NOTE 15 - SUBSEQUENT EVENTS

Reporting Delinquency under the Notes Payable Indenture

On July 5, 2011 with the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and the simultaneous filings of the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, Signature cured the reporting delinquency set forth in the Notes Payable Trustee's notice of default, dated May 17, 2011. Signature received this notice of default from the Notes Payable Trustee for not satisfying a covenant to file with the Notes Payable Trustee its periodic reports required to be filed under the Exchange Act with the Commission.

Business Combination

On July 29, 2011, Signature acquired 100% of the common stock of North American Breaker Company, Inc. (“NABCO”). NABCO, headquartered in Burbank, California, is a nationwide quick-turn supplier of circuit breakers that maintains a significant depth of certified, new product inventory used in various commercial, industrial and residential applications, including products that have been discontinued by the manufacturer and are no longer broadly available. NABCO operates from five distribution centers across the country to offer customers quick and reliable delivery nationwide in the repair and replacement niche. The total consideration paid at the closing of the transaction was approximately $37.0 million, which included a cash payment of approximately $23.4 million, the issuance of $5.0 million in subordinated, unsecured promissory notes, the issuance of Signature common stock with a fair value of $1.8 million, the assumption of $3.1 million in liabilities and a $3.5 million estimated liability for contingent consideration. The former NABCO shareholders may earn contingent consideration of up to $4.0 million, subject to the achievement of certain earnings before interest, taxes, depreciation, and amortization milestones for the fiscal year ended December 31, 2012. At the time of acquisition, the Company identified temporary differences related to the book basis and tax basis of the acquired identifiable assets and assumed liabilities and recorded a deferred tax liability of $3.3 million. The recognition of this $3.3 million deferred tax liability may result in a reduction in the valuation allowance against the Company's deferred tax assets. In addition, the Company recorded acquisition related transaction costs of approximately $0.2 million. NABCO's financial results will be consolidated into the Company's financial statements and results of operation starting in the third quarter of 2011.

The following table presents the components of the purchase consideration and allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed:

(Dollars in thousands)
Cash consideration	$	23,413
Signature Group Holdings, Inc. common stock		1,837
Promissory notes		5,000
Assumption of liabilities		3,149
Contingent consideration		3,478
Total purchase consideration	$	36,877

Purchase price allocation:
Assets:
Cash	$	165
Trade receivables		5,119
Inventories		6,800
Other assets		1,012
Intangible assets		8,150
Total assets		21,246

Liabilities:
Intangible liabilities		100
Deferred income tax liabilities		3,270
Total liabilities		3,370

Estimated fair value of net assets acquired		17,876
Goodwill		19,001
Total purchase consideration	$	36,877

The following table presents the estimated fair value of identifiable intangible assets and liabilities and related estimated useful lives:

	Estimated			Useful Life
(Dollars in thousands)	Fair Value			(Years)
Identifiable intangible assets and liabilities:
Customer relationships	$	7,300			7.5
Trade name		850			5.0
Lease intangibles		(100	)		3.0
Total	$	8,050

The following unaudited pro forma results of operations of the Company for the three and six months ended June 30, 2011 and 2010, give effect to this business combination as though the transaction occurred on January 1, 2010:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2011			2010			2011			2010
Revenues:
As reported	$	568		$	80		$	1,269		$	175
Pro forma		8,582			6,593			16,111			11,962

Net loss attributable to Signature Group Holdings, Inc.:
As reported	$	(6,155	)	$	(11,621	)	$	(10,368	)	$	(21,977	)
Pro forma		(4,825	)		(11,214	)		(8,004	)		(18,234	)

Waiver of Warrant Anti-Dilution Protection Provision

The anti-dilution protection provisions of the common stock warrants (the "Warrants") provide that certain issuances of new shares of common stock during the term of the Warrants at prices below the current exercise price of the Warrants automatically reduce the exercise price to the lowest per share purchase price of any shares of common stock issued. As part of the consideration paid for the NABCO acquisition, the Company issued 3,012,048 shares of Signature common stock to the former owners of NABCO which triggered the anti-dilution protection provisions of the Warrants. This resulted in a reduction in the Warrant exercise price from $0.69 to $0.66 per share. However, approximately 79% of holders of the Warrants, including Signature Group Holdings, LLC and Kenneth Grossman, waived the anti-dilution protection provisions related to the shares issued as part of the NABCO transaction as it applied to them. As a result, the holders of 21% of the Warrants received the benefit of these anti-dilution protections upon the issuance of new shares of Signature common stock to the former owners of NABCO.

