JMP Group LLC
JMP Group Inc. (Form: 10-Q, Received: 05/09/2008 06:06:16)
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, 2008

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   x     No   ¨

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

 

     Large accelerated filer   ¨    Accelerated filer   ¨
  

Non-accelerated filer   x     (Do not check if a smaller reporting company)

   Smaller reporting company   ¨

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 April 30, 2008 was 20,404,575.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page
Number

Available Information

   3

PART I.

  

FINANCIAL INFORMATION

   4

Item 1.

  

Financial Statements - JMP Group Inc.

   4
  

Consolidated Statements of Financial Condition - March 31, 2008 (Unaudited) and December 31, 2007

   4
  

Consolidated Statements of Net Income - For the Three Months Ended March 31, 2008 and 2007 (Unaudited)

   5
  

Consolidated Statement of Changes in Shareholders’ Equity - For the Three Months Ended March 31, 2008 (Unaudited)

   6
  

Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2008 and 2007 (Unaudited)

   7
  

Notes to Consolidated Financial Statements (Unaudited)

   8

Item 2.

  

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

   23

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

   34

Item 4.

  

Controls and Procedures

   34

PART II.

  

OTHER INFORMATION

   35

Item 1.

  

Legal Proceedings

   35

Item 1A.

  

Risk Factors

   35

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

   35

Item 3.

  

Defaults Upon Senior Securities

   35

Item 4.

  

Submission of Matters to a Vote of Security Holders

   35

Item 5.

   Other Information    35

Item 6.

   Exhibits    35

SIGNATURES

   36

EXHIBIT INDEX

   37

 

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Table of Contents

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, with the Securities and Exchange Commission. 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, 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, (i) its 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. These documents, as well as the information on the website of JMP Group Inc., are not intended to be part of this quarterly report.

 

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PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

JMP Group Inc.

Consolidated Statements of Financial Condition

 

     March 31, 2008     December 31, 2007  
     (Unaudited)        
     Successor  

Assets

    

Cash and cash equivalents

   $ 68,233,291     $ 99,127,043  

Restricted cash and deposits (includes cash on deposit with clearing broker of $255,336 at March 31, 2008 and December 31, 2007)

     13,867,940       12,038,511  

Receivable from clearing broker

     2,120,787       1,475,626  

Investment banking fees receivable, net of allowance for doubtful accounts of $86,857 at March 31, 2008 and $156,004 at December 31, 2007

     1,900,358       5,848,754  

Marketable securities owned, at fair value

     23,678,823       24,220,761  

Other investments

     47,734,851       27,557,542  

Loan receivable

     855,763       1,177,763  

Fixed assets, net

     1,720,450       1,857,444  

Deferred tax assets

     4,682,742       2,626,227  

Other assets

     3,558,725       8,781,592  
                

Total assets

   $ 168,353,730     $ 184,711,263  
                

Liabilities and Shareholders’ Equity

    

Liabilities

    

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

   $ 12,784,681     $ 10,954,013  

Securities sold under agreements to repurchase

     7,864,000       9,135,000  

Note payable

     4,480,850       —    

Accrued compensation

     4,125,065       28,154,889  

Other liabilities

     7,497,623       6,261,842  
                

Total liabilities

     36,752,219       54,505,744  
                

Minority interest

     15,151,731       14,604,692  
                

Commitments and contingencies

    

Shareholders’ Equity

    

Common stock, $0.001 par value, 100,000,000 shares authorized; 22,044,541 issued at March 31, 2008 and December 31, 2007

     22,045       22,045  

Additional paid-in capital

     123,081,435       121,001,922  

Treasury stock (at cost, 1,544,066 shares at March 31, 2008 and 1,418,061 shares at December 31, 2007)

     (11,767,354 )     (10,884,218 )

Retained earnings

     5,113,654       5,461,078  
                

Total shareholders’ equity

     116,449,780       115,600,827  
                

Total liabilities and shareholders’ equity

   $ 168,353,730     $ 184,711,263  
                

See accompanying notes to consolidated financial statements.

 

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JMP Group Inc.

Consolidated Statements of Net Income

(Unaudited)

 

     Three Months Ended March 31,  
     2008     2007  
     Successor     Predecessor  

Revenues

    

Investment banking

   $ 8,106,516     $ 11,493,259  

Brokerage

     8,141,844       8,631,567  

Asset management fees

     2,741,773       888,038  

Principal transactions

     (1,379,881 )     (68,214 )

Interest and dividends

     1,592,414       770,892  

Other income

     548,915       198,075  
                

Total revenues

     19,751,581       21,913,617  

Expenses

    

Compensation and benefits

     12,589,219       12,830,903  

Income allocation and accretion – Redeemable Class A member interests

     —         3,049,535  

Administration

     1,281,049       1,004,870  

Brokerage, clearing and exchange fees

     1,373,326       1,138,647  

Travel and business development

     928,756       696,986  

Communications and technology

     994,455       941,400  

Occupancy

     469,563       466,391  

Professional fees

     1,179,569       225,416  

Depreciation

     265,958       356,517  

Interest and dividend expense

     215,644       504,178  

Other

     (8,753 )     (261,985 )
                

Total expenses

     19,288,786       20,952,858  
                

Income before income tax benefit and minority interest

     462,795       960,759  

Income tax benefit

     (159,574 )     —    

Minority interest

     (56,431 )     135,478  
                

Net income

   $ 678,800     $ 825,281  
                

Net income per common share:

    

Basic

   $ 0.03    

Diluted

   $ 0.03    

Weighted average common shares outstanding:

    

Basic

     20,545,926    

Diluted

     20,838,929    

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  

See accompanying notes to consolidated financial statements.

 

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JMP GROUP INC.

Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited)

 

     Shareholders’ Equity  
     Common Stock    Common
Treasury Stock
    Additional
Paid-In
Capital
   Retained
Earnings
    Total Equity  
     Shares    Amount    Amount         

Successor:

               

Balance, December 31, 2007

   22,044,541    $ 22,045    $ (10,884,218 )   $ 121,001,922    $ 5,461,078     $ 115,600,827  

Net income

   —        —        —         —        678,800       678,800  

Additional paid-in capital - stock-based compensation

   —        —        —         2,079,513      —         2,079,513  

Cash dividends declared to shareholders

   —        —        —         —        (1,026,224 )     (1,026,224 )

Purchases of shares of common stock for treasury

   —        —        (883,136 )     —        —         (883,136 )
                                           

Balance, March 31, 2008

   22,044,541    $ 22,045    $ (11,767,354 )   $ 123,081,435    $ 5,113,654     $ 116,449,780  
                                           

See accompanying notes to consolidated financial statements.

 

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JMP Group Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

     Three Months Ended March 31,  
     2008     2007  
     Successor     Predecessor  

Cash flows from operating activities:

    

Net income

   $ 678,800     $ 825,281  

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

    

Provision for doubtful accounts

     (8,753 )     (261,985 )

Change in other investments – fair value

     560,979       (367,077 )

Change in other investments – incentive fees reinvested in general partnership interests

     (1,197,335 )     (226,954 )

Depreciation and amortization of fixed assets

     265,958       356,517  

Minority interest

     (56,431 )     135,478  

Stock-based compensation expense

     2,079,513       562,289  

Deferred income tax benefit

     (2,056,515 )     —    

Net change in operating assets and liabilities:

    

Decrease in receivables

     3,311,988       3,823,767  

Decrease (increase) in marketable securities

     541,938       (655,881 )

Decrease (increase) in restricted cash, deposits and other assets

     3,058,166       (1,077,319 )

Increase in marketable securities sold, but not yet purchased

     1,830,668       533,078  

Decrease in securities sold under agreements to repurchase

     (1,271,000 )     —    

Decrease in accrued compensation and other liabilities

     (23,820,267 )     (16,272,831 )

Decrease in Redeemable Class A member interests

     —         (627,382 )
                

Net cash used in operating activities

     (16,082,291 )     (13,253,019 )
                

Cash flows from investing activities:

    

Purchases of fixed assets

     (128,964 )     (21,349 )

Purchases of other investments

     (19,540,953 )     (700,000 )

Sales of other investments

     —         251,696  

Repayment of loan receivable

     322,000       —    

Repayment of note receivable

     335,272       —    
                

Net cash used in investing activities

     (19,012,645 )     (469,653 )
                

Cash flows from financing activities:

    

Increase in note payable

     4,480,850       —    

Distributions paid to Class A and Class B common interests

     —         (625,991 )

Capital contributions of minority interest members and shareholders

     600,000       200,000  

Purchases of shares of common stock for treasury

     (883,136 )     —    

Cash received from minority interest shareholders

     3,470       —    
                

Net cash provided by (used in) financing activities

     4,201,184       (425,991 )
                

Net decrease in cash and cash equivalents

     (30,893,752 )     (14,148,663 )

Cash and cash equivalents, beginning of period

     99,127,043       52,328,804  
                

Cash and cash equivalents, end of period

   $ 68,233,291     $ 38,180,141  
                

Supplemental disclosures of cash flow information:

    

Cash paid during the period for interest

   $ 97,846     $ 487,063  

Non-cash financing activities:

    

Issuance of Class A common interests

   $ —       $ 401,172  

Issuance of JMPRT common stock

   $ —       $ 20,800  

Dividends declared to shareholders

   $ 1,026,224     $ —    

See accompanying notes to consolidated financial statements.

 

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JMP GROUP INC.

Notes to Consolidated Financial Statements

March 31, 2008

(Unaudited)

1. Organization and Description of Business

JMP Group Inc., together with its subsidiaries (collectively, the “Company” or “Successor”), is an independent investment banking and asset management firm headquartered in San Francisco. JMP Group Inc. completed its initial public offering on May 16, 2007, and also completed a corporate reorganization (the “Reorganization”), which is described in greater detail in the Registration Statement on Form S-1 (File No. 333-140689) (the “Registration Statement”) 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, as amended, and is a member of the Financial Industry Regulatory Authority (“FINRA”). 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, as amended, 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, 2007 included in its annual report on Form 10-K. 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.

These financial statements and accompanying notes present the consolidated financial condition of the Successor as of March 31, 2008 and December 31, 2007. Consolidated results of operations and cash flows are presented for the Successor for the three months ended March 31, 2008 (post-Reorganization) and for the Predecessor for the three months ended March 31, 2007 (pre-Reorganization). The Reorganization in connection with the initial public offering resulted in a combination of the Predecessor (JMP Group LLC) and JMP Holdings Inc. (now JMP Group Inc.), whose financial statements had not been combined with those of the Predecessor prior to May 16, 2007 for reporting purposes. Therefore, the Successor’s consolidated financial statements as of May 16, 2007 include the accounts of both JMP Group LLC and JMP Group Inc. The consolidated accounts of the Successor and the Predecessor both include the wholly-owned subsidiaries, JMP Securities and JMPAM, and the partially-owned subsidiaries, JMP Realty Trust (“JMPRT”), Harvest Consumer Partners (“HCP”), Harvest Technology Partners (“HTP”) and Opportunity Acquisition Corp., a special purpose acquisition corporation, or “SPAC,” formed for the purpose of acquiring one or more businesses through a merger, capital stock exchange, stock purchase, asset acquisition, or other similar business combination. The Company is the sponsor of the SPAC. All material intercompany accounts and transactions have been eliminated in consolidation.

Minority interest relates to the interest of third parties in JMPRT and in the two asset management funds HCP and HTP, as well as in Opportunity Acquisition Corp.

JMPRT is a real estate investment trust that was formed in June 2006. As of March 31, 2008, the Company owned 49.5% of JMPRT and certain employees owned 20.1%. JMPRT is managed by JMPAM. Because of its 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, 2008, the Company and its affiliates, officers, and immediate family members provided 93.3% and 92.5%, respectively, of the invested capital in these funds. Due to this ownership and resulting control by the Company and related parties, the Company consolidates the two funds in the Company’s financial statements and records minority interest. HTP and HCP account for their investments at fair value, which is consistent with the Company’s accounting policies for “Marketable securities owned, at fair value” and “Marketable securities sold, but not yet purchased, at fair value.” The base management fees and incentive fees earned by HTP and HCP are eliminated in consolidation net of minority interest.

In addition to HTP and HCP, JMPAM currently manages several other asset management limited partnerships and is a general partner of each. The partnership agreements for these asset management funds provide for the right of the limited partners to remove the general partner by a simple majority vote of the unaffiliated limited partners. This right satisfies all of the criteria enumerated in paragraph 7.b. of Emerging Issues Task Force Issue No. 04-5 (“EITF 04-5”), Determining whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights . As a result, consolidation of these asset management funds is not required.

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, as well as the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

 

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Revenue Recognition

Investment banking revenues

Investment banking revenues consist of underwriting revenues, strategic advisory revenues and private placement fees, and 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 opinions and valuation analyses. 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 in the Consolidated Statements of Net Income within various expense captions other than compensation expense.

Brokerage revenues

Brokerage revenues consist of (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 and agreed to by the Company. An invoice is then 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 revenues

Principal transactions revenues include realized and unrealized net gains and losses resulting from our principal investments in equity and other securities for the Company’s account and in equity-linked warrants received from certain investment banking assignments, as well as limited partner investments in private funds managed by third parties. Principal transactions revenue also includes earnings (or losses) attributable to investment partnership interests held by our asset management subsidiary, JMPAM, which are accounted for using the equity method of accounting.

The Company’s principal transactions revenue for these categories for the three months ended March 31, 2008 and 2007 are as follows:

 

     Three Months Ended
March 31,
 
     2008     2007  
     Successor     Predecessor  

Equity and other securities

   $ (3,257,144 )   $ (476,635 )

Warrants

     (38,258 )     25,518  

Investment partnerships

     1,915,521       382,903  
                

Total principal transactions revenues

   $ (1,379,881 )   $ (68,214 )
                

Asset management fees

Asset management fees consist of base management fees and incentive fees. The Company recognizes base management fees on a monthly basis over the period in which 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 calculated at the investor level using their quarter-beginning capital balance adjusted for any contributions or withdrawals. 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 hedge funds and JMPRT, and annually for the funds of hedge funds managed by JMPAM. Most of the incentive fees are currently reinvested in the investment funds in which we hold a general partner investment. 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.

 

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Restricted Cash and Deposits

Restricted cash consists of proceeds from short sales deposited 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. At each of March 31, 2008 and December 31, 2007, the Company had $255,336 of 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, 2008 and December 31, 2007, 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 Sold Under Repurchase Agreements

Securities sold under repurchase agreements are accounted for as collateralized financing transactions. The liabilities that result from these agreements are recorded in the consolidated statements of financial condition at the amounts at which the securities were sold. The Company pledged owned quasi-government agency securities as collateral, which is valued daily, and the Company may be required to deposit additional collateral. Interest expense is recorded on an accrual basis and is recorded in the Consolidated Statements of Net Income.

Fair Value of Financial Instruments

The Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”) as of January 1, 2008. This standard establishes a consistent framework for measuring fair value in accordance with generally accepted accounting principles (“GAAP”) and expands disclosures with respect to fair value measurements. SFAS 157 applies to all financial instruments that are being measured and reported on a fair value basis. This includes those items currently reported in marketable securities owned, at fair value, other investments and marketable securities sold, not yet purchased, at fair value on the consolidated statements of financial condition. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. On February 12, 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) SFAS 157-2, Effective Date of FASB Statement No. 157 . This FSP permits delayed application of the provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. See Note 4 of the Notes to the consolidated financial statements for a complete discussion of SFAS 157.

Substantially all of the Company’s financial instruments are recorded at fair value or amounts that approximate fair value. Marketable securities owned, Other investments, including warrant positions and investments in partnerships in which JMPAM is the general partner, and Marketable securities sold, but not yet purchased, are stated at fair value, with related changes in unrealized appreciation or depreciation reflected in the line item Principal transactions in the accompanying Consolidated Statements of Net Income.

Under SFAS 157, 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. Management believes that the fair value of the receivable from clearing broker and investment banking fees receivable 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.

To the extent that 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 Options 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.

Marketable securities owned and securities sold, but not yet purchased, consist of U.S. listed and OTC equity securities, as well as quasi-government agency securities. 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 as set forth in 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.

Also included in other investments are convertible preferred stock and common stock of New York Mortgage Trust, Inc. (“NMTR”), and warrants on public and private common stock. The investment in NMTR convertible preferred stock is based on a fair value estimate using the Black-Scholes credit adjusted valuation model on Bloomberg. The investment in NMTR common stock, which is not registered under the Securities Act, as amended, is discounted to estimate fair value. The warrants on public and private common stock are generally 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 Options Valuation methodology adjusted for active market and other considerations on a case-by-case basis.

The aforementioned fair value methods represent the Company’s best estimate of exit price as defined by SFAS 157.

 

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The Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 (“SFAS 159”) as of January 1, 2008. SFAS 159 provides companies with an option to report selected financial assets and financial 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. The election to use the fair value option is available at specified election dates, such as when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in the Consolidated Statements of Net Income. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings.

We elected to apply the fair value option to the following financial assets:

 

   

Investment in NMTR convertible preferred stock; and

 

   

Investment in NMTR common stock

There was no adjustment recorded to retained earnings related to the adoption of SFAS 159.

Subsequent to the adoption of SFAS 159, we have elected to apply the fair value option to new positions within the above categories. In certain cases, we may continue to apply the equity method of accounting to those investments which are strategic in nature or are closely related to our principal business activities, where we have a significant degree of involvement in the cash flows or operations of the investee.

Loan Receivable

Loan receivable consists of a participation interest in a loan made by JMPRT to a client as part of its normal business operations. The loan is collateralized by real estate related assets, and bears interest at the rate of 20% per annum, payable monthly in arrears. The principal of the loan was due and payable on December 1, 2007, but was extended until September 2008 for an additional fee at the borrower’s option and in connection with a partial repayment. On September 25, 2007, the board of directors of JMPRT declared a distribution payable to its shareholders in the form of participation interests in the fair market value of the loan receivable. The distribution was made in October 2007.

Fixed Assets

Fixed assets represent furniture and fixtures, computer and office equipment, certain software costs 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

The Successor, JMP Group Inc., accounts for income taxes in accordance with Statement of Financial Standards No. 109, Accounting for Income Taxes , (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assets and liabilities based upon the temporary differences between the financial reporting and tax bases of the assets and liabilities. Valuation allowances are established when necessary to reduce the deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. The Predecessor, JMP Group LLC, was a limited liability company and was treated as a partnership for federal and state income tax purposes. Therefore, the Predecessor was not subject to federal and state income taxes, and accordingly, did not provide for the federal and state income taxes in the financial statements, but it was liable for state and local unincorporated business tax or franchise tax.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109 (“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 on 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 May 16, 2007, the date the Company became subject to federal and state income taxes. Its adoption did not have a material impact on the Company’s financial condition or results of operations.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS 123R”), 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 No. 123, Accounting for Stock-Based Compensation . SFAS 123R requires measurement of compensation cost for stock-based awards classified as equity at their fair value on the date of grant and the recognition of compensation expense over the service period for awards expected to vest. Such grants are recognized as expense over the service period, net of estimated forfeitures.

Stock-based compensation includes restricted stock units and stock options granted under the Company’s 2007 Equity Incentive Plan, stock options granted under the Company’s 2004 Equity Incentive Plan, as well as changes in Redeemable Class A member interests, which were membership interests issued to the Predecessor’s employee members and recorded as a liability prior to May 16, 2007. On May 16, 2007, in connection with the Reorganization, the Redeemable Class A member interests were exchanged for shares of the Company’s common stock and reclassified as equity.

In accordance with generally accepted valuation practices for stock-based awards issued as compensation, the Company uses the Black-Scholes option-pricing model to calculate the fair value of option awards, although such models were originally developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company’s stock options and restricted stock units. The Black-Scholes model requires subjective assumptions regarding variables such as future stock price volatility, dividend yield and expected time to exercise, which greatly affect the calculated values.

 

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Reclassification

Certain balances from prior years have been reclassified in order to conform to the current year presentation. The reclassifications had no impact on the Company’s financial position, net income or cash flows.

3. Recent Accounting Pronouncements

SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). In December 2007 the FASB issued SFAS 141(R), which requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS 141(R) applies to all transactions or other events in which the Company obtains control of one or more businesses, including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after December 1, 2009. The Company is currently evaluating SFAS 141(R) and has not yet determined the potential impact on the results of operations or financial condition.

SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). In December 2007 the FASB issued SFAS 160, which requires reporting entities to present noncontrolling (minority) interests as equity (as opposed to as a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS 160 applies prospectively as of December 1, 2009, except for the presentation and disclosure requirements which will be applied retrospectively for all periods presented. The Company is currently evaluating SFAS 160 and has not yet determined the potential impact on the results of operations or financial condition.

SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). In March 2008, the FASB issued SFAS No. 161, which requires specific disclosures regarding the location and amounts of derivative instruments in the Company’s financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued and for fiscal years and interim periods after November 15, 2008. Early application is permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

4. Financial Instruments

As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial instrument assets and liabilities carried at fair value have been classified and disclosed in one of the following three categories:

 

Level 1

   Quoted market prices in active markets for identical assets or liabilities.

Level 2

   Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3

   Unobservable inputs that are not corroborated by market data.

Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. listed and OTC equity securities, or broker or dealer price quotations, as well as quasi-government agency securities, all of which are carried at fair value.

Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including 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, time value, yield curve, prepayment speeds, default rates, loss severity, as well as other measurements. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Included in this category is the general partner investment in hedge funds, where the underlying hedge funds are mainly invested in publicly traded stocks whose value is based on quoted market prices.

Level 3 is comprised of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are generally less readily observable from objective sources. A description of the valuation techniques utilized for the fair value of the financial instruments in this category is as follows:

 

   

General partner investment in funds of funds and limited partner investment in private equity fund: determined by net asset value provided by third party general partners;

 

   

Investment in NMTR convertible preferred stock: determined by the Company using the Black-Scholes credit adjusted valuation model on Bloomberg; and

 

   

Warrants: determined by the Company using the Black-Scholes Options Valuation model.

