AFAM Almost Family (delisted)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

April 7, 2017

To Our Stockholders:

You are cordially invited to attend the 2017 Annual Meeting of Stockholders of Almost Family, Inc. on May 8, 2017. The meeting will be held at the Company’s headquarters at 9510 Ormsby Station Road, Suite 300, Louisville, Kentucky, at 8:30 a.m. local time.

The official Notice of Annual Meeting, Proxy Statement, and Proxy Card are enclosed with this letter.

Please take the time to read carefully the proposals for stockholder action described in the accompanying proxy materials. Whether or not you plan to attend, you can ensure that your shares are represented at the meeting by promptly completing, signing and dating your proxy form and returning it in the enclosed envelope. If you attend the meeting, you may revoke your proxy and vote your shares in person.

Your interest and participation in the affairs of the Company are greatly appreciated. Thank you for your continued support .

ALMOST FAMILY, INC.

9510 Ormsby Station Road, Suite 300

Louisville, Kentucky  40223

ALMOST FAMILY, INC.

9510 Ormsby Station Road, Suite 300

Louisville, Kentucky 40223

If you return a properly executed proxy card without indicating your vote, your shares will be counted as present for purposes of establishing a quorum and your shares will be voted in accordance with the recommendation of the Board as set forth in this proxy statement.

As of the date of this proxy statement, the Board knows of no matters that will be presented for consideration at the Annual Meeting other than those matters discussed in this proxy statement. If any other matters properly come before the Annual Meeting and call for a vote of stockholders, validly executed proxies in the enclosed form returned to us will be voted in accordance with the recommendation of the Board, or, in the absence of such a recommendation, in accordance with the judgment of the proxy holders.

Votes Required

The affirmative vote of a plurality of the votes entitled to be cast by the holders of Common Stock present in person or represented by proxy is required to elect each director nominee. Proxies cannot be voted for a greater number of persons than are named.

The affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote will be necessary to approve the adoption of the 2017 Stock and Incentive Compensation Plan (Proposal 2), to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2017 (Proposal 3), to approve the Company’s executive compensation on an advisory basis (Proposal 4), and to approve any other matters that may properly come before the Annual Meeting for stockholder consideration.

With respect to Proposal 5 – the advisory vote on whether to hold an advisory vote on executive compensation every one, two or three years – the choice receiving the most FOR votes will be the frequency that has been selected by stockholders.

Votes “withheld” with respect to the election of directors will have no effect on the outcome of the vote. Abstentions with respect to each of Proposals 2, 3 and 4 will have the same effect as an AGAINST vote; abstentions will have no effect on Proposal 5. Abstentions will be counted for the purpose of determining a quorum at the Annual Meeting.

Under rules of the New York Stock Exchange, matters subject to stockholder vote are classified as “routine” or “non-routine.” In the case of non-routine matters, brokers may not vote shares held in “street name” for which they have not received voting instructions from the beneficial owner (“Broker Non-Votes”), but they may vote those shares in their discretion on any routine matter. Broker Non-Votes will be counted for purposes of calculating whether a quorum is present at the Annual Meeting, but will not be counted for purposes of determining the numbers of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal. Proposals 1, 2, 4 and 5 are non-routine matters, but the ratification of the appointment of the independent registered public accounting firm is a routine matter. Thus, Broker Non-Votes will be counted for the purpose of determining a quorum at the Annual Meeting, but will not affect the outcome of any proposal being voted on at the Annual Meeting. Therefore, it is important that you complete and return your proxy early so that your vote may be recorded.

Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspectors of election appointed for the Annual Meeting, who also will determine whether a quorum is present.

Revocability of Proxies

A stockholder who completes and returns the proxy that accompanies this proxy statement may revoke that proxy at any time before the closing of the polls at the Annual Meeting. A stockholder may revoke a proxy by filing a written notice of revocation with, or by delivering a duly executed proxy bearing a later date to, the Secretary of the Company at the Company’s main office address at any time before the Annual Meeting. Stockholders may also revoke proxies by delivering a duly executed proxy bearing a later date to the inspector of election at the Annual Meeting before the close of voting, or by attending the Annual Meeting and voting in person. You may attend the Annual Meeting even though you have executed a proxy, but your presence at the Annual Meeting will not automatically revoke your proxy.

Solicitation of Proxies

The original solicitation of proxies by mail may be supplemented by telephone and other means of communication and through personal solicitation by officers, directors and other employees of the Company, at no compensation. Proxy materials will also be distributed through brokers, custodians and other like parties to the beneficial owners of Common Stock, and the Company will reimburse such parties for their reasonable out-of-pocket and clerical expenses incurred in connection therewith. In addition, the Company may retain an outside proxy solicitation firm to assist the Company in the distribution of proxy materials and solicitation of votes, at an anticipated cost to the Company of approximately $15,000 plus reasonable out-of-pocket expenses incurred by the proxy solicitor in connection with the proxy solicitation services.

Company operations to the Board. Mr. Yarmuth has served as a member of the board of directors of Industrial Services of America, Inc. since June 2014.

Steven B. Bing. Mr. Bing was elected a director in 1992. Beginning in 2012, Mr. Bing has served as Executive Director with the Kentucky Public Health Association, Inc. and The Kentucky Health Departments Association. From 2005 to 2011, Mr. Bing served as Senior Vice President Business Development for National Rural Telecommunications Cooperative, a large member owned cooperative in Herndon, Virginia, serving in excess of 1,200 telephone and electric cooperatives across the country.  He is also a director of various closely-held business entities. From 1999 to 2007, Mr. Bing served with Prosperitas Investment Partners, L.P., a private investment company located in Louisville, Kentucky, most recently as its Chief Operating Officer.  Mr. Bing brings to the Board operational achievement outside of the healthcare industry.  His business successes provide the Board with business acumen in a diversity of fields.

Donald G. McClinton . Mr. McClinton was elected a director in 1994. Mr. McClinton was President and part owner of Skylight Thoroughbred Training Center, Inc., a thoroughbred training center, until 2002, when it was sold. From 1986 to 1994, Mr. McClinton was co-chairman of Interlock Industries, a privately held conglomerate in the metals and transportation industries. Mr. McClinton served on the board of directors of Jewish Hospital Healthcare Systems for over 25 years. Mr. McClinton brings healthcare industry experience and an entrepreneurial spirit to the Board. His past service on the board of directors of a regional healthcare network and his experience as an owner of both a thoroughbred training center and a manufacturing/transportation company provides the Board a broad mixture of success.

Tyree G. Wilburn. Mr. Wilburn was elected a director in 1996. Since 2002, Mr. Wilburn has served as Managing Partner of The Yearling Funds, which he co-founded. The Yearling Funds are venture capital funds focused on investing in early stage companies. From 2002‑2012, Mr. Wilburn was Chairman of the Board and Chief Executive Officer of Merit Health Systems, LLC, a private equity backed hospital management company. He led the successful sale of the company in 2012. Mr. Wilburn was a private investor from 1996 to 2002. From 1992 to 1996, Mr. Wilburn was Chief Development Officer of Community Health Systems, Inc. (NYSE:CYH), and, most recently, Executive Vice President and Chief Financial and Development Officer and CEO-elect. In 1996 he led the successful go-private sale of Community Health Systems to Forstmann Little. From 1974 to 1992, Mr. Wilburn was with Humana Inc. where he held senior and executive positions in mergers and acquisitions, finance, planning, hospital operations, audit and investor relations. He is also a director of several private companies. Mr. Wilburn brings to the Board a thorough understanding of the healthcare industry outside of the Company. His experience in all facets of hospital management gives the Company knowledge of various other aspects of our customer’s needs and our competitive environment.

