-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B2R1SFY+4qTCzKPzkGVWIEP2iQGqB6xFqwcvZXNSRXHy2Aq9K2/Hb8wjrVO0Zw6C BnE+aoEf0R0pHCiDlWfwig== /in/edgar/work/20000814/0000912057-00-037504/0000912057-00-037504.txt : 20000921 0000912057-00-037504.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037504 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANIKA THERAPEUTICS INC CENTRAL INDEX KEY: 0000898437 STANDARD INDUSTRIAL CLASSIFICATION: [2836 ] IRS NUMBER: 043145961 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14027 FILM NUMBER: 700781 BUSINESS ADDRESS: STREET 1: 236 WEST CUMMINGS PARK CITY: WOBURN STATE: MA ZIP: 01801 BUSINESS PHONE: 6179326616 MAIL ADDRESS: STREET 1: 236 WEST CUMMINGS PARK CITY: WOBURN STATE: MA ZIP: 01801 FORMER COMPANY: FORMER CONFORMED NAME: ANIKA RESEARCH INC DATE OF NAME CHANGE: 19930309 10-Q 1 a10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 000-21326 ----------- Anika Therapeutics, Inc. (Exact Name of Registrant as Specified in Its Charter) MASSACHUSETTS 04-3145961 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 236 WEST CUMMINGS PARK, WOBURN, MASSACHUSETTS 01801 (Address of Principal Executive Offices) (Zip Code) ----------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 932-6616 Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. At August 2, 2000 there were issued and outstanding 9,934,280 shares of Common Stock, par value $.01 per share. 1
PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS ANIKA THERAPEUTICS, INC. BALANCE SHEETS JUNE 30, DECEMBER 31, 2000 1999 ---- ---- ASSETS (Unaudited) Current assets: Cash and cash equivalents.................................................................... $5,469,430 $6,440,705 Short-term investments....................................................................... 13,681,829 8,184,870 Accounts receivable, net..................................................................... 2,115,629 2,106,452 Inventories.................................................................................. 7,234,413 5,493,701 Prepaid expenses............................................................................. 485,894 721,206 ----------- ----------- Total current assets..................................................................... 28,987,195 22,946,934 ----------- ----------- Property and equipment......................................................................... 8,496,529 8,116,233 Less: accumulated depreciation................................................................. 5,032,638 4,587,692 ----------- ----------- Net property and equipment............................................................... 3,463,891 3,528,541 ----------- ----------- Long-term investments.......................................................................... - 5,558,029 Notes receivable from officers................................................................. 353,000 353,000 Deposits....................................................................................... 124,600 124,600 ----------- ----------- Total assets............................................................................. $32,928,686 $32,511,104 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................................. $1,309,382 $629,080 Accrued expenses............................................................................. 1,416,613 1,552,661 Deferred revenue............................................................................. 1,934,968 1,792,505 ----------- ----------- Total current liabilities................................................................ 4,660,963 3,974,246 ----------- ----------- Long-term deferred revenue..................................................................... 2,650,000 2,825,000 =========== =========== Commitments and contingencies (Note 9)......................................................... -- -- Stockholders' equity: Redeemable convertible preferred stock; $.01 par value: authorized 750,000 shares; no shares issued and outstanding....................................................................... -- -- Undesignated preferred stock; $.01 par value: authorized 1,250,000 shares; no shares issued and outstanding.............................................................................. -- -- Common stock; $.01 par value: authorized 30,000,000 shares; issued 9,991,943 shares in 2000 and 1999, respectively....................................................................... 99,919 99,919 Additional paid-in capital................................................................... 31,737,212 31,959,316 Deferred compensation........................................................................ (384,570) (615,001) Treasury stock (at cost, 57,663 and 200,863 shares in 2000 and 1999, respectively)........... (279,756) (959,870) Accumulated deficit.......................................................................... (5,555,082) (4,772,506) ----------- ----------- Total stockholders' equity............................................................... 25,617,723 25,711,858 ----------- ----------- Total liabilities and stockholders' equity............................................... $32,928,686 $32,511,104 =========== ===========
The accompanying notes are an integral part of these financial statements. 2
ANIKA THERAPEUTICS, INC. STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- (AS RESTATED) (AS RESTATED) Product revenue................................................ $3,668,765 $3,433,346 $6,289,598 $6,668,996 Licensing fees................................................. 100,000 100,000 200,000 200,000 ---------- ---------- ------------ ----------- Total revenue............................................... 3,768,765 3,533,346 6,489,598 6,868,996 Cost of product revenue........................................ 2,422,617 1,688,714 3,655,585 3,396,885 ---------- ---------- ------------ ----------- Gross profit................................................. 1,346,148 1,844,632 2,834,013 3,472,111 Operating expenses: Research and development..................................... 907,227 924,819 2,220,965 1,632,676 Selling, general and administrative.......................... 977,210 807,220 1,976,672 1,551,192 ---------- ---------- ------------ ----------- Total operating expenses..................................... 1,884,437 1,732,039 4,197,637 3,183,868 ---------- ---------- ------------ ----------- Income (loss) from operations.................................. (538,289) 112,593 (1,363,624) 288,243 Interest income, net......................................... 329,741 297,879 590,989 600,029 ---------- ---------- ------------ ----------- Income (loss) before provision for income taxes................ (208,548) 410,472 (772,635) 888,272 Provision for income taxes................................... 9,941 12,584 9,941 34,563 ---------- ---------- ------------ ----------- Income (loss) before cumulative effect of change in accounting principle.................................................... (218,489) 397,888 ($782,576) 853,709 Cumulative effect of change in accounting principle............ - - - (3,625,000) ----------- ---------- ------------ ------------ Net income (loss) ............................................. $(218,489) $397,888 $(782,576) $(2,771,291) =========== ========== ============ ============ Basic income (loss) per share: Income (loss) before cumulative effect of change in accounting principle......................................... $(0.02) $0.04 $(0.08) $0.09 Cumulative effect of change in accounting principle.......... - - - (0.38) ----------- ---------- ------------ ------------ Net income (loss).............................................. $(0.02) $0.04 $(0.08) (0.29) =========== ========== ============ ============ Basic weighted average common shares outstanding............... 9,918,842 9,558,024 9,847,476 9,395,390 Diluted income (loss) per share: Income (loss) before cumulative effect of change in accounting principle......................................... $(0.02) $0.04 $(0.08) 0.08 Cumulative effect of change in accounting principle.......... - - - (0.36) ----------- ---------- ------------ ------------ Net income (loss).............................................. $(0.02) $0.04 $(0.08) $(0.28) =========== ========== ============ ============ Diluted weighted average common shares outstanding............. 9,918,842 10,075,826 9,847,476 10,081,235
The accompanying notes are an integral part of these financial statements. 3 ANIKA THERAPEUTICS, INC. STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, --------------------------------- Cash flows from operating activities: 2000 1999 ---- ---- (AS RESTATED) Net loss ($782,576) ($2,771,291) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization ......................................... 444,946 350,617 Amortization of unearned stock compensation............................. 193,039 179,708 Other long-term liabilities............................................. -- (27,508) Deferred revenue........................................................ (32,537) 3,730,857 Changes in operating assets and liabilities: Accounts receivable............................................. (9,177) 192,314 Inventories..................................................... (1,740,712) (703,918) Prepaid expenses................................................ 235,312 (360,479) Accounts payable and accrued expenses........................... 544,254 (13,211) ---------- ---------- Net cash (used for) provided by operating activities...................... (1,147,451) 577,089 ---------- ---------- Cash flows from investing activities: (Purchase) maturities of short-term investments, net.................... (5,496,959) 1,849,263 Maturities (purchase) of long-term investments, net..................... 5,558,029 (5,632,881) Purchase of property and equipment...................................... (380,296) (781,026) Notes receivable from officers.......................................... -- (59,000) ---------- ---------- Net cash used for investing activities.................................... (319,226) (4,623,644) ---------- ---------- Cash flows from financing activities: Purchase of 394,800 shares of treasury stock............................ -- (1,948,980) Proceeds from exercise of stock options and warrants..... 495,402 501,052 ---------- ---------- Net cash provided by (used for) financing activities...................... 495,402 (1,447,928) ---------- ---------- Decrease in cash and cash equivalents..................................... (971,275) (5,494,483) Cash and cash equivalents at beginning of period.......................... 6,440,705 10,712,520 ---------- ---------- Cash and cash equivalents at end of period................................ $5,469,430 $5,218,037 ========== ==========
The accompanying notes are an integral part of these financial statements. 4 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. NATURE OF BUSINESS Anika Therapeutics, Inc. ("Anika" or the "Company") develops, manufactures and commercializes therapeutic products and devices intended to promote the protection and healing of bone, cartilage and soft tissue. These products are based on hyaluronic acid ("HA"), a naturally-occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. The Company's currently marketed products consist of ORTHOVISC-Registered Trademark-, which is an HA product used in the treatment of some forms of osteoarthritis in humans and HYVISC-Registered Trademark-, which is an HA product used in the treatment of equine osteoarthritis. ORTHOVISC is currently approved for sale and marketed in Canada, Europe, Turkey, Israel and Iceland. In the U.S., ORTHOVISC is currently limited to investigational use. The Company's initial analysis of results from a Phase III clinical trial in late May 2000 did not show sufficient efficacy to support the filing of a pre-market approval (PMA) application to obtain U.S. Food and Drug Administration (FDA) approval. The Company is conducting an in-depth analysis of the Phase III results and other factors to determine if it will conduct additional clinical trials. The Company manufactures AMVISC-Registered Trademark- and AMVISC-Registered Trademark- Plus, which are HA products used as viscoelastic supplements in ophthalmic surgery, for Bausch & Lomb Surgical, a unit of Bausch & Lomb Incorporated. (See Note 9, Subsequent Events, to the Company's financial statements hereof). The Company is currently developing INCERT-Registered Trademark-, which is an HA based product designed for use in the prevention of post-surgical adhesions. In collaboration with Orquest, Inc., Anika also has exclusive rights to produce OSSIGEL-Registered Trademark-, an injectable formulation of basic fibroblast growth factor combined with HA designed to accelerate the healing of bone fractures. In the fourth quarter of 1999, the Company performed a review of its revenue recognition policy for revenue received from Zimmer, Inc., a division of Bristol-Myers Squibb Co. (Zimmer), under a distribution agreement (the "Zimmer Distribution Agreement") for ORTHOVISC, Anika's osteoarthritis product. As a result of this review and after consultation with the Securities and Exchange Commission, Anika revised its revenue recognition policy for ORTHOVISC sales to Zimmer and restated its operating results for 1998 and the first three quarters of 1999. The restatement also reflects the application of Securities and Exchange Commission Staff Accounting Bulletin 101 on revenue recognition. (See Note 3, Summary of Significant Accounting Policies-Revenue Recognition, to the Company's financial statements hereof). The following table summarizes the impact of the restatement on the quarter and six months ended June 30, 1999:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1999 JUNE 30, 1999 AS REPORTED AS RESTATED CHANGE AS REPORTED AS RESTATED CHANGE ---------------- ---------------- -------------- ---------------- --------------- ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Total revenue $3,750,275 $3,533,346 $(216,929) $6,974,853 $6,868,996 $(105,857) Cost of sales 1,896,633 1,688,714 (207,919) 3,604,804 3,396,885 (207,919) Gross profit 1,853,642 1,844,632 (9,010) 3,370,049 3,472,111 102,062 Income before cumulative effect of change in accounting principle 406,898 397,888 (9,010) 751,647 853,709 102,062 Cumulative effect of change in accounting principle - - - - (3,625,000) (3,625,000) Net income (loss) $406,898 $397,888 $(9,010) $751,647 $(2,771,291) $(3,522,938) Diluted income (loss) per common share: Income before cumulative effect of change in accounting principle $0.04 $0.04 - $0.07 $0.08 $0.01 Cumulative effect of change in accounting principle - - - - $(0.36) $(0.36) Net income (loss) $0.04 $0.04 - $0.07 $(0.28) $(0.35) Diluted common shares outstanding 10,075,826 10,075,826 - 10,081,235 10,081,235 -
5 2. BASIS OF PRESENTATION The accompanying financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2000, the results of operations for the three- and six-month periods ended June 30, 2000 and 1999 and the cash flows for the six months ended June 30, 2000 and 1999. The accompanying financial statements and related notes should be read in conjunction with the Company's annual financial statements filed with the Annual Report on Form 10-K for the year ended December 31, 1999. The results of operations for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results to be expected for the year ending December 31, 2000. (See generally "Risk Factors and Certain Factors Affecting Future Operating Results" below). 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents consists of cash and investments with original maturities of 90 days or less. FINANCIAL INSTRUMENTS SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure about fair value of financial instruments. Financial instruments consist of cash equivalents, short-term and long-term investments, accounts receivable, notes receivable from officers and accounts payable. The estimated fair value of these financial instruments approximates their carrying value, and in the case of cash equivalents, short-term and long-term investments, is based on market quotes. The Company's cash equivalents, short-term and long-term investments are generally obligations of the federal government or investment-grade corporate issuers. The Company, by policy, limits the amount of credit exposure to any one financial institution. INVESTMENTS IN MARKETABLE SECURITIES The Company follows the provisions of SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Short-term investments consist of debt securities with original maturities between three and twelve months, which are classified as held to maturity. Long-term investments consist of debt securities with original maturities greater than twelve months, which are classified as held to maturity. The held to maturity securities are carried at amortized cost which approximates fair market value at June 30, 2000 and December 31, 1999, respectively. INVENTORIES Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method. REVENUE RECOGNITION Product revenue is recognized upon shipment of commercial product and represents sales of AMVISC-Registered Trademark- products, HYVISC-Registered Trademark- and ORTHOVISC-Registered Trademark-. ORTHOVISC is sold under several distribution contracts, including one with Zimmer. On March 15, 2000, the Company announced that it had revised its revenue recognition policy for sales of ORTHOVISC under its distribution agreement with Zimmer. Under the 6 revised revenue recognition policy, revenue is recognized at the time of shipment to Zimmer, based upon the minimum per unit price under the terms of the Zimmer Distribution Agreement at the time of sale to Zimmer. Anika had previously recognized revenue for ORTHOVISC-Registered Trademark- sales to Zimmer based upon an estimate of the average selling price which would be obtained by Zimmer upon sale of the ORTHOVISC to its customers. Any additional amounts earned by Anika above the contractual minimum per unit price will be recognized when Zimmer sells the ORTHOVISC to its customers and Anika is able to determine its share of the actual per unit sales price. Anika had also previously recognized revenue in 1998 and the first three quarters of 1999 for ORTHOVISC which was held in its refrigerators at Zimmer's request. Under the Company's revised revenue recognition policy, this revenue will be recorded when the ORTHOVISC is shipped to Zimmer. Amounts paid by Zimmer in excess of the amount recognized under the revised revenue recognition policy is recorded by Anika as current deferred revenue and amounted to $1,559,968 at June 30, 2000. The Company also adopted the provisions of SEC Staff Accounting Bulletin 101 (SAB 101) in its 1999 operating results. The issuance of SAB 101 changes revenue recognition practices for non-refundable up-front payments received as part of broad supply, distribution and marketing agreements, including $2,500,000 and $1,500,000 received from Zimmer in the fourth quarter of 1997 and the second quarter of 1998, respectively. These amounts were previously recognized in the period received. In accordance with SAB 101, issued in December 1999, the Company has retroactively recorded the cumulative effect of the change in accounting principle of $3,625,000 as a charge in the first quarter of 1999. These payments will be recognized as revenue ratably over the 10-year term of the Zimmer Distribution Agreement. The amount received and deferred to future periods is $3,025,000 at June 30, 2000 of which $2,650,000 is included in long-term deferred revenue. The Company has recognized as revenue $100,000 of the payments in each of the quarters ended March 31 and June 30, 1999 and March 31 and June 30, 2000. During the second quarter of 2000, the Company was informed that the Securities and Exchange Commission issued a formal order of investigation and required the Company to provide further information in connection with certain revenue recognition matters relating to the Company's historical accounting for the Zimmer distribution agreement. The Company has been cooperating fully with the SEC. However, the Company is not in a position to predict the probable outcome of this matter or its potential impact on the Company's business or operations. Advanced payments received for products are recorded as deferred revenue and are recognized when the product is shipped. PROPERTY AND EQUIPMENT Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets, as follows: Machinery and equipment..................................... 