Filed Pursuant to Rule 424(b)(5)
Registration No. 333-183619
The information in this preliminary prospectus supplement and the accompanying prospectus is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUPPLEMENT	Subject to completion, dated January 22, 2014

(To prospectus dated September 19, 2012)

 

$

 

 

JMP Group Inc.

 

              % Senior Notes due 2021

 

---

 

We are offering $             principal amount of     % Senior Notes due 2021 (the “notes”). Interest on the notes will accrue from January     , 2014 and will be paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing on April 15, 2014. The notes will mature on January     , 2021. We may redeem the notes in whole or in part on or after January     , 2017, at our option at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest to the date of redemption, as described under “Description of Notes—Optional Redemption.” The notes will be issued in denominations of $25 and in integral multiples thereof.

 

The notes will be our general unsecured senior obligations, will rank equally with all of our existing and future senior unsecured indebtedness and will be senior to any other indebtedness expressly made subordinate to the notes. The notes will be effectively subordinated to all of our existing and future secured indebtedness (to the extent of the value of the assets securing such indebtedness) and structurally subordinated to all existing and future liabilities of our subsidiaries, including trade payables.

 

Investing in our notes involves risks that are described in the “Risk Factors” section beginning on page S-4 of this prospectus supplement, and the documents incorporated by reference herein.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

 

We intend to apply to list the notes on the New York Stock Exchange (“NYSE”) and expect trading in the notes to begin within 30 days of January     , 2014, the original issue date.

 

Price to Public(1)

Underwriting Discount(3)

Proceeds to JMP Group, Inc. Before Expenses(1)

Per note

$

$

$

Total notes(2)

$

$

$

(1)	Plus accrued interest from January     , 2014, if the initial settlement occurs after that date.
(2)	Assumes no exercise of the underwriters’ overallotment option described below.
(3)	We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Underwriting (Conflicts of Interest).”

 

 

The underwriters may also purchase up to an additional $             principal amount of notes from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus supplement, to cover overallotments, if any. If the underwriters exercise this option in full, the total underwriting discount will be $            , and our total proceeds, before expenses, will be $            .

 

The underwriters expect to deliver the notes to purchasers in book-entry only form through the facilities of The Depository Trust Company for the accounts of its participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear System, and Clearstream Banking, société anonyme, on or about January     , 2014.

 

Joint Book-Running Managers

 

Keefe, Bruyette & Woods		Jefferies	JMP Securities
A Stifel Company

Lead Manager

 

Sterne Agee

 

Co-Manager

 

Gilford Securities

 

The date of this prospectus supplement is January     , 2014.

 

 

 TABLE OF CONTENTS

 

Prospectus Supplement

 

	Page
About This Prospectus Supplement	S-ii
Cautionary Note Regarding Forward-Looking Statements	S-ii
Summary	S-1
The Offering	S-2
Risk Factors	S-4
Selected Historical Financial Information	S-7
Use of Proceeds	S-9
Ratio of Earnings to Fixed Charges	S-9
Capitalization	S-13
Description of Certain Indebtedness	S-14
Description of Notes	S-16
United States Federal Income Tax Considerations	S-28
Underwriting (Conflicts of Interest)	S-32
Where You Can Find Additional Information	S-36
Legal Matters	S-37
Experts	S-37

 

 Prospectus

	Page
About This Prospectus	1
Available Information	1
Incorporation of Certain Information by Reference	2
Forward-looking Statements	2
Risk Factors	3
Description of Securities We May Offer	3
Description of Capital Stock	4
Description of Debt Securities	7
Description of Warrants	15
Description of Rights	17
Description of Units	18
Ratio of Earnings to Fixed Charges	19
Use of Proceeds	19
Plan of Distribution	19
Validity of the Securities	22
Experts	22

 

 

ABOUT THIS PROSPECTUS SUPPLEMENT

 

You should rely only on the information contained in or incorporated by reference into this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer and sale is not permitted. You should assume that the information appearing in this prospectus supplement and the accompanying prospectus is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

 This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this notes offering and also adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference into the accompanying prospectus. The second part, the accompanying prospectus, provides more general information. Generally, when we refer to this prospectus, we are referring to both parts of this document combined. To the extent there is a conflict between the information contained in this prospectus supplement and the information contained in the accompanying prospectus or any document incorporated by reference therein filed prior to the date of this prospectus supplement, you should rely on the information in this prospectus supplement. If any statement in one of these documents is inconsistent with a statement in another document having a later date — for example, a document incorporated by reference in the accompanying prospectus — the statement in the document having the later date modifies or supersedes the earlier statement.

  

Unless we indicate otherwise, the words “we,” “our,” “us” and “Company” refer to JMP Group Inc. (“JMP”), and its direct and indirect wholly-owned subsidiaries, including JMP Group LLC (“JMPG LLC”), JMP Securities LLC (“JMP Securities”), Harvest Capital Strategies LLC (“HCS”), JMP Capital LLC (“JMP Capital”), JMP Credit Corporation (“JMP Credit”) and JMP Credit Advisors LLC (“JMP Credit Advisors”).

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus and any accompanying prospectus supplement, including the documents we incorporate by reference therein or that are deemed to be a part thereof, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include, without limitation, statements regarding our expectations, hopes or intentions regarding the future. These forward looking statements can often be identified by their use of words such as “expect,” “believe,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “seek,” “estimate,” “should,” “may” and “assume,” as well as variations of such words and similar expressions referring to the future. They also include statements concerning anticipated revenues, income or loss, capital expenditures, dividends, capital structure or other financial terms. For a non-exhaustive list of factors that could cause future results to differ materially from those expressed or implied by forward-looking statements or from historical results, please refer to the “Special Note Regarding Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

Forward-looking statements involve certain risks and uncertainties, many of which are beyond our control. If any of those risks and uncertainties materialize, actual results could differ materially from those discussed in any such forward-looking statement. Additional factors that could cause actual results to differ materially from those discussed in forward-looking statements are those discussed under the heading “Risk Factors” in this prospectus supplement and in other sections of (i) our Annual Report on Form 10-K for the year ended December 31, 2012 or (ii) our other reports filed from time to time with the Securities and Exchange Commission (the “SEC”) that are incorporated by reference into this prospectus supplement and the accompanying prospectus. See “Where You Can Find Additional Information” for information about how to obtain copies of those documents.

 

All forward-looking statements in this prospectus supplement, the prospectus and the documents incorporated by reference therein are made only as of the date of the document in which they are contained, based on information available to us as of the date of that document, and we caution you not to place undue reliance on forward-looking statements in light of the risks and uncertainties associated with them. Except as required by law, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

  

 

 

 

  

 

 

 RISK FACTORS

 

Before you invest in our notes, you should know that making such an investment involves significant risks, including the risks described below. You should carefully consider the following information about these risks, together with the other information contained in this prospectus and the information incorporated by reference, including risk factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, before purchasing the notes offered pursuant to this prospectus supplement. The risks that we have highlighted here are not the only ones that we face. For example, additional risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. If any of the risks actually occurs, our business, financial condition or results of operations could be negatively affected.

 

Risks Relating to This Offering

 

Increased leverage as a result of this offering may harm our financial condition and results of operations.

 

As of September 30, 2013 (after taking into account any payments under the JMPG LLC credit agreement that day), our total indebtedness was approximately $63.2 million, which consisted of $46 million in principal amount of senior notes and term loan borrowings of $17.2 million by JMPG LLC under its credit facility. This does not include asset-backed securities of CLO I and CLO II and indebtedness of HGC II, which are consolidated in our financial statements, together with the loans collateralizing the asset-backed securities of CLO I and CLO II, for financial reporting purposes, even though CLO I, CLO II and HGCII are bankruptcy remote entities with no recourse to us. During the fourth quarter of 2013, the outstanding balance of $2.2 million of a term loan borrowed by JMPG LLC was repaid in full. Our level of indebtedness could have important consequences to you, because:

 

●

it could affect our ability to satisfy our financial obligations, including those relating to the notes;

 

●

a substantial portion of our cash flows from operations will have to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;

 

●

it may impair our ability to obtain additional financing in the future;

 

●

it may limit our ability to refinance all or a portion of our indebtedness on or before maturity;

 

●

it may limit our flexibility in planning for, or reacting to, changes in our business and industry; and

 

●

it may make us more vulnerable to downturns in our business, our industry or the economy in general.

 

Our operations may not generate sufficient cash to enable us to service our debt. If we fail to make a payment on the notes or fail to maintain a minimum level of liquidity, we could be in default on the notes, and this default could cause us to be in default on our other outstanding indebtedness. Conversely, a default on our other outstanding indebtedness may cause a default under the notes. In addition, we may incur additional indebtedness in the future, and, as a result, the related risks that we now face, including those described above, could intensify. A default, if not waived, could result in acceleration of the debt outstanding under the related agreement. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us. The indenture for the notes will not restrict our ability to incur additional indebtedness.

 

The notes are our obligations and not obligations of our subsidiaries and will be effectively subordinated to the claims of our subsidiaries’ creditors.

 

The notes are exclusively our obligations and not those of our subsidiaries. We are a holding company and, accordingly, substantially all of our operations are conducted through our subsidiaries. As a result, our cash flow and our ability to service our debt, including the notes, depend upon the earnings of our subsidiaries. In addition, we depend on the distribution of earnings, loans or other payments by our subsidiaries to us. Our subsidiaries are separate and distinct legal entities. Our subsidiaries have no obligation to pay any amounts due on the notes or to provide us with funds to pay our obligations, whether by dividends, distributions, loans or other payments. In addition, any payment of dividends, distributions, loans or advances by our subsidiaries to us would be subject to regulatory or contractual restrictions. For instance, if JMP Group LLC, our wholly owned subsidiary and the parent company of our other subsidiaries, fails to meet a financial covenant or otherwise defaults under the terms of its existing credit agreement, it will not be permitted to pay any dividends or make any other distributions to us. See “Description of Certain Indebtedness” in this prospectus supplement. Payments to us by our subsidiaries also will be contingent upon our subsidiaries’ earnings and business considerations.

