STOCK-BASED COMPENSATION

BioScrip Equity Incentive Plans

Under the Company's Amended and Restated 2008 Equity Incentive Plan as amended and restated (the “2008 Plan”), the Company may issue, among other things, incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), stock appreciation rights ("SARs"), restricted stock, performance shares and performance units to employees and directors. While SARS are authorized under the 2008 Plan, they may also be issued outside of the plan. Under the 2008 Plan, 3,580,000 shares were originally authorized for issuance (subject to adjustment for grants made under the Company's 2001 Incentive Stock Plan (the “2001 Plan”) after January 1, 2008, as well as for forfeitures, expirations or awards that under the 2001 Plan otherwise settled in cash after the adoption thereof). Upon the effective date of the 2008 Plan, the Company ceased making grants under the 2001 Plan. The 2008 Plan is administered by the Company's Management Development and Compensation Committee (the “Compensation Committee”), a standing committee of the Board of Directors. On June 10, 2010, the Company's stockholders approved an amendment to the 2008 Plan to increase the number of authorized shares of common stock available for issuance by 3,275,000 shares to 6,855,000 shares. On May 7, 2013, the Company's stockholders approved an amendment to the 2008 Plan to increase by 300,000 shares (from 500,000 to 800,000) the aggregate number of shares within the 2008 Plan that may be granted to directors.

As of December 31, 2013, there were 971,658 shares that remained available for grant under the 2008 Plan.

BioScrip/CHS Equity Plan

Effective upon closing of the acquisition of CHS, the CHS 2006 Equity Incentive Plan was adopted by the Company and renamed the “BioScrip/CHS 2006 Equity Incentive Plan” (as amended and restated, the “BioScrip/CHS Plan” and together with the 2008 Plan, the "Equity Compensation Plans"). There were 13,000,000 shares of CHS common stock originally authorized for issuance under the CHS 2006 Equity Incentive Plan, which were converted into 3,106,315 shares of BioScrip common stock using the exchange ratio defined by the merger agreement. The Board of Directors further amended the BioScrip/CHS Plan to provide for it to have substantially the same terms and provisions as the 2008 Plan.

Of the options authorized and outstanding under the BioScrip/CHS Plan on the date of the acquisition, 716,086 options were designated as “rollover” options. These rollover options were issued to the top five executives of CHS at the time of the acquisition, and otherwise remain subject to the terms of the BioScrip/CHS Plan, as amended, and fully vested on the date of conversion. Under the terms of the BioScrip/CHS Plan, any shares of the Company's common stock subject to rollover options that expire or otherwise terminate before all or any part of the shares subject to such options have been purchased as a result of the exercise of such options shall become available for issuance under the BioScrip/CHS Plan.

The remaining 2,390,229 shares are authorized for issuance under the BioScrip/CHS Plan. These shares may be used for awards under the BioScrip/CHS Plan, provided that awards using such available shares are not made after the original expiration date of the pre-existing plan, and are only made to individuals who were not employees or directors of the Company or an affiliate or subsidiary of the Company prior to such acquisition. As of December 31, 2013, there were 800,361 shares that remained available under the BioScrip/CHS Plan.

Annual Equity Grants

During the year ended December 31, 2013, the Compensation Committee approved grants of approximately 1.9 million NQSO awards and 0.4 million restricted stock awards to key employees and members of the board of directors consistent with the Compensation Committee's historic grant practices.

Stock Options

Options granted under the Equity Compensation Plans: (a) typically vest over a three-year period and, in certain instances, fully vest upon a change in control of the Company, (b) have an exercise price that may not be less than 100% of its fair market value on the date of grant and (c) are generally exercisable for ten years after the date of grant, subject to earlier termination in certain circumstances.

Option expense is amortized on a straight-line basis over the requisite service period. The Company recognized compensation expense related to stock options of $6.0 million, $4.6 million, and $3.7 million, in the years ended December 31, 2013, 2012 and 2011, respectively.