3-10 years Furniture and fixtures...................................... 3-5 years Leasehold improvements...................................... 4-10 years Amortization on leasehold improvements is calculated using the straight-line method over the shorter of the lease term or estimated life of the asset. INCOME TAXES The Company provides for income taxes in accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters beginning with the quarter ending September 30, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company will adopt 7 SFAS No. 133 in its quarter ending September 30, 2000 and does not expect that such adoption to have a material impact on the Company's results of operations, financial position or cash flows. As noted above, the Company adopted the provisions of SEC Staff Accounting Bulletin 101 (SAB 101) in its restated 1999 operating results. The issuance of SAB 101 changes revenue recognition practices for non-refundable up-front payments received as part of broad supply, distribution and marketing agreements. Such amounts were previously recognized in the period received. In accordance with SAB 101, such payments will be recognized as revenue ratably over the term of the distribution agreement. In March 2000, the FASB issued Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION - AN INTERPRETATION OF APB OPINION NO.25. The Interpretation clarifies the application of Opinion 25 in certain situations, as defined. The Interpretation is effective July 1, 2000, but covers certain events that occur after December 15, 1998. The effects of applying this interpretation should be applied on a prospective basis from the effective date. The Company does not expect the adoption of the Interpretation during the third quarter to have a material effect on the results of the Company. CONCENTRATION OF CREDIT RISK SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET-RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, requires disclosure of any significant off-balance-sheet and credit risk concentrations. The Company has no significant off-balance-sheet or concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. Sales of AMVISC-Registered Trademark- products to Bausch & Lomb Surgical accounted for 51% and 52% of product revenue for the three-month periods ended June 30, 2000 and 1999, respectively, and 59% and 62% of the six month periods ended June 30, 2000 and 1999, respectively. See Note 9 for a discussion of the Bausch & Lomb supply agreement. ORTHOVISC-Registered Trademark- sales to another customer accounted for 27% and 30% of product sales for the second quarters of 2000 and 1999, respectively and 22% and 29% for the six months ended June 30, 2000 and 1999, respectively. Additionally, as of June 30, 2000, three customers, two of which are international customers, accounted for 45%, 40% and 11% of the Company's accounts receivable balance. As of December 31, 1999, two customers, one of which is an international customer, represented 49% and 42%, respectively, of the Company's accounts receivable balance. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker or decision-making group, in making decisions how to allocate resources and assess performance. The company's chief decision-making group consists of the chief executive officer and the chief financial officer. Based on the criteria established by SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, the Company has one reportable operating segment, the results of which are disclosed in the accompanying financial statements. Substantially all of the operations and assets of the Company have been derived from and are located in the United States. Revenues by country of the customer in total and as a percentage of total revenues are as follows for the three- and six-month periods ended June 30, 2000 and 1999:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999 Country: Percent of Percent of Percent of Percent of - -------- Revenue Revenue Revenue Revenue Revenue Revenue Revenue Revenue United States $2,531,665 67.2% $2,340,321 66.2% $4,732,998 72.9% $4,807,570 70.0% Middle East 995,000 26.4% 1,193,025 33.8% 1,512,500 23.3% 2,058,676 30.0% Other/Europe 242,100 6.4% - 244,100 3.8% 2,750 - ---------- ----- ---------- ------ ----------- ------ ---------- ----- Total $3,768,765 100.0% $3,533,346 100.0% $6,489,598 100.0% $6,868,996 100.0% ========== ====== ========== ====== ========== ====== ========== ======
8 4. EARNINGS PER SHARE SFAS No. 128, EARNINGS PER SHARE, establishes standards for computing and presenting earnings (loss) per share. Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Under the treasury stock method, the dilutive unexercised options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase common shares at the average market price during the period. For periods where the company has incurred a loss, potentially dilutive shares of common stock have been excluded, as their effect would be antidilutive. The following illustrates a reconciliation of the number of shares used in the calculation of basic and diluted net income (loss) per share for the periods ended June 30, 2000 and 1999:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30 2000 1999 2000 1999 ---- ---- ---- ---- (AS RESTATED) (AS RESTATED) Net income (loss) available to common shareholders... ($218,489) $397,888 ($782,476) ($2,771,291) ========== ========= ========== ============ Basic weighted average common shares outstanding..... 9,918,842 9,558,024 9,847,476 9,395,390 Dilutive effect of assumed exercise of stock options and warrants....................................... -- 517,802 -- 685,845 --------- ---------- --------- ---------- Diluted weighted average common and potential common shares outstanding................................. 9,918,842 10,075,826 9,847,476 10,081,235 ========== =========== ========= ===========
5. INVENTORIES Inventories consist of the following:
JUNE 30, DECEMBER 31, 2000 1999 ---- ---- Raw materials......................................................... $1,495,705 $ 681,936 Work in-process....................................................... 4,298,859 3,690,618 Finished goods........................................................ 1,439,849 1,121,147 --------- --------- Total............................................................... $7,234,413 $5,493,701 ========== ==========
6. PROPERTY & EQUIPMENT Property and equipment is stated at cost and consists of the following:
JUNE 30, DECEMBER 31, 2000 1999 ---- ---- Machinery and equipment............................................... $5,988,943 $5,704,663 Furniture and fixtures................................................ 1,836,790 1,773,390 Leasehold improvements................................................ 670,796 638,180 ---------- ---------- Total............................................................... $8,496,529 $8,116,233 ========== ==========
7. NOTES RECEIVABLE FROM OFFICERS Notes receivable from officers consists of loans made to one officer and one former officer. The loan amounts are generally due at the earlier of the end of five years from the date of the note or at the termination of the officers' employment. 9 The loan outstanding to a former officer is secured by a mortgage on certain real estate. Interest accrues at annual rates between 4.4% and 6.0% and is payable monthly over the term of the loans. 8. LICENSING AND DISTRIBUTION AGREEMENT In November 1997, the Company entered into a long-term distribution agreement with Zimmer that was subsequently amended in June 1998 and June 1999 (the "Zimmer Distribution Agreement"). The Zimmer Distribution Agreement provides Zimmer with exclusive marketing and distribution rights to ORTHOVISC-Registered Trademark- in the United States, Canada, Asia and most of Europe. To date, the Company has received up-front non-refundable licensing payments from Zimmer totaling $4.0 million. In addition, under the Zimmer Distribution Agreement the Company has the potential to receive payments aggregating up to $19.5 million upon the achievement of certain regulatory approvals, reimbursement approvals and enumerated sales milestones. As an alternative to a $2.5 million milestone payment due upon FDA approval for the U.S. market, Zimmer has the right to elect to acquire shares of the Company's Common Stock equal to the greater of: (a) $2,500,000 divided by 125% of the average daily closing price of the Common Stock for the prior sixty (60) calendar days (but not to exceed 19.9% of the then outstanding common stock) or (b) 9.9% of the then outstanding Common Stock. The Zimmer Distribution Agreement provides that the amount Zimmer will pay to the Company for ORTHOVISC will be based on a fixed percentage of Zimmer's actual average selling price, subject to a floor. Additionally, the Zimmer Distribution Agreement contains certain annual minimum purchase requirements that Zimmer must order. According to the Zimmer Distribution Agreement, Zimmer may terminate the agreement if ORTHOVISC is not approved by the FDA by January 1, 2001. The results of the Phase III clinical trial may have an adverse impact on the Zimmer Distribution Agreement. As a consequence of the Phase III clinical results, completed May 2000, the Company believes it is unlikely to receive most of the above potential payments. The Company cannot provide any assurances that Zimmer will not terminate the agreement and/or renegotiate a transition agreement on terms less favorable to the Company. (See "Risk Factors and Certain Factors Affecting Future Operating Results--Comprehensive Government Regulation, Uncertainty Regarding Success of Clinical Trials and Dependence Upon Marketing Partners" below). 9. SUBSEQUENT EVENTS The Company entered into a new seven-year supply agreement (the "New BLS Agreement") with Bausch & Lomb Surgical, a unit of Bausch & Lomb Incorporated in July 2000. Under the terms of the New BLS Agreement, the Company becomes Bausch & Lomb's exclusive provider of AMVISC-Registered Trademark- and AMVISC - -Registered Trademark- Plus, ophthalmic viscoelastic products, in the U.S. and international markets where approved, effective January 1, 2001. The New BLS Agreement expires December 31, 2007 and supersedes an existing supply contract with Bausch & Lomb that was set to expire December 31, 2001. The New BLS Agreement is subject to early termination and/or reversion to a non-exclusive basis under certain circumstances. The agreement lifts contractual restrictions on the Company's sales of certain ophthalmic products to other companies, subject to payment of royalties by Anika. In exchange, the Company agreed to a reduction in unit selling prices effective retroactively to April 1, 2000 and the elimination of any minimum purchase obligations. The Company expects that, at least for the remainder of the fiscal year, the reduction in unit prices will result in a decrease in the Company's revenue and gross margin from Bausch & Lomb. (See "Risk Factors and Certain Factors Affecting Future Operating Results--Dependence Upon Marketing Partners" below). Three putative class action complaints have been filed against the Company. These complaints are described more fully in Part II below under Legal Proceedings. Because these lawsuits are in their preliminary stages, the Company is not able to predict the probable outcome of this matter or its potential impact on the Company's business or operations. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS OF ANIKA THERAPEUTICS, INC. AND THE NOTES THERETO APPEARING ELSEWHERE HEREIN. The Company receives a substantial portion of its revenue from the sale of AMVISC-Registered Trademark- and AMVISC-Registered Trademark- Plus to Bausch & Lomb Surgical, a unit of Bausch & Lomb Incorporated. For the three months ended June 30, 2000 and 1999, AMVISC product sales accounted for 51% and 52% of product revenue, respectively. For the six months ended June 30, 2000 and 1999, AMVISC product sales represented 59% and 62% of product revenue, respectively. The Company entered into the New BLS Agreement with Bausch & Lomb Surgical in July 2000. Under the terms of the New BLS Agreement, the Company becomes Bausch & Lomb's exclusive provider of AMVISC and AMVISC Plus, ophthalmic viscoelastic products, in the U.S. and international markets where approved, effective January 1, 2001. The New BLS Agreement expires December 31, 2007 and supersedes an existing supply contract with Bausch & Lomb that was set to expire December 31, 2001. The New BLS Agreement is subject to early termination and/or reversion to a non-exclusive basis under certain circumstances. The New BLS Agreement lifts contractual restrictions on the Company's sales of certain ophthalmic products to other companies, subject to payment of royalties by Anika. In exchange, the Company agreed to a reduction in unit selling prices effective retroactively to April 1, 2000 and the elimination of any minimum purchase obligations. The Company expects that, at least for the remainder of the fiscal year, the reduction in unit prices will result in a decrease in the Company's revenue and gross margin from Bausch & Lomb. Although the Company intends to seek new ophthalmic product customers, it does not expect sales to any such new customers until after 2000. (See "Risk Factors and Certain Factors Affecting Future Operating Results--Dependence Upon Marketing Partners" below). In November 1997, the Company entered into the Zimmer Distribution Agreement, which was subsequently amended in June 1998 and June 1999. The Zimmer Distribution Agreement provides Zimmer with exclusive marketing and distribution rights to ORTHOVISC-Registered Trademark- in the United States, Canada, Latin America, Asia and most of Europe. Following an informal inquiry from the Securities and Exchange Commission, the Company and its independent auditors conducted a review of its revenue recognition policy for revenue received from the Zimmer Distribution Contract. As a result of this review, and after consultation with the SEC, Anika revised its revenue recognition policy for ORTHOVISC sales to Zimmer and restated its operating results for 1998 and the first three quarters of 1999. Under the revised revenue recognition policy, revenue will be recognized at the time of shipment to Zimmer based upon the minimum per unit price under the Zimmer Distribution Agreement at the time of sale to Zimmer. Anika had previously recognized revenue for ORTHOVISC sales to Zimmer based upon an estimate of the average selling price, which would be obtained by Zimmer upon sale of the ORTHOVISC to its customers, as specified under the Zimmer Distribution Agreement. Any additional amounts earned by Anika above the contractual minimum per unit price will be recognized when Zimmer sells the ORTHOVISC to its customers and Anika is able to determine its share of the actual per unit sales price. Anika had also recognized revenue in 1998 and the first three quarters of 1999 for ORTHOVISC which was held in its refrigerators at Zimmer's request. Under the Company's revised revenue recognition policy, this revenue will be recorded when the ORTHOVISC is shipped to Zimmer. Amounts paid by Zimmer in excess of the amount recognized under the revised revenue recognition policy is recorded by Anika as current deferred revenue and amounted to $1,559,968 at June 30, 2000. The Company also adopted the provisions of SEC Staff Accounting Bulletin 101 (SAB 101) in its restated 1999 operating results. The issuance of SAB 101 in December 1999 changed revenue recognition practices for non-refundable up-front payments received as part of broad supply, distribution and marketing agreements, and is applicable to $2,500,000 and $1,500,000, received from Zimmer in the fourth quarter of 1997 and the second quarter of 1998, respectively. These amounts were previously recognized in the period received. In accordance with SAB 101, the company has retroactively recorded the cumulative effect of the change in accounting principle of $3,625,000 as a charge in the first quarter of 1999. These payments will be recognized as revenue ratably over the 10-year term of the distribution agreement. The amount received and deferred to future periods is $3,025,000 at June 30, 2000 of which $2,650,000 is included in long-term deferred revenue. The Company has recognized as revenue $100,000 of these payments in each of the quarters ended March 31 and June 30, 2000 and March 31 and June 30, 1999. Should the Zimmer Distribution Agreement be terminated, amounts included in deferred revenue may be recognized as revenue upon termination. 11 RESULTS OF OPERATIONS PRODUCT REVENUE. Product revenue for the three months ended June 30, 2000 was $3,668,765, an increase of $235,419 or 6.9%, over the $3,433,346 recorded in the prior year corresponding quarter. Product revenue associated with ORTHOVISC increased by $440,999 in the second quarter of 2000 compared to the second quarter of 1999, and includes $475,177 and $45,535, respectively, of previously deferred revenue. Sales of AMVISC -Registered Trademark- products to Bausch & Lomb Surgical decreased by $88,051 compared with the second quarter of 1999, reflecting lower prices effective April 1, 2000 under the New BLS Agreement, partially offset by higher unit volumes. (See Note 9, Subsequent Events, to the Company's financial statements hereof). Product revenue for the six months ended June 30, 2000 was $6,289,598 a decrease of $379,398, or 5.7%, over the $6,668,996 recorded in the comparable prior period. The decrease was primarily attributable to lower ORTHOVIC -Registered Trademark- sales to the Company's Turkish distributor and lower AMVISC -Registered Trademark- product sales to Bausch & Lomb during the first quarter of 2000. During the first quarter of 2000 ORTHOVISC sales to the Turkish distributor were lower as a result of the distributor leveling inventories in response to an earthquake last year. During the second quarter 2000, sales to Anika's Turkish distributor were $995,000 as compared to $1,136,000 in the second quarter of 1999. LICENSING FEES. For the first two quarters of 2000 and 1999, licensing fees of $100,000 per quarter represent the amortization of amounts received in 1997 and 1998, in accordance with the Company's change in accounting principle required by SAB 101 for such fees. GROSS PROFIT. Gross profit for the three months ended June 30, 2000 was $1,346,148, a decrease of $498,484 or 27.0% from $1,844,632 recorded in the prior year corresponding quarter. Gross profit as a percentage of product sales for the three months ended June 30, 2000 decreased to 36.7% from 53.7% in the prior year corresponding quarter. Gross profit for the six months ended June 30, 2000 was $2,834,013 compared with $3,472,111 for the first six months of 1999. Gross profit as a percentage of product sales for the six months ended June 30, 2000 decreased to 45.1% from 52.1% for the first half of 1999. These decreases are primarily attributable to: (i) lower unit prices of AMVISC products under the Company's New BLS Agreement with Bausch & Lomb Surgical, (ii) lower manufacturing cost absorption as the Company has scaled down certain manufacturing operations and (iii) the impact of reduced manufacturing levels implemented in June 2000. The Company expects that, at least for the remainder of the fiscal year, the reduction in unit prices will result in a decrease in the Company's revenue and gross margin from Bausch & Lomb Surgical. (See "Risk Factors and Certain Factors Affecting Future Operating Results--Dependence Upon Marketing Partners" below). The Company also intends to reduce its production plans and utilize existing inventory to meet customer needs in the second half of 2000. There can be no assurances that these steps will reduce manufacturing costs. RESEARCH AND DEVELOPMENT. Research and development expenses for the three months ended June 30, 2000 decreased by $17,592 to $907,227 from $924,819 recorded in the prior year corresponding quarter. Research and development was $407,000 lower in the second quarter of 2000 compared with the first quarter of 2000, reflecting lower ORTHOVISC clinical trial costs. Research and development expenses for the six months ended June 30, 2000 increased $588,289, or 36%, compared to the same period in 1999. This increase is related to ORTHOVISC clinical trial and analysis expenses in the first quarter of 2000. