NOTE 16—SHARE-BASED PAYMENTS

Incentive Plans

At the 2015 Annual Meeting of Stockholders, our stockholders approved the Signature Group Holdings, Inc. 2015 Equity Award Plan, and following our corporate name change, the Amended and Restated Real Industry, Inc. 2015 Equity Award Plan (the “2015 Equity Plan”), which provides for the grant of restricted common stock, common stock options, performance shares, stock appreciation rights, and restricted stock units to employees, nonexecutive directors and consultants. The 2015 Equity Plan replaces the Amended and Restated 2006 Signature Group Holdings, Inc. Performance Incentive Plan (the “2006 Incentive Plan”). Including the carryover shares from the 2006 Incentive Plan, the Board is authorized to issue up to 1.9 million shares of common stock, or its equivalent, under the 2015 Equity Plan. The terms and conditions of awards outstanding under the 2006 Incentive Plan are not affected by the termination of the 2006 Incentive Plan, as their terms survive any termination. As of December 31, 2017, there were no stock appreciation rights outstanding. As of December 31, 2017, under the 2006 Incentive Plan, there were no shares available for grant, 59,198 shares of unvested restricted common stock and 367,600 fully vested and exercisable common stock options were outstanding. As of December 31, 2017, there were 861,222 shares available for grant under the 2015 Equity Plan, 573,794 unvested shares of restricted common stock, 209,654 unvested incentive restricted stock units outstanding and 31,323 vested director restricted stock units outstanding.

Director Compensation Program

Prior to changes made in 2017, our Director Compensation Program (the “DCP”) provided cash fees, which Directors could elect to receive in the form of fully vested restricted stock units in 2017, and 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, under both the 2015 Equity Plan and the 2006 Incentive Plan. Through the year ended December 31, 2015, these annual restricted stock grants had a grant date fair value of $75,000 per nonexecutive director, and vested on January 1 of the following year. Beginning January 1, 2016, these grants had a grant date fair value of $85,000. 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. Following the Petition Date, the DCP was amended to provide for an aggregate of $40,000 of total quarterly Director compensation, to be paid all in cash upon the Company’s successful emergence from the RI Chapter 11 Case, and annual equity awards were suspended.

Restricted common stock

Restricted common stock awards are granted with various vesting schedules ranging from immediately to five years. Grants that vest in less than one year generally have restrictions on transfer of the common stock for approximately one year. The following table provides activity of restricted common stock for the years ended December 31, 2017, 2016 and 2015:


	Shares	Weighted Average Grant Date Fair Value Per Share
Balance, December 31, 2014	114,505	$	4.94
Restricted common stock vested	(96,172)		6.92
Restricted common stock granted	255,151		6.89
Restricted common stock forfeited	(14,161)		8.08
Balance, December 31, 2015	259,323		7.05
Restricted common stock vested	(122,141)		7.23
Restricted common stock granted	527,889		6.64
Restricted common stock forfeited	(67,825)		6.88
Balance, December 31, 2016	597,246		6.63
Restricted common stock vested	(267,816)		6.81
Restricted common stock granted	417,720		5.20
Restricted common stock forfeited	(114,158)		5.93
Balance, December 31, 2017	632,992	$	5.74

Share-based compensation related to restricted common stock awards was $1.7 million, $1.6 million and $0.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, the aggregate unamortized value of share-based restricted common stock awards was $2.1 million, and will be recognized over a weighted average period of 1.8 years.

During the years ended December 31, 2017, 2016 and 2015, employees were granted 183,447, 109,207 and 32,412 shares of restricted common stock, respectively; executive officers were granted 132,354, 355,166 and 172,529 shares of restricted common stock, respectively; and directors were granted 101,919, 63,516, and 50,210 shares of restricted common stock, respectively.

Common stock options

The Company issued common stock options to employees under the 2006 Incentive Plan, with various vesting schedules ranging from immediately 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 market-based awards. Expected volatilities were based on historical volatility of the Company’s common stock. 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 U.S. Treasury zero-coupon issues with remaining maturities approximating the expected term at the grant date. There were no common stock option awards granted in the years ended December 31, 2017, 2016 and 2015.

The following table presents activity of nonvested common stock options during the years ended December 31, 2017, 2016 and 2015:


	Options	Weighted Average Exercise Price Per Share
Balance, December 31, 2014	81,400	$	7.62
Common stock options vested	(31,400)		3.84
Common stock options forfeited	(50,000)		10.00
Balance, December 31, 2015, 2016 and 2017	—	$	—

There was no activity related to nonvested common stock options during the years ended December 31, 2017 and 2016.