In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to SFAS 157. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as “Level 3.”

 

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The following tables provide fair value information related to the Company’s financial assets and liabilities:

 

     Assets at Fair Value as of March 31, 2008
     Level 1    Level 2    Level 3    Total

Financial instruments owned, at fair value:

           

Marketable Securities Owned:

           

Equity securities

   $ 14,940,333    $ —      $ —      $ 14,940,333

Quasi-government agency securities

     8,738,490      —        —        8,738,490
                           

Total marketable securities owned

   $ 23,678,823    $ —      $ —      $ 23,678,823
                           

Other Investments:

           

General partner investment in hedge funds

   $ —      $ 23,511,145    $ —      $ 23,511,145

General partner investment in funds of funds

     —        —        4,498,151      4,498,151
                           

Total general partner investment in funds

     —        23,511,145      4,498,151      28,009,296

Limited partner investment in private equity fund

     —        —        2,296,747      2,296,747

Investment in NMTR convertible preferred stock (1)

     —        —        14,177,062      14,177,062

Investment in NMTR common stock (1)

     3,024,574      —        —        3,024,574

Warrants

     —        —        227,172      227,172
                           

Total other investments

   $ 3,024,574    $ 23,511,145    $ 21,199,132    $ 47,734,851
                           

(1)    Carried in the Consolidated Statements of Financial Condition at fair value in accordance with SFAS 159.

     Liabilities at Fair Value as of March 31, 2008
     Level 1    Level 2    Level 3    Total

Financial instruments sold, but not yet purchased, at fair value:

           

Marketable securities sold, but not yet purchased

   $ 12,784,681    $ —      $ —      $ 12,784,681
                           

The following table provides a reconciliation of the beginning and ending balances for the assets at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2008:

 

     Balance as of
December 31,
2007
   Purchases/(sales),
net
   Total gains
and (losses)
(realized and
unrealized)
    Transfers in/(out)
of Level 3
   Balance as of
March 31,
2008
   Changes in unrealized
gains and (losses)
included in earnings
related to assets still
held at reporting date
 

General partner investment in funds of funds

   $ 4,460,971    $ —      $ 37,180     $ —      $ 4,498,151    $ 37,180  

Limited partner investment in private equity fund

     2,282,582      60,100      (45,935 )     —        2,296,747      (45,935 )

Investment in NMTR convertible preferred stock

     —        15,000,000      (822,938 )     —        14,177,062      (822,938 )

Warrants

     300,503      —        (73,331 )     —        227,172      (73,331 )
                                            

Total Level 3

   $ 7,044,056    $ 15,060,100    $ (905,024 )   $ —      $ 21,199,132    $ (905,024 )
                                            

Total gains and losses represent the total gains and/or losses (realized and unrealized) recorded for the Level 3 assets and are reported in principal transactions, net in the accompanying Consolidated Statements of Net Income. Additionally, the change in the unrealized gains and losses are partially offset by realized gains and losses during the period.

Purchases/sales represent the net amount of Level 3 assets that were either purchased or sold during the period. The amounts were recorded at fair value at the date of the transaction.

Net transfers in/out of Level 3 represent existing financial assets that previously categorized at a higher level. Transfers into or out of Level 3 result from changes in the observability of fair value inputs used in determining fair values for different types of financial assets.

The amount of unrealized gains and losses included in earnings attributable to the change in unrealized gains and losses relating to Level 3 assets still held at the end of the period were reported in Principal transactions, net in the accompanying Consolidated Statements of Net Income. The change in unrealized gains and losses are partially offset by realized gains and losses during the period.

 

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5. Fixed Assets

At March 31, 2008 and December 31, 2007, fixed assets consisted of the following:

 

     March 31, 2008     December 31, 2007  
     Successor  

Furniture and fixtures

   $ 1,322,942     $ 1,314,278  

Computer and office equipment

     3,111,618       2,994,005  

Leasehold improvements

     2,320,338       2,320,338  

Software

     482,618       479,931  

Less: accumulated depreciation

     (5,517,066 )     (5,251,108 )
                

Total fixed assets, net

   $ 1,720,450     $ 1,857,444  
                

Depreciation expense for the three months ended March 31, 2008 and 2007 was $265,958 and $356,517, respectively.

6. Note Payable

On August 3, 2006, the Predecessor entered into a revolving note with City National Bank for up to $30.0 million, replacing a prior $10.0 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. The Company paid a closing fee of $75,000 and pays an annual unused commitment fee of 0.25% payable quarterly in arrears. There are no periodic principal payments required for this facility until maturity. On March 27, 2008, the Company amended the agreement to extend the expiration date from June 30, 2008 to December 31, 2009, with the option at expiry to extend up to $10.0 million of the revolving note for an additional three years to December 31, 2012. This facility is collateralized by a pledge of the Company’s assets, including its interests in each of JMP Securities and JMPAM. At March 31, 2008, the balance outstanding was $4.5 million, representing the draw down of $4.5 million on February 21, 2008 to fund the Company’s purchase of NMTR common stock for an aggregate amount of $4.5 million in a $60 million private investment of public equity (“PIPE”) transaction executed by NMTR on February 18, 2008.

7. Shareholders’ Equity

Common Stock

Shares of JMP Holdings Inc. common stock were originally sold in a private offering in August 2004 to enable certain non-employee investors to invest through a corporate entity in the membership interests of JMP Group LLC. JMP Holdings in turn owned, as a member of JMP Group LLC, Class B common interests on a one-for-one basis for each share of common stock. Effective May 16, 2007, in connection with the Company’s initial public offering, the members of JMP Group LLC exchanged the outstanding membership interests of JMP Group LLC for shares of common stock of JMP Holdings, and JMP Holdings changed its name to JMP Group Inc. In the initial public offering, the Company sold and issued 7,199,864 shares of its common stock, raising $73.1 million of proceeds, net of the Company’s direct offering costs.

The Company intends to pay regular quarterly cash dividends on all outstanding shares of common stock. The Company does not plan to pay dividends on unvested shares of restricted stock. On March 10, 2008, the Company’s board of directors declared a cash dividend of $0.05 per share of common stock for the fourth quarter of 2007 which was paid on April 11, 2008 to common shareholders of record on March 28, 2008.

Stock Repurchase Program

The 1.5 million share repurchase program authorized in August and November 2007 was fully executed as of January 18, 2008. On March 10, 2008, the Company’s board of directors authorized the buyback of an additional 2.0 million shares during the subsequent eighteen months, depending on market conditions.

During the quarter ended March 31, 2008, the Company repurchased 126,005 shares of the Company’s common stock at an average price of $7.01 per share for an aggregate purchase price of $883,136.

The timing and amount of any repurchases will be determined by JMP management based on its evaluation of market conditions, the relative attractiveness of other capital deployment activities, regulatory considerations and other factors. Any open market stock repurchase activities will be conducted in compliance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions. Repurchases of common stock may also be made under a Rule 10b5-1 plan which would permit common stock to be repurchased pursuant to a predetermined formula when the Company may otherwise be prohibited from doing so under insider trading laws. This repurchase program may be suspended or discontinued at any time.

 

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8. Stock-Based Compensation

On March 26, 2007, the board of directors adopted the JMP Group Inc. 2007 Equity Incentive Plan (“JMP Group 2007 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, as well as 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. The Company will issue shares upon exercises from authorized and reserved but unissued shares or from treasury stock.

Stock Options

The following table summarizes the stock option activity for the three months ended March 31, 2008 and 2007:

 

     Three Months Ended March 31,
     2008    2007
     Shares Subject
to Option
    Weighted
Average
Exercise
Price
   Shares Subject
to Option
    Weighted
Average
Exercise
Price

Balance, beginning of period

   2,384,890     $ 11.47      2,639,940     $ 11.44

Granted

   —       $ —        75,000     $ 12.50

Exercised

   —       $ —        —       $ —  

Forfeited

   (20,350 )   $ 10.00      (161,000 )   $ 10.78

Expired

   (1,850 )   $ 10.00      —       $ —  
                           

Balance, end of period

   2,362,690     $ 11.48      2,553,940     $ 11.51
                           

Options exercisable at end of period

   1,842,895     $ 11.85      336,934     $ 10.74
                           

Weighted average fair value of options granted during the period

   —       $ —      $ 3.01     $ 12.50
                           

 

    As of March 31, 2008
    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
  Average
Intrinsic
Value
$10.00 -$15.00   2,362,690   6.49   $ 11.48   $ —     1,842,895   6.19   $ 11.85   $ —  

In accordance with the requirements of SFAS 123R and FIN 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans , the Successor and the Predecessor recognize stock-based compensation expense for stock options over the graded vesting period of the options using the accelerated attribution method, resulting in compensation expense as follows:

 

     Three Months Ended March 31,
     2008    2007
     Successor    Predecessor

Compensation expense recognized related to stock options

   $ 6,910    $ 542,402

There were no stock options exercised in the three months ended March 31, 2008 and 2007. As a result, the Company did not recognize any current income tax benefits during these periods.

As of March 31, 2008, there was $64,271 of unrecognized compensation expense related to stock options expected to be recognized over a weighted average period of 2.05 years.

Restricted Stock Units

The Company grants restricted stock units (“RSUs”) to employees and non-employee directors at no cost to the recipient. An RSU entitles the recipient to receive a share of common stock after the applicable restrictions lapse. These awards are subject to vesting schedules and continued employment with the Company. Some of these awards are also subject to post vesting lockup restrictions. In the event of a change in control or corporate transactions, or if the vesting of all or certain of the RSUs are otherwise accelerated, the RSUs will vest immediately prior to the effective date of such an event.

In determining the 2007 year-end bonus compensation levels, the Company incorporated the equity award program into such considerations. As a result, on January 16, 2008, the Company awarded 1,558,246 RSUs under the JMP Group 2007 Equity Award Plan to all eligible employees. The total fair value of these awards on grant date was $9,128,218. The fair value per unit was based on the market value of the underlying stock on grant date, discounted for post vesting restrictions and future dividends not expected to be received by unvested RSUs over the vesting period. The valuation methodology included an initial assumed expected dividend yield of 3.0%, and a risk-free discount rate of 2.57%. Discounts for post-vesting restrictions were calculated using the Finnerty Model, which was developed to estimate the impact of transfer restrictions on stock prices based on empirical studies.

 

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These RSUs were awarded in three separate tranches. The first tranche of 773,210 units will vest 50% on each of the first and second anniversary of the grant date and is subject to a lockup period until January 15, 2012. The second tranche of 170,104 units will vest 50% on the second anniversary, and 25% on each of the third and fourth anniversary of the grant date and is subject to a lockup period until January 15, 2012. The third tranche of 614,930 units will vest 100% on fourth anniversary of the grant date and is subject to a lockup period until January 15, 2014.

In the event of a change in control, the vesting of these tranches will accelerate and the underlying shares will be released from lockup. Shares issued shall be subject to forfeiture through the lockup period upon termination for cause; or breaches of certain confidentiality, non-compete, or non-solicitation agreements.

In January 2008, the Company also awarded 3,415 RSUs to a new hire employee. These units will vest 25%, 35% and 40% on the second, third and fourth anniversary, respectively, of grant date. There is no lockup period for these units.

The following table summarizes the RSU activity for the three months ended March 31, 2008:

 

     Three Months Ended
March 31, 2008
    Weighted
Average
Grant Date
Fair Value

Balance, beginning of period

   1,943,336     $ 10.30

Granted

   1,561,659     $ 5.86

Vested

   —       $ —  

Forfeited

   (112,584 )   $ 8.72
        

Balance, end of period

   3,392,411     $ 8.31
        

There were no RSUs vested for the three months ended March 31, 2008, therefore, the Company did not recognize any current tax benefits.

The Company recognizes compensation expense over a graded vesting period using the accelerated attribution method, and recorded $1,034,542 in non-cash compensation expense for the three months ended March 31, 2008 in connection with the award of RSUs prior to the initial public offering date. In addition, the Company recorded $1,038,061 in non-cash compensation expense for the three months ended March 31, 2008 for RSUs granted after the initial public offering.

As of March 31, 2008, there was $22,301,779 of unrecognized compensation expense related to RSUs expected to be recognized over a weighted average period of 2.81 years.

 

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9. Net Income per Share of Common Stock and Net Income per Unit Attributable to Class A and Class B Common Interests

The Company calculates its net income per share, and the Predecessor calculated its net income per unit attributable to Class A and Class B common interests, in accordance with SFAS No. 128, Earnings per Share .

Basic net income per share for the Company is calculated by dividing net income by the weighted average number of common shares outstanding for the reporting period. Diluted net income per share is calculated by adjusting the weighted average number of outstanding shares to reflect the potential dilutive impact as if all potentially dilutive stock options or RSUs were exercised or converted.

Basic net income per unit for the Predecessor 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 potentially dilutive securities were exercised or converted into membership interests. To determine an average market price for applying the treasury stock method, the Predecessor estimated the fair market value of the Predecessor’s Class B common interests based on trades of Class B common interests between third parties and earnings multiples of publicly traded comparables.

The computations of basic and diluted net income per share and basic and diluted net income per unit for the three months ended March 31, 2008 and 2007 are shown in the table below:

 

     Three Months Ended March 31,
     2008    2007
     Successor    Predecessor
          Class A
Common
   Class B
Common

Numerator:

        

Net income

   $ 678,800    $ 419,816    $ 405,465
                    

Denominator:

        

Basic weighted average Class A and Class B common interests Outstanding

        2,381,410      2,300,000
                

Basic weighted average shares outstanding

     20,545,926      
            

Effect of potential dilutive securities:

        

Options to purchase Class B common interests

     —        59,113      57,093

Options to purchase common shares

     —        —        —  

Restricted stock units

     293,003      —        —  
                

Diluted weighted average Class A and Class B common interests outstanding

        2,440,523      2,357,093
                    

Diluted weighted average shares outstanding

     20,838,929      
            

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

        

Basic

      $ 0.18    $ 0.18

Diluted

      $ 0.17    $ 0.17

Net income per share

        

Basic

   $ 0.03      

Diluted

   $ 0.03      

Stock options to purchase 2,370,417 common shares and no options to purchase Class A or Class B common interests for the three months ended March 31, 2008 and 2007, respectively, were anti-dilutive and, therefore, were not included in the computation of diluted common units or diluted common shares outstanding.

 

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10. Employee Benefits

All salaried employees of the Company are eligible to participate in the JMP Group 401(k) 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, 2008 and 2007.

11. Income Taxes

Prior to the Reorganization, all income and losses of JMP Group LLC, the Predecessor, were reportable by the individual members of JMP Group LLC in accordance with the Internal Revenue Code of the United States, and as required under generally accepted accounting principles. The U.S. federal and state income taxes payable by the members based upon their share of JMP Group LLC’s net income have not been reflected in the accompanying financial statements for periods prior to the Reorganization. JMP Holdings Inc., being a C-corporation from its inception in August 2004, was subject to U.S. federal and state income taxes on its taxable income, and in accordance with Statement of Financial Standards No. 109, Accounting for Income Taxes (“SFAS 109”), accounted for income taxes in its separate financial statements. SFAS 109 requires the recognition of deferred tax assets and liabilities based upon the temporary differences between the financial reporting and tax bases of the Company’s assets and liabilities. Valuation allowances are established when necessary to reduce the deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized.

As a result of the Reorganization, JMP Group Inc. (formerly JMP Holdings Inc.) succeeded to the business of the Predecessor. The Company is subject to U.S. federal and state income taxes on all taxable income earned subsequent to May 15, 2007 by JMP Group LLC and its subsidiaries. As a result of the Reorganization, upon the change of tax status of JMP Group LLC from a partnership to a wholly-owned disregarded entity of the Company, the Company recognized a one-time tax benefit of $4,084,993 in connection with the establishment of net deferred tax items of $10,169,354. For the three months ended March 31, 2008, the Company recorded a total tax benefit of $159,574, which included a tax benefit adjustment of $317,801 to the $4,084,993 one-time tax benefit recorded in 2007.

 

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The components of the Successor’s income tax expense for the period ended March 31, 2008 are as follows:

 

     Three Months Ended
March 31,

2008
 
     Successor  

Federal

   $ 1,525,565  

State

     371,376  
        

Total current tax expense (benefit)

     1,896,941  

Federal

     (1,789,448 )

State

     (267,067 )
        

Total deferred tax expense (benefit)

     (2,056,515 )
        

Total income tax expense (benefit)

   $ (159,574 )
        

A reconciliation of the statutory U.S. federal income tax rate to the Successor’s effective tax rate for the period ended March 31, 2008 is as follows:

 

     Three Months Ended
March 31,

2008
 
     Successor  

Tax at federal statutory tax rate

   35.00 %

State income tax, net of federal tax

   5.75 %

Adjustment for permanent items

   (10.28 )%
      

Rate before one-time events

   30.47 %

Adjustment to deferred tax recognized upon JMP Group LLC’s tax status change

   (61.21 )%
      

Effective tax rate

   (30.74 )%
      

As of March 31, 2008, the components of deferred tax assets and liabilities are as follows:

 

     March 31, 2008  
     Successor  

Deferred tax assets:

  

Accrued compensation and related expenses

   $ 94,843  

Equity based compensation

     4,022,570  

Depreciation and amortization

     297,463  

Reserves and allowances

     174,922  

Net unrealized capital losses

     1,557,414  

State tax

     132,161  

Other

     122,383  
        

Total deferred tax assets

     6,401,756  

Deferred tax liabilities:

  

Investment in partnerships

     (1,719,014 )
        

Total deferred tax liabilities

     (1,719,014 )

Valuation allowance

     —    
        

Net deferred tax assets

   $ 4,682,742  
        

The Company has analyzed the filing positions in its federal and state tax returns for all open tax years 2004 through 2006. The Company does not anticipate any tax adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flow. Therefore, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48, and no reserves for uncertain income tax positions have been recorded pursuant to FIN 48.

The Company’s policy for recording interest and penalties associated with the tax audits or unrecognized tax benefits, if any, is to record such items as a component of income before taxes. Penalties, if incurred, would be recorded in “administration”, and interest paid or received would be recorded in “interest and dividend expense” in the Consolidated Statements of Net Income.

 

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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, 2008 and 2007 was $469,563 and $466,391, 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 through December 31, 2008

   $  1,502,003

2009

     2,253,008

2010

     2,250,368

2011

     1,625,711

2012

     —  
      

Total

   $ 7,631,090
      

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, 2008, JMP Securities had no open underwriting commitments.

The marketable 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, 2008 and 2007, the Company had $255,336 of cash on deposit with JMP Securities’ clearing broker. Furthermore, the marketable securities owned may be hypothecated or borrowed by the clearing broker.

The Company had, as of March 31, 2008, a capital commitment of $335,800 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 $35,144,872 and $51,329,438, which were $34,417,694 and $50,583,243 in excess of the required net capital of $727,178 and $746,195 at March 31, 2008 and December 31, 2007, respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was 0.31 to 1 and 0.22 to 1 at March 31, 2008 and December 31, 2007, respectively.

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 under the Exchange Act.

14. Related Party Transactions

The Company earns base management fees and incentive fees from serving as investment advisor for entities, including corporations, partnerships and offshore investment companies. The Company may also own an investment in these companies. Base management fees earned were $1,033,720 and $641,227 for the three months ended March 31, 2008 and 2007, respectively. Also, JMPAM earned incentive fees of $1,740,133 and $262,525 from these entities for the three months ended March 31, 2008 and 2007, respectively.

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, 2008 had settled with no resulting liability to the Company. For the three months ended March 31, 2008 and 2007, the Company did not have a loss due to counterparty failure, and has no obligations outstanding under the indemnification arrangement as of March 31, 2008.

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 subject 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.

 

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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 a significant 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. The receivable from the clearing broker represents amounts receivable in connection with the trading of proprietary positions.

The Company is also exposed to credit risk from other brokers, dealers and other financial institutions with which it transacts business. In the event that 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 also enters into transactions to sell securities not yet purchased (“short positions”), which are recorded as liabilities on the Consolidated Statements 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, but not yet purchased may exceed the amount recorded in the Consolidated Statements 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, funds of funds and JMPRT 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, 2008 and 2007 was 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 revenues, headcount 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 operating income before minority interest and taxes.

 

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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,
     2008    2007
     Successor    Predecessor

Broker-Dealer

     

Revenues

   $ 15,054,620    $ 20,417,628

Operating expenses

     15,763,256      16,323,171
             

Segment operating (loss) income

   $ (708,636)    $ 4,094,457
             

Segment assets

   $ 100,375,441    $ 62,041,305

Asset Management

     

Revenues

   $ 4,696,961    $ 1,495,989

Operating expenses

     3,525,530      1,161,091
             

Segment operating income

   $ 1,171,431    $ 334,898
             

Segment assets

   $ 67,978,289    $ 26,387,620

Corporate

     

Operating expenses

   $ —      $ 3,468,596

Consolidated Entity

     

Revenues

     19,751,581      21,913,617

Operating expenses

     19,288,786      20,952,858
             

Income before income tax benefit and minority interest

   $ 462,795    $ 960,759
             

Total assets

   $ 168,353,730    $ 88,428,925

19. Subsequent Events

On May 8, 2008, the Company’s board of directors declared a cash dividend of $0.05 per share of common stock for the first quarter of 2008 to be paid on June 13, 2008 to common shareholders of record on May 30, 2008.

 

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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 with which to understand our financial condition and results of operations, refer to the MD&A for the fiscal year ended December 31, 2007 contained in our annual report on Form 10-K filed with the SEC on March 13, 2008.