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for the three months ended June 30, 2000 increased by $169,990 or 21.1% to $977,210 from $807,220 in the prior year corresponding quarter. For the six months ended June 30, 2000, selling, general and administrative expenses increased $425,480 or 27.4% compared to the same period in the prior year. The increase was primarily attributable to higher professional fees associated with corporate matters. NET INTEREST INCOME. The Company's net interest income increased by $31,862 to $329,741 for the three months ended June 30, 2000 from $297,879 in the prior year corresponding quarter. The increase is attributable to higher average interest rates. Net interest income for the six months ended June 30, 2000 was $590,989 compared with $600,029 for the same period in 1999. The decrease is attributable to lower average cash balances during the first six months of 2000. INCOME TAXES. The Company recorded minimal income tax expense for the three and six-month periods ended June 30, 2000 due to the net loss from operations. Income tax expense for the quarter ended June 30, 1999 was minimized due to the utilization of net operating loss carry forwards. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the Company had cash, cash equivalents and short and long-term investments of $19.2 million and working capital of $24.3 million versus cash, cash equivalents and short and long-term investments of $20.2 million and working capital of $19.0 million at December 31, 1999. Investments at June 30, 2000 consist of commercial paper of various 12 maturities of less than one year. During the first half of 2000, the Company used $1,740,000 in connection with a planned increase in inventories. Also, during the first half of 2000, the Company utilized $381,000 for capital expenditures, primarily laboratory and manufacturing and office equipment. In October 1998, the Board of Directors approved a stock repurchase program under which the Company was authorized to repurchase up to $4 million of Anika common stock with the total number of shares repurchased under the plan not to exceed 9.9% of the total issued and outstanding shares. Through December 31, 1999, the Company had repurchased 762,100 shares at an average cost per share of $5.08 for an aggregate cash purchase price of approximately $3,873,000. During the three and six month periods ended June 30, 2000, the Company has not repurchased any Anika common stock. During the six months ended June 2000 the Company received $495,402 from the exercise of stock options. The Company's future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including market acceptance of its existing and future products, the successful commercialization of products in development, progress in its product development efforts, the magnitude and scope of such efforts, progress with preclinical studies, clinical trials and product clearances by the FDA and other agencies, the cost, timing requirements of its efforts to expand its manufacturing capabilities, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, competing technological and market developments, and the development of strategic alliances for the marketing of certain of its products. 13 RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," "PLAN" AND OTHER EXPRESSIONS WHICH ARE PREDICTIONS OF OR INDICATE FUTURE EVENTS AND TRENDS AND WHICH DO NOT RELATE TO HISTORICAL MATTERS IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, INCLUDING BUT NOT LIMITED TO STATEMENTS REGARDING: FUTURE SALES, POSSIBLE DEVELOPMENT OF NEW PRODUCTS, THE INITIAL ANALYSIS OF RESULTS FROM THE PHASE III CLINICAL TRIAL OF ORTHOVISC-REGISTERED TRADEMARK-, POSSIBLE REGULATORY APPROVAL OF NEW OR POTENTIAL PRODUCTS, CONTINUATION OF THE ZIMMER DISTRIBUTION AGREEMENT, PERFORMANCE UNDER THE NEW BLS AGREEMENT, AND THE OUTCOME AND IMPACT OF THE SEC INVESTIGATION AND PUTATIVE CLASS ACTION COMPLAINTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENT COULD DIFFER MATERIALLY FROM ANTICIPATED RESULTS, PERFORMANCE OR ACHIEVEMENT, EXPRESSED OR IMPLIED IN SUCH FORWARD-LOOKING STATEMENTS. ADDITIONAL FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE ARE SET FORTH HEREIN AND IN THE "MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" BEGINNING ON PAGE 11 OF THIS REPORT ON FORM 10-Q. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. COMPREHENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL. The Company's products, product development activities, manufacturing processes, and current and future sales and marketing are subject to extensive and rigorous regulation by the FDA and comparable agencies in foreign countries. In the United States, the FDA regulates the marketing, advertising, promotion, and distribution of medical devices, drugs, and biologics, as well as testing, manufacturing, labeling, record keeping, and reporting activities for such products. Medical products regulated by the FDA are generally classified as medical devices, drugs and/or biologics. Product development and approval within the FDA framework takes a number of years and involves the expenditure of substantial resources. There can be no assurance that the FDA will grant approval for the Company's new products on a timely basis or at all, or that FDA review will not involve delays that will adversely affect the Company's ability to commercialize additional products or expand permitted uses of existing products, or that the regulatory framework will not change, or that additional regulation will not arise at any stage of the Company's product development process which may adversely affect approval of or delay an application or require additional expenditures by the Company. In the event the Company's future products are regulated as human drugs or biologics, the FDA's review process typically would be substantially longer and more expensive than the review process to which they are currently subject as devices. The Company's ORTHOVISC-Registered Trademark- product will have to meet regulatory requirements of a Class III device by the FDA. Class III devices are those that generally must receive pre-market approval (PMA) by the FDA to ensure their safety and effectiveness (e.g. life-sustaining, life-supporting and implantable or new devices which have not been found to be substantially equivalent to legally marketed devices) and require clinical testing to ensure safety and effectiveness and FDA approval prior to marketing and distribution. In order for the Company to commercially distribute ORTHOVISC-Registered Trademark- in the U.S., it must obtain FDA approval of a PMA. The PMA approval process can be expensive, uncertain and lengthy. A number of devices for which pre-market approval has been sought have never been approved for marketing. The review of an application often occurs over a protracted time period and may take two years or more from the filing date to complete. The Company submitted a PMA for ORTHOVISC-Registered Trademark- in December 1997. In October 1998, the Company was notified by the FDA that the CompanY'S PMA application for ORTHOVISC -Registered Trademark- was not approvable and that additional clinical data would be required to demonstrate the effectiveness of ORTHOVISC-Registered Trademark-. The Company submitted an IDE to the FDA in February 1999 and received approval in late March 1999 to commence a second Phase III clinical study. The Company received initial results from the Phase III clinical trial in late May 2000 that did not show sufficient efficacy to support the filing of a PMA application. There can be no assurances that: (i) further analysis of the clinical data or any additional clinical data will support the efficacy of ORTHOVISC-Registered Trademark-, (ii) the Company will undertake any additional clinical trials of ORTHOVISC-Registered Trademark-, (iii) it will be able to successfully complete an additional clinical trial, or (iv) additional clinical trials will support a PMA application and/or FDA approval in a timely manner or at all. The results of the Phase III clinical trial may adversely impact the Company's distribution agreement for ORTHOVISC-Registered Trademark- with Zimmer. Zimmer has the right to terminate the agreement if ORTHOVISC-Registered Trademark- is not approved by the FDA by January 1, 2001 (See "Dependence Upon Marketing Partners" below). There also can be no assurance that any delay in receiving FDA approvals will not adversely affect the Company's competitive position. Furthermore, even if the Company were to receive a PMA, the approval may include significant limitations on the indications and other claims sought for use for which the product may be marketed. 14 The Company's developmental HA products, including INCERT-Registered Trademark- have not obtained regulatory approval in the U.S. for investigational use and/or commercial marketing and sale. The Company believes that INCERT-Registered Trademark- will be regulated as a Class III medical device. In order to undertake clinical trials in the U.S. to support a PMA, the Company is currently evaluating various clinical trial design alternatives. There can be no assurance that the Company will be permitted to undertake clinical trials of this or other future products in the U.S. or that clinical trials will demonstrate that the products are safe and effective or otherwise satisfy the FDA's PMA requirements. Orquest has not received regulatory approval in the U.S. for the commercial marketing and sale of OSSIGEL-Registered Trademark-. OSSIGEL-Registered Trademark- will be regulated as a Class III medical device with the FDA's Center of Biologics Research and Review as the lead review center. There can be no assurance that clinical trials of OSSIGEL -Registered Trademark- will demonstrate that OSSIGEL-Registered Trademark- is safe and effective or otherwise satisfy FDA requirements. Once obtained, marketing clearance can be withdrawn by the FDA due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial clearance. The Company may be required to make further filings with the FDA under certain circumstances. The FDA's regulations require agency approval of a PMA supplement for certain changes if they affect the safety and effectiveness of an approved device, including, but not limited to, new indications for use, labeling changes, the use of a different facility to manufacture, process or package the device, changes in manufacturing methods or quality control systems and changes in performance or design specifications. Failure by the Company to receive approval of a PMA supplement regarding the use of a different manufacturing facility or any other change affecting the safety or effectiveness of an approved device on a timely basis, or at all, would have a material adverse effect on the Company's business, financial condition and results of operations. The FDA could also limit or prevent the manufacture or distribution of the Company's products and has the power to require the recall of such products. Significant delay or cost in obtaining, or failure to obtain FDA clearance to market products, any FDA limitations on the use of the Company's products, or any withdrawal or suspension of clearance by the FDA could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, all FDA-approved products manufactured by the Company must be manufactured in compliance with FDA's Good Manufacturing Practices ("GMP") regulations or, for medical devices, FDA's Quality System Regulations ("QSR"). Ongoing compliance with GMP, QSR and other applicable regulatory requirements is monitored through periodic inspection by state and federal agencies, including the FDA. The FDA may inspect the Company and its facilities from time to time to determine whether the Company is in compliance with regulations relating to medical device and manufacturing companies, including regulations concerning manufacturing, testing, quality control and product labeling practices. There can be no assurance that the Company will be able to comply with current or future FDA requirements applicable to the manufacture of products. FDA regulations depend heavily on administrative interpretation and there can be no assurance that the future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect the Company. In addition, changes in the existing regulations or adoption of new governmental regulations or policies could prevent or delay regulatory approval of the Company's products. Failure to comply with applicable regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the FDA to grant pre-market clearance or pre-market approval for devices, withdrawal of approvals and criminal prosecution. In addition to regulations enforced by the FDA, the Company is subject to other existing and potential future federal, state, local and foreign regulations. International regulatory bodies often establish regulations governing product standards, packing requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. To enable the Company to market ORTHOVISC-Registered Trademark- in Europe, the Company was required to receive a "CE" marking certification, an international symbol of quality and compliance with the applicable European medical device directive. In October 1996, the Company received an EC Design Examination and an EC Quality System Certificate from a European Notified Body, which entitles the Company to affix a CE marking on ORTHOVISC-Registered Trademark- for the treatment of osteoarthritis in synovial joints. There can be no assurance that the Company will be able to achieve and/or maintain compliance required for CE marking or other foreign regulatory approvals for any or all of its products or that it will be able to produce its products in a timely and 15 profitable manner while complying with applicable requirements. Federal, state, local and foreign regulations regarding the manufacture and sale of medical products are subject to change. The Company cannot predict what impact, if any, such changes might have on its business. The requirements relating to the conduct of clinical trials, product licensing, pricing and reimbursement also vary widely from country to country. The process of obtaining approvals from the FDA and other regulatory authorities can be costly, time consuming, and subject to unanticipated delays. There can be no assurance that approvals of the Company's products will be granted or that the Company will have the necessary funds to develop certain of such products. Any failure to obtain, or delay in obtaining, such approvals could adversely affect the ability of the Company to market its products. HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. From its inception up until December 31, 1996 and in 1999, the Company had incurred annual operating losses. As of June 30, 2000, the Company had an accumulated deficit of $5,555,082. The continued development of the Company's products will require the commitment of substantial resources to conduct research and preclinical and clinical development programs, and to establish sales and marketing capabilities. The ability of the Company to reach sustained profitability is highly uncertain. To achieve sustained profitability the Company must, among other things, successfully complete development of certain of its products, obtain regulatory approvals and establish sales and marketing capabilities for certain of its products. There can be no assurance that the Company will be able to achieve sustained profitability. COMPETITION. The Company competes with many companies, including, among others, large pharmaceutical companies and specialized medical products companies. Many of these companies have substantially greater financial and other resources, larger research and development staffs, more extensive marketing and manufacturing organizations and more experience in the regulatory process than the Company. The Company also competes with academic institutions, governmental agencies and other research organizations which may be involved in research, development and commercialization of products. Because a number of companies are developing HA products for similar applications, the successful commercialization of a particular product will depend in part upon the ability of the Company to complete clinical studies and obtain FDA marketing and foreign regulatory approvals prior to its competitors. There can be no assurance that the Company will be able to compete against current or future competitors or that competition will not have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS. Several of the Company's products, including ORTHOVISC-Registered Trademark- and INCERT-Registered Trademark-, as well as the products of the Company's collaborative partners, including OSSIGEL-Registered Trademark-, will require clinical trials to determine their safety and efficacy in humans for various conditions. In late May 2000, the Company's initial analysis of results from the Phase III clinical trial of ORTHOVISC-Registered Trademark- did not show sufficient efficacy to support the filing of a PMA application to obtain FDA approval. There can be no assurances that: (i) further analysis of the clinical data or any additional clinical data will support the efficacy of ORTHOVISC-Registered Trademark-, (ii) the Company will undertake any additional clinical trials of ORTHOVISC -Registered Trademark-, (iii) it will be able to successfully complete an additional clinical trial, or (iv) additional clinical trials will support a PMA application and/or FDA approval in a timely manner or at all. In order to undertake clinical trials in the U.S. to support a PMA of INCERT, the Company is currently evaluating various clinical trial design alternatives. There can be no assurance that the Company or its collaborative partners will not encounter problems that will cause it to delay, suspend or terminate clinical trials. In addition, the Company cannot provide any assurance that such clinical trials, if completed, will ultimately demonstrate these products to be safe and efficacious. DEPENDENCE UPON MARKETING PARTNERS. The Company does not plan to directly market and sell its current products to end-users. Therefore, the Company's success will be dependent upon the efforts of its marketing partners and the terms and conditions of the Company's relationships with such marketing partners. In addition, there can be no assurances that such marketing partners will not seek to renegotiate their current agreements on terms less favorable to the Company. The Company entered into a new seven-year supply agreement with Bausch & Lomb Surgical, a unit of Bausch & Lomb Incorporated in July 2000. Under the terms of the agreement, the Company becomes Bausch & Lomb Surgical's exclusive provider of AMVISC-Registered Trademark- and AMVISC-Registered Trademark- Plus, ophthalmic viscoelastic products, in the U.S. and international markets where approved, effective January 1, 2001. The new agreement expires December 31, 2007, superseding an existing supply contract with Bausch & Lomb Surgical that was set to expire December 31, 2001. The new agreement is subject to early termination and/or reversion to a non-exclusive basis under certain circumstances. The agreement lifts contractual restrictions on the Company's sales of certain ophthalmic products to other companies, subject to payment of royalties by Anika. In exchange, the Company agreed to a reduction in unit selling prices effective retroactively to April 1, 2000 and the elimination of minimum purchase obligations. 