12. Equity Compensation Plan

Prior to September 2010, the Partnership had established an officer incentive program linked to its future value. Class D Units were periodically granted to employees of AAM. Part of the Class D Units are defined as performance-based awards under ASC 718 and require employment of the recipient on the date of sale, disposition, or refinancing. If the employee is no longer employed on such date, the award is forfeited. The remainder of the Class D Units were time-based awards under ASC 718 and such fair value determined on the grant date was recognized over the vesting period. On March 26, 2013, the performance component Class D Units vested and along with time based units were converted to OP units in connection with the IPO, and $0.9 million of expense was recognized.

Restricted Stock Grants

On March 26, 2013 the Company adopted the Aviv REIT, Inc. 2013 Long-Term Incentive Plan (the LTIP). The purpose of the LTIP is to attract and retain qualified persons upon whom, in large measure, the Company’s sustained progress, growth and profitability depend, to motivate the participants to achieve long-term Company goals and to align the participants’ interests with those of other stockholders by providing them with a proprietary interest in the Company’s growth and performance. The Company’s executive officers, employees, consultants and non-employee directors are eligible to participate in the LTIP. Under the plan, 2,000,000 shares of the Company’s common stock are available for issuance. The shares can be issued as restricted stock awards (RSAs) or as restricted stock units (RSUs).

During 2013, the Company issued 23,250 shares and 47,250 RSAs subject to a vesting period. During the nine months ended September 30, 2014, 15,750 of the 47,250 RSAs vested. Additionally, the Company issued 226,585 RSUs, of which 17,470 were subsequently forfeited prior to the year ended December 31, 2013. Of these 226,585 RSUs, 16,361 shares were issued and vested in the nine months ended September 30, 2014 and an additional 7,779 RSUs were forfeited. Some of these RSUs are subject to time vesting, and some are subject to performance vesting. The time-based RSUs generally vest over a period of two to three years, subject to the employee’s continued employment with the Company. The performance-based RSUs are earned on the basis of Total Shareholder Return (TSR) on the Company’s stock compared to the TSR of a defined group of peer companies. The first installment of the performance-based RSUs are based on the companies comprising the NAREIT Equity Index and the companies comprising the Bloomberg Healthcare REIT Index for the performance period beginning on the date of the IPO and ending December 31, 2014. The second installment is based on the companies comprising the NAREIT Equity Index and the companies comprising the Bloomberg Healthcare REIT Index for the performance period beginning on the date of the IPO and ending December 31, 2015. If the service and performance conditions are met, approximately half of the RSUs will vest on December 31, 2014, and the remaining will vest on December 31, 2015. The RSUs carry dividend equivalent rights that are subject to the same vesting terms as the underlying RSUs.

During the nine months ended September 30, 2014, the Company issued 156,397 RSUs of which 18,445 have been forfeited. Some of these RSUs are subject to time vesting, and some are subject to performance vesting. The time-based RSUs cliff vest over a period of three years, subject to the employee’s continued employment with the Company. The performance-based RSUs cliff vest on the basis of TSR on the Company’s stock compared to the TSR of a defined group of peer companies. Approximately half of the performance-based RSUs are based on the companies comprising the NAREIT Equity Index for the performance period beginning on January 1, 2014 and ending December 31, 2016. Approximately half are based on the companies in the Bloomberg Healthcare REIT Index for the performance period beginning on January 1, 2014 and ending December 31, 2016. If the service and performance conditions are met, the RSUs will vest on December 31, 2016.

For the three and nine months ended September 30, 2014 and 2013, the Company recognized total non-cash stock-based compensation expense related to the LTIP of $0.9 million, $3.6 million, $0.5 million and $0.6 million, respectively.

Restricted stock grants vest over specified periods of time as long as the employee remains with the Company. The following table sets forth the number of unvested shares of restricted stock and the weighted average fair value of these shares at the date of grant:


	Nine Months Ended
	September 30, 2014					September 30, 2013
	Shares of Restricted Stock			Weighted Average Fair Value of Date of Grant		Shares of Restricted Stock		Weighted Average Fair Value of Date of Grant
Unvested balance at January 1		256,092		$	29.83		—	$	—
Granted		172,915		$	26.55		182,092	$	33.10
Vested (1)		(40,055	)	$	23.08		—	$	—
Forfeited		(26,724	)	$	30.53		—	$	—

Unvested balance at September 30		362,228		$	28.96		182,092	$	33.10

(1)	Includes 7,944 shares which were used to settle minimum employee withholding tax obligations for one employee of approximately $0.2 million in 2014. A net of 32,111 shares of common stock were delivered in the nine months ended September 30, 2014.

