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Share-Based Payments and Employee Benefits
9 Months Ended
Sep. 30, 2013
Share-Based Payments and Employee Benefits

NOTE 11 — SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS

Incentive Plan

The Company’s Amended and Restated Signature Group Holdings, Inc. 2006 Performance 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 2.5 million shares of common stock, or its equivalent. As of September 30, 2013 and December 31, 2012, there were no stock appreciation rights or restricted stock units outstanding and there were 0.6 million and 0.9 million shares, respectively, available for grant under the Incentive Plan. The authorized and available share counts for the Incentive Plan have been adjusted for the Reverse Split. See Note 17—Subsequent Events for additional information related to the Reverse Split.

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 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 presents activity of nonvested restricted common stock for the periods indicated as if the Reverse Split occurred on December 31, 2011:

 

 

Nine Months Ended September 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

 

  357,522

  

 

$

  4.32

  

  

 

  231,506

  

 

$

  5.96

  

Shares vested

 

(159,394

) 

 

 

  3.53

  

  

 

(195,017

) 

 

 

  4.18

  

Shares granted

 

  128,134

  

 

 

  5.27

  

  

 

  321,033

  

 

 

  3.05

  

Ending nonvested restricted shares

 

  326,262

  

 

$

  5.08

  

  

 

  357,522

  

 

$

  4.32

  

On August 6, 2012, upon the certification of the results of the vote of stockholders at the 2012 Annual Meeting of Stockholders, the seating of new Board members and the resignation of four independent directors that were not renominated, 111,112 shares of restricted common stock, as adjusted to reflect the Reverse Split, vested pursuant to the restricted common 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 25,000 shares of restricted common stock, as adjusted to reflect the Reverse Split. 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 common stock awards, 18,293 shares of restricted common stock granted in January 2013, and the 25,000 shares of restricted common stock granted on May 3, 2013, vested in full, both as adjusted to reflect the Reverse Split.

On June 5, 2013, in connection with his appointment as Chairman of the Board and Chief Executive Officer, Craig Bouchard, was granted 25,000 shares of restricted common stock, as adjusted to reflect the Reverse Split. The shares vest on January 1, 2014 and had a grant date fair value of $167,500.

On August 8, 2013, in connection with their election to the Board, the two new Board members were each granted 2,481 shares of restricted common stock, as adjusted to reflect the Reverse Split. The shares vest on January 1, 2014 and had an aggregate grant date fair value of $69,454.

Share-based compensation related to restricted common stock awards was $0.3 million and $0.3 million for the three months ended September 30, 2013 and 2012, respectively, and $0.9 million and $0.7 million for the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013 and December 31, 2012, the aggregate unamortized share-based compensation related to outstanding restricted common stock awards was $0.5 million and $0.7 million, respectively, and will be recognized over a weighted average period of 0.9 years and 1.6 years, respectively. See Note 17—Subsequent Events for additional information related to the Reverse Split.

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 $2.75 and $1.67 weighted average per share grant date fair value of common stock options granted in the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, as adjusted to reflect the Reverse Split:

 

(Weighted averages)

Nine Months Ended
September 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 as if the Reverse Split occurred on December 31, 2011:

 

 

Nine Months Ended September 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

 

  872,373

  

 

$

  5.41

  

  

 

  881,600

  

 

$

  5.72

  

Common stock options granted

 

  205,000

  

 

 

  9.52

  

  

 

  184,600

  

 

 

  3.57

  

Common stock options vested

 

(333,208

) 

 

 

  5.47

  

  

 

(189,861

) 

 

 

  5.11

  

Common stock options forfeited

 

(20,332

) 

 

 

  3.62

  

  

 

(3,966

) 

 

 

  3.00

  

Ending nonvested common stock options

 

  723,833

  

 

$

  6.59

  

  

 

  872,373

  

 

$

  5.41

  

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 200,000 shares common stock, as adjusted to reflect the Reverse Split. The common stock options vest 25% every six months following the grant date, have exercises prices of $8.50 for the first 50,000 common stock options and $10.00 for the remaining 150,000 common stock options, and had a grant date fair value of $549,714.

The following table presents activity of vested common stock options during the periods indicated as if the Reverse Split occurred on December 31, 2011:

 

 

Nine Months Ended September 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

 

  181,327

  

 

$

  5.21

  

  

 

  

 

$

  

Common stock options exercised

 

(20,668

) 

 

 

  3.00

  

  

 

(8,534

) 

 

 

  3.00

  

Common stock options vested

 

  333,208

  

 

 

  5.47

  

  

 

  189,861

  

 

 

  5.11

  

Ending vested common stock options

 

  493,867

  

 

$

  5.48

  

  

 

  181,327

  

 

$

  5.21

  

The weighted average remaining contractual life for common stock options outstanding at September 30, 2013 and December 31, 2012 was 8.2 and 8.6 years, respectively, and the weighted average remaining contractual life for common stock options exercisable at September 30, 2013 was 7.8 years.

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

 

(Dollars in thousands)

September 30,
2013

 

 

December 31,
2012

 

Intrinsic value of common stock options outstanding

$

  7,133

 

 

$

  106

  

Intrinsic value of common stock options exercisable

 

  3,221

 

 

 

  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)

Nine Months Ended
September  30,
2013

 

 

Year Ended
December 31,
2012

 

Intrinsic value of common stock options exercised(1)

$

  137

 

 

$

  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 $0.3 million and $0.1 million for the three months ended September 30, 2013 and 2012, respectively, and $0.6 million and $0.5 million for the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013, the aggregate unamortized share-based compensation related to outstanding common stock option awards was $0.9 million and will be recognized over a weighted average period of 1.2 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 September 30, 2013 and 2012 were $41 thousand and $30 thousand, respectively, and $0.1 million and $45 thousand during the nine months ended September 30, 2013 and 2012, respectively.