Jonathan D. Goldberg . Mr. Goldberg was elected a director in 1997. Mr. Goldberg is the managing partner of the law firm of Goldberg and Simpson in Louisville, Kentucky, and has served in that capacity since 1991. Mr. Goldberg’s legal background brings a different perspective to the Board. His expertise in labor, employment and business law provides the Board important regulatory and governance experience.

W. Earl Reed, III. Mr. Reed was elected a director in 2000. Currently, Mr. Reed is President and Chief Executive Officer of Springstone, LLC, a private equity sponsored owner operator of psychiatric hospitals and has served in that capacity since 2010. From 1998 to 2010, Mr. Reed served as Chief Executive Officer of The Allegro Group, a healthcare financial advisory firm that advises public and private healthcare organizations including providing interim management services. From August 2005 to September 2007, Mr. Reed served as Chief Executive Officer and Chairman of the Board of LifeCare Holdings, Inc., a privately owned operator of 18 long-term hospitals. Mr. Reed brings financial experience to the Board,

particularly in the healthcare industry. Also, his leadership experience in the healthcare field adds depth to the Board’s understanding of our industry.

Henry M. Altman, Jr. Mr. Altman was elected a director in 2004. Mr. Altman retired in 2002 following over 40 years of experience in public accounting, most recently as the president and managing director of Deming, Malone, Livesay & Ostroff CPA firm. He is currently the owner of Altman Consulting, an independent business consulting firm. Mr. Altman currently serves on the board of Passport Health Plan, of which he is Chair. In 2001, Mr. Altman was presented with the inaugural Kentucky Hospital Association Health Care Governance Award. Mr. Altman brings healthcare industry financial and governance experience to the Board. As a member of the board of directors of several healthcare industry organizations, Mr. Altman provides insight into the inter-workings of the industry as a whole.

Recommendation

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF EACH OF THE SEVEN NOMINEES FOR DIRECTOR OF THE COMPANY.

Meetings of the Board of Directors

The Board met on 9 occasions during the fiscal year ended December 30, 2016. Each incumbent director attended at least 75% of the aggregate number of meetings of the Board and its committees on which such director served during his period of service. In addition, all members of the Board are expected to attend the Annual Meeting and did so in 2016.

Independent Directors – Meetings in Executive Session

The independent directors, as a group, meet in executive session on a regular basis, typically in connection with each regularly scheduled Board meeting without management directors or employees present.

Committees of the Board of Directors

The Board has three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. From time to time, the Board also appoints committees for special projects or assignments.

Audit Committee . As described in its charter, the principal duties of the Audit Committee include appointing the Company’s independent auditors, review and pre-approval of any independent auditor services, reviewing the scope of the audit, reviewing the corporate accounting practices and policies with the independent and internal auditors, reviewing with the independent and internal auditors their respective final reports, reviewing with independent and internal auditors overall accounting and financial controls and consulting with the independent and internal auditors. The Audit Committee is also responsible for the review and approval of all related-party transactions required to be disclosed under the rules of the Securities and Exchange Commission (SEC); in reviewing a related-party transaction, the Audit Committee will consider the material terms of the transaction, including whether the terms are generally available to an unaffiliated third party under similar circumstances. A copy of the Audit Committee charter is available in its entirety on the Company’s website, www.almostfamily.com . All of the members of the Audit Committee are "independent," as that term is defined in the applicable rules for companies traded on The NASDAQ Global Select Market and meet the criteria for independence under the Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC. The members of the Audit Committee are Messrs. Altman, Goldberg, Reed (Chair), and Wilburn. The

Board has designated Mr. Reed as the "audit committee financial expert" within the meaning of the SEC rules. The Audit Committee held four meetings during 2016.

Compensation Committee . As described in its charter, the principal duties of the Compensation Committee are to review the performance and compensation of officers of the Company, discharge the Board’s duties relating to director compensation, report on compensation policies and procedures as required by the SEC including the disclosures under “Compensation Discussion and Analysis” herein, consult with compensation advisors, if any, review and approve shareholder votes on equity compensation plans, and to prepare recommendations and periodic reports to the Board concerning such matters. A copy of the Compensation Committee charter is available in its entirety on the Company’s website, www.almostfamily.com . The Compensation Committee also administers the Company’s employee stock incentive plans including the periodic review and approval of share grants. The Compensation Committee makes all compensation decisions regarding Messrs. Yarmuth, Guenthner and Lyles but has typically delegated to the CEO, subject to the committee’s review, compensation decisions regarding the remaining Named Executive Officers. Mr. Yarmuth provides the Committee his input regarding director and executive officer compensation other than his own compensation; he is not present during the Committee’s deliberations regarding his compensation.

In 2015, the Committee engaged, on behalf of the Company, Frederic W. Cook & Co., Inc. (“FW Cook”) to assist management and the Committee in evaluating the Company’s executive and director compensation program. FW Cook has not provided any services to the Company other than advising the Committee on director and executive officer compensation. The Compensation Committee evaluated whether any work performed by FW Cook raised any conflict of interest and determined that it did not.

All of the members of the Compensation Committee are "independent," as that term is defined in the applicable rules for companies traded on The NASDAQ Global Select Market and meet the criteria for independence under the Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC. The members of the Compensation Committee are Messrs. Altman, Bing, Goldberg (Chair), McClinton, Reed, and Wilburn. The Compensation Committee held two meetings during 2016.

Nominating and Corporate Governance Committee . The Board has adopted a written charter for the Nominating and Corporate Governance Committee, which charter sets forth the functions and responsibilities of the Nominating and Corporate Governance Committee. A copy of the Nominating and Corporate Governance Committee charter is available in its entirety on the Company’s website, www.almostfamily.com . As described in its charter, the Nominating and Corporate Governance Committee exercises general oversight with respect to the governance of the Board, including with respect to the identification and recommendation to the Board of proposed nominees for election to the Board. All of the members of the Nominating and Corporate Governance Committee are "independent,” as that term is defined in the applicable rules for companies traded on The NASDAQ Global Select Market and meet the criteria for independence under the Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC. The members of the Nominating and Corporate Governance Committee are Messrs. Bing, Goldberg (Chair), and Wilburn. The Nominating and Corporate Governance Committee held one meeting during 2016.

Director Independence. In making its determinations regarding director independence, the Board has considered, among other things:

The Board’s review included the following relationships: (i) Mr. Altman’s son is an owner of an insurance agency which provides employee benefit coverage services to the Company in the ordinary course of business (See “Compensation Committee Interlocks and Insider Participation”) and (ii) Mr. Altman is Chairman of the board of directors of a non-profit community-based health plan administering Kentucky Medicaid benefits to approved providers in its footprint through which the Company receives Kentucky Medicaid reimbursements. The Board has determined that these relationships have not impaired Mr. Altman’s independence .

Policy Regarding Consideration of Candidates for Director

Stockholder Nominees

The Nominating and Corporate Governance Committee will consider stockholder recommendations for director nominees at the Annual Meeting if stockholders comply with the requirements of the Company’s by-laws; a copy of the relevant section of the by-laws may be obtained from the Company’s Secretary. To be considered timely for the Annual Meeting, stockholders should submit nominations, if any, not less than 30 days before the Annual Meeting, to the Company’s Corporate Secretary, at 9510 Ormsby Station Road, Suite 300, Louisville, Kentucky 40223. Stockholder nominations should include, among other items, the name, age, business address and residence address of the nominee, the principal occupation or employment of the nominee, the class and number of shares of Common Stock which are beneficially owned by the nominee on the date such nomination is submitted, any other information relating to the nominee that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case, pursuant to Regulation 14A under the Securities Exchange Act of 1934. The stockholder nominating such nominee should also include the name and address of such stockholder and any other stockholders known by such stockholder to be supporting such nominee as they appear on the Company’s books along with the class and number of shares of Common Stock which are beneficially owned on the date of the nomination by such stockholder and by any other stockholders known by such stockholder to be supporting such nominee.

