Equity-Based Compensation Plans

The Company provides several equity-based compensation plans under which the Company’s officers, employees and non-employee directors may participate, including (i) the 2004 Equity Incentive Plan (amended and restated as of March 16, 2011) (“2004 Plan”), (ii) the Stock & Deferred Compensation Plan for Non-Employee Directors (“DSU Plan”) and (iii) the Employee Stock Purchase Plan (“ESPP”). Collectively, these equity-based compensation plans permit the grants of (i) incentive stock options, (ii) non-qualified stock options, (iii) stock appreciation rights, (iv) restricted stock, (v) performance units, (vi) stock units and (vii) cash, as well as allow employees to purchase shares of the Company’s common stock under the ESPP at a pre-determined discount.

For the first quarter of 2013, the Company recorded equity-based compensation expense, as calculated on a straight-line basis over the vesting periods of the related equity instruments, of $1.8 million as compared to $1.6 million for the corresponding period of 2012, which were reflected as selling, general and administrative expense in the consolidated statements of comprehensive income.

Stock Options

The weighted average fair values of the Company’s stock options granted during the first three months of 2013 and 2012 calculated using the Black-Scholes option pricing model and other assumptions were as follows.



	Three Months Ended
	March 31, 2013			March 31, 2012
Weighted average fair value of options granted	$	11.46		$	8.33
Risk-free interest rate	0.31% - 0.35%			0.77% - 0.95%
Expected volatility	76		%	64		%
Contractual life	7 years			7 years
Expected life	3.4 - 5.4 years			3.4 - 5.4 years
Expected dividend yield	—		%	—		%

Stock option grants in 2012 and 2013 vest over a three-year period based on a vesting schedule that provides for one-third vesting after each year. Stock option grants in 2006 through 2010 fully vest over a four-year period based on a vesting schedule that provides for one-half vesting after year two and an additional one-fourth vesting after each of years three and four. The Company’s expected volatility assumptions are based on the historical volatility of the Company’s stock price over a period corresponding to the expected term of the stock option. Forfeitures are estimated utilizing the Company’s historical forfeiture experience. The expected life of the Company’s stock options is based on the Company’s historical experience of the exercise patterns associated with its stock options.

A summary of Gentiva stock option activity as of March 31, 2013 and changes during the three months then ended is presented below:



	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Balance as of December 31, 2012	3,752,418		$	15.99
Granted	255,000		11.46
Exercised	(57,784	)	5.33
Cancelled	(41,983	)	23.95
Balance as of March 31, 2013	3,907,651		$	15.77	4.8	$	6,049,150
Exercisable options	2,639,703		$	19.13	4.4	$	1,687,827

The total intrinsic value of options exercised during the three months ended March 31, 2013 was $0.3 million. There were no options exercised during the three months ended March 31, 2012. As of March 31, 2013 and 2012, the Company had $3.8 million and $4.4 million, respectively, of total unrecognized compensation cost related to nonvested stock options. This compensation expense is expected to be recognized over a weighted-average period of 1.5 years and 1.6 years, respectively. The total fair value of options that vested during the first three months of 2013 was $2.8 million.

Performance Based Awards

The Company may grant performance based awards under its 2004 Plan that are either settled in shares of the Company's common stock or settled in cash depending on the individual award type. Performance based awards may result in the issuance of a range of shares of common stock or cash based on the achievement of defined levels of performance criteria. Performance based awards also carry a three-year service period requirement from the date of grant to vest. Forfeitures are estimated utilizing the Company’s historical forfeiture experience.