16 There can be no assurances that the Company will achieve incremental sales of its ophthalmic products to Bausch & Lomb Surgical and/or other companies sufficient to offset the effects of the price reduction to Bausch & Lomb Surgical. The Company expects that, at least for the remainder of the fiscal year, the reduction in unit prices will result in a decrease in the Company's revenue and gross margin from Bausch & Lomb Surgical. In addition, under certain circumstances, (i) Bausch & Lomb Surgical may have the right to terminate the agreement and/or (ii) the agreement may revert to a non-exclusive basis; in each case, the Company cannot make any assurances such circumstances will not occur. For the six months ended June 30, 2000 and 1999, sales of AMVISC-Registered Trademark- products to Bausch & Lomb Surgical accounted for 59% and 62% of product revenues. The Company does not expect to have incremental business under the new agreement until after 2000. The Zimmer Distribution Agreement provides Zimmer with exclusive marketing and distribution rights to ORTHOVISC-Registered Trademark- in the United States, Canada, Latin America, Asia and most of Europe. The results of the Phase III clinical trial may adversely impact the Company's distribution agreement for ORTHOVISC with Zimmer. According to the Zimmer Distribution Agreement, Zimmer may terminate the agreement if ORTHOVISC -Registered Trademark- is not approved by the FDA by January 1, 2001. The Company cannot provide any assurances that Zimmer will not terminate the agreement or renegotiate a transition in connection with its termination on terms less favorable to the Company. Any such termination is likely to have a material adverse effect on the Company's ability to market ORTHOVISC-Registered Trademark-, which may have a material adverse effect on the Company's future operating results. ORTHOVISC-Registered Trademark- sales to Zimmer accounted for 8% and 3% of product revenue for the six months ended June 30, 2000 and 1999, respectively. There can be no assurance that Zimmer will place additional orders in 2000. Furthermore, upon FDA approval, the Zimmer Distribution Agreement provides for a $2.5 million milestone payment and increased minimum purchases by Zimmer. Based on the initial analysis of results of the Phase III clinical trial of ORTHOVISC-Registered Trademark-, the Company believes it will be unlikely it will be able to earn most of the milestone payment or that Zimmer will be subject to the increased minimum purchase requirements. In addition, there can be no assurance that the Company and/or Zimmer will obtain European or other reimbursement approvals or if such approvals are obtained, they will be obtained on a timely basis or at a satisfactory level of reimbursement. The Company will need to obtain the assistance of additional marketing partners for new products which are brought to market and existing products brought to new markets. There can be no assurance that such additional partners will be available or that such partners will agree to market the Company's products on acceptable terms. The failure to establish strategic partnerships for the marketing and distribution of the Company's products on acceptable terms would have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY OF MARKET ACCEPTANCE OF FUTURE PRODUCTS. The Company's success will depend in part upon the acceptance of the Company's future products by the medical community, hospitals and physicians and other health care providers, and third-party payors. Such acceptance may depend upon the extent to which the medical community perceives the Company's products as safer, more effective or cost-competitive than other similar products. Ultimately, for the Company's new products to gain general market acceptance, it will also be necessary for the Company to develop marketing partners for the distribution of its products. There can be no assurance that the Company's new products will achieve significant market acceptance on a timely basis, or at all. Failure of some or all of the Company's future products to achieve significant market acceptance could have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company's success will depend, in part, on its ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when necessary, and conduct its business without infringing the proprietary rights of others. The patent positions of pharmaceutical, medical products and biotechnology firms, including the Company, can be uncertain and involve complex legal and factual questions. There can be no assurance that any patent applications will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or commercial advantage, or will not be circumvented by others. In the event a third party has also filed one or more patent applications for any of its inventions, the Company may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office ("PTO") to determine priority of invention (see below), which could result in failure to obtain or the loss of patent protection for the inventions and the loss of any right to use the inventions. Even if the eventual outcome is favorable to the Company, such interference proceedings could result in substantial cost to the Company. Filing and prosecution of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement 17 claims against others and the defense of patent infringement claims by others can be expensive and time consuming. There can be no assurance that in the event that any claims with respect to any of the Company's patents, if issued, are challenged by one or more third parties, that any court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation could cause the Company to lose exclusivity covered by the disputed rights. If a third party is found to have rights covering products or processes used by the Company, the Company could be forced to cease using the technologies or marketing the products covered by such rights, could be subject to significant liabilities to such third party, and could be required to license technologies from such third party. Furthermore, even if the Company's patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be able to design around such patents and compete with the Company using the resulting alternative technology. The Company has a policy of seeking patent protection for patentable aspects of its proprietary technology. The Company co-owns certain United States patents and a patent application which claim certain adhesion prevention uses and certain drug delivery uses of HA, and solely owns patents directed to certain manufacturing processes. The Company also holds an exclusive license from Tufts University to use technologies claimed in a United States patent application which has been granted a Notice of Allowance from the U.S. Patent Office for the anti-metastasis applications of HA oligosaccharides. The Company's patents expire between 2007 and 2015 and the license expires upon expiration of all related patents. The Company intends to seek patent protection with respect to products and processes developed in the course of its activities when it believes such protection is in its best interest and when the cost of seeking such protection is not inordinate. However, no assurance can be given that any patent application will be filed, that any filed applications will result in issued patents or that any issued patents will provide the Company with a competitive advantage or will not be successfully challenged by third parties. The protections afforded by patents will depend upon their scope and validity, and others may be able to design around the Company's patents. The Company's issued patents and any patents which arise from the Company's licensed application would provide competitive protection, if at all, only in the United States. The Company has not, to date, pursued foreign patents equivalent to those issued or applied for in the United States. Other entities have filed patent applications for or have been issued patents concerning various aspects of HA-related products or processes. There can be no assurance that the products or processes developed by the Company will not infringe the patent rights of others in the future. Any such infringement may have a material adverse effect on the Company's business, financial condition and results of operations. In particular, the Company has received notice from the PTO that a third party is attempting to provoke a patent interference with respect to one of the Company's co-owned patents covering the use of INCERT-Registered Trademark- for post-surgical adhesion prevention. Although the Company believes that an interference may be declared by the PTO, it is too early to determine the merits of the interference or the effect, if any, the interference will have on the Company's marketing of INCERT-Registered Trademark- for this use. The existence of the interference proceeding may have a negative impact on the marketing of the INCERT-Registered Trademark- product, and no assurance can be given that the company would be successful in any such interference proceeding. If the third-party interference were to be decided adversely to the Company, involved claims of the Company's patent would be cancelled, the Company's marketing of the INCERT-Registered Trademark- product may be materially and adversely affected and the third party may enforce patent rights against the Company which could prohibit the sale and use of the INCERT -Registered Trademark- products, which could have a material adverse effect on the Company's future operating results. The Company also relies upon trade secrets and proprietary know-how for certain unpatented aspects of its technology. To protect such information, the Company requires all employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. There can be no assurance that these agreements provide meaningful protection or that they will not be breached, that the Company would have adequate remedies for any such breach, or that the Company's trade secrets, proprietary know-how, and technological advances will not otherwise become known to others. In addition, there can be no assurance that, despite precautions taken by the Company, others have not and will not obtain access to the Company's proprietary technology. Further, there can be no assurance that third parties will not independently develop substantially equivalent or better technology. Pursuant to the new BLS Agreement, the Company has agreed to grant Bausch & Lomb Surgical a royalty-free, worldwide, exclusive license to the Company's manufacturing and product inventions which relate to AMVISC-Registered Trademark- products, effective on December 31, 2007, the termination date of the agreement. Upon expiration of the New BLS Agreement, there can be no assurance that Bausch & Lomb Surgical will continue to use the Company to manufacture AMVISC-Registered Trademark- and AMVISC-Registered Trademark- Plus. If Bausch & Lomb Surgical discontinues the use of the Company as a manufacturer after such time, the Company's business, financial condition and results of operations would be materially and adversely affected. 18 RISKS ASSOCIATED WITH MANUFACTURING. The Company's results of operations are dependent upon the continued operation of its manufacturing facility in Woburn, Massachusetts. The operation of biomedical manufacturing plants involves many risks, including the breakdown, failure or substandard performance of equipment, natural and other disasters, and the need to comply with the requirements of directives of government agencies, including the FDA. In addition, the Company relies on a single supplier for syringes and a small number of suppliers for a number of other materials required for the manufacturing and delivery of its HA products. Furthermore, manufacturing processes and research and development efforts of the Company involve animals and products derived from animals. The utilization of animals in research and development and product commercialization is subject to increasing focus by animal rights activists. The activities of animal rights groups and other organizations that have protested animal based research and development programs or boycotted the products resulting from such programs could cause an interruption in the Company's manufacturing processes and research and development efforts. The occurrence of material operational problems, including but not limited to the events described above, could have a material adverse effect on the Company's business, financial condition and results of operations during the period of such operational difficulties. NO ASSURANCE OF GROWTH OR ABILITY TO MANAGE GROWTH. The Company's future success depends on substantial growth in product sales. There can be no assurance that such growth can be achieved or, if achieved, can be sustained. There can be no assurance that even if substantial growth in product sales and the demand for the Company's products is achieved, the Company will be able to (i) develop the necessary manufacturing capabilities; (ii) obtain the assistance of additional marketing partners; (iii) attract, retain and integrate the required key personnel; or (iv) implement the financial, accounting and management systems needed to manage growing demand for its products, should it occur. Failure of the Company to successfully manage future growth could have a material adverse effect on the Company's business, financial condition and results of operations. THIRD PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES. In the U.S. and other markets, health care providers, such as hospitals and physicians, that purchase health care products, such as the Company's products, generally rely on third party payors, including Medicare, Medicaid and other health insurance and managed care plans, to reimburse all or part of the cost of the health care product. The Company depends upon the distributors for its products to secure reimbursement. Reimbursement by a third party payor may depend on a number of factors, including the payor's determination that the use of the Company's products are clinically useful and cost-effective, medically necessary and not experimental or investigational. Since reimbursement approval is required from each payor individually, seeking such approvals can be a time consuming and costly process which, in the future, could require the Company or its marketing partners to provide supporting scientific, clinical and cost-effectiveness data for the use of the Company's products to each payor separately. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and third party payors are increasingly attempting to contain the costs of health care products and services by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing in some cases to provide coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. In addition, Congress and certain state legislatures have considered reforms that may affect current reimbursement practices, including controls on health care spending through limitations on the growth of Medicare and Medicaid spending. There can be no assurance that third party reimbursement coverage will be available or adequate for any products or services developed by the Company. Outside the U.S., the success of the Company's products is also dependent in part upon the availability of reimbursement and health care payment systems. Lack of adequate coverage and reimbursement provided by governments and other third party payors for the Company' products and services could have a material adverse effect on the Company's business, financial condition and results of operations. NEED FOR ADDITIONAL FUNDS; LIQUIDITY. The Company had cash, cash equivalents and short-term investments of $19.2 million as of June 30, 2000. The Company's future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including market acceptance of its existing and future products, the successful commercialization of products in development, progress in its product development efforts, the magnitude and scope of such efforts, progress with preclinical studies, clinical trials and product clearances by the FDA and other agencies, the cost and timing of its efforts to expand its manufacturing capabilities, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, competing technological and market developments, and the development of strategic alliances for the marketing of certain of its products. To the extent that funds generated from the Company's operations, together with the Company's existing capital resources and are insufficient to meet future requirements, the Company will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and others, or through other sources. The terms of any future equity financings may be dilutive to the Company's stockholders and the terms of any debt financings may contain restrictive covenants which limit the Company's 19 ability to pursue certain courses of action. The ability of the Company to obtain financing is dependent on the status of the Company's future business prospects as well as conditions prevailing in the relevant capital markets. No assurance can be given that any additional financing will be made available to the Company or will be available on acceptable terms should such a need arise. EXPOSURE TO PRODUCT LIABILITY CLAIMS. The testing, marketing and sale of human health care products entail an inherent risk of allegations of product liability, and there can be no assurance that substantial product liability claims will not be asserted against the Company. Although the Company has not received any material product liability claims to date and has an insurance policy of $1,000,000 per occurrence and $5,000,000 in the aggregate to cover such claims should they arise, there can be no assurance that material claims will not arise in the future or that the Company's insurance will be adequate to cover all situations. Moreover, there can be no assurance that such insurance, or additional insurance, if required, will be available in the future or, if available, will be available on commercially reasonable terms. Any product liability claim, if successful, could have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE UPON KEY PERSONNEL. The Company is highly dependent on the members of its management and scientific staff, the loss of one or more of whom could have a material adverse effect on the Company. In addition, the Company believes that its future success will depend in large part upon its ability to attract and retain highly skilled, scientific, managerial and manufacturing personnel. The Company faces significant competition for such personnel from other companies, research and academic institutions, government entities and other organizations. There can be no assurance that the Company will be successful in hiring or retaining the personnel it requires. In particular, the Company can provide no assurances that the initial analysis of results from Phase III clinical trial of ORTHOVISC-Registered Trademark- will not impact its ability to attract and retain the personnel it requires. The failure to hire and retain such personnel could have a material adverse effect on the Company's business, financial condition and results of