Equity-Based Compensation

9 Months Ended

Sep. 30, 2011

Equity-Based Compensation [Abstract]

Equity-Based Compensation

9. Equity-Based Compensation

Equity-based compensation for these periods is primarily included in "Selling, general and administrative" on ICG's Consolidated Statements of Operations. The following table provides additional information related to ICG's equity-based compensation:

												Weighted
												Average Years
										Unrecognized		Remaining of
										Equity-Based		Equity-Based
	Three Months Ended					Nine Months Ended				Compensation		Compensation
	September 30,					September 30,				at September 30,		Expense at
	2011		2010			2011		2010		2011		Sept. 30, 2011
	(in thousands, except weighted average years)
SARs	$	611	$	496		$	1,645	$	1,540	$	5,839		2.8
Stock Options		—		—			—		—		1		1.2
Restricted Stock		85		(4	)		162		72		1,086		3.4
DSUs		175		54			528		150		305		0.4
Equity-Based Compensation for ICG Group, Inc.	$	871	$	546		$	2,335	$	1,762	$	7,231
Equity-Based Compensation for Consolidated Core Companies		54		162			370		535		1,883		3.9
Equity-Based Compensation	$	925	$	708		$	2,705	$	2,297	$	9,114

Stock Appreciation Rights (SARs)

Each SAR represents the right of the holder to receive, upon exercise of that SAR, shares of ICG Common Stock equal to the amount by which the fair market value of a share of that Common Stock on the date of exercise of the SAR exceeds the base price of the SAR. The base price is determined by the NASDAQ closing price of ICG's Common Stock on the date of grant (or the closing price on the next trading day if there are no trades in ICG's stock on the date of grant). The fair value of each SAR is estimated on the grant date using the Black-Scholes option-pricing model. SARs generally vest over four years, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting equally each month over the subsequent 36 months.

During the nine months ended September 30, 2011, ICG granted 275,625 SARs to employees and a non-management director at a weighted-average base price of $12.15 per share and a weighted-average fair value of $6.58 per share. During the nine months ended September 30, 2010, ICG granted 1,406,940 SARs to employees and a non-management director at a weighted-average base price of $6.79 per share and a weighted-average fair value of $3.96 per share. There were no SARs exercised during the three months ended September 30, 2011. During the nine months ended September 30, 2011, 98,057 SARs were exercised. These exercises resulted in the issuance of 19,998 shares of ICG's Common Stock during the nine months ended September 30, 2011. During the three and nine months ended September 30, 2010, 531,020 SARs and 586,020 SARs, respectively, were exercised, which resulted in the issuance of 139,781 shares and 151,457 shares of ICG's Common Stock during the respective periods. There were 4,149,453 and 3,971,885 SARs outstanding at September 30, 2011 and December 31, 2010, respectively. The aggregate intrinsic values of the SARs outstanding at September 30, 2011 and December, 31, 2010 were $7.4 million and $27.0 million, respectively.

Stock Options

The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. Stock options generally vest over four years. There were no stock options granted during the three and nine months ended September 30, 2011 and 2010. During the three and nine months ended September 30, 2011, 15,300 and 18,725 stock options were exercised, respectively. There were no stock options exercised during the three and nine months ended September 30, 2010. During the three and nine months ended September 30, 2011, 39,619 and 108,736 stock options expired, respectively. During the three and nine months ended September 30, 2010, 1,000 and 26,626 stock options expired, respectively. There were 183,708 and 311,169 stock options outstanding as of September 30, 2011 and December 31, 2010, respectively.

SARs and Stock Options Fair Value Assumptions

ICG estimates the grant date fair value of SARs and stock options using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. These assumptions include estimating the expected life of the award and estimating volatility of ICG's stock price over the expected term. Expected volatility approximates the historical volatility of ICG's Common Stock over the period commensurate with the expected term of the award. The expected term calculation is based on an average of the award vesting term and the life of the award. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the award. Changes in these assumptions, the estimated forfeitures and the requisite service period can materially affect the amount of equity-based compensation recognized in ICG's Consolidated Statements of Operations.

The following assumptions were used to determine the fair value of SARs granted to employees by ICG during the three- and nine-month periods ended September 30, 2011 and 2010, respectively:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011	2010
Expected volatility		—		—	56%	60%
Average expected life of SAR (in years)		—		—	5.25-6.25	2.75-6.25
Risk-free interest rate		—		—	1.62-1.97%	1.55-2.92%
Dividend yield		—		—	0.0%	0.0%

Restricted Stock

During the nine months ended September 30, 2011, ICG granted 66,875 shares of restricted stock to its employees. These awards vest in equal annual installments over four years and were valued at $0.8 million on the date of grant. Also during the nine months ended September 30, 2011, ICG granted 15,035 shares of restricted stock to executives of a consolidated subsidiary. These awards vest after seven years, with the possibility to accelerate the vesting for the achievement of certain performance conditions, and were valued at $0.2 million on the date of grant. The issuance of these awards is included in the line item "Issuance of restricted stock" in ICG's Consolidated Statements of Changes in Equity. The expense associated with these awards is included in the line item "Equity-based compensation related to restricted stock" in ICG's Consolidated Statements of Changes in Equity.