Cautionary Statement Regarding Forward Looking Statements

This MD&A and other sections of this report contain forward looking statements. We make forward-looking statements, as defined by the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and in some cases, you can identify these statements by forward-looking words such as “if,” “shall,” “may,” “might,” “will likely result,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “intend,” “goal,” “objective,” “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 annual report on Form 10-K. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. We undertake 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, except as otherwise required by law.

Non-GAAP Financial Measures

In addition to the GAAP financial results presented, we may present non-GAAP financial measures. Company management believes that this presentation provides additional information that enables meaningful comparison of the Company’s financial performance in various periods. The non-GAAP financial results presented should not be considered a substitute for results that are presented in a manner consistent with GAAP. These non-GAAP measures are provided to enhance investors’ overall understanding of our financial performance. A limitation of utilizing non-GAAP measures is that the GAAP accounting effects of events do in fact reflect the underlying financial results of our business, which should not be ignored in evaluating and analyzing the company. Therefore, management believes that both the Company’s GAAP measures of its financial performance and the respective non-GAAP measures should be considered together. The non-GAAP measures presented may not be comparable to similarly titled measures presented by other companies.

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.

Corporate Reorganization

Prior to May 16, 2007, the Company had conducted its business through a multi-member Delaware limited liability company, JMP Group LLC, or the Predecessor, pursuant to its Third Amended and Restated Limited Liability Company Operating Agreement dated as of August 18, 2004, as amended, or the Operating Agreement. One of JMP Group LLC’s members, JMP Holdings Inc., was established in August 2004 to enable investors to invest through a corporate entity in the membership interests of JMP Group LLC. Shares of common stock of JMP Holdings were issued in a private offering in August 2004. JMP Holdings’ only significant asset until May 16, 2007 was its investment in JMP Group LLC, comprised of the member interests of JMP Group LLC purchased with the net proceeds received from issuance of JMP Holdings’ common stock.

In connection with its initial public offering, JMP Holdings changed its name to JMP Group Inc., and effective May 16, 2007, members of JMP Group LLC exchanged the outstanding membership interests of JMP Group LLC for shares of common stock of JMP Group Inc. As a result of the exchange, JMP Group LLC became JMP Group Inc.’s wholly-owned subsidiary and JMP Group Inc., or the Successor, completed its initial public offering on May 16, 2007. This corporate reorganization, or 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 in connection with the initial public offering.

Predecessor and Successor

We have presented our historical financial results for the Predecessor and the Successor in the financial statements for the periods before and after the Reorganization on May 16, 2007. Despite the separate presentation, there were no material changes to the actual operations or customer relationships of our business as a result of the exchange of the membership interests of the Predecessor for shares of common stock of the Successor and the initial public offering of the Successor.

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

 

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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.

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 opinions and valuation analyses. 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 (“PIPE”), Rule 144A private offerings and trust preferred securities offerings. We record private placement revenues on the closing date of these transactions.

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 that 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 effect 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.

 

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The following table presents certain information with respect to the investment funds managed by JMP Asset Management (“JMPAM”):

 

     Net Asset Value at    Company’s Share of Net Asset Value at
     March 31,
2008
   December 31,
2007
   March 31,
2008
   December 31,
2007
     Successor    Successor

Funds Managed by JMPAM:

           

Hedge Funds:

           

Harvest Opportunity Partners II

   $ 76,781,319    $ 60,689,192    $ 9,338,344    $ 9,108,059

Harvest Small Cap Partners

     112,460,684      63,070,695      14,172,942      11,405,427

Harvest Consumer Partners *

     4,910,077      4,656,976      2,427,888      2,349,621

Harvest Technology Partners *

     5,913,404      4,917,626      2,308,872      1,807,051

Funds of Funds:

           

JMP Masters Fund

     119,254,412      111,314,314      3,401,641      3,367,116

JMP Emerging Masters Fund

     12,614,033      12,639,186      1,096,811      1,093,855

REIT:

           

JMP Realty Trust *

     17,957,558      18,205,867      8,895,057      9,018,087

New York Mortgage Trust **

     48,413,824      —        N/A      N/A
                           

Total funds managed by JMPAM

   $ 398,305,311    $ 275,493,856    $ 41,641,555    $ 38,149,216
                           

 

* The Company’s share of net asset value in HTP, HCP and JMP Realty Trust (“JMPRT”) is consolidated in the Company’s Statements of Financial Condition, net of minority interest.

 

** The portion of the net asset value of New York Mortgage Trust, Inc. (“NMTR”) that is subject to the management fee calculation. In connection with its investment in NMTR, in January 2008, the Company entered into an advisory agreement between JMPAM and NMTR.

 

     Three Months Ended March 31, 2008
     Company’s Share of
Change in Fair Value
    JMPAM
Management Fee
   JMPAM
Incentive Fee
     Successor     Successor    Successor

Hedge Funds:

       

Harvest Opportunity Partners II

   $ 193,895     $ 174,629    $ 38,775

Harvest Small Cap Partners

     1,606,429       356,423      1,659,315

Harvest Consumer Partners *

     76,259       5,534      2,010

Harvest Technology Partners *

     1,756       6,925      63

Funds of Funds:

       

JMP Masters Fund

     34,224       284,708      30,823

JMP Emerging Masters Fund

     2,956       26,948      9,147

REIT:

       

JMP Realty Trust *

     (153,409 )     69,386      —  

New York Mortgage Trust

     (1,730,589 )     109,167      —  
                     

Totals

   $ 31,521     $ 1,033,720    $ 1,740,133
                     
     Three Months Ended March 31, 2007
     Company’s Share of
Change in Fair Value
    JMPAM
Management Fee
   JMPAM
Incentive Fee
     Predecessor     Predecessor    Predecessor

Hedge Funds:

       

Harvest Opportunity Partners II

   $ 1,480     $ 309,140    $ —  

Harvest Value Income Plus **

     (29,148 )     40,814      —  

Harvest Small Cap Partners

     331,913       57,272      226,954

Harvest Consumer Partners *

     22,708       4,937      4,501

Harvest Technology Partners *

     39,049       3,199      8,835

Funds of Funds:

       

JMP Masters Fund

     16,901       188,312      20,223

JMP Emerging Masters Fund

     —         22,556      2,012

REIT:

       

JMP Realty Trust *

     (21,931 )     14,997      —  
                     

Totals

   $ 360,972     $ 641,227    $ 262,525
                     

 

* Revenues earned from HTP, HCP and JMPRT are consolidated and then eliminated in consolidation in the Company’s Statements of Net Income, net of minority interest.

 

** On December 31, 2007, HVIP was liquidated and its assets distributed to its partners.

 

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As of March 31, 2008, 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 (i) 20%, subject to highwater marks, for the hedge funds; (ii) 5% to 20%, subject to highwater marks or a performance hurdle rate, for the funds of funds; and (iii) 25%, subject to a performance hurdle rate, for JMPRT and NMTR.

Principal Transactions

Principal transactions revenues includes realized and unrealized net gains and losses resulting from our principal investments, which includes investments in equity and other 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. In addition, we invest a portion of our capital in a portfolio of equity securities managed by JMPAM 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.

Interest, Dividends and Other Income

Interest, dividends and other income includes interest and dividend income generated by our cash and investments. Other income also includes revenue sharing arrangements with, and 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 - 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 employees’ base pay, performance bonuses, sales commissions, related payroll taxes, medical and benefits expenses, as well as expenses for contractors, temporary employees and equity-based compensation. Our employees 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 Net 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 -Redeemable Class A Member Interests

Redeemable Class A member interests were issued to our former employee members and such interests were 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 provided that an employee member could have elected 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 were 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 a former employee member was the amount we would have been required to pay to that former employee member upon resignation to redeem all of his or her Redeemable Class A member interests, and was equal to the capital account of such former employee member as maintained by us.

Redeemable Class A member interests were 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 was recorded as “Income allocation and accretion—Redeemable Class A member interests” in our Consolidated Statements of Net Income. When we completed our Reorganization on May 16, 2007, our Redeemable Class A member interests were exchanged into shares of our common stock.

Administration

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

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 Ridge Clearing. 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 consisted primarily of interest paid on capital contributed by our Predecessor’s employee members, who received interest payments at an annual rate equal to the Prime rate plus 100 basis points until the Reorganization. To a lesser extent it results from short-term borrowings and dividend paying short positions in our principal investment portfolio. When we completed our Reorganization on May 16, 2007, our Redeemable Class A member interests were exchanged into shares of our common stock and thus we no longer make interest payments to the former holders of the Redeemable Class A member interests.

 

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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 JMPRT and in two of our asset management funds, Harvest Consumer Partners, or HCP, and Harvest Technology Partners, or HTP, as well as in Opportunity Acquisition Corp. JMPRT is a real estate investment trust that was formed in June 2006. JMPRT is managed by JMPAM. Because of the current ownership and external management position, we consolidate JMPRT and record a minority interest. JMPAM is also the general partner of Harvest Consumer Partners and Harvest Technology Partners. Due to our ownership and resulting control by JMPAM 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 and minority interest is recorded. Opportunity Acquisition Corp., also a partially owned subsidiary consolidated on our books, is a special purpose acquisition corporation or “SPAC,” of which JMP Group Inc. is the sponsor.

Historical Results of Operations

The following table sets forth our historical results of operations for the three months ended March 31, 2008 and 2007 and is not necessarily indicative of the results to be expected for any future period.

 

     For the Three Months Ended March 31,              
     2008     2007     2007 to 2008  

(in thousands)

   Successor     Predecessor     $     %  

Revenues

        

Investment banking

   $ 8,107     $ 11,493     $ (3,386 )   -29.5 %

Brokerage

     8,142       8,632       (490 )   -5.7 %

Asset management fees

     2,742       888       1,854     208.8 %

Principal transactions

     (1,380 )     (68 )     (1,312 )   -1929.2 %

Interest, dividends and other income

     2,141       969       1,172     121.0 %
                              

Total revenues

     19,752       21,914       (2,162 )   -9.9 %

Expenses

        

Compensation and benefits

     12,589       12,831       (242 )   -1.9 %

Income allocation and accretion – Redeemable Class A member interests

     —         3,050       (3,050 )   -100.0 %

Administration

     1,281       1,005       276     27.5 %

Brokerage, clearing and exchange fees

     1,373       1,139       234     20.5 %

Interest and dividend expense

     216       504       (288 )   -57.1 %

Other

     3,830       2,424       1,406     58.0 %
                              

Total expenses

     19,289       20,953       (1,664 )   -7.9 %
                              

Income before income tax benefit and minority interest

     463       961       (498 )   -51.8 %

Income tax benefit

     (160 )     —         (160 )   N/A  

Minority interest

     (56 )     136       (192 )   -141.2 %
                              

Net income

   $ 679     $ 825     $ (146 )   -17.6 %
                              

Three Months Ended March 31, 2008, Compared to Three Months Ended March 31, 2007

Overview

Total revenues decreased $2.2 million, or 9.9%, from $21.9 million for the quarter ended March 31, 2007 to $19.8 million for the quarter ended March 31, 2008. The decrease was primarily due to a decrease in investment banking revenue of $3.4 million and principal transactions revenue of $1.3 million, partially offset by an increase in asset management fee revenue of $1.9 million and interest, dividends and other income of $1.2 million.

Total expenses decreased by $1.7 million, or 7.9%, from $21.0 million for the quarter ended March 31, 2007 to $19.3 million for the quarter ended March 31, 2008, primarily because we discontinued recognizing income allocated to the Redeemable Class A member interests after the Reorganization. This resulted in a decrease in income allocation and accretion/(dilution) expense of $3.1 million, partially offset by an increase in other expense of $1.4 million.

Net income decreased $0.1 million from $0.8 million for the quarter ended March 31, 2007 to $0.7 million for the quarter ended March 31, 2008, primarily as a result of the aforementioned decrease in revenues.

Revenues

Investment Banking

Investment banking revenues decreased $3.4 million, or 29.5%, from $11.5 million for the quarter ended March 31, 2007 to $8.1 million for the same period in 2008, and decreased as a percentage of total revenues from 52.4% to 41.4%, respectively. The decrease in revenues reflects a lower level of activity in our public equity underwriting, strategic advisory and private placement business. Public equity underwriting revenues decreased by $0.9 million, or 26.8%, from $3.4 million for the quarter ended March 31, 2007 to $2.5 million for the quarter ended March 31, 2008. We executed four public equity underwriting transactions in the quarter ended March 31, 2008 compared to six in the three months ended March 31, 2007. Average revenues per public equity underwriting transaction, however, increased by 9.8%. Our strategic advisory revenues decreased $1.5 million, or 42.7%, from $3.5 million for the quarter ended March 31, 2007 to $2.0 million for the quarter ended March 31, 2008, due to fewer transactions executed in the first quarter of 2008 compared to the first quarter of 2007, in which two and four transactions were executed, respectively. Average revenues per strategic advisory transaction, however, increased

 

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14.5%. Private placement revenues decreased $1.0 million, or 21.2%, from $4.6 million for the quarter ended March 31, 2007 to $3.6 million for the quarter ended March 31, 2008. The decrease was primarily due to fewer executed private transactions, in particular in originations of trust preferred securities, and was partially offset by higher average revenues per transaction, which increased 136.5%.

Brokerage Revenues

Brokerage revenues decreased by $0.5 million, or 5.7%, from $8.6 million for the quarter ended March 31, 2007 to $8.1 million for the quarter ended March 31, 2008. The decrease was a result of an increase in trading losses, partially offset by higher gross commission revenue for the quarter ended March 31, 2008 compared to the quarter ended March 31, 2007. The increase in commissions resulted from increased trading activity with existing clients, and the addition of new institutional clients during the period. The increase in trading losses resulted from significantly higher market volatility in the first quarter 2008 and increased market making activities. Brokerage revenues increased as a percentage of total revenues, from 39.4% for the quarter ended March 31, 2007 to 41.5% for the quarter ended March 31, 2008.

Asset Management Fees

Asset management fees increased $1.9 million, or 208.8%, from $0.9 million for the quarter ended March 31, 2007 to $2.7 million for the quarter ended March 31, 2008. Asset management fees include both base management fees and incentive fees for our funds under management. Base management fees and incentive management fees both increased from the quarter ended March 31, 2007 to the quarter ended March 31, 2008. The increase in base management fees is the result of an increase in assets under management from $224.0 million as of March 31, 2007 to $356.7 million as of March 31, 2008. The increase in incentive fees is due to the improved performance of our families of funds, in particular of Harvest Small Cap Partners. As a percentage of total revenues, asset management fees increased from 4.1% for the quarter ended March 31, 2007 to 14.0% for the same period in 2008.

Principal Transactions

Principal transaction revenues decreased $1.3 million from a loss of $0.1 million for the quarter ended March 31, 2007 to a loss of $1.4 million for the quarter ended March 31, 2008. The decrease was primarily due to increased losses from investments in equity and other securities of $2.8 million, which resulted in part from unrealized losses in our convertible preferred security and equity security investments in NMTR, for which we recognized $0.8 million and $1.5 million in unrealized losses, respectively, for the quarter ended March 31, 2008. The decrease was also due to an increase of $0.1 million in losses related to the value of warrants received from certain investment banking assignments, as well as limited partner investments in private funds managed by third parties. The increase in losses was partially offset by an increase in gains of $1.5 million from investment partnerships, attributable to the performance of the funds managed by us in which we invest a portion of our capital.

Interest, Dividends and Other Income

Interest, dividends and other income increased $1.2 million, or 121.0%, from $1.0 million for the quarter ended March 31, 2007 to $2.1 million for the same period in 2008. Of the increase, $0.8 million was attributable to interest and dividend income, which increased from $0.8 million for the quarter ended March 31, 2007 to $1.6 million for the same period in 2008, and $0.4 million was attributable to other income from revenue sharing arrangements with, and fees earned to raise capital for third-party investment partnerships or funds, which increased from $0.2 million for the quarter ended March 31, 2007 to $0.6 million for the same period in 2008. The increase in interest and dividend income was primarily due to investing of proceeds from our May 2007 initial public offering in short duration AAA rated securities, and to the dividend earned from our investment in NMTR convertible preferred securities. We also engaged in more active cash management and increased the capital allocation to our investment portfolio, which returned higher interest and dividend income as a percent of total invested capital.

Expenses

Compensation and Benefits

Compensation and benefits, which includes salaries, commissions and performance bonus compensation to our employees, decreased $0.2 million, or 1.9%, from $12.8 million for the quarter ended March 31, 2007 to $12.6 million for the quarter ended March 31, 2008. Of the total compensation and benefits expense for this period, $2.1 million is attributable to equity-based compensation expenses, comprised of expense recognized for restricted stock units granted in connection with the initial public offering in May 2007 of $1.0 million, as well as restricted stock units granted after the initial public offering in connection with annual bonuses and other awards of $1.1 million. The increase was partially offset by $1.8 million in lower employee payroll and accrual for bonuses, which is primarily attributable to the application of our target compensation to revenue ratio used for the accrual of bonuses to decreased revenues in the quarter ended March 31, 2008, compared to the same quarter in 2007. Compensation and benefits as a percentage of revenues increased from 58.6% of total revenues for the quarter ended March 31, 2007 to 63.7% for the quarter ended March 31, 2008. Excluding expense in the amount of $1.0 million from equity-based awards granted in connection with the initial public offering, as a percentage of revenues, compensation and benefits decreased slightly from 58.6% of total revenues for the quarter ended March 31, 2007 to 58.5% for the same period in 2008.

Income Allocation and Accretion/(Dilution)

Income allocation and accretion/(dilution) decreased $3.0 million from $3.0 million for the quarter ended March 31, 2007 to none for the quarter ended March 31, 2008. Due to our Reorganization as a C-corporation in connection with our initial public offering on May 16, 2007, periods after this date no longer reflect an expense for income allocation and accretion/(dilution).

Administration

Administration expenses increased $0.3 million, or 27.5%, from $1.0 million for the quarter ended March 31, 2007 to $1.3 million for the quarter ended March 31, 2008. The increase was primarily due to higher insurance and other expenses associated with being a public company, as well as to higher conference expenses in the first quarter 2008 compared to the same quarter in 2007. Administration expense increased from 4.6% of total revenues for the quarter ended March 31, 2007 to 6.5% for the same period in 2008.

 

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Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees increased $0.2 million, or 20.5%, from $1.1 million for the quarter ended March 31, 2007 to $1.4 million for the quarter ended March 31, 2008. The increase was primarily due to an increase in trading activity in our sales and trading business as total shares traded increased 157.4% from the quarter ended March 31, 2007 to the quarter ended March 31, 2008. As a percentage of total revenues, our brokerage, clearing and exchange fees increased from 5.2% for the quarter ended March 31, 2007 to 7.0% for the same period in 2008.

Interest and Dividend Expense

Interest and dividend expense decreased $0.3 million, or 57.1%, from $0.5 million for the quarter ended March 31, 2007 to $0.2 million for the quarter ended March 31, 2008. The decrease was primarily due to the discontinuation of interest payments to Redeemable Class A members, as a result of the exchange into common stock at the time of the initial public offering. As a percentage of total revenues, interest and dividend expense decreased from 2.3% for the quarter ended March 31, 2007 to 1.0% for the same period in 2008.

Other Expenses

Other expenses increased $1.4 million, or 57.7%, from $2.4 million for the quarter ended March 31, 2007 to $3.8 million for the quarter ended March 31, 2008. The quarter ended March 31, 2008 reflected an increase of $0.9 million in professional fees, consisting primarily of increased legal, audit and accounting expenses due to added obligations as a public company and also due to the accrual of expense for an arbitration award over which our insurance carrier is disputing coverage. The first quarter of 2008 also reflects a $0.2 million increase in travel and entertainment expense, due to fewer investment banking transaction reimbursements compared to the same period in 2007. As a percentage of total revenues, other expenses increased from 11.1% for the quarter ended March 31, 2007 to 19.5% for the same period in 2008.

Minority Interest

Minority interest relates to the consolidation of JMPRT and two of our hedge funds, Harvest Consumer Partners and Harvest Technology Partners, as well as Opportunity Acquisition Corp. We recorded minority interest in the losses of JMPRT of $0.1 million for the quarter ended March 31, 2008 compared with $0.1 million of minority interest in the income of JMPRT for the quarter ended March 31, 2007, due to a decline in the performance of JMPRT, partially offset by improved performance in Harvest Consumer Partners and Harvest Technology Partners for the three months ended March 31, 2008.

Provision for Income Taxes

Prior to the completion of our initial public offering on May 16, 2007, we were a limited liability company treated as a partnership; therefore, all of our income and losses were reportable by the individual members. The U.S. federal and state income taxes payable by the members based upon their share of our net income have not been reflected in the accompanying financial statements for the periods prior to the Reorganization. We were, however, subject to state and local unincorporated tax and franchise tax.

In connection with our initial public offering and Reorganization, we are subject to federal and state income taxes on all taxable income earned subsequent to May 15, 2007. Additionally, in connection with the Reorganization, we recognized a one-time tax benefit of $4.0 million in connection with the establishment of net deferred tax asset items of $10.2 million. In calculating the one-time tax benefit amount and associated deferred tax asset items, the Company makes reasonable estimates of its share of the 2006 taxable income and 2007 taxable income attributed to the period from January 1 through May 15, 2007 of the partnerships in which it has a direct or indirect interest. These estimates may change as additional information becomes available; as a result, the net one-time tax benefit amount may change. During the three months ended March 31, 2008, the Company adjusted the one-time tax benefit of $4.0 million by $0.3 million in additional tax benefit. For the three months ended March 31, 2008 and 2007, we recorded a total tax benefit of $0.2 million and $0.0 million, respectively. Excluding the tax benefit adjustment of $0.3 million, we recorded a tax expense of $0.2 million and $0.0 million for the three months ended March 31, 2008 and 2007.

The effective tax rate for the three months ended March 31, 2008 and 2007 was (30.7%) and 0.0%, respectively, including the prior year one-time tax benefit adjustment. Excluding the prior year one-time tax benefit adjustment, the effective tax for the three months ended March 31, 2008 and 2007 was 30.5% and 0.0%, respectively.