 

 

Our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization, and, therefore, the right of the holders of the notes to participate in those assets, will be effectively subordinated to the claims of those subsidiaries’ creditors, including senior and subordinated debtholders and general trade creditors. As of September 30, 2013 (after taking into account any payments under the JMPG LLC credit agreement that day), none of our subsidiaries had any indebtedness outstanding, except for $17.2 million of term loan borrowings by JMPG LLC under its credit facility (excluding the indebtedness of CLO I, CLO II and HGC II, which are consolidated in our financial statements, together with the loans collateralizing the indebtedness in the case of CLO I and CLO II, for financial reporting purposes). In addition, even if we were a creditor of any of our subsidiaries, our rights as a creditor would be subordinate to any security interest in the assets of those subsidiaries and any indebtedness of those subsidiaries senior to that held by us. During the fourth quarter of 2013, the outstanding balance of $2.2 million of a term loan borrowed by JMPG LLC was repaid in full.

 

We have made only limited covenants in the indenture governing the notes, and these limited covenants may not protect your investment.

 

The indenture governing the notes does not:

 

●

require us to maintain any financial ratios or specific levels of net worth, revenues, income or cash flows and, accordingly, does not protect holders of the notes in the event that we experience significant adverse changes in our financial condition or results of operations;

 

●

limit our subsidiaries’ ability to incur indebtedness which would effectively rank senior to the notes;

 

●

limit our ability to incur secured indebtedness or indebtedness that is equal in right of payment to the notes;

 

●

restrict our subsidiaries’ ability to issue securities that would be senior to the common stock of our subsidiaries held by us;

 

●

restrict our ability to repurchase our securities;

 

●

restrict our ability to pledge our assets or those of our subsidiaries; or

 

●

restrict our ability to make investments or to pay dividends or make other payments in respect of our common stock or other securities ranking junior to the notes.

 

Furthermore, the indenture for the notes contains only limited protections in the event of a change in control and does not require us to repurchase the notes upon a change of control. We could engage in many types of transactions, such as acquisitions, refinancings or recapitalizations that could substantially affect our capital structure and the value of the notes. For these reasons, you should not consider the covenants in the indenture or the repurchase features of the notes as a significant factor in evaluating whether to invest in the notes.

 

We may redeem the notes before maturity, and you may be unable to reinvest the proceeds at the same or a higher rate of return.

 

We may redeem all or a portion of the notes at any time on or after January     , 2017. The redemption price will equal the principal amount being redeemed, plus accrued and unpaid interest to the redemption date. See “Description of the Notes—Optional Redemption.” If a redemption does occur, you may be unable to reinvest the money you receive in the redemption at a rate that is equal to or higher than the rate of return on the notes.

 

 

 

 

If an active trading market does not develop for the notes, you may be unable to sell your notes or to sell your notes at a price that you deem sufficient.

 

The notes are a new issue of securities for which there is currently no public market. Although we intend to apply to list the notes on the NYSE, we cannot assure you that the notes will be approved for listing. The notes have not been approved for listing as of the date of this prospectus supplement. We have been informed by the underwriters that they intend, but are not obligated, to make a market for the notes should the notes not be approved for listing. If such a market were to develop, on the NYSE or otherwise, the notes could trade at prices which may be higher or lower than the initial offering price depending on many factors independent of our creditworthiness, including, among other things:

 

●

the time remaining to the maturity of the notes;

 

●

their subordination to the existing and future liabilities of our company and our subsidiaries;

 

●

the outstanding principal amount of the notes; and

 

●

the level, direction and volatility of market interest rates generally.

 

The notes will not be rated and we do not intend to seek a rating for the notes.

 

We do not intend to have the notes rated by any rating agency. Unrated securities usually trade at a discount to similar rated securities. As a result, there is a risk that the notes may trade at a price that is lower than they might otherwise trade if rated by a rating agency. It is possible, however, that one or more rating agencies might independently determine to assign a rating to the notes. In addition, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to the notes in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the notes.

 

 

 

 

SELECTED HISTORICAL FINANCIAL INFORMATION

 

The summary historical financial information is derived from our audited consolidated financial statements as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010, which are incorporated by reference into this prospectus supplement, and our audited financial statements as of December 31, 2010, 2009 and 2008 and for the years ended December 31, 2009 and 2008, which are not incorporated by reference into this prospectus supplement. The summary historical financial information for the nine months ended September 30, 2013 and 2012, and the historical balance sheet data as of September 30, 2013, have been derived from our unaudited condensed consolidated financial statements incorporated by reference into this prospectus supplement and should be read in conjunction with those unaudited consolidated financial statements and notes thereto. In the opinion of management, the interim financial information provided herein reflects all adjustments (consisting of normal and recurring adjustments) necessary for a fair statement of the data for the periods presented. Interim results are not necessarily indicative of the results to be expected for the entire fiscal year.

 

When you read this historical consolidated financial information, it is important that you also read the historical consolidated financial statements and related notes, as well as the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included in our Annual Report on Form 10-K for the year ended December 31, 2012, and the unaudited consolidated financial statements and related notes, as well as the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013, which are incorporated by reference into this prospectus supplement and the accompanying prospectus. See “Where You Can Find Additional Information.”

 

 

 

 

		Nine Months Ended September 30,								Year Ended December 31,
		2013				2012				2012				2011				2010				2009				2008
(In thousands, except per share data)
		(unaudited)								(audited)
Revenues:
Investment banking		$	52,301			$	38,010			$	50,982			$	46,114			$	45,577			$	39,924			$	27,249
Brokerage			17,924				16,275				21,903				25,461				28,259				34,004				35,731
Asset management fees			15,606				10,721				15,775				19,785				12,231				20,148				11,369
Principal transactions			4,849				12,309				10,537				1,615				3,421				18,517				(4,657	)
Gain on sale and payoff of loans			1,591				3,016				7,255				16,997				39,363				22,268				—
Gain on repurchase of asset-backed securities issued			—				—				—				—				—				4,705				—
Gain on bargain purchase			—				—				—				—				—				1,179				—
Net dividend income			290				(25	)			(29	)			1,365				2,248				2,521				3,174
Other income			581				3,507				3,800				4,336				3,466				2,593				1,158
Non-interest revenues			93,142				83,813				110,223				115,673				134,565				145,859				74,024
Interest income			24,603				24,051				32,898				33,356				45,162				35,370				2,392
Interest expense			(25,825	)			(29,573	)			(39,993	)			(35,747	)			(33,687	)			(25,924	)			(408	)
Net interest income (expense)			(1,222	)			(5,522	)			(7,095	)			(2,391	)			11,475				9,446				1,984
Provision for loan losses			(2,391	)			(1,135	)			(2,206	)			(1,728	)			(1,327	)			(5,821	)			(2,896	)
Total net revenues after provision for loan losses			89,529				77,156				100,922				111,554				144,713				149,484				73,112
Non-interest expenses:
Compensation and benefits			69,066				55,833				66,415				89,017				95,708				105,179				65,746
Administration			7,255				4,604				6,186				6,649				5,752				5,050				5,887
Brokerage, clearing and exchange fees			2,851				2,656				3,806				4,735				5,110				5,284				5,063
Travel and business development			2,991				2,435				3,387				3,681				3,447				2,396				3,472
Communications and technology			2,592				2,642				3,503				3,988				3,969				3,892				3,837
Occupancy			2,434				2,352			3,157					2,927				2,666				2,448				1,905
Professional fees			2,468				2,324				3,630				2,955				3,080				3,589				3,065
Depreciation			695				642				884				721				635				746				963
Impairment loss on purchased management contract			—				—				—				700				2,750				—				—
Other			649				282				420				426				611				555				20
Total non-interest expenses			91,001				73,770				91,388				115,799				123,728				129,139				89,958
Net income (loss) before income tax expense			(1,472	)			3,386				9,534				(4,245	)			20,985				20,345				(16,846	)
Income tax expense (benefit)			178				(1,423	)			1,581				(1,632	)			8,577				7,663				(5,701	)
Net income (loss)			1,650				4,809				7,953				(2,613	)			12,408				12,682				(11,145	)
Less: Net income (loss) attributable to nonredeemable non-controlling interest			(1,785	)			7,380				5,196				(157	)			2,805				1,872				(498	)
Net income (loss) attributable to JMP Group Inc.		$	135			$	(2,571	)		$	2,757			$	(2,456	)		$	9,603			$	10,810			$	(10,647	)
Net income (loss) attributable to JMP Group Inc. per common share:
Basic		$	0.01			$	(0.11	)			0.12			$	(0.11	)		$	0.44			$	0.52			$	(0.53	)
Diluted		$	0.01			$	(0.11	)			0.12			$	(0.11	)		$	0.43			$	0.49			$	(0.53	)
Dividends declared per common share		$	0.105			$	0.100				0.135			$	0.105			$	0.055			$	0.040			$	0.200
Weighted average common shares outstanding:
Basic			22,271				22,564				22,582				22,118				21,646				20,791				20,211
Diluted			22,669				22,564				22,906				22,118				22,396				22,137				20,211

 

 

USE OF PROCEEDS

 

We estimate that the net proceeds from this offering will be approximately $           after discounts, commissions and expenses related to this offering. The net proceeds from this offering will be used for general corporate purposes.

 

RATIO OF EARNINGS TO FIXED CHARGES

 

The following table sets forth our consolidated ratio of earnings to fixed charges for the periods indicated. For purposes of determining the ratio of earnings to fixed charges, “earnings” are defined as earnings from continuing operations before income taxes, and cumulative effect of a change in accounting principle adjusted to exclude income or loss from equity investees and noncontrolling interest in pre-tax income (loss) of subsidiaries that did not have fixed charges. “Fixed charges” consist of interest expense primarily related to borrowings under our credit facility and interest expense paid to the note holders in CLO I, the assets and liabilities of which are consolidated in our financial statements.

 

		Nine Months Ended September 30,				Year Ended December 31,
		2013				2012				2011				2010					2009					2008
Pre-tax income (loss) from continuing operations adjusted to exclude income or loss from equity investees and noncontrolling interest in pre-tax income (loss) of subsidiaries with no fixed charges		$	(984,537	)		$	4,751,211			$	(4,347,917	)		$	18,589,575				$	12,265,841				$	(18,553,476	)
Fixed charges:
Interest expense on all indebtedness		$	25,825,599				39,993,216			$	35,747,267			$	33,687,462				$	25,924,278				$	402,733
Pre-tax income (loss) from continuing operations adjusted to exclude income or loss from equity investees and noncontrolling interest in pre-tax income (loss) of subsidiaries with no fixed charges, plus fixed charges		$	24,841,062			$	44,744,427			$	31,399,349			$	52,277,037				$	38,190,119				$	(18,150,743	)
Ratio of earnings to fixed charges		0.96x				1.12x					0.88				1.55		x			1.47		x			—	(1)

 

___________________________

(1) Pre-tax income (loss) from continuing operations adjusted to exclude income or loss from equity investees for the year ended December 31, 2008 was inadequate to cover fixed charges. We would have needed additional pre-tax income from continuing operations of $18,553,476 to achieve coverage of 1:1 in this period.