Director Qualifications

The Nominating and Corporate Governance Committee seeks to ensure that the majority of directors qualify as "independent," as that term is defined in the applicable rules for companies traded on The NASDAQ Global Select Market and meet the criteria for independence under the Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC. The Nominating and Corporate Governance Committee will review with the Board the requisite skills and characteristics for potential nominees. In addition to board skill needs, this assessment will include the nominee’s qualification as “independent” as well as the nominee’s integrity, business acumen, experience, commitment, diligence, conflicts of interest and ability to act in the interests of all stockholders. While the Board does not prescribe diversity standards, as a matter of practice, it seeks nominees with a broad diversity of experience, professions, skills, and backgrounds.

The Nominating and Corporate Governance Committee may also consider such other factors as it may deem are in the best interest of the Company and its stockholders. Nominees are not discriminated against on the basis of race, religion, gender, national origin, sexual orientation, disability or any other basis proscribed by law.  Although the Nominating and Corporate Governance Committee has not adopted a formal policy with respect to director tenure, the Committee has determined to reduce the average length of director tenure through the methodology of replacing the longest serving independent members of the Board with new persons over the next few years.

The manner in which the Nominating and Corporate Governance Committee evaluates a potential nominee will not differ based on whether the nominee is recommended by a stockholder of the Company.

The Company does not pay a third party fee to assist in identifying and evaluating nominees, but the Company does not preclude the potential for using such services if needed as may be determined at the discretion of the Nominating and Corporate Governance Committee.

Code of Ethics

The Company has adopted a Code of Ethics that applies to its chief executive officer, principal financial officer, chief accounting officer and any person performing similar functions. The Company has made the Code of Ethics available on its website at   www.almostfamily.com and will post any waivers to the Code of Ethics on the website.

Board Leadership Structure

The Board of Directors believes that Mr. Yarmuth’s service as both Chairman of the Board and CEO is in the best interest of the Company and its stockholders. Mr. Yarmuth possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company and its businesses and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters.

His combined role strengthens Mr. Yarmuth’s ability to provide insight and direction on important strategic initiatives to both management and the independent directors. Additionally, it enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its message and strategy clearly and consistently to the Company’s stockholders and employees, particularly during times of turbulent economic and industry conditions. The Board does not have a lead independent director.

Board’s Role in Risk Oversight

The Board as a whole has responsibility for risk oversight. The oversight responsibility of the Board is enabled by management reporting processes that are designed to provide visibility to the Board about the identification, assessment and management of critical risks and management’s risk mitigation strategies. These areas of focus include competitive, economic, operational, financial (accounting, credit, liquidity, and tax), legal, regulatory, compliance, health, safety and environment, political, and reputational risks.

Further, the Audit Committee is specifically charged with the responsibility of meeting periodically with management and internal audit to review the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures. The Audit Committee also reviews with management, internal audit, external legal counsel and independent auditors matters that may have a material impact on the financial statements, the Company’s compliance policies and any material reports or inquiries

received from regulators or government agencies. The role of the Compensation Committee in risk management is set forth in the Compensation Discussion and Analysis.

Finally, the Board believes that the Company’s combined Chairman/CEO leadership structure strengthens the Chairman/CEO’s ability to provide insight and direction with regard to the Board’s risk oversight function.

Effective Date that revert to the share reserve as a result of expirations, cancellations, forfeitures and similar such events, plus (iii) the number of shares of stock remaining available for issuance under the 2013 Plan but not subject to outstanding awards as of the Effective Date.

The 2017 Plan does not permit “liberal share recycling” of any awards. Accordingly, shares that are tendered back or withheld from those otherwise issuable under an award by the Company for payment of the exercise price of options or stock appreciation rights or for taxes on awards will not be added to the 2017 Plan’s reserve and made available for future awards. 

Impact on Dilution and Fully-Diluted Overhang

The total fully-diluted overhang as of March 13, 2017, assuming that the entire share reserve is granted, would be 9.4%.  In this context, fully-diluted overhang is calculated as the sum of grants outstanding and shares available for future awards (numerator) divided by the sum of the numerator and basic common shares outstanding, with all data effective as of March 13, 2017. 

Our Board believes that the increase in shares of common stock available for issuance represents a reasonable amount of potential equity dilution given our strategic and long-term growth priorities.

Expected Duration of the Share Reserve

We expect that the share reserve under the 2017 Plan, if this proposal is approved by our stockholders, will be sufficient for awards for approximately 6.5 years. Expectations regarding future share usage could be impacted by a number of factors such as award type mix; hiring and promotion activity at the executive level; the rate at which shares are returned to the 2017 Plan reserve upon awards' expiration, forfeiture or cash settlement; the future performance of our stock price; and other factors. While we believe that the assumptions we used are reasonable, future share usage may differ from current expectations.

Governance Highlights

Our Plan incorporates certain equity plan governance best practices, including:

Burn Rate

The following table sets forth information regarding awards granted, the burn rate of each of the last three fiscal years and the average burn rate over the last three years under the Prior Plans.

* Includes time-vesting restricted stock (147,311) and performance shares outstanding at target (97,100).

Summary of the 2017 Plan

The following summary of our 2017 Plan is qualified by reference to the full text of the 2017 Plan, which is attached as Appendix A to this proxy statement.

Eligibility

Persons eligible for awards under the 2017 Plan are employees, non-employee directors of, and independent contractors to, the Company or one of its subsidiaries who are selected by the Compensation Committee or such other committee appointed by the Board to administer the 2017 Plan. As of March 13, 2017, there were approximately 18,000 employees, including officers, who were eligible to participate in the 2017 Plan, along with six non-employee directors. Only employees are eligible to be awarded tax-qualified incentive stock options.

In addition, the Committee may grant Awards under the 2017 Plan in substitution for share and share-based awards held by employees or non-employee directors of another corporation who concurrently become employees or non-employee directors of the Company or a subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a subsidiary or the acquisition by the Company or a subsidiary of property or shares of the employing corporation.

Authorized Shares and Limits

Subject to shareholder approval, the share reserve under the 2017 Plan as of the Effective Date will be the sum of the following: (i) 900,000, plus (ii) the number of shares of stock subject to outstanding grants under the 2013 Plan as of the Effective Date that revert to shares reserved for future grant as and when

described below under the “Share Counting Rules”, plus (iii) the number of shares of stock remaining available for issuance under the 2013 Plan but not subject to outstanding awards as of the Effective Date.

The share reserve and outstanding awards are subject to adjustment for corporate events affecting the Company including any event of merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, extraordinary cash dividend, spin-off, split-up, share combination, or other change in the corporate structure of the Company affecting the number of shares of stock or the kind of shares or securities issuable upon exercise of an option or payment of another award.

Shares issued under Awards granted in assumption, substitution or exchange for previously granted awards of a company acquired by the Company are considered substitute awards and do not reduce the shares available under the 2017 Plan.  Available shares under a stockholder-approved plan of an acquired company (as appropriately adjusted to reflect the transaction) may be used for awards under the 2017 Plan and do not reduce the Plan's share reserve (subject to applicable stock exchange listing requirements).

