Note 12 – Equity Incentive Plans:

Total compensation cost for share-based payments recognized for the years ended December 31, 2015, 2014, and 2013 was approximately $3,976,423, $1,563,976, and $978,352, respectively. Cost of goods sold the year ended December 31, 2015, 2014, and 2013 included share based compensation of approximately $201,086, $71,669, and $90,614, respectively. Selling, general, and administrative expense for the year ended December 31, 2015, 2014, and 2013 included share-based compensation of approximately $3,722,770, $1,492,307, and $887,738, respectively. Capital expenditures recorded during the year ended December 31, 2015 for the Freshpet Kitchens expansion project included share based compensation of approximately $52,566.

2006 Stock Plan—In December 2006, the Company approved the 2006 Stock Plan (the “2006 Plan”) under which options to purchase approximately 624,223 shares of the Company’s common stock were granted to employees and affiliates of the Company. These options vest over 5 years. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2006 Plan). At December 31, 2015, there were zero shares available for grant as the plan is frozen. The options granted have maximum contractual terms ranging from 5 to 10 years.

2010 Stock Plan—In December 2010, the Company approved the 2010 Stock Plan (the “2010 Plan”) under which options to purchase approximately 2,146,320 shares of the Company’s common stock were granted to employees and affiliates of the Company (in 2012, the 2010 Plan was amended to allow for option to purchase approximately 2,220,280 shares of the Company’s common stock). These options are either time-based (vest over 4 years), performance-based (vest when performance targets are met, as defined in the stock option grant agreement), or vest at the occurrence of an exit event which is defined as a Change of Control in the Company or an initial public offering registered under the Securities Act, as defined in the stock grant agreement.

In November, 2014, the Company made modifications that affected all performance-based awards and all exit-event awards under the 2010 Plan. Performance-based awards were modified to time vested awards that cliff vest over two years. At the time of modification the original performance-based awards vesting criteria was not considered probable. The exit-event awards were modified to performance-based awards. At December 31, 2015, the new performance-based awards vesting criteria is considered probable. The modified awards were fair valued on the modification date.

The options granted have maximum contractual terms of 10 years. The Board of Directors froze the 2010 Stock Plan such that no further grants may be issued under the 2010 Stock Plan.

2014 Omnibus Incentive Plan—In November 2014, the Company approved the 2014 Omnibus Incentive Plan (the “2014 Plan”) under which 1,479,200 shares of common stock may be issued or used for reference purposes as awards granted under the 2014 Plan. These awards may be in the form of stock options, stock appreciation rights, restricted stock, as well as other stock based and cash based awards. As of December 31, 2015, the stock options granted were either time-based (cliff vest over 3 years) or performance-based (vest when performance targets are met, as defined in the stock option grant agreement).

In addition to stock options granted under the 2014 Plan, the Company issued restricted stock units to the board of directors as compensation for their services. The fair value of restricted stock units is based on the share price on the date of grant. These restricted stock units vest over one year, but are not delivered until the end of the year. The Company will settle these awards by common stock transfer. During 2015 there were no restricted stock units granted.

At December 31, 2015, there were 936,648 shares of common stock available to be issued or used for reference purposes under the 2014 Plan.

Service Period Stock Options—A summary of service period stock options outstanding and changes under the plans during the year ended December 31, 2015 is presented below:

Options	Shares			Weighted Average Exercise Price		Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2012		1,095,412		$	6.82
Granted		—			—
Exercised		(7,953	)		6.28
Forfeited		(4,719	)		6.27
Outstanding at December 31, 2013		1,082,740		$	6.91
Granted		255,585			15.00
Modified from Performance Based Options to Service Period Stock Options		680,753			7.10
Exercised		—			—
Forfeited		(741	)		6.27
Outstanding at December 31, 2014		2,018,337		$	7.91
Granted		3,275			17.00
Exercised		(44,432	)		6.57
Forfeited		(370	)		15.00
Outstanding at December 31, 2015		1,976,810		$	8.00		4.8	$	2,669,203
Exercisable at December 31, 2015		1,392,598		$	7.39		4.2	$	2,097,555

Of the options exercisable at December 31, 2015, 1,268,949 were in-the-money, which account for the entire aggregate intrinsic value. No options were exercised during the year ended 2014. The total intrinsic value of options exercised during the years ended December 31, 2015 and December 31, 2013 were $531,962 and $6,559, respectively.

A summary of the nonvested service period stock options as of December 31, 2015, and changes during the year ended December 31, 2015, is presented below:

	Number of Options			Weighted-Average Grant-Date Fair Value Per Share
Nonvested as of December 31, 2013		189,234		$	6.02
Granted		255,585			6.34
Modified from Performance Based Options to Service Period Stock Options		680,753			8.90
Vested		(171,059	)		5.83
Forfeited		(741	)		6.25
Nonvested as of December 31, 2014		953,772		$	8.16
Granted		3,275			7.67
Vested		(372,464	)		8.22
Forfeited		(370	)		6.34
Nonvested as of December 31, 2015		584,213		$	8.13

As of December 31, 2015, there was approximately $3,526,623 of total unrecognized compensation costs related to non-vested service period options, of which $3,067,018 will be incurred in 2016, $457,958 will be incurred in 2017, and the remaining will be incurred in 2018.