The weighted-average, grant-date fair value of options granted during the years ending December 31, 2013, 2012 and 2011 was $6.24, $4.00, and $2.53, respectively. A binomial lattice-based valuation model is used to estimate the fair value of each option granted. Because of the limitations with closed-form valuation models, such as the Black-Scholes model, we have determined that this more flexible binomial model provides a better estimate of the fair value of our options. The fair value of each stock option award on the date of the grant was calculated using the following weighted-average assumptions:



	2013			2012			2011
Expected volatility	61.8		%	64.8		%	64.1		%
Risk-free interest rate	2.13		%	1.98		%	3.23		%
Expected life of options	5.5 years			5.8 years			5.2 years
Dividend rate	—			—			—
Fair value of options	$	6.24		$	4.00		$	2.53

Stock option activity for the Equity Compensation Plans through December 31, 2013 was as follows:



	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (thousands)		Weighted Average Remaining Contractual Life
Balance at December 31, 2012	4,885,215		$	5.97	$	23,463	7.8 years
Granted	1,928,500		$	11.25
Exercised	(517,979	)	$	4.83
Forfeited and expired	(562,915	)	$	8.57
Balance at December 31, 2013	5,732,821		$	7.59	$	6,185	7.7 years
Outstanding options less expected forfeitures at December 31, 2013	5,274,974		$	7.44	$	5,936	7.6 years
Exercisable at December 31, 2013	2,492,009		$	5.84	$	4,362	6.4 years

Cash received from option exercises under share-based payment arrangements for the years ended December 31, 2013, 2012, and 2011 was $2.5 million, $8.6 million, and $3.2 million, respectively.

The maximum term of stock options under these plans is ten years. Options outstanding as of December 31, 2013 expire on various dates ranging from May 2014 through November 2023. The following table outlines our outstanding and exercisable stock options as of December 31, 2013:



	Options Outstanding				Options Exercisable
Range of Option Exercise Price	Outstanding Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Options Exercisable	Weighted Average Exercise Price
$1.71 - $4.24	443,516	$	2.83	5.2 years	411,850	$	2.72
$4.42 - $6.61	1,104,875	$	5.03	6.5 years	768,053	$	5.13
$6.62- $6.65	1,856,582	$	6.63	7.8 years	879,922	$	6.63
$6.67 - $9.16	857,348	$	7.90	7.9 years	432,184	$	8.44
$11.04 - $16.63	1,470,500	$	12.01	9.2 years	—	$	—
All options	5,732,821	$	7.59	7.7 years	2,492,009	$	5.84

As of December 31, 2012 and 2011 the exercisable portion of outstanding options was approximately 1.9 million shares and 3.3 million shares, respectively.

As of December 31, 2013 there was $13.1 million of unrecognized compensation expense related to unvested option grants that is expected to be recognized over a weighted-average period of 2.0 years. The total intrinsic value of options exercised during the years December 31, 2013, 2012 and 2011 was $3.8 million, $4.4 million, and $2.5 million, respectively.

As compensation expense for options granted is recorded over the requisite service period of options, future stock-based compensation expense may be greater as additional options are granted.

Restricted Stock

Under the Equity Compensation Plans, stock grants subject solely to an employee’s or director’s continued service with the Company will not become fully vested less than (a) three years from the date of grant to employees and, in certain instances, may fully vest upon a change in control of the Company, and (b) one year from the date of grant for directors. Stock grants subject to the achievement of performance conditions will not vest less than one year from the date of grant. Such performance shares may vest after one year from grant. No such time restrictions applied to stock grants made under the Company’s prior equity compensation plans.

The Company recognized compensation expense related to restricted stock awards of $3.5 million, $0.4 million, and $0.5 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Since the Company records compensation expense for restricted stock awards based on the vesting requirements, which generally includes time elapsed, market conditions and/or performance conditions, the weighted average period over which the expense is recognized varies. Also, future equity-based compensation expense may be greater if additional restricted stock awards are made.

Each share of restricted stock issued reduces the number of shares available for grant under the Equity Compensation Plans by 1.53 shares.