 

 

 

Adjusted Ratio Of Operating Earnings To Fixed Charges

 

 In addition to the GAAP financial information presented in this prospectus supplement, JMP Group presents an adjusted ratio of operating earnings to fixed charges, which is a non-GAAP financial measure. The non-GAAP financial measures presented should not be considered as substitutes for measures that are presented in a manner consistent with GAAP. Certain of the adjustments in adjusted operating pre-tax net income and adjusted fixed charges concern gains, losses or expenses that we expect to continue to recognize and the adjustment of these items should not be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring. Therefore, we believe that both our GAAP measures and non-GAAP measures should be considered together. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies.

 

		Nine Months Ended September 30,				Year Ended December 31,
		2013				2012				2011				2010				2009				2008
		(dollars in thousands)
Adjusted operating pre-tax net income (loss) adjusted to exclude income or loss from equity investees and noncontrolling interest in operating net income (loss) of subsidiaries with no fixed charges		$	14,213			$	28,916			$	29,254			$	35,290			$	17,278			$	(151	)
Adjusted Fixed charges:
Interest expense on all indebtedness excluding amortization of liquidity discounts on asset-backed securities issued		$	10,278			$	6,094			$	5,513			$	6,692			$	6,525			$	403
Adjusted operating pre-tax net income (loss) adjusted to exclude income or loss from equity investees and noncontrolling interest in pre-tax income (loss) of subsidiaries with no fixed charges, plus adjusted fixed charges		$	24,491			$	35,010			$	34,767			$	41,982			$	23,803			$	252
Adjusted ratio of operating earnings to fixed charges			2.38	x			5.74	x			6.31	x			6.27	x			3.65	x			0.63	x

 

 

Adjusted Operating Pre-Tax Net Income

 

Adjusted operating pre-tax net income is a non-GAAP financial measure that (i) reverses stock-based compensation expense related to equity awards granted in prior periods, (ii) adjusts for net deferred compensation in 2012 and 2013 (which shows compensation expense in the year in which it was earned, versus the year in which it was recognized as a GAAP expense), (iii) excludes the net amortization of liquidity discounts on loans held and asset-backed securities issued by JMP Credit Advisors CLO I, (iv) adjusts for expenses relating to HCAP initial public offering in 2013, (v) reverses unrealized mark-to-market gains or losses on the investment portfolio at HCAP as well as the reversal of previously recorded loan loss provisions, (vi) reverses net unrealized gains and losses on strategic equity investments and warrants, (vii) reverses the general loan loss provision associated with the loan portfolio of JMP Credit Advisors CLO II, (viii) excludes amortization expense related to an intangible asset, and (ix) excludes a bargain purchase gain resulting from the acquisition of Cratos Capital Partners by JMP Credit Corporation. Adjusted operating pre-tax and adjusted operating net income are different measures than operating net income and adjusted operating net income that we report in our quarterly earnings releases.

  

Adjusted Fixed Charges

 

Adjusted fixed charges is a non-GAAP financial measure that excludes from our interest expense on all indebtedness the amortization of liquidity discounts on asset-backed securities issued by JMP Credit Corporation, which is a non-cash expense that is included as an interest expense on our income statement.

 

We utilize adjusted operating pre-tax net income and adjusted fixed charges, and the resulting adjusted ratio of operating earnings to fixed charges, as additional devices to aid in understanding and analyzing JMP Group’s financial results for the periods presented. We believe that the adjusted ratio of operating earnings to fixed charges provides useful information by excluding certain items that may not be representative of our core operating results or core business activities. We also believe that the adjusted ratio of operating earnings to fixed charges is a useful measure because it allows for a better evaluation of the performance of JMP Group’s ongoing business and facilitates a meaningful comparison of the company’s results in a given period to those in prior and future periods.

 

 

Reconciliations of JMP Group’s non-GAAP measures for the periods presented are set forth below.

 

		Nine Months Ended September 30,				Year Ended December 31,
		2013				2012				2011				2010				2009				2008
		(dollars in thousands)
Pre-tax income (loss) from continuing operations adjusted to exclude income or loss from equity investees and noncontrolling interest in pre-tax income (loss) of subsidiaries with no fixed charges		$	(985	)		$	4,751				(4,348	)		$	18,590			$	12,266			$	(18,553	)
Add back (subtract):
Compensation expense - IPO RSUs			—				—				778				2,576				3,161				3,900
Compensation expense - post-IPO RSUs			2,019				2,492				9,526				4,998				6,582				7,181
Compensation expense - stock option			658				—				—				—				—				—
Accounting adjustment – deferred compensation			(3,547	)			(6,985	)			—				—				—				—
Net amortization of liquidity discounts on loans and asset-backed securities issued			14,979				29,208				23,522				9,783				2,130				—
IPO related expense – Harvest Capital Credit			—				(450	)			—				—				—				—
Unrealized mark-to-market (gain) loss - Harvest Capital Credit			610				(626	)			17				—				—				—
Unrealized (gain) loss on strategic equity investments and warrants			(617	)			527				(441	)			(757	)			(5,682	)			7,321
Loan loss provision - JMP Credit Advisors CLO II			1,095				—				—				—				—				—
Amortization of intangible asset			—				—				200				100				—				—
Gain on bargain purchase			—				—				—				—				(1,179	)			—
Adjusted operating pre-tax net income (loss) adjusted to exclude income or loss from equity investees and noncontrolling interest in operating net income (loss) of subsidiaries with no fixed charges		$	14,212			$	28,917			$	29,254			$	35,290			$	17,277			$	(152	)
Fixed charges:
Interest expense on all indebtedness		$	25,826			$	39,993			$	35,747			$	33,687			$	25,924			$	403
Subtract:
Amortization of liquidity discounts on asset-backed securities issued			(15,548	)			(33,899	)			(30,234	)			(26,995	)			(19,399	)			—
Adjusted fixed charges		$	10,278			$	6,094			$	5,513			$	6,692			$	6,525			$	403

 

 

 

 

CAPITALIZATION

 

The following table sets forth our capitalization as of September 30, 2013:

 

●

On an actual basis; and

 

●

On an as adjusted basis to give effect to this offering as if it occurred on that date.

 

You should read the data set forth in the table below in conjunction with “Use of Proceeds” and “Selected Historical Financial Information,” appearing elsewhere in this prospectus supplement, as well as our unaudited financial statements and the accompanying notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated in this prospectus supplement and the accompanying prospectus.

 

		September 30, 2013
(In thousands)		Actual				As adjusted
Cash and cash equivalents		$	55,740			$
Restricted cash and deposits (includes cash on deposit with clearing broker of $150)		$	84,788			$
Liabilities:
Marketable securities sold, but not yet purchased, at fair value		$	15,397			$
Accrued compensation			34,459
Asset-backed securities issued			722,279
Interest payable			4,417
Note payable			17,184
Bond Payable			46,000
% senior notes due 2021 offered hereby			—
Deferred tax liability			3,095
Other liabilities			22,278
Total liabilities			865,109
Redeemable non-controlling interest			—
JMP Group Inc. stockholders’ equity
Common stock, $0.001 par value, 100,000,000 shares authorized; 22,780,052 shares issued and 21,961,227 shares outstanding		$	23			$
Additional paid-in capital			131,548
Treasury stock, at cost, 818,825 shares			(5,124	)
Accumulated other comprehensive loss			(14	)
Accumulated deficit			(2,693	)
Total JMP Group Inc. stockholders' equity			123,740
Nonredeemable non-controlling interest			94,471
Total equity			218,211
Total liabilities and equity		$	1,083,320			$

 

 

 

 

DESCRIPTION OF CERTAIN INDEBTEDNESS

 

The following is a summary description of the Credit Agreement entered into on August 3, 2006 by and between JMP Group LLC, our wholly-owned subsidiary (“JMPG LLC”), and City National Bank (“CNB”), as amended and restated as of October 11, 2012 (as so amended and restated, the “Credit Agreement”). For further detail on the Credit Agreement, see Note 6 to our consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, which is incorporated by reference herein, and a copy of the Credit Agreement filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 and the amendment thereto filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

 

As of September 30, 2013 (after taking into account any payments under the Credit Agreement that day), JMPG LLC’s total consolidated indebtedness under the Credit Agreement was $17.2 million, comprised of $15.0 million and $2.2 million of outstanding indebtedness under JMPG LLC’s Term Loan B (as defined below), and Initial Term Loan (as defined below) respectively.

 

During the fourth quarter of 2013, the outstanding balance of $2.2 million of a term loan borrowed by JMPG LLC was repaid in full (the “Initial Term Loan”).

 

The revolving line of credit (the “Revolving Line of Credit”) under the Credit Agreement has a maximum principal balance of the lesser of (i) $30.0 million, and (ii) $58.5 million minus (a) the principal amount of the Term Loan B (as defined below), and (b) the principal amount of the Broker/Dealer Line of Credit (as defined below) then outstanding. Under the Credit Agreement, CNB has agreed to issue certain letters of credit in an amount not exceeding $2.5 million, the stated amounts of which will be a reduction to the availability of the Revolving Line of Credit, and drawings thereunder may be converted into drawings under the Revolving Line of Credit. The Revolving Line of Credit will be available until April 30, 2014. On such date, the aggregate outstanding amount converts into a term loan (the “Converted Term Loan”). The Converted Term Loan will be repaid in 14 quarterly installments, commencing on June 1, 2014. The first seven of the quarterly installments will be equal to 3.75 % of such term loan and the second seven of the quarterly installments will be equal to 5.00% of such term loan, with the remainder due at maturity on August 24, 2017.

 

In addition, under the Credit Agreement and subject to the terms and conditions therein, on April 25, 2013, CNB extended a $15.0 million term loan (the “Term Loan B” and, together with the Revolving Line of Credit and the Converted Term Loan, the “CNB Loans”) to JMPG LLC. The outstanding balance on the Term Loan B was $15.0 million as of September 30, 2013. The Term Loan B will be repaid in quarterly installments of approximately $1.2 million beginning March 31, 2014 and continuing through September 30, 2016, with a final payment of approximately $1.3 million on December 31, 2016.

