Note 13. Subsequent Events

Stock options granted in 2016

On January 4, 2016 the Company granted a total of 84,600 stock options to our employees at an exercise price of $12.50 per share. These awards will vest evenly over a three year period. The maximum term of an option is 10 years from the date of grant. The grant date fair value of the options granted was $1.27. Total expense to be recognized for the employee options is approximately $107,000.

On January 4, 2016 the company granted a total of 37,904 stock options to consultants of the company at an exercise prices of $12.50 per share. These awards vest immediately upon acceptance of agreement. The maximum term of an option is 10 years from the date of grant. The grant date fair value of the options granted was $0.70. Total expense to be recognized for the consultant options is approximately $26,000.

On January 4, 2016 the Company granted a total of 25,000 stock options to non-employee directors at an exercise price of $10.00 per share. These awards will vest evenly over a three year period. The maximum term of an option is 10 years from the date of grant. The grant date fair value of the options granted was $1.90. Total expense to be recognized for the director options is approximately $48,000.

Significant assumptions used in the option-pricing model to fair value the above option agreements were as follows:

	Employees			Consultants			Board of Directors
Risk-free rate		1.90	%		1.73	%		1.90	%
Expected life	6 years			5 years			6 years
Expected volatility		25.13	%		20.61	%		25.13	%
Expected dividend		—			—			—

Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On January 4, 2016 (the “Effective Date”), the Company entered into employment agreements (each individually, an “Employment Agreement” and collectively, the “Employment Agreements”) with Steve Weclew (“Mr. Weclew”), the Company’s Chief Financial Officer, and Aaron L. Gordon (“Mr. Gordon”), the Company’s Secretary and General Counsel.

Mr. Weclew’s Employment Agreement

Under the terms of the Employment Agreement between the Company and Mr. Weclew, Mr. Weclew will serve as Chief Financial Officer of the Company for a term of one year. The term of the Employment Agreement will be automatically renewed each successive year unless Mr. Weclew or the Company provides written notice of termination. Mr. Weclew is to receive a base salary of $200,000 per year, subject to possible merit increases beginning in 2017. In addition, Mr. Weclew is eligible to receive an annual bonus and long term incentive awards as determined by the Company’s Board of Directors and is eligible to participate in any equity incentive plan, stock option plan, or similar plan adopted by the Company.

On the Effective Date, Mr. Weclew also received stock options to purchase 25,600 shares of the Company’s common stock under the Company’s 2015 Omnibus Incentive Plan (“Plan”) at a price equal to $12.50 per share. These stock options vest over a three year period in equal annual installments beginning on the one year anniversary of the Effective Date. Additional grants under the Plan may be made to Mr. Weclew based upon an evaluation of his performance by the Company’s Board of Directors.

If the Company terminates Mr. Weclew’s employment “without cause” or Mr. Weclew resigns “for good reason” during the term of his Employment Agreement, Mr. Weclew will be entitled to receive his accrued salary and accrued bonus, as well as cash in an amount equal to his salary in equal installments over a 12 month period, subject to certain set-offs for amounts earned in substantially similar full-time employment. As a condition to receiving such accrued bonus amounts and severance payments, Mr. Weclew must execute, deliver, and not revoke a general release in favor of the Company. In addition, all unvested restricted shares, options and warrants granted during the term of the Employment Agreement will become fully vested and non-forfeitable. If Mr. Weclew’s employment terminates during the term of the Employment Agreement due to death or disability, Mr. Weclew or his beneficiaries will be entitled to receive his accrued salary and accrued bonus and all unvested restricted shares, options and warrants granted during the term of the Employment Agreement will become fully vested and non-forfeitable. If Mr. Weclew’s employment terminates “for cause” or Mr. Weclew resigns “without good reason” during the term of the Employment Agreement, Mr. Weclew will be entitled to receive his accrued salary. The Employment Agreement includes non-competition and non-solicitation covenants that will be in effect while Mr. Weclew is employed by the Company and for the two year period following the termination of his employment.

13. SUBSEQUENT EVENTS (Continued)

Mr. Gordon’s Employment Agreement

Under the terms of the Employment Agreement between the Company and Mr. Gordon, Mr. Gordon will serve as Secretary and General Counsel of the Company for a term of one year. The term of the Employment Agreement will be automatically renewed each successive year unless Mr. Gordon or the Company provides written notice of termination. Mr. Gordon is to receive a base salary of $125,000 per year, subject to possible merit increases beginning in 2017, as well as an automobile and cellular phone allowance of $600 per month. In addition, Mr. Gordon is eligible to receive an annual bonus and long term incentive awards as determined by the Company’s Board of Directors and is eligible to participate in any equity incentive plan, stock option plan, or similar plan adopted by the Company.

On the Effective Date, Mr. Gordon also received stock options to purchase 17,600 shares of the Company’s common stock under the Plan at a price equal to $12.50 per share. These stock options vest over a three year period in equal annual installments beginning on the one year anniversary of the Effective Date. Additional grants under the Plan may be made to Mr. Gordon based upon an evaluation of his performance by the Company’s Board of Directors.

If the Company terminates Mr. Gordon’s employment “without cause” or Mr. Gordon resigns “for good reason” during the term of his Employment Agreement, Mr. Gordon will be entitled to receive his accrued salary and accrued bonus, as well as cash in an amount equal to his salary in equal installments over a 12 month period, subject to certain set-offs for amounts earned in substantially similar full-time employment. As a condition to receiving such accrued bonus amounts and severance payments, Mr. Gordon must execute, deliver, and not revoke a general release in favor of the Company. In addition, all unvested restricted shares, options and warrants granted during the term of the Employment Agreement will become fully vested and non-forfeitable. If Mr. Gordon’s employment terminates during the term of the Employment Agreement due to death or disability, Mr. Gordon or his beneficiaries will be entitled to receive his accrued salary and accrued bonus and all unvested restricted shares, options and warrants granted during the term of the Employment Agreement will become fully vested and non-forfeitable. If Mr. Gordon’s employment terminates “for cause” or Mr. Gordon resigns “without good reason” during the term of the Employment Agreement, Mr. Gordon will be entitled to receive his accrued salary. The Employment Agreement includes non-competition and non-solicitation covenants that will be in effect while Mr. Gordon is employed by the Company and for the two year period following the termination of his employment.

The foregoing is only a brief description of the material terms of the Employment Agreements, does not purport to be a complete description of the Employment Agreements, and is qualified in its entirety by reference to the Employment Agreements, which are filed as Exhibits 10.1 and 10.2 to this Current Report on Form 8-K and are incorporated herein by reference.

AmTrust Policy

To protect any amount invested by us in excess of the Super Lien Amount, we purchased insurance from an affiliate of AmTrust North America, or AmTrust, covering all assessments lost during the term of coverage due to a first mortgage foreclosure resulting in a Super Lien Amount payoff, less a deductible equal to six months of assessments. Effective January 28, 2016 the AmTrust insurance policy was non-renewed. All existing units which have had a triggering event as of the non-renewal date will be insured through November 30th, 2016. Any new units acquired subsequent to the non-renewal date will not be covered under this policy. Management believes this will not have an adverse impact on expenses as historically the company was paying more in insurance premiums compared with insurance claims.

Florida Office of Financial Regulation

As a result of the Florida’s Office of Financial Regulation’s (“OFR”) examination of LM Funding, LLC, we have agreed to become licensed as a consumer debt collector.