Liquidity and Capital Resources

A condensed table of cash flows for the three months ended March 31, 2008 and 2007 is presented below.

 

     Three Months Ended March 31,     Change from  
     2008     2007     2007 to 2008  
     Successor     Predecessor     $     %  

Cash flows used in operations

   $ (16,082 )   $ (13,253 )   $ (2,829 )   -21.3 %

Cash flows used in investing activities

     (19,013 )     (470 )     (18,543 )   -3948.2 %

Cash flows from (used in) financing activities

     4,201       (426 )     4,627     1086.2 %
                              

Total cash flows

   $ (30,894 )   $ (14,149 )   $ (16,745 )   -118.4 %
                              

We have historically satisfied our capital and liquidity requirements primarily through member contributions from our managing directors and outside investors, capital raised in our initial public offering in May 2007 and internally generated cash from operations. In 2008, 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 for which JMPAM is the investment manager.

 

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Our balance sheet is relatively liquid and unleveraged. We have a $30.0 million revolving line of credit with City National Bank, which had a balance outstanding of $4.5 million as of March 31, 2008. As of March 31, 2008, we had net cash and investments of $107.8 million. This financial measure is a “non-GAAP financial measure” and is not presented in accordance with generally accepted accounting principals, or “GAAP.” A reconciliation of our cash and cash equivalents to our net cash and investments is set forth below:

 

     March 31,
2008
 
     Successor  

Cash and cash equivalents

   $ 68,233  

Add:

  

Restricted cash (proceeds from short sales on deposit)

     12,591  

Marketable securities owned, at fair value

     23,679  

Other investments

     47,735  

Subtract:

  

Securities sold under agreements to repurchase

     (7,864 )

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

     (12,785 )

Accrued compensation

     (4,125 )

Note payable

     (4,481 )

Minority interest

     (15,152 )
        

Net cash and investments

   $ 107,831  
        

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. JMP Securities had net capital of $35.1 million and $51.3 million, which were $34.4 million and $50.6 million in excess of the required net capital of $0.7 million and $0.7 million at March 31, 2008 and December 31, 2007, respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was 0.31 to 1 and 0.22 to 1 at March 31, 2008 and December 31, 2007, respectively.

The timing of bonus compensation payments to our employees 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 in the first two months of the following year. In February 2008, we paid out $26.9 million of cash bonuses for 2007, excluding employer payroll tax expense.

The Company intends to declare quarterly cash dividends on all outstanding shares of common stock. The Company does not plan to pay dividends on unvested shares of restricted stock. On March 10, 2008, the Company’s board of directors declared a cash dividend of $0.05 per share of common stock for the fourth quarter of 2007 which was paid on April 11, 2008 to common shareholders of record on March 28, 2008.

On January 22, 2008, Opportunity Acquisition Corp. filed an S-1 registration statement with the SEC in connection with an initial public offering of 15.0 million units. Each unit will be offered at a price of $10.00 per unit and will consist of one share of common stock and one warrant. Opportunity Acquisition Corp. is a special purpose acquisition corporation, or “SPAC,” formed for the purpose of acquiring one or more businesses through a merger, capital stock exchange, stock purchase, asset acquisition, or other similar business combination. The Company is the sponsor of the SPAC. The Company and certain individuals affiliated with the Company collectively own 4.3 million units of Opportunity Acquisition Corp. In addition, the Company has agreed to purchase from Opportunity Acquisition Corp. warrants for an aggregate purchase price of $4.0 million in a private placement to be completed immediately prior to the completion of the initial public offering, which we anticipate to be in the second or third quarter of 2008.

On January 18, 2008, the Company and certain affiliated entities completed the acquisition of 1.0 million shares of Series A Cumulative Redeemable Convertible preferred stock of NMTR, a publicly traded real estate investment trust engaged in the investment management of mortgage-backed securities and high credit quality residential adjustable rate mortgage loans, at a price per share of $20.00 for a total of $20.0 million. The investment was comprised of $5.0 million by JMP Group Inc., $5.0 million by certain funds managed by JMPAM, and $10.0 million from JMPRT. We also, with our affiliates, held an option to acquire an additional $20.0 million of such convertible preferred security on the same terms by April 4, 2008, which was not exercised. In addition, the Company entered into an advisory agreement between JMPAM and NMTR to manage certain non-agency assets.

In February 2008, the Company purchased NMTR common stock for an aggregate amount of $4.5 million in a $60.0 million private investment in public equity (PIPE) transaction executed by NMTR.

On March 10, 2008, the Company’s board of directors authorized the buyback of an additional 2.0 million shares of our common stock during the next eighteen months, depending on market conditions.

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 twelve months.

Cash Flows for the Three Months Ended March 31, 2008

Cash decreased by $30.9 million during the three months ended March 31, 2008, primarily as a result of cash used in operating and investing activities.

 

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Our operating activities used $16.1 million of cash from net income of $0.7 million, adjusted for the cash used in the change in operating assets and liabilities of $16.4 million and by non-cash revenue and expense items of $0.4 million. The decrease in operating assets and liabilities was primarily due to the payout of $26.9 million in 2007 bonuses (excluding employer payroll tax) in the first quarter of 2008.

Our investing activities used $19.0 million, which consisted mostly of $19.5 million of net purchases of other investments. During the first quarter of 2008, we invested $15.0 million in Series A Cumulative Redeemable Convertible Preferred stock of NMTR, as well as $4.5 million in NMTR common stock as part of the $60 million PIPE transaction executed by NMTR on February 18, 2008.

Our financing activities provided $4.2 million of cash primarily due to a draw down on our revolving note with City National Bank in the first quarter of 2008. The cash provided by the drawdown was used to fund the Company’s purchase of NMTR common stock as described above.

Cash Flows for the 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.

Contractual Obligations

The following table provides a summary of our contractual obligations as of March 31, 2008:

 

Payments Due by Period (in 000’s):

   Total    2008    2009    2010    2011    2012
(in thousands)                              

Operating lease obligations

   $ 7,631    $ 1,502    $ 2,253    $ 2,250    $ 1,626    $ —  

Note Payable (1)

     351      152      199      —        —        —  

Other contractual obligations (2)

     —        —        —        —        —        —  
                                         

Total payments

   $ 7,982    $ 1,654    $ 2,452    $ 2,250    $ 1,626    $ —  
                                         

 

(1) Reflects City National Bank revolving note floating rate interest payments, estimated to expiration date December 31, 2009 (agreement includes option to extend to December 31, 2012).

 

(2) Excludes a capital commitment of $0.3 million related to a private investment fund as of March 31, 2008.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of March 31, 2008. However, as described below under “Qualitative and Quantitative Disclosures About 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 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.

 

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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 as well as our general partner investments in hedge funds and funds of funds. We attempt to reduce the risk of loss inherent in our inventory of equity securities by establishing position limits, monitoring inventory turnover and, where practicable, may enter into hedging transactions designed to mitigate our market risk profile.

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 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 consider the following to be our critical accounting policies:

Fair Value of Financial Instruments

The Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”) as of January 1, 2008. This standard establishes a consistent framework for measuring fair value in accordance with generally accepted accounting principles (“GAAP”) and expands disclosures with respect to fair value measurements. SFAS 157 applies to all financial instruments that are being measured and reported on a fair value basis. This includes those items currently reported in marketable securities owned, at fair value, other investments and marketable securities sold, not yet purchased, at fair value on the consolidated statements of financial condition. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. On February 12, 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) SFAS 157-2, Effective Date of FASB Statement No. 157 . This FSP permits delayed application of the provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. See Note 4 of the Notes to the consolidated financial statements for a complete discussion of SFAS 157.

Substantially all of our financial instruments are recorded at fair value or amounts that approximate fair value. Marketable securities owned, Other investments, including warrant positions and investments in partnerships in which JMPAM is the general partner, and Marketable securities sold, but not yet purchased, are stated at fair value, with related changes in unrealized appreciation or depreciation reflected in the line item Principal transactions in the accompanying Consolidated Statements of Net Income.

Under SFAS 157, fair value our financial instruments is generally obtained from quoted market prices, broker or dealer price quotations, or alternative pricing methodologies that we believe offer reasonable levels of price transparency. Management believes that the fair value of the Receivable from clearing broker and investment banking fees receivable 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.

 

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To the extent that certain financial instruments trade infrequently or are non-marketable securities and, therefore, do not have readily determinable fair values, we estimate the fair value of these instruments using various pricing models and the information available to us that we deem most relevant. Among the factors considered by us 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 Options 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.

Marketable securities owned and securities sold, but not yet purchased, consist of U.S. listed and OTC equity securities, as well as quasi-government agency securities. Other investments consist principally of investments in private investment funds managed by us or our 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 our 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 as set forth in 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.

Also included in other investments are convertible preferred stock and common stock of NMTR, and warrants on public and private common stock. The investment in NMTR convertible preferred stock is based on a fair value estimate using the Black-Scholes credit adjusted valuation model on Bloomberg. The investment in NMTR common stock, which is not registered under the Securities Act, as amended, is discounted to estimate fair value. The warrants on public and private common stock are generally 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 Options Valuation methodology adjusted for active market and other considerations on a case-by-case basis.

The aforementioned fair value methods represent the Company’s best estimate of exit price as defined by SFAS 157.

The Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 (“SFAS 159”) as of January 1, 2008. SFAS 159 provides companies with an option to report selected financial assets and financial 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. The election to use the fair value option is available at specified election dates, such as when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in the Consolidated Statements of Net Income. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings.

We elected to apply the fair value option to the following financial assets:

 

   

Investment in NMTR convertible preferred stock; and

 

   

Investment in NMTR common stock

There was no adjustment recorded to retained earnings related to the adoption of SFAS 159.

Subsequent to the adoption of SFAS 159, we have elected to apply the fair value option to new positions within the above categories. In certain cases, we may continue to apply the equity method of accounting to those investments which are strategic in nature or are closely related to our principal business activities, where we have a significant degree of involvement in the cash flows or operations of the investee.

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 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 affiliate in its 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

 

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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.

Income Taxes

The Successor, JMP Group Inc., accounts for income taxes in accordance with Statement of Financial Standards No. 109, Accounting for Income Taxes , (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assets and liabilities based upon the temporary differences between the financial reporting and tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce the deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. The Predecessor, JMP Group LLC, was a limited liability company and was treated as a partnership for federal and state income tax purposes. Therefore, the Predecessor was not subject to federal and state income taxes, and accordingly, did not provide for the federal and state income taxes in the financial statements, but it was liable for state and local unincorporated business tax or franchise tax.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109 (“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 on 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 May 16, 2007, the date the Company became subject to federal and state income taxes. Its adoption did not have a material impact on the Company’s financial condition or results of operations.

 

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), has 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 period 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 December 31, 2007 annual report on Form 10-K 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 December 31, 2007 annual report on Form 10-K.

 

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

None.

 

ITEM 3. Defaults Upon Senior Securities

None.

 

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

None.

 

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: May 8, 2008

 

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

10.13.1    Notice of Restricted Stock Unit Agreement (Principal Portion of Award)
10.13.2    Notice of Restricted Stock Unit Agreement (Discount Portion of Award)
10.13.3    Notice of Restricted Stock Unit Agreement (Four-Year Cliff Award)
10.14      Summary of Compensation Arrangements with Executive Officers
10.15      Amendment Number Two to Credit Agreement (CNB)
31.1        Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2        Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1        Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2        Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

37

Exhibit 10.13.1

JMP GROUP INC.

2007 EQUITY INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK UNIT AWARD

[PRINCIPAL PORTION OF AWARD]

 

Grantee’s Name and Address:     
    
    

You (the “Grantee”) have been granted an award of Restricted Stock Units (the “Award”), subject to the terms and conditions of this Notice of Restricted Stock Unit Award (the “Notice”), the JMP Group Inc. 2007 Equity Incentive Plan, as amended from time to time (the “Plan”) and the Restricted Stock Unit Agreement (the “Agreement”) attached hereto, as follows. Unless otherwise provided herein, the terms in this Notice shall have the same meaning as those defined in the Plan.

 

Award Numbers    _____________________            ____________________
Date of Award   
Total Number of Restricted Stock
Units Awarded (the “Units”)
    

Vesting Schedule:

Subject to the Grantee’s Continuous Service and other limitations set forth in this Notice, the Agreement and the Plan, the Units will “vest” in accordance with the following schedule (the “Vesting Schedule”):

Fifty percent (50%) of the Units shall vest on each of the first and second anniversaries of the Date of Award.

Notwithstanding the foregoing, (i) in the event of a Corporate Transaction or a Change in Control, one hundred percent (100%) of the Units shall vest immediately prior to the effective date of such Corporate Transaction or Change in Control.

In the event of the Grantee’s change in status from Employee to Consultant or Director, the determination of whether such change in status results in a termination of Continuous Service will be determined in accordance with Section 409A of the Code.

During any authorized leave of absence, the vesting of the Units as provided in this schedule shall be suspended (to the extent permitted under Section 409A of the Code) after the leave of absence exceeds a period of three (3) months. The Vesting Schedule of the Units shall be extended by the length of the suspension. Vesting of the Units shall resume upon the Grantee’s termination of the leave of absence and return to service to the Company or a Related Entity; provided, however, that if the leave of absence exceeds six (6) months, and a return to service upon expiration of such leave is not guaranteed by statute or contract, then (a) the Grantee’s Continuous Service shall be deemed to terminate on the first date following such six-month period and (b) the Grantee will forfeit the Units that are unvested on the date of the Grantee’s termination of Continuous Service. An authorized leave of absence shall include sick leave, military leave, or other bona fide leave of absence (such as temporary employment by the government).

For purposes of this Notice and the Agreement, the term “vest” shall mean, with respect to any Units, that such Units are no longer subject to forfeiture to the Company. If the Grantee would become vested in a fraction of a Unit, such Unit shall not vest until the Grantee becomes vested in the entire Unit.

Vesting shall cease upon the date the Grantee terminates Continuous Service for any reason, including death or Disability. In the event the Grantee terminates Continuous Service for any reason, including death or Disability, any unvested Units held by the Grantee immediately following such termination of the Grantee’s Continuous Service shall be forfeited and deemed reconveyed to the Company and the Company shall thereafter be the legal and beneficial owner of such reconveyed Units and shall have all rights and interest in or related thereto without further action by the Grantee.

IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Award is to be governed by the terms and conditions of this Notice, the Plan, and the Agreement.

 

JMP GROUP INC.

a Delaware corporation

By:  
Title:  
Date:  


THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE UNITS SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE’S CONTINUOUS SERVICE OR AS OTHERWISE SPECIFICALLY PROVIDED HEREIN (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS AWARD OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE AGREEMENT, NOR IN THE PLAN, SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF THE GRANTEE’S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE THE GRANTEE’S CONTINUOUS SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY, THE GRANTEE’S STATUS IS AT WILL.

 

2


Grantee Acknowledges and Agrees:

The Grantee acknowledges receipt of a copy of the Plan and the Agreement and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the Award subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Notice, the Agreement and the Plan in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice, the Agreement and the Plan. The Grantee further agrees and acknowledges that this Award is a non-elective arrangement pursuant to Section 409A of the Code.

The Grantee further acknowledges that, from time to time, the Company may be in a “blackout period” and/or subject to applicable federal securities laws that could subject the Grantee to liability for engaging in any transaction involving the sale of the Company’s Shares. The Grantee further acknowledges and agrees that, prior to the sale of any Shares acquired under this Award, it is the Grantee’s responsibility to determine whether or not such sale of Shares will subject the Grantee to liability under insider trading rules or other applicable federal securities laws.

The Grantee understands that the Award is subject to the Grantee’s consent to access this Notice, the Agreement, the Plan and the Plan prospectus (collectively, the “Plan Documents”) in electronic form on the Company’s intranet or otherwise. By signing below (or by providing an electronic signature) and accepting the grant of the Award, the Grantee: (i) consents to access electronic copies (instead of receiving paper copies) of the Plan Documents via the Company’s intranet; (ii) represents that the Grantee has access to the Company’s intranet; (iii) acknowledges receipt of electronic copies, or that the Grantee is already in possession of paper copies, of the Plan Documents; and (iv) acknowledges that the Grantee is familiar with and accepts the Award subject to the terms and provisions of the Plan Documents.

The Grantee hereby agrees that all questions of interpretation and administration relating to this Notice, the Plan and the Agreement shall be resolved by the Administrator in accordance with Section 10 of the Agreement. The Grantee further agrees to the venue and jurisdiction selection in accordance with Section 11 of the Agreement. The Grantee further agrees to notify the Company upon any change in his or her residence address indicated in this Notice.

 

Date: __________________________     ____________________________________
      Grantee’s Signature
      ____________________________________
      Grantee’s Printed Name
      ____________________________________
      Address
      ____________________________________
      City, State & Zip

 

3


Award Number:                     

JMP GROUP INC.

2007 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

1 Issuance of Units . JMP Group Inc., a Delaware corporation (the “Company”), hereby issues to the Grantee (the “Grantee”) named in the Notice of Restricted Stock Unit Award (the “Notice”) an award (the “Award”) of the Total Number of Restricted Stock Units Awarded set forth in the Notice (the “Units”), subject to the Notice, this Restricted Stock Unit Agreement (the “Agreement”) and the terms and provisions of the JMP Group Inc. 2007 Equity Incentive Plan, as amended from time to time (the “Plan”), which is incorporated herein by reference. Unless otherwise provided herein, the terms in this Agreement shall have the same meaning as those defined in the Plan.

2 Transfer Restrictions . The Units may not be transferred in any manner other than by will or by the laws of descent and distribution.

3 Conversion of Units and Issuance of Shares .

General . Subject to the Notice and Section 3(b), one share of Common Stock shall be issuable for each Unit subject to the Award (the “Shares”) upon vesting. Immediately thereafter, or as soon as administratively feasible, the Company will transfer the appropriate number of Shares into a blocked account, including, but not limited to, an escrow account, on behalf of the Grantee after satisfaction of any required tax or other withholding obligations and such Shares will be held in escrow as set forth in Section 5 below until the fourth (4 th ) anniversary of the Date of Award as specified in the Notice. In the event of a Corporate Transaction or a Change in Control of the Company, vesting shall accelerate and one Share shall be issuable for each Unit subject to the Award immediately prior to the specified effective date of such Corporate Transaction or Change in Control, subject to Section 3(b) below. Immediately thereafter, or as soon as administratively feasible, the Company will transfer the appropriate number of Shares to the Grantee after satisfaction of any required tax or other withholding obligations and such Shares shall not be subject to the restrictions set forth in Section 5 below. Notwithstanding anything in this Agreement to the contrary, the Company may, in its sole discretion, make a cash payment in lieu of the issuance of Shares as provided herein in an amount equal to the value of one share of Common Stock multiplied by the number of Units subject to the Award.

Delay of Conversion . The conversion of the Units into the Shares under any event described in Section 3(a) above, shall be delayed in the event the Company reasonably anticipates that the issuance of the Shares would constitute a violation of federal securities laws or other Applicable Law. If the conversion of the Units into the Shares is delayed by the provisions of this Section 3(b), the conversion of the Units into the Shares shall occur at the earliest date at which the Company reasonably anticipates issuing the Shares will not cause a violation of federal securities laws or other Applicable Law. For purposes of this Section 3(b), the issuance of Shares that would cause inclusion in gross income or the application of any penalty provision or other provision of the Code is not considered a violation of Applicable Law.

Delay of Issuance of Shares . The Company shall delay the issuance of any Shares under this Section 3 to the extent necessary to comply with Section 409A(a)(2)(B)(i) of the Code (relating to payments made to certain “specified employees” of certain publicly-traded companies); in such event, any Shares to which the Grantee would otherwise be entitled during the six (6) month period following the date of the Grantee’s termination of Continuous Service will be issuable on the first business day following the expiration of such six (6) month period.

4 Right to Shares . The Grantee shall not have any right in, to or with respect to any of the Shares (including any voting rights or rights with respect to dividends paid on the Common Stock) issuable under the Award until the Award is settled by the issuance of such Shares as set forth in Section 3(a) above.