The maximum number of shares of stock that may be subject to purchase pursuant to tax-qualified incentive stock options granted under the plan is 900,000.

Share Counting Rules

After the Effective Date, if and to the extent awards granted under the 2017 Plan or awards granted under the 2013 plan terminate, expire, or are cash-settled, canceled, forfeited, exchanged or surrendered without having been exercised, the shares reserved for such awards shall again be available for purposes of granting awards under the 2017 Plan.

No Liberal Share Recycling

If shares of stock otherwise issuable under the 2017 Plan are tendered to or withheld by the Company in payment of the exercise price of an option, then the number of shares of stock available for issuance under the 2017 Plan shall be reduced by the gross number of shares as to which such option is exercised. Similarly, upon the exercise of a share-settled stock appreciation right, the number of shares of stock remaining available for issuance under the Plan shall be reduced by the gross number of shares for which such stock appreciation right is exercised. If shares of stock otherwise issuable in connection with an award are tendered to or withheld by the Company in satisfaction of withholding taxes incurred in connection with the issuance, vesting or exercise of any award or the issuance of Stock thereunder, then the number of shares of Stock available for issuance under the Plan shall be reduced by the number of shares issued, vested or exercised under such Award, calculated in each instance before reduction for such share withholding. 

Individual Employee Limits; Individual Non-Employee Director Limit

The following limitations apply to any awards made under the 2017 Plan:

The maximum number of shares of stock that may be subject to all awards (of any type) granted under the 2017 Plan during any calendar year to any one non-employee director, taken together with cash fees paid to such non-employee director in respect of the director’s service as a member of the Board during such

year (including service as a member or chair of a committee of the Board), shall not exceed $400,000 in total value (calculating the value of equity-based awards granted during such year based on the grant date fair value of such awards for financial reporting purposes). This non-employee director limit shall not apply to any non-executive Chairman of the Board, whose compensation will be approved by the independent directors, with such Chairman abstaining.

Vesting

The 2017 Plan provides for the Committee to determine at the time an award is issued whether and when the award will become nonforfeitable or first become exercisable.

Restriction on Dividends and Dividend Equivalents

The 2017 Plan permits payment of dividends and dividend equivalents on all full-value awards (both time-based and performance-based) only if and when the underlying award vests. The 2017 Plan also prohibits the payment of dividend equivalents on shares subject to outstanding options or SAR awards.

No Repricing of Stock Options or SARs

In no event may any option or stock appreciation right granted under the 2017 Plan be amended, other than in the event of certain extraordinary corporate transactions or other transactions affecting the Company’s capital structure, to decrease the exercise price thereof, be cancelled in exchange for cash or another Award (other than in connection with a Change of Control) or otherwise be subject to any action that would be treated, for accounting purposes, as a “repricing” of such option or stock appreciation right, unless such amendment, cancellation, or action is approved by our stockholders.

No Reloads

Awards shall not contain any provision entitling the participant to an automatic grant of additional awards in connection with any exercise of the original award.

Transfer Restrictions

Awards granted under the 2017 Plan are not generally transferable by the participant otherwise than by will or the laws of descent and distribution, and can be exercised during the participant’s lifetime only by the participant (or, in the event of the participant’s legal incapacity or incompetency, the participant’s guardian or legal representative).

However, if specifically provided in the award agreement, nonqualified stock options or stock appreciation rights (other than those issued in tandem with incentive stock options) may be transferred by a participant to a “Permitted Transferee.”  “Permitted Transferee” means a member of a participant’s immediate family or household, certain trusts benefiting those persons, a charitable foundation managed by the participant or his family, or an entity which the participant controls, provided that no consideration is provided for the transfer.

Administration of the 2017 Plan

The 2017 Plan will be administered by the Compensation Committee of the Board or such other committee appointed by the Board which shall consist of two or more members of the Board, each of whom

is both an outside director and a non-employee director. Subject to the provisions of the 2017 Plan, the Compensation Committee will have the power to:

Any construction of the 2017 Plan must be made in a manner the Committee believes is consistent with awards not constituting “deferred compensation” within the meaning of Section 409A of the Code or to comply with that Code section’s requirements, and with respect to incentive stock options, consistent with the Code and regulations governing the preservation of their tax treatment.

The Committee will have the authority to grant and determine the terms of awards to employees, directors and independent contractors as the Committee may select in its sole discretion.

Award Terms

All awards to participants under the 2017 Plan are subject to terms, conditions, and limitations as determined by the Committee and as evidenced by an award agreement.

Stock Options

A stock option granted to an employee under the 2017 Plan may consist of either an incentive stock option that complies with the requirements of Section 422 of the Code or a nonqualified stock option that does not comply with those requirements. A stock option granted to a director or independent contractor under the 2017 Plan must be a nonqualified stock option. All options under the 2017 Plan must have an exercise price per share that is not less than the fair market value of the Company’s common stock on the date of grant. However, an incentive stock option granted to a person who on the date of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its subsidiaries must have an exercise price that is at least 110% of the fair market value of the stock on the grant date.  The term of an incentive stock option may not extend more than ten years after the date of grant. If permitted by the Code, the term for exercise of an option is subject to a limited extension by up to 30 days if the exercise of the option is prevented during a trading blackout period.

Stock Appreciations Rights (“SARs”)

Stock appreciation rights provide that the participant can be issued or paid stock or cash equal to the appreciation in value of a share of stock after the award’s grant date. A stock appreciation right may be granted under the 2017 Plan with respect to all or a portion of the shares of common stock subject to a stock option or may be granted separately. The base price to measure the appreciation of an SAR may not be less the fair market value of the common stock on the date of grant.  The term of an SAR granted in tandem with an incentive stock option may not extend more than ten years after the date of grant.  If permitted by the

Code, the term for exercise of a SAR as stated in the award agreement is subject to a limited extension by up to 30 days if the exercise of the SAR is prevented during a trading blackout period.

Restricted Stock Awards

Restricted stock awards provide that shares of stock are granted subject to a restriction period and/or condition which, if not satisfied, may result in the complete or partial forfeiture of such stock. Shares awarded as restricted stock awards are subject to such conditions, terms, restrictions against transfer, substantial risks of forfeiture and attainment of performance objectives and for such periods as the Committee determines. During the period restricted stock is subject to forfeiture, the Secretary of the Company will hold the share certificates for the participant’s benefit, but the participant will have the right to dividends, to vote and to enjoy all other shareholder rights with respect to the restricted stock, except that the participant cannot sell, transfer, pledge, exchange or otherwise dispose of the restricted stock, and any attempt to do so will cause the immediate forfeiture of the restricted stock.

Restricted Stock Units (“RSUs”)

Restricted stock units provide that shares of stock or cash equivalent will be issued to a participant upon the lapse of restrictions determined in the award agreement. The participant will not have dividend, voting or other shareholder rights with respect to a restricted stock unit at any time before the participant has become the holder of the shares subject to the restricted stock unit. However, the Committee may award a cash dividend right or a dividend unit right in tandem with a restricted stock unit. A cash dividend right entitles the participant to receive an amount in cash or shares equal to any cash distributions made with respect to the common shares during the period the restricted stock unit is outstanding, which dividend right will not be paid until the underlying restricted stock unit vests and which may be tracked as an additional restricted stock unit until vesting occurs.

