20. EQUITY-BASED COMPENSATION

As described in note 3-Q, the Company’s equity-based compensation paid to its employees was comprised of Restricted Units and restricted shares.

Restricted Units Pursuant to the 2009 Equity Award Plan

The 2009 Equity Award Plan was originally adopted by the Company in August 2009 and was amended and restated on April 28, 2010. The 2009 Equity Award Plan permitted the grant of Operating LLC restricted units to the Company’s employees which represented the right to receive, upon vesting of the restricted unit, the number of Operating LLC membership units in the restricted unit agreement. The awards under this plan were subject to time-based and/or performance-based vesting conditions and generally vested over a period of three years. The maximum number of restricted units authorized to be granted pursuant this plan was limited to 1,721,160, of which no units remained available to be issued as of December 31, 2012. All awards pursuant to this plan were subject to the prior written consent of the Company’s Chairman and Chief Executive Officer, Daniel G. Cohen. In December 2012, all of the 116,595 restricted units that were outstanding vested.

In connection with the 2009 Equity Award Plan, Mr. Cohen and the Operating LLC were parties to an Equity Plan Funding Agreement (the “Equity Funding Agreement”) whereby Mr. Cohen was required to transfer to (1) the Operating LLC the number of Operating LLC membership units or shares of the Company’s Common Stock equal to the number of Operating LLC membership units to be issued by the Operating LLC to the participants in the 2009 Equity Award Plan in connection with vesting of an Operating LLC restricted unit, or (2) the Company the number of shares of Common Stock equal to the number of Operating LLC membership units to be issued to the participants in the 2009 Equity Award Plan in connection with the vesting of an Operating LLC restricted unit. As a result of the Equity Funding Agreement, the capitalization of the Operating LLC did not change as result of the issuance of Operating LLC restricted units under the 2009 Equity Award Plan. In December 2012, Mr. Cohen transferred 116,595 restricted shares of IFMI Common Stock to the Company in order to satisfy his obligation under the Equity Funding Agreement.

Substantially all of the 2009 Equity Award Plan awards were issued during 2009 prior to the Merger. For the awards that were issued prior to the Merger, the Company determined the fair value of these restricted units based on the implied value of a Cohen Brothers membership unit derived from the Company’s public stock price on the date of grant multiplied by the exchange ratio called for in the Merger Agreement. For the awards that were issued during 2010, the Company determined the fair value of these restricted units based on the Company’s stock price on the date of grant. There were no grants made during the year ended December 31, 2012 and 2011.

Restricted Unit activity with respect to the Company’s 2009 Equity Award Plan was as follows for the year ended December 31, 2012:

RESTRICTED UNITS — SERVICE BASED VESTING


	Number Restricted Units			Weighted Average Grant Date Fair Value
Unvested at January 1, 2012		207,383		$	7.29
Vested		(44,507	)		7.03
Forfeited		(140,007	)		7.25
Cancelled		(22,869	)		8.05

Unvested at December 31, 2012		—		$	—

The Restricted Units noted in the above table included a three year service requirement to be met in order for the Restricted Units to vest. However, if an employee was terminated without cause, the service requirement was deemed to have been met earlier.

The weighted average grant date fair value for Restricted Units that contained only service based vesting criteria for the years ended December 31, 2012, 2011, and 2010 was $0 in all years as none were issued during the three year period.

The 44,507 Restricted Units all vested in December 2012. However, 19,507 of these Restricted Units were restricted until December 2012 but there was no remaining service condition because the employee had been terminated without cause. In those cases, the Company recognized any remaining expense associated with these Restricted Units upon the date of termination of the employee even though the unit did not vest until December 2012.

Forfeited units include units for which the employee did not meet the service requirement. For these grants, any previously recognized compensation cost was reversed upon forfeiture. Cancelled units include units whereby the employee met the underlying service requirement but the grant was cancelled. In those instances, the Company treats it as if the grant vested and the Company repurchased for no consideration. The result is that the unrecognized compensation cost was accelerated at the date of cancellation.

RESTRICTED UNITS — PERFORMANCE BASED AND SERVICE BASED VESTING


	Number Restricted Units			Weighted Average Grant Date Fair Value
Unvested at January 1, 2012		102,128		$	6.87
Vested		(72,088	)		6.90
Forfeited		(30,040	)		6.80

Unvested at December 31, 2012		—		$	—

The Restricted Units noted in the above table included performance targets based on the generation of specified amounts of gross profit, revenues, or other operating targets that must have been achieved by the individual grantees in addition to a three year service requirement that must have been met in order for the Restricted Units to vest.

