Stock-

Based Compensation

We account for share-based awards in accordance with ASC Topic

718

Compensation–Stock Compensation

(“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

six

months ended

June 30, 2018

and

2017:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(Dollars in thousands)
Stock option grants expense	$	141	$	80	$	197	$	172
Restricted stock awards expense		620		460		1,364		963
Performance share units expense		4,063		903		4,514		903
Total stock based compensation	$	4,824	$	1,443	$	6,075	$	2,038

May 23, 2018,

June 20, 2017

and

July 25, 2016,

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 (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%

50%

of the Target Goals will be earned (“Threshold Goals”). 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

and

2018,

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
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		Maximum Potential Expense to be Recognized*
CEO		July 1, 2016	July 1, 2015			56,700			113,400			226,800				$	4,815
COO	July 25, 2016	to	to	$1.975 billion		56,700	$2.074 billion		113,400	$2.173 billion		226,800	$2.370 billion	$	21.23		4,815
CFO		June 30, 2019	June 30, 2016			14,175			28,350			56,700					1,204
																$	10,834

CEO		April 1, 2017	April 1, 2016			59,400			118,800			237,600				$	7,142
COO	June 20, 2017	to	to	$2.426 billion		59,400	$2.547 billion		118,800	$2.669 billion		237,600	$2.911 billion	$	30.06		7,142
CFO		March 31, 2020	March 31, 2017			14,850			29,700			59,400					1,786
																$	16,070

CEO		April 1, 2018	April 1, 2017			60,000			120,000			240,000				$	6,629
COO	May 23, 2018	to	to	$2.543 billion		60,000	$2.670 billion		120,000	$2.797 billion		240,000	$3.052 billion	$	27.62		6,629
CFO		March 31, 2021	March 31, 2018			15,000			30,000			60,000					1,657
																$	14,915

* Dollars in thousands

In accordance with ASC

718,

the PSUs were valued on the date of grant at their fair value. The fair value of these grants was equal to the closing price of MDC stock on the date of grant less the discounted cash flows of expected future dividends over the respective vesting period (as these PSUs do

not

participate in dividends). 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.

2016

PSU Grants

In the

2018

second

quarter, the Company determined that achievement of the Maximum Goals for these awards was probable and as such, the Company recorded share-based award expense related to the awards of

$4.1

million and

$4.5

million for the

three

and

six

months ended

June 30, 2018,

respectively. As of

June 30, 2017,

the Company had concluded that achievement of the Threshold Goals was probable and, as such, recorded share-based award expense related to the awards of

0.9

million for the

three

and

six

months ended

June 30, 2017.

2017

and

2018

PSU Grant

s. For the PSUs granted in

June

2017

and in

May

2018,

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

not

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

expense related to these awards has been recognized as of

June 30, 2018.