Performance Awards

Performance awards entitle a participant to receive common shares, cash or combination of the two upon the satisfaction of performance measures established in the award agreement. Performance awards may be intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Code. The goals intended to satisfy Section 162(m) of the Code must be established by the Committee prior to the earlier of:

The Committee may provide in the award agreement that the distribution of shares of stock or cash under the award shall be subject to the achievement of one or more objective performance goals established by, and the satisfaction of which is certified by, the Committee, which shall be based on the attainment of specified levels of one of or any combination of the following “performance criteria” for the Company as a whole or any subsidiary, affiliate, division or business unit of the Company, as reported or calculated by the Company:  (i) revenues; (ii) earnings from operations, earnings before or after taxes, earnings before or after interest, depreciation, amortization, incentive service fees or extraordinary, unusual, infrequently occurring or special items; (iii) net income or net income per share (basic or diluted); (iv) earnings per share growth or growth as compared with a peer group of companies; (v) return on assets, return on investment, return on capital, or return on equity; (vi) cash flow, free cash flow, cash flow return on investment, or net cash provided by operations; (vii) economic value created; (viii) one or more operating ratios specified with

particularity by the Committee upon the Award; (ix) stock price, dividends or total shareholder return; (x) the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions, or (xi) quality goals that are objectively determinable (collectively, the “Performance Criteria”). Such performance goals also may be based on the achievement of specified levels of Company performance (or performance of an applicable affiliate, division or business unit of the Company) under one or more of the Performance Criteria described above relative to the performance of other corporations or one or more market indices.  Any Performance Criteria that are financial metrics may be determined in accordance with United States Generally Accepted Accounting Principles ("GAAP") or may be adjusted when established or (to the extent permitted under Section 162(m), at any time thereafter) to include or exclude any items otherwise includable or excludable under GAAP.

In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, extraordinary  cash dividend, spin-off, split-up, share combination, or other change in the corporate structure of the Company affecting the number of shares of stock or the kind of shares or securities issuable upon exercise of an option or payment of another award, an appropriate and proportionate adjustment will be made by the Committee in the performance criteria established for outstanding Awards so that no award shall be diluted or increased.

If an award is intended to be exempt under Code Section 162(m) as performance-based compensation, the performance goals will be set by the Committee over a specified performance period and before the payment under any such award, the Committee will certify that the applicable performance goals and any material terms were in fact satisfied.

By approving the 2017 Plan, the stockholders are also approving this list of performance criteria in accordance with the requirements of Section 162(m) of the Code.

Change of Control

Subject to the terms of any award agreement, if a change of control (as described below) occurs, and awards are not to continue and be assumed or replaced in the transaction with comparable types of awards of substantially equivalent value, then:

With respect to Awards that continue because they are assumed or replaced in a change of control, unless the Committee provides to the contrary in an award agreement, with respect to any participant who

incurs a termination of service (other than for cause) within 12 months following the transaction, all awards made prior to the change of control shall immediately become nonforfeitable and exercisable in full.

Under the 2017 Plan, a “change of control” generally means the occurrence of one or more of the following events:

Amendment of the 2017 Plan

The Board may terminate, suspend, amend or alter the 2017 Plan in response to any legal requirements or for any other purpose permitted by law; provided, however, the Board may not:

Recoupment of Awards

All awards granted under the 2017 Plan are subject to any compensation, clawback and recoupment policies as in effect from time to time.

Term

The 2017 Plan becomes effective when approved by the stockholders.  The 2017 Plan does not have a termination date, but no incentive stock option may be issued on or after the tenth anniversary of the effective date of the 2017 Plan.

Federal Income Tax Consequences of the 2017 Plan

The following summary sets forth the general tax treatment of awards granted under the 2017 Plan expected for U.S. citizens under current U.S. federal income tax laws.  The below does not include a summary

of any state, local or foreign laws for which a participant may be subject to. Differences in participants’ financial situations may cause tax consequences of participation in the 2017 Plan to vary.

With respect to nonqualified stock options, an option will not be subject to taxable income (and the Company will not be entitled to any related deduction) at the time the stock option is granted. The Company is generally entitled to deduct and the participant recognizes taxable income in an amount equal to the difference between the option exercise price and the fair market value of the shares at the time of exercise. A participant receiving incentive stock options will not recognize taxable income upon grant. Additionally, if applicable holding period requirements are met, the participant will not recognize taxable income at the time of exercise. However, the excess of the fair market value of the common stock received over the option price is an item of tax preference income potentially subject to the alternative minimum tax. If stock acquired upon exercise of an incentive stock option is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal to the difference between the fair market value on the date of sale and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and the Company will not be entitled to any deduction. If the holding period requirements are not met, the incentive stock option will be treated as one that does not meet the requirements of the Code for incentive stock options and the tax consequences described for nonqualified stock options will apply.

The current federal income tax consequences of other awards authorized under the 2017 Plan generally follow certain basic patterns: SARs are taxed and deductible in substantially the same manner as nonqualified stock options; nontransferable restricted stock subject to a substantial risk of forfeiture results in income recognition equal to the excess of the fair market value over the price paid, if any, only at the time the restrictions lapse (unless the participant elects to accelerate recognition as of the date of grant by filing an election pursuant to Section 83(b) of the Code); RSUs, stock-based performance awards, cash awards and otherwise other types of awards are generally subject to tax at the time of vesting. Compensation effectively deferred is taxed when paid. In each of the foregoing cases, the Company will generally have a corresponding deduction at the time the participant recognizes income, subject to Section 162(m) of the Code with respect to covered employees.

In the case of employees, the ordinary income which results from awards under the 2017 Plan is subject to income, FICA and Medicare tax withholding by the Company.  The 2017 provides that participants may elect to have such withholding taken from shares otherwise issuable upon vesting or exercise of an award, up to the highest marginal tax rate that is expected to apply.  Tax withholding is not required for options or SARs exercised by non-employee directors or independent contractors.

Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” (i.e., the chief executive officer and the company’s three most highly compensated executive officers other than the chief executive officer and the chief financial officer) in a taxable year to the extent that compensation to such covered employee exceeds $1 million. It is possible that compensation attributable to awards under the 2017 Plan, when combined with all other types of compensation received by a covered employee from the Company, may cause this limitation to be exceeded in any particular year. Certain kinds of compensation, including qualified “performance-based compensation,” are disregarded for purposes of the deduction limitation. In accordance with Treasury Regulations issued under Section 162(m), compensation attributable to stock awards will generally qualify as performance-based compensation if (i) the award is granted by a compensation committee composed solely of two or more “outside directors,” (ii) the plan contains a per-employee limitation on the number of awards which may be granted during a specified period, (iii) the plan is approved by the stockholders, and (iv) under the terms of the award, the amount of compensation an employee could receive is based solely on an increase in the value of the stock after the date of the grant (which requires that the exercise price of the option or SAR

is not less than the fair market value of the stock on the date of grant), and for awards other than options and SARs, established performance criteria that must be met before the award actually will vest or be paid. The Plan is designed to allow the issuance of awards intended to be exempt from the Code Section 162(m) deduction limit; however, full value awards granted under the Plan will only be treated as qualified performance-based compensation under Section 162(m) if the full value awards vest only upon achievement of defined performance criteria within the list of such criteria allowed under the 2017 Plan, and the procedures associated with them comply with all other requirements of Section 162(m). There can be no assurance that compensation attributable to awards granted under the Plan will be treated as qualified performance-based compensation under Section 162(m) and thus be deductible by the Company.

In the event of acceleration of vesting or payment of an award following a change of control, as defined in Section 280G of the Code, a portion of an award may not be deductible and may subject the participant to a 20% excise tax, if the value of that acceleration of such vesting and payment together with other “parachute payments”, equals or exceeds three times the five year average compensation of the participant. In the event this tax would apply to a participant, the award will be reduced to a level that does not trigger the tax if reduction of the award would result in the award participant receiving more value than if the award were paid in full and the additional tax paid.

