NOTE 13 — 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 2006 Signature Group Holdings, Inc. 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 December 31, 2012 and 2011, there were no stock appreciation rights or restricted stock units outstanding and there were 8.8 million and 13.9 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:


	Year Ended December 31, 2012					Year Ended December 31, 2011
	Shares			Weighted Average Grant Date Fair Value Per Share		Shares			Weighted Average Grant Date Fair Value Per Share
Beginning nonvested restricted shares		2,315,040		$	0.60		316,267		$	0.83
Shares vested⁽¹⁾		(1,950,102	)		0.42		(316,267	)		0.83
Shares granted		3,210,244			0.31		2,725,996			0.62
Shares forfeited		—			—		(410,956	)		0.73

Ending nonvested restricted shares		3,575,182		$	0.44		2,315,040		$	0.60

⁽¹⁾	Includes shares awarded to four independent directors that were not re-nominated to the Board and resigned following the certification of the election of the new Board on August 6, 2012.

Share-based compensation related to restricted common stock awards was $1.1 million and $0.5 million for the years ended December 31, 2012 and 2011, respectively. At December 31, 2012 and 2011, the aggregate unamortized value of share-based restricted common stock awards was $0.7 million and $0.8 million, respectively, and will be recognized over a weighted average period of 1.6 years.

Common stock options

The Company also issues 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 on the Effective Date, 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 U.S. Treasury zero-coupon issues with remaining terms approximating the expected term at the grant date. The following table provides assumptions used in determining the fair value of common stock option grants for the periods indicated:


	Year Ended December 31,
(Weighted averages)	2012			2011
Expected volatility		52.6	%		41.0	%
Risk-free interest rate		0.80	%		1.40	%
Expected term (in years)		5.1			6.1
Dividend yield		0.0	%		0.0	%
Grant date fair value per share	$	0.17		$	0.19

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


	Year Ended December 31, 2012					Year Ended December 31, 2011
	Shares			Weighted Average Exercise Price Per Share		Shares		Weighted Average Exercise Price Per Share
Beginning nonvested common stock options		8,816,000		$	0.57		—	$	—
Options granted		1,846,000			0.36		8,816,000		0.57
Options vested		(1,898,586	)		0.51		—		—
Options forfeited		(39,666	)		0.30		—		—
Ending nonvested common stock options		8,723,748		$	0.54		8,816,000	$	0.57

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


	Year Ended December 31, 2012					Year Ended December 31, 2011
	Shares			Weighted Average Exercise Price Per Share		Shares		Weighted Average Exercise Price Per Share
Beginning vested common stock options		—		$	—		—	$	—
Options exercised		(85,334	)		0.30		—		—
Options vested		1,898,586			0.51		—		—
Ending vested common stock options		1,813,252		$	0.52		—	$	—

The weighted average remaining contractual life for common stock options outstanding and exercisable at December 31, 2012 and 2011 was 8.6 and 9.6 years, respectively, and the weighted average remaining contractual life for common stock options exercisable at December 31, 2012 was 8.4 years.

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


	December 31,
(Dollars in thousands)	2012		2011
Intrinsic value of common stock options outstanding	$	106	$	—
Intrinsic value of common stock options exercisable		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:


	Year Ended December 31,
(Dollars in thousands)	2012		2011
Intrinsic value of common stock options exercised⁽¹⁾	$	10	$	—
Fair value of common stock options vested⁽²⁾		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 $0.7 million and $0.3 million for the years ended December 31, 2012 and 2011, respectively. At December 31, 2012 and 2011, the aggregate unamortized value of share-based common stock option awards was $1.0 million and $1.4 million, respectively, and will be recognized over a weighted average period of 1.8 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 year ended December 31, 2012 were $0.1 million.