 

The Credit Agreement provides that the proceeds of the CNB Loans are subject to the following restrictions: (i) the Initial Term Loan and up to $5.0 million of the Revolving Line of Credit Loans may not be used for any purpose other than to fund Permitted Investments (as defined therein), to fund Permitted Acquisitions (as defined therein) and to fund JMPG LLC’s working capital needs in the ordinary course of its business; (ii) all other proceeds of the Revolving Line of Credit may not be used for any purpose other than to make investments in HCS and by HCS to make investments in loans that are made to persons that are not affiliates of borrower; and (iii) the Term Loan B may not be used for any purpose other than to make equity investments in CLO I and by CLO I to make Permitted Investments in collateralized loan obligations.

 

The Credit Agreement includes minimum fixed charge and interest charge coverage ratios applicable to us and our subsidiaries, a minimum net worth covenant applicable to us and our subsidiaries and a minimum liquidity covenant applicable to JMPG LLC and its subsidiaries. Based on unaudited results from the quarter ended September 30, 2013, JMPG LLC was in compliance with all of these financial covenants. The Credit Agreement also includes an event of default for a “change of control” that tests, in part, the composition of our ownership and an event of default if two or more of Joseph A. Jolson, Carter Mack, Craig Johnson and Mark Lehmann fail to be involved actively on an ongoing basis in the management of JMPG LLC or any of its subsidiaries.

 

The CNB Loans are guaranteed by HCS and secured by a lien on substantially all assets of JMPG LLC and HCS.

 

 

 

Separately, under a Revolving Note and Cash Subordination Agreement, dated as of April 8, 2011, by and between CNB and JMP Securities, as amended, JMP Securities has a subordinated revolving line of credit with CNB (the “Broker/Deal Line of Credit”). Draws on the Broker/Deal Line of Credit bear interest at the rate of prime. The maximum principal amount of the Broker/Deal Line of Credit is $20.0 million at any one time. The Broker/Deal Line of Credit matures on October 11, 2014. There were no borrowings on this line of credit as of September 30, 2013. JMPG LLC has guaranteed the obligations under the Broker/Deal Line of Credit pursuant to a General Continuing Guaranty dated as of April 8, 2011. Furthermore, if any of the Broker/Deal Line of Credit remains outstanding for more than 30 days, an event of default will occur under the Credit Agreement.

 

In January 2013, the Company completed an underwritten public offering of $46.0 million aggregate principal amount of 8.00% senior notes (“Senior Notes”). The Senior Notes will mature on January 15, 2023, and may be redeemed in whole or in part at any time or from time to time at the Company's option on or after January 15, 2016, on not less than 30 or more than 60 days' prior notice mailed to the holders of the Senior Notes. The Senior Notes will be redeemable at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The Senior Notes bear interest at a rate of 8.00% per year, payable quarterly on January 15, April 15, July 15 and October 15 of each year, beginning on April 15, 2013. The Senior Notes are listed on the NYSE and trade under the symbol “JMPB.”

 

The Senior Notes were issued pursuant to an indenture with U.S. Bank National Association, as trustee. The indenture contains a minimum liquidity covenant that obligates the Company to maintain liquidity of at least an amount equal to the lesser of (i) the aggregate amount due on the next eight scheduled quarterly interest payments on the Senior Notes, or (ii) the aggregate amount due on all remaining scheduled quarterly interest payments on the Senior Notes until the maturity of the Senior Notes. The indenture also contains customary events of default and cure provisions. If an uncured default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Senior Notes may declare the Senior Notes immediately due and payable.

 

 

DESCRIPTION OF NOTES

 

We will issue the notes under an Indenture dated as of January 25, 2013, between JMP Group Inc. and U.S. Bank National Association, as trustee (the “trustee”), as supplemented by the First Supplemental Indenture, dated as of January 25, 2013, and the Second Supplemental Indenture to be dated as of January     , 2014. The Indenture, as supplemented by the First Supplemental Indenture and the Second Supplemental Indenture, is referred to herein as the “indenture.” The terms of the notes include those expressly set forth in the indenture and those made a part of the indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).

 

This description of notes is intended to be an overview of the material provisions of the notes and is intended to supplement, and to the extent of any inconsistency replace, the description of the general terms and provisions of the debt securities set forth in the accompanying prospectus, to which we refer you. The following summary of the terms of the notes and the indenture does not purport to be complete and is subject, and qualified in its entirety by reference, to the detailed provisions of the notes and the indenture, including the definitions of certain terms used in the indenture. You may request a copy of the indenture from us as described under “Where You Can Find More Information” in the accompanying prospectus. Those documents, and not this description, define your legal rights as a holder of the notes. The following description supplements, and supersedes to the extent it is inconsistent with, the statements under “Description of the Securities” in the accompanying prospectus.

 

For purposes of this description, the terms “JMP,” “Company,” “we,” “us” and “our” refer only to JMP Group Inc. and not to any of its subsidiaries, unless we specify otherwise.

 

General

 

The notes will be issued in an initial principal amount of $     million ($     million if the underwriters’ over-allotment option is exercised in full). We may, without the consent of holders of the notes, increase the principal amount of the notes by issuing additional notes in the future on the same terms and conditions, except for any difference in the issue price and interest accrued prior to the issue date of the additional notes, and with the same CUSIP number as the notes offered hereby, provided that such additional notes are fungible with the notes offered hereby for U.S. federal income tax purposes. The notes offered by this prospectus supplement and any additional notes would rank equally and ratably and would be treated as a single series of notes for all purposes under the indenture.

 

The notes will be issued only in fully registered, book-entry form, in denominations of $25 and integral multiples thereof, except under the limited circumstances described below under “— Certificated Securities” in this prospectus supplement.

 

The indenture does not contain any provisions that would necessarily protect holders of notes if we become involved in a highly leveraged transaction, reorganization, merger or other similar transaction that adversely affects us or them.

 

Optional Redemption

 

We may, at our option, at any time and from time to time, on or after January     , 2017, redeem the notes in whole or in part on not less than 30 nor more than 60 days’ prior notice mailed to the holders of the notes. The notes will be redeemable at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest to the date of redemption.

 

On and after any redemption date, interest will cease to accrue on the notes called for redemption. On or prior to any redemption date, we are required to deposit with a paying agent money sufficient to pay the redemption price of and accrued interest on the notes to be redeemed on such date. If we are redeeming less than all of the notes, the trustee under the indenture must select the notes to be redeemed by such method as the trustee deems fair and appropriate in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances.

 

 

Listing

 

We intend to apply to list the notes on the NYSE. We expect trading in the notes to begin within 30 days of the original issue date.

 

Interest

 

Interest on the notes will accrue at the rate of     % per year from and including January     , 2014 or the most recent interest payment date to which interest has been paid, and will be payable quarterly in arrears on each January 15, April 15, July 15 and October 15 of each year, commencing on April 15, 2014. We will pay interest to those persons who were holders of record of such notes on the first day of the month corresponding to an interest payment date: January 1, April 1, July 1 and October 1, the record date preceding each interest payment date. Interest on the notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. We will not provide a sinking fund for the notes.

 

If any interest payment date or the stated maturity date is not a business day, the payment otherwise required to be made on such date will be made on the next business day without any additional payment as a result of such delay. The term “business day” means, with respect to any note, any day, other than a Saturday, Sunday or any other day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. All payments will be made in U.S. dollars.

 

Ranking

 

The notes will be our general unsecured senior obligations that rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the notes. The notes will rank equally with all our other unsecured senior indebtedness. The notes will be effectively subordinated to any of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. The notes will also be effectively subordinated to all liabilities, including trade payables and lease obligations, of our subsidiaries. Any right by us to receive the assets of any of our subsidiaries upon a liquidation or reorganization of that subsidiary, and the consequent right of the holders of the notes to participate in those assets, will be effectively subordinated to the claims of that subsidiary’s creditors, except to the extent that we are recognized as a creditor of such subsidiary, in which case our claims would still be subordinated to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary that is senior to that held by us.

 

Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on the notes or to make any funds available for payment on the notes, whether by dividends, loans or other payments. In addition, the payment of dividends and the making of loans and advances to us by our subsidiaries may be subject to statutory, contractual or other restrictions, may depend on the earnings or financial condition of our subsidiaries and are subject to various business considerations. As a result, we may be unable to gain significant, if any, access to the cash flow or assets of our subsidiaries.

 

The indenture does not limit the amount of additional indebtedness, including senior or secured indebtedness, which we can create, incur, assume or guarantee, nor does the indenture limit the amount of indebtedness or other liabilities that our subsidiaries can create, incur, assume or guarantee. As of September 30, 2013, we had indebtedness consisting of $46 million in principal amount of senior notes, and our subsidiaries had $17.2 million of total indebtedness, which consisted of term loan borrowings of $17.2 million by JMPG LLC under its credit facility. Indebtedness of our subsidiaries does not include asset-backed securities of CLO I and CLO II and indebtedness of HGC II, which are consolidated in our financial statements, together with the loans collateralizing such securities of CLO I and CLO II, for financial reporting purposes, even though CLO I, CLO II and HGC II are bankruptcy remote entities with no recourse to us. During the fourth quarter of 2013, the outstanding balance of $2.2 million of a term loan borrowed by JMPG LLC was repaid in full.

 

Maturity

 

The notes will mature on January     , 2021.

 

 

Certain Covenants

 

Payment of Principal, Interest or Additional Amounts.  The Company will duly and punctually pay the principal of and interest on or any additional amounts payable with respect to, the notes in accordance with their terms.

 

Maintenance of Office or Agency.  The Company will be required to maintain an office or agency in each place of payment for the notes for notice and demand purposes and for the purposes of presenting or surrendering notes for payment, registration of transfer, or exchange.

 

Reports.  So long as any notes are outstanding under the indenture, the Company will file with the trustee, within 30 days after the Company has filed the same with the SEC, unless such reports are available on the SEC’s EDGAR filing system (or any successor thereto), copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may from time to time by rules and regulations prescribe) which the Company may be required to file with the SEC pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the trustee and the SEC, in accordance with rules and regulations prescribed from time to time by the SEC, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations.

 

Minimum Liquidity

 

So long as any of the notes are outstanding, as of the last business day of each fiscal quarter, the Company will have Liquidity of at least an amount equal to the lesser of (i) the aggregate amount due on the next eight scheduled quarterly interest payments on the notes or (ii) the aggregate amount due on all remaining scheduled quarterly interest payments on the notes until the maturity of the notes. The Company shall have the right to cure any failure to satisfy such minimum liquidity requirement in accordance with the fourth bullet point of the first paragraph of “—Events of Default, Notice and Waiver” below.