5 Transfer Restrictions . The Shares issued to the Grantee hereunder upon settlement of the Units as set forth in Section 3(a) above may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Grantee prior to the fourth (4 th ) anniversary of the Date of Award (the “Lockup Period”). During the Lockup Period, the Grantee will have voting rights and rights with respect to dividends paid on the Common Stock in respect of the Shares. In addition, the Shares issued to the Grantee upon settlement of the Units hereunder are subject to forfeiture to the Company if, prior to the expiration of the Lockup Period (or such earlier period set forth below):

the Grantee’s Continuous Service is terminated by the Company for Cause;

the Grantee discloses any Confidential Information. For purposes of this Agreement, “Confidential Information” means information concerning the Company’s and its client’s businesses, strategies, operations, financial affairs, organizational and personnel matters (including information regarding any aspect of any Employee’s Continuous Service with the Company or of the termination of such service), policies, procedures and other non-public matters, or concerning those of third parties. Confidential Information may have been or be provided in written or electronic form or orally. In consideration of, and as a condition to, continued access to Confidential Information, and without prejudice to or limitation on any other confidentiality obligations imposed by agreement or by law, the Grantee hereby undertakes to use and protect Confidential Information in accordance with any restrictions placed on its use or disclosure. Without limiting the foregoing, except as authorized by the Company or as required by Applicable Law, the Grantee may not disclose or allow disclosure of any Confidential Information, or of any information derived therefrom, in whatever form, to any person unless such person is a director, officer, partner, employee, attorney or agent of the Company and, in the Grantee’s reasonable good faith judgment, has a need to know the Confidential Information or information derived therefrom in furtherance of the business of the Company. The foregoing obligations will survive, and remain binding and enforceable notwithstanding any termination of the Grantee’s Continuous Service and any settlement of the financial rights and obligations arising

 

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from the Grantee’s Continuous Service. Without limiting the foregoing, the existence of, and any information concerning, any dispute between the Grantee and the Company shall constitute Confidential Information except that the Grantee may disclose information concerning such dispute to the arbitrator that is considering such dispute, or to the Grantee’s legal counsel (provided that such counsel (A) does not represent any other Employee of the Company in an employment related matter, (B) does not represent a competitor of the Company, and (C) agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute);

without the prior written consent of the Executive Committee of the Board (the “Executive Committee”), which consent may be withheld in its sole and absolute discretion, during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee (A) forms, or acquires a five percent (5%) or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise; or (B) associates (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise and in connection with such association engages in, or directly or indirectly manages or supervises personnel engaged in, any activity (x) which is similar or substantially related to any activity in which the Grantee was engaged, in whole or in part, at the Company, and (y) for which the Grantee had direct or indirect managerial or supervisory responsibility at the Company. For purposes of this Agreement, a “Competitive Enterprise” is a business enterprise that engages in, or owns or controls a significant interest in any entity that engages in financial services such as in any activity that competes directly or indirectly with the Company, including, without limitation, investment banking, underwriting, placement agent activities, public or private finance, financial advisory services, investment advice, merchant banking, asset or hedge fund management, private equity or other public or private investment funds, real estate investments, services or vehicles, securities research, brokerage, sales, lending, custody, clearance, settlement or trading, or any similar activities, services or products (all of the foregoing for anyone other than the Grantee and members of the Grantee’s family and in such case, the Grantee shall provide full, complete and accurate disclosure to the Executive Committee upon its request with respect to such activities (including, without limitation, supporting trade data));

during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee, in any manner, directly or indirectly, (A) Solicits a Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Company or (B) interferes with or damages (or attempts to interfere with or damages) any relationship between the Company and a Client. For purposes of this Agreement, the term “Solicit” means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action and the term “Client” means any client or prospective client of the Company to whom the Grantee provided services, or for whom the Grantee transacted business, or whose identity became known to the Grantee in connection with the Grantee’s Continuous Service with the Company;

during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee in any manner, directly or indirectly, Solicits any person who is an Employee to resign from the Company or to apply for or accept employment with any Competitive Enterprise; or

during the Coverage Period, the Grantee fails to take all actions and do all such things as may be reasonably requested by the Executive Committee from time to time to maintain for the Company the business, goodwill, and business relationships with any of the Company’s Clients with whom the Grantee worked during the Grantee’s Continuous Service. During the Coverage Period, the Executive Committee may, in its sole and absolute discretion, continue paying the Grantee’s salary and require that the Grantee refrain from engaging in any other employment or business activities until the Executive Committee determines the Client relationships are transferred to the Company. For purposes of this Agreement, the term “Coverage Period” means, at the discretion of the Executive Committee, either the 90-day period beginning on the date on which notice of the Grantee’s termination of Continuous Service is delivered to or by the Company or the 90-day period beginning on the date of termination of the Grantee’s Continuous Service.

If the Grantee participants in any of the foregoing activities, the Shares issued or otherwise issuable upon settlement of the Units shall be deemed reconveyed to the Company and the Company shall thereafter be the legal and beneficial owner of the Shares and shall have all rights and interest in or related thereto without further action by the Grantee.

6 Taxes .

Tax Liability . The Grantee is ultimately liable and responsible for all taxes owed by the Grantee in connection with the Award, regardless of any action the Company or any Related Entity takes with respect to any tax withholding obligations that arise in connection with the Award. Neither the Company nor any Related Entity makes any representation or undertaking regarding the treatment of any tax withholding in connection with the grant or vesting of the Award or the subsequent sale of Shares issuable pursuant to the Award. The Company does not commit and is under no obligation to structure the Award to reduce or eliminate the Grantee’s tax liability. The Grantee does not have discretion to direct the Company to withhold any amount in excess of the minimum statutory tax withholding requirements, to make any such excess tax payments on behalf of the Grantee, or to withhold or pay any amount in satisfaction of the Grantee’s other tax liabilities.

Payment of Withholding Taxes . Prior to any event in connection with the Award (e.g., vesting) that the Company determines may result in any tax withholding obligation, whether United States federal, state, local or non-U.S., including any employment tax obligation (the “Tax Withholding Obligation”), the Grantee must arrange for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the Company. Under no circumstances will the Company be obligated to withhold any amount in excess of the minimum Tax Withholding Obligation, or to withhold or pay any additional amount in satisfaction of the Grantee’s other tax liabilities.

By Share Withholding. The Grantee authorizes the Company to, upon the exercise of its sole discretion, withhold from those Shares issuable to the Grantee the whole number of Shares sufficient to satisfy the minimum applicable Tax Withholding Obligation. The Grantee acknowledges that the withheld Shares may not be sufficient to satisfy the Grantee’s minimum Tax Withholding Obligation. Accordingly, the Grantee agrees to pay to the Company or any Related Entity as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.

 

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By Sale of Shares . Unless the Grantee determines to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, the Grantee’s acceptance of this Award constitutes the Grantee’s instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to, upon the exercise of Company’s sole discretion, sell on the Grantee’s behalf a whole number of Shares from those Shares issuable to the Grantee as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the minimum applicable Tax Withholding Obligation. Such Shares will be sold on the day such Tax Withholding Obligation arises (e.g., a vesting date) or as soon thereafter as practicable. The Grantee will be responsible for all broker’s fees and other costs of sale, and the Grantee agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed the Grantee’s minimum Tax Withholding Obligation, the Company agrees to pay such excess in cash to the Grantee. The Grantee acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the Grantee’s minimum Tax Withholding Obligation. Accordingly, the Grantee agrees to pay to the Company or any Related Entity as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of Shares described above.

By Check, Wire Transfer or Other Means . At any time not less than five (5) business days (or such fewer number of business days as determined by the Administrator) before any Tax Withholding Obligation arises (e.g., a vesting date), the Administrator, in its sole discretion, may permit the Grantee to satisfy the Grantee’s Tax Withholding Obligation by delivering to the Company an amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to such account as the Company may direct, (y) delivery of a certified check payable to the Company, or (z) such other means as specified from time to time by the Administrator.

Notwithstanding the foregoing, the Company or a Related Entity also may satisfy any Tax Withholding Obligation by offsetting any amounts (including, but not limited to, salary, bonus and severance payments) payable to the Grantee by the Company and/or a Related Entity.

7 Parachute Payment Excise Tax .

In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”)) to the Grantee or for the Grantee’s benefit, paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, the Grantee’s Continuous Service with the Company, a Corporate Transaction or a Change in Control (a “Payment” or “Payments”), would be subject to the excise tax imposed by Code Section 4999, or any interest or penalties are incurred by the Grantee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Grantee will be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Grantee of all taxes (including any interest or penalties (other than interest and penalties imposed by reason of the Grantee’s failure to file timely a tax return or pay taxes shown due on The Grantee’s return) imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Grantee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made by the Company. The Company shall provide its determination (the “Determination”), together with detailed supporting calculations and documentation, to the Grantee within fifteen (15) days of the date of termination of the Grantee’s Continuous Service, if applicable, or such other time as requested by the Grantee (provided the Grantee reasonably believes that any of the Payments may be subject to the Excise Tax). If requested by the Grantee, the Company shall furnish the Grantee, at the Company’s expense, with an opinion reasonably acceptable to the Grantee from the Company’s accounting firm (or an accounting firm of equivalent stature reasonably acceptable to the Grantee) that there is a reasonable basis for the Determination. Any Gross-Up Payment determined pursuant to this Section 7 shall be paid by the Company to the Grantee within five (5) days of receipt of the Determination.

As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an “Excess Payment”) or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an “Underpayment”).

An Underpayment shall be deemed to have occurred (A) upon notice (formal or informal) to the Grantee from any governmental taxing authority that the Grantee’s tax liability (whether in respect of the Grantee’s current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment, (B) upon a determination by a court, or (C) by reason of determination by the Company (which shall include the position taken by the Company, together with its consolidated group, on its federal income tax return). If an Underpayment occurs, the Grantee shall promptly notify the Company and the Company shall promptly, but in any event at least five (5) days prior to the date on which the applicable government taxing authority has requested payment, pay to the Grantee an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of the Grantee’s failure to file timely a tax return or pay taxes shown due on the Grantee’s return) imposed on the Underpayment.

An Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Grantee had previously received a Gross-Up Payment. A “Final Determination” shall be deemed to have occurred when the Grantee has received from the applicable government taxing authority a refund of taxes or other reduction in the Grantee’s tax liability by reason of the Excise Payment and upon either (A) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Grantee and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (B) the statute of limitations with respect to the Grantee’s applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be repaid by the Grantee to the Company unless, and only to the extent that, the repayment would either reduce the amount on which the Grantee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999.

Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Company shall pay to the applicable government taxing authorities, as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments.

8 Entire Agreement; Governing Law . The Notice, the Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed by the Company and the Grantee. These agreements

 

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are to be construed in accordance with and governed by the internal laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Should any provision of the Notice or this Agreement be determined to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

9 Construction . The captions used in the Notice and this Agreement are inserted for convenience and shall not be deemed a part of the Award for construction or interpretation. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

10 Administration and Interpretation . Any question or dispute regarding the administration or interpretation of the Notice, the Plan or this Agreement shall be submitted by the Grantee or by the Company to the Administrator. The resolution of such question or dispute by the Administrator shall be final and binding on all persons.

11 Venue and Jurisdiction . The parties agree that any suit, action, or proceeding arising out of or relating to the Notice, the Plan or this Agreement shall be brought exclusively in the United States District Court for the Northern District of California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a California state court in the County of San Francisco) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. If any one or more provisions of this Section 11 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

12 Notices . Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the United States mail by certified mail (if the parties are within the United States), with postage and fees prepaid, addressed to the other party at its address as shown in these instruments, or to such other address as such party may designate in writing from time to time to the other party.

13 Amendment and Delay to Meet the Requirements of Section 409A . The Grantee acknowledges that the Company, in the exercise of its sole discretion and without the consent of the Grantee, may amend or modify this Agreement in any manner and delay the issuance of any Shares issuable pursuant to this Agreement to the minimum extent necessary to meet the requirements of Section 409A of the Code as amplified by any Treasury regulations or guidance from the Internal Revenue Service as the Company deems appropriate or advisable. In addition, the Company makes no representation that the Award will comply with Section 409A of the Code and makes no undertaking to prevent Section 409A of the Code from applying to the Award or to mitigate its effects on any deferrals or payments made in respect of the Award. The Grantee is encouraged to consult a tax adviser regarding the potential impact of Section 409A of the Code.

END OF AGREEMENT

 

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Exhibit 10.13.2

JMP GROUP INC.

2007 EQUITY INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK UNIT AWARD

[DISCOUNT PORTION OF AWARD]

 

Grantee’s Name and Address:     
    
    

You (the “Grantee”) have been granted an award of Restricted Stock Units (the “Award”), subject to the terms and conditions of this Notice of Restricted Stock Unit Award (the “Notice”), the JMP Group Inc. 2007 Equity Incentive Plan, as amended from time to time (the “Plan”) and the Restricted Stock Unit Agreement (the “Agreement”) attached hereto, as follows. Unless otherwise provided herein, the terms in this Notice shall have the same meaning as those defined in the Plan.

 

Award Numbers     
Date of Award   
Total Number of Restricted Stock
Units Awarded (the “Units”)
    

Vesting Schedule:

Subject to the Grantee’s Continuous Service and other limitations set forth in this Notice, the Agreement and the Plan, the Units will “vest” in accordance with the following schedule (the “Vesting Schedule”):

Fifty percent (50%) of the Units shall vest on the second anniversary of the Date of Award and twenty-five percent (25%) of the Units shall vest on each of the third and fourth anniversaries of the Date of Award.

Notwithstanding the foregoing, (i) in the event of a Change in Control, one hundred percent (100%) of the Units shall vest immediately prior to the effective date of such Change in Control; and (ii) in the event of a Corporate Transaction, vesting shall accelerate immediately prior to the effect date of such Corporate Transaction (subject to delayed conversion of such Units as provided below) with respect to the number of Units equal to the quotient obtained by dividing (x)            (subject to the adjustment provisions of Section 10 of the Plan) by (y) the Fair Market Value of a Share as of the date of the Corporate Transaction (rounded down to the nearest whole Unit), but in no event will such quotient exceed the Total Number of Units Awarded as set forth above. The shares of Common Stock (or a cash payment in lieu of such shares attributable to the Units accelerated pursuant to clause (ii) above) will be issued or paid on the earlier of (A) two years from the date of such Corporate Transaction or (B) four years from the Date of Award. To the extent Units are Assumed or Replaced in connection with such Corporate Transaction, any Units (or replacement Award) that remain unvested following the Corporate Transaction will vest in accordance with Vesting Schedule set forth above. If the Units are not Assumed or Replaced in connection with the Corporate Transaction, then the remaining Units shall automatically become fully vested immediately prior to the specified effective date of such Corporate Transaction (subject to delayed conversion of such Units as provided above).

In the event of the Grantee’s change in status from Employee to Consultant or Director, the determination of whether such change in status results in a termination of Continuous Service will be determined in accordance with Section 409A of the Code.

During any authorized leave of absence, the vesting of the Units as provided in this schedule shall be suspended (to the extent permitted under Section 409A of the Code) after the leave of absence exceeds a period of three (3) months. The Vesting Schedule of the Units shall be extended by the length of the suspension. Vesting of the Units shall resume upon the Grantee’s termination of the leave of absence and return to service to the Company or a Related Entity; provided, however, that if the leave of absence exceeds six (6) months, and a return to service upon expiration of such leave is not guaranteed by statute or contract, then (a) the Grantee’s Continuous Service shall be deemed to terminate on the first date following such six-month period and (b) the Grantee will forfeit the Units that are unvested on the date of the Grantee’s termination of Continuous Service. An authorized leave of absence shall include sick leave, military leave, or other bona fide leave of absence (such as temporary employment by the government).

For purposes of this Notice and the Agreement, the term “vest” shall mean, with respect to any Units, that such Units are no longer subject to forfeiture to the Company. If the Grantee would become vested in a fraction of a Unit, such Unit shall not vest until the Grantee becomes vested in the entire Unit.

Vesting shall cease upon the date the Grantee terminates Continuous Service for any reason, including death or Disability. In the event the Grantee terminates Continuous Service for any reason, including death or Disability, any unvested Units held by the Grantee immediately following such termination of the Grantee’s Continuous Service shall be forfeited and deemed reconveyed to the Company and the Company shall thereafter be the legal and beneficial owner of such reconveyed Units and shall have all rights and interest in or related thereto without further action by the Grantee.


IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Award is to be governed by the terms and conditions of this Notice, the Plan, and the Agreement.

 

JMP GROUP INC.
a Delaware corporation
By:  
Title:  
Date:  

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE UNITS SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE’S CONTINUOUS SERVICE OR AS OTHERWISE SPECIFICALLY PROVIDED HEREIN (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS AWARD OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE AGREEMENT, NOR IN THE PLAN, SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF THE GRANTEE’S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE THE GRANTEE’S CONTINUOUS SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY, THE GRANTEE’S STATUS IS AT WILL.

 

2


Grantee Acknowledges and Agrees:

The Grantee acknowledges receipt of a copy of the Plan and the Agreement and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the Award subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Notice, the Agreement and the Plan in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice, the Agreement and the Plan. The Grantee further agrees and acknowledges that this Award is a non-elective arrangement pursuant to Section 409A of the Code.

The Grantee further acknowledges that, from time to time, the Company may be in a “blackout period” and/or subject to applicable federal securities laws that could subject the Grantee to liability for engaging in any transaction involving the sale of the Company’s Shares. The Grantee further acknowledges and agrees that, prior to the sale of any Shares acquired under this Award, it is the Grantee’s responsibility to determine whether or not such sale of Shares will subject the Grantee to liability under insider trading rules or other applicable federal securities laws.

The Grantee understands that the Award is subject to the Grantee’s consent to access this Notice, the Agreement, the Plan and the Plan prospectus (collectively, the “Plan Documents”) in electronic form on the Company’s intranet or otherwise. By signing below (or by providing an electronic signature) and accepting the grant of the Award, the Grantee: (i) consents to access electronic copies (instead of receiving paper copies) of the Plan Documents via the Company’s intranet; (ii) represents that the Grantee has access to the Company’s intranet; (iii) acknowledges receipt of electronic copies, or that the Grantee is already in possession of paper copies, of the Plan Documents; and (iv) acknowledges that the Grantee is familiar with and accepts the Award subject to the terms and provisions of the Plan Documents.

The Grantee hereby agrees that all questions of interpretation and administration relating to this Notice, the Plan and the Agreement shall be resolved by the Administrator in accordance with Section 11 of the Agreement. The Grantee further agrees to the venue and jurisdiction selection in accordance with Section 12 of the Agreement. The Grantee further agrees to notify the Company upon any change in his or her residence address indicated in this Notice.

 

Date: __________________________     ____________________________________
      Grantee’s Signature
      ____________________________________
      Grantee’s Printed Name
      ____________________________________
      Address
      ____________________________________
      City, State & Zip

 

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Award Number:                     

JMP GROUP INC.

2007 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

14 Issuance of Units . JMP Group Inc., a Delaware corporation (the “Company”), hereby issues to the Grantee (the “Grantee”) named in the Notice of Restricted Stock Unit Award (the “Notice”) an award (the “Award”) of the Total Number of Restricted Stock Units Awarded set forth in the Notice (the “Units”), subject to the Notice, this Restricted Stock Unit Agreement (the “Agreement”) and the terms and provisions of the JMP Group Inc. 2007 Equity Incentive Plan, as amended from time to time (the “Plan”), which is incorporated herein by reference. Unless otherwise provided herein, the terms in this Agreement shall have the same meaning as those defined in the Plan.

15 Transfer Restrictions . The Units may not be transferred in any manner other than by will or by the laws of descent and distribution.

16 Conversion of Units and Issuance of Shares .

.1 General . Subject to the Notice and Section 3(b), one share of Common Stock shall be issuable for each Unit subject to the Award (the “Shares”) upon vesting. Immediately thereafter, or as soon as administratively feasible, the Company will transfer the appropriate number of Shares into a blocked account, including, but not limited to, an escrow account, on behalf of the Grantee after satisfaction of any required tax or other withholding obligations and such Shares will be held in escrow as set forth in Section 5 below until the fourth (4 th ) anniversary of the Date of Award as specified in the Notice. In the event of a Change in Control of the Company, vesting shall accelerate and one Share shall be issuable for each Unit subject to the Award immediately prior to the specified effective date of such Change in Control, subject to Section 3(b) below. Immediately thereafter, or as soon as administratively feasible, the Company will transfer the appropriate number of Shares to the Grantee after satisfaction of any required tax or other withholding obligations and such Shares shall not be subject to the restrictions set forth in Section 5 below. In the event of a Corporate Transaction of the Company, vesting shall accelerate immediately prior to the specified effective date of such Corporate Transaction (subject to delayed conversion of such Units as provided below) with respect to the number of Units equal to the quotient obtained by dividing (x) (subject to the adjustment provisions of Section 10 of the Plan) by (y) the Fair Market Value of a Share as of the date of the Corporate Transaction (rounded down to the nearest whole Unit), but in no event will such quotient exceed the Total Number of Units Awarded as set forth on the Notice. Such accelerated Units shall not be subject to the restrictions set forth in Section 5 below. Upon the earlier of (i) two (2) years from the date of such Corporate Transaction, or (ii) four (4) years from the Date of Award, the Company will transfer one Share for each Unit that has vested in connection with the Corporate Transaction, or the Company (or its successor), in its sole discretion, will make a cash payment in lieu of the issuance of the Shares attributable to the Units accelerated as set forth above in an amount equal to the value on the payment date of one share of Common Stock multiplied by the number of Units that vested upon the Corporate Transaction. To the extent Units are Assumed or Replaced in connection with such Corporate Transaction, any Units (or replacement Award) that remain unvested following the Corporate Transaction will vest in accordance with Vesting Schedule set forth in the Notice. If the Units are not Assumed or Replaced in connection with the Corporate Transaction, then the remaining Units shall automatically become fully vested immediately prior to the specified effective date of such Corporate Transaction (subject to delayed conversion of such Units as provided above). Any fractional Unit remaining after the Award is fully vested shall be discarded and shall not be converted into a fractional Share. Notwithstanding anything in this Agreement to the contrary, the Company may, in its sole discretion, make a cash payment in lieu of the issuance of Shares as provided herein in an amount equal to the value of one share of Common Stock multiplied by the number of Units subject to the Award.

.2 Delay of Conversion . The conversion of the Units into the Shares under any event described in Section 3(a) above, shall be delayed in the event the Company reasonably anticipates that the issuance of the Shares would constitute a violation of federal securities laws or other Applicable Law. If the conversion of the Units into the Shares is delayed by the provisions of this Section 3(b), the conversion of the Units into the Shares shall occur at the earliest date at which the Company reasonably anticipates issuing the Shares will not cause a violation of federal securities laws or other Applicable Law. For purposes of this Section 3(b), the issuance of Shares that would cause inclusion in gross income or the application of any penalty provision or other provision of the Code is not considered a violation of Applicable Law.

.3 Delay of Issuance of Shares . The Company shall delay the issuance of any Shares under this Section 3 to the extent necessary to comply with Section 409A(a)(2)(B)(i) of the Code (relating to payments made to certain “specified employees” of certain publicly-traded companies); in such event, any Shares to which the Grantee would otherwise be entitled during the six (6) month period following the date of the Grantee’s termination of Continuous Service will be issuable on the first business day following the expiration of such six (6) month period.