operations. ENVIRONMENTAL REGULATION. The Company is subject to a variety of local, state and federal government regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic, or other hazardous substances used in the manufacture of the Company's products. Any failure by the Company to control the use, disposal, removal or storage of hazardous chemicals or toxic substances could subject the Company to significant liabilities, which could have a material adverse effect on the Company's business, financial condition and results of operations. RISKS RELATING TO INTERNATIONAL OPERATIONS. During the six months ended June 30, 2000 and 1999, approximately, 27% and 30%, respectively, of the Company's product sales were generated in international markets through marketing partners. The Company's representatives, agents and distributors which sell products in international markets are subject to the laws and regulations of the foreign jurisdictions in which they operate and in which the Company's products are sold. A number of risks are inherent in international sales and operations. For example, the volume of international sales may be limited by the imposition of government controls, export license requirements, political instability, trade restrictions, changes in tariffs, difficulties in managing international operations, import restrictions and fluctuations in foreign currency exchange rates. Such changes in the volume of sales may have an adverse effect on the Company's business, financial condition and results of operations. POTENTIAL VOLATILITY OF STOCK PRICE; NO CONTROL OVER MARKET MAKING. The market price of shares of the Company's Common Stock may be highly volatile. Factors such as announcements of new commercial products or technological innovations by the Company or its competitors, disclosure of results of clinical testing or regulatory proceedings, governmental regulation and approvals, developments in patent or other proprietary rights, public concern as to the safety of products developed by the Company and general market conditions may have a significant effect on the market price of the Company's Common Stock. In particular, the Company's stock price declined significantly in October 1998 following the Company's announcement that the FDA had notified the Company that its PMA for ORTHOVISC-Registered Trademark- was not approvable and that additional clinical data would be required to demonstrate the effectiveness of ORTHOVISC-Registered Trademark- and again in May 2000 following the Company's announcements that initial analysis of results from the Phase III clinical trial of ORTHOVISC-Registered Trademark- did not show sufficient efficacy to support the filing of a PMA application to obtain FDA approval and that the SEC had issued a formal order of investigation and required the Company to provide information in connection with certain revenue recognition matters. The trading price of the Company's Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in the Company's operating results, material announcements by the Company or its competitors, governmental regulatory action, conditions in the health care industry generally or in the medical products industry specifically, or other events or factors, many of which are beyond the Company's control. In addition, the stock market has 20 experienced extreme price and volume fluctuations which have particularly affected the market prices of many medical products companies and which often have been unrelated to the operating performance of such companies. The Company's operating results in future quarters may be below the expectations of equity research analysts and investors. In such event, the price of the Common Stock would likely decline, perhaps substantially. No person is under any obligation to make a market in the Common Stock or publish research reports on the Company, and any person making a market in the Common Stock or publishing research reports on the Company may discontinue market making or publishing such reports at any time without notice. There can be no assurance that an active public market in the Common Stock will be sustained. POSSIBLE ADVERSE EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Restated Articles of Organization and Amended and Restated By-laws could have the effect of discouraging a third party from pursuing a non-negotiated takeover of the Company and preventing certain changes in control. These provisions include a classified Board of Directors, advance notice to the Board of Directors of stockholder proposals, limitations on the ability of stockholders to remove directors and to call stockholder meetings, the provision that vacancies on the Board of Directors be filled by a majority of the remaining directors. In addition, the Board of Directors adopted a Shareholders Rights Plan in April 1998. The Company also is subject to Chapter 110F of the Massachusetts General Laws which, subject to certain exceptions, prohibits a Massachusetts corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder. These provisions could discourage a third party from pursuing a takeover of the Company at a price considered attractive by many stockholders, since such provisions could have the effect of preventing or delaying a potential acquiror from acquiring control of the Company and its Board of Directors. SEC INVESTIGATION AND SECURITIES CLASS ACTION LITIGATION. The Securities and Exchange Commission ("SEC") issued a formal order of investigation and required the Company to provide information in connection with certain revenue recognition matters. These matters, relating to the Company's historical accounting for sales of its product under a long-term supply and distribution agreement, were also the subject of the Company's previous March 15, 2000 disclosure concerning an informal SEC inquiry and the restatement of results for 1998 and the first three quarters of 1999. The Company has been cooperating fully; however, the Company is not in a position to predict the probable outcome of this matter or its potential impact on the Company's business or operations. Three putative class action complaints have been filed against the Company. See "Legal Proceedings." Because these lawsuits are in their preliminary stages, the Company is not able to predict the probable outcome of this matter or its potential impact on the Company's business or operations. RELIANCE ON A SMALL NUMBER OF CUSTOMERS. The Company has historically derived the majority of our revenues from a small number of customers, most of whom resell our products to end users and most of whom are significantly larger companies. The Company's failure to generate as much revenue as expected from these customers or the failure of these customers to purchase Anika's products would seriously harm its business. For the six months ended June 30, 2000, Bausch & Lomb Surgical accounted for 59% of product revenues and 40% of the accounts receivable balance and Biomeks accounted for 22% of product revenues and 45% of the accounts receivable balance. Accordingly, present and future customers may terminate their purchasing arrangements with the Company, significantly reduce or delay their orders or seek to renegotiate their agreements on terms less favorable to the Company. Furthermore, in any future negotiations the Company may be subject to the perceived or actual leverage the customers may have given their relative size and importance to the Company. Any termination, change, reduction or delay in orders could seriously harm the Company's business, financial condition and results of operations. Accordingly, unless and until the Company diversifies and expands its customer base, Anika's future success will significantly depend upon the timing and size of future purchases by its largest customers and the financial and operational success of these customers. The loss of any one of the Company's major customers or the delay of significant orders from such customers, even if only temporary, could reduce or delay the Company's recognition of revenues, harm its reputation in the industry and reduce its ability to accurately predict cash flow, and, as a consequence, could seriously harm the Company's business, financial condition and results of operations. 21 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 1. SECURITIES AND EXCHANGE COMMISSION INVESTIGATION. The SEC issued a formal order of investigation and required the Company to provide information in connection with certain revenue recognition matters. These matters, relating to the Company's historical accounting for sales of its product under a long-term supply and distribution agreement, were also the subject of the Company's previous March 15, 2000 disclosure concerning an informal SEC inquiry and the restatement of results for 1998 and the first three quarters of 1999. The Company has been cooperating fully. However, the Company is not in a position to predict the probable outcome of this matter or its potential impact on the Company's business or operations. 2. PUTATIVE CLASS ACTION COMPLAINTS. Three putative class action complaints have been filed against the Company, J. Melville Engle and Sean Moran, former chief financial officer, in the United States District Court for the District of Massachusetts (the "Court") on behalf of a class of all purchasers of the Company's shares between April 15, 1998 and May 30, 2000 (the "Class"). The first, filed on or about June 8, 2000, is captioned CASAZZA, ET AL. V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN MORAN. The second, filed on or about June 26, 2000, is captioned NEMETH-COSLETT, ET AL. V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN MORAN. The third, filed on or about August 2, 2000, is captioned ROCKEFELLER, ET AL. V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN MORAN. Each of these putative class action complaints encompasses the same class period and covers almost identical allegations. All three complaints allege that the Company and the individual defendants violated the federal securities laws by, inter alia, making material misrepresentations and omissions in certain public disclosures during the period between April 15, 1998 and May 30, 2000. The alleged misrepresentations and omissions relate to the Company's historical revenue recognition policies and its restatement of revenues for 1998 and the first three quarters of 1999. All three complaints seek an unspecified amount of monetary damages as well as costs and expenses. In addition, the CASAZZA and NEMETH-COSLETT complaints seek equitable and/or injunctive relief to restrict the defendants from disposing of various assets in order to assure adequate funds are available for the claimed damages. On or about August 7, 2000, certain alleged members of the Class filed a motion to appoint lead plaintiff and lead counsel, as well as a motion for consolidation of related cases. The Court has not yet ruled on these motions. The Company plans to defend vigorously these lawsuits. Because these lawsuits are in their preliminary stages, the Company is not able to predict the probable outcome of this matter or its potential impact on the Company's business or operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 7, 2000, the Company held its 2000 Annual Meeting of Stockholders (the "Annual Meeting"). At the Annual Meeting, Stockholders of the Company were asked to consider: (1) a proposal to elect two Class I Directors of the Company to serve until the 2003 annual meeting of stockholders and until their successors are duly elected and qualified (the "Election Proposal") and (2) a proposal to approve an amendment to the 1993 Stock Option Plan, as amended, (the "Plan") to increase the number of shares available for issuance under the Plan (the "Plan Proposal"). With respect to the Election Proposal, Joseph L. Bower and Eugene A. Davidson, Ph.D were nominated as Class I Directors of the Company. Dr. Bower received 8,215,599 shares voted in favor of his election and 205,524 votes were withheld. Dr. Davidson received 8,209,209 shares voted in favor of his election and 211,914 votes were withheld. Drs. Bower and Davidson were therefore elected as Class I Directors. Other Directors of the Company whose terms of office continued after the Annual Meeting are Samuel F. McKay and Harvey S. Sadow, Ph.D (Class II Directors), and J. Melville Engle and Steven E. Wheeler (Class III Directors). On May 9, 2000, prior to the Annual Meeting, the Company announced Jonathan D. Donaldson's resignation from the Board of Directors. 22 The stockholders also approved the Plan Proposal, as described in the Company's proxy statement. There were 7,689,658 shares voted in favor of the proposal, 667,604 shares voted against it, and 63,861 shares abstaining. ITEM 6. Exhibits and Reports on Form 8-K (a) EXHIBIT NO. DESCRIPTION (3) Articles of Incorporation and Bylaws: 3.1 The Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form 10 (file no. 000-21326), filed with the Securities and Exchange Commission on March 5, 1993. 3.2 The Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.4 to the Company's quarterly report on Form 10-QSB for the period ended November 30, 1996 (file no. 000-21326), filed with the Securities and Exchange Commission on January 14, 1997. 3.3 Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the Company's quarterly report on Form 10-QSB for the period ended November 30, 1996 (file no. 000-21326), filed with the Securities and Exchange Commission on January 14, 1997. (4) Instruments Defining the Rights of Security Holders 4.1 Shareholder Rights Agreement dated as of April 6, 1998 between the Company and Firstar Trust Company, incorporated herein by reference to Exhibit 4.1 of the Company's Registration Statement of Form 8-A12B (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 1998. (10) Material Contracts *10.1 Letter Agreement dated February 13, 1998 between the Company and Michael R. Slater. *10.2 Change in Control, Bonus and Severance Agreement dated April 26, 2000 by and among the Company and Michael R. Slater. *10.3 Letter Agreement dated April 15, 1998 between the Company and Charles H. Sherwood. *10.4 Change in Control, Bonus and Severance Agreement dated April 26, 2000 by and among the Company and Charles H. Sherwood. *10.5 Letter Agreement dated March 30, 2000 by and among the Company and Douglas R. Potter. *10.6 Non-Disclosure and Non-Competition Agreement dated April 3, 2000 by and among the Company and Douglas R. Potter. *10.7 Change in Control, Bonus and Severance Agreement dated April 26, 2000 by and among the Company and Douglas R. Potter. *10.8 Change in Control, Bonus and Severance Agreement dated April 26, 2000 by and among the Company and Edward Ross, Jr. 23 10.9 Anika Therapeutics, Inc. 1993 Stock Option Plan, as amended, incorporated herein by reference to the Company's Proxy Statement (file no. 001-14027), filed with the Securities and Exchange Commission on April 28, 2000. * (27) Financial Data Schedule. * Filed herewith. (b) Reports on Form 8-K: None 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in Woburn, Massachusetts on August 14, 2000. ANIKA THERAPEUTICS, INC. August 14, 2000 By: /S/ DOUGLAS R. POTTER ---------------------- Douglas R. Potter PRINCIPAL FINANCIAL & ACCOUNTING OFFICER EXHIBIT INDEX (a) EXHIBIT NO. DESCRIPTION (3) Articles of Incorporation and Bylaws: 3.1 The Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form 10 (file no. 000-21326), filed with the Securities and Exchange Commission on March 5, 1993. 3.2 The Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.4 to the Company's quarterly report on Form 10-QSB for the period ended November 30, 1996 (file no. 000-21326), filed with the Securities and Exchange Commission on January 14, 1997. 3.3 Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the Company's quarterly report on Form 10-QSB for the period ended November 30, 1996 (file no. 000-21326), filed with the Securities and Exchange Commission on January 14, 1997. (4) Instruments Defining the Rights of Security Holders 4.1 Shareholder Rights Agreement dated as of April 6, 1998 between the Company and Firstar Trust Company, incorporated herein by reference to Exhibit 4.1 of the Company's Registration Statement of Form 8-A12B (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 1998. (10) MATERIAL CONTRACTS *10.1 Letter Agreement dated February 13, 1998 between the Company and Michael R. Slater. *10.2 Change in Control, Bonus and Severance Agreement dated April 26, 2000 by and among the Company and Michael R. Slater. *10.3 Letter Agreement dated April 15, 1998 between the Company and Charles H. Sherwood. *10.4 Change in Control, Bonus and Severance Agreement dated April 26, 2000 by and among the Company and Charles H. Sherwood. *10.5 Letter Agreement dated March 30, 2000 by and among the Company and Douglas R. Potter. *10.6 Non-Disclosure and Non-Competition Agreement dated April 3, 2000 by and among the Company and Douglas R. Potter. *10.7 Change in Control, Bonus and Severance Agreement dated April 26, 2000 by and among the Company and Douglas R. Potter. 