A summary of Gentiva's performance based share award activity by grant year as of March 31, 2013 is presented below:



	2010		2011		Total Number of Performance Share Units		Weighted- Average Exercise Price
Service period to vest:	3 years		3 years
Performance range of target:	0% - 150%		0% - 200%
Performance measured on:	EPS		EPS
Performance measurement period:	1/3 based on 2010 results		100% based on 2011 results
	1/3 based on 2011 results
	1/3 based on 2012 results
Performance target achieved:	2010 - 150%
	2011 - 150%		2011 - 200%
	2012 - 0%
Performance share units:
Balance as of December 31, 2012	33,700		166,750		200,450		$	26.31
Forfeited	—		(600	)	(600	)	27.00
Issued	(33,700	)	—		(33,700	)	25.61
Balance as of March 31, 2013	—		166,150		166,150		$	26.58

As of March 31, 2013 and 2012, the Company had $1.2 million and $1.6 million, respectively, of total unrecognized compensation cost related to performance based share awards. This compensation expense is expected to be recognized over a weighted-average period of 0.8 years and 1.7 years, respectively.

A summary of Gentiva's performance based cash award activity by grant year as of March 31, 2013 is presented below:



	2012		2013
Service period to vest:	3 years		3 years
Performance range of target:	0% - 200%		0% - 200%
Performance measured on:	EPS		EPS
Performance measurement period:	1/2 based on 2012 results		1/2 based on 2013 results
	1/2 based on 2014 results		1/2 based on 2015 results
Performance target achieved:	2012 - 85%
Performance cash:
Balance as of December 31, 2012	$	1,293,687	$	—
Earned	314,909		360,099
Issued	—		—
Balance as of March 31, 2013	$	1,608,596	$	360,099

For the first quarter of 2013, the Company recorded $0.7 million of compensation expense associated with its performance based cash awards as compared to $0.4 million for the corresponding period of 2012. As of March 31, 2013, the Company had unrecognized compensation cost at target of $6.2 million to be recognized over a weighted-average period of 2.4 years.

Restricted Stock

A summary of Gentiva restricted stock activity as of March 31, 2013 is presented below:



	Number of Restricted Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance as of December 31, 2012	364,650		$	25.25
Granted	335,100		11.48
Exercised	(32,800	)	25.75
Cancelled	(800	)	27.00
Balance as of March 31, 2013	666,150		$	18.30	$	7,207,743

The restricted stock fully vests at the end of a three-year or five-year period, depending on the individual grants. Forfeitures are estimated utilizing the Company’s historical forfeiture experience.

As of March 31, 2013, the aggregate intrinsic value of the restricted stock awards was $7.2 million. The Company had $7.5 million and $6.3 million of total unrecognized compensation cost related to restricted stock as of March 31, 2013 and 2012, respectively. This compensation expense is expected to be recognized over a weighted-average period of 2.6 years and 3.0, respectively.

Directors Deferred Share Units

Under the Company’s DSU Plan, each non-employee director receives an annual deferred stock unit award credited quarterly and paid in shares of the Company’s common stock following termination of the director’s service on the Board of Directors. In May of 2012, the Company’s shareholders approved increasing the aggregate number of shares of common stock available for issuance under the plan by 350,000 shares; therefore, the total number of shares of common stock reserved for issuance under this plan is 650,000, of which 258,129 shares were available for future grants as of March 31, 2013. During the first three months of 2013, the Company granted 16,404 stock units under the DSU Plan at a grant date weighted-average fair value of $10.97 per stock unit. Prior to the increase in the aggregate shares available for issuance in May of 2012, there were insufficient deferred stock units available under the DSU Plan for the full quarterly equity grant to each non-employee director in the first quarter of 2012. Therefore, the Company also made a cash payment of approximately $28,100 to each non-employee director during the first three months of 2012. Under the DSU Plan, 281,484 stock units were outstanding as of March 31, 2013.

Employee Stock Purchase Plan

The Company provides an ESPP under which the offering period is three months and the purchase price of shares is equal to 85 percent of the fair market value of the Company’s common stock on the last day of the three-month offering period. All employees of the Company are eligible to purchase stock under the ESPP regardless of their actual or scheduled hours of service. During the first three months of 2013, the Company issued 86,359 shares of common stock under its ESPP. Under the Company’s ESPP, compensation expense is equal to the 15 percent discount from the fair market value of the Company’s common stock on the date of purchase.