The expense associated with the awards granted to executives of a consolidated subsidiary are included in the line item "Equity-Based Compensation for Consolidated Core Companies" in the table above. At the time of grant, ICG believed certain performance conditions related to the awards issued to executives of a consolidated subsidiary were probable of achievement and recorded $0.1 million of expense related to these awards during the six months ended June 30, 2011. During the three months ended September 30, 2011, ICG no longer believed the achievement of these performance conditions was probable. Accordingly, ICG reversed a portion of the expense previously recorded and will record the total expense associated with these awards over the seven-year vesting period.

During the nine months ended September 30, 2010, ICG granted 25,000 shares of restricted stock to one of its employees. This award vests in equal annual installments over four years and was valued at $0.2 million on the date of grant. During the nine months ended September 30, 2011, 6,250 shares of restricted stock vested. During the three and nine months ended September 30, 2010, 525 shares and 3,025 shares of restricted stock vested. There were no forfeitures of restricted stock during the nine months ended September 30, 2011. During the three and nine months ended September 30, 2010, 7,500 shares of restricted stock were forfeited. There were 136,160 and 60,500 shares of restricted stock outstanding at September 30, 2011 and December 31, 2010, respectively.

Subsequent to September 30, 2011, the Compensation Committee of ICG granted 550,000 shares of restricted stock to each of Walter W. Buckley, III, ICG's Chief Executive Officer, and Douglas A. Alexander, ICG's President. The vesting for each of these grants is as follows. One-third (183,333) of these restricted shares vest upon (1) ICG's achievement of trailing twelve-month consolidated revenue in excess of $500.0 million at any time on or before December 31, 2015, or (2) ICG's achievement of its share of trailing twelve-month consolidated adjusted earnings before interest, taxes, depreciation and amortization, excluding equity-based compensation and unusual items in excess of $70.0 million at any time on or before December 31, 2015. If neither of the above financial metrics is met, but ICG achieves at least 75% of either of these targets, a portion (at least 91,667) of these restricted shares vests, with ratable vesting (up to 183,333) for the achievement of any percentage of the financial targets between 75% and 100%. One-third (183,333) of these restricted shares vest if the thirty-day volume weighted average price per share of ICG's Common Stock equals or exceeds $25.00 at any time prior to December 31, 2015. A portion (91,667) of these restricted shares vests if the $25.00 per share stock price target is not achieved, but ICG's total stockholder return is in the top 40% of all NASDAQ Component members for the period beginning on the date of grant and ending on December 31, 2015. The remaining one-third (183,334) of these restricted shares vest ratably over four years, commencing in May 2012. In the event of a change of control (as defined by ICG's Third Amended and Restated 2005 Omnibus Equity Compensation Plan) before December 31, 2015, all of the shares contingent upon the achievement of the financial and stock price metrics automatically vest and any unrecognized equity-based compensation expense associated with those awards would be immediately recognized. These two awards were valued at an aggregate of $11.0 million on the date of grant. ICG will record equity-based compensation expense related to these awards beginning in the fourth quarter of 2011.

Deferred Stock Units (DSUs)

Each DSU represents a share of Common Stock into which that DSU will be converted upon the termination of the recipient's service at ICG. During the nine months ended September 30, 2011, ICG issued 60,000 DSUs to its non-management directors under the Non-Management Director Compensation Plan (the "Director Plan"); those DSUs were valued at $0.8 million. During the nine months ended September 30, 2011, 7,500 of those DSUs vested in connection with a director's resignation from ICG's Board of Directors.

The remaining 52,500 DSUs are expected to vest in the first quarter of 2012. During the nine months ended September 30, 2010, ICG issued 36,000 DSUs to its non-management directors under the Director Plan, which were valued at $0.2 million. During the nine months ended September 30, 2010, 4,500 of those DSUs were forfeited; the remaining 31,500 DSUs vested during the nine months ended September 30, 2011.

ICG issues quarterly compensation payments to each non-management director for his service on the Board of Directors and its committees under the Director Plan. Each director had the right to elect to receive such payments in whole or in part in the form of DSUs in lieu of cash. Each participating director receives DSUs representing shares of ICG's Common Stock with a fair market value equal to the relevant cash fees (with such fair market value determined by reference to the closing Common Stock price reported by NASDAQ on the date these cash fees otherwise would have been paid). These DSUs vest immediately. The expense for these DSUs is recorded when the fees to which the DSUs relate are earned.

During the three and nine months ended September 30, 2011, ICG issued 2,759 DSUs and 8,493 DSUs, respectively, to ICG's non-management directors. During the three and nine months ended September 30, 2010, ICG issued 6,543 DSUs and 21,359 DSUs, respectively, to ICG's non-management directors. The expense of less than $0.1 million and $0.1 million for the three and nine months ended September 30, 2011, respectively, and the expense of $0.1 million and $0.2 million for the three and nine months ended September 30, 2010, respectively, associated with the quarterly grants for service is included in the line item "Selling, General and Administrative" in ICG's Consolidated Statements of Operations (but is not reflected in the summary Equity-Based Compensation table above).

Consolidated Core Companies

ICG's consolidated core companies recorded $0.1 million and $0.4 million of compensation expense related to equity-based awards during the three and nine months ended September 30, 2011, respectively. ICG's consolidated core companies, primarily ICG Commerce, recorded $0.2 million and $0.5 million of compensation expense related to equity-based awards during the three and nine months ended September 30, 2010, respectively. ICG Commerce's stock options generally vest over four years, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting equally each month over the next 36 months. The fair value of each of ICG Commerce's option awards was estimated on the grant date using the Black-Scholes option pricing model.