 

For the purposes of this covenant, certain terms are defined as follows:

 

“Liquidity” means, as of any date of determination, the sum of (a) all unencumbered cash, Cash Equivalents and Marketable Securities directly held by the Company and (b) any unencumbered investments made directly by the Company in funds that are managed by the Company or any of its subsidiaries and which invest primarily in cash, Cash Equivalents and Marketable Securities, so long as the Company may withdraw such investments in immediately available funds upon 30 days or less prior notice.  For purposes of determining the amount of Liquidity, the value any asset described in clauses (a) and (b) above is deemed to be equal to the fair market value thereof as determined by senior management of the Company in good faith.

 

“Cash Equivalents” means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit or bankers’ acceptances maturing within 1 year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000, (e) demand deposit accounts maintained with (i) City National Bank or (ii) any bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $1,000,000,000, and (f) shares of money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (e) above.

 

“Marketable Securities” means any equity securities listed on a securities exchange that has registered with the SEC under Section 6 of the Exchange Act.

  

 

Consolidation, Merger and Sale of Assets

 

The indenture provides that the Company may not directly or indirectly consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets and properties and the assets and properties of its subsidiaries (taken as a whole) to another person in one or more related transactions unless the successor person is a person organized under the laws of any domestic jurisdiction and assumes the Company’s obligations on the notes, and under the indenture, and after giving effect thereto no event of default, and no event that, after notice or lapse of time or both, would become an event of default, shall have occurred and be continuing, and that certain other conditions are met.

 

Events of Default, Notice and Waiver

 

The following are events of default under the indenture:

 

●

failure by us to pay the principal of on any note when due, whether at maturity, upon redemption or otherwise;

 

●

failure by us to pay an installment of interest on any note when due, if the failure continues for 30 days after the date when due;

 

●

failure by us to comply with our obligations under “—Consolidation, Merger and Sale of Assets” above;

 

●

failure by us to comply with any other term, covenant or agreement contained in the notes or the indenture, if the failure is not cured within 60 days after notice to us by the trustee or to the trustee and us by holders of at least 25% in aggregate principal amount of the notes then outstanding, in accordance with the indenture;

 

●

a default by us or any of our significant subsidiaries in the payment when due, after the expiration of any applicable grace period, of principal of or interest on, indebtedness for money borrowed in the aggregate principal amount then outstanding of $10.0 million or more, or acceleration of our or our significant subsidiaries’ indebtedness for money borrowed in such aggregate principal amount or more so that it becomes due and payable before the date on which it would otherwise have become due and payable;

 

●

failure by us or any of our significant subsidiaries, within 30 days, to pay, bond or otherwise discharge any final, non-appealable judgments or orders for the payment of money the total uninsured amount of which for us or any of our significant subsidiaries exceeds $10.0 million, which are not stayed on appeal; and

 

●

certain events of bankruptcy, insolvency or reorganization with respect to us or any of our subsidiaries that is a “significant subsidiary” (as defined in Regulation S-X under the Exchange Act) or any group of our subsidiaries that in the aggregate would constitute a “significant subsidiary.”

 

If an event of default, other than an event of default referred to in the last bullet point above with respect to us (but including an event of default referred to in that bullet point solely with respect to a significant subsidiary, or group of subsidiaries that in the aggregate would constitute a significant subsidiary, of ours), has occurred and is continuing, either the trustee, by notice to us, or the holders of at least 25% in aggregate principal amount of the notes then outstanding, by notice to us and the trustee, may declare the principal of, and any accrued and unpaid interest on, all notes to be immediately due and payable. In the case of an event of default referred to in the last bullet point above with respect to us (and not solely with respect to a significant subsidiary, or group of subsidiaries that in the aggregate would constitute a significant subsidiary, of ours), the principal of, and accrued and unpaid interest on, all notes will automatically become immediately due and payable.

 

 

Notwithstanding the paragraph above, for the first 360 days immediately following an event of default relating to(i) our failure to file with the trustee pursuant to Section 314(a)(1) of the Trust Indenture Act any documents or reports that we are required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or (ii) our failure to comply with our reporting obligations to the trustee set forth under the heading “—Certain Covenants—Reports” above, the sole remedy for any such event of default shall be the accrual of additional interest on the notes at a rate per annum equal to (i) 0.25% of the outstanding principal amount of the notes for the first 180 days following the occurrence of such event of default and (ii) 0.50% of the outstanding principal amount of the notes for the next 180 days after the first 180 days following the occurrence of such event of default, in each case, payable quarterly at the same time and in the same manner as regular interest on the notes. This additional interest will accrue on all outstanding notes from, and including the date on which such event of default first occurs to, and including, the 360th day thereafter (or such earlier date on which such event of default shall have been cured or waived). In addition to the accrual of such additional interest, on and after the 360th day immediately following an event of default relating to such reporting obligations, either the trustee or the holders of not less than 25% in aggregate principal amount of the notes then outstanding may declare the principal amount of the notes and any accrued and unpaid interest through the date of such declaration, to be immediately due and payable.

 

After any acceleration of the notes, the holders of a majority in aggregate principal amount of the notes by written notice to the trustee, may rescind or annul such acceleration in certain circumstances, if:

 

●

the rescission would not conflict with any order or decree;

 

●

all events of default, other than the non-payment of accelerated principal or interest, have been cured or waived; and

 

●

certain amounts due to the trustee are paid.

 

Except as provided in the indenture, the holders of a majority of the aggregate principal amount of outstanding notes may, by notice to the trustee, waive any past default or event of default and its consequences, other than a default or event of default:

 

●

in the payment of principal of, or interest on, any note; or

 

●

in respect of any provision under the indenture that cannot be modified or amended without the consent of the holders of each outstanding note affected.

  

 

We will promptly notify the trustee upon our becoming aware of the occurrence of any default or event of default. In addition, the indenture requires us to furnish to the trustee, on an annual basis, a statement by our officers stating whether they have actual knowledge of any default or event of default by us in performing any of our obligations under the indenture or the notes and describing any such default or event of default. If a default or event of default has occurred and the trustee has received notice of the default or event of default in accordance with the indenture, except as described in the following sentence, the trustee must mail to each registered holder of notes a notice of the default or event of default within 30 days after receipt of the notice. The trustee need not mail the notice if the default or event of default:

 

●

has been cured or waived; or

 

●

is not in the payment or delivery of any amounts due (including principal or interest) with respect to any note and the trustee in good faith determines that withholding the notice is in the best interests of the holders.

 

Limitation on Suits

 

The indenture limits the right of holders of the notes to institute legal proceedings. No holder will have the right to bring a claim under the indenture unless:

 

●

the holder has previously given written notice to the trustee that an event of default with respect to the notes is continuing;

 

●

the holders of not less than 25% of the aggregate outstanding principal amount of the notes shall have made a written request to the trustee to pursue the claim and furnished the trustee, if requested, security or an indemnity reasonably satisfactory to the trustee against any loss, liability or expense;

 

●

the trustee does not comply within 60 days of receipt of the request and the offer of security or indemnity; and

 

●

during such 60-day period, no direction inconsistent with a request has been given to the trustee by the holders of a majority of the aggregate principal amount of the notes.

 

Subject to the indenture, applicable law and the trustee’s rights to indemnification, the holders of a majority in aggregate principal amount of the outstanding notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee.

 

Discharge, Defeasance and Covenant Defeasance

 

The indenture provides, with respect to the notes, that the Company may satisfy and discharge its obligations under the notes and the indenture if:

 

(a) all notes previously authenticated and delivered, with certain exceptions, have been accepted by the trustee for cancellation; or

 

(b) (i) the notes have become due and payable, or mature within one year, or all of them are to be called for redemption within one year under arrangements satisfactory to the trustee for giving the notice of redemption and the Company irrevocably deposits in trust with the trustee, as trust funds solely for the benefit of the holders of such notes, for that purpose, money or governmental obligations or a combination thereof sufficient (in the opinion of a nationally recognized independent registered public accounting firm expressed in a written certification thereof delivered to the trustee) to pay the entire indebtedness on the notes to maturity or redemption, as the case may be, and pays all other sums payable by it under the indenture; and

 

(ii) the Company delivers to the trustee an officers’ certificate and an opinion of counsel, in each case stating that all conditions precedent provided for in the indenture relating to the satisfaction and discharge of the indenture have been complied with.

 

Notwithstanding such satisfaction and discharge, the obligations of the Company to compensate and indemnify the trustee, to pay additional amounts, if any, in respect of the notes in certain circumstances and the obligations of the Company and the trustee to hold funds in trust and to apply such funds pursuant to the terms of the indenture, with respect to issuing temporary notes, with respect to the registration, transfer and exchange of notes, with respect to the replacement of mutilated, destroyed, lost or stolen notes and with respect to the maintenance of an office or agency for payment, shall in each case survive such satisfaction and discharge.

  

  

Unless inapplicable to the notes pursuant to the terms thereof, the indenture provides that (i) the Company will be deemed to have paid and will be discharged from any and all obligations in respect of the notes, and the provisions of the indenture will, except as noted below, no longer be in effect with respect to the notes (“defeasance”) and (ii) (1) the Company may omit to comply with the covenant under “—Consolidation, Merger and Sale of Assets” and any other additional covenants established pursuant to the terms of the notes, and such omission shall be deemed not to be an event of default under the third or fourth bullet point of the first paragraph of “—Events of Default, Notice and Waiver” and (2) the occurrence of any event described in the fifth bullet point of the first paragraph of “—Events of Default, Notice and Waiver” shall not be deemed to be an event of default, in each case with respect to the outstanding notes ((1) and (2) of this clause (ii), “covenant defeasance”); provided that the following conditions shall have been satisfied with respect to such series:

 

(a) the Company has irrevocably deposited in trust with the trustee as trust funds solely for the benefit of the holders of the notes, for payment of the principal of and interest of the notes, money or government obligations or a combination thereof sufficient (in the opinion of a nationally recognized independent registered public accounting firm expressed in a written certification thereof delivered to the trustee) without consideration of any reinvestment to pay and discharge the principal of and accrued interest on the outstanding notes of such series to maturity or earlier redemption (irrevocably provided for under arrangements satisfactory to the trustee), as the case may be;

 

(b) such defeasance or covenant defeasance will not result in a breach or violation of, or constitute a default under, the indenture or any other material agreement or instrument to which the Company is a party or by which it is bound;

 

(c) no event of default or event which with notice or lapse of time would become an event of default with respect to the notes shall have occurred and be continuing on the date of such deposit;

 

(d) the Company shall have delivered to such trustee an opinion of counsel as described in the indenture to the effect that the holders of the notes will not recognize income, gain or loss for Federal income tax purposes as a result of the Company’s exercise of its option under this provision of the indenture and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance or covenant defeasance had not occurred;

 

(e) the Company has delivered to the trustee an officers’ certificate and an opinion of counsel, in each case stating that all conditions precedent provided for in the indenture relating to the defeasance contemplated have been complied with;

 

(f) if the notes are to be redeemed prior to their maturity, notice of such redemption shall have been duly given or in another manner satisfactory to the trustee; and

 

(g) any such defeasance or covenant defeasance shall comply with any additional or substitute terms provided for by the terms of the notes.