Restricted stock award activity through December 31, 2013 was as follows:



	Restricted Stock		Weighted Average Award Date Fair Value		Weighted Average Remaining Recognition Period
Balance at December 31, 2012	70,000		$	7.52	0.4 years
Granted	370,000		$	12.31
Awards Vested	(70,000	)	$	7.52
Canceled	—		$	—
Balance at December 31, 2013	370,000		$	12.31	0.3 years

As of December 31, 2013, there was $1.2 million of unrecognized compensation expense related to unvested restricted stock awards. That expense is expected to be recognized over a weighted average period of 0.3 years. The total grant date fair market value of awards vested during the years ended December 31, 2013, 2012and 2011 was $0.5 million, $0.8 million, and $0.6 million, respectively. The total intrinsic value of restricted stock awards vested during the years December 31, 2013, 2012 and 2011 was $0.5 million, $2.3 million, and $0.5 million, respectively.

Performance Units

Under the 2008 Plan, the Compensation Committee may grant performance units to key employees. The Compensation Committee will establish the terms and conditions of any performance units granted, including the performance goals, the performance period and the value for each performance unit. If the performance goals are satisfied, the Company would pay the key employee an amount in cash equal to the value of each performance unit at the time of payment. In no event may a key employee receive an amount in excess of $1.0 million with respect to performance units for any given year. As of December 31, 2013, no performance units have been granted under the 2008 Plan.

Stock Appreciation Rights

The Company has granted and has outstanding cash-based phantom stock appreciation rights ("SARs), which are independent of the Company's 2008 Equity Incentive Plan, with respect to 330,000 shares of the Company's common stock. The SARs vest in three equal annual installments and will fully vest in connection with a change of control (as defined in the grantee's employment agreement). The SARs may be exercised, in whole or in part, to the extent each SAR has been vested and will receive in cash the amount by which the closing stock price on the exercise date exceeds the Grant Price, if any. Upon the exercise of any SARs, as soon as practicable under the applicable federal and state securities laws, the grantee may be required to use the net after-tax proceeds of such exercise to purchase shares of the Common Stock from the Company at the closing stock price of the Common Stock on that date and hold such shares of Common Stock for a period of not less than one year from the date of purchase, except that the grantee will not be required to purchase any shares of Common Stock if the SAR is exercised on or after a change of control of the Company. The grantee's right to exercise the SAR will expire on the earliest of (1) the tenth anniversary of the grant date, or (2) under certain conditions as a result of termination of the grantee's employment.

SAR activity through December 31, 2013 was as follows:



	Stock Appreciation Right		Weighted Average Exercise Price		Weighted Average Remaining Recognition Period
Balance at December 31, 2012	380,000		$	6.72	1.8 years
Granted	—		$	—
Exercised	—		$	—
Canceled	(50,000	)	$	6.67
Balance at December 31, 2013	330,000		$	6.73	1.7 years

The SARs are recorded as a liability in other non-current liabilities in the accompanying Consolidated Balance Sheets. Compensation expense related to the SARs for the year ended December 31, 2013, 2012 and 2011 was $0.0 million, $1.1 million and $0.3 million As of December 31, 2013 there was $0.3 million of unrecognized compensation expense related to the SARs that is expected to be recognized over a weighted-average period of 1.7 years. In addition, because they are settled with cash, the fair value of the SAR awards is revalued on a quarterly basis. During the years ended December 31, 2013, 2012 and 2011 the Company paid $0.0 million, $0.3 million and $0.0 million related to the exercise of SAR awards.

Employee Stock Purchase Plan

On May 7, 2013, the Company's stockholders approved the BioScrip, Inc. Employee Stock Purchase Plan (the “ESPP”). The ESPP provides all eligible employees, as defined under the ESPP, the opportunity to purchase up to a maximum number of shares of Common Stock of the Company as determined by the Compensation Committee. Participants in the ESPP may acquire the Common Stock at a cost of 85% of the lower of the fair market value on the first or last day of the Plan Year from January 1st through December 31st. The Company has filed a Registration Statement on Form S-8 to register 750,000 shares of Common Stock for issuance under the ESPP. As of December 31, 2013, no shares have been issued and no expense has been incurred under the ESPP.