As of September 30, 2014, total unearned compensation on restricted stock was $6.5 million, and the weighted average vesting period was 1.76 years.

Option Awards

On September 17, 2010, the Company adopted the 2010 Management Incentive Plan (the MIP), which provides for the grant of option awards. Two-thirds of the options granted under the MIP were performance-based awards whose criteria for vesting is tied to a future liquidity event (as defined therein) and also contingent upon meeting certain return thresholds (as defined therein). The grant date fair value associated with all performance-based award options of the Company aggregated to approximately $7.4 million at the time of the IPO. One third of the options granted under the MIP were time based awards and the service period for these options is four years with shares vesting at a rate of 25% ratably from the grant date.

In connection with the IPO, all options outstanding under the MIP, representing options to purchase 5,870,138 shares with a weighted average exercise price of $17.47 per share, became fully-vested. In addition, recipients were entitled to receive dividend equivalents on their options awarded under the MIP. Dividend equivalents were paid on time-based options on (i) the date of vesting, with respect to any portion of a time-based option that was unvested on the date the dividend equivalent was accrued, and (ii) the last day of the calendar quarter in which such dividends were paid to stockholders, with respect to any portion of a time-based option vested as of the date the dividend equivalent was accrued. Dividend equivalents accrued and unpaid prior to the consummation of the IPO in the approximate amount of $14.8 million were paid in shares of common stock, net of applicable withholding of approximately $6.8 million, in an amount based on the IPO price of the common stock. No dividend equivalents will be paid for any MIP options with respect to periods after the date of the IPO by the Company.

In connection with the IPO, the holders of option awards under the MIP received a new class of units of LG Aviv L.P., the legal entity through which Goldberg Lindsay & Co., LLC holds its interest in the REIT, equal to the number of options held by such persons immediately prior to the consummation of the IPO. Under the limited partnership agreement of LG Aviv L.P., the units are entitled to receive an aggregate distribution amount equal to 14.9% of the dividend distributions declared and received by LG Aviv L.P. after the consummation of the IPO in respect of its shares of common stock. The distribution amount will be paid by LG Aviv L.P. ratably to each holder of such units on the distribution date in the proportion that the total number of units held by such holder bears to the total outstanding units of the same class. Any unit payments will be paid, if at all, on the earlier of (i) the last day of the calendar quarter in which dividends were paid to the Company stockholders and (ii) three business days following the holder’s termination of employment with the Company. For the nine months ended September 30, 2014, $3.4 million was paid by LG Aviv L.P. to the holders of such units.

The following table represents the time- and performance-based option awards activity for the nine months ended September 30, 2014 and 2013:


	Nine Months Ended
	September 30, 2014			September 30, 2013
Outstanding at January 1		5,870,138			1,956,713
Exercised		(174,467	)		—
Awards vested at IPO		—			3,913,425

Outstanding at September 30		5,695,671			5,870,138

Options exercisable at end of period		5,695,671			—
Weighted average fair value of options granted	$	2.20		$	2.20

The following table represents the time- and performance-based option awards outstanding cumulatively life-to-date for the nine months ended September 30, 2014 and 2013 as well as other MIP data:


	2014	2013
Range of exercise prices	$16.56-$18.87	$16.56 - $18.87
Outstanding	5,695,671	5,870,138
Remaining contractual life (years)	6.52	7.55
Weighted average exercise price	$17.44	$17.47

The Company has used the Black-Scholes option pricing model to estimate the grant date fair value of the options. In connection with the IPO, all options outstanding under the MIP became fully vested, and the plan was retired. There were no options awarded in the nine months ended September 30, 2014 or 2013.

The Company recorded non-cash compensation expenses of approximately $0, $0, $0, and $9.0 million for the three and nine months ended September 30, 2014 and 2013, respectively, related to the time and performance based stock options accounted for as equity awards, as a component of general and administrative expenses in the consolidated statements of operations.

At September 30, 2014, there is no unrecognized compensation cost to be recognized related to the option awards.

Dividend equivalent rights associated with the MIP that became payable upon vesting amounted to $0, $0, $0, and $15.4 million for the three and nine months ended September 30, 2014 and 2013, respectively.