Stock-

Based Compensation

We account for share-based awards in accordance with ASC

718,

which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at fair value on the date of grant.

The following table sets forth share-based award expense activity for the

three

and

nine

months ended

September 30, 2017

and

2016:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
	(Dollars in thousands)
Stock option grants expense	$	391	$	328	$	747	$	5,621
Restricted stock awards expense		445		145		1,224		1,015
Performance share units expense		226		-		1,129		-
Total stock based compensation	$	1,062	$	473	$	3,100	$	6,636

May 18, 2015,

the Company granted a non-qualified stock option to each of the Chief Executive Officer and the Chief Operating Officer for

1,050,000

shares of common stock under the Company

’s

2011

Equity Incentive Plan. The terms of each option provide that, over a

five

year period,

one

third

of the option shares will vest as of each of the third, fourth, and

fifth

anniversary dates of the grant of the option; provided that all unvested option shares will vest immediately in the event the closing price of the Company’s stock, as reported by the New York Stock Exchange, in any

out of

consecutive trading days closes at a price equal to or greater than

120%

of the closing price on the date of grant (the “market-based condition”). The option exercise price is equal to the closing price of the Company’s common stock on the date of grant, which was

$27.10

and the expiration date of each option is

May 18, 2025.

In accordance with ASC

718,

the market-based awards were assigned a fair value of

$5.35

per share (total value of

$11.2

million) on the date of grant using a Monte Carlo simulation model and, as calculated under that model, all expense was recorded on a straight-line basis through the end of the

2016

second

quarter. Included in the stock option grant expense f

or the

nine

months ended

September 30, 2016,

shown

in the table above, was

$5.0

million of stock option grant expense related to these market-based option grants. During the

2017

second

quarter, the market-based condition was achieved and, as a result, the shares fully vested and became exercisable.

July 25, 2016

and

June 20, 2017,

the Company granted long term performance stock unit awards (“

PSUs”) to each of the CEO, the COO, and the Chief Financial Officer (“CFO”) under the Company’s

2011

Equity Incentive Plan. The PSUs will be earned based upon the Company’s performance, over a

three

year period (the “Performance Period”), measured by increasing home sale revenues over a “Base Period”. Each award is conditioned upon the Company achieving an average gross margin from home sales percentage (excluding impairments) of at least

fifteen

percent (

15%

) over the Performance Period. Target goals will be earned if the Company’s

three

year average home sale revenues over the Performance Period (“Performance Revenues”) exceed the home sale revenues over the Base Period (“Base Revenues”) by at least

10%

but less than

20%.

If Performance Revenues exceed the Base Revenues by at least

but less than

10%

(“Threshold Goals”),

50%

of the Target Goals will be earned. If Performance Revenues exceed the Base Revenues by at least

20%,

200%

of the Target Goals will be earned (“Maximum Goals”). For the PSUs granted in

2017,

the number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals. Details for each defined term above for both grants have been provided in the table below.

									Threshold Goal				Target Goal				Maximum Goal						Maximum Potential
Awardee	Date of Award		Performance Period		Base Period		Base Period Revenues		PSUs		Home Sale Revenues		PSUs		Home Sale Revenues		PSUs		Home Sale Revenues		Fair Value per Share		Expense to be Recognized
CEO				July 1, 2016		July 1, 2015				52,500				105,000				210,000					$	4,815
COO		July 25, 2016		to		to		$1.975 billion		52,500		$2.074 billion		105,000		$2.173 billion		210,000		$2.370 billion	$	22.93		4,815
CFO				June 30, 2019		June 30, 2016				13,125				26,250				52,500						1,204
																							$	10,834

CEO				April 1, 2017		April 1, 2016				55,000				110,000				220,000					$	6,802
COO		June 20, 2017		to		to		$2.426 billion		55,000		$2.547 billion		110,000		$2.669 billion		220,000		$2.911 billion	$	30.92		6,802
CFO				March 31, 2020		March 31, 2017				13,750				27,500				55,000						1,701
																							$	15,305

In accordance with ASC

718,

the PSUs were valued on the date of grant at their fair value.

The grant date fair value and maximum potential expense if the Maximum Goals were met for these awards has been provided in the table above. ASC

718

does

not

permit recognition of expense associated with performance based stock awards until achievement of the performance targets are probable of occurring. As of

September 30, 2017,

the Company determined that achievement of the Threshold Goals was probable for the PSUs granted in

2016

and, as such, recorded share-based award expense related to the awards of

$0.2

million and

$1.1

million, respectively, for the

three

and

nine

months ended

September 30, 2017.

For the PSUs granted in

2017,

the Company concluded that achievement of any of the performance metrics had

not

met the level of probability required to record compensation expense at that time and, as such,

expense related to the grant of these awards has been recognized as of

September 30, 2017.