15. Commitments and Contingencies

Guarantees and Other Indemnifications Relating to Certain Contractual Obligations of ClearPoint

On February 14, 2013, the Company and certain of its affiliates, including ClearPoint, entered into an Asset Purchase Agreement (“Purchase Agreement”) in connection with the Homeward Transaction. The Purchase Agreement, among other things, provides for customary indemnification provisions. Pursuant to these provisions, the Company is required to maintain an escrow account of $5.0 million for a three-year period following the closing date. The Parent has also provided for a guaranty of ClearPoint’s indemnification obligations to Homeward, up to a maximum of $7.5 million, of which $5.0 million is payable by Parent under the guaranty only in limited circumstances in which, during the three-year period following the closing date, the sums held in the escrow account are not available to satisfy indemnification claims. Any amounts paid under the guaranty will be released to the Company from the escrow account on a dollar-for-dollar basis (assuming funds are available). Indemnity claims of Homeward, if any, will be paid first from the escrow account, and then, to the extent necessary, drawn upon the guaranty.

ClearPoint Loan Repurchases

In addition to the indemnification provisions related to the Homeward Transaction, in the ordinary course of business, ClearPoint also indemnified its other counterparties, including under its loan sale and warehouse line agreements, against potential losses incurred by such parties in connection with particular arrangements. During the three months ended June 30, 2013, ClearPoint was presented with loan repurchase requests related to four loans with an aggregated current loan balance of approximately $1.0 million (of which two loans with an aggregated loan balance of approximately $0.6 million were presented by Homeward). No repurchase requests were outstanding prior to the second quarter of 2013. The Company is currently evaluating these requests, and to the extent ultimately repurchased, would expect to substantially recoup any payments made under these requests through the proceeds from the sale of the loans in a secondary market. A reserve for this exposure is included within Accrued expenses in the Consolidated Statements of Financial Condition and amounts reserved as of June 30, 2013 and December 31, 2102 are not material.

Senior Management Compensation and Retention Plan

In August 2012, the Company adopted a Senior Management Compensation and Retention Plan (“Retention Plan”), and entered into related agreements with four of its executive officers. Under the Retention Plan, termination of employment under certain circumstances in connection with the occurrence of a Change in Control, as defined by the Retention Plan, could potentially trigger payments to the covered executive officers of as much as approximately $10.0 million. In general, the cash payment would be made following an involuntary termination of employment by the Company (or a resignation by the covered executive officer for good reason, as defined) within six months before or two years after a Change in Control.

As previously mentioned within Note 1 herein, effective May 24, 2013, the employment of Thomas J. Hughes, our former Chief Executive Officer and John Griff, our former Chief Operating Officer, was terminated by the Company. Messrs. Hughes and Griff each participated in the Retention Plan and each has a related retention plan agreement with the Company. To the extent a Change in Control were to occur within a period no longer than six months from the applicable dates of termination, cash payments totaling approximately $7.0 million (and other incidental benefits) might become payable to these former employees.

Subsequent to the Company’s termination of Messrs. Hughes and Griff, these former officers made a demand to the Company for severance benefits set forth in the Retention Plan and their related agreements, which they claim are due as a result of their respective terminations. The Company has determined that no severance payments based upon a “Change in Control” (as defined in the applicable agreements) are due to these former officers inasmuch as the Company has concluded that no “Change in Control” has occurred. For further information, see Part II, Item 1A, “Risk Factors — Risks Specific to our Company — Our exposure to legal liability is significant. Damages that we may be required to pay could materially adversely affect our financial position and/or results of operations.” In the absence of a “Change in Control,” under certain circumstances Mr. Hughes could be entitled to a severance payment of $750,000 (not accrued at June 30, 2013) and Mr. Griff could be entitled to vesting of 20,833 unvested shares of restricted stock.

The Company is in discussions with the two other participants under the Retention Plan (the Company’s General Counsel and its Controller) with respect to terminating their participation in the Retention Plan and entering into replacement employment agreements.

No amounts under the Retention Plan, or any potential replacement employment agreements, have been accrued as of June 30, 2013.

Other Compensation Matters

As a result of the Company’s restructuring, the Company entered into agreements with the majority of its remaining employees (excluding the Company’s General Counsel and its Controller, discussed above) designed to retain these employees through specified dates. The agreements provide for continued employment and the payment of guaranteed bonus compensation contingent upon continued service through such specified dates. These bonus payments total approximately $0.8 million in the aggregate, and the Company has accrued approximately $0.1 million of this obligation at June 30, 2013.

Leases

The Company’s headquarters and sales offices, and certain office and communication equipment, are leased under non-cancelable operating leases, certain of which contain renewal options, free rent periods, and escalation clauses. These leases expire at various times through 2025. To the extent the Company is provided tenant improvement allowances funded by the lessor, they are amortized over the initial lease period and serve to reduce rent expense. The Company recognizes the rent expense over the entire lease term on a straight-line basis.

Future minimum annual lease payments, and sublease rental income as of June 30, 2013, are as follows:

(In thousands of dollars)	Future Minimum Lease Payments		Sublease Rental Income		Net Lease Payments
2013 (remaining)	$	3,889	$	775	$	3,114
2014	6,590		860		5,730
2015	5,943		502		5,441
2016	5,487		—		5,487
2017	5,447		—		5,447
Thereafter	38,364		—		38,364
Total	$	65,720	$	2,137	$	63,583

In connection with the Company’s exit from its Investment Banking and Fixed Income businesses during the second quarter of 2013, the Company recorded a lease restructuring charge of approximately $16.8 million (including a charge associated with the Company’s headquarters and its other office locations), which has been recorded within discontinued operations.