The weighted average grant date fair value for Restricted Units that contained performance based and service based vesting criteria for the years ended December 31, 2012, 2011, and 2010 was $0, $0, and $5.28, respectively. Equity-based compensation expense for equity-based awards that contain performance conditions are recognized when it becomes probable that such performance conditions will be met.

During the year ended December 31, 2012, the total fair value of all 2009 Equity Award Plan awards that vested based on the fair market value derived from the closing stock price of the Company’s Common Stock on the vesting date during the year ended December 31, 2012 was $166.

The Company recognized equity-based compensation expense of $(586), $400, and $1,144 related to the 2009 Equity Award Plan for the years ended December 31, 2012, 2011, and 2010, respectively, and the expense was included in compensation and benefits in the consolidated statements of operations.

Restricted Units of the Operating LLC Related to the JVB Holdings Acquisition

In connection with the acquisition of JVB Holdings in January 2011, the Company issued 559,020 restricted units of the Operating LLC to certain JVB Holdings Sellers that remained employees of JVB Holdings. These units include a service requirement and vest over a three year period (of which one of the three years has elapsed) and are treated as compensation for future service rather than as part of the purchase price to acquire JVB. The weighted average grant date fair value for the restricted units was $4.89. In January 2012, 186,339 restricted units of the Operating LLC vested. As of December 31, 2012 and December 31, 2011, 372,681 restricted units and 559,020 restricted units, respectively, of the Operating LLC were unvested. Upon vesting, the restricted units may be redeemed by the employee and the Company, at its discretion, may either pay cash or issue an equivalent number of IFMI common stock for the redemption of vested restricted units. The 186,339 vested units of the Operating LLC were redeemed by the JVB Holdings Sellers and the Company issued an equivalent number of IFMI Common Stock for the redemption of the vested restricted units. See note 19.

During the year ended December 31, 2012, the total fair value of the restricted Operating LLC awards related to the JVB Holdings acquisition that vested based on the fair market value derived from the closing stock price of the Company’s Common Stock on the vesting date during the year ended December 31, 2012 was $326.

The Company recognized equity-based compensation expense of $911 and $879 related to the restricted units granted related to the JVB Holdings acquisition for the year ended December 31, 2012 and 2011, respectively, and the expense was included in compensation and benefits in the consolidated statements of operations.

Restricted Common Stock and Restricted Units Pursuant to the AFN 2006 Equity Incentive Plan and the Institutional Financial Markets Inc. 2010 Long-Term Incentive Plan

In connection with the Merger, the Company assumed the AFN 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”). In addition, the Company adopted the Institutional Financial Markets, Inc. 2010 Long-Term Incentive Plan (the “2010 Equity Incentive Plan”) on April 22, 2010, which was approved by the Company’s stockholders at the Company’s annual meeting on December 10, 2010, and amended on April 18, 2011 and amended and restated on March 8, 2012. The 2006 Equity Incentive Plan and the 2010 Equity Incentive Plan are collectively referred to as the “Equity Incentive Plans”. The Equity Incentive Plans provide for the grant of stock options, restricted Common Stock, restricted units, stock appreciation rights, and other share-based awards. The Equity Incentive Plans are administered by the compensation committee of the Company’s Board of Directors. The maximum number of share-based awards of the Company’s Common Stock authorized to be granted pursuant to these plans is limited to 4,996,500, of which 2,411,621 shares remained available to be issued as of December 31, 2012.

RESTRICTED STOCK AND RESTRICTED UNITS — SERVICE BASED VESTING


	Number of Shares of Restricted Stock			Weighted Average Grant Date Fair Value of Restricted Stock		Number of Restricted Units		Weighted Average Grant Date Fair Value of Restricted Units
Unvested at January 1, 2012		1,574,064		$	4.17		40,135	$	3.26
Granted		396,726			1.43		132,450		1.51
Vested		(543,830	)		4.47		—		—
Forfeited (1)		(883,308	)		3.75		—		—
Surrendered (2)		(116,595	)		5.00		—		—

Unvested at December 31, 2012		427,057		$	1.87		172,585	$	1.92

(1)	Includes the 848,742 shares of restricted stock that the former chief executive officer of PrinceRidge and member of the Board of Managers of PrinceRidge GP and the former chairman of the Board of Managers of PrinceRidge GP forfeited in July 2012.

(2)

In December 2012, Mr. Cohen transferred 116,595 restricted shares of IFMI Common Stock to the Company in order to satisfy his obligation under the Equity Funding Agreement. See the discussion about the 2009 Restricted Units Pursuant to the 2009 Equity Award Plan above. For equity compensation purposes, these grants were treated as vested and compensation expense was fully recognized.