 

Notwithstanding a defeasance or covenant defeasance, the Company’s obligations with respect to the following in respect of the notes will survive with respect to the notes until otherwise terminated or discharged under the terms of the indenture or no notes are outstanding:

 

(a) the rights of holders of outstanding notes to receive payments in respect of the principal of, interest on or additional amounts, if any, payable in respect of, such notes when such payments are due from the trust referred in clause (a) in the preceding paragraph;

 

(b) the issuance of temporary notes, the registration, transfer and exchange of notes, the replacement of mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and holding payments in trust;

 

(c) the rights, powers, trusts, duties and immunities of the trustee, and the Company’s obligations in connection therewith; and

 

(d) the defeasance or covenant defeasance provisions of the indenture.

 

 

 

 

Modification and Waiver

 

The indenture provides that supplements to the indenture and the applicable supplemental indentures may be made by the Company and the trustee for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the indenture or of modifying in any manner the rights of the holders of notes, with the consent of the holders of a majority in principal amount of the outstanding notes; provided that no such supplemental indenture may, without the consent of the holder of each note affected thereby, among other things:

 

(a) change the stated maturity of the principal of, or any interest or additional amounts on, such notes, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest or any additional amounts thereon, or change the redemption provisions or adversely affect the right of repayment at the option of the holder, or change the place of payment or currency in which the principal of or any interest or additional amounts with respect to any note is payable, or impair or affect the right of any holder of notes to institute suit for the payment after such payment is due (except a rescission and annulment of acceleration with respect to the notes by the holders of at least a majority in aggregate principal amount of the then outstanding notes of such series and a waiver of the payment default that resulted from such acceleration);

 

(b) reduce the percentage of outstanding notes, the consent of the holders of which is required for any such supplemental indenture, or the consent of whose holders is required for any waiver or reduce the quorum required for voting; or

 

(c) modify any of the provisions of the sections of the indenture relating to supplemental indentures with the consent of the holders, waivers of past defaults or securities redeemed in part, except to increase any such percentage or to provide that certain other provisions of the indenture cannot be modified or waived without the consent of each holder affected thereby.

 

The indenture provides that a supplemental indenture that changes or eliminates any covenant or other provision of the indenture that has been included expressly and solely for the benefit of one or more particular series of securities, or that modifies the rights of the holders of the securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under the indenture of the holders of securities of any other series.

 

The indenture provides that the Company and the trustee may, without the consent of the holders of notes, enter into additional supplemental indentures for one of the following purposes:

 

●

to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company in the indenture and in the notes;

 

●

to add to the covenants of the Company or to surrender any right or power conferred on the Company pursuant to the indenture;

 

●

to establish the form and terms of the notes as permitted by the indenture;

 

●

to evidence and provide for a successor trustee under the indenture or to provide for or facilitate the administration of the trusts under the indenture by more than one trustee;

 

●

to cure any ambiguity, to correct or supplement any provision in the indenture that may be defective or inconsistent with any other provision of the indenture or to make any other provisions with respect to matters or questions arising under the indenture; provided that no such action pursuant to this clause shall adversely affect the interests of the holders of notes in any material respect;

 

●

to add to, delete from or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of the notes under the indenture;

 

●

to add any additional events of default with respect to the notes;

 

●

to supplement any of the provisions of the indenture as may be necessary to permit or facilitate the defeasance and discharge of the notes, provided that such action does not adversely affect the interests of any holder of an outstanding note in any material respect;

 

 

 

●

to make provisions with respect to the conversion or exchange rights of holders of notes;

 

●

to pledge to the trustee as security for the notes any property or assets;

 

●

to add guarantees in respect of the notes;

 

●

to provide for certificated notes in addition to or in place of global notes;

 

●

to qualify the indenture under the Trust Indenture Act of 1939, as amended;

 

●

to conform the text of the indenture or the notes to any provision of this “Description of Notes”, to the extent that such provision, in the good faith judgment of the Company, was intended to be a verbatim recitation of a provision of the indenture or such notes; or

 

●

to make any other change that does not adversely affect the rights of holders of notes in any material respect.

 

Trustee

 

The trustee for the notes is U.S. Bank National Association. We have appointed the trustee as the paying agent and registrar with regard to the notes. The indenture permits the trustee to deal with us and any of our affiliates with the same rights the trustee would have if it were not trustee. However, under the Trust Indenture Act, if the trustee acquires any conflicting interest and there exists a default with respect to the notes, the trustee must eliminate the conflict or resign. The trustee and its affiliates have in the past provided or may from time to time in the future provide banking and other services to us in the ordinary course of their business.

 

The holders of a majority in aggregate principal amount of the notes then outstanding have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, subject to certain exceptions. If an event of default occurs and is continuing, the trustee must exercise its rights and powers under the indenture using the same degree of care and skill as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. The indenture does not obligate the trustee to exercise any of its rights or powers at the request or demand of the holders, unless the holders have provided the trustee with such indemnity that is reasonably satisfactory to the trustee against the costs, expenses and liabilities that the trustee may incur to comply with the request or demand, subject to certain conditions.

 

Denominations, Interest, Registration and Transfer

 

The notes will be issued in registered form, without interest coupons, in denominations of integral multiples of $25 principal amount, in the form of global securities. We will not impose a service charge in connection with any transfer or exchange of any note. See “—Global Notes; Book-Entry Form” for a description of transfer restrictions that apply to the notes.

 

Global Notes; Book-Entry Form

 

Global notes will be deposited with the trustee as custodian for The Depository Trust Company (“DTC”) and registered in the name of DTC or a nominee of DTC.

 

Beneficial interests in a global note may be held directly through DTC if the holder is a participant in DTC or indirectly through organizations that are participants in DTC.

 

Except in the limited circumstances described below and in “—Certificated Securities,” holders of notes will not be entitled to receive notes in certificated form. Unless and until it is exchanged in whole or in part for certificated securities, each global note may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC.

 

 

We will apply to DTC for acceptance of the global securities in its book-entry settlement system. The custodian and DTC will electronically record the principal amount of notes represented by global securities held within DTC. Beneficial interests in the global securities will be shown on records maintained by DTC and its direct and indirect participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”), and Clearstream Banking, société anonyme (“Clearstream”). Investors may elect to hold interests in the global notes through either DTC in the U.S. or Clearstream or Euroclear in Europe if they are participants of such systems, or indirectly through organizations which are participants in such systems. Clearstream and Euroclear will hold interests on behalf of their participants through customers’ securities accounts in Clearstream’s and Euroclear’s names on the books of their respective depositaries, which in turn will hold such interests in customers’ securities accounts in the depositaries’ names on the books of DTC.

 

So long as DTC or its nominee is the registered owner or holder of a global note, DTC or such nominee will be considered the sole owner or holder of the notes represented by such global note for all purposes under the indenture and the notes. No owner of a beneficial interest in a global note will be able to transfer such interest except in accordance with DTC’s applicable procedures and the applicable procedures of its direct and indirect participants. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. These limitations and requirements may impair the ability to transfer or pledge beneficial interests in a global note.

 

Payments of principal and interest under each global note will be made to DTC or its nominee as the registered owner of such global note. We expect that DTC or its nominee, upon receipt of any such payment, will immediately credit DTC participants’ accounts with payments proportional to their respective beneficial interests in the principal amount of the relevant global note as shown on the records of DTC. We also expect that payments by DTC participants to owners of beneficial interests will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants, and none of us, the trustee, the custodian or any paying agent or registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial interests in any global note or for maintaining or reviewing any records relating to such beneficial interests.

 

DTC has advised us that it is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered under the Exchange Act. DTC was created to hold the securities of its participants and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, which eliminates the need for physical movement of securities certificates. DTC’s participants include securities brokers and dealers (including the underwriters), banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own the depository. Access to DTC’s book-entry system is also available to others, such as banks, brokers, dealers and trust companies, that clear through or maintain a custodial relationship with a participant, either directly or indirectly. The ownership interest and transfer of ownership interests of each beneficial owner or purchaser of each security held by or on behalf of DTC are recorded on the records of the direct and indirect participants.

 

Clearstream advises that it is incorporated under the laws of Luxembourg as a professional depositary. Clearstream holds securities for its participating organizations (“Clearstream Participants”) and facilitates the clearance and settlement of securities transactions between Clearstream Participants through electronic book-entry changes in accounts of Clearstream Participants, thereby eliminating the need for physical movement of certificates. Clearstream provides to Clearstream Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream interfaces with domestic markets in several countries. As a registered bank in Luxembourg, Clearstream is subject to regulation by the Luxembourg Commission for the Supervision of the Financial Sector (Commission de Surveillance du Secteur Financier). Clearstream Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations and may include the underwriters. Indirect access to Clearstream is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Clearstream Participant, either directly or indirectly.

 

 

Distributions with respect to interests in the notes held beneficially through Clearstream will be credited to cash accounts of Clearstream Participants in accordance with its rules and procedures.

 

Euroclear advises that it was created in 1968 to hold securities for participants of Euroclear (“Euroclear Participants”) and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries. Euroclear is operated by Euroclear Bank S.A./N.V. (the “Euroclear Operator”). All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries and may include the underwriters. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly.

 

Securities clearance accounts and cash accounts with the Euroclear Operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of Euroclear, and applicable Belgian law (collectively, the “Terms and Conditions”). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no records of or relationship with persons holding through Euroclear Participants.

 

Distributions with respect to the notes held beneficially through Euroclear will be credited to the cash accounts of Euroclear Participants in accordance with the Terms and Conditions.

 

The information in this section concerning DTC, DTC’s book-entry system, Clearstream and Euroclear has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.

