STOCK BASED COMPENSATION

Equity-Based Compensation

In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan, which was amended and restated in May 2016 (the “Plan”). The Plan provides for the grant of stock options, RSUs and other equity awards based on our common stock. As of September 30, 2016 we had an aggregate of 3,867,255 shares of Class A Common Stock available for future grants under the Plan.

The following table provides information regarding the amount and components of stock-based compensation expense, which except as described in Note 2 below, is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Restricted stock units (RSUs) ⁽¹⁾	$	1,810		$	964		$	4,948		$	2,389
Stock options	1,056			779			3,074			3,577
New TMM units	176			384			937			1,296
Total stock compensation ⁽²⁾	$	3,042		$	2,127		$	8,959		$	7,262
Income tax expense recognized	$	(8	)	$	(1	)	$	(30	)	$	(7	)

⁽¹⁾Includes compensation expense related to time-based RSUs and performance-based RSUs.

⁽²⁾ Included in the table above for the nine months ended September 30, 2015 is $1.5 million of stock compensation expense related to the acceleration of vesting for equity awards held by Monarch employees. The sale of Monarch triggered a change in control provision provided for in the respective award agreements and plan document. The expense related to the acceleration of awards is included in transaction expenses from discontinued operations in the accompanying Condensed Consolidated Statement of Operations for the nine months ended September 30, 2015.

At September 30, 2016 and December 31, 2015, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $22.7 million and $15.2 million, respectively.

Restricted Stock Units – The following table summarizes the time-based RSU and performance-based RSU activity for the nine months ended September 30, 2016:



	Shares		Weighted Average Grant Date Fair Value
Balance at December 31, 2015	441,296		$	13.55
Granted	1,087,007		11.39
Vested	(13,787	)	19.66
Forfeited	(48,769	)	13.45
Balance at September 30, 2016	1,465,747		$	13.38

During the three and nine months ended September 30, 2016, we issued time-based RSU awards and performance-based RSU awards to certain employees and members of the Board of Directors of the Company.

Our time-based RSUs consist of units to be settled in shares of Class A Common Stock awarded to our employees and members of our Board of Directors. Vesting of RSUs is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates. Time-based RSUs granted to employees generally become vested with respect to 33% of the RSUs on the second, third, and fourth anniversaries of the grant date. Time-based RSUs granted to members of the Board of Directors generally become vested on the first anniversary of the grant date.

Additionally, we issued performance-based RSUs to certain employees of the Company. These awards will vest in full based on the achievement of certain performance goals over a three-year performance period, subject to the employee’s continued employment through the last date of the performance period and will be settled in shares of our Class A common stock. The number of shares that may be issued in settlement of the performance-based RSUs to the award recipients may be greater or lesser than the target award amount depending on actual performance achieved as compared to the performance targets set forth in the awards.

Stock Options – The following table summarizes the stock option activity for the nine months ended September 30, 2016:



	Shares		Weighted Average Exercise Price Per Share
Outstanding at December 31, 2015	1,507,765		$	21.07
Granted	1,142,531		11.58
Canceled/Forfeited	(55,683	)	14.36
Outstanding at September 30, 2016	2,594,613		$	17.04
Options exercisable at September 30, 2016	641,814		$	21.47

Options granted to employees vest and become exercisable ratably on the second, third, fourth and fifth anniversary of the date of grant. Options granted to members of the Board of Directors vest and become exercisable ratably on the first, second and third anniversary of the date of grant. Vesting of the options is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates and expires within ten years from the date of grant.

New TMM Units – Certain members of management and certain members of the Board of Directors were issued Class M partnership units in TMM Holdings. Those units were subject to both time and performance vesting conditions. In addition, TMM Holdings issued phantom Class M Units to certain employees who resided in Canada, which are treated as Class M Units for the purposes of this description and the financial statements. In connection with the sale of Monarch, all of the phantom Class M Units were settled pursuant to change in control provisions provided for in the award agreement. In the nine months ended September 30, 2015, we paid $1.4 million in settlement of these awards; there was no activity for the nine months ended September 30, 2016.

Pursuant to the Reorganization Transactions, the time-vesting Class M Units in TMM Holdings were exchanged for New TMM Units with vesting terms substantially the same as the Class M Units surrendered for exchange. One New TMM Unit together with a corresponding share of Class B Common Stock is exchangeable for one share of Class A Common Stock. The shares of Class B Common Stock/New TMM Units held by management and our Board of Directors outstanding as of September 30, 2016 were as follows:



	Class B Shares/New TMM Units		Weighted Average Grant Date Fair Value
Balance at December 31, 2015	1,312,874		$	5.45
Granted	—		—
Exchanges ⁽¹⁾	(96,444	)	4.52
Forfeited ⁽²⁾	(1,821	)	10.20
Balance at September 30, 2016	1,214,609		$	5.44

⁽¹⁾Exchanges during the period represent the exchange of a vested New TMM Unit along with the corresponding share of Class B Common Stock for a newly issued share of Class A Common Stock.

⁽²⁾Awards forfeited during the period represent the unvested portion of New TMM Unit awards for employees who have terminated employment with the Company and for which the New TMM Unit and the corresponding Class B Share have been canceled.