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 December 31, 2014, totaled 195,000. On July 28, 2014, the Company's shareholders approved 4,000,000 additional shares to be made available under the 2006 Plan, bringing the maximum number of shares of common stock that can be issued under the 2006 Plan to 26,500,000 at December 31, 2014.

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	3,132,969		$	7.20
Exercised	(1,653,690	)	$	1.49
Unvested options forfeited	(296,680	)	$	4.09
Vested options expired	(84,332	)	$	0.81
Outstanding at December 31, 2014	16,474,227		$	3.43	7.3	$	133,360,210
Vested at December 31, 2014	9,280,650		$	1.97	6.5	$	88,716,569
Vested or expected to vest at December 31, 2014 (a)	16,198,892		$	3.38	7.3	$	131,953,654


(a)	Includes forfeiture adjusted unvested shares.

The intrinsic value of the options exercised during the years ended December 31, 2014, 2013 and 2012 were approximately $10,566,000, $8,864,000, and $719,000, respectively.

The intrinsic value of options vested during the years ended December 31, 2014, 2013 and 2012 were approximately $6,615,000, $3,351,000, and $1,851,000, respectively.

Following is a summary of stock options outstanding and exercisable at December 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	632,500	4.4	$	0.72	632,500	$	0.72
$0.87 - $1.35	5,861,595	6.6	1.20		4,989,245	1.19
$1.40 - $2.29	1,460,201	5.0	1.64		1,338,532	1.65
$2.33 - $3.75	1,737,339	7.7	2.77		1,079,147	2.78
$3.95 - $5.99	3,365,030	8.4	5.15		977,415	5.10
$6.02- $9.13	3,287,562	8.8	7.06		263,811	6.47
$9.22 - $10.99	130,000	9.9	10.42		—	—
	16,474,227	7.3	$	3.43	9,280,650	$	1.97

A summary of the status of the Company’s unvested stock options as of December 31, 2014 is presented below:



Unvested Stock Options	Number of Shares		Weighted- Average Grant Date Fair Value
Unvested at January 1, 2014	8,568,228		$	1.94
Granted	3,132,969		$	4.18
Cancelled	(296,680	)	$	4.09
Vested	(4,210,940	)	$	1.58
Unvested at December 31, 2014	7,193,577		$	3.08

Total unrecognized compensation expense at December 31, 2014, was approximately $15,084,000 and will be charged to expense ratably through December 2017.

The fair value of the options granted was 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 midpoint between the weighted average time to vesting and the contractual maturity. The simplified method was used due to the Company’s lack of sufficient historical data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its equity shares have been publicly traded. 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:



	Year ended December 31,
	2014	2013	2012
Expected volatility	58.14 - 64.5%	61.41 - 64.77%	45.7 - 64.3%
Expected life (in years)	6	6	6
Expected dividend yield	—	—	—
Risk-free interest rate	1.64 - 1.96%	0.85 - 1.88%	0.62 - 1.77%

The weighted-average grant date fair value for options granted during the years ended December 31, 2014 , 2013 and 2012 were approximately $4.18 , $3.08 and $1.07, respectively.

Restricted Stock Awards

Following is summary information for restricted stock awards for the years ended 2014 and 2013. Shares vest over a one to three year period. As of December 31, 2014, there was approximately $6,637,000 of total unrecognized stock-based compensation related to time-based, non-vested restricted stock. That expense is expected to be recognized on a straight-line basis over a weighted-average period of 2.2 years.

Additionally, during the twelve months ended December 31, 2014, 8,411 shares of common stock valued at approximately $70,000 were issued under the 2006 Plan to a consultant in return for services performed.



	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2014	576,550		$	5.53
Granted	862,739		$	7.88
Vested	(209,671	)	$	5.71
Forfeited	(720	)	$	7.24
Unvested at December 31, 2014	1,228,898		$	5.53

For the years ended December 31, 2014, 2013, and 2012 the Company recognized stock-based compensation as follows (in thousands):



	Year Ended December 31,
	2014		2013		2012
Cost of sales	$	322	$	279	$	98
Research and development	660		417		289
Selling, general and administrative	10,471		5,314		2,152
	$	11,453	$	6,010	$	2,539

Warrants

From time to time the Company has granted 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 were 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 were issued for terms of five years.

Common Stock warrants activity and resulting balances for the years ended December 31, 2014 and 2013 are as follows:



	Number of Warrants		Weighted- Average Exercise Price per Warrant
Warrants outstanding at January 1, 2014	1,284,816		$	0.90
Warrants exercised	(1,242,416	)	$	0.90
Warrants outstanding at December 31, 2014	42,400		$	1.09

Warrants may be exercised in whole or in part by:


•	notice given by the holder accompanied by payment of an amount equal to the warrant exercise price multiplied by the number of warrant shares being purchased; or

•

if permitted by the applicable warrant election by the holder to exchange the warrant (or portion thereof) for that number of shares equal to the product of (a) the number of shares issuable upon exercise of the warrant (or portion) and (b) a fraction, (x) the numerator of which is the market price of the shares at the time of exercise minus the warrant exercise price per share at the time of exercise and (y) the denominator of which is the market price per share at the time of exercise.

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 or, if permitted by the applicable warrant a net-share settlement, at the option of the holder, and do not provide for a net-cash settlement.

All of the Company's warrants are classified as equity as of December 31, 2014 and expire in December of 2016.

Treasury Stock

On May 12, 2014, the Company announced that its Board of Directors had authorized the repurchase of up to $10,000,000 of its common stock from time to time, through December 31, 2014. On December 12, 2014, the Board extended this program until December 31, 2015. On January 5, 2015, the Board increased the authorization under the program to $20,000,000. The timing and amount of repurchases, if any, will depend upon the Company's stock price, economic and market conditions, regulatory requirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time.

For the year ended December 31, 2014, the Company purchased approximately 940,000 shares of its common stock for an aggregate purchase price of approximately $5,600,000. As of December 31, 2014, the Company had approximately $4,400,000 remaining under the repurchase program.