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than 20 nor more than 60 days prior to such meeting. Except as provided in Section 2.10(d), no matter shall be properly brought before a special meeting of stockholders unless such matter shall have been brought before the meeting pursuant to the Corporation’s notice of such meeting.

(b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of Section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement to that effect and shall be accompanied by a copy of that statutory section.

(c) If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it

 

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appears on the stock transfer books of the Corporation. Any notice to stockholders given by the Corporation under any provision of the Delaware General Corporation Law, the Certificate of Incorporation or these Bylaws shall be effective if given by means of electronic transmission consented to by the stockholder to whom such notice is given. For purposes of these Bylaws, “electronic transmission” means any form of communication not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder to receive such notice.

(d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and, to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders need be specified in any waiver of notice of such meeting.

Section 2.5 Quorum and Voting.

(a) At all meetings of stockholders except where otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum. The stockholders present at a duly called or convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Shares of its own capital stock belonging on the record date for the meeting of the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however , that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

 

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(b) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the Corporation.

(c) Meetings of stockholders shall be presided over by a Chairman of the Board, if any, or in the absence of a Chairman of the Board, by a Chief Executive Officer, or in the absence of a Chief Executive Officer, by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to adjourn a meeting of stockholders without a vote of stockholders and to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting and are not inconsistent with any rules or regulations adopted by the Board of Directors pursuant to the provisions of the Certificate of Incorporation, including the establishment of procedures for the maintenance of order, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting for each item upon which a vote is to be taken.

Section 2.6 Voting Rights.

(a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the Corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum.

(b) Every person entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the Corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three (3) years from its date unless the proxy provides for a longer period. Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except that a duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power.

Section 2.7 Voting Procedures and Inspectors of Elections.

(a) The Board of Directors by resolution shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.

 

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(b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.

(c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.

(d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided by a stockholder who submits a proxy by telegram, cablegram or other electronic transmission from which it can be determined that the proxy was authorized by the stockholder, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

Section 2.8 List of Stockholders.

The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. The Corporation need not include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may

 

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be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

Section 2.9 Stockholder Proposals at Annual Meetings.

(a) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by (x) a stockholder that holds of record stock of the Corporation entitled to vote at the annual meeting on such matter (including any election of a director) or (y) by a person (a “Nominee Holder”) that holds such stock through a nominee or “street name” holder of record of such stock and can demonstrate to the Corporation such indirect ownership of, and such Nominee Holder’s entitlement to vote, such stock on such matter.

(b) In addition to any other applicable requirements for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the date on which the Corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders, or, if during the prior year the Corporation did not hold an annual meeting or if the date of the annual meeting was changed more than 30 days from the prior year, the date on which the Corporation mails its proxy materials for the current year. A stockholder’s notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information required under Section 2.10 hereof; (ii) as to any other matter the stockholder proposes to bring before the annual meeting (w) a brief description of the business desired to be brought before the annual meeting and the reasons why such stockholder favors the proposal, (x) the name and record address of the stockholder proposing such business, as they appear on the Corporation’s books, (y) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (z) any material interest of the stockholder in such business. In the case of a Nominee Holder, the stockholder’s notice shall also include evidence establishing such Nominee Holder’s indirect ownership of stock and entitlement to vote such stock on the matter proposed at the annual meeting.

(c) Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.9 and Section 2.10; provided, however , that nothing in this Section 2.9 or Section 2.10 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure.

(d) The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and if he should so determine he shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted.

 

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(e) Nothing in this Section 2.9 shall affect the right of a stockholder to request inclusion of a proposal in the Corporation’s proxy statement to the extent that such right is provided by an applicable rule of the Securities and Exchange Commission.

Section 2.10 Nominations of Persons for Election to the Board of Directors.

(a) No person shall be eligible for election to the office of director unless nominated as provided herein.

(b) In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made (i) at a meeting of stockholders, (ii) by or at the direction of the Board of Directors, (iii) by any nominating committee or person appointed by the Board of Directors, or (iv) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors or a committee thereof, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 90 days nor more than 120 days prior to (i) the date on which the Corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders, or, if during the prior year the Corporation did not hold an annual meeting or if the date of the annual meeting was changed more than 30 days from the prior year (ii) the date on which the Corporation mails its proxy materials for the current year. Such stockholder’s notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (v) the name, age, business address and residence address of the person, (w) the principal occupation or employment of the person, (x) the class and number of shares of the Corporation which are owned beneficially and of record by the person, (y) such person’s consent to serve as a director of the Corporation if elected, and (z) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and (ii) as to the stockholder giving the notice, (y) the name and record address of the stockholder, and (z) the class and number of shares of the Corporation which are owned beneficially and of record by the stockholder and, in the case of a Nominee Holder, evidence establishing such Nominee Holder’s indirect ownership of stock and entitlement to vote such stock for the election of directors at the annual meeting. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. If a stockholder is entitled to vote only for a specific class or category of directors at a meeting, such stockholder’s right to nominate one or more individuals for election as a director at the meeting shall be limited to such class or category of directors.

