Share-Based Compensation and Employee Ownership Plans

The Company issues share based compensation under the 2006 Equity and Incentive Plan, the 2007 Equity and Incentive Plan (both established prior to the November 2009 transaction between Ramius and Cowen) and the Cowen Group, Inc. 2010 Equity and Incentive Plan (collectively, the “Equity Plans”). The Equity Plans permit the grant of options, restricted shares, restricted stock units and other equity based awards to the Company's employees, consultants and directors for up to 17,725,000 shares of common stock plus any approved additional shares in accordance with the Equity Plans. Stock options granted generally vest over two-to-five-year periods and expire seven years from the date of grant. Restricted shares and restricted share units issued may be immediately vested or may generally vest over a two-to-five-year period. As of December 31, 2012, there were approximately 1.1 million shares available for future issuance under the Equity Plans.

Under the 2010 Equity Plan, the Company awarded $16.5 million of deferred cash awards to its employees in February 2012. These awards vest over a period of five years and accrue interest at 0.75% per year. As of December 31, 2012, the Company had unrecognized compensation expense related to these awards of $12.3 million.

In addition to the Equity Plans, certain employees of the Company, in November 2009, were issued membership interests in RCG Holdings LLC (formerly Ramius LLC) ("RCG") by RCG, a related party of the Company (the “RCG Grants”). Substantially all of the assets owned by RCG consist of shares of common stock of the Company. Accordingly, upon withdrawal of capital from RCG, members receive either distributions in kind of shares of common stock of the Company, or the proceeds from the sale of shares of the Company's common stock attributable to their capital accounts. The RCG Grants are subject to a service condition and vest to each employee over a period of approximately three years. Any RCG Grants forfeited are redistributed to the remaining stakeholders in RCG, which includes both employees and non-employees. The RCG Grants represent awards to employees of the Company by a related party, as compensation for services provided to the Company. As such, the expense related to these grants is included in the compensation expense of the Company, with a corresponding credit to stockholders equity.

The Company measures compensation cost for share based awards according to the equity method. In accordance with the expense recognition provisions of those standards, the Company amortizes unearned compensation associated with share based awards on a straight-line basis over the vesting period of the option or award. In relation to awards under the Equity Plans, the Company recognized expense of $19.9 million, $22.9 million and $14.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. The income tax effect recognized for the Equity Plans was a benefit of $11.3 million, $11.5 million, and $6.0 million for the years ended December 31, 2012, 2011 and 2010, respectively; however, these benefits were offset by a valuation allowance.

In relation to awards under the RCG Grants, the Company recognized expense of $4.9 million, $5.4 million, and $6.5 million for the years ended December 31, 2012, 2011 and 2010, respectively. The income tax effect recognized for the RCG Grants was a benefit of $1.9 million, $2.1 million and $2.6 million for the years ended December 31, 2012, 2011 and 2010, respectively; however, these benefits were offset by a valuation allowance.

Stock Options

The fair value of each option award is estimated on the date of grant utilizing a Black-Scholes option valuation model that uses the following assumptions:

Expected term. Expected term represents the period of time that options granted are expected to be outstanding. The Company elected to use the "simplified" calculation method, as applicable to companies that lack extensive historical data. The mid-point between the vesting date and the contractual expiration date is used as the expected term under this method.

Expected volatility. Based on the lack of sufficient historical data for the Company's own shares, the Company bases its expected volatility on a representative peer group.

Risk free rate. The risk-free rate for periods within the expected term of the option is based on the interest rate of a traded zero-coupon U.S. Treasury bond with a term equal to the options' expected term on the date of grant.

Dividend yield. The Company has not paid and does not expect to pay dividends in the foreseeable future. Accordingly, the assumed dividend yield is zero.

In connection with the Cowen and Ramius transaction in November 2009, 892,782 stock options of Cowen Holdings common stock outstanding at the effective time of the merger were converted into stock options of the Company on a one-for-one basis. There were no other stock options granted or exercised during the years ended December 31, 2012 and 2011.

The following table summarizes the Company's stock option activity for the year ended December 31, 2012:



	Shares Subject to Option		Weighted Average Exercise Price/Share		Weighted Average Remaining Term	Aggregate Intrinsic Value(1)
					(in years)	(dollars in thousands)
Balance outstanding at December 31, 2010	893.432		$	13.04	3.5	$	—
Options granted	—		—		—	—
Options acquired	—		—		—	—
Options exercised	—		—		—	—
Options forfeited	—		—		—	—
Options expired	(27.004	)	16.00		—	—
Balance outstanding at December 31, 2011	866.428		$	12.95	2.5	—
Options granted	—		—		—	—
Options acquired	—		—		—	—
Options expired	(92.665	)	16.00		—	—
Balance outstanding at December 31, 2012	773.763		$	12.58	1.6	—
Options exercisable at December 31, 2011	716,429		$	14.83	1.9	$	—
Options exercisable at December 31, 2012	623,760		$	14.66	0.9	$	—


(1)	Based on the Company's closing stock price of $2.45 on December 31, 2012 and $2.59 on December 31, 2011.

As of December 31, 2012, the unrecognized compensation expense related to the Company's grant of stock options was insignificant.

Restricted Shares and Restricted Stock Units Granted to Employees

Restricted shares and restricted stock units are referred to collectively as restricted stock. The following table summarizes the Company's restricted share and restricted stock unit activity for the year ended December 31, 2012:



	Nonvested Restricted Shares and Restricted Stock Units		Weighted-Average Grant Date Fair Value
Balance outstanding at December 31, 2010	5,788,021		$	5.39
Granted	6,153,187		4.27
Vested	(3,979,730	)	3.38
Cancelled	(7,735	)	4.31
Forfeited	(436,061	)	4.82
Balance outstanding at December 31, 2011	7,517,682		5.57
Granted	8,381,939		2.82
Vested	(4,855,489	)	4.16
Cancelled	—		—
Forfeited	(792,109	)	3.51
Balance outstanding at December 31, 2012	10,252,023		$	4.15

The fair value of restricted stock is determined based on the number of shares granted and the quoted price of the Company's common stock on the date of grant.

As of December 31, 2012, there was $24.0 million of unrecognized compensation expense related to the Company's grant of nonvested restricted shares and restricted stock units to employees. Unrecognized compensation expense related to nonvested restricted shares and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 1.37 years.

RCG Grants

The following table summarizes the Company's RCG Grants activity for the years ended December 31, 2012:



	Nonvested RCG Grants			Weighted-Average Grant Date Fair Value
Balance outstanding at December 31, 2010	2,638,078			$	7.30
Granted	—			—
Vested	(1,297,726	)		7.30
Forfeited	(42,139	)	*	7.30
Balance outstanding at December 31, 2011	1,298,213			7.30
Granted	—			—
Vested	(1,284,600	)		7.30
Forfeited	(13,613	)	*	7.30
Balance outstanding at December 31, 2012	—			$	—

* Forfeitures of non vested RCG Grants are reallocated to other members within RCG Holdings, LLC.

The fair value of the RCG Grants was determined based on the number of the Company's shares underlying the RCG membership interest and the quoted price of the Company's common stock on the date of the 2009 transactions between Ramius and Cowen. As of December 31, 2012 Company's RCG Grants were fully vested and expensed.

Restricted Shares and Restricted Stock Units Granted to Non-employee Board Members

There were 257,004 restricted stock units awarded, which were immediately vested and expensed upon grant, during the year ended December 31, 2012. Vested awards of 108,237 were delivered during the year ended December 31, 2012. As of December 31, 2012 there were 336,895 restricted stock units outstanding.