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), as amended by Amendments No. 1 and No. 2 thereto (“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 third quarter and first nine months 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 $2.0 million and $6.0 million, respectively, as compared to $2.3 million and $5.7 million for the corresponding periods 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 nine months of 2013 and 2012 calculated using the Black-Scholes option pricing model and other assumptions were as follows:



	Nine Months Ended
	September 30, 2013			September 30, 2012
Weighted average fair value of options granted	$	10.74		$	8.46
Risk-free interest rate	0.29% - 0.54%			0.77% - 0.95%
Expected volatility	76% - 79%			64% - 65%
Contractual life	7 years			7 years
Expected life	3.4 - 5.4 years			3.4 - 5.4 years
Expected dividend yield	—		%	—		%

During the first nine months of 2013, the Company issued 375,000 stock options that are both time-vesting (one-third each year) and carry a market vesting feature based on the average 20-day closing stock price of the Company's common stock based on stock price thresholds of $14, $16, and $18 (each covering one-third of the options granted). The fair value of the stock options granted ranged from $5.22 to $5.87 and was determined using the Monte Carlo stock option valuation model. Assumptions used in the model included volatility of 67 percent, risk-free interest rate of 0.60 percent, zero percent dividend yield, a forfeiture rate based on the Company's historical experience and a contractual life of seven years.

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 September 30, 2013 and changes during the nine 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	642,700		10.74
Exercised	(72,454	)	5.36
Cancelled	(105,909	)	20.17
Balance as of September 30, 2013	4,216,755		$	15.27	4.5	$	8,255,665
Exercisable options	2,586,969		$	19.16	3.9	$	2,044,688

The total intrinsic value of options exercised during the nine months ended September 30, 2013 was $0.4 million. There were no options exercised during the nine months ended September 30, 2012. As of September 30, 2013 and 2012, the Company had $4.3 million and $3.2 million, respectively, of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.5 years for both periods. The total fair value of options that vested during the first nine months of 2013 was $2.8 million.

On May 9, 2013, the shareholders of the Company authorized an additional 1,600,000 shares of the Company's stock for issuance under the 2004 Equity Incentive Plan.

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 September 30, 2013 is presented below:



	2010		2011		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		90% based on 2011 results
	1/3 based on 2011 results		10% based on 2013 results
	1/3 based on 2012 results
Performance target achieved:	2010 - 150%		2011 - 200%
	2011 - 150%		2013 - 0%
	2012 - 0%
Performance share units:
Balance as of December 31, 2012	33,700		166,750		200,450		$	26.31
Forfeited	—		(1,800	)	(1,800	)	26.67
Change in performance achievement expectations	—		(6,650	)	(6,650	)	26.58
Issued	(33,700	)	—		(33,700	)	25.61
Balance as of September 30, 2013	—		158,300		158,300		$	26.58

As of September 30, 2013 and 2012, the Company had $0.4 million and $2.0 million, respectively, of total unrecognized compensation cost related to performance based share awards, which is expected to be recognized over a weighted-average period of 0.3 years and 1.2 years, respectively.

A summary of Gentiva's performance based cash award activity by grant year as of September 30, 2013 is presented below:



	2012		2013
Service period to vest:	3 years		3 years
Performance range of target:	0% - 200%		0% - 240%
Performance measured on:	EPS		EPS
Performance measurement period:	1/2 based on 2012 results		60% based on 2013 results
	1/2 based on 2014 results		40% based on 2015 results
Performance target achieved:	2012 - 85%
Performance cash:
Balance as of December 31, 2012	$	1,293,687	$	—
Earned	910,680		754,374
Issued	—		—
Balance as of September 30, 2013	$	2,204,367	$	754,374

For the third quarter and first nine months of 2013, the Company recorded $0.8 million and $1.7 million, respectively, of compensation expense associated with its performance based cash awards as compared to $0.4 million and $1.1 million for the corresponding periods of 2012. As of September 30, 2013, the Company had unrecognized compensation cost at target of $2.8 million to be recognized over a weighted-average period of 1.7 years. During the third quarter of 2013, the Company's compensation committee and Board of Directors approved an amendment to the 2013 performance cash awards for the Company's named executive officers to measure performance based entirely on year 2015 results and not on any year 2013 results. Also, under the amendment, the performance range of target could extend to 240 percent under certain circumstances.

Restricted Stock

A summary of Gentiva restricted stock activity as of September 30, 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	338,300		11.37
Exercised	(39,750	)	26.06
Cancelled	(10,000	)	16.58
Balance as of September 30, 2013	653,200		$	18.15	$	7,864,528

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 September 30, 2013, the aggregate intrinsic value of the restricted stock awards was $7.9 million. The Company had $5.8 million and $4.9 million of total unrecognized compensation cost related to restricted stock as of September 30, 2013 and 2012, respectively. This compensation expense is expected to be recognized over a weighted-average period of 2.2 years and 2.6, 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. The total number of shares of common stock reserved for issuance under this plan is 650,000, of which 225,639 shares were available for future grants as of September 30, 2013. During the first nine months of 2013, the Company granted 48,894 stock units under the DSU Plan at a grant date weighted-average fair value of $11.04 per stock unit. For the first quarter 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 nine months of 2012. Under the DSU Plan, 313,974 stock units were outstanding as of September 30, 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. 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. During the first nine months of 2013, the Company issued 217,230 shares of common stock under its ESPP.