17 Right to Shares . The Grantee shall not have any right in, to or with respect to any of the Shares (including any voting rights or rights with respect to dividends paid on the Common Stock) issuable under the Award until the Award is settled by the issuance of such Shares as set forth in Section 3(a) above.

18 Transfer Restrictions . The Shares issued to the Grantee hereunder upon settlement of the Units as set forth in Section 3(a) above may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Grantee prior to the fourth (4 th ) anniversary of the Date of Award (the “Lockup Period”). During the Lockup Period, the Grantee will have voting rights and rights with respect to dividends paid on the Common Stock in respect of the Shares. In addition, the Shares issued to the Grantee upon settlement of the Units hereunder are subject to forfeiture to the Company if, prior to the expiration of the Lockup Period (or such earlier period set forth below):

the Grantee’s Continuous Service is terminated by the Company for Cause;

 

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the Grantee discloses any Confidential Information. For purposes of this Agreement, “Confidential Information” means information concerning the Company’s and its client’s businesses, strategies, operations, financial affairs, organizational and personnel matters (including information regarding any aspect of any Employee’s Continuous Service with the Company or of the termination of such service), policies, procedures and other non-public matters, or concerning those of third parties. Confidential Information may have been or be provided in written or electronic form or orally. In consideration of, and as a condition to, continued access to Confidential Information, and without prejudice to or limitation on any other confidentiality obligations imposed by agreement or by law, the Grantee hereby undertakes to use and protect Confidential Information in accordance with any restrictions placed on its use or disclosure. Without limiting the foregoing, except as authorized by the Company or as required by Applicable Law, the Grantee may not disclose or allow disclosure of any Confidential Information, or of any information derived therefrom, in whatever form, to any person unless such person is a director, officer, partner, employee, attorney or agent of the Company and, in the Grantee’s reasonable good faith judgment, has a need to know the Confidential Information or information derived therefrom in furtherance of the business of the Company. The foregoing obligations will survive, and remain binding and enforceable notwithstanding any termination of the Grantee’s Continuous Service and any settlement of the financial rights and obligations arising from the Grantee’s Continuous Service. Without limiting the foregoing, the existence of, and any information concerning, any dispute between the Grantee and the Company shall constitute Confidential Information except that the Grantee may disclose information concerning such dispute to the arbitrator that is considering such dispute, or to the Grantee’s legal counsel (provided that such counsel (A) does not represent any other Employee of the Company in an employment related matter, (B) does not represent a competitor of the Company, and (C) agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute);

without the prior written consent of the Executive Committee of the Board (the “Executive Committee”), which consent may be withheld in its sole and absolute discretion, during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee (A) forms, or acquires a five percent (5%) or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise; or (B) associates (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise and in connection with such association engages in, or directly or indirectly manages or supervises personnel engaged in, any activity (x) which is similar or substantially related to any activity in which the Grantee was engaged, in whole or in part, at the Company, and (y) for which the Grantee had direct or indirect managerial or supervisory responsibility at the Company. For purposes of this Agreement, a “Competitive Enterprise” is a business enterprise that engages in, or owns or controls a significant interest in any entity that engages in financial services such as in any activity that competes directly or indirectly with the Company, including, without limitation, investment banking, underwriting, placement agent activities, public or private finance, financial advisory services, investment advice, merchant banking, asset or hedge fund management, private equity or other public or private investment funds, real estate investments, services or vehicles, securities research, brokerage, sales, lending, custody, clearance, settlement or trading, or any similar activities, services or products (all of the foregoing for anyone other than the Grantee and members of the Grantee’s family and in such case, the Grantee shall provide full, complete and accurate disclosure to the Executive Committee upon its request with respect to such activities (including, without limitation, supporting trade data));

during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee, in any manner, directly or indirectly, (A) Solicits a Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Company or (B) interferes with or damages (or attempts to interfere with or damages) any relationship between the Company and a Client. For purposes of this Agreement, the term “Solicit” means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action and the term “Client” means any client or prospective client of the Company to whom the Grantee provided services, or for whom the Grantee transacted business, or whose identity became known to the Grantee in connection with the Grantee’s Continuous Service with the Company;

during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee in any manner, directly or indirectly, Solicits any person who is an Employee to resign from the Company or to apply for or accept employment with any Competitive Enterprise; or

during the Coverage Period, the Grantee fails to take all actions and do all such things as may be reasonably requested by the Executive Committee from time to time to maintain for the Company the business, goodwill, and business relationships with any of the Company’s Clients with whom the Grantee worked during the Grantee’s Continuous Service. During the Coverage Period, the Executive Committee may, in its sole and absolute discretion, continue paying the Grantee’s salary and require that the Grantee refrain from engaging in any other employment or business activities until the Executive Committee determines the Client relationships are transferred to the Company. For purposes of this Agreement, the term “Coverage Period” means, at the discretion of the Executive Committee, either the 90-day period beginning on the date on which notice of the Grantee’s termination of Continuous Service is delivered to or by the Company or the 90-day period beginning on the date of termination of the Grantee’s Continuous Service.

If the Grantee participants in any of the foregoing activities, the Shares issued or otherwise issuable upon settlement of the Units shall be deemed reconveyed to the Company and the Company shall thereafter be the legal and beneficial owner of the Shares and shall have all rights and interest in or related thereto without further action by the Grantee.

19 Accelerated Conversion of Units and Issuance of Shares following a Corporate Transaction . The following circumstances shall permit an accelerated conversion of the Units, the vesting of which accelerated in connection with a Corporate Transaction, and the issuance of Shares:

.1 Unforeseeable Emergency . In the event of an Unforeseeable Emergency, the Administrator may, in its sole discretion, permit the conversion of vested Units and the corresponding issuance of the number of Shares to the Grantee equal in value to an amount no greater than the amount necessary to satisfy the emergency plus any taxes reasonably anticipated as a result of the distribution. For purposes of this Section 6(a), “Unforeseeable Emergency” shall mean an unforeseeable emergency as defined in Code Section 409(a)(2)(B)(ii)(I) (as limited by Code Section 409A(a)(2)(B)(ii)(II)), the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

.2 Domestic Relations Order . In its sole discretion, the Administrator may permit acceleration of the time or schedule for the conversion of vested Units and corresponding issuance of the Shares to an individual other than the Grantee as may be necessary to fulfill a domestic relations order (as defined in Code Section 414(p)(1)(B)).

 

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.3 Conflict of Interest . In its sole discretion, the Administrator may permit acceleration of the time or schedule for the conversion of vested Units and corresponding issuance of the Shares as may be necessary to comply with certain ethics rules as provided in Treasury Regulation Section 1.409A-3(j)(4)(iii).

.4 Income Inclusion under Section 409A of the Code . To the extent permitted under Code Section 409A, in its sole discretion, the Administrator may permit acceleration of the time or schedule for the conversion of vested Units and corresponding issuance of the Shares at any time this Agreement fails to meet the requirements of Section 409A of the Code and the corresponding regulations. Notwithstanding the foregoing, the accelerated distribution of Shares upon conversion of vested Units to the Grantee under this Section 6(d) shall not exceed the number of Shares with a value equal to the amount required to be included as income by the Grantee as a result of the failure to meet the requirements of Section 409A of the Code and the corresponding regulations.

.5 Dissolution or Bankruptcy . To the extent permitted under Code Section 409A, the Administrator shall have the authority, in its sole discretion, to terminate this Agreement and convert vested Units into a distribution of Shares to the Grantee for all of the Shares subject to this Agreement or, if applicable, to his or her beneficiary within twelve (12) months of a corporate dissolution taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(a). Any unvested Units shall be forfeited upon such termination of this Agreement. The total value of the accelerated distribution of Shares under this Section 6(e) must be included in the Grantee’s gross income in the latest of:

.1 The calendar year in which the Agreement is terminated; or

.2 The calendar year in which the issuance of the Shares is administratively practicable.

Termination of the Agreement by the Company . To the extent permitted under Code Section 409A, the Administrator shall have the authority, in its sole discretion, to terminate this Agreement and convert vested Units into a distribution of Shares to the Grantee for all of the Shares subject to this Agreement to the Grantee or, if applicable, to his or her beneficiary provided that:

The termination and liquidation does not occur proximate to a downturn in the financial health of the Company;

The Company terminates and liquidates all arrangements sponsored by the Company that would be aggregated with any terminated and liquidated arrangements under Treasury Regulation Section 1.409A-1(c) and all other published interpretative authority as issued or amended from time to time if the Grantee had deferrals of compensation under all of the arrangements that are terminated and liquidated;

No payments or issuance of Shares (other than payments or issuance of Shares hereunder that would have been paid if the termination had not occurred) are made within twelve (12) months of the termination of this Agreement;

All payments and issuance of Shares subject to this Agreement are made within twenty-four (24) months of the date the Company takes all necessary action to irrevocably terminate and liquidate this Agreement; and

.3 The Company does not adopt a new arrangement that would be aggregated with any terminated and liquidated arrangements under Treasury Regulation Section 1.409A-1(c) if the Grantee participated in both arrangements, at any time within three (3) years following the date the Company takes all necessary action to irrevocably terminate and liquidate this Agreement.

20 Taxes.

Tax Liability . The Grantee is ultimately liable and responsible for all taxes owed by the Grantee in connection with the Award, regardless of any action the Company or any Related Entity takes with respect to any tax withholding obligations that arise in connection with the Award. Neither the Company nor any Related Entity makes any representation or undertaking regarding the treatment of any tax withholding in connection with the grant or vesting of the Award or the subsequent sale of Shares issuable pursuant to the Award. The Company does not commit and is under no obligation to structure the Award to reduce or eliminate the Grantee’s tax liability. The Grantee does not have discretion to direct the Company to withhold any amount in excess of the minimum statutory tax withholding requirements, to make any such excess tax payments on behalf of the Grantee, or to withhold or pay any amount in satisfaction of the Grantee’s other tax liabilities.

Payment of Withholding Taxes . Prior to any event in connection with the Award (e.g., vesting) that the Company determines may result in any tax withholding obligation, whether United States federal, state, local or non-U.S., including any employment tax obligation (the “Tax Withholding Obligation”), the Grantee must arrange for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the Company. Under no circumstances will the Company be obligated to withhold any amount in excess of the minimum Tax Withholding Obligation, or to withhold or pay any additional amount in satisfaction of the Grantee’s other tax liabilities.

By Share Withholding. The Grantee authorizes the Company to, upon the exercise of its sole discretion, withhold from those Shares issuable to the Grantee the whole number of Shares sufficient to satisfy the minimum applicable Tax Withholding Obligation. The Grantee acknowledges that the withheld Shares may not be sufficient to satisfy the Grantee’s minimum Tax Withholding Obligation. Accordingly, the Grantee agrees to pay to the Company or any Related Entity as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.

By Sale of Shares . Unless the Grantee determines to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, the Grantee’s acceptance of this Award constitutes the Grantee’s instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to, upon the exercise of Company’s sole discretion, sell on the Grantee’s behalf a whole number of Shares from those Shares issuable to the Grantee as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the minimum applicable Tax Withholding Obligation. Such Shares will be sold on the day such Tax Withholding Obligation arises (e.g., a vesting date) or as

 

6


soon thereafter as practicable. The Grantee will be responsible for all broker’s fees and other costs of sale, and the Grantee agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed the Grantee’s minimum Tax Withholding Obligation, the Company agrees to pay such excess in cash to the Grantee. The Grantee acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the Grantee’s minimum Tax Withholding Obligation. Accordingly, the Grantee agrees to pay to the Company or any Related Entity as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of Shares described above.

By Check, Wire Transfer or Other Means . At any time not less than five (5) business days (or such fewer number of business days as determined by the Administrator) before any Tax Withholding Obligation arises (e.g., a vesting date), the Administrator, in its sole discretion, may permit the Grantee to satisfy the Grantee’s Tax Withholding Obligation by delivering to the Company an amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to such account as the Company may direct, (y) delivery of a certified check payable to the Company, or (z) such other means as specified from time to time by the Administrator.

Notwithstanding the foregoing, the Company or a Related Entity also may satisfy any Tax Withholding Obligation by offsetting any amounts (including, but not limited to, salary, bonus and severance payments) payable to the Grantee by the Company and/or a Related Entity.

21 Parachute Payment Excise Tax .

In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”)) to the Grantee or for the Grantee’s benefit, paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, the Grantee’s Continuous Service with the Company, a Corporate Transaction or a Change in Control (a “Payment” or “Payments”), would be subject to the excise tax imposed by Code Section 4999, or any interest or penalties are incurred by the Grantee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Grantee will be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Grantee of all taxes (including any interest or penalties (other than interest and penalties imposed by reason of the Grantee’s failure to file timely a tax return or pay taxes shown due on The Grantee’s return) imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Grantee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made by the Company. The Company shall provide its determination (the “Determination”), together with detailed supporting calculations and documentation, to the Grantee within fifteen (15) days of the date of termination of the Grantee’s Continuous Service, if applicable, or such other time as requested by the Grantee (provided the Grantee reasonably believes that any of the Payments may be subject to the Excise Tax). If requested by the Grantee, the Company shall furnish the Grantee, at the Company’s expense, with an opinion reasonably acceptable to the Grantee from the Company’s accounting firm (or an accounting firm of equivalent stature reasonably acceptable to the Grantee) that there is a reasonable basis for the Determination. Any Gross-Up Payment determined pursuant to this Section 8 shall be paid by the Company to the Grantee within five (5) days of receipt of the Determination.

As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an “Excess Payment”) or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an “Underpayment”).

An Underpayment shall be deemed to have occurred (A) upon notice (formal or informal) to the Grantee from any governmental taxing authority that the Grantee’s tax liability (whether in respect of the Grantee’s current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment, (B) upon a determination by a court, or (C) by reason of determination by the Company (which shall include the position taken by the Company, together with its consolidated group, on its federal income tax return). If an Underpayment occurs, the Grantee shall promptly notify the Company and the Company shall promptly, but in any event at least five (5) days prior to the date on which the applicable government taxing authority has requested payment, pay to the Grantee an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of the Grantee’s failure to file timely a tax return or pay taxes shown due on the Grantee’s return) imposed on the Underpayment.

An Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Grantee had previously received a Gross-Up Payment. A “Final Determination” shall be deemed to have occurred when the Grantee has received from the applicable government taxing authority a refund of taxes or other reduction in the Grantee’s tax liability by reason of the Excise Payment and upon either (A) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Grantee and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (B) the statute of limitations with respect to the Grantee’s applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be repaid by the Grantee to the Company unless, and only to the extent that, the repayment would either reduce the amount on which the Grantee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999.

Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Company shall pay to the applicable government taxing authorities, as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments.

22 Entire Agreement; Governing Law . The Notice, the Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed by the Company and the Grantee. These agreements are to be construed in accordance with and governed by the internal laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Should any provision of the Notice or this Agreement be determined to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

 

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23 Construction . The captions used in the Notice and this Agreement are inserted for convenience and shall not be deemed a part of the Award for construction or interpretation. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

24 Administration and Interpretation . Any question or dispute regarding the administration or interpretation of the Notice, the Plan or this Agreement shall be submitted by the Grantee or by the Company to the Administrator. The resolution of such question or dispute by the Administrator shall be final and binding on all persons.

25 Venue and Jurisdiction . The parties agree that any suit, action, or proceeding arising out of or relating to the Notice, the Plan or this Agreement shall be brought exclusively in the United States District Court for the Northern District of California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a California state court in the County of San Francisco) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. If any one or more provisions of this Section 12 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

26 Notices . Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the United States mail by certified mail (if the parties are within the United States), with postage and fees prepaid, addressed to the other party at its address as shown in these instruments, or to such other address as such party may designate in writing from time to time to the other party.

27 Amendment and Delay to Meet the Requirements of Section 409A . The Grantee acknowledges that the Company, in the exercise of its sole discretion and without the consent of the Grantee, may amend or modify this Agreement in any manner and delay the issuance of any Shares issuable pursuant to this Agreement to the minimum extent necessary to meet the requirements of Section 409A of the Code as amplified by any Treasury regulations or guidance from the Internal Revenue Service as the Company deems appropriate or advisable. In addition, the Company makes no representation that the Award will comply with Section 409A of the Code and makes no undertaking to prevent Section 409A of the Code from applying to the Award or to mitigate its effects on any deferrals or payments made in respect of the Award. The Grantee is encouraged to consult a tax adviser regarding the potential impact of Section 409A of the Code.

END OF AGREEMENT

 

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Exhibit 10.13.3

JMP GROUP INC.

2007 EQUITY INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK UNIT AWARD

[FOUR-YEAR CLIFF AWARD]

 

Grantee’s Name and Address:          
         
         

You (the “Grantee”) have been granted an award of Restricted Stock Units (the “Award”), subject to the terms and conditions of this Notice of Restricted Stock Unit Award (the “Notice”), the JMP Group Inc. 2007 Equity Incentive Plan, as amended from time to time (the “Plan”) and the Restricted Stock Unit Agreement (the “Agreement”) attached hereto, as follows. Unless otherwise provided herein, the terms in this Notice shall have the same meaning as those defined in the Plan.

 

Award Number          
Date of Award        
Total Number of Restricted Stock Units Awarded (the “Units”)          

Vesting Schedule :

Subject to the Grantee’s Continuous Service and other limitations set forth in this Notice, the Agreement and the Plan, the Units will “vest” in accordance with the following schedule (the “Vesting Schedule”):

One hundred percent (100%) of the Units shall vest on the fourth anniversary of the Date of Award.

Notwithstanding the foregoing, (i) in the event of a Change in Control, one hundred percent (100%) of the Units shall vest immediately prior to the effective date of such Change in Control; and (ii) in the event of a Corporate Transaction, vesting shall accelerate immediately prior to the effect date of such Corporate Transaction (subject to delayed conversion of such Units as provided below) with respect to the number of Units equal to the quotient obtained by dividing (x)   (subject to the adjustment provisions of Section 10 of the Plan) by (y) the Fair Market Value of a Share as of the date of the Corporate Transaction (rounded down to the nearest whole Unit), but in no event will such quotient exceed the Total Number of Units Awarded as set forth above. The shares of Common Stock (or a cash payment in lieu of such shares attributable to the Units accelerated pursuant to clause (ii) above) will be issued or paid on the earlier of (A) two years from the date of such Corporate Transaction or (B) four years from the Date of Award. To the extent Units are Assumed or Replaced in connection with such Corporate Transaction, any Units (or replacement Award) that remain unvested following the Corporate Transaction will vest in accordance with Vesting Schedule set forth above. If the Units are not Assumed or Replaced in connection with the Corporate Transaction, then the remaining Units shall automatically become fully vested immediately prior to the specified effective date of such Corporate Transaction (subject to delayed conversion of such Units as provided above).

In the event of the Grantee’s change in status from Employee to Consultant or Director, the determination of whether such change in status results in a termination of Continuous Service will be determined in accordance with Section 409A of the Code.

During any authorized leave of absence, the vesting of the Units as provided in this schedule shall be suspended (to the extent permitted under Section 409A of the Code) after the leave of absence exceeds a period of three (3) months. The Vesting Schedule of the Units shall be extended by the length of the suspension. Vesting of the Units shall resume upon the Grantee’s termination of the leave of absence and return to service to the Company or a Related Entity; provided, however, that if the leave of absence exceeds six (6) months, and a return to service upon expiration of such leave is not guaranteed by statute or contract, then (a) the Grantee’s Continuous Service shall be deemed to terminate on the first date following such six-month period and (b) the Grantee will forfeit the Units that are unvested on the date of the Grantee’s termination of Continuous Service. An authorized leave of absence shall include sick leave, military leave, or other bona fide leave of absence (such as temporary employment by the government).

For purposes of this Notice and the Agreement, the term “vest” shall mean, with respect to any Units, that such Units are no longer subject to forfeiture to the Company. If the Grantee would become vested in a fraction of a Unit, such Unit shall not vest until the Grantee becomes vested in the entire Unit.

Vesting shall cease upon the date the Grantee terminates Continuous Service for any reason, including death or Disability. In the event the Grantee terminates Continuous Service for any reason, including death or Disability, any unvested Units held by the Grantee immediately following such termination of the Grantee’s Continuous Service shall be forfeited and deemed reconveyed to the Company and the Company shall thereafter be the legal and beneficial owner of such reconveyed Units and shall have all rights and interest in or related thereto without further action by the Grantee.


IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Award is to be governed by the terms and conditions of this Notice, the Plan, and the Agreement.

 

JMP GROUP INC.
a Delaware corporation
By:  
Title:  
Date:  

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE UNITS SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE’S CONTINUOUS SERVICE OR AS OTHERWISE SPECIFICALLY PROVIDED HEREIN (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS AWARD OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE AGREEMENT, NOR IN THE PLAN, SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF THE GRANTEE’S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE THE GRANTEE’S CONTINUOUS SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY, THE GRANTEE’S STATUS IS AT WILL.

Grantee Acknowledges and Agrees:

The Grantee acknowledges receipt of a copy of the Plan and the Agreement and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the Award subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Notice, the Agreement and the Plan in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice, the Agreement and the Plan. The Grantee further agrees and acknowledges that this Award is a non-elective arrangement pursuant to Section 409A of the Code.

The Grantee further acknowledges that, from time to time, the Company may be in a “blackout period” and/or subject to applicable federal securities laws that could subject the Grantee to liability for engaging in any transaction involving the sale of the Company’s Shares. The Grantee further acknowledges and agrees that, prior to the sale of any Shares acquired under this Award, it is the Grantee’s responsibility to determine whether or not such sale of Shares will subject the Grantee to liability under insider trading rules or other applicable federal securities laws.