Termination of Interim Management Agreement and Entry into Employment Agreements

On July 28, 2011, the Company terminated the Interim Investment Management Agreement dated June 11, 2010 (the “Interim Management Agreement”), by and between the Company and Signature Capital Advisers, LLC (“SCA”), effective July 31, 2011 (the “Termination Date”). Pursuant to the terms of the Interim Management Agreement, the Board was permitted to terminate the agreement at any time, without the payment of any penalty, upon 60 days' written notice to SCA (the “Advance Notice Requirement”). In connection with the termination of the Interim Management Agreement, SCA and the Company agreed that: (i) the Advance Notice Requirement shall be waived; (ii) the Company's obligation to pay the management fee pursuant to the Interim Management Agreement terminated as of the Termination Date and that the management fee payable to SCA for services provided in July 2011 will exclude the monthly compensation payments for Craig Noell, Kenneth Grossman, Kyle Ross and Thomas Donatelli (collectively, the “SCA Executives”), each of whom have entered into employment agreements with the Company; and (iii) the terms and conditions of the Interim Management Agreement shall be terminated and of no further force or effect as of the Termination Date, except for the limitation of liability and indemnification provision of the Interim Management Agreement, which shall remain in full force and effect.

Pursuant to the Interim Management Agreement, the Company contracted with SCA to provide general business management for its operations through December 31, 2010 with annual renewals if a revised management agreement had not yet been entered into between the parties. The Interim Management Agreement had been renewed by the Board through December 31, 2011. During the second quarter of 2011, the Board undertook an evaluation of its external management structure with SCA and explored alternative management structures that were available to the Company. At the conclusion of the evaluation, the Company terminated the Interim Management Agreement and adopted an internal management structure, which included the Company entering into employment agreements with the SCA Executives. The terms of such employment agreements were based on analysis and recommendations from a nationally recognized executive compensation consulting firm. In addition, all other SCA employees became employees of the Company as of August 1, 2011.

Issuances of Share-based Awards in Connection with Employment Agreements

On August 8, 2011 (“Award Date”), the Company granted an aggregate of 8,816,000 stock options and 1,779,903 shares of restricted stock to the SCA Executives under the Signature Group Holdings, Inc. 2006 Performance Incentive Plan (the “Incentive Plan”). The stock options were granted with an exercise price equal to the average of the closing prices of the Company's common stock for the three-business-day period ending on the business day immediately before the Award Date. Subject to acceleration of vesting and to such other terms and conditions as are set forth in the respective award agreements, the stock options vest as follows: (i) twenty-five percent (25%) on the six (6) month anniversary of the Award Date; (ii) twenty-five percent (25%) on the eighteen (18) month anniversary of the Award Date; (iii) twenty-five percent (25%) on the thirty (30) month anniversary of the Award Date; and (iv) twenty-five percent (25%) on July 1, 2015, with this final tranche subject to the Company's common stock achieving certain trading prices as of such date. Subject to acceleration of vesting and to such other terms and conditions as are set forth in the respective award agreements, the shares of restricted stock vest on December 31, 2013.

In connection with the share-based awards granted to the SCA Executives, the Board, on July 28, 2011, also approved an amendment to the Incentive Plan that increased the authorized aggregate number of shares of the Company's common stock that may be issued pursuant to the Incentive Plan to 25,000,000 shares.

On October 27, 2011, the Board amended the Incentive Plan to remove the annual limitation on equity awards, which was formerly 250,000 shares per individual, per calendar year, to participants under the Incentive Plan.

Sale of Premises

On September 28, 2011, the Company sold its Anaheim Hills, California facility and related land for net proceeds totaling $3.8 million. The sale resulted in a gain of $1.4 million in the third quarter of 2011.

NABCO Financing

On September 30, 2011, NABCO completed a $16.0 million debt financing transaction (the “Financing”) with a third-party lender (the “Lender”). The Financing was completed pursuant to the terms of two business loan agreements, one of which provides for a term loan and the second of which provides for a revolving, asset-based loan (each a “Loan Agreement” and collectively, the “Loan Agreements”). The Loan Agreements require NABCO to maintain compliance with certain financial covenants. The Term Loan and the Revolving Loan are both secured by all of NABCO's assets. Signature is not a borrower, an obligor, nor a guarantor under the Loan Agreements.

Pursuant to the Loan Agreement, NABCO borrowed $8.0 million in term debt (the “Term Loan”), which matures on September 29, 2016 and is subject to annual principal payments of 10% of the original principal amount of the Term Loan in year 1, 15% of the original principal amount of the Term Loan in each of years 2 and 3, 20% of the original principal amount of the Term Loan in each of years 4 and 5, with a balloon payment of any remaining principal balance due at maturity. Additionally, NABCO borrowed $4.6 million of an $8.0 million revolving loan (the “Revolving Loan”) which matures on September 29, 2014. Advances under the Revolving Loan are subject to a borrowing base. The Term Loan has a variable interest rate based upon the Lender's Base Rate plus 1.00% per annum, which is equivalent to 5.00% on the funding date. The Revolving Loan has a variable interest rate based upon the Lender's Base Rate, which is equivalent to 4.00% on the funding date.

Proceeds of the Financing were used to repay existing indebtedness of NABCO in the amount of $12.5 million, which was due to Signature, as well as provide for the ongoing needs of NABCO's business, including the payment of approximately $0.1 million in fees and expenses associated with the Financing.