NOTE 11 — SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS

Director Compensation Program

The Director Compensation Program provides for annual grants of restricted shares of the Company’s common stock on the first business day of each calendar year to each nonexecutive Board member. These grants have a grant date fair value of $75 thousand per nonexecutive director, and vest on January 1 of the following year. Compensation to nonexecutive directors joining the Company after January 1 is prorated for the time of service and those awards also vest on January 1 of the following year. Beginning in January 2012, the director compensation awards have been granted under the Amended and Restated Signature Group Holdings, Inc. 2006 Performance Incentive Plan (the “Incentive Plan”).

Incentive Plan

The Incentive Plan provides for the grant of restricted common stock, common stock options, stock appreciation rights, and restricted stock units to employees, nonexecutive directors and consultants. Under the Incentive Plan, the Board is authorized to issue up to 25.0 million shares of common stock, or its equivalent. As of June 30, 2013 and December 31, 2012, there were no stock appreciation rights or restricted stock units outstanding and there were 5.7 million and 8.8 million shares, respectively, available for grant under the Incentive Plan.

Restricted common stock

Restricted common stock awards are granted with various vesting schedules ranging from immediately up to five years. Grants that vest immediately have restrictions on transfer of the common stock for approximately one year. The following table provides details of nonvested restricted common stock for the periods indicated:


	Six Months Ended June 30, 2013					Year Ended December 31, 2012
	Shares			Weighted Average Grant Date Fair Value Per Share		Shares			Weighted Average Grant Date Fair Value Per Share
Beginning nonvested restricted shares		3,575,182		$	0.44		2,315,040		$	0.60
Shares vested		(1,410,984	)		0.35		(1,950,102	)		0.42
Shares granted		1,231,708			0.49		3,210,244			0.31

Ending nonvested restricted shares		3,395,906		$	0.49		3,575,182		$	0.44

On August 6, 2012, upon the certification of the results of the vote of shareholders at the 2012 Annual Meeting of Shareholders, the seating of the new Board and the resignation of four independent directors that were not renominated, 1,111,112 shares of restricted common stock vested pursuant to the restricted stock awards.

On May 3, 2013, in connection with his assumption of the duties of the Chief Executive Officer, the Board granted G. Christopher Colville 250,000 shares of restricted common stock. The grant date fair value of the award was $138,750, based on the closing price of Signature’s common stock on the grant date. On June 4, 2013, Mr. Colville resigned as Chairman of the Board and interim Chief Executive Officer and pursuant to his restricted stock awards, 182,927 shares of restricted common stock granted in January 2013, and the 250,000 shares of restricted common stock granted on May 3, 2013, vested in full.

On June 5, 2013, in connection with his appointment as Chairman of the Board and Chief Executive Officer, Craig Bouchard, was granted 250,000 shares of restricted common stock. The shares vest on January 1, 2014 and had a grant date fair value of $167,500.

Share-based compensation related to restricted common stock awards was $0.4 million and $0.2 million for the three months ended June 30, 2013 and 2012, respectively, and $0.6 million and $0.4 million for the six months ended June 30, 2013 and 2012, respectively. At June 30, 2013 and December 31, 2012, the aggregate unamortized value of share-based restricted common stock awards was $0.7 million and $0.7 million, respectively, and will be recognized over a weighted average period of 1.0 years and 1.6 years, respectively.

Common stock options

The Company may issue common stock options to employees under the Incentive Plan, with various vesting schedules ranging from immediately up to four years. The fair value of each common stock option award is estimated on the grant date using either a Black-Scholes option pricing model for service-based awards or a trinomial lattice option pricing model for performance-based awards using assumptions in the following table. Expected volatilities are based on historical volatility of the Company’s common stock since emerging from Bankruptcy Proceedings, and volatilities of similar entities. The common stock option awards expire eight to ten years following the grant date and the expected lives are based on the simplified method as the Company does not have sufficient common stock option exercise experience to support a reasonable estimate of expected term. The risk-free rate is the yield available on United States Treasury zero-coupon issues with remaining terms approximating the expected term at the grant date. The following table presents weighted average assumptions used in determining the weighted average $0.27 and $0.17 per share grant date fair value of common stock options granted in the six months ended June 30, 2013 and the year ended December 31, 2012, respectively:


(Weighted averages)	Six Months Ended June 30, 2013			Year Ended December 31, 2012
Expected volatility		55.0	%		52.6	%
Risk-free interest rate		1.15	%		0.80	%
Expected term (in years)		5.6			5.1
Dividend yield		0.0	%		0.0	%

The following table presents activity of nonvested common stock options during the periods indicated:


	Six Months Ended June 30, 2013					Year Ended December 31, 2012
	Shares			Weighted Average Exercise Price Per Share		Shares			Weighted Average Exercise Price Per Share
Beginning nonvested common stock options		8,723,748		$	0.54		8,816,000		$	0.57
Common stock options granted		2,050,000			0.95		1,846,000			0.36
Common stock options vested		(3,332,083	)		0.55		(1,898,586	)		0.54
Common stock options forfeited		(83,333	)		0.30		(39,666	)		0.30

Ending nonvested common stock options		7,358,332		$	0.54		8,723,748		$	0.54

On June 5, 2013, in connection with his appointment as Chairman of the Board and Chief Executive Officer, Mr. Bouchard, was granted options to purchase 2,000,000 shares of common stock. The options vest 25% every six months following the grant date, have exercises prices of $0.85 for the first 500,000 options and $1.00 for the remaining 1,500,000 options, and had a grant date fair value of $549,714.

The following table presents activity of exercisable common stock options during the periods indicated:


	Six Months Ended June 30, 2013					Year Ended December 31, 2012
	Shares			Weighted Average Exercise Price Per Share		Shares			Weighted Average Exercise Price Per Share
Beginning vested common stock options		1,813,252		$	0.52		—		$	—
Common stock options exercised		(66,667	)		0.30		(85,334	)		0.30
Common stock options vested		3,332,083			0.55		1,898,586			0.51

Ending vested common stock options		5,078,668		$	0.54		1,813,252		$	0.52

The weighted average remaining contractual life for common stock options outstanding at June 30, 2013 and December 31, 2012 was 8.0 and 8.6 years, respectively, and the weighted average remaining contractual life for common stock options exercisable at June 30, 2013 was 8.0 years.

The following table provides information pertaining to the intrinsic value of common stock options outstanding and exercisable as of:


(Dollars in thousands)	June 30, 2013		December 31, 2012
Intrinsic value of common stock options outstanding	$	3,880	$	106
Intrinsic value of common stock options exercisable		1,874		37

The following table presents the intrinsic value of common stock options exercised and the fair value of common stock options that vested during the periods indicated:


(Dollars in thousands)	Six Months Ended June 30, 2013		Year Ended December 31, 2012
Intrinsic value of common stock options exercised ⁽¹⁾	$	16	$	10
Fair value of common stock options vested⁽²⁾		615		327

(1)	The intrinsic value of common stock options exercised is the difference between the fair market value of the Company’s common stock on the exercise date and the exercise price.

(2)	The fair value of common stock options vested is based on the grant date fair value.

Share-based compensation related to common stock option awards was $0.2 million and $0.2 million for the three months ended June 30, 2013 and 2012, respectively, and $0.4 million and $0.4 million for the six months ended June 30, 2013 and 2012, respectively. At June 30, 2013, the aggregate unamortized value of share-based common stock option awards was $1.2 million and will be recognized over a weighted average period of 1.4 years.

401(k) saving plan

In 2012, the Company implemented a 401(k) savings plan (the “Savings Plan”) under which all full-time employees are eligible to participate. Employee contributions are limited to the maximum amount allowed by the IRS. The Company matches 100% of each employee contribution to the Savings Plan, up to a maximum match of 4% of each employee’s cash compensation. Matching contributions under the Savings Plan during the three months ended June 30, 2013 and 2012 were $47 thousand and $15 thousand, respectively, and $0.1 million and $15 thousand during the six months ended June 30, 2013 and 2012, respectively.