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, stock appreciation rights 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. Stock appreciation rights awards ("SAR's") vest and expire after 5 years from grant date. As of March 31, 2013, there were approximately 2.4 million shares available for future issuance under the Equity Plans.

Under the 2010 Equity Plan, the Company awarded $27.7 million of deferred cash awards to its employees in February 2013 in addition to awards granted during 2012. These awards vest over a period of five years and accrue interest at 0.75% per year. As of March 31, 2013, the Company had unrecognized compensation expense related to these awards of $35.7 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 $4.8 million and $4.2 million for the three months ended March 31, 2013 and 2012, respectively. The income tax effect recognized for the Equity Plans was a benefit of $2.0 million and $2.2 million for the three months ended March 31, 2013 and 2012, respectively; however, these benefits were offset by a valuation allowance.

In relation to awards under the RCG Grants, the Company recognized expense of $1.3 million for the three months ended March 31, 2012. The income tax effect recognized for the RCG Grants was a benefit of $0.5 million for the three months ended March 31, 2012; however, this benefit was offset by a valuation allowance.

Stock Options and Stock Appreciation Rights

The Company values options and SAR's using the Black-Scholes option valuation model which requires the Company to make assumptions regarding the expected term, volatility, risk-free rate and dividend yield.

The fair value of each 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 awards 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. The Company bases its expected volatility on its own stock price history.

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

The following table summarizes the Company's stock option activity for the three months ended March 31, 2013:



	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, 2012	773,763	$	12.58	1.6	$	—
Options granted	—	—		—	—
Options acquired	—	—		—	—
Options expired	—	—		—	—
Balance outstanding at March 31, 2013	773,763	$	12.58	1.4	$	—
Options exercisable at March 31, 2013	673,761	$	13.93	0.9	$	—


(1)	Based on the Company's closing stock price of $2.82 on March 31, 2013 and $2.45 on December 31, 2012.

As of March 31, 2013, the unrecognized compensation expense related to the Company's grant of stock options was insignificant.

The following table summarizes the Company's SAR's for the three months ended March 31, 2013:



	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, 2012	—	$	—	—	$	—
SAR's granted	400,000	2.90		4.96	—
SAR's acquired	—	—			—
SAR's expired	—	—			—
Balance outstanding at March 31, 2013	400,000	$	2.90	4.96	$	—
SAR's exercisable at March 31, 2013	—	$	—	—	$	—


(1)	Based on the Company's closing stock price of $2.82 on March 31, 2013.

As of March 31, 2013, the unrecognized compensation expense related to the Company's grant of SAR's was $0.3 million.

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 three months ended March 31, 2013:



	Nonvested Restricted Shares and Restricted Stock Units		Weighted-Average Grant Date Fair Value
Balance outstanding at December 31, 2012	10,252,023		$	4.15
Granted	5,866,349		2.50
Vested	(1,036,040	)	2.87
Cancelled	—		—
Forfeited	(75,535	)	3.40
Balance outstanding at March 31, 2013	15,006,797		$	3.60

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 March 31, 2013, there was $34.0 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 1.90 years.

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

There were no restricted stock units were awarded or vested during the three months ended March 31, 2013. As of March 31, 2013 there were 336,895 restricted stock units outstanding.