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, 2015 was $733 and the weighted average period of time over which this expense will be recognized is approximately 1.0 year. 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,
	2015		2014		2013
Equity based compensation expense	$	1,189	$	1,319	$	1,947
Non-equity based compensation expense		26,839		28,445		45,220
Total compensation and benefits	$	28,028	$	29,764	$	47,167

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,
	2015		2014		2013
Operating LLC Units - JVB Acquisition	$	-	$	32	$	911
Restricted Stock or Units - 2006/2010 Plans		440		538		905
Options - 2010 Plan		749		749		114
Restricted PrinceRidge units (1)		-		-		17
Total equity based compensation expense	$	1,189	$	1,319	$	1,947

(1)

Relates to the issuance of restricted PrinceRidge units to certain investment banking professionals and executives of PrinceRidge. Also, in 2013, amounts include $44 of expense related to PrinceRidge restricted units grants accounted for as a liability instead of equity. As of December 31, 2015 and 2014, there were no restricted PrinceRidge units outstanding.

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 former owners of JVB who remained employees. These units included a service requirement and vested over a three year period ending in January 2014 and were 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. As of December 31, 2015 and 2014, no restricted units of the Operating LLC were unvested. All units of the Operating LLC vested and were redeemed and the Company issued an equivalent number of Common Stock for the redemption of the vested restricted units in each period. See note 19.

During the years ended December 31, 2015 and 2014, 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 was $0 and $435, 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 and again on November 30, 2013. 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 granting 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. As of December 31, 2015, 906,154 shares remained available to be issued under these plans.



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
Granted		158,438		2.43		-		-
Vested		(311,300)		2.42		(132,450)		1.51
Unvested at December 31, 2014		158,438		2.43		-		-
Granted		333,334		1.65		-		-
Vested		(176,338)		1.65		-		-
Unvested at December 31, 2015		315,434	$	1.65		-	$	-



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		(103,155)		4.89		-		-
Unvested at December 31, 2013		99,826		3.78		500,000	$	-
Granted		-		-		-		-
Vested		(67,568)		4.89		-		-
Forfeited		(32,258)		1.47		-		-
Unvested at December 31, 2014		-		-		500,000	$	-
Granted		32,258		1.75		-		-
Vested		-		-		-		-
Forfeited		(32,258)		1.75		-		-
Unvested at December 31, 2015		-	$			500,000	$	-

(1)During the first quarter of 2012, the Company issued 500,000 restricted units of 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.

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, 2015, 2014, and 2013, was $288, $1,086, and $1,667, 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. In the cases of graded vesting, the Company typically expenses the grant on a straight line basis if only service conditions are present but expenses on a graded basis if performance based conditions are present.


STOCK OPTIONS - SERVICE BASED VESTING

	Number of Options		Weighted Average Exercise Price		Weighted average grant date fair value		Weighted Average Remaining Contractual Term (in years)
Balance at January 1, 2014		3,000,000	$	4.00		$ 0.70
Granted		278,571		4.00		$ 0.70
Exercised		-		-
Forfeited		(85,714)		4.00		$ 0.70
Balance at December 31, 2014		3,192,857		4.00		$ 0.70
Granted		-		-
Exercised		-		-
Forfeited		-		-		$ 0.70
Balance at December 31, 2015		3,192,857	$	4.00		$ 0.70		2.9

Exercisable at December 31, 2015		1,526,189	$	4.44

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. As of December 31, 2015 and 2014, all options were out of the money.

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 fair values of the options granted during 2014 were estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: (i) expected volatility – 68.1%; (ii) expected dividends – 3.42%; (iii) expected lives of options (in years) – 3.5; and (iv) risk free rate – 0.74%.

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. Compensation cost is recognized over the vesting term of the option using the straight-line method.

Contingent Issuance of Shares

On March 12, 2012, the Company entered into an agreement with unrelated third parties whereby the Company agreed to assist in the establishment of an international infrastructure finance business (“Infrastructure Finance Business”). As consideration for the Company’s assistance in establishing the Infrastructure Finance Business, the Company receives 8.0% of certain revenues of the manager of the Infrastructure Finance Business. The Infrastructure Finance Business revenue share arrangement expires when the Company has earned a cumulative $20,000 in revenue share payments or with the dissolution of the Infrastructure Finance Business’ management company. Also, in any particular year, the revenue share earned by the Company cannot exceed $2,000.

In connection with this revenue share arrangement, the Company issued 500,000 restricted units of Common Stock to the managing member of the Infrastructure Finance Business, which vest 1/3 when the Company receives $6,000 of cumulative revenue share payments, 1/3 when the Company receives $12,000 of cumulative revenue share payments, and 1/3 when the Company receives $18,000 of cumulative revenue share payments. In certain circumstances, the Company retains the right to deliver fixed amounts of cash to the managing member of the Infrastructure Finance Business as opposed to vested shares of Common Stock. As of December 31, 2015, the Company has earned $775 under the revenue share arrangement.

Because this grant of shares was to a non-employee, the Company will measure the fair value of this grant on the vesting date (based on its share price on those dates) rather than the grant date. The Company has currently determined that the vesting of this grant is not probable, so no expense for this share grant has been recorded.