 

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(c) Notwithstanding any provision of this Section 2.10 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation at the next annual meeting of stockholders is increased by virtue of an increase in the size of the Board of Directors and either all of the nominees for director at the next annual meeting of stockholders or the size of the increased Board of Directors is not publicly announced or disclosed by the Corporation at least 70 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice pursuant to Section 2.10(b) shall be considered timely, but only with respect to nominees to stand for election at the next annual meeting as the result of any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive officer of the Corporation not later than the close of business on the 10 th day following the day on which all such nominees or the size of the increased Board of Directors shall have been publicly announced or disclosed.

(d) In the event that the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any stockholder entitled to vote for the election of such director(s) at such meeting may nominate a person or persons (as the case may be) for election to such positions as are specified in the Corporation’s notice of such meeting, but only if the stockholder notice required by Section 2.10(b) hereof shall be delivered to a Secretary at the principal executive office of the Corporation not later than the close of business on the 10th day following the day on which notice of the date of the special meeting was mailed or on which the date of the special meeting and the names of the nominees proposed by the Board of Directors to be elected at such meeting or the number of directors to be elected shall have been publicly announced or disclosed, whichever first occurs.

(e) The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

Section 2.11 No Stockholder Action by Written Consent.

Subject to the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation shall be taken at an annual or special meeting of stockholders of the Corporation and shall not be taken by any consent in writing by such stockholders.

ARTICLE 3

DIRECTORS

Section 3.1 Number and Term of Office.

The number of directors which shall constitute the whole of the Board of Directors shall be not less than three (3) or more than ten (10), until changed by amendment of the Certificate of Incorporation or by a Bylaw amending this Section 3.1 duly adopted by the Board of Directors. Only the Board of Directors shall have the power to change the number of directors. Subject to the foregoing provisions for changing the number of directors, the number of directors of the Corporation has been fixed at seven (7).

 

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With the exception of the first Board of Directors, which shall be elected by the incorporators, and except as provided in Section 3.3 of this Article III, the directors shall be elected to one-year terms by a plurality vote of the shares represented in person or by proxy at the stockholders meeting and entitled to vote on the election of directors. Elected directors shall hold office until the annual meeting when their terms expire and until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.

Section 3.2 Powers.

The powers of the Corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors.

Section 3.3 Vacancies.

Vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant and until his successor shall have been duly elected and qualified; provided however, that whenever the holders of any class of stock or series thereof are entitled by the Certificate of Incorporation to elect one of more directors, vacancies and newly created directorships of such class or series may be filled only by a majority of the directors elected by such class or series then in office, or by the sole remaining director so elected. A vacancy in the Board of Directors shall be deemed to exist under this section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 3.4 below) to elect the number of directors then constituting the whole Board.

Section 3.4 Resignations and Removals.

(a) Any director may resign at any time by delivering his resignation to the Secretary in writing or by electronic transmission, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.

 

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(b) At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors or any individual director may be removed from office with or without cause, and a new director or directors to fill the resulting vacancy or vacancies may be elected by a vote of stockholders holding a majority of the outstanding shares entitled to elect such director or directors at an election of directors.

Section 3.5 Meetings.

(a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders’ meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary, and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.

(b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held at any place, within or without the State of Delaware, which has been designated by resolutions of the Board of Directors or the written consent of all directors.

(c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, Chief Executive Officer or the Board of Directors.

(d) Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by telegram or facsimile transmission or by other form of electronic transmission at least 48 hours before the start of the meeting, or sent by first class mail at least 120 hours before the start of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat.

Section 3.6 Quorum and Voting.

(a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 3.1 of Article III of these Bylaws, but not less than one; provided, however , at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

(b) At each meeting of the Board at which a quorum is present, all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws.

(c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

 

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(d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 3.7 Action Without Meeting.

Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 3.8 Fees and Compensation.

Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors or a committee thereof.

Section 3.9 Committees.