 

Neither we nor the trustee will be liable or responsible for DTC, Euroclear or Clearstream.

 

Certificated Securities

 

The trustee will exchange beneficial interests in a global note for one or more certificated securities registered in the name of the owner of the beneficial interest, as identified by DTC, only if:

 

●

DTC notifies us that it is unwilling or unable to continue as depositary for that global note or ceases to be a clearing agency registered under the Exchange Act and, in either case, we do not appoint a successor depositary within 120 days;

 

●

we, at our option, notify the trustee that we have elected to cause the issuance of notes in definitive form under the indenture; or

 

●

an event of default has occurred and is continuing.

 

Settlement and Payment

 

We will make payments in respect of notes represented by global securities by wire transfer of immediately available funds to DTC or its nominee as registered owner of the global securities.

 

We expect the notes will trade in DTC’s Same-Day Funds Settlement System, and DTC will require all permitted secondary market trading activity in the notes to be settled in immediately available funds. We expect that secondary trading in any certificated securities will also be settled in immediately available funds.

 

Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds.

 

 

Although DTC has agreed to the above procedures to facilitate transfers of interests in the global securities among DTC participants, DTC is under no obligation to perform or to continue those procedures, and those procedures may be discontinued at any time. None of us, the underwriters or the trustee will have any responsibility for the performance by DTC or its direct or indirect participants of their respective obligations under the rules and procedures governing their operations.

 

Governing Law

 

The indenture and the notes will be governed by and construed in accordance with the laws of the State of New York applicable to agreements made or instruments entered into and, in each case, performed in said state.

 

 

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

 

The following is a summary of the material United States federal income tax consequences of the purchase, ownership, and disposition of the notes. This summary is generally limited to holders that acquire the notes pursuant to this offering at their initial offering price and hold the notes as “capital assets” (generally, property held for investment) for United States federal income tax purposes. This discussion does not describe all of the United States federal income tax consequences that may be relevant to a holder in light of its particular circumstances or to holders subject to special rules, including, without limitation, tax-exempt organizations, holders subject to the United States federal alternative minimum tax, dealers in securities or currencies, traders in securities that elect the mark-to-market method of accounting, financial institutions, insurance companies, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, controlled foreign corporations, passive foreign investment companies, partnerships, S corporations or other pass-through entities, persons whose functional currency is not the United States dollar, and persons that hold the notes in connection with a straddle, hedging, conversion or other risk-reduction transaction.

 

The United States federal income tax consequences set forth below are based upon the Internal Revenue Code of 1986, as amended (the “Code”) and applicable Department of Treasury (“Treasury”) regulations, court decisions, and rulings and pronouncements of the Internal Revenue Service (“IRS”), all as in effect on the date hereof, and all of which are subject to change, or differing interpretations at any time with possible retroactive effect. There can be no assurance that the IRS will not challenge one or more of the tax consequences described herein. We have not sought any ruling from the IRS with respect to statements made and conclusions reached in this discussion, and there can be no assurance that the IRS will agree with such statements and conclusions.

 

As used herein, the term “U.S. holder” means a beneficial owner of a note that is for United States federal income tax purposes:

 

●

an individual citizen or resident of the United States;

 

●

a corporation (or other entity taxable as a corporation for United States federal income tax purposes) that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or

 

●

an estate or trust, the income of which is subject to United States federal income taxation regardless of its source.

 

As used herein, the term “non-U.S. holder” means a beneficial owner of a note that is neither a U.S. holder nor a partnership or an entity treated as a partnership for United States federal income tax purposes.

 

If a partnership (including any entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of a note, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A beneficial owner that is a partnership and partners in such a partnership should consult their tax advisors about the United States federal income tax consequences of the purchase, ownership and disposition of the notes.

 

This summary does not address the tax consequences arising under any state, local, or foreign law. Furthermore, this summary does not consider the effect of the United States federal estate or gift tax laws.

 

 Investors considering the purchase of the notes should consult their own tax advisors with respect to the application of the United States federal income tax laws to their particular situation, as well as any tax consequences arising under the United States federal estate or gift tax rules, under the laws of any state, local, or foreign taxing jurisdiction or under any applicable tax treaty.

 

 

U.S. Holders

 

Payments of Interest

 

Payments of interest on a note generally will be taxable to a U.S. holder as ordinary interest income at the time such payments are accrued or are received (in accordance with the U.S. holder’s regular method of tax accounting).

 

Original Issue Discount

 

It is expected that the notes will not be issued with an issue price that is less than their stated principal amount by more than the statutory de minimis amount. If this is the case, the notes will not be subject to the original issue discount (“OID”) rules. If, however, the stated principal amount of the notes exceeds their issue price by more than the statutory de minimis amount, U.S. holders will be required to include OID in income for United States federal income tax purposes as it accrues under a constant yield method, regardless of such U.S. holders’ method of accounting. As a result, U.S. holders may be required to include OID in taxable income prior to the receipt of cash by such U.S. holders.

  

Sale, Redemption, Exchange or Other Taxable Disposition of Notes

 

A U.S. holder will generally recognize gain or loss on the sale, redemption, exchange or other taxable disposition of a note in an amount equal to the difference between (i) the proceeds received by the holder in exchange for such note (less an amount attributable to any accrued but unpaid interest, which will be treated as a payment of interest for United States federal income tax purposes) and (ii) the U.S. holder’s adjusted tax basis in the note. The proceeds received by a U.S. holder will include the amount of any cash and the fair market value of any other property received for the note. In general, a U.S. holder’s adjusted tax basis in a note will equal the amount paid for the note. Such gain or loss recognized by a U.S. holder on a disposition of a note will be capital gain or loss and will be long-term capital gain or loss if the holder held the note for more than one year. Under current United States federal income tax law, net long-term capital gains of non-corporate U.S. holders (including individuals) are eligible for taxation at preferential rates. The deductibility of capital losses is subject to certain limitations. Prospective investors should consult with their own tax advisors concerning these tax law provisions.

 

Medicare Tax

 

Section 1411 of the Code generally imposes a 3.8% tax on a portion or all of the net investment income of certain individuals with a modified adjusted gross income of over $200,000 (or $250,000 in the case of joint filers or $125,000 in the case of married individuals filing separately) and on the undistributed net investment income of certain estates and trusts. For these purposes, “net investment income” generally includes interest (including interest paid with respect to a note), dividends, annuities, royalties, rents, net gain attributable to the disposition of property not held in a trade or business (including net gain from the sale, redemption, exchange or other taxable disposition of a note) and certain other income, but will be reduced by any deductions properly allocable to such income or net gain.

 

Information Reporting and Backup Withholding

 

Unless a U.S. holder is an exempt recipient, such as a corporation, payments made with respect to the notes or proceeds from the disposition of the notes may be subject to information reporting and may also be subject to United States federal backup withholding at the applicable rate if a U.S. holder fails to comply with applicable United States information reporting and certification requirements.

 

Backup withholding is not an additional tax. Any amount withheld from a payment to you under the backup withholding rules generally will be allowed as a refund or a credit against your United States federal income tax liability, provided the required information is furnished timely to the IRS.

 

 

Non-U.S. Holders

 

Payments of Interest

 

Subject to the discussion below concerning backup withholding and the Foreign Account Tax Compliance Act, interest paid on a note by us or our agent to a non-U.S. holder will qualify for the “portfolio interest exemption” and will not be subject to United States federal income tax or withholding tax; provided that such interest income is not effectively connected with a United States trade or business of the non-U.S. holder; and provided that the non-U.S. holder:

 

●

does not actually or by attribution own 10% or more of the combined voting power of all classes of our stock entitled to vote;

 

●

is not a controlled foreign corporation for United States federal income tax purposes that is related to us actually or by attribution through stock ownership;

 

●

is not a bank that acquired the note in consideration for an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business; and

 

●

either (a) provides the proper variant of IRS Form W-8 (or a suitable substitute form) signed under penalties of perjury that includes the non-U.S. holder’s name and address, and certifies as to non-United States status in compliance with applicable law and regulations; or (b) is a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and provides a statement to us or our agent under penalties of perjury in which it certifies that such an IRS Form W-8 (or a suitable substitute form) has been received by it from the non-U.S. holder or qualifying intermediary and furnishes us or our agent with a copy. The Treasury regulations provide special certification rules for notes held by a foreign partnership and other intermediaries.

 

If such non-U.S. holder cannot satisfy the requirements described above, payments of interest made to the non-U.S. holder will be subject to the 30% United States federal tax withholding unless (i) the interest is effectively connected with a United States trade or business of such non-U.S. holder and such non-U.S. holder satisfies the applicable certification requirements (as discussed below) or (ii) such holder provides us with a properly executed variant of IRS Form W-8 claiming an exemption from (or reduction of) withholding under the benefit of an applicable tax treaty.

 

If interest on a note is effectively connected with a United States trade or business of a non-U.S. holder and, if required by an applicable tax treaty, is attributable to a United States permanent establishment or fixed base maintained by the non-U.S. holder within the United States, the non-U.S. holder generally will not be subject to withholding if the non-U.S. holder complies with applicable IRS certification requirements (i.e., by delivering a properly executed IRS Form W-8ECI) and generally will be subject to United States federal income tax on a net income basis at regular graduated rates in the same manner as if the holder were a U.S. holder. In the case of a non-U.S. holder that is a corporation, such effectively connected income also may be subject to the additional branch profits tax, which generally is imposed on a foreign corporation on the deemed repatriation from the United States of effectively connected earnings and profits at a 30% rate (or such lower rate as may be prescribed by an applicable tax treaty).

 

Sale, Redemption, Exchange or Other Taxable Disposition of Notes

 

Subject to the discussion below concerning backup withholding and the Foreign Account Tax Compliance Act, any gain recognized by a non-U.S. holder on the disposition of a note (other than amounts attributable to accrued and unpaid interest, which are treated as described under “—Non-U.S. Holders—Payments of Interest”) generally will not be subject to United States federal income tax or withholding, unless:

 

●

the gain is effectively connected with the conduct of a United States trade or business of the non-U.S. holder (and, if required by an applicable tax treaty, the gain is attributable to a permanent establishment or fixed base maintained in the United States by the non-U.S. holder);

 

●

the non-U.S. holder is an individual who is present in the United States for 183 days or more during the taxable year of that disposition, and certain other conditions are met; or

 

●

the non-U.S. holder is subject to Code provisions applicable to certain United States expatriates.