The Grantee understands that the Award is subject to the Grantee’s consent to access this Notice, the Agreement, the Plan and the Plan prospectus (collectively, the “Plan Documents”) in electronic form on the Company’s intranet or otherwise. By signing below (or by providing an electronic signature) and accepting the grant of the Award, the Grantee: (i) consents to access electronic copies (instead of receiving paper copies) of the Plan Documents via the Company’s intranet; (ii) represents that the Grantee has access to the Company’s intranet; (iii) acknowledges receipt of electronic copies, or that the Grantee is already in possession of paper copies, of the Plan Documents; and (iv) acknowledges that the Grantee is familiar with and accepts the Award subject to the terms and provisions of the Plan Documents.

The Grantee hereby agrees that all questions of interpretation and administration relating to this Notice, the Plan and the Agreement shall be resolved by the Administrator in accordance with Section 11 of the Agreement. The Grantee further agrees to the venue and jurisdiction selection in accordance with Section 12 of the Agreement. The Grantee further agrees to notify the Company upon any change in his or her residence address indicated in this Notice.

 

Date: __________________________     ____________________________________
      Grantee’s Signature
      ____________________________________
      Grantee’s Printed Name
      ____________________________________
      Address
      ____________________________________
      City, State & Zip

 

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Award Number:                     

JMP GROUP INC.

2007 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

28 Issuance of Units . JMP Group Inc., a Delaware corporation (the “Company”), hereby issues to the Grantee (the “Grantee”) named in the Notice of Restricted Stock Unit Award (the “Notice”) an award (the “Award”) of the Total Number of Restricted Stock Units Awarded set forth in the Notice (the “Units”), subject to the Notice, this Restricted Stock Unit Agreement (the “Agreement”) and the terms and provisions of the JMP Group Inc. 2007 Equity Incentive Plan, as amended from time to time (the “Plan”), which is incorporated herein by reference. Unless otherwise provided herein, the terms in this Agreement shall have the same meaning as those defined in the Plan.

29 Transfer Restrictions . The Units may not be transferred in any manner other than by will or by the laws of descent and distribution.

30 Conversion of Units and Issuance of Shares .

.1 General . Subject to the Notice and Section 3(b), one share of Common Stock shall be issuable for each Unit subject to the Award (the “Shares”) upon vesting. Immediately thereafter, or as soon as administratively feasible, the Company will transfer the appropriate number of Shares into a blocked account, including, but not limited to, an escrow account, on behalf of the Grantee after satisfaction of any required tax or other withholding obligations and such Shares will be held in escrow as set forth in Section 5 below until the sixth (6 th ) anniversary of the Date of Award as specified in the Notice. In the event of a Change in Control of the Company, vesting shall accelerate and one Share shall be issuable for each Unit subject to the Award immediately prior to the specified effective date of such Change in Control, subject to Section 3(b) below. Immediately thereafter, or as soon as administratively feasible, the Company will transfer the appropriate number of Shares to the Grantee after satisfaction of any required tax or other withholding obligations and such Shares shall not be subject to the restrictions set forth in Section 5 below. In the event of a Corporate Transaction of the Company, vesting shall accelerate immediately prior to the specified effective date of such Corporate Transaction (subject to delayed conversion of such Units as provided below) with respect to the number of Units equal to the quotient obtained by dividing (x) (subject to the adjustment provisions of Section 10 of the Plan) by (y) the Fair Market Value of a Share as of the date of the Corporate Transaction (rounded down to the nearest whole Unit), but in no event will such quotient exceed the Total Number of Units Awarded as set forth on the Notice. Such accelerated Units shall not be subject to the restrictions set forth in Section 5 below. Upon the earlier of (i) two (2) years from the date of such Corporate Transaction, or (ii) four (4) years from the Date of Award, the Company will transfer one Share for each Unit that has vested in connection with the Corporate Transaction, or the Company (or its successor), in its sole discretion, will make a cash payment in lieu of the issuance of the Shares attributable to the Units accelerated as set forth above in an amount equal to the value on the payment date of one share of Common Stock multiplied by the number of Units that vested upon the Corporate Transaction. To the extent Units are Assumed or Replaced in connection with such Corporate Transaction, any Units (or replacement Award) that remain unvested following the Corporate Transaction will vest in accordance with Vesting Schedule set forth in the Notice. If the Units are not Assumed or Replaced in connection with the Corporate Transaction, then the remaining Units shall automatically become fully vested immediately prior to the specified effective date of such Corporate Transaction (subject to delayed conversion of such Units as provided above). Any fractional Unit remaining after the Award is fully vested shall be discarded and shall not be converted into a fractional Share. Notwithstanding anything in this Agreement to the contrary, the Company may, in its sole discretion, make a cash payment in lieu of the issuance of Shares as provided herein in an amount equal to the value of one share of Common Stock multiplied by the number of Units subject to the Award.

.2 Delay of Conversion . The conversion of the Units into the Shares under any event described in Section 3(a) above, shall be delayed in the event the Company reasonably anticipates that the issuance of the Shares would constitute a violation of federal securities laws or other Applicable Law. If the conversion of the Units into the Shares is delayed by the provisions of this Section 3(b), the conversion of the Units into the Shares shall occur at the earliest date at which the Company reasonably anticipates issuing the Shares will not cause a violation of federal securities laws or other Applicable Law. For purposes of this Section 3(b), the issuance of Shares that would cause inclusion in gross income or the application of any penalty provision or other provision of the Code is not considered a violation of Applicable Law.

.3 Delay of Issuance of Shares . The Company shall delay the issuance of any Shares under this Section 3 to the extent necessary to comply with Section 409A(a)(2)(B)(i) of the Code (relating to payments made to certain “specified employees” of certain publicly-traded companies); in such event, any Shares to which the Grantee would otherwise be entitled during the six (6) month period following the date of the Grantee’s termination of Continuous Service will be issuable on the first business day following the expiration of such six (6) month period.

31 Right to Shares . The Grantee shall not have any right in, to or with respect to any of the Shares (including any voting rights or rights with respect to dividends paid on the Common Stock) issuable under the Award until the Award is settled by the issuance of such Shares as set forth in Section 3(a) above.

 

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32 Transfer Restrictions . The Shares issued to the Grantee hereunder upon settlement of the Units as set forth in Section 3(a) above may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Grantee prior to the sixth (6 th ) anniversary of the Date of Award (the “Lockup Period”). During the Lockup Period, the Grantee will have voting rights and rights with respect to dividends paid on the Common Stock in respect of the Shares. In addition, the Shares issued to the Grantee upon settlement of the Units hereunder are subject to forfeiture to the Company if, prior to the expiration of the Lockup Period (or such earlier period set forth below):

.1 the Grantee’s Continuous Service is terminated by the Company for Cause;

.2 the Grantee discloses any Confidential Information. For purposes of this Agreement, “Confidential Information” means information concerning the Company’s and its client’s businesses, strategies, operations, financial affairs, organizational and personnel matters (including information regarding any aspect of any Employee’s Continuous Service with the Company or of the termination of such service), policies, procedures and other non-public matters, or concerning those of third parties. Confidential Information may have been or be provided in written or electronic form or orally. In consideration of, and as a condition to, continued access to Confidential Information, and without prejudice to or limitation on any other confidentiality obligations imposed by agreement or by law, the Grantee hereby undertakes to use and protect Confidential Information in accordance with any restrictions placed on its use or disclosure. Without limiting the foregoing, except as authorized by the Company or as required by Applicable Law, the Grantee may not disclose or allow disclosure of any Confidential Information, or of any information derived therefrom, in whatever form, to any person unless such person is a director, officer, partner, employee, attorney or agent of the Company and, in the Grantee’s reasonable good faith judgment, has a need to know the Confidential Information or information derived therefrom in furtherance of the business of the Company. The foregoing obligations will survive, and remain binding and enforceable notwithstanding any termination of the Grantee’s Continuous Service and any settlement of the financial rights and obligations arising from the Grantee’s Continuous Service. Without limiting the foregoing, the existence of, and any information concerning, any dispute between the Grantee and the Company shall constitute Confidential Information except that the Grantee may disclose information concerning such dispute to the arbitrator that is considering such dispute, or to the Grantee’s legal counsel (provided that such counsel (A) does not represent any other Employee of the Company in an employment related matter, (B) does not represent a competitor of the Company, and (C) agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute);

.3 without the prior written consent of the Executive Committee of the Board (the “Executive Committee”), which consent may be withheld in its sole and absolute discretion, during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee (A) forms, or acquires a five percent (5%) or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise; or (B) associates (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise and in connection with such association engages in, or directly or indirectly manages or supervises personnel engaged in, any activity (x) which is similar or substantially related to any activity in which the Grantee was engaged, in whole or in part, at the Company, and (y) for which the Grantee had direct or indirect managerial or supervisory responsibility at the Company. For purposes of this Agreement, a “Competitive Enterprise” is a business enterprise that engages in, or owns or controls a significant interest in any entity that engages in financial services such as in any activity that competes directly or indirectly with the Company, including, without limitation, investment banking, underwriting, placement agent activities, public or private finance, financial advisory services, investment advice, merchant banking, asset or hedge fund management, private equity or other public or private investment funds, real estate investments, services or vehicles, securities research, brokerage, sales, lending, custody, clearance, settlement or trading, or any similar activities, services or products (all of the foregoing for anyone other than the Grantee and members of the Grantee’s family and in such case, the Grantee shall provide full, complete and accurate disclosure to the Executive Committee upon its request with respect to such activities (including, without limitation, supporting trade data));

.4 during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee, in any manner, directly or indirectly, (A) Solicits a Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Company or (B) interferes with or damages (or attempts to interfere with or damages) any relationship between the Company and a Client. For purposes of this Agreement, the term “Solicit” means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action and the term “Client” means any client or prospective client of the Company to whom the Grantee provided services, or for whom the Grantee transacted business, or whose identity became known to the Grantee in connection with the Grantee’s Continuous Service with the Company;

.5 during the period of the Grantee’s Continuous Service and for the twelve (12) month period following the termination of the Grantee’s Continuous Service, the Grantee in any manner, directly or indirectly, Solicits any person who is an Employee to resign from the Company or to apply for or accept employment with any Competitive Enterprise; or

.6 during the Coverage Period, the Grantee fails to take all actions and do all such things as may be reasonably requested by the Executive Committee from time to time to maintain for the Company the business, goodwill, and business relationships with any of the Company’s Clients with whom the Grantee worked during the Grantee’s Continuous Service. During the Coverage Period, the Executive Committee may, in its sole and absolute discretion, continue paying the Grantee’s salary and require that the Grantee refrain from engaging in any other employment or business activities until the Executive Committee determines the Client relationships are transferred to the Company. For purposes of this Agreement, the term “Coverage Period” means, at the discretion of the Executive Committee, either the 90-day period beginning on the date on which notice of the Grantee’s termination of Continuous Service is delivered to or by the Company or the 90-day period beginning on the date of termination of the Grantee’s Continuous Service.

If the Grantee participants in any of the foregoing activities, the Shares issued or otherwise issuable upon settlement of the Units shall be deemed reconveyed to the Company and the Company shall thereafter be the legal and beneficial owner of the Shares and shall have all rights and interest in or related thereto without further action by the Grantee.

33 Accelerated Conversion of Units and Issuance of Shares following a Corporate Transaction . The following circumstances shall permit an accelerated conversion of the Units, the vesting of which accelerated in connection with a Corporate Transaction, and the issuance of Shares:

 

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.1 Unforeseeable Emergency . In the event of an Unforeseeable Emergency, the Administrator may, in its sole discretion, permit the conversion of vested Units and the corresponding issuance of the number of Shares to the Grantee equal in value to an amount no greater than the amount necessary to satisfy the emergency plus any taxes reasonably anticipated as a result of the distribution. For purposes of this Section 6(a), “Unforeseeable Emergency” shall mean an unforeseeable emergency as defined in Code Section 409(a)(2)(B)(ii)(I) (as limited by Code Section 409A(a)(2)(B)(ii)(II)), the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

.2 Domestic Relations Order . In its sole discretion, the Administrator may permit acceleration of the time or schedule for the conversion of vested Units and corresponding issuance of the Shares to an individual other than the Grantee as may be necessary to fulfill a domestic relations order (as defined in Code Section 414(p)(1)(B)).

.3 Conflict of Interest . In its sole discretion, the Administrator may permit acceleration of the time or schedule for the conversion of vested Units and corresponding issuance of the Shares as may be necessary to comply with certain ethics rules as provided in Treasury Regulation Section 1.409A-3(j)(4)(iii).

.4 Income Inclusion under Section 409A of the Code . To the extent permitted under Code Section 409A, in its sole discretion, the Administrator may permit acceleration of the time or schedule for the conversion of vested Units and corresponding issuance of the Shares at any time this Agreement fails to meet the requirements of Section 409A of the Code and the corresponding regulations. Notwithstanding the foregoing, the accelerated distribution of Shares upon conversion of vested Units to the Grantee under this Section 6(d) shall not exceed the number of Shares with a value equal to the amount required to be included as income by the Grantee as a result of the failure to meet the requirements of Section 409A of the Code and the corresponding regulations.

.5 Dissolution or Bankruptcy . To the extent permitted under Code Section 409A, the Administrator shall have the authority, in its sole discretion, to terminate this Agreement and convert vested Units into a distribution of Shares to the Grantee for all of the Shares subject to this Agreement or, if applicable, to his or her beneficiary within twelve (12) months of a corporate dissolution taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(a). Any unvested Units shall be forfeited upon such termination of this Agreement. The total value of the accelerated distribution of Shares under this Section 6(e) must be included in the Grantee’s gross income in the latest of:

.1 The calendar year in which the Agreement is terminated; or

.2 The calendar year in which the issuance of the Shares is administratively practicable.

.6 Termination of the Agreement by the Company . To the extent permitted under Code Section 409A, the Administrator shall have the authority, in its sole discretion, to terminate this Agreement and convert vested Units into a distribution of Shares to the Grantee for all of the Shares subject to this Agreement to the Grantee or, if applicable, to his or her beneficiary provided that:

.1 The termination and liquidation does not occur proximate to a downturn in the financial health of the Company;

.2 The Company terminates and liquidates all arrangements sponsored by the Company that would be aggregated with any terminated and liquidated arrangements under Treasury Regulation Section 1.409A-1(c) and all other published interpretative authority as issued or amended from time to time if the Grantee had deferrals of compensation under all of the arrangements that are terminated and liquidated;

.3 No payments or issuance of Shares (other than payments or issuance of Shares hereunder that would have been paid if the termination had not occurred) are made within twelve (12) months of the termination of this Agreement;

.4 All payments and issuance of Shares subject to this Agreement are made within twenty-four (24) months of the date the Company takes all necessary action to irrevocably terminate and liquidate this Agreement; and

.5 The Company does not adopt a new arrangement that would be aggregated with any terminated and liquidated arrangements under Treasury Regulation Section 1.409A-1(c) if the Grantee participated in both arrangements, at any time within three (3) years following the date the Company takes all necessary action to irrevocably terminate and liquidate this Agreement.

34 Taxes .

Tax Liability . The Grantee is ultimately liable and responsible for all taxes owed by the Grantee in connection with the Award, regardless of any action the Company or any Related Entity takes with respect to any tax withholding obligations that arise in connection with the Award. Neither the Company nor any Related Entity makes any representation or undertaking regarding the treatment of any tax withholding in connection with the grant or vesting of the Award or the subsequent sale of Shares issuable pursuant to the Award. The Company does not commit and is under no obligation to structure the Award to reduce or eliminate the Grantee’s tax liability. The Grantee does not have discretion to direct the Company to withhold any amount in excess of the minimum statutory tax withholding requirements, to make any such excess tax payments on behalf of the Grantee, or to withhold or pay any amount in satisfaction of the Grantee’s other tax liabilities.

 

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Payment of Withholding Taxes . Prior to any event in connection with the Award (e.g., vesting) that the Company determines may result in any tax withholding obligation, whether United States federal, state, local or non-U.S., including any employment tax obligation (the “Tax Withholding Obligation”), the Grantee must arrange for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the Company. Under no circumstances will the Company be obligated to withhold any amount in excess of the minimum Tax Withholding Obligation, or to withhold or pay any additional amount in satisfaction of the Grantee’s other tax liabilities.

By Share Withholding. The Grantee authorizes the Company to, upon the exercise of its sole discretion, withhold from those Shares issuable to the Grantee the whole number of Shares sufficient to satisfy the minimum applicable Tax Withholding Obligation. The Grantee acknowledges that the withheld Shares may not be sufficient to satisfy the Grantee’s minimum Tax Withholding Obligation. Accordingly, the Grantee agrees to pay to the Company or any Related Entity as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.

By Sale of Shares . Unless the Grantee determines to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, the Grantee’s acceptance of this Award constitutes the Grantee’s instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to, upon the exercise of Company’s sole discretion, sell on the Grantee’s behalf a whole number of Shares from those Shares issuable to the Grantee as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the minimum applicable Tax Withholding Obligation. Such Shares will be sold on the day such Tax Withholding Obligation arises (e.g., a vesting date) or as soon thereafter as practicable. The Grantee will be responsible for all broker’s fees and other costs of sale, and the Grantee agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed the Grantee’s minimum Tax Withholding Obligation, the Company agrees to pay such excess in cash to the Grantee. The Grantee acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the Grantee’s minimum Tax Withholding Obligation. Accordingly, the Grantee agrees to pay to the Company or any Related Entity as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of Shares described above.

By Check, Wire Transfer or Other Means . At any time not less than five (5) business days (or such fewer number of business days as determined by the Administrator) before any Tax Withholding Obligation arises (e.g., a vesting date), the Administrator, in its sole discretion, may permit the Grantee to satisfy the Grantee’s Tax Withholding Obligation by delivering to the Company an amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to such account as the Company may direct, (y) delivery of a certified check payable to the Company, or (z) such other means as specified from time to time by the Administrator.

Notwithstanding the foregoing, the Company or a Related Entity also may satisfy any Tax Withholding Obligation by offsetting any amounts (including, but not limited to, salary, bonus and severance payments) payable to the Grantee by the Company and/or a Related Entity.

35 Parachute Payment Excise Tax .

.1 In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”)) to the Grantee or for the Grantee’s benefit, paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, the Grantee’s Continuous Service with the Company, a Corporate Transaction or a Change in Control (a “Payment” or “Payments”), would be subject to the excise tax imposed by Code Section 4999, or any interest or penalties are incurred by the Grantee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Grantee will be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Grantee of all taxes (including any interest or penalties (other than interest and penalties imposed by reason of the Grantee’s failure to file timely a tax return or pay taxes shown due on The Grantee’s return) imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Grantee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

.2 An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made by the Company. The Company shall provide its determination (the “Determination”), together with detailed supporting calculations and documentation, to the Grantee within fifteen (15) days of the date of termination of the Grantee’s Continuous Service, if applicable, or such other time as requested by the Grantee (provided the Grantee reasonably believes that any of the Payments may be subject to the Excise Tax). If requested by the Grantee, the Company shall furnish the Grantee, at the Company’s expense, with an opinion reasonably acceptable to the Grantee from the Company’s accounting firm (or an accounting firm of equivalent stature reasonably acceptable to the Grantee) that there is a reasonable basis for the Determination. Any Gross-Up Payment determined pursuant to this Section 8 shall be paid by the Company to the Grantee within five (5) days of receipt of the Determination.

.3 As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an “Excess Payment”) or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an “Underpayment”).

.1 An Underpayment shall be deemed to have occurred (A) upon notice (formal or informal) to the Grantee from any governmental taxing authority that the Grantee’s tax liability (whether in respect of the Grantee’s current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment, (B) upon a determination by a court, or (C) by reason of determination by the Company (which shall include the position taken by the Company, together with its consolidated group, on its federal income tax return). If an Underpayment occurs, the Grantee shall promptly notify the Company and the Company shall promptly, but in any event at least five (5) days prior to the date on which the applicable government taxing authority has requested payment, pay to the Grantee an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of the Grantee’s failure to file timely a tax return or pay taxes shown due on the Grantee’s return) imposed on the Underpayment.

 

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.2 An Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Grantee had previously received a Gross-Up Payment. A “Final Determination” shall be deemed to have occurred when the Grantee has received from the applicable government taxing authority a refund of taxes or other reduction in the Grantee’s tax liability by reason of the Excise Payment and upon either (A) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Grantee and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (B) the statute of limitations with respect to the Grantee’s applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be repaid by the Grantee to the Company unless, and only to the extent that, the repayment would either reduce the amount on which the Grantee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999.

.4 Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Company shall pay to the applicable government taxing authorities, as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments.

36 Entire Agreement; Governing Law . The Notice, the Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed by the Company and the Grantee. These agreements are to be construed in accordance with and governed by the internal laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Should any provision of the Notice or this Agreement be determined to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

37 Construction . The captions used in the Notice and this Agreement are inserted for convenience and shall not be deemed a part of the Award for construction or interpretation. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

38 Administration and Interpretation . Any question or dispute regarding the administration or interpretation of the Notice, the Plan or this Agreement shall be submitted by the Grantee or by the Company to the Administrator. The resolution of such question or dispute by the Administrator shall be final and binding on all persons.

39 Venue and Jurisdiction . The parties agree that any suit, action, or proceeding arising out of or relating to the Notice, the Plan or this Agreement shall be brought exclusively in the United States District Court for the Northern District of California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a California state court in the County of San Francisco) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. If any one or more provisions of this Section 12 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

40 Notices . Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the United States mail by certified mail (if the parties are within the United States), with postage and fees prepaid, addressed to the other party at its address as shown in these instruments, or to such other address as such party may designate in writing from time to time to the other party.

41 Amendment and Delay to Meet the Requirements of Section 409A . The Grantee acknowledges that the Company, in the exercise of its sole discretion and without the consent of the Grantee, may amend or modify this Agreement in any manner and delay the issuance of any Shares issuable pursuant to this Agreement to the minimum extent necessary to meet the requirements of Section 409A of the Code as amplified by any Treasury regulations or guidance from the Internal Revenue Service as the Company deems appropriate or advisable. In addition, the Company makes no representation that the Award will comply with Section 409A of the Code and makes no undertaking to prevent Section 409A of the Code from applying to the Award or to mitigate its effects on any deferrals or payments made in respect of the Award. The Grantee is encouraged to consult a tax adviser regarding the potential impact of Section 409A of the Code.