(a) Executive Committee: The Board of Directors may appoint an Executive Committee of not less than one member, each of whom shall be a director. The Executive Committee shall have and may exercise all the powers of the Board that lawfully may be delegated, including without limitation, the power and authority to declare dividend, except such committee shall not have the power or authority to amend these Bylaws or to approve or recommend to the stockholders any action which must be submitted to stockholders for approval under the Delaware General Corporation Law. The attendance of a majority of the members of the Executive Committee, or the next highest integer in the event of a fraction, at any meeting shall constitute a quorum, and the act of a majority of those present at a meeting thereof at which a quorum is present shall be the act of the Executive Committee. All acts done and powers conferred by the Executive Committee from time to time shall be deemed to be, and may be certified as being done or conferred under authority of the Board. The Executive Committee shall fix its own rules and procedures, and the minutes of the meetings of the Executive Committee shall be submitted at the next regular meeting of the Board at which a quorum is present, or if impracticable, at the next such subsequent meeting. The Executive Committee shall hold such meetings as may be called by the Chairman of the Executive Committee, the Chairman of the Board, the Chief Executive Officer, the President, or the Secretary. Notice of each such meeting of the Executive Committee shall be given by mail, telegram or facsimile transmission or by other form of electronic transmission or be delivered personally or by telephone to each member of the Executive Committee not later than the day before the day on which such meeting is to be held. Notice of any such meeting need not be given to any member

 

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of the Executive Committee who submits a signed waiver of notice whether before or after the meeting, or if he shall be present at such meeting; and any meeting of the Executive Committee shall be a legal meeting without any notice thereof having been given, if all the members of the Executive Committee shall be present thereat.

(b) Other Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.

(c) Term: The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this Section 3.9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

(d) Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 3.9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the Corporation required to be maintained pursuant to Section 1.2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

 

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ARTICLE 4

OFFICERS

Section 4.1 Officers Designated.

The officers of the Corporation shall be a Chief Executive Officer, a President, a Chief Financial Officer, and a Secretary. The Board of Directors, the Chief Executive Officer or the President may also appoint a Chairman of the Board, one or more Vice-Presidents, assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The order of the seniority of the Vice-Presidents shall be in the order of their nomination unless otherwise determined by the Board of Directors. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the Corporation shall be fixed by or in the manner designated by the Board of Directors or a committee thereof.

Section 4.2 Tenure and Duties of Officers.

(a) General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the Corporation.

(b) Duties of the Chief Executive Officer: The Chief Executive Officer shall be the chief executive officer of the Corporation and when present shall preside at all meetings of the stockholders and the Board of Directors. The Chief Executive Officer shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

(c) Duties of President: The President shall be the chief executive officer of the Corporation in the absence of the Chief Executive Officer and shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chief Executive Officer has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

(d) Duties of Vice-Presidents: The Vice-Presidents, if any, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(e) Duties of Chief Financial Officer: The Chief Financial Officer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner, and shall render statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors, the Chief Executive Officer or the President. The Chief

 

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Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the Corporation. The Chief Financial Officer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any assistant treasurer to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each assistant treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(f) Duties of Secretary: The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the Corporation, which may be maintained in either paper or electronic form. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the stockholders and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The Chief Executive Officer or President may direct any assistant secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each assistant secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

ARTICLE 5

SHARES OF STOCK

Section 5.1 Form and Execution of Certificates.

The shares of all classes or series of the capital stock of the Corporation may be uncertificated shares, except to the extent otherwise required by applicable law and except to the extent shares are represented by outstanding certificates that have not been surrendered to the Corporation or its transfer agent. Notwithstanding the foregoing, every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board (if there be such an officer appointed), or by the Chief Executive Officer, President or any Vice-President and by the Chief Financial Officer or assistant treasurer or the Secretary or assistant secretary, certifying the number of shares owned by him in the Corporation. Certificates for the shares of stock of the Corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that , except as otherwise provided in section 202 of the Delaware General

 

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Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

Except as otherwise provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

Section 5.2 Lost Certificates.

The Corporation may issue in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When issuing new certificate or certificates, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the Corporation in such manner as it shall require and/or to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.

Section 5.3 Transfers.

Any transfers of stock of the Corporation must be made subject to transfer restrictions set forth in the Certificate of Incorporation. Where authorized, transfers of record of shares of stock of the Corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed.

Section 5.4 Fixing Record Dates.

(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, then the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however , that the Board of Directors may fix a new record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders

 

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entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 5.5 Registered Stockholders.