 

 

A non-U.S. holder should consult his or her tax advisor regarding the tax consequences of the disposition of the notes.

 

Information Reporting and Backup Withholding

 

Non-U.S. holders may be required to comply with certain certification procedures to establish that the holder is not a United States person in order to avoid information reporting and backup withholding with respect to payments on the notes or proceeds from the disposition of the notes. Information returns generally will be filed with the IRS, however, in connection with payments of interest on the notes to non-U.S. holders. Copies of the information returns reporting such interest payments and any withholding may also be made available to the tax authorities in the country in which you reside under the provisions of an applicable income tax treaty.

 

Backup withholding is not an additional tax. Any amount withheld from a payment to you under the backup withholding rules generally will be allowed as a refund or a credit against your United States federal income tax liability, provided the required information is furnished timely to the IRS.

 

Non-U.S. holders should consult their tax advisors regarding the application of information reporting and backup withholding in their particular situations, the availability of an exemption therefrom, and the procedures for obtaining such an exemption, if available.

 

Foreign Account Tax Compliance Act

 

Sections 1471 through 1474 of the Code, the Foreign Account Tax Compliance Act or FATCA provisions, impose a 30% United States withholding tax on certain types of payments made to certain foreign entities. Failure to comply with the additional certification, information reporting and other specified requirements imposed under FATCA could result in United States withholding tax being imposed on payments of interest and principal, and sales proceeds of the notes held by or through a foreign entity. United States Treasury regulations provide that FATCA withholding, if applicable, generally will apply to (i) payments of interest made after June 30, 2014, (ii) gross proceeds from the sale, exchange or retirement of debt obligations occurring after December 31, 2016 and (iii) certain foreign pass-thru payments received with respect to debt obligations, but not until the later of January 1, 2017 or six months after the date that final regulations defining the term foreign pass-thru payments are issued. However, the FATCA provisions do not apply to debt obligations issued on or prior to June 30, 2014, such as the notes. Therefore, the FATCA provisions only would apply to payments with respect to the notes if there were significant modification of the notes after June 30, 2014. Prospective purchasers should consult their own tax advisors regarding FATCA and its effects on them.

 

The United States federal income tax summary set forth above is included for general information only and may not be applicable depending upon your particular situation. You should consult your own tax advisors with respect to the tax consequences to you of the purchase, ownership and disposition of the notes, including the tax consequences under state, local, foreign and other tax laws and the possible effects of changes in federal or other tax laws.

 

 

UNDERWRITING (CONFLICTS OF INTEREST)

 

Keefe, Bruyette & Woods, Inc., Jefferies LLC and JMP Securities LLC are acting as representatives of the underwriters named below. Subject to the terms and conditions set forth in a firm commitment underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and the underwriters have agreed to purchase from us, the principal amount of notes set forth opposite their respective names below.

 

Underwriters		Principal Amount of Notes
Keefe, Bruyette & Woods, Inc.		$
Jefferies LLC
JMP Securities LLC
Sterne, Agee & Leach, Inc.
Gilford Securities Incorporated
Total		$

 

Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed to purchase all of the notes sold under the underwriting agreement if any of these notes are purchased. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering of notes may be terminated.

 

We have agreed to indemnify the underwriters against certain liabilities in connection with this offering, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

 

The underwriters are offering the notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

 

Commissions and Discounts

 

The representatives have advised us that the underwriters propose initially to offer the notes to the public at the public offering price set forth on the cover page of this prospectus supplement and to certain dealers at such price less a concession not in excess of $     per note. The underwriters may allow, and those dealers may reallow, a discount not in excess of $     per note to certain other dealers. After the initial offering, the public offering price, concession or any other term of the offering may be changed.

 

The expenses of the offering, not including the underwriting discount, are estimated at $        and are payable by us.

 

We have agreed to reimburse the underwriters for certain expenses relating to clearing this offering with the Financial Industry Regulatory Authority, Inc. (“FINRA”), in an amount up to $10,000.

 

New Issue of Notes

 

The notes are a new issue of securities with no established trading market. We intend to apply to list the notes on the NYSE and expect trading in the notes to begin within 30 days of January     , 2014, the original issue date. We have been advised by the underwriters that they presently intend to make a market in the notes should the notes not be approved for listing. However, they are under no obligation to do so and may discontinue any market-making activities at any time without any notice. We cannot assure the liquidity of the trading market for the notes or that an active public market for the notes will develop. If an active public trading market for the notes does not develop, the market price and liquidity of the notes may be adversely affected. If the notes are traded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, our operating performance and financial condition, general economic conditions and other factors.

 

 

Option to Purchase Additional Notes

 

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to an additional $     million principal amount of the notes from us at the public offering price less the underwriting discount. The underwriters may exercise such option solely for the purpose of covering overallotments, if any, in connection with this offering. To the extent such option is exercised, the underwriters will be obligated, subject to certain conditions, to purchase an additional principal amount approximately proportionate to such underwriters’ initial purchase commitment.

 

No Sales of Similar Securities

 

We have agreed that we will not, for a period of 30 days after the date of this prospectus supplement without first obtaining the prior written consent of the representatives, directly or indirectly, issue, sell, offer to contract or grant any option to sell, pledge, transfer or otherwise dispose of, any debt securities or securities exchangeable for or convertible into debt securities, except for the notes sold to the underwriters pursuant to the underwriting agreement.

 

Short Positions

 

In connection with the offering, the underwriters may purchase and sell the notes in the open market. These transactions may include short sales and purchases on the open market to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater principal amount of notes than they are required to purchase in the offering. The underwriters must close out any short position by purchasing notes in the open market. A short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the notes in the open market after pricing that could adversely affect investors who purchase in the offering.

 

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the notes or preventing or retarding a decline in the market price of the notes. As a result, the price of the notes may be higher than the price that might otherwise exist in the open market.

 

Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the notes. In addition, neither we nor the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

 

Electronic Distribution

 

In connection with the offering, the underwriters or certain securities dealers may distribute this prospectus supplement and the accompanying prospectus by electronic means, such as e-mail.

 

Conflicts of Interest

 

JMP Securities LLC, our wholly-owned subsidiary, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and may participate in distributions of the offered securities. Accordingly, offerings of offered securities in which JMP Securities LLC participates will conform to the requirements set forth in FINRA Rule 5121 and/or any other rule which might complement, substitute or supersede FINRA Rule 5121. FINRA Rule 5121 requires that a “qualified independent underwriter” participate in the preparation of this prospectus supplement and exercise the usual standards of due diligence with respect thereto. Keefe, Bruyette & Woods, Inc. (“KBW”) has assumed the responsibilities of acting as the qualified independent underwriter in this offering. KBW will not receive any additional fees for serving as a qualified independent underwriter in connection with this offering. We have agreed to indemnify KBW against liabilities incurred in connection with acting as qualified independent underwriter, including liabilities under the Securities Act. Additionally, client accounts over which JMP Securities LLC or any affiliate has investment discretion are not permitted to purchase the notes, either directly or indirectly, without the specific written approval of the accountholder.

 

 

Other Relationships

 

The underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.

 

In addition, in the ordinary course of its business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

 

Notice to Prospective Investors in the European Economic Area

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State it has not made and will not make an offer of notes which are the subject of the offering contemplated by this prospectus to the public in that Relevant Member State other than:

 

(a)     to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

(b)     to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant dealer or dealers nominated by us for any such offer; or

 

(c)     in any other circumstances falling within Article 3(2) of the Prospectus Directive.

 

For the purposes of this provision, the expression an “offer of notes to the public” in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe the notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive), and includes any relevant implementing measure in the Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

 

 

Notice to Prospective Investors in the United Kingdom

 

Each underwriter has represented and agreed that:

 

●

it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of the notes in circumstances in which Section 21(1) of the FSMA would not, if we were not an authorized person, apply to us; and

 

●

it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the notes in, from or otherwise involving the United Kingdom.

 

 

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

This prospectus supplement is part of a registration statement (File No. 333-183619) we have filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act. The registration statement, including the attached exhibits and schedules, contains additional relevant information about us and the securities described in this prospectus supplement. The SEC’s rules and regulations allow us to omit certain information included in the registration statement from this prospectus supplement. The registration statement may be inspected by anyone without charge at the SEC’s principal office at 100 F Street, N.E., Washington, D.C. 20549.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy these documents at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings are also available over the Internet at the SEC’s website at http://www.sec.gov. The reports and other information we file with the SEC also are available through our website, www.jmpg.com. The information on our website is not part of this prospectus.

 

The SEC allows “incorporation by reference” into this prospectus supplement of information that we file with the SEC. This permits us to disclose important information to you by referencing these filed documents. Any information referenced this way is considered to be a part of this prospectus supplement and any information filed by us with the SEC subsequent to the date of this prospectus supplement will automatically be deemed to update and supersede this information.

 

The following documents, which we filed with the SEC, are incorporated by reference into this prospectus supplement:

 

●

our Annual Report on Form 10-K for the fiscal year ended December 31, 2012;

 

●

our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013, June 30, 2013, and September 30, 2013; and

 

●

our Current Reports on Form 8-K filed on January 23, 2013, January 25, 2013, April 9, 2013, May 6, 2013, June 18, 2013 and December 17, 2013.

 

Documents incorporated by reference are available without charge, excluding all exhibits unless we specifically incorporated by reference an exhibit in this prospectus supplement. You may obtain documents incorporated by reference in this prospectus supplement by requesting them in writing or by telephone at the following addresses and telephone numbers:

 

JMP Group Inc.
Attention: Andrew Palmer
600 Montgomery Street, Suite 1100
San Francisco, California 94111
(415) 835-8978
apalmer@jmpg.com

 

 

 

LEGAL MATTERS

 

Certain legal matters with regard to the notes offered by this prospectus supplement will be passed upon by Orrick, Herrington & Sutcliffe LLP, San Francisco, California, counsel to JMP Group Inc. The underwriters have been represented by Simpson Thacher & Bartlett LLP, New York, New York.

 

EXPERTS

  

The financial statements and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) incorporated in this prospectus supplement by reference to the Annual Report on Form 10-K of JMP Group Inc. for the year ended December 31, 2012 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

 

 

 

 

 

$

 

 

JMP GROUP INC.

 

     % Senior Notes due 2021

 

 

  

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PROSPECTUS SUPPLEMENT

 

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Keefe, Bruyette & Woods  

A Stifel Company

Jefferies

JMP Securities

Sterne Agee

Gilford Securities

 

 
 

 

January     , 2014