8. Stockholders’ Equity and Stock-Based Compensation

Stockholders’ Equity

A summary of changes in our stockholders’ equity is presented below (in thousands):


	Six Months Ended June 30, 2013
								Accumulated
			Additional					Other			Total
	Common		Paid-in		Accumulated			Comprehensive			Stockholders’			Members’			Total
	Stock		Capital		Deficit			Income			Equity			Equity			Equity
Balance at December 31, 2012	$	—	$	—	$	—		$	—		$	—		$	149,153		$	149,153
Net income		—		—		2,345			—			2,345			—			2,345
Unrealized loss on available-for-sale-investments		—		—		—			(182	)		(182	)		—			(182	)

Total comprehensive income												2,163						2,163
Conversion of members’ equity into common stock		216		153,199		(4,262	)		—			149,153			(149,153	)		—
Issuance of common stock, net of issuance costs		100		155,308		—			—			155,408			—			155,408
Stock-based compensation expense		—		844		—			—			844			—			844

Balance at June 30, 2013	$	316	$	309,351	$	(1,917	)	$	(182	)	$	307,568		$	—		$	307,568


	Six Months Ended June 30, 2014
			Additional					Total
	Common		Paid-in			Retained		Stockholders’
	Stock		Capital			Earnings		Equity
Balance at December 31, 2013	$	316	$	310,878		$	11,112	$	322,306
Net income		—		—			10,422		10,422
Stock-based compensation expense		—		1,528					1,528
Minimum tax withholding paid on behalf of employees for stock awards		—		(303	)		—		(303	)

Balance at June 30, 2014	$	316	$	312,103		$	21,534	$	333,953

In January 2013, the Company completed its IPO in which it issued and sold 10,000,000 shares of common stock at the public offering price of $17.00 per share. The Company received $155.4 million in net proceeds after deducting underwriting discounts and commissions of $11.9 million and other net offering expenses of $2.7 million. In preparation of the IPO, the Company reorganized from a Delaware limited liability company into a Delaware corporation and was renamed TRI Pointe Homes, Inc. Upon the close of the IPO and as of June 30, 2013, the Company had 31,597,907 common shares outstanding. As of June 30, 2014, the Company had 31,632,533 common shares outstanding.

Stock-Based Compensation

The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (“2013 Incentive Plan”), was adopted by our board of directors in January 2013 and amended with the approval of our stockholders in 2014. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, common stock, restricted stock, restricted stock units and performance awards. The 2013 Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.

As amended, the number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan or any predecessor plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under our the 2013 Incentive Plan. As of June 30, 2014 there were 10,942,517 shares available for future grant in the 2013 Incentive Plan.

The Company has issued stock option awards and restricted stock unit awards against the 2013 Incentive Plan. The exercise price of our stock-based awards may not be less than the market value of our common stock on the date of grant. The fair value for stock options is established at the date of grant using the Black-Scholes model for time based vesting awards. Our stock option awards typically vest over a one to three year period and expire ten years from the date of grant. Our restricted stock awards are valued based on the closing price of our common stock on the date of grant and typically vest over a one to three year period.

The following table presents compensation expense recognized related to all stock-based awards (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Total stock-based compensation	$	962	$	517	$	1,528	$	844

As of June 30, 2014, total unrecognized stock based compensation related to all stock-based awards was $7.7 million and the weighted average term over which the expense was expected to be recognized was 2.0 years.

Summary of Stock Option Activity

The following table presents a summary of stock option awards relating to our 2013 Incentive Plan for the six months ended June 30, 2014:


	Six Months Ended June, 30 2014
			Weighted		Weighted
			Average		Average		Aggregate
			Exercise		Remaining		Intrinsic
			Price		Contractual		Value
	Options		Per Share		Life		(in 000’s)
Options outstanding at December 31, 2013		285,900	$	17.04		9.1	$	827
Granted		154,598		16.17		9.8		—
Exercised		—		—		—		—
Forfeited		—		—		—		—

Options outstanding at June 30, 2014		440,498		16.73		9.0		—

Options exercisable at June 30, 2014		97,767		17.11		8.6		—

On April 7, 2014, the Company granted an aggregate of 154,598 stock options to members of the executive management team. The stock option awards granted on April 7, 2014 ratably vest annually on the anniversary of the grant date over a three year period. The fair value for stock option awards granted on April 7, 2014 was $9.46 per share and was established at the date of grant using an option based model.

Summary of Restricted Stock Unit Activity

The following table presents a summary of restricted stock units (“RSUs”) relating to our 2013 Incentive Plan for the six months ended June 30, 2014:


	Six Months Ended June 30, 2014
				Weighted
				Average		Aggregate
				Grant Date		Intrinsic
	Restricted Stock			Fair Value		Value
	Units			Per Share		(in 000’s)
Nonvested RSUs at December 31, 2013		145,517		$	17.68	$	2,900
Granted		217,839			16.17		3,424
Vested		(51,598	)		17.81		—
Forfeited		(1,566	)		18.30		25

Nonvested RSUs at June 30, 2014		310,192			16.60		4,876

On April 7, 2014, the Company granted an aggregate of 217,839 restricted stock units to employees, officers and directors. The restricted stock units granted to employees and officers on April 7, 2014 ratably vest annually on the anniversary of the grant date over a three year period. The restricted stock units granted to directors on April 7, 2014 vest on January 31, 2015, except the restricted stock units granted to directors who left the Board upon the closing of the WRECO transaction vested on the date they left the Board based on the number of days served in 2014. The fair value of each restricted stock award granted on April 7, 2014 was measured using a price of $16.17 per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

On August 5, 2014, the Company granted an aggregate of 56,448 restricted stock units to its board of directors. The restricted stock units granted to directors on August 5, 2014 vest on May 1, 2015. The fair value of each restricted stock award granted on August 5, 2014 was measured using $13.34 per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

Summary of Equity Based Incentive Units

On September 24, 2010, the Company granted equity based incentive units to management. In connection with our initial public offering in January 2013, the incentive units converted into shares of common stock. The recipients of the equity based incentive units have all the rights of a stockholder, including the rights to vote those shares and receive any dividends or distributions made with respect to those shares and any shares or other property received in respect of those shares; provided, however, any non-cash dividend or distribution with respect to the common stock shall be subject to the same vesting provisions as the incentive units. The vesting terms of the equity based incentive units are as follows: (1)18.75% of such units vested, subject to limitation in (3) below on the date following the first-year anniversary of the date of such officer’s employment; (2) 56.25% of such units vest, subject to limitation in (3) below in equal quarterly installments between the first and fourth-year anniversary of the date of such officer’s employment; (3) 25% of the awards granted in (1) and (2) will vest upon a liquidity event, as defined in each such recipient’s employment agreement; and (4) 25% of such units will be converted into a number of shares of restricted stock prior to a liquidity event. The grant-date fair value of the equity based incentive units granted during the period ended December 31, 2010 was $3.3 million. The Company did not grant any equity based incentive units and no equity based incentive units were forfeited during the six months ended June 30, 2014. The Merger constituted a liquidity event as defined in each recipient’s employment agreement. As a result, 25% of the equity based incentive units vested. Refer to Note 1, Subsequent Events for a description of the Merger.