Equity

Stock Incentive Plans

The Company has three share-based compensation plans: the MiMedx Group, Inc. Assumed 2006 Stock Incentive Plan (the “2006 Plan”), the MiMedx Inc. 2007 Assumed Stock Plan (the “Assumed 2007 Plan”) and the MiMedx Group Inc. Amended and Restated Assumed 2005 Stock Plan (the “Assumed 2005 Plan”) which provide for the granting of qualified incentive and non-qualified stock options, stock appreciation awards and restricted stock awards to employees, directors, consultants and advisors. The awards are subject to a vesting schedule as set forth in each individual agreement. The Company intends to use only the 2006 Plan to make future grants. The number of assumed options under the Assumed 2005 Plan and Assumed 2007 Plan outstanding at March 31, 2014, totaled 375,000. On February 25, 2014, the Board of Directors approved 4,000,000 additional shares to be made available under the 2006 Plan, bringing the maximum number of shares of common stock which can be issued under the 2006 Plan to 26,500,000 at March 31, 2014, subject to the ratification and approval by the Company's stockholders.

Activity with respect to the stock options is summarized as follows:



	Number of Shares		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2014	15,375,960		$	2.46
Granted	2,094,369		7.29
Exercised	(317,193	)	1.42
Unvested options forfeited	(10,833	)	1.24
Vested options expired	—		—
Outstanding at March 31, 2014	17,142,303		3.07		7.8	$	55,171,947
Vested at March 31, 2014	8,777,850		1.69		6.8	38,950,079
Vested or expected to vest at March 31, 2014 (a)	16,742,166		$	3.01	7.7	$	54,754,819


(a)	Includes forfeiture adjusted unvested shares.

The intrinsic value of the options exercised during the three months ended March 31, 2014, was approximately $1,977,000.

Following is a summary of stock options outstanding and exercisable at March 31, 2014:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number outstanding	Weighted-Average Remaining Contractual Term (in years)	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$0.50 - $0.76	1,165,935	3.9	$	0.66	1,165,935	$	0.66
$0.87 - $1.35	6,364,011	7.4	1.20		4,791,313	1.20
$1.40 - $2.29	1,571,700	5.8	1.64		1,321,698	1.66
$2.33 - $3.75	2,042,318	8.5	2.75		605,964	2.77
$3.95 - $5.99	3,263,670	9.0	5.08		892,940	4.99
$6.02 - $8.34	2,734,669	9.3	7.09		—	—
	17,142,303	7.8	$	3.07	8,777,850	$	1.69

Total unrecognized compensation expense related to granted stock options at March 31, 2014, was approximately $18,212,000 and is expected to be recognized over a weighted-average period of 2.4 years.

The fair value of options granted by the Company is estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on historical volatility of peer companies and other factors estimated over the expected term of the options. The term of employee options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term. The term for non-employee options is generally based upon the contractual term of the option. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term or contractual term as described.

The assumptions used in calculating the fair value of options using the Black-Scholes-Merton option-pricing model are set forth in the following table:



	Three Months Ended March 31,
	2014		2013
Expected volatility	64.1	%	64.3	%
Expected life (in years)	6		6
Expected dividend yield	—		—
Risk-free interest rate	1.69% - 1.96%		0.98%-1.86%

The weighted-average grant date fair value for options granted during the three months ended March 31, 2014 was approximately $4.23.

Restricted Stock Awards

Activity with respect to restricted stock awards is summarized as follows.



	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2013	576,550		$5.53
Granted	448,864		7.25
Vested	(83,330	)	5.07
Forfeited	—		—
Unvested at March 31, 2014	942,084		$6.39

As of March 31, 2014, there was approximately $5,440,000 of total unrecognized stock-based compensation related to time-based, nonvested restricted stock. That expense is expected to be recognized on a straight-line basis over a weighted-average period of 2.5 years.

For the three months ended March 31, 2014 and 2013, the Company recognized stock-based compensation as follows:



	Three Months Ended March 31,
	2014		2013
Cost of sales	$	97,516	$	50,162
Research and development	159,686		75,978
Selling, general and administrative	2,115,162		858,652
	$	2,372,364	$	984,792

Warrants

The Company grants common stock warrants in connection with equity share purchases by investors as an additional incentive for providing long term equity capital to the Company and as additional compensation to consultants and advisors. The warrants are granted at negotiated prices in connection with the equity share purchases and at the market price of the common stock in other instances. The warrants have been issued for terms of five years.

Following is a summary of the warrant activity for the three months ended March 31, 2014:



	Number of Warrants		Weighted-Average Exercise Price per warrant
Warrants outstanding at January 1, 2014	1,284,816		$	0.90
Warrants exercised	(1,017,000	)	0.76
Warrants outstanding at March 31, 2014	267,816		$	1.44

Warrants may be exercised in whole or in part by notice given by the holder accompanied by payment in cash of an amount equal to the warrant exercise price multiplied by the number of warrant shares being purchased.

These warrants are not mandatorily redeemable, and do not obligate the Company to repurchase its equity shares by transferring assets or issuing a variable number of shares.

The warrants require that the Company deliver shares as part of a physical settlement and do not provide for a net-cash settlement.

All of our warrants are classified as equity as of March 31, 2014, and December 31, 2013 and expire at various times through the end of 2016.