Rental expense from continuing operations, net of sublease rental income, for the three months ended June 30, 2013 and 2012 was approximately $0.2 million and $0.2 million, respectively, and was $0.3 million and $0.4 million for the six months ended June 30, 2013 and 2012, respectively.

Litigation

Refer to Note 1 within the footnotes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for a detailed discussion of the accounting policy related to contingencies.

Due to the nature of the Company’s prior business activities, the Company and its subsidiaries have been exposed to risks associated with a variety of legal proceedings and claims. These include litigations, arbitrations and other proceedings initiated by private parties and arising from underwriting, financial advisory, securities trading or other transactional activities, client account activities, mortgage lending and employment matters, and stockholder claims. Third parties who assert claims may do so for monetary damages that are substantial, particularly relative to the Company’s financial position. These proceedings and claims typically involve associated legal costs incurred by the Company in connection with defending against these matters, which could be significant. The Company has been in the past, and currently is, subject to a variety of claims and litigations arising from its prior business, most of which it considers to be routine.

The Company and its subsidiaries are also subject to both routine and unscheduled regulatory examinations of their respective businesses and investigations of securities industry practices by governmental agencies and self-regulatory organizations. In recent years, securities and mortgage lending firms have been subject to increased scrutiny and regulatory enforcement activity. Regulatory investigations can result in substantial fines being imposed on the Company and/or its subsidiaries. As a result of prior business activities, the Company and its subsidiaries have received, and may in the future receive, inquiries and subpoenas from the SEC, FINRA, state regulators and other regulatory organizations. The Company does not always know the purpose behind these communications or the status or target of any related investigation. Some of these communications have, in the past, resulted in disciplinary actions which have sometimes included monetary sanctions and in the Company and/or its subsidiaries being cited for regulatory deficiencies. To date, none of these communications have had a material adverse effect on the Company nor does the Company believe that any pending communications are likely to have such an effect. Nevertheless, there can be no assurance that any pending or future communications will not have a material adverse effect on the Company. In addition, the Company is also subject to claims being made by employees alleging discrimination, harassment, wrongful discharge or breach of an employment agreement or other contractual arrangement, among other things. Employees could seek recoupment of compensation claimed to be owed (whether for cash or forfeited equity awards), severance payments, vesting of equity awards and other damages. These claims could involve significant amounts.

The Company recognizes a liability in its financial statements with respect to legal proceedings or claims when incurrence of a loss is probable and the amount of loss is reasonably estimable. However, accurately predicting the timing and outcome of legal proceedings and claims, including the amounts of any settlements, judgments or fines, is inherently difficult insofar as it depends on obtaining all of the relevant facts (which is sometimes not feasible) and applying to them often-complex legal principles. It is reasonably possible that the Company incurs losses pertaining to these matters in the form of settlements and/or adverse judgments and incurs legal and other expenses in defending against these matters. In either case, losses and/or expenses could be different in character or amount than anticipated by management when preparing the accompanying financial statements. Based on currently available information, the Company does not believe that any current litigation, proceeding, claim or other matter to which it is a party or otherwise involved, including any associated defense costs will have a material adverse effect on its financial position, or cash flows, although an adverse development, or an increase in associated legal fees, could be material to the Company’s results of operations in a particular period, depending in part on the Company’s operating results in that period.

Letters of Credit

The Company is contingently liable under bank stand-by letter of credit agreements, executed primarily in connection with office leases totaling $1.0 million and $4.9 million at June 30, 2013 and December 31, 2012, respectively. These agreements were all collateralized by cash which is included within Other assets within the Consolidated Statements of Financial Condition. During the three months ended June 30, 2013, letters of credit for approximately $3.9 million had expired and the cash collateral is now in the possession of the Company’s landlord. This amount is included within collateral deposits disclosed within Note 13 “Other Assets” herein.

Other

In the normal course of its prior business activities, the Company provided guarantees to third parties with respect to the obligations of certain of its subsidiaries. The majority of these arrangements, discussed below, are connected to the sales and trading activities of the Company’s MBS & Rates and Credit Products divisions, the activities of which were discontinued in the second quarter of 2013.

In the normal course of business, Gleacher & Company Securities, Inc. (“Gleacher Securities”) indemnified certain service providers, such as clearing and custody agents, trustees, and administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the Company or its affiliates. Gleacher Securities also indemnified some clients against potential losses incurred in the event of non-performance by specified third-party service providers, including sub-custodians. The maximum potential amount of future payments that Gleacher Securities could be required to make under these indemnifications cannot be estimated. However, Gleacher Securities has historically made no material payments under these arrangements and believes that it is unlikely it will have to make material payments in the future. Therefore, the Company has not recorded any contingent liability in the consolidated financial statements for these indemnifications.

The Company provided representations and warranties to counterparties in connection with a variety of transactions and occasionally agreed to indemnify them against potential losses caused by the breach of those representations and warranties and occasionally other liabilities. The maximum potential amount of future payments that the Company could be required under these indemnifications cannot be estimated. However, the Company has historically made no material payments under these agreements and believes that it is unlikely it will have to make material payments in the future; therefore it has not recorded any contingent liability in the consolidated financial statements for these indemnifications.