Awards under the 2017 Plan may constitute, or provide for, a deferral of compensation under Section 409A of the Code.  If the requirements of Section 409A are not complied with, holders of such awards may be taxed earlier than would otherwise be the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional 20% income tax and, potentially, interest and penalties.  We have sought to structure the 2017 Plan, and we expect to seek to structure awards under the 2017 Plan, to comply with Section 409A and Treasury regulations and other interpretive guidance issued pursuant to Section 409A.  To the extent that we determine that any award granted under the 2017 Plan is subject to Section 409A, the award agreement evidencing such award will generally incorporate the terms and conditions required by Section 409A.

Registration with the SEC

If our stockholders approve the 2017 Plan, we will file with the SEC a Registration Statement on Form S-8, as soon as reasonably practical after the approval, to register the shares available for issuance under the 2017 Plan.

New Plan Benefits

The Compensation Committee, in its discretion, will select the participants who receive awards and the size and types of those awards under the 2017 Plan, if the plan is approved by our stockholders. Therefore, the awards that will be made to particular individuals or groups of individuals in the future under the 2017 Plan are not currently determinable at this time. Please refer to the Summary Compensation Table and the Grants of Plan Based Awards Table on pages 34 and 35 of this proxy statement, respectively, which set forth certain information regarding awards granted to our named executive officers during 2016 under the 2013 Plan.

Recommendation

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2017 STOCK AND INCENTIVE COMPENSATION PLAN.

Named Executive Officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed in the Company’s Proxy Statement for the 2017 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”

The say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or our Board of Directors. Our Board and our Compensation Committee value the opinions of our stockholders and to the extent there is any significant vote against the Named Executive Officer compensation as disclosed in this proxy statement, we will consider our stockholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.

Recommendation

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DESCRIBED IN THE COMPENSATION DISCUSSION AND ANALYSIS, THE COMPENSATION TABLES, AND THE RELATED DISCLOSURES CONTAINED IN THIS PROXY STATEMENT.

Recommendation

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR A ONE-YEAR FREQUENCY FOR HOLDING AN ADVISORY VOTE ON EXECUTIVE COMPENSATION.

STOCK OWNERSHIP INFORMATION

The following table sets forth as of the Record Date certain information with respect to the beneficial ownership of the Company’s Common Stock of (i) each of the Named Executive Officers, as defined herein, (ii) each director or nominee for director of the Company, (iii) all directors and executive officers as a group and (iv) each person known to the Company to be the beneficial owner of more than 5% of the outstanding Common Stock. The Company has no shares of Preferred Stock outstanding.

* Represents less than 1% of class.

Executive officers of the Company are elected by the Board of Directors for one year and serve at the pleasure of the Board of Directors with the exception of William B. Yarmuth who has an employment agreement with the Company. There are no family relationships between any director or executive officer.

William B. Yarmuth. Mr. Yarmuth has been a director and officer of the Company since 1991. Mr. Yarmuth became Chairman and Chief Executive Officer in 1992; he also served as President until the appointment of Steve Guenthner as President in 2012. Mr. Yarmuth has served as a member of the board of directors of Industrial Services of America, Inc. since June 2014.

C. Steven Guenthner. Mr. Guenthner has been President and Principal Financial Officer since June of 2012. Mr. Guenthner served as Senior Vice President and Chief Financial Officer of the Company for twenty years. From 1983 through 1992, Mr. Guenthner was employed as a C.P.A. with Arthur Andersen LLP.

Patrick T. Lyles. Mr. Lyles joined the Company as Senior Vice President Planning and Development in 1997 and now serves as Senior Vice President - Administration. Before joining the Company, Mr. Lyles was Vice President Development for the Kentucky Division of Columbia/HCA, a position he had held since 1993. Mr. Lyles’ experience also includes 8 years with Humana Inc. in various financial and hospital management positions.

Daniel J. Schwartz. Mr. Schwartz joined the Company as Senior Vice President - Operations in April 2013 and now also serves as Chief Operating Officer. Mr. Schwartz’s healthcare operations management experience includes previously serving as Chief Operating Officer of Addus Healthcare, Inc. from January 2011 until November 2012; owner of New Paradigm Senior Services, LLC from April 2010 until January 2011; and Senior Vice President – North American Operations for Sunrise Senior Living, Inc. from 2006 until April 2010. Mr. Schwartz served Sunrise Senior Living, Inc. a total of 15 years. Mr. Schwartz also served as chief operating officer of New Perspective Senior Living from November 2012 until joining the Company.

Rajneesh Kaushal . Rajneesh Kaushal joined the Company as Senior Vice President in October 2011 and now also serves as Chief Clinical Officer. In 2006 Mr. Kaushal joined Guardian Home Care Holdings as Executive Vice President and Chief Clinical Officer. Mr. Kaushal served in the same capacity for AccentCare, a national home health care company, which merged with Guardian Home Care Holdings in December 2010 until he joined the Company. Mr. Kaushal’s experience also includes hospital and post-acute care geriatrics.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

The Company’s executive compensation program is designed to (1) motivate and retain executive officers, (2) reward the achievement of short-term and long-term performance goals, (3) establish an appropriate relationship between executive pay and short-term and long-term performance and (4) align executive officers’ interests with those of the Company’s stockholders. The primary elements of the Company’s compensation program are base salary, annual cash incentive awards and equity-based compensation. The Company believes that each element supports one or more of the objectives of the Company’s compensation program and provides sufficient flexibility to the Compensation Committee (the “Committee”) to structure future awards to address new issues and challenges facing the Company. The Company’s executive compensation program is designed to target total direct compensation for the Named Executive Officers (as defined herein) to approximate the 50th percentile of the healthcare industry, depending upon the individual performance of the Named Executive Officer, the officer’s level of responsibility, and the performance of the Company.

2016 Say on Pay Voting Results

At the 2016 Annual Meeting of Stockholders, more than 95% of the stockholder votes cast voted to approve the Company’s 2015 executive compensation program for NEOs. We believe that this vote reflected our stockholders’ strong support of the compensation decisions made by the Committee for our Named Executive Officers. The Compensation Committee considered these results and, continuing with past practice, made decisions consistent with our compensation philosophy and objectives over the past twelve months. These actions recognized the Company’s performance, and continued to align executive pay with Company performance results.

Performance Measures

The primary elements of the Company’s executive compensation program are designed to promote the achievement of financial operating goals established by the Board and to increase stockholder value. The Company uses a cash incentive plan providing annual short-term incentives for achievement of goals. These plans provide the Named Executive Officers with the opportunity to earn cash awards for achieving financial operating goals primarily related to targeted levels of earnings per share. The Company believes that this measure is generally used by investors to value the Company’s Common Stock.

The equity-based component of the Company’s executive compensation program is designed to incentivize the Named Executive Officers to increase the value of the Company’s Common Stock. As such, equity-based compensation directly links the total direct compensation of the Named Executive Officers to stock price appreciation and increases in stockholder value.

The Executive Compensation Process

The Committee is comprised of six directors, each of whom is independent as defined under the NASDAQ Global Select Market listing standards and qualifies as an outside director within the meaning of Section 162(m) of the Code and a non-employee director within the meaning of Rule 16b‑3 under the Exchange Act. The Committee meets periodically to review and oversee the Company’s executive compensation program. In 2016 the Committee made all compensation decisions regarding the Named

Executive Officers. On an annual basis, the Committee reviews base salaries and incentive compensation targets for the Named Executive Officers for the upcoming fiscal year. The Committee also determines whether performance targets under the cash incentive plans were achieved for the prior fiscal year. The Committee seeks Mr. Yarmuth’s input with respect to executive compensation, but Mr. Yarmuth is not present during voting or deliberations on his compensation.

