20. EQUITY-BASED COMPENSATION

As described in note 3-Q, the Company’s equity-based compensation paid to its employees is comprised of Restricted Units, Restricted Stock, and stock options.

The following table summarizes the amounts the Company recognized as equity-based compensation expense including Restricted Stock, Restricted Units, and stock options. 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, 2013 was $2,220 and the weighted average period of time over which this expense will be recognized is approximately 2.7 years. The awards assume estimated forfeitures during the vesting period, which were updated to reflect the actual forfeitures that occurred during the relevant periods.



EQUITY-BASED COMPENSATION INCLUDED IN COMPENSATION AND BENEFITS
(Dollars in Thousands)

	For the year ended December 31,
	2013		2012		2011
Equity-based compensation expense	$	1,947	$	1,271	$	7,674
Non equity-based compensation expense		45,220		61,680		70,553
Total compensation and benefits	$	47,167	$	62,951	$	78,227

The following table summarizes the equity-based compensation by plan. Each plan is discussed in detail below:



DETAIL OF EQUITY BASED COMPENSATION BY PLAN

	For the year ended December 31,
	2013		2012		2011
The 2009 Equity Award Plan	$	-	$	(586)	$	400
Operating LLC Units - JVB Acquisition		911		911		879
Restricted Units - 2006/2010 Plans		905		1,290		5,708
Options - 2010 Plan		114		-		-
Restricted PrinceRidge units (1)		17		(344)		687
Total equity based compensation expense	$	1,947	$	1,271	$	7,674

(1)

Relates to the issuance of restricted PrinceRidge units to certain investment banking professionals and executives of PrinceRidge. As of December 31, 2013, there were no restricted PrinceRidge units outstanding.

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 ending in December 2012. All awards pursuant to this plan were subject to the prior written consent of the Company’s Vice Chairman, Daniel G. Cohen. In December 2012, all of the 116,595 restricted units that were outstanding vested. Following the vesting of the restricted units in December 2012, the 2009 Equity Award Plan expired.

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 after 2010.

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 who remained employees of JVB Holdings. These units include a service requirement and vest over a three year period (of which two of the three years have elapsed as of December 31, 2013 and the third year elapsed in January, 2014) 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 and 2013, 186,339 restricted units of the Operating LLC vested. As of December 31, 2013 and December 31, 2012, 186,342 and 372,681 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 in each of 2012 and 2013 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 in each period. See note 19.

During the years ended December 31, 2013 and 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, 2013 and 2012 was $233 and $326, respectively.

The AFN 2006 Equity Incentive Plan and the Institutional Financial Markets Inc. 2010 Long-Term Incentive Plan – Restricted Common Stock, Restricted Units and Stock Options

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 1,558,525 shares remained available to be issued as of December 31, 2013..



RESTRICTED STOCK AND RESTRICTED UNITS - SERVICE BASED VESTING

	Number of Shares of Restricted Stock		Weighted average grant date fair value		Number of Restricted Units		Weighted average grant date fair value
Unvested at January 1, 2013		427,057	$	1.87		172,585	$	1.92
Granted		408,079		1.98		-		-
Vested		(522,008)		1.62		(40,135)		3.26
Forfeited		(1,828)		4.89		-		-
Unvested at December 31, 2013		311,300	$	2.42		132,450	$	1.51

The weighted average grant date fair value for restricted stock that contained service based vesting criteria for the years ended December 31, 2013, 2012, and 2011 was $1.98, $1.43, and $4.33, 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. There were no restricted units granted during 2013.



RESTRICTED STOCK AND RESTRICTED UNITS - PERFORMANCE AND SERVICE BASED VESTING

	Number of Shares of Restricted Stock		Weighted average grant date fair value		Number of Restricted Units (1)		Weighted average grant date fair value
Unvested at January 1, 2013		330,769	$	4.34		500,000	$	-
Granted		-		-		50,000		2.42
Vested		(127,788)		4.34		(50,000)		2.42
Forfeited (2)		(103,155)		4.89		-		-
Unvested at December 31, 2013		99,826	$	3.78		500,000	$	-

(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, 2013, there were 103,155 shares of Restricted Stock that were forfeited due to the fact that the grantees were unable to achieve certain performance thresholds, and therefore, the awards would never vest.

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. There were no shares of restricted stock that contained performance based and service based vesting criteria that were granted during 2013. 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, 2013, 2012, and 2011 was $2.42, $0.00, and $3.07, respectively.

The total fair value of all equity awards vested in each year based on the fair market value of the Company’s Common Stock on the vesting date during the years ended December 31, 2013, 2012, and 2011 was $1,667, $947, and $570, respectively.

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.


STOCK OPTIONS - SERVICE BASED VESTING

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (1)
Balance at January 1, 2013		-	$	-
Granted (2)		3,000,000		4.00
Vested		-		-
Forfeited		-		-
Balance at December 31, 2013		3,000,000	$	4.00		4.8	$	-

Exercisable at December 31, 2013		-	$	-		-	$	-

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing stock price of the Company’s Common Stock of $1.98 on December 31, 2013. As of December 31, 2013, all options were out of the money.

(2)

Of the options granted, 2,500,000 stock options are subject to stockholder approval during the Company’s 2014 Annual Meeting of Stockholders.

The fair values of the options granted during 2013 were estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: (i) expected volatility – 68.5%; (ii) expected dividends – 3.49%; (iii) expected lives of options (in years) – 4.0; and (iv) risk free rate – 0.96%.

The weighted average grant date fair value for options granted during 2013 was $0.70.

The expected volatility reflects IFMI’s past stock price volatility since December 16, 2009 (the Merger Date). The expected life of the options is based on the estimated average life of the options using the simplified method. The Company utilized the simplified method to determine the expected life of the options due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. The risk free rate is derived from public data sources at the time of the grant. The options vest either ratably over a three-year period or all at end of a three year period and have five-year contractual terms. Compensation cost is recognized over the vesting term of the option using the straight-line method.