The weighted average grant date fair value for restricted stock that contained service based vesting criteria for the years ended December 31, 2012, 2011, and 2010 was $1.43, $4.33, and $5.85, respectively. The weighted average grant date fair value for restricted units that contained service based vesting criteria for the year ended December 31, 2012 and 2011 was $1.51 and $3.26, respectively, The Company did not grant any restricted units that contained service based vesting criteria during the year ended December 31, 2010.

RESTRICTED STOCK AND RESTRICTED UNITS — PERFORMANCE BASED

AND SERVICE BASED VESTING


	Number of Shares of Restricted Stock			Weighted Average Grant Date Fair Value of Restricted Stock		Number of Restricted Units			Weighted Average Grant Date Fair Value of Restricted Units
Unvested at January 1, 2012		1,023,556		$	4.72		50,000		$	3.07
Granted		32,258			1.47		500,000			(1	)
Vested		(100,000	)		4.60		—			—
Forfeited (2)		(625,045	)		4.69		(50,000	)		3.07

Unvested at December 31, 2012		330,769		$	4.34		500,000			(1	)

(1)

During the first quarter of 2012, the Company issued 500,000 restricted units of IFMI common stock to a non-employee. FASB ASC 505-50 requires that an equity instrument issued to a non-employee should be measured by using the stock price and other measurement assumptions as of the earlier of the date at which either: (i) a commitment for performance by the counterparty has been reached; or (2) the counterparty’s performance is complete. In accordance with FASB ASC 505-50, the Company will not accrue any expense until the actual vesting date occurs. As of the grant date, the restricted units were valued at $0.

(2)

During the year ended December 31, 2012, there were 50,000 restricted units that were forfeited due to the fact that the grantee was unable to achieve certain performance thresholds, and therefore, the award would never vest. The remaining forfeitures were due to employees not fulfilling their service requirements.

The weighted average grant date fair value for restricted stock that contained performance based and service based vesting criteria for the year ended December 31, 2012 and 2011 was $1.47 and $4.88, respectively. The Company did not grant any restricted stock with performance based and service based vesting prior to January 1, 2011. The weighted average grant date fair value for restricted units that contained performance based and service based vesting criteria for the year ended December 31, 2012 and 2011 was $0 and $3.07, respectively. The Company did not grant any restricted units with performance based and service based vesting prior to January 1, 2011.

The total fair value of the Equity Incentive Plans awards vested based on the fair market value of the Company’s Common Stock on the vesting date during the years ended December 31, 2012, 2011, and 2010 was $947, $570, and $580, respectively. All the awards that vested during 2011 and 2010 only contained service based vesting criteria.

The Company recognized equity-based compensation of $1,361, $5,708, and $1,290 for the years ended December 31, 2010, 2011, and 2012, respectively, related to the Equity Incentive Plans. Included in the $5,708 of expense recognized for the year ended December 31, 2011 was $1,800 of expense attributable to an award of 360,000 restricted shares granted during the first half of 2011 to our former president, Mr. Christopher Ricciardi, which he subsequently forfeited in exchange for a cash payment of $745 that was paid by the Company in October 2011. The restricted shares and restricted units of Common Stock typically may vest either quarterly, annually, or at the end of a specified term on a straight line basis over the remaining term of the awards, assuming the recipient is continuing in service to the Company at such date, and, in the case of performance based equity awards, the performance thresholds have been attained. In the case of director grants, the equity awards are restricted for one year but have no performance or service conditions.

Equity-Based Compensation Expense

The following table summarizes the amounts the Company recognized as equity-based compensation expense including Restricted Stock and Restricted Units. For the years ended December 31, 2012 and 2011, equity-based compensation also includes $(344) and $687, respectively, of expense related to the issuance of restricted PrinceRidge units to certain employees. These amounts are included as a component of compensation and benefits in the consolidated statements of operations. The remaining unrecognized compensation expense related to unvested awards at December 31, 2012 was $1,711 and the weighted average period of time over which this expense will be recognized is approximately 1 year. The awards assume estimated forfeitures during the vesting period, which were updated to reflect the actual forfeitures that occurred during 2010, 2011, and 2012.

DETAIL OF EQUITY-BASED COMPENSATION INCLUDED IN COMPENSATION AND BENEFITS

(Dollars in Thousands)


For the Year Ended December 31,	Equity-Based Compensation Expense		Non Equity- Based Compensation and Benefits Expense		Total Compensation and Benefits
2012	$	1,271	$	61,680	$	62,951
2011	$	7,674	$	70,553	$	78,227
2010	$	2,505	$	74,941	$	77,446