The Committee has sole authority to select, retain and terminate any consultants or advisors used to provide independent advice to the Committee. The Committee generally conducts a full market study of compensation practices and makes compensation strategy decisions on a bi-annual basis. In late 2015 with respect to 2016 compensation, the Committee engaged Frederic W. Cook & Co., Inc. (“FW Cook”), a national provider of compensation consulting services, to assist the Committee in a comprehensive evaluation of the Company’s executive compensation program. The Committee instructed FW Cook to assist the Committee by reviewing the Company’s executive compensation strategy and providing compensation benchmarks to the Committee for each Named Executive Officer, including comparisons of base salary, cash incentives and equity-based compensation. FW Cook also provided the Committee with other relevant market data and alternatives to consider when making compensation decisions for the Named Executive Officers.

The Committee considers grants of equity-based awards on an annual basis in conjunction with its review and approval of annual salaries, short-term cash incentives and financial operating goals. The Committee may grant equity-based awards periodically, particularly in connection with promotions, exceptional performance or changes in a Named Executive Officer’s level of responsibility. In 2016, the Committee made annual grants to the Named Executive Officers in March in accordance with past practice following the public announcement of the prior year’s operating results.

The Compensation Committee examines published compensation survey data as well as competitive peer group data, compiled by FW Cook, as one of many factors to assist in evaluating each element of compensation for the Named Executive Officers. The Company used the following public companies as a healthcare industry peer group compiled by FW Cook so that market conditions could also be appropriately considered: Addus Homecare Corp., Alliance Healthcare Services Inc., Amedisys, Inc., BioScrip, Inc., Chemed Corp., Civitas Solutions, Diversicare Healthcare Services, Inc., Healthways, Inc., LHC Group Inc., The Ensign Group, Inc., and US Physical Therapy, Inc. This peer group was selected based on organizations of similar size within the healthcare industry and may be periodically reviewed and updated by the Committee based upon recommendations from compensation consultants. The Committee believes these peer companies have competed for executives with similar talents and expertise to those of the Named Executive Officers.

Components of Executive Compensation

The Company’s executive compensation program uses the following elements to structure the total direct compensation for the Named Executive Officers:

The Committee does not have a pre-established policy for the allocation between fixed compensation, such as base salary, and variable or “at risk” compensation, such as short-term cash incentives and equity. However, the Committee places a significant portion of total direct compensation for the Named Executive Officers at risk. At risk compensation under the Company’s cash incentive plans incentivizes the Named

Executive Officers to reach or exceed desired financial operating goals. Moreover, at risk compensation under the Company’s equity incentive plans incentivizes the Named Executive Officers since the full benefit of equity-based compensation cannot be realized unless the Named Executive Officers are able to grow the value of the Common Stock over several years.

Base Salary

Base salaries are provided to the Named Executive Officers to compensate them for their services performed during the year. As part of its 2016 analysis, the Committee considered salary comparisons prepared by FW Cook to determine if base salaries for the Named Executive Officers were competitive with similarly situated executives in the peer group and the healthcare industry generally. The Committee determined that base salaries for Messrs. Yarmuth, Guenthner and Kaushal were appropriate at their current levels of $677,000, $446,000 and $300,000, respectively, and thus no changes were made for 2016. For 2016, based on input from Mr. Yarmuth and to better align total direct compensation with the 50th percentile of the healthcare industry, the Committee increased Mr. Schwartz from $360,000 to $450,000 and Mr. Lyles’s from $325,000 to $340,000 for 2016.

While certain aspects of performance of the Named Executive Officers can be measured in financial operating metrics, the Committee and Mr. Yarmuth also evaluate the Named Executive Officers in other performance areas that are more subjective. These areas include the success of the Named Executive Officer in developing and executing the Company’s strategic objectives, capitalizing on growth opportunities, addressing significant challenges affecting the Company, developing key employees and exercising leadership.

Cash Incentives

Under the Company’s executive compensation program, a significant portion of total cash compensation for the Named Executive Officers is subject to the attainment of measurable financial operating goals. This approach creates a direct incentive for the Named Executive Officers to achieve pre-established performance objectives and places a significant percentage of each Named Executive Officer’s total direct compensation at risk.

The Company maintains an annual cash incentive plan under which the Committee establishes annual financial operating goals for the Company’s key employees, including the Named Executive Officers. Each Named Executive Officer has a target cash incentive percentage of base salary, based on their respective levels of management responsibility and recommendations of FW Cook. For 2016, the target cash incentive amounts as a percentage of base salary were as follows:

For 2016, the financial goal for purposes of determining the cash incentive award was based on Adjusted Earnings per Share (EPS). The Committee determined the following Adjusted EPS performance scale, along with the range of cash incentive award payouts based on achieving the performance goals.

If the targeted level of Adjusted EPS of $2.65 were achieved, the Committee would award a target bonus amount to Messrs. Yarmuth, Guenthner, Lyles, Schwartz and Kaushal based on the targeted percentage of their base salary as referenced above. In establishing that no amounts of the cash incentive plan awards should actually be awarded for 2016, the Committee noted that Adjusted EPS Performance is after provision for the cash incentives. Recording the threshold level of cash incentives would cause the threshold Adjusted EPS Performance not to be met thus the Committee determined that no cash incentives should be awarded.

For additional information, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Non-GAAP Financial Measures, Adjusted Earnings in our annual report on Form 10‑K for the fiscal year ended December 30, 2016.

The awards under these cash incentive plans are formulaic, based upon the achievement of financial operating goals established by the Committee. Nevertheless, the Committee retains the discretion to decrease cash incentive awards for unforeseen events or circumstances, including restatements to the Company’s financial statements.

Equity-Based Compensation

Since 2007, the Committee has granted equity-based awards for each year and plans to continue to use equity-based compensation as a key component of its overall executive compensation strategy. Such awards provide a direct and long-term link between the results achieved for the Company’s stockholders and the total direct compensation provided to the Named Executive Officers. Stock-based compensation is designed to retain the Named Executive Officers through time-based vesting conditions and to motivate them to enhance the value of the Common Stock by aligning the financial interests of the Named Executive Officers with those of the Company’s stockholders. Equity-based compensation also provides an effective incentive for management to create stockholder value over several years since the full benefit of this element of compensation is primarily realized as a result of the appreciation in the price of the Common Stock. Since 2015, the Committee has tied a portion of equity awards to performance targets.

The Company does not currently have a security ownership policy for its Named Executive Officers. However, Mr. Yarmuth has a beneficial ownership interest in approximately 5% of our common stock while Mr. Guenthner has a beneficial ownership interest in approximately 2% of our common stock. The Committee has adopted a requirement that each non-employee director hold common stock equal to the product of three times the annual Board cash retainer payable to a non-employee director. The Committee generally does not take into consideration equity awards granted in previous years when evaluating awards for the current year.

The Committee does not grant options with an exercise price that is less than the closing price of the Common Stock on the NASDAQ Global Select Market on the grant date (fair market value) and it does not grant stock options that are priced on a date other than the grant date.