25 *10.8 Change in Control, Bonus and Severance Agreement dated April 26, 2000 by and among the Company and Edward Ross, Jr. 10.9 Anika Therapeutics, Inc. 1993 Stock Option Plan, as amended, incorporated herein by reference to the Company's Proxy Statement (file no. 001-14027), filed with the Securities and Exchange Commission on April 28, 2000. *(27) Financial Data Schedule *Filed herewith. (b) Reports on Form 8-K: None EX-10.1 2 ex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 [LOGO] ANIKA J. MELVILLE ENGLE THERAPEUTICS PRESIDENT, CHIEF EXECUTIVE OFFICER TEL: 781.932.6616 EXT. 106 February 13, 1998 Michael R. Slater 28 Hidden Court North Andover, MA 01845 Dear Michael, I am pleased to reconfirm our offer of employment as Vice President Regulatory Affairs and Quality Systems. Your salary will be at the rate of $135,000 per annum, payable biweekly. You will be eligible for Anika's comprehensive medical, dental and 401(k) benefit plans. Under the current terms, the 401(k) plan entitles you to contribute up to the maximum limit established by the IRS, and the company will match 100% of your contributions to the plan up to 5% of your salary. Your participation in the plans will be governed by and subject to the plan terms, as described in the official plan documents and the summary plan descriptions. Additionally, you will receive the following benefits and be subject to the following terms: Sign On Bonus: $10,000 payable after your first day of work at Anika. Management Bonus: At plan performance, 20% of salary, payable shortly after year end, based on company and personal performance against key objectives. A copy of the Management Bonus Plan is attached. The first bonus payment will be for plan year 1998. In accordance with the Management Bonus Plan, your bonus for plan year 1998 will not be prorated based on the number of months of your employment. Stock Option Grant: 75,000 common stock options of the Company, vesting in equal installments over four years, at an option price to be determined on the earliest date provided for in the Company's Stock Option Plan (usually the price on the date of such compensation Committee meeting). This grant will be governed by and subject to your execution of a stock option agreement in a form prepared by the Company. ANIKA THERAPEUTICS, INC. FAX: 781.932.3360 236 WEST CUMMINGS PARK E-MAIL: MENGLE@ WOBURN, MA 01801 ANIKATHERAPEUTICS.COM Severance in the event of termination: Termination without cause (non-performance related): If Anika terminates your employment without "cause" (as construed under Massachusetts common law for employment contracts), Anika will continue your base salary at its then current rate for six months, subject to your compliance with your obligations under your other agreements with the Company and your cooperation with any other reasonable requests by Anika for assistance during that period. In addition, in such circumstances the Company will also pay the premiums for continuation of medical and dental benefits under COBRA for you and your family for six months after termination of your employment (or until the end of COBRA eligibility, if earlier). Constructive termination: In the event of a "hostile" change of control and either (i) you are not offered comparable employment by the new Company; or (ii) you resign from employment with the new Company that is not comparable employment within six months after the change of control, you will be entitled to the severance benefits that would be provided in the event of a termination without cause as set forth above. For purposes of this provision, a "hostile change of control" means any transaction not approved by a majority of the Company's board of directors who are in office as of the date hereof or who have been otherwise nominated by such director ("Pre-Deal Directors") as a result of which, or in connection with which, (i) 51% or more of the Company's voting equity securities are owned by persons who were not beneficial owners prior to such transaction or (ii) the Pre-Deal Directors no longer constitute a majority of the board of directors. For purposes of this provision, "comparable employment" means a position that has duties of at least a substantially similar level of responsibility and provide salary and medical, dental, and 401(k) benefits that are at least substantially similar in overall value to the package of salary, medical, dental and 401(k) benefits that you were receiving from Anika immediately prior to the change of control. Other: Vacation: Accrued at a rate of three weeks per year, subject to the terms for accrual and use set forth in Anika's policies. Arbitration: In the event of any controversy or claim arising out of or relating to this letter agreement or otherwise arising out of your employment or the termination of that employment (including, without limitation, any claims of unlawful employment discrimination whether based on age or otherwise), that controversy or claim shall, to the fullest extent permitted by law, be settled by arbitration under the auspices of the American Arbitration Association ("AAA") in Boston, Massachusetts, in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of arbitrators (or alternatively, in any other forum or in any other form agreed by the parties). In the event that any person or entity other than you or Anika may be a party with regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person or entity's agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. This provision shall be specifically enforceable. Notwithstanding the foregoing, this provision shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate; provided that any other relief shall be pursued through an arbitration proceeding pursuant to this provision. Your offer is contingent on your execution of Anika's standard confidentiality, non-disclosure and non-compete agreements. Upon your acceptance of this offer, you will be an employee at will of the Company. Your effective date of employment will be February 9, 1998. Once signed by both you and Anika, this letter agreement will be a legal contract governed by the laws of Massachusetts (without giving effect to its conflict of laws provisions). Please sign and return one copy of this letter acknowledging your acceptance of this employment offer. I am enthusiastic about Anika's future prospects and look forward to your leadership and contribution to the Anika team. Sincerely, Accepted: /s/ J. Melville Engle /s/ Michael R. Slater J. Melville Engle Michael R. Slater President, Chief Executive Officer EX-10.2 3 ex-10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 ANIKA THERAPEUTICS, INC. CHANGE IN CONTROL, BONUS AND SEVERANCE AGREEMENT AGREEMENT made as of April 26, 2000 by and among Anika Therapeutics, Inc., a Massachusetts corporation with its principal place of business in Woburn, Massachusetts (the "Company"), and Michael R. Slater of North Andover, Massachusetts (the "Executive"), an individual presently employed as the Vice President of Operations of the Company. 1. PURPOSE. The Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. The Board of Directors of the Company (the "Board") recognizes, however, that, as is the case with many publicly held corporations, the possibility of a Change in Control (as defined in Section 2 hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Therefore, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Nothing in this Agreement shall be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 2. CHANGE IN CONTROL. A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the Company, any of its subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 51% or more of the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors ("Voting Securities"); or (b) persons who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Agreement, be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate 51% of the voting shares of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate voting power represented by the Voting Securities beneficially owned by any person to 51% or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a share split, stock dividend or similar transaction or direct purchase from the Company), then a "Change in Control" shall be deemed to have occurred for purposes of the foregoing clause (a). 3. TERMINATING EVENT. A "Terminating Event" shall mean any of the events provided in this Section 3 occurring within twelve (12) months subsequent to a Change in Control as defined in Section 2: (a) termination by the Company of the employment of the Executive with the Company for any reason other than for Cause or the death of the Executive. "Cause" shall mean, and shall be limited to, the occurrence of any one or more of the following events: (i) a willful act of dishonesty by the Executive with respect to any matter involving the Company; (ii) conviction of the Executive of a crime involving moral turpitude; or 2 (iii) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform the Executive's duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of written notice specifying the scope and nature of such failure and its intention to terminate the Executive for Cause. A Terminating Event shall not be deemed to have occurred pursuant to this Section 3(a) solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company following a Change in Control. (b) termination by the Executive of the Executive's employment with the Company for Good Reason. "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Executive's responsibilities or duties from the responsibilities or duties exercised by the Executive immediately prior to the Change in Control, it being understood by the parties hereto, that so long as the Executive retains primary responsibility for manufacturing and quality control and clinical and regulatory affairs for the business conducted by Anika immediately prior to the Change in Control, Good Reason shall not exist under this Section 3(b)(i); or (ii) a reduction in the Executive's annual base salary and/or benefits as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary and/ or benefits reductions similarly affecting all or substantially all management employees. For purposes of this Section 3, unless the context otherwise requires, Company shall mean the Company or any successor thereto or to the business thereof in a transaction involving a Change in Control. 4. SPECIAL TERMINATION PAYMENTS. In the event a Terminating Event occurs within twelve (12) months after a Change in Control in lieu of any payments under the Employment Letter (as hereinafter defined), (a) the Company shall pay to the Executive, in addition to the payment, if any, required by Section 5, an amount equal to 100% of the Executive's annual salary as in effect immediately prior to the Change in Control, said amount shall be paid in 3 one lump sum payment no later than thirty-one (31) days following the Date of Termination (as such term is defined in Section 9(b)); and (b) the Company shall continue to provide health, dental, long-term disability, life insurance and other fringe benefits to the Executive, on the same terms and conditions (including any required co-payments) as though the Executive had remained an active employee, for twelve (12) months; and (c) the Company shall provide COBRA benefits to the Executive following the end of the period referred to in Section 4(c) above, such benefits to be determined as though the Executive's employment had terminated at the end of such period. 5. PAYMENT UPON EFFECTIVE DATE OF CHANGE IN CONTROL. Upon the effective date of a Change in Control, regardless of whether a Terminating Event has occurred, in addition to any other payment required by Section 4, the Company shall pay the Executive an amount in cash representing fifty percent (50%) of the Executive's annual salary as in effect immediately prior to the Change in Control. Said amount shall be paid in one lump sum payment no later than thirty-one (31) days following the effective date of a Change in Control. 6. CERTAIN LIMITATIONS. It is the intention of the Executive and of the Company that no payments by the Company to or for the benefit of the Executive under this Agreement or any other agreement or plan, if any, pursuant to which the Executive is entitled to receive payments or benefits shall be nondeductible to the Company by reason of the operation of Section 280G of the Code relating to parachute payments or any like statutory or regulatory provision. Accordingly, and notwithstanding any other provision of this Agreement or any such agreement or plan, if by reason of the operation of said Section 280G or any like statutory or regulatory provision, any such payments exceed the amount which can be deducted by the Company, such payments shall be reduced to the maximum amount which can be deducted by the Company. To the extent that payments exceeding such maximum deductible amount have been made to or for the benefit of the Executive, such excess payments shall be refunded to the Company with interest thereon at the applicable Federal rate determined under Section 1274(d) of the Code, compounded annually, or at such other rate as may be required in order that no such payments shall be nondeductible to the Company by reason of the operation of said Section 280G or any like statutory or regulatory provision. To the extent that there is more than one method of reducing the payments to bring them within the limitations of said Section 280G or any like statutory or regulatory provision, the Executive shall determine which method shall be followed, provided that if the Executive fails to make such determination within forty-five (45) days after the Company has given notice of the need for such reduction, the Company may determine the method of such reduction in its sole discretion. 4 7. TERM. This Agreement shall take effect on the date first set forth above and shall terminate upon the earliest of (a) the termination by the Company of the employment of the Executive for Cause; (b) the cessation of the Executive's employment with the Company for any reason or the resignation or termination of the Executive for any reason, in each case, prior to a Change in Control; or (c) the resignation of the Executive after a Change in Control for any reason other than for Good Reason. 8. WITHHOLDING. All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law. 9. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC. (a) Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 9. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (exclusive of the Executive) at a meeting of the Board (after reasonable notice to the Executive and an opportunity for the Executive, accompanied by the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the termination met the criteria for Cause set forth in Section 3(a) hereof. (b) Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean the date specified in the Notice of Termination. In the case of a termination by the Company other than a termination for Cause (which may be effective immediately), the Date of Termination shall not be less than 30 days after the Notice of Termination is given. In the case of a termination by the Executive, the Date of Termination shall not be less than 15 days from the date such Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a second Terminating Event for purposes of Section 3(a) of this Agreement. (c) No Mitigation. The Company agrees that, if the Executive's employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce 5 any amounts payable to the Executive by the Company pursuant to Sections 4 and 5 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. (d) Mediation of Disputes. The parties shall endeavor in good faith to settle within 90 days any controversy or claim arising out of or relating to this Agreement or the breach thereof through mediation with J.A.M.S./Endispute or similar organizations. If the controversy or claim is not resolved within 90 days, the parties shall be free to pursue other legal remedies in law or equity. 10. ASSIGNMENT; PRIOR AGREEMENTS; NON-SOLICITATION. Except for an assignment by the Company in connection with a Change in Control in which the successor, if other than the Company, shall assume and agree to perform this Agreement in writing, neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party, and without such consent any attempted transfer shall be null and void and of no effect. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. In the event of the Executive's death after a Terminating Event but prior to the completion by the Company of all payments due him under Sections 4 and 5 of this Agreement, the Company shall continue such payments to the Executive's beneficiary designated in writing to the Company prior to his death (or to his estate, if the Executive fails to make such designation). This Agreement supercedes all prior Agreements, whether written or oral with respect to the subject matter hereof. Notwithstanding the foregoing: (A) that certain Employment Letter dated February 13, 1998 by and between the Company and the Executive, (the "Employment Letter"), shall govern any termination of the Executive's employment with the Company (i) prior to the effective date of a Change in Control or (ii) following the expiration of twelve (12) months after a Change in Control; this Agreement shall govern in the event of any termination of Executive's employment with the Company within twelve (12) months after a Change in Control; and (B) that certain Non-Disclosure and Non-Competition Agreement of February 10, 1998 by and between Executive and the Company shall remain in full force and effect in accordance with its terms. Executive covenants to the Company that during his employment with the Company and until one (1) year from the date he is no longer employed by the Company, any affiliate thereof or any successor thereto, he will not in any manner, on his own behalf, or as a partner, officer, director, employee, agent or entity, directly or indirectly, induce or attempt to influence any person serving as an employee of the Company or any successor thereto to leave its employ or hire any such person. 6 11. ENFORCEABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 13. NOTICES. Any notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors. 14. EFFECT ON OTHER PLANS. Except as provided in Section 10 hereof, nothing in this Agreement shall be construed to limit the rights of the Executive under the Company's benefit plans, programs or policies. 15. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company. 16. GOVERNING LAW. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts. 17. OBLIGATIONS OF SUCCESSORS. In addition to any obligations imposed by law upon any successor to the Company, the Company will use its commercially reasonable efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 7 IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company by their duly authorized officers and by the Executive, as of the date first above written. COMPANY: ANIKA THERAPEUTICS, INC. By: /s/ J. MELVILLE ENGLE ---------------------------------------- J. Melville Engle President and Chief Executive Officer EXECUTIVE: /s/ MICHAEL R. SLATER ---------------------------------------- Michael R. Slater
EX-10.3 4 ex-10_3.txt EXHIBIT 10.3 EXHIBIT 10.3 [LOGO] ANIKA J. MELVILLE ENGLE THERAPEUTICS PRESIDENT, CHIEF EXECUTIVE OFFICER TEL: 781.932.6616 EXT. 106 April 15, 1998 Charles H. Sherwood, Ph.D 1721 Vallejo Way Upland, CA 91784 Dear Chuck: I am pleased to reconfirm our offer of employment as Vice President Process Development. Your salary will be at the rate of $140,000 per annum, payable biweekly. You will be eligible for Anika's comprehensive medical, dental and 401(k) benefit plans. Under the current terms, the 401(k) plan entitles you to contribute up to the maximum limit established by the IRS, and the company will match 100% of your contributions to the plan up to 5% of your salary. Your participation in the plans will be governed by and subject to the plan terms, as described in the official plan documents and the summary plan descriptions. Additionally, you will receive the following benefits and be subject to the following terms: Sign On Bonus: $10,000 payable after your first day of work at Anika. You agree to repay this amount if you resign from Anika within 12 months of your first day of employment. Management Bonus: At plan performance, 20% of salary, payable shortly after year end, based on company and personal performance against key objectives. A copy of the Management Bonus Plan is attached. The first bonus payment will be for plan year 1998. In accordance with the Management Bonus Plan, your bonus for plan year 1998 will be prorated based on the number of months of your employment. Stock Option Grant: 75,000 common stock options of the Company, vesting in equal installments over four years, at an option price to be determined on the earliest date provided for in the Company's Stock Option Plan (usually the price on the date of such Compensation Committee meeting). This grant will be governed by and subject to your execution of a stock option agreement in a form prepared by the Company. Reimbursement of Relocation Expenses: - - Reasonable cost of transportation of you and your family to the Boston area. - - Reasonable cost of transportation of normal household effects. - - Reasonable cost of brokerage commission and closing expenses for the sale of your house. ANIKA THERAPEUTICS, INC. FAX: 781.932.3360 236 WEST CUMMINGS PARK E-MAIL: MENGLE@ WOBURN, MA 01801 ANIKATHERAPEUTICS.COM Charles H. Sherwood, Ph.D April 15, 1998 Page 2 - - One house hunting trip for your wife to visit Boston, not to exceed 7 days, utilizing coach airfare and reasonable costs - - Reasonable closing costs associated with the purchase of a new home, excluding financing costs and taxes. - - Temporary living expenses for you for three months (up to $10,000). - - Four coach class roundtrip airfare tickets home to visit your family during the three month temporary living period. - - All reimbursements will be subject to Anika's policies and practices, including but not limited to documentation requirements. Please note that some reimbursements may constitute taxable income to you. You should consult with your personal tax advisor if you have questions concerning the tax treatment of any of these reimbursements. - - Outplacement services for your wife up to $15,000 to cover her expenses in obtaining a job in the Boston area. - - You agree to repay these amounts if you resign from Anika within 12 months of your first day of employment. Severance in the event of termination: Termination without cause (non-performance related): If Anika terminates your employment without "cause" (as