Note 13.

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) ("2004 Plan"), (ii) the Stock & Deferred Compensation Plan for Non-Employee Directors 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.

On May 12, 2011, the shareholders of the Company authorized an additional 2.1 million shares of the Company's common stock for issuance under the 2004 Plan.

Under the 2004 Plan, 6.2 million shares of common stock plus any remaining shares authorized under the 1999 Stock Incentive Plan as to which awards had not been made are available for grant. The maximum number of shares of common stock for which grants may be made in any calendar year to any 2004 Plan participant is 500,000. Under the 2004 Plan, stock options granted on and after February 25, 2009 will have a maximum term of seven years. Options granted prior to February 25, 2009 retain their ten year term. As of December 31, 2011, the Company had 814,552 shares available for issuance under the 2004 Plan.

For the year ended December 31, 2011, the Company recorded equity-based compensation expense, as calculated on a straight-line basis over the vesting periods of the related equity instruments, of $7.5 million as compared to $6.3 million and $5.2 million for 2010 and 2009, respectively, which were reflected as selling, general and administrative expense in the consolidated statements of operations. During 2011 and 2010, the Company recorded non-cash compensation expense of approximately $0.4 million and $0.6 million, respectively, associated with modifications of stock options for a former executive and acceleration of compensation expense relating to future vesting of stock options under severance agreements for certain of the Company's former executive officers, which is reflected as selling, general and administrative expense in the consolidated statement of operations and is categorized as other restructuring costs. See Note 10 for additional information.

Stock Options

The weighted-average fair values of the Company's stock options granted during 2011, 2010 and 2009, calculated using the Black-Scholes option-pricing model and other assumptions, were as follows:


	Year Ended
	December 31, 2011		December 31, 2010		January 3, 2010
Weighted average fair value of options granted		$3.46		$10.82		$8.90
Risk-free interest rate		0.91%		2.66%		1.60%
Expected volatility		60%		43%		32%
Contractual life		7 years		7 years		10 years
Expected life		4 - 6.5 years		4.5 - 6.5 years		4.5 - 6.5 years
Expected dividend yield		0%		0%		0%

Stock option grants in 2011 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.

On November 9, 2011, the Company granted 1,403,750 options at exercise prices ranging from $5.16 to $10.32 to officers and employees under its 2004 Plan. The options consist of three tranches with one-third of each tranche vesting each year. The first tranche has an exercise price equivalent to the fair market value at the date of grant. The second tranche has an exercise price equal to 150 percent of the fair market value on the grant date and the third tranche has an exercise price equal to 200 percent of the fair market value on the grant date. The Company used a Monte Carlo stock option model to calculate the fair value of the options. Because the Company has not historically granted instruments with premium exercise prices, the historical experience of exercise patterns was not used for these awards. Rather, the options were assumed to be exercised at the midpoint of the first time that the simulated stock price is in the money (but not less than the vesting time) and full contractual term of the award.

A summary of Gentiva stock option activity as of December 31, 2011 and changes during the year 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, 2010		2,981,354		$	19.94
Granted		1,588,850			8.34
Exercised		(202,384	)		18.25
Cancelled		(138,913	)		22.06

Balance as of December 31, 2011		4,228,907		$	15.59		6.7	$	1,787,160

Exercisable options		2,031,982		$	18.46		4.6	$	—

During 2011, the Company granted 1,588,850 stock options (which include the 1,403,750 options mentioned above) to officers and employees under its 2004 Plan at an average exercise price of $8.34 and a weighted-average, grant-date fair value of $3.46. The total intrinsic value of options exercised during 2011 and 2010 was $1.9 million and $4.8 million, respectively.

As of December 31, 2011 and December 31, 2010, the Company had $5.1 million and $3.6 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 1.7 years and 1.8 years, respectively. The total fair value of options that vested during 2011 and 2010 was $4.8 million and $3.1 million, respectively.

Performance Share Units

The Company may grant performance share units under its 2004 Plan. Performance share units result in the issuance of common stock at the end of a three-year period and may range between zero and 150 percent of the performance share units granted at target in 2010 and between zero and 200 percent of the performance share units granted at target in 2011, based on the achievement of defined thresholds of the performance criteria over a three-year period (in the case of performance share units granted in 2010) and at the end of a one-year period (in the case of performance share units granted in 2011).

A summary of Gentiva performance share unit activity as of December 31, 2011 is presented below:


	Number of Performance Share Units			Weighted- Average Fair Value
Balance as of December 31, 2010		36,200		$	25.61
Granted		98,600			26.60
Exercised		—			—
Earned		(11,236	)		25.61
Cancelled		(9,000	)		26.58

Balance as of December 31, 2011		114,564		$	26.40

These performance share units carry performance criteria measured on annual diluted earnings per share targets and fully vest at the end of a three-year period provided the performance criteria are met. Forfeitures are estimated utilizing the Company's historical forfeiture experience.

As of December 31, 2011 and 2010, the Company had $1.8 million and $0.7 million, respectively, of total unrecognized compensation cost related to performance share units. This compensation expense is expected to be recognized over a weighted-average period of 1.9 years and 2.0 years, respectively.

Restricted Stock

A summary of Gentiva restricted stock activity as of December 31, 2011 is presented below:


	Number of Restricted Shares			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance as of December 31, 2010		281,350		$	24.92
Granted		114,500			26.61
Exercised		—			—
Cancelled		(18,100	)		26.14

Balance as of December 31, 2011		377,750		$	25.30	$	2,549,813

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 December 31, 2011 and 2010, the aggregate intrinsic value of the restricted stock awards was $2.5 million and $7.5 million, respectively, and the Company had $6.9 million and $5.9 million, respectively, of total unrecognized compensation cost related to restricted stock. This compensation expense is expected to be recognized over a weighted-average period of 3.2 years and 4.4 years, respectively.

Directors Deferred Share Units

Under the Company's Stock & Deferred Compensation Plan for Non-Employee Directors, 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. The total number of shares of common stock reserved for issuance under this plan is 300,000, of which 1,895 shares were available for future grants as of December 31, 2011. During 2011, 2010 and 2009, the Company issued 91,774, 21,175, and 16,628, respectively, stock units at a grant date weighted-average fair value of $9.73, $24.38 and $22.28, respectively. As of December 31, 2011, 199,858 share units were outstanding under the plan.

Employee Stock Purchase Plan

The Company's ESPP, as amended on May 13, 2010, provides an aggregate of 3,900,000 shares of common stock available for issuance under the ESPP. The Compensation, Corporate Governance and Nominating Committee of the Company's Board of Directors administers the plan and has the power to determine the terms and conditions of each offering of common stock. All employees of the Company are immediately eligible to purchase stock under the plan regardless of their actual or scheduled hours of service. Employees may purchase shares having a fair market value of up to $25,000 per calendar year based on the value of the shares on the date of purchase. The maximum number of shares of common stock that may be sold to any employee in any offering, however, will generally be 10 percent of that employee's compensation during the period of the offering. 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. As of December 31, 2011, 939,931 shares of common stock were available for future issuance under the ESPP. During 2011, 2010 and 2009, the Company issued 407,091 shares, 216,831 shares and 351,465 shares, respectively, of common stock under its ESPP. The Company records compensation expense equal to the 15 percent discount from the fair market value of the Company's common stock on the date of purchase.