The following table presents activity of exercisable common stock options during the years ended December 31, 2017, 2016 and 2015:


	Options	Weighted Average Exercise Price Per Share
Balance, December 31, 2014	986,300	$	6.08
Common stock options exercised	(242,050)		5.16
Common stock options vested	31,400		3.84
Balance, December 31, 2015	775,650		6.28
Common stock options exercised	(27,500)		4.76
Balance, December 31, 2016	748,150		6.33
Common stock options exercised	(750)		3.00
Common stock options expired	(379,800)		5.65
Balance, December 31, 2017	367,600	$	7.06

The following table provides information pertaining to the intrinsic value of common stock options outstanding and exercisable as of December 31, 2017 and 2016:


	December 31,
(In millions)	2017		2016
Intrinsic value of common stock options outstanding	$	—	$	0.3
Intrinsic value of common stock options exercisable		—		0.3

The following table provides information pertaining to the intrinsic value of common stock options exercised and the fair value of common stock options that vested during the years ended December 31, 2017, 2016 and 2015:


	Year Ended December 31,
(In millions)	2017		2016		2015
Intrinsic value of common stock options exercised(1)	$	—	$	0.1	$	0.4
Fair value of common stock options vested(2)		—		—		1.2

⁽¹⁾

The intrinsic value of common stock options exercised is the difference between the fair 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 $0.1 million for the year ended December 31, 2015. There was no share-based compensation related to common stock option awards during the years ended December 31, 2017 and 2016. As of December 31, 2017, there was no unamortized share-based expense related to common stock options, and the weighted average remaining contractual life for common stock options outstanding and exercisable was 2.9 years.

Restricted Stock Units

Prior to the Petition Date, the Company issued restricted stock unit awards as part of its long-term incentive program under the 2015 Plan (the “Incentive RSUs”). The fair value of the Incentive RSU awards are estimated on the grant date using a Monte Carlo simulation. The Incentive RSU awards generally have a three-year cliff vesting, and the number or percentage of RSUs that vest is based upon the market appreciation of the Company’s common stock, or total stockholder return (“TSR”). Upon vesting, the Incentive RSUs will be converted to unrestricted common stock. The following tables provide vesting information for the Incentive RSU awards granted in the years ended December 31, 2017, 2016 and 2015:


Year Ended December 31, 2015 If the Company’s Compound Annualized TSR During the Performance Period is:		Restricted Stock Units that Vest
Less than 10%		—
10% to less than 15%		150,000
15% to less than 40%		250,000
40% or more		260,000


	TSR Payout
Years Ended December 31, 2016 and 2017	Factor (% of
If the Company’s Compound Annualized TSR Compared to the Russell 2000 Index Compound Annualized TSR During the Performance Period is:	TSR Target Share Amount)
More than 8 percentage points below the Russell 2000 Index TSR	—	%
8 percentage points below the Russell 2000 Index TSR	50	%
Equal to the Russell 2000 Index TSR	100	%
8 or more percentage points above the Russell 2000 Index TSR	150	%

The following table provides assumptions used in determining the fair value of Incentive RSU awards granted during the years ended December 31, 2017, 2016 and 2015:


	Year Ended December 31,
(Weighted averages)	2017			2016			2015
Grant date fair value	$	4.57		$	7.02		$	7.53
Grant date closing stock price	$	5.10		$	6.74		$	11.05
Grant date closing index value		6,687.92			4,941.53			N/A
Volatility		47.00	%		48.66	%		48.90	%
Risk-free rate		1.49	%		0.85	%		0.84	%
Dividend yield		—	%		—	%		—	%
Probability of death or disability		N/A			N/A			5.00	%

The following table presents activity of Incentive RSUs during the years ended December 31, 2017, 2016 and 2015:


	Restricted Stock Units	Grant Date Fair Value per Restricted Stock Unit
Balance, December 31, 2014	—	$	—
Restricted stock units awarded	260,000		7.53
Balance, December 31, 2015	260,000		7.53
Restricted stock units awarded	121,823		7.20
Restricted stock units forfeited	(27,765)		7.20
Balance, December 31, 2016	354,058		7.44
Restricted stock units awarded	165,777		4.57
Restricted stock units forfeited	(310,181)		7.20
Balance, December 31, 2017	209,654	$	5.53

Share-based compensation related to Incentive RSU awards was $0.2 million, $1.6 million and $0.4 million for the years ended December 31, 2017, 2016 and 2015. As of December 31, 2017, the aggregate unamortized value of the Incentive RSU awards was $0.6 million and will be recognized over a weighted average period of 1.9 years.

The Company issued fully vested restricted stock unit awards to directors that elected to take equity in lieu of cash director fees (the “Director RSUs”). The Director RSUs converted to common stock immediately or convert upon the director’s termination of service to the Board, based on elections made annually. The following table provides activity of Director RSUs in the year ended December 31, 2017:


	Restricted Stock Units	Grant Date Fair Value per Restricted Stock Unit
Balance, December 31, 2016	—	$	—
Restricted stock units awarded	67,972		3.00
Restricted stock units converted to common stock	(36,649)		3.11
Balance, December 31, 2017	31,323	$	2.87

Share-based compensation related the Director RSUs was $0.2 million in the year ended December 31, 2017.

If the RI Plan, as proposed and amended, is confirmed by the Bankruptcy Court, on the effective date of the RI Plan we expect that unvested restricted common stock subject only to time-based vesting conditions will be treated as common stock for the purposes of distributions under the RI Plan. We expect that unvested restricted common stock subject to performance-based vesting will be cancelled and will receive no distribution under the RI Plan. We expect that all outstanding common stock options and all Incentive RSUs will be terminated and receive no distribution under the RI Plan.