construed under Massachusetts common law for employment contracts), Anika will continue your base salary at its then current rate for six months, subject to your compliance with your obligations under your other agreements with the Company and your cooperation with any other reasonable requests by Anika for assistance during that period. In addition, in such circumstances the Company will also pay the premiums for continuation of medical [and dental] benefits under COBRA for you and your family for six months after termination of your employment (or until the end of COBRA eligibility, if earlier) [subject to your payment of the active employee share of premium payments for such coverage]. Constructive termination: In the event of a "hostile" change of control and either (i) you are not offered comparable employment by the new Company; or (ii) you resign from employment with the new Company that is not comparable employment within six months after the change of control, you will be entitled to the severance benefits that would be provided in the event of a termination without cause as set forth above. For purposes of this provision, a "hostile change of control" means any transaction not approved by a majority of the Company's board of directors who are in office as of the date hereof or who have been otherwise nominated by such director ("Pre-Deal Directors") as a result of which, or in connection with which, (i) 51% or more of the Company's voting equity securities are owned by persons who were not beneficial owners prior to such transaction or (ii) the Pre-Deal Directors no longer constitute a majority of the board of directors. For purposes of this provision, "comparable employment" means a position that has duties of at least a substantially similar level of responsibility and provide salary and medical, dental, and 401(k) benefits that are at least substantially similar in overall value to the package of salary, medical, dental and 401(k) benefits that you were receiving from Anika immediately prior to the change of control. Other: Vacation: Accrued at a rate of three weeks per year, subject to the terms for accrual and use set forth in Anika's policies. Charles H. Sherwood, Ph.D April 15, 1998 Page 3 Arbitration: In the event of any controversy or claim arising out of or relating to this letter agreement or otherwise arising out of your employment or the termination of that employment (including, without limitation, any claims of unlawful employment discrimination whether based on age or otherwise), that controversy or claim shall, to the fullest extent permitted by law, be settled by arbitration under the auspices of the American Arbitration Association ("AAA") in Boston, Massachusetts, in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of arbitrators (or alternatively, in any other forum or in any other form agreed by the parties). In the event that any person or entity other than you or Anika may be a party with regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person or entity's agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. This provision shall be specifically enforceable. Notwithstanding the foregoing, this provision shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate; provided that any other relief shall be pursued through an arbitration proceeding pursuant to this provision. Your offer is contingent on your execution of Anika's standard confidentiality, non-disclosure and non-compete agreements. Upon your acceptance of this offer, you will be an employee at will of the Company. Your effective date of employment will be April 20, 1998. Once signed by both you and Anika, this letter agreement will be a legal contract governed by the laws of Massachusetts (without giving effect to its conflict of laws provisions). Please sign and return one copy of this letter acknowledging your acceptance of this employment offer. I am enthusiastic about Anika's future prospects and look forward to your leadership and contribution to the Anika team. Sincerely, Accepted: /s/ J. Melville Engle /s/ Charles H. Sherwood J. Melville Engle Charles H. Sherwood, Ph.D President, Chief Executive Officer EX-10.4 5 ex-10_4.txt EXHIBIT 10.4 EXHIBIT 10.4 ANIKA THERAPEUTICS, INC. CHANGE IN CONTROL, BONUS AND SEVERANCE AGREEMENT AGREEMENT made as of April 26, 2000 by and among Anika Therapeutics, Inc., a Massachusetts corporation with its principal place of business in Woburn, Massachusetts (the "Company"), and Charles H. Sherwood of Sudbury, Massachusetts (the "Executive"), an individual presently employed as the Vice President of Research and Development of the Company. 1. PURPOSE. The Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. The Board of Directors of the Company (the "Board") recognizes, however, that, as is the case with many publicly held corporations, the possibility of a Change in Control (as defined in Section 2 hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Therefore, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Nothing in this Agreement shall be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 2. CHANGE IN CONTROL. A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the Company, any of its subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 51% or more of the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors ("Voting Securities"); or (b) persons who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Agreement, be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate 51% of the voting shares of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate voting power represented by the Voting Securities beneficially owned by any person to 51% or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a share split, stock dividend or similar transaction or direct purchase from the Company), then a "Change in Control" shall be deemed to have occurred for purposes of the foregoing clause (a). 3. TERMINATING EVENT. A "Terminating Event" shall mean any of the events provided in this Section 3 occurring within twelve (12) months subsequent to a Change in Control as defined in Section 2: (a) termination by the Company of the employment of the Executive with the Company for any reason other than for Cause or the death of the Executive. "Cause" shall mean, and shall be limited to, the occurrence of any one or more of the following events: (i) a willful act of dishonesty by the Executive with respect to any matter involving the Company; (ii) conviction of the Executive of a crime involving moral turpitude; or 2 (iii) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform the Executive's duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of written notice specifying the scope and nature of such failure and its intention to terminate the Executive for Cause. A Terminating Event shall not be deemed to have occurred pursuant to this Section 3(a) solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company following a Change in Control. (b) termination by the Executive of the Executive's employment with the Company for Good Reason. "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Executive's responsibilities or duties from the responsibilities or duties exercised by the Executive immediately prior to the Change in Control, it being understood by the parties hereto, that so long as the Executive retains primary research, development and engineering responsibilities for the business conducted by Anika immediately prior to the Change in Control, Good Reason shall not exist under this Section 3(b)(i); or (ii) a reduction in the Executive's annual base salary and/or benefits as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary and/ or benefits reductions similarly affecting all or substantially all management employees. For purposes of this Section 3, unless the context otherwise requires, Company shall mean the Company or any successor thereto or to the business thereof in a transaction involving a Change in Control. 4. SPECIAL TERMINATION PAYMENTS. In the event a Terminating Event occurs within twelve (12) months after a Change in Control in lieu of any payments under the Employment Letter (as hereinafter defined), (a) the Company shall pay to the Executive, in addition to the payment, if any, required by Section 5, an amount equal to 100% of the Executive's annual salary as in effect immediately prior to the Change in Control, said amount shall be paid in 3 one lump sum payment no later than thirty-one (31) days following the Date of Termination (as such term is defined in Section 9(b)); and (b) the Company shall continue to provide health, dental, long-term disability, life insurance and other fringe benefits to the Executive, on the same terms and conditions (including any required co-payments) as though the Executive had remained an active employee, for twelve (12) months; and (c) the Company shall provide COBRA benefits to the Executive following the end of the period referred to in Section 4(c) above, such benefits to be determined as though the Executive's employment had terminated at the end of such period. 5. PAYMENT UPON EFFECTIVE DATE OF CHANGE IN CONTROL. Upon the effective date of a Change in Control, regardless of whether a Terminating Event has occurred, in addition to any other payment required by Section 4, the Company shall pay the Executive an amount in cash representing fifty percent (50%) of the Executive's annual salary as in effect immediately prior to the Change in Control. Said amount shall be paid in one lump sum payment no later than thirty-one (31) days following the effective date of a Change in Control. 6. CERTAIN LIMITATIONS. It is the intention of the Executive and of the Company that no payments by the Company to or for the benefit of the Executive under this Agreement or any other agreement or plan, if any, pursuant to which the Executive is entitled to receive payments or benefits shall be nondeductible to the Company by reason of the operation of Section 280G of the Code relating to parachute payments or any like statutory or regulatory provision. Accordingly, and notwithstanding any other provision of this Agreement or any such agreement or plan, if by reason of the operation of said Section 280G or any like statutory or regulatory provision, any such payments exceed the amount which can be deducted by the Company, such payments shall be reduced to the maximum amount which can be deducted by the Company. To the extent that payments exceeding such maximum deductible amount have been made to or for the benefit of the Executive, such excess payments shall be refunded to the Company with interest thereon at the applicable Federal rate determined under Section 1274(d) of the Code, compounded annually, or at such other rate as may be required in order that no such payments shall be nondeductible to the Company by reason of the operation of said Section 280G or any like statutory or regulatory provision. To the extent that there is more than one method of reducing the payments to bring them within the limitations of said Section 280G or any like statutory or regulatory provision, the Executive shall determine which method shall be followed, provided that if the Executive fails to make such determination within forty-five (45) days after the Company has given notice of the need for such reduction, the Company may determine the method of such reduction in its sole discretion. 4 7. TERM. This Agreement shall take effect on the date first set forth above and shall terminate upon the earliest of (a) the termination by the Company of the employment of the Executive for Cause; (b) the cessation of the Executive's employment with the Company for any reason or the resignation or termination of the Executive for any reason, in each case, prior to a Change in Control; or (c) the resignation of the Executive after a Change in Control for any reason other than for Good Reason. 8. WITHHOLDING. All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law. 9. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC. (a) Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 9. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (exclusive of the Executive) at a meeting of the Board (after reasonable notice to the Executive and an opportunity for the Executive, accompanied by the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the termination met the criteria for Cause set forth in Section 3(a) hereof. (b) Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean the date specified in the Notice of Termination. In the case of a termination by the Company other than a termination for Cause (which may be effective immediately), the Date of Termination shall not be less than 30 days after the Notice of Termination is given. In the case of a termination by the Executive, the Date of Termination shall not be less than 15 days from the date such Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a second Terminating Event for purposes of Section 3(a) of this Agreement. (c) No Mitigation. The Company agrees that, if the Executive's employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce 5 any amounts payable to the Executive by the Company pursuant to Sections 4 and 5 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. (d) Mediation of Disputes. The parties shall endeavor in good faith to settle within 90 days any controversy or claim arising out of or relating to this Agreement or the breach thereof through mediation with J.A.M.S./Endispute or similar organizations. If the controversy or claim is not resolved within 90 days, the parties shall be free to pursue other legal remedies in law or equity. 10. ASSIGNMENT; PRIOR AGREEMENTS; NON-SOLICITATION. Except for an assignment by the Company in connection with a Change in Control in which the successor, if other than the Company, shall assume and agree to perform this Agreement in writing, neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party, and without such consent any attempted transfer shall be null and void and of no effect. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. In the event of the Executive's death after a Terminating Event but prior to the completion by the Company of all payments due him under Sections 4 and 5 of this Agreement, the Company shall continue such payments to the Executive's beneficiary designated in writing to the Company prior to his death (or to his estate, if the Executive fails to make such designation). This Agreement supercedes all prior Agreements, whether written or oral with respect to the subject matter hereof. Notwithstanding the foregoing: (A) that certain Employment Letter dated April 15, 1998 by and between the Company and the Executive, (the "Employment Letter"), shall govern any termination of the Executive's employment with the Company (i) prior to the effective date of a Change in Control or (ii) following the expiration of twelve (12) months after a Change in Control; this Agreement shall govern in the event of any termination of Executive's employment with the Company within twelve (12) months after a Change in Control; and (B) that certain Non-Disclosure and Non-Competition Agreement of May 4, 1998 by and between Executive and the Company shall remain in full force and effect in accordance with its terms. Executive covenants to the Company that during his employment with the Company and until one (1) year from the date he is no longer employed by the Company, any affiliate thereof or any successor thereto, he will not in any manner, on his own behalf, or as a partner, officer, director, employee, agent or entity, directly or indirectly, induce or attempt to influence any person serving as an employee of the Company or any successor thereto to leave its employ or hire any such person. 6 11. ENFORCEABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 13. NOTICES. Any notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors. 14. EFFECT ON OTHER PLANS. Except as provided in Section 10 hereof, nothing in this Agreement shall be construed to limit the rights of the Executive under the Company's benefit plans, programs or policies. 15. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company. 16. GOVERNING LAW. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts. 17. OBLIGATIONS OF SUCCESSORS. In addition to any obligations imposed by law upon any successor to the Company, the Company will use its commercially reasonable efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 7 IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company by their duly authorized officers and by the Executive, as of the date first above written. COMPANY: ANIKA THERAPEUTICS, INC. By: /s/ J. MELVILLE ENGLE ---------------------------------------- J. Melville Engle President and Chief Executive Officer EXECUTIVE: /s/ CHARLES H. SHERWOOD ---------------------------------------- Charles H. Sherwood
EX-10.5 6 ex-10_5.txt EXHIBIT 10.5 EXHIBIT 10.5 March 30, 2000 Douglas R. Potter 193 Mystic Street Arlington, MA 02474-1147 Dear Doug, I am pleased to present our offer to you to join Anika Therapeutics, Inc. as an employee. The terms of our offer for your employment with the Company, subject to approval by the Compensation Committee of the Board of Directors, are outlined below: Position: Vice President, Finance and Chief Financial Officer Description of Duties: You will have full, direct control, authority, and responsibility for the implementation of the portions of the Anika Therapeutics Strategic Plan directly related to the financial operations of the Company. You will have shared responsibility for implementation of the Company's Information System strategies. You will direct budgeting, audit, insurance, banking, and legal efforts for Anika. You will be responsible for financial plans and policies, accounting practices and procedures, and SEC compliance. You will be responsible for investor and public relations at the Company. Reporting to: Mel Engle, Chairman and Chief Executive Officer Employment Date: April 1, 2000 Work Week: The standard work week is Monday through Friday. Rate of Pay: $13,750 per month to be reviewed annually. It is understood that paychecks will be issued on alternating Fridays. Sign-On Bonus: You will receive a $10,000 signing bonus when you join the Company. You agree to repay this amount if you resign from Anika within 12 months of your first day of employment. Management Bonus Plan: The Management Bonus Plan provides for 20% of salary for an "at Plan" performance. Bonuses are paid based upon successful accomplishment of Company and personal performance objectives ("MBO's"). In accordance with the Management Bonus Plan, you will be eligible for a pro rata bonus for the year 2000, payable in January 2001. The bonus payment is at the sole discretion of Anika's Board of Directors. A copy of the 1999 Bonus Formula for Senior Team is included in your offer package. Douglas R. Potter March 30, 2000 Page 2 Stock Options: You will be granted an option on 75,000 shares of common stock of the Company, subject to approval by the Compensation Committee of the Board of Directors. The stock option grant vests in equal installments over four years, subject to your continued employment. The exercise price of the option will be determined on the earliest date provided for in the Company's stock option plan, usually the date of your hire. Benefits: You will be eligible to participate in the Anika employee benefit program upon completion of 30 days of active regular employment. This program currently covers comprehensive medical and dental benefits, life and disability insurances, supplemental disability insurance, and a Section 125 Plan. You will be eligible to participate in our 401(k) Savings and Investment Plan at the first enrollment date following your date of hire. Under the current terms, the 401(k) plan entitles you to contribute up to the maximum limit established by the IRS. The Company will match 100% of your contribution to the plan up to 5% of your salary. Your participation in the benefit plans will be governed by and subject to the plan terms as described in the official plan documents and the Summary Plan Descriptions. Vacation: You will accrue three weeks of vacation during your first year of employment and are subject to the terms for accrual and use set forth in Anika's policies. Presently, the policy allows the accrual of one additional day of vacation for each year of employment up to a maximum of four weeks. Severance in the Event of Termination: Termination without Cause (non-performance related): (1) Anika may terminate your employment without cause at any time and for any reason by giving you written notice at least thirty (30) days in advance of the date on which the termination is to become effective. (2) If Anika terminates your employment without "cause", Anika will continue your base salary at its then current rate for six months, subject to your compliance with your obligations under your other agreements with the Company and your cooperation with any other reasonable requests by Anika for assistance during that period. In addition, in such circumstances the Company will also pay the premiums for continuation of medical and dental benefits under COBRA for you and your family for six months after termination of your employment (or until the end of COBRA eligibility, if earlier), subject to your payment of the active employee share of premium payments for such coverage. Termination for Cause: Anika may terminate your employment at any time for cause by delivering to you a certified copy of a resolution of the Board of Directors of Anika finding that you committed an act or omission constituting cause hereunder and specifying the particulars thereof in detail, adopted at a meeting called and held for that purpose and of which you were provided not less than seven (7) days advance notice, including notice of the agenda of such meeting. As used herein, the term "cause" shall mean: (1) conviction of a felony involving the Company; (2) acting in a manner which is materially detrimental or materially damaging to the Company's reputation or business operations other than actions which involve your bad judgment or a decision which was taken in good faith, provided that you shall have failed to remedy such action within ten (10) days after receiving written notice of the Company's position with respect to such action; or (3) committing any material breach of this agreement, provided that, if such breach is capable of being remedied, you shall have failed to remedy such breach within ten (10) days after your receipt of written notice requesting that you remedy such breach. 