The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE 6

OTHER SECURITIES OF THE CORPORATION

All bonds, debentures and other corporate securities of the Corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), the Chief Executive Officer, or the President or any Vice-President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an assistant secretary, or the Chief Financial Officer or an assistant treasurer; provided, however , that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Chief Financial Officer or an assistant treasurer of the Corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon has ceased to be an officer of the Corporation before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation.

 

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ARTICLE 7

INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS

Section 7.1 Right to Indemnification.

(a) Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a “Proceeding”), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another Corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director or officer, or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the Corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any director or officer as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter “Expenses”); provided, however , that except as to actions to enforce indemnification rights pursuant to Section 7.3 of this Article, the Corporation shall indemnify any director or officer seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right.

(b) The Board of Directors may, in its sole discretion and up to the fullest extent provided by applicable law, indemnify and hold harmless against any and all Expenses any person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any Proceeding by reason of the fact that he, or a person of whom he is the legal representative, is or was an employee or other agent of the Corporation or is or was serving at the request of the Corporation as an employee or other agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as an employee or other agent, or in any other capacity while serving as an employee or other agent.

Section 7.2 Authority to Advance Expenses.

Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such

 

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Proceeding, provided, however , that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article or otherwise. Expenses incurred by employees or other agents of the Corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the Corporation for Expense advances shall be unsecured and no interest shall be charged thereon.

Section 7.3 Right of Claimant to Bring Suit.

If a claim under Section 7.1 or 7.2 of this Article is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys’ fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.

Section 7.4 Provisions Nonexclusive.

The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate of Incorporation, agreement, or vote of the stockholders or disinterested directors is inconsistent with these Bylaws, the provision, agreement, or vote shall take precedence.

Section 7.5 Authority to Insure.

The Corporation may purchase and maintain insurance to protect itself and any director, officer, employee or other agent against any Expense, whether or not the Corporation would have the power to indemnify the director, officer, employee or other agent against such Expense under applicable law or the provisions of this Article.

 

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Section 7.6 Survival of Rights.

The rights provided by this Article shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

Section 7.7 Settlement of Claims.

The Corporation shall not be liable to indemnify any director, officer, employee or other agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the Corporation’s written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the Corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.

Section 7.8 Effect of Amendment.

Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any director, officer, employee or other agent existing at the time of such amendment, repeal, or modification.

Section 7.9 Subrogation.

In the event of payment under this Article, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the director, officer, employee or other agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights.

Section 7.10 No Duplication of Payments.

The Corporation shall not be liable under this Article to make any payment in connection with any claim made against the director, officer, employee or other agent to the extent the director, officer, employee or other agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.

ARTICLE 8

AMENDMENTS

These Bylaws may be repealed, altered or amended or new Bylaws adopted at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting, unless a larger vote is required by these Bylaws or the Certificate of Incorporation. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws; provided that the authorized number of directors may be changed only by resolution of the Board of Directors.

 

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CERTIFICATE OF SECRETARY

The undersigned, Secretary of JMP Group Inc., a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the Bylaws of said Corporation, with all amendments to date of this Certificate.

WITNESS the signature of the undersigned this 3 rd day of May, 2007.

 

/s/ Janet L. Tarkoff

Janet L. Tarkoff
Chief Legal Officer & Secretary

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph A. Jolson, certify that:

 

1. I have reviewed this report on Form 10-Q of JMP Group Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 21, 2007

 

/s/ Joseph A. Jolson

Joseph A. Jolson

Chairman and Chief Executive Officer


Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas B. Kilian, certify that:

 

1. I have reviewed this report on Form 10-Q of JMP Group Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 21, 2007

 

/s/ Thomas B. Kilian

Thomas B. Kilian

Chief Financial Officer


Exhibit 32.1

JMP Group Inc.

Certification by the Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the periodic report of JMP Group Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2007, as filed with the Securities and Exchange Commission (the “Report”), I, Joseph A. Jolson, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

  (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

 

  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

Date: June 21, 2007  

/s/ Joseph A. Jolson

 

Joseph A. Jolson

Chief Executive Officer

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.


Exhibit 32.2

JMP Group Inc.

Certification by the Chief Financial Officer Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the periodic report of JMP Group Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2007, as filed with the Securities and Exchange Commission (the “Report”), I, Thomas B. Kilian, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

  (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

 

  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

Date: June 21, 2007  

/s/ Thomas B. Kilian

 

Thomas B. Kilian

Chief Financial Officer

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.