END OF AGREEMENT

 

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Exhibit 10.14

Summary of Compensation Arrangements with Executive Officers

as of April 15, 2008.

On March 10, 2008, the Compensation Committee (the “Committee”) of the Board of Directors of JMP Group Inc. (the “Company”) completed its annual performance and compensation review of the Company’s named executive officers and approved the 2008 base salaries of the Company’s named executive officers. The Committee also approved the performance objectives for the named executive officers under the 2007 Senior Executive Bonus Plan, as more fully described below.

Base Salaries

The 2008 annual base salaries for the Company’s named executive officers, effective on April 15, 2008, are as follows:

 

Name and Position

   Base Salary 1

Joseph A. Jolson, Chairman and Chief Executive Officer

   $ 200,000

Thomas B. Kilian, Chief Financial Officer

   $ 200,000

Craig R. Johnson, President

   $ 200,000

Mark L. Lehmann, Director of Equities and Co-President of JMP Securities

   $ 200,000

Carter D. Mack, Director of Investment Banking and Co-President of JMP Securities

   $ 200,000

2007 Senior Executive Bonus Plan

The Committee established performance objectives for 2008 with respect to the payment of cash bonuses to each of the named executive officers under the 2007 Senior Executive Bonus Plan. Under the 2007 Senior Executive Bonus Plan, each of the named executive officers may, subject to the Compensation Committee’s authority to reduce any such bonus in its sole and absolute discretion, receive a cash bonus payment upon either or both of the following: (i) the achievement by the Company of a certain performance target with respect to operating income for the fiscal year ending December 31, 2008, and (ii) with respect to each named executive officer, the production of revenues attributable to his area of business responsibility or production. Any cash bonus payments with respect to 2008 under the 2007 Senior Executive Bonus Plan will be paid in one lump sum payment shortly after the end of the 2008 fiscal year.

This document is intended to be a summary of existing oral, at will arrangements, and in no way is intended to provide any additional rights to any of the named executive officers.

 

 

1

Base salaries until April 15, 2008 were $125,000 per annum for each of the named executive officers.

Exhibit 10.15

AMENDMENT NUMBER TWO

TO CREDIT AGREEMENT

THIS AMENDMENT NUMBER TWO TO CREDIT AGREEMENT (this “ Amendment ”), dated as of March 27, 2008, is entered into by and between JMP GROUP LLC , a Delaware limited liability company (“ Borrower ”) and CITY NATIONAL BANK, a national banking association (“ Lender ”) in light of the following:

W I T N E S S E T H

WHEREAS, Borrower and Lender are party to that certain Credit Agreement, dated as of August 3, 2006 (as so amended and as otherwise amended, restated, supplemented, or otherwise modified from time to time, the “ Credit Agreement ”);

WHEREAS , Borrower has requested that Lender amend the Credit Agreement as set forth herein; and

WHEREAS , subject to the terms and conditions set forth herein, Lender is willing to provide the amendment as set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to amend the Credit Agreement as follows:

42 DEFINITIONS . Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement, as amended hereby.

43 AMENDMENTS TO CREDIT AGREEMENT

.1 Section 1.1 of the Credit Agreement is hereby amended by amending and restating each of the following definitions in their entirety:

Availability ” means, as of any date of determination, the amount that Borrower is entitled to borrow as Loans hereunder (after giving effect to all then outstanding Obligations (other than Bank Product Obligations)).

Change of Executive Event ” means the failure of two or more of Joseph A. Jolson, Carter Mack, Craig Johnson and Mark Lehmann to be involved actively on an ongoing basis in the management of Borrower or any of its Subsidiaries.

Final Payment Date ” means the date that is three years after the Final Revolving Commitment Termination Date.

Loan Documents ” means this Agreement, the Bank Product Agreements, the Control Agreements (if any), the Guaranty, the Intercompany Subordination Agreement, the Letters of Credit, the Security Agreement, the Stock Pledge Agreement, the Trademark Security Agreement and any and all other documents, agreements or instructions that have been or are entered into by Borrower or any Guarantor, and Lender in connection with the transactions contemplated by this Agreement.

Obligations ” means (a) all Loans, debts, principal, interest, premiums, liabilities (including all amounts charged to Borrower’s Loan Account pursuant hereto), contingent reimbursement obligations with respect to outstanding Letters of Credit, obligations (including indemnification obligations), fees (including the Letter of Credit Fee), charges, costs, expenses (including any portion thereof that accrues after the commencement of an Insolvency Proceeding, whether or not allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties, covenants, and duties of any kind and description owing by Borrower to Lender pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise, and (b) all Bank Product Obligations. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all extensions, modifications, renewals, or alterations thereof, both prior and subsequent to any Insolvency Proceeding.

Revolving Commitment Termination Date ” means (a) subject to the provisions of Section 2.3(e), December 31, 2009, or (b) such earlier date on which the Loans shall become due and payable in accordance with the terms of this Agreement and the other Loan Documents.

.2 Section 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in proper alphabetical order:

ACH Transactions ” means any cash management or related services (including the Automated Clearing House processing of electronic fund transfers through the direct Federal Reserve Fedline system) provided by a Bank Product Provider for the account of Borrower or its Subsidiaries.


Bank Product ” means any financial accommodation extended to Borrower or its Subsidiaries by a Bank Product Provider under Hedging Agreements.

Bank Product Agreements ” means those agreements entered into from time to time by Borrower or its Subsidiaries with a Bank Product Provider in connection with the obtaining of any of the Bank Products.

Bank Product Obligations ” means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by Borrower or its Subsidiaries to any Bank Product Provider pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that Borrower or its Subsidiaries are obligated to reimburse to Lender as a result of Lender purchasing participations from, or executing indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank Products provided by such Bank Product Provider to Borrower or its Subsidiaries.

Bank Product Provider ” means Lender or any of its Affiliates.

Extended Revolving Commitment Termination Date ” means subject to the provisions of Section 2.3(e) , December 31, 2012.

Extension Notice ” means a written notice signed by Borrower and addressed to Lender which (a) states that Borrower has elected to extend the expiry date with respect to a portion of the Revolving Credit Facility Commitment from the Revolving Commitment Termination Date to the Extended Revolving Commitment Termination Date; and (b) sets forth Borrower’s election for the amount of the Revolving Credit Facility Commitment that is to be so extended, which amount may be $0, shall be integral multiples of $100,000, and shall not exceed $10,000,000.

Final Revolving Commitment Termination Date ” means (a) the Revolving Commitment Termination Date, if, prior to the Revolving Commitment Termination Date, Borrower has not satisfied each of the conditions set forth in the first sentence of Section 2.3(e) , (b) the Extended Revolving Commitment Termination Date if, prior to the Revolving Commitment Termination Date, Borrower has satisfied each of the conditions set forth in the first sentence of Section 2.3(e) ; or (c) such earlier date on which the Loans shall become due and payable in accordance with the terms of this Agreement and the other Loan Documents.

Second Amendment ” means that certain Amendment Number Two to the Credit Agreement dated as of March __, 2008, by and between Borrower and Lender.

Second Amendment Effective Date ” means the date, if ever, that all of the conditions set forth in Section 4 of the Second Amendment shall be satisfied (or waived by Lender in its sole discretion).

.3 Sections 2.1(a)(i) and 2.1(d) of the Credit Agreement are hereby amended by deleting the term “Revolving Commitment Termination Date” from each section and by substituting in lieu thereof, the term “Final Revolving Commitment Termination Date”.

.4 Section 2.3(e) of the Credit Agreement is hereby amended by amending and restating such section in its entirety as follows:

“(e) So long as no Event of Default or Unmatured Event of Default has occurred and is continuing and Borrower has delivered to Lender an Extension Notice not less than 10 Business Days prior to the Revolving Commitment Termination Date, Borrower shall have the option to extend the Revolving Commitment Termination Date to the Extended Revolving Commitment Termination Date. In the event that Borrower elects to extend the Revolving Commitment Termination Date to the Extended Revolving Commitment Termination Date, then (i) on the Revolving Commitment Termination Date, the Revolving Credit Facility Commitment shall reduce to an amount (such amount, the “ Extended Revolving Facility Commitment ”) equal to the lesser of (x) $10,000,000, and (y) the amount set forth in the Extension Notice, and (ii) the outstanding principal balance of all Loans in excess of the Extended Revolving Facility Commitment shall be deemed converted into a single term loan, which shall be repayable in 12 equal quarterly principal installments, each in an amount equal to 1/12th of the outstanding principal balance of such term loan as of the date of conversion, on the first day of each fiscal quarter of Borrower thereafter, with all unpaid amounts due and payable on the Extended Revolving Commitment Termination Date. In the event that the Revolving Commitment Termination Date is not extended, then on the Revolving Commitment Termination Date (A) the Revolving Credit Facility Commitment shall reduce to $0 and (B) the outstanding principal balance of all Loans shall be deemed converted into a single term loan, which shall be repayable in 12 equal quarterly principal installments, each in an amount equal to 1/12th of the outstanding principal balance of such term loan as of the date of conversion, on the first day of each fiscal quarter of Borrower thereafter, with all unpaid amounts due and payable on the Extended Revolving Commitment Termination Date.”

.5 Section 2.4 of the Credit Agreement is hereby amended by amending and restating such section in its entirety as follows:

“2.4 Default Rate. Upon the occurrence and during the continuance of an Event of Default, all Obligations (except for Bank Product Obligations) shall bear interest at a rate equal to (i) the Base Rate, plus (ii) 1.75 percentage points. All amounts payable under this Section 2.4 shall be immediately due and payable without the requirement of notice or demand.”

 

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.6 Section 2.8(a) of the Credit Agreement is hereby amended by amending and restating such section in its entirety as follows:

“(a) The Revolving Credit Facility Commitment shall terminate on the Final Revolving Commitment Termination Date, and the Loans shall convert into a term loan and shall be repayable as provided in Section 2.3(e) hereof. Notwithstanding the foregoing, at the request of Borrower, any Letters of Credit that are outstanding on the Final Revolving Commitment Termination Date shall be renewed through the Final Payment Date. On the Final Payment Date all remaining outstanding Loans, all interest that has accrued and remains unpaid thereon, all contingent reimbursement obligations of Borrower with respect to outstanding Letters of Credit, all unpaid fees, costs, or expenses that are payable hereunder or under any other Loan Document, and all other Obligations (including any amounts due and payable to any Bank Product Provider in respect of all Bank Products provided by such Bank Product Provider) immediately shall each become due and payable in full, without notice or demand (including (a) either (i) providing cash collateral to be held by Lender in an amount equal to 105% of the Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to Lender, and (b) providing cash collateral (in an amount determined by Lender as sufficient to satisfy the reasonably estimated credit exposure) to be held by Lender for the benefit of the Bank Product Providers with respect to the Bank Product Obligations).”

.7 Section 2.12 of the Credit Agreement is hereby amended by amending and restating such section in its entirety as follows:

“2.12 Maintenance of Loan Account; Statements of Obligations . Lender shall maintain an account on its books in the name of Borrower (the “Loan Account”) on which Borrower will be charged with all Loans made by Lender to Borrower or for Borrower’s account, the Letters of Credit issued by Lender for Borrower’s account, and with all other payment Obligations (except for Bank Product Obligations), including all accrued interest, fees and expenses (in each case, as and when payable hereunder or under the other Loan Documents). Lender shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all expenses owing, and such statements shall be conclusively presumed to be correct and accurate (absent manifest error) and constitute an account stated between Borrower and Lender unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver to Lender written objection thereto describing the error or errors contained in any such statements.

.8 The preamble to Article IV of the Credit Agreement is hereby amended by amending and restating such section in its entirety as follows:

“Borrower makes the following representations and warranties which, except as set forth in the Disclosure Statement with a specific reference to the Section of this Article IV affected thereby, shall be true, correct, and complete in all respects as of the date hereof, and shall be true, correct, and complete in all respects as of the Closing Date, and at and as of the date of each Loan (or other extension of credit) made thereafter, as though made on and as of the date of the making of such Loan (or other extension of credit), and at and as of the date of each issuance of, renewal of, or amendment to any Letter of Credit, as though made on and as of the date of the making of such Loan (or other extension of credit), and at and as of the date of such issuance of, renewal of, or amendment to any Letter of Credit (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement and the making of the Loans (or other extension of credit) and the issuance of the Letters of Credit:”

.9 The preamble to Article V of the Credit Agreement is hereby amended by amending and restating such section in its entirety as follows:

“Borrower covenants and agrees that, so long as any portion of the Revolving Credit Facility Commitment under this Agreement shall be in effect and until payment, in full, of the Loans, with interest accrued and unpaid thereon, any other Obligations (including Obligations in respect of Letters of Credit and Bank Product Obligations) and any other amounts due hereunder, and except as set forth in the Disclosure Statement with specific reference to the Section of this Article V affected thereby concerning matters which do not conform to the covenants of this Article V , Borrower will, and will cause each of its Subsidiaries to do each and all of the following:”

.10 The preamble to Article VI of the Credit Agreement is hereby amended by amending and restating such section in its entirety as follows:

“Borrower covenants and agrees that, so long as any portion of the Revolving Credit Facility Commitment under this Agreement shall be in effect and until payment, in full, of the Loans, with interest accrued and unpaid thereon, any other Obligations (including Obligations in respect of Letters of Credit and Bank Product Obligations) and any other amounts due hereunder, and any other amounts due hereunder, and except as set forth in the Disclosure Statement with specific reference to the Section of this Article VI affected thereby concerning matters which do not conform to the covenants of this Article VI , Borrower will not, and will not permit any of its Subsidiaries to do any of the following:”

.11 Section 6.1(l) of the Credit Agreement is hereby amended by deleting the term “Revolving Commitment Termination Date” and by substituting in lieu thereof, the term “Final Revolving Commitment Termination Date”.

.12 Section 7.2(b) of the Credit Agreement is hereby amended by amending and restating such section in its entirety as follows

“(b) In the case of any other Event of Default, Lender, by written notice to Borrower, may declare the Revolving Credit Facility Commitment hereunder terminated and the unpaid principal amount of and any accrued and unpaid interest on the Loans and any other amounts owing hereunder or under the Loan Documents to be, and the same immediately shall become due and payable, without presentment, demand, protest, further notice, or other requirements of any kind, all of which are hereby expressly waived by Borrower.

 

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Upon acceleration, Lender (without notice to or demand upon Borrower, which are expressly waived by Borrower to the fullest extent permitted by law), shall be entitled to proceed to protect, exercise, and enforce its rights and remedies hereunder or under the other Loan Documents, or any other rights and remedies as are provided by law or equity. Lender may determine, in its sole discretion, the order and manner in which Lender’s rights and remedies are to be exercised. All payments received by Lender shall be applied as follows (regardless of how Lender may treat the payments for the purpose of its own accounting): first, to all out-of-pocket costs and expenses (including reasonable attorneys fees and expenses) actually incurred by Lender in enforcing any Obligation of Borrower hereunder, or in collecting any payments due hereunder or under the other Loan Documents, or which Borrower is required to pay to Lender pursuant to Section 8.1 hereof, until paid in full; second, to any fees then due to Lender under the Loan Documents until paid in full; third, to any accrued and unpaid interest on the Loans, until paid in full; fourth, ratably (i) to pay the principal of all Loans owing to Lender until paid in full, (ii) to be held by Lender as cash collateral, until an amount up to 105% of the Letter of Credit Usage is so held, and (iii) to pay all Bank Product Obligations; and fifth, to any other Obligations, until paid in full.”

44 REPRESENTATIONS AND WARRANTIES . Borrower hereby represents and warrants to Lender as follows:

.1 Borrower has the requisite power and authority to execute and deliver this Amendment and the authority to perform its obligations hereunder and under the Loan Documents to which it is a party. The execution, delivery, and performance of this Amendment and the performance by Borrower of each Loan Document to which it is a party (i) have been duly approved by all necessary action and no other proceedings are necessary to consummate such transactions; and (ii) are not in contravention of (A) any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court or governmental authority binding on it, (B) the terms of its organizational documents, or (C) any provision of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected;

.2 This Amendment has been duly executed and delivered by Borrower. This Amendment will, upon its effectiveness in accordance with the terms hereof, and each Loan Document to which Borrower is a party is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, and is in full force and effect except as such validity and enforceability is limited by the laws of insolvency and bankruptcy, laws affecting creditors’ rights and principles of equity applicable hereto;

.3 No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein has been issued and remains in force by any Governmental Authority against Borrower;

.4 Borrower does not have any actual or potential claim or cause of action against Lender for any actions or events occurring on or before the date hereof, and Borrower hereby waives and releases any right to assert same;

.5 No Default or Event of Default has occurred and is continuing on the date hereof or as of the date of the effectiveness of this Amendment after giving effect to this Amendment; and

.6 The representations and warranties in the Credit Agreement and the other Loan Documents are true and correct in all respects on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date).

45 CONDITIONS PRECEDENT TO THIS AMENDMENT . The satisfaction of each of the following shall constitute conditions precedent to the effectiveness of this Amendment and each and every provision hereof:

.1 Lender shall have received this Amendment, duly executed by Borrower, and the same shall be in full force and effect;

.2 The representations and warranties in the Credit Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date);

.3 No Default or Event of Default shall have occurred and be continuing as of the date of the effectiveness of this Amendment after giving effect to this Amendment; and

.4 No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against Borrower.

46 CONSTRUCTION . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF CALIFORNIA.

47 ENTIRE AMENDMENT; EFFECT OF AMENDMENT . This Amendment, and terms and provisions hereof, constitute the entire agreement among the parties pertaining to the subject matter hereof and supersedes any and all prior or contemporaneous amendments relating to the subject matter hereof. Except for the amendments to the Credit Agreement expressly set forth in Section 2 hereof, the Credit Agreement and other Loan Documents shall remain unchanged and in full force and effect. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of or as an amendment of any right, power, or remedy of the Lenders as in effect prior to the date hereof. The amendments set forth herein are limited to the specifics hereof, shall not apply with respect to any facts or

 

4


occurrences other than those on which the same are based, shall not excuse future non-compliance with the Credit Agreement, and shall not operate as a consent to any further or other matter, under the Loan Documents. To the extent any terms or provisions of this Amendment conflict with those of the Credit Agreement or other Loan Documents, the terms and provisions of this Amendment shall control. This Amendment is a Loan Document.

48 COUNTERPARTS; TELEFACSIMILE EXECUTION . This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver an original executed counterpart of this Amendment, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.

49 MISCELLANEOUS

.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “herein”, “hereof” or words of like import referring to the Credit Agreement shall mean and refer to the Credit Agreement as amended by this Amendment.

.2 Upon the effectiveness of this Amendment, each reference in the Loan Documents to the “Credit Agreement”, “thereunder”, “therein”, “thereof” or words of like import referring to the Credit Agreement shall mean and refer to the Credit Agreement as amended by this Amendment.

 

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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered as of the date first written above.

 

BORROWER:    

JMP GROUP LLC,

a Delaware limited liability company

      By:        
      Title:    

 

6


LENDER:    

CITY NATIONAL BANK,

a national banking corporation

      By:    
      Title:     

 

7


EXHIBIT A

REAFFIRMATION AND CONSENT

All capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in (a) that certain Credit Agreement entered into between JMP GROUP LLC, a Delaware limited liability company (“Borrower”), and CITY NATIONAL BANK, a national banking association (“Lender”), dated as of August 3, 2006 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), and (b) that certain Amendment Number Two to Credit Agreement, dated as of March __, 2008 (the “Amendment”) by and among Borrower and Lender. The undersigned hereby (a) represents and warrants to Lender that the execution, delivery, and performance of this Reaffirmation and Consent are within its powers, have been duly authorized by all necessary action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected; (b) consents to the transactions contemplated by the Amendment and by each amendment to any Loan Document executed on or before the date hereof; (c) acknowledges and reaffirms its obligations owing to Lender under any Loan Documents to which it is a party; and (d) agrees that each of the Loan Documents to which it is a party is and shall remain in full force and effect. Although each of the undersigned has been informed of the matters set forth herein and has acknowledged and agreed to same, each understands that Lender has no obligation to inform it of such matters in the future or to seek its acknowledgment or agreement to future amendments, and nothing herein shall create such a duty. Delivery of an executed counterpart of this Reaffirmation and Consent by telefacsimile or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Reaffirmation and Consent. Any party delivering an executed counterpart of this Reaffirmation and Consent by telefacsimile or electronic mail also shall deliver an original executed counterpart of this Reaffirmation and Consent but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Reaffirmation and Consent. This Reaffirmation and Consent shall be governed by the laws of the State of California.

 

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IN WITNESS WHEREOF, the undersigned have each caused this Reaffirmation and Consent to be executed as of the date of the Amendment.

 

JMP ASSET MANAGEMENT LLC,

a Delaware limited liability company

By:    
Title:     

 

9

Exhibit 31.1

JMP GROUP INC.

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 quarterly report for the period ended March 31, 2008 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;

 

  b) 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

 

  c) 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: May 8, 2008
/s/ Joseph A. Jolson

Joseph A. Jolson

Chairman and Chief Executive Officer

Exhibit 31.2

JMP GROUP INC.

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 quarterly report for the period ended March 31, 2008 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;

 

  b) 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

 

  c) 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: May 8, 2008
/s/ Thomas B. Kilian

Thomas B. Kilian

Chief Financial Officer

Exhibit 32.1

JMP GROUP INC.

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER 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, 2008, 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: May 8, 2008     /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 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, 2008, 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: May 8, 2008     /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.