Performance Based Options—Performance based option vesting is contingent upon the Company achieving certain annual or cumulative revenue goals. A summary of performance-based stock options outstanding and changes under the plans during the year ended December 31, 2015 is presented below:

Options	Shares			Weighted Average Exercise Price		Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2012		674,942		$	7.10
Granted		11,094			7.10
Forfeited		(5,283	)		7.10
Outstanding at December 31, 2013		680,753		$	7.10
Granted		255,585			15.00
Modified from Exit Event Options to Performance Based Options		657,693			7.10
Modified from Performance Based Options to Service Period Stock Options		(680,753	)		7.10
Outstanding at December 31, 2014		913,278		$	9.31
Granted		3,275			17.00
Forfeited		(370	)		15.00
Outstanding at December 31, 2015		916,183		$	9.33		6.1	$	915,225

No performance-based options were exercisable at December 31, 2015, 2014, or 2013. A summary of the nonvested performance-based options as of December 31, 2015, and changes during the year ended December 31, 2015, is presented below:

	Number of Options			Weighted-Average Grant-Date Fair Value Per Share
Outstanding at January 1, 2014		680,753		$	5.85
Granted		255,585			6.41
Modified from Exit Event Options to Performance Based Options		657,693			9.31
Modified from Performance Based Options to Service Period Stock Options		(680,753	)		(5.85	)
Nonvested as of December 31, 2014		913,278		$	8.50
Granted		3,275			7.64
Vested		—			—
Forfeited		(370	)		6.41
Nonvested as of December 31, 2015		916,183		$	8.50

During the fourth quarter of 2015, the achievement of the vesting criteria related to the performance based options was no longer probable. As a result, the Company reversed $2,573,484 of compensation expenses related to performance based options during the fourth quarter of the year ended December 31, 2015. As of December 31, 2015, there was no unrecognized compensation costs related to non-vested performance based options, as the achievement of the vesting criteria is not considered probable as of December 31, 2015.

Exit Event Options—Exit event option vesting is contingent upon an the occurrence of an exit event, which results from a Change of Control in the Company or an Initial Public Offering of the Company’s common stock under the Securities Act, as defined in the option grant agreement. A summary of exit event stock options outstanding and changes under the plans during the year ended December 31, 2014 is presented below:

Options	Shares			Weighted Average Exercise Price	Average Remaining Contractual Term		Aggregate Instrinsic Value
Outstanding at December 31, 2012	873,508		$	7.10
Granted	5,177			7.10
Forfeited	(1,761	)		7.10
Outstanding at December 31, 2013	876,924		$	7.10
Cancelled	(219,231	)		7.10
Modified from Exit Event Options to Performance Based Options	(657,693	)		7.10
Outstanding at December 31, 2014	—		$	—	—	$	—

No exit event options were granted during 2015. A summary of the nonvested exit event stock options as of December 31, 2014, and changes during the year ended December 31, 2014, is presented below:

	Number of Options			Weighted-Average Grant-Date Fair Value Per Share
Outstanding at January 1, 2014		876,924		$	5.85
Cancelled		(219,231	)		5.85
Modified from Exit Event Options to Performance Based Options		(657,693	)		5.85
Nonvested as of December 31, 2014		—		$	—

Grant Date Fair Value of Options—The weighted average grant date fair value of options (service period options and performance based options) granted during the year ended December 31, 2015 was $7.66 per share. The weighted average grant date fair value of options granted during the year ended December 31, 2014 and December 31, 2013 were $8.35 and $5.40 per share, respectively.

Expected Volatility - For the grants during the year ended December 31, 2013, the expected volatility was based on the historical volatility of the Company’s common stock.

The grants during the year ended December 31, 2014 all occurred while the Company was publicly traded. Subsequent to the Company’s IPO on November 6, 2014, the Company no longer deemed it appropriate to use its historical volatility as the historical volatility was not representative of the Company’s stock on the public market. As such, the expected volatility used is based upon the volatility of a group of similar entities, referred to as “guideline” companies. The Company considered factors such as industry, stage of life cycle and size in considering these “guideline” companies.

Weighted Average Expected Term - The Company determined the expected term based on the “shortcut method” described in FASB ASC 718, Compensation – Stock Compensation (an expected term based on the midpoint between the vesting date and the end of the contractual term).

Risk-Free Interest Rate- The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

Expected Dividend Yield- The Company has not historically declared dividends, and no future dividends are expected to be available to benefit option holders. Accordingly, the Company used an expected dividend yield of zero in the valuation model.

	Year Ended December 31,
	2015		2014		2013
Expected volatility		45.60%		41.9%		86.0%
Average expected term in years		5.4 – 6.4		3.9 – 6.6		7
Risk-free interest rate		1.60%		1.01% – 2.09%		1.7%
Expected dividend yield		0.0%		0.0%		0.0%