The amount of equity awarded to the Named Executive Officers is based upon a number of factors. First, the Committee considers an overall assessment of the Company’s performance and the equity granting practices of other companies in the healthcare industry and its peer group. In addition, the Committee considered information prepared by FW Cook with respect to the equity awards and considers the relative costs. In making equity awards in 2016 (“2016 Equity Awards”), the Committee determined a “target award value” for each Named Executive Officer by multiplying a market based percentage for equity compensation times the executive’s annual base salary. The number of options and restricted shares was then rounded to the nearest hundred share number. (The 2016 Equity Awards were based on the following percentage targets of base salary:  Mr. Yarmuth - 175%; Mr. Guenthner - 145%; Mr. Lyles – 80%; Mr. Schwartz – 70%; and Mr. Kaushal - 50%, as adjusted by the Committee.)  The Committee then considered the overall performance of the Named Executive Officers and their actual and potential contribution to the Company’s growth and long-term performance in determining individual awards. The Chief Executive Officer also provided an assessment of the overall level of performance for the other Named Executive Officers. The assessment of actual and potential contribution is based upon the Committee’s subjective evaluation of each Named Executive Officer. Based on these assessments, the Committee determined the actual award for each of the Named Executive Officers.

In 2015 following discussion with FW Cook and consistent with the evolving compensation practices shifting more long-term incentives towards performance-based awards, the Committee assigned a portion of the equity awards to performance-based awards. The 2015 LTI grant targeted approximately 40% of the value of the equity award as stock options, 50% granted as restricted stock, and 10% for performance shares. The 2015 performance target was not achieved and the performance shares were forfeited.

In 2016, the Committee increased the allocation to performance-based shares and changed the mix to target approximately 1/3 rd of the value of the equity awards as stock options, 1/3 rd granted as restricted stock, and 1/3 rd granted as performance shares tied to achievement of a three year company-level performance goal. If an employee provides three years of service from the grant date and the established performance goal is achieved as of the Company’s 2018 fiscal year end, the employee vests in the performance award. Otherwise, the shares are forfeited to the Company.

The Committee believed that this percentage composition would guard against the loss of the incentive value of options if the reimbursement environment turned particularly negative in the long-term, thus resulting in underwater options. Similarly, in a particularly negative environment, the Committee believed that time vesting restricted stock would have an enhanced retention value to maintain the continuity of the Company’s management team as it responds to reimbursement changes. The Committee also believed these performance shares combine performance and retention in the same award.

For valuation purposes, the Committee valued the option shares based on the Monte Carlo option valuation model; the restricted shares, performance or time-vesting, were valued at the fair market value as reflected on the NASDAQ Global Select Market. Options awarded in 2016 vest in four equal annual installments beginning on the first anniversary of the date of grant while restricted shares (and performance shares, if not forfeited) vest in full on the third anniversary of the date of grant.

2017 Discretionary Incentive

On the first day of the Company’s 2017 fiscal year end, the Company acquired an 80% controlling interest in the entity holding the home health and hospice assets of Community Health Systems, Inc. (referred to herein as “CHS Home Health”). With the completion of this transaction, the Company now operates 340 branches across 26 states. The purchase price of $128.0 million was funded through borrowings on the Company’s newly expanded $350.0 million revolving credit facility. Further on January 25, 2017, the

Company sold 3,450,000 shares of common stock at $44.50 per share, under the shelf registration statement for gross proceeds of approximately $153.5 million.  Net proceeds were approximately $144.3 million, after deducting the estimated underwriting discounts and commissions and our offering expenses. These proceeds were used to repay obligations under the revolving credit facility, of which approximately $128.9 million was drawn on December 30, 2016 to finance the CHS Home Health acquisition. As a result, credit available under the revolving credit facility increased to approximately $204.1 million from $78.6 million at December 30, 2016.

In recognition of their specific roles in completion of the CHS Home Health acquisition, the subsequent successful equity raise and the resulting available capital expansion in early 2017, the Committee awarded discretionary bonus payments to certain members of the executive management team. In determining the amounts paid to the individual members of the executive management team, the Committee considered, in addition to other factors, the recommendations of Mr. Yarmuth, and the contributory efforts and overall compensation levels of each individual relative to the others and relative to market levels of total compensation. The Committee, using its sole discretion, awarded the following discretionary bonus payments: $400,000 for Mr. Yarmuth, $375,000 for Mr. Guenthner, and $175,000 for Mr. Lyles.

Risk Management and Compensation

The Compensation Committee believes that the Company’s compensation policies and practices are an integral part of the Board’s risk management. The Committee considers various features of our compensation policies and practices that discourage excessive or unnecessary risk taking, including but not limited to the following:

The Committee believes that the Company’s executive compensation program does not encourage inappropriate risk-taking and the level of risk associated with the Company’s compensation programs is not reasonably likely to have a material adverse effect on the Company.

Section 401(k) Plan and Other Benefits

The Company maintains a Section 401(k) plan (the “401(k) Plan”) that is a tax-qualified defined contribution retirement savings plan under which all eligible employees may contribute up to the limit prescribed by the IRS, on a pre-tax basis. The Named Executive Officers are eligible to contribute on a pre-tax basis at a discretionary level, which varies annually based upon results of the Plan’s prior year non-discrimination testing. After one year of service, the Company matches 25% of the first 5% of pay that a participant contributes to the 401(k) Plan and may also provide additional profit sharing contributions based upon the Company’s achievement of financial goals established by the Committee. All employee contributions to the 401(k) Plan are fully vested upon contribution and the Company’s matching contribution vests in full immediately once the employee has three years of service. Contributions to the 401(k) Plan by

the Named Executive Officers are usually limited by IRS rules. The Company pays the premiums on term life insurance for executive officers that provide a benefit of $300,000. The Company also pays health insurance premiums for its executive officers in a high deductible health plan that is available to all salaried employees.

Employment and Other Agreements

The Company has a year-to-year employment agreement with William B. Yarmuth, its Chairman of the Board and Chief Executive Officer. The parties entered into the agreement effective January 1, 1996. The agreement includes a covenant not to compete for a period of two years following Mr. Yarmuth’s termination as an employee of the Company. With respect to Mr. Yarmuth’s employment agreement, he and the Company entered into an amendment to ensure that the Employment Agreement complies with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the final Treasury Regulations promulgated thereunder. As described elsewhere herein, the agreement also provides for payments to be made to Mr. Yarmuth under certain circumstances upon his termination of employment.

In connection with the hiring of Mr. Kaushal in 2011, the Company agreed to pay him 26 weeks of base salary if he is terminated without cause.

In connection with the hiring of Mr. Schwartz in 2013, the Company agreed to pay him 52 weeks of base salary plus a short term incentive target calculated based on the same percentage earned as he earned in his immediately preceding year of employment if he is terminated without cause (excluding by reason of disability, death or voluntary resignation). The Company also agreed to provide health insurance continuation under COBRA and pay the full COBRA premium for one year following termination.

The Company has no other employment agreements with the Named Executive Officers.

Executive Compensation Tax Deductibility

Section 162(m) of the Code generally provides that the compensation paid by publicly held corporations to the chief executive officer and the four most highly paid senior executive officers in excess of $1,000,000 per executive will be deductible by the Company only if paid pursuant to qualifying performance-based compensation plans approved by stockholders of the Company. Although the Company currently attempts to structure all incentive compensation to be deductible for federal income tax purposes, the Company’s primary policy is to maximize the effectiveness of the Company’s executive compensation program. In that regard, the Committee intends to remain flexible to take actions which are deemed to be in the best interests of the Company and its stockholders. Such actions have not always qualified for tax deductibility under the Code and may not in the future.

The Company accounts for equity-based incentive compensation in accordance with the requirements of ASC Topic 718, Compensation - Stock Compensation.