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.

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, 2012, the Company had 1,215,023 shares available for issuance under the 2004 Plan.

For the year ended December 31, 2012, the Company recorded equity-based compensation expense, as calculated on a straight-line basis over the vesting periods of the related equity instruments, of $7.6 million as compared to $7.5 million and $6.3 million for the corresponding periods of 2011 and 2010, which were reflected as selling, general and administrative expense in the consolidated statements of comprehensive income. 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 statements of comprehensive income 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 2012, 2011 and 2010 calculated using the Black-Scholes option pricing model and other assumptions, were as follows.



	For the Year Ended
	December 31, 2012			December 31, 2011			December 31, 2010
Weighted average fair value of options granted	$	4.32		$	3.46		$	10.82
Risk-free interest rate	0.77% - 0.95%			0.91		%	2.66		%
Expected volatility	64		%	60		%	43		%
Contractual life	7 years			7 years			7 years
Expected life	3.4 - 5.4 years			4.5 -6.5 years			4.5 -6.5 years
Expected dividend yield	—		%	—		%	—		%

Stock option grants in 2012 and 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.

A summary of Gentiva stock option activity as of December 31, 2012 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, 2011	4,228,907		$	15.59
Granted	36,000		8.46
Exercised	(123,818	)	7.62
Cancelled	(388,671	)	13.63
Balance as of December 31, 2012	3,752,418		$	15.99	4.9	$	5,408,335
Exercisable options	2,459,137		$	18.15	4.5	$	1,678,836

During 2012, the Company granted 36,000 stock options to employees under its 2004 Plan at an average exercise price of $8.46 and a weighted-average, grant-date fair value of $4.32. The total intrinsic value of options exercised during 2012 and 2011 was $0.3 million and $1.9 million, respectively.

As of December 31, 2012 and December 31, 2011, the Company had $2.5 million and $5.1 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 1.3 years and 1.7 years, respectively. The total fair value of options that vested during 2012 and 2011 was $4.7 million and $4.8 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, 2012 and changes during the year then ended is presented below:



	Number of Performance Share Units		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance as of December 31, 2011	125,800		$	26.33
Granted	—		—
Vested	—		—
Cancelled	(5,400	)	26.80
Balance as of December 31, 2012	120,400		$	26.31

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 service period provided the performance criteria are met. Forfeitures are estimated utilizing the Company’s historical forfeiture experience. There were no grants of performance share units for 2012.

As of December 31, 2012 and 2011, the Company had $1.5 million and $1.8 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 1.0 year and 1.9 years, respectively.

Performance Cash Award

The Company may grant performance cash awards under its 2004 Plan. Performance cash awards result in the issuance of cash at the end of a three-year period and may range between zero and 200 percent of the performance cash award granted at target, based on the achievement of defined thresholds of the performance criteria.

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

For 2012, the Company granted performance cash awards of approximately $4.8 million, with 50 percent of the award based on a 2012 diluted earning per share target and 50 percent of the award based on a 2014 diluted earnings per share target, subject to certain adjustments, with the awards expected to fully vest at the end of 2014. The performance cash awards based on 2012 diluted earnings per share target will be paid at 85 percent of target. The Company has recorded compensation cost of approximately $1.4 million for 2012 as selling, general and administrative expense in Company's consolidated financial statements.

As of December 31, 2012, the Company had approximately $2.6 million, of total unrecognized compensation cost related to performance cash awards which is expected to be recognized over a weighted-average period of 2.0 years.

Restricted Stock

A summary of Gentiva restricted stock activity as of December 31, 2012 is presented below:



	Number of Restricted Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance as of December 31, 2011	377,750		$	25.30
Granted	—		—
Exercised	—		—
Cancelled	(13,100	)	26.58
Balance as of December 31, 2012	364,650		$	25.25	$	3,664,733

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, 2012 and 2011, the aggregate intrinsic value of the restricted stock awards was $3.7 million and $2.5 million, respectively. The Company had $4.3 million and $6.9 million of total unrecognized compensation cost related to restricted stock as of December 31, 2012 and 2011, respectively. This compensation expense is expected to be recognized over a weighted-average period of 2.5 years and 3.2 years, 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 274,533 shares were available for future grants as of December 31, 2012. During 2012, the Company granted 77,362 stock units under the DSU Plan at a grant date weighted-average fair value of $8.34 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 2012. Under the DSU Plan, 265,080 stock units were outstanding as of December 31, 2012.

Employee Stock Purchase Plan

The Company’s ESPP, as amended on May 10, 2012, provides an aggregate of 1,800,000 shares of common stock available for issuance under the ESPP. The Compensation 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, 2012, 2,337 shares of common stock were available for future issuance under the ESPP. During 2012, 2011 and 2010, the Company issued 403,292 shares, 407,091 shares and 216,831 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.