2 Douglas R. Potter March 30, 2000 Page 3 Change in Control, Bonus, and Severance Agreement: Subject to approval by the Compensation Committee of the Board of Directors, an agreement between you and Anika Therapeutics, Inc. shall be executed providing terms pertaining to Change in Control. The purpose of this agreement is to reinforce and encourage your continued attention and dedication to your assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Arbitration: In the event of any controversy or claim arising out of or relating to this letter agreement or otherwise arising out of your employment or the termination of that employment (including, without limitation, any claims of unlawful employment discrimination whether based on age or otherwise), that controversy or claim shall, to the fullest extent permitted by law, be settled by arbitration under the auspices of the American Arbitration Association ("AAA") in Boston, Massachusetts in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of arbitrators (or alternatively, in any other forum or in any other form agreed upon by the parties). In the event that any person or entity other than you or Anika may be a party with regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person or entity's agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. This provision shall be specifically enforceable. Notwithstanding the foregoing, this provision shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate; provided that any other relief shall be pursued through an arbitration proceeding pursuant to this provision. Contingency: This offer is contingent upon your execution of the Company's Non-Disclosure and Non-Competition Agreement as an employee of Anika Therapeutics. You, like everyone else at Anika, will be an at-will employee. The terms of your employment will be interpreted in accordance with and governed by the laws of The Commonwealth of Massachusetts. This offer is premised on your representation that you are not subject to any confidentiality or non-competition agreement or any other similar type of restriction that would affect your ability to devote your full time and attention to your work at Anika Therapeutics, Inc. You will be required to provide evidence that you are a U.S. citizen or national, a lawful permanent resident, or an alien authorized to work in the U.S. Proof of eligibility for employment will be required upon employment. 3 Douglas R. Potter March 30, 2000 Page 4 If the terms of this offer are acceptable, please indicate your acceptance by signing both copies of this letter and the non-disclosure agreement and return one copy of each to Claudia McNair, Director of Human Resources. I am enthusiastic about Anika's future prospects and look forward to your leadership and contribution to the Anika team. Sincerely, J. Melville Engle Chairman and Chief Executive officer Agreed and accepted: /s/ Douglas R. Potter - ----------------------- Douglas R. Potter Date: 3/31/00 ------------------ Enclosures 4 EX-10.6 7 ex-10_6.txt EXHIBIT 10.6 EXHIBIT 10.6 ANIKA THERAPEUTICS, INC. NON-DISCLOSURE AND NON-COMPETITION AGREEMENT EMPLOYEE I, Douglas R. Potter, (the "Employee"), in consideration of my employment, the continuation of my employment, and the salary and wages to be paid to me, do hereby agree with Anika Therapeutics, Inc., a Massachusetts corporation (the "Company"), as follows: 1. All documents including, but not limited to, correspondence, memoranda, plans, proposals, customer lists, marketing and sales plans, reports and drawings, formulations, designs, samples, prototypes, tools and equipment, and all other tangible and intangible materials whatsoever, that concern the Company's business and that come into my possession are the property of the Company and shall be used by me only in the performance of my duties for the Company. I will not remove from the Company's premises any such tangible items or copies thereof except as the Company permits and, upon the earlier of the termination of my employment or a request by the Company, any and all such items in my custody or possession and all copies thereof will be returned to the Company. 2. For the purposes of this agreement: a. "Inventions" shall include, but not be limited to, any procedures, systems, machines, methods, processes, uses, apparatuses, compositions of matter, designs, drawings, configurations, software and works of authorship of any kind, and any improvements to them which are discovered, conceived, reduced to practice, developed, made or produced, and shall not be limited by the meaning of "invention" under the laws of any country concerning patents. b. "Proprietary Information" means all information and know-how, whether or not in writing, of a private, secret, or confidential nature concerning the Company's business or financial affairs, including, without limitation, inventions, products, processes, methods, techniques, formulas, compositions, compounds, projects, developments, plans, research data, clinical data, financial data, personnel data, computer programs, and customer and supplier lists. 1 c. "Competing Products" means any products or processes of any person or organization other than the Company in existence or under development, which are substantially the same, may be substituted for, or applied to substantially the same end use as the products or processes with which I work during the time of my employment with the Company or about which I acquire confidential information through my work with the Company. d. "Competing Organization" means any person or organization engaged in, or about to become engaged in, research or development, production, distribution, marketing, or selling of a Competing Product. 3. I agree that all Proprietary Information is and shall be the exclusive property of the Company. I will regard and preserve as confidential all Proprietary Information which may be obtained by me. I will not, at any time, without express written authority from the Company, use for any unauthorized purposes, or disclose to others, either during my employment or thereafter, except as required by my employment with the Company, any Proprietary Information, unless and until such Proprietary Information has become public knowledge without fault by me. 4. I agree that my obligation not to disclose or to use information, know-how, and records of the types set forth in paragraphs 1 and 3 above, and my obligation to return records and tangible property, set forth in paragraph 1 above, also extends to such types of information, know-how, records, and tangible property of customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to me in the course of the Company's business. 5. All Inventions, whether patentable or not, which are related to the present or planned business of the Company conceived or reduced to practice by me, either alone or with others, during the period of my employment with the Company or during a period of ninety (90) days after termination of such employment, whether or not done during my regular working hours, are the exclusive property of the Company. 6. I will disclose promptly, in writing, to the Company all such inventions, whether patentable or not, and I agree to assign and do hereby assign to the Company or its nominee my entire right, title, and interest in and to such Inventions. Except to the extent that I may be authorized by the Company, I will not disclose any such Inventions to others without the prior written consent of the Company. 2 7. I will, at any time during or after my employment on request of the Company, execute specific assignments in favor of the Company or its nominee of my interest in any such Inventions, as well as execute all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, render all assistance, and perform all lawful acts the Company considers necessary or advisable for the protection of its rights and interests in any Invention. 8. I have disclosed to the Company on the attached Schedule A any continuing obligations I have with respect to the assignment of Inventions to any previous employers, and I claim no previous unpatented Inventions as my own, except as shown on a schedule attached hereto and signed by me (if none, so state). I further represent that, except as I have disclosed in writing to the Company or Schedule A hereto, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. I further represent that my performance of all the terms of this agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge, or data acquired by me in confidence or in trust prior to my employment with the Company, and I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others. 3 9. I understand that information regarding the Company and its affiliates including, without limitation, Proprietary Information, is considered confidential to the Company and is of substantial commercial value to the Company. Any entrusting of such confidential information to me by the Company is done so in reliance upon the confidential relationship arising from the terms of my employment with the Company. Therefore, in consideration of my employment with the Company, I agree that I will not render services of any nature, directly or indirectly, to any Competing Organization in connection with any Competing Product within such geographic territory as the Company and such Competing Organization are or would be in actual competition, for a period of one year, commencing on the date of termination of my employment. I understand that services rendered to such Competing Organization may have the effect of supporting actual competition in various geographic areas, and may be prohibited by this agreement regardless of the geographic area in which such services are physically rendered. The Company may, in its sole discretion, elect to waive, in whole or in part, the obligation set forth in the previous sentence, such waiver to be effective only if given in writing by the Company. 10. I understand that the misappropriation of Proprietary Information may be theft as defined by law punishable by a fine or imprisonment or both and could make me liable for damages or subject to an injunction in a civil lawsuit. 11. The provisions of this agreement shall be severable and in the event that any provision hereof shall be found by any court to be unenforceable, in whole or in part, the remainder of this agreement shall nevertheless be enforceable and binding on the parties. 12. I understand that this agreement does not constitute a contract of employment and does not imply that my employment will continue for any period of time. 13. This agreement will be binding upon my heirs, executors, and administrators and will inure to the benefit of the Company and its successors and assigns. 14. No delay or omission by the Company in exercising any right under this agreement will operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion. 4 15. I expressly consent to be bound by the provisions of this agreement for the benefit of the Company or any subsidiary or affiliate thereof to whose employ I may be transferred without the necessity that this agreement be re-signed at the time of such transfer. 16. I understand and agree that this agreement shall be interpreted under and governed by the laws of the Commonwealth of Massachusetts. 17. The foregoing sets forth the entire agreement between the parties and the signatories acknowledge that no representations, written or oral, have been made in addition to, or in derogation of, the terms hereof. /s/ Douglas R. Potter --------------------- Douglas R. Potter ACCEPTED BY: Anika Therapeutics, Inc. At Woburn, Massachusetts This 3rd day of April, 2000 FOR ANIKA THERAPEUTICS, INC. /s/ Claudia J. McNair - --------------------- Representative 5 ANIKA THERAPEUTICS, INC. NON-DISCLOSURE AND NON-COMPETITION AGREEMENT SCHEDULE A 6 EX-10.7 8 ex-10_7.txt EXHIBIT 10.7 EXHIBIT 10.7 ANIKA THERAPEUTICS, INC. CHANGE IN CONTROL, BONUS AND SEVERANCE AGREEMENT AGREEMENT made as of April 26, 2000 by and among Anika Therapeutics, Inc., a Massachusetts corporation with its principal place of business in Woburn, Massachusetts (the "Company"), and Douglas R. Potter of Arlington, Massachusetts (the "Executive"), an individual presently employed as the Chief Financial Officer, Vice President of Finance, Treasurer and Clerk of the Company. 1. PURPOSE. The Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. The Board of Directors of the Company (the "Board") recognizes, however, that, as is the case with many publicly held corporations, the possibility of a Change in Control (as defined in Section 2 hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Therefore, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Nothing in this Agreement shall be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 2. CHANGE IN CONTROL. A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the Company, any of its subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 51% or more of the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors ("Voting Securities"); or (b) persons who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Agreement, be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate 51% of the voting shares of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate voting power represented by the Voting Securities beneficially owned by any person to 51% or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a share split, stock dividend or similar transaction or direct purchase from the Company), then a "Change in Control" shall be deemed to have occurred for purposes of the foregoing clause (a). 3. TERMINATING EVENT. A "Terminating Event" shall mean any of the events provided in this Section 3 occurring within twelve (12) months subsequent to a Change in Control as defined in Section 2: (a) termination by the Company of the employment of the Executive with the Company for any reason other than for Cause or the death of the Executive. "Cause" shall mean, and shall be limited to, the occurrence of any one or more of the following events: (i) a willful act of dishonesty by the Executive with respect to any matter involving the Company; (ii) conviction of the Executive of a crime involving moral turpitude; or 2 (iii) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform the Executive's duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of written notice specifying the scope and nature of such failure and its intention to terminate the Executive for Cause. A Terminating Event shall not be deemed to have occurred pursuant to this Section 3(a) solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company following a Change in Control. (b) termination by the Executive of the Executive's employment with the Company for Good Reason. "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Executive's responsibilities or duties from the responsibilities or duties exercised by the Executive immediately prior to the Change in Control, it being understood by the parties hereto, that so long as the Executive retains primary financial and accounting responsibilities for the business conducted by Anika immediately prior to the Change in Control, Good Reason shall not exist under this Section 3(b)(i); or (ii) a reduction in the Executive's annual base salary and/or benefits as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary and/ or benefits reductions similarly affecting all or substantially all management employees. For purposes of this Section 3, unless the context otherwise requires, Company shall mean the Company or any successor thereto or to the business thereof in a transaction involving a Change in Control. 4. SPECIAL TERMINATION PAYMENTS. In the event a Terminating Event occurs within twelve (12) months after a Change in Control in lieu of any payments under the Employment Letter (as hereinafter defined), (a) the Company shall pay to the Executive, in addition to the payment, if any, required by Section 5, an amount equal to 100% of the Executive's annual salary as in effect immediately prior to the Change in Control, said amount shall be paid in 3 one lump sum payment no later than thirty-one (31) days following the Date of Termination (as such term is defined in Section 9(b)); and (b) the Company shall continue to provide health, dental, long-term disability, life insurance and other fringe benefits to the Executive, on the same terms and conditions (including any required co-payments) as though the Executive had remained an active employee, for twelve (12) months; and (c) the Company shall provide COBRA benefits to the Executive following the end of the period referred to in Section 4(c) above, such benefits to be determined as though the Executive's employment had terminated at the end of such period. 5. PAYMENT UPON EFFECTIVE DATE OF CHANGE IN CONTROL. Upon the effective date of a Change in Control, regardless of whether a Terminating Event has occurred, in addition to any other payment required by Section 4, the Company shall pay the Executive an amount in cash representing fifty percent (50%) of the Executive's annual salary as in effect immediately prior to the Change in Control. Said amount shall be paid in one lump sum payment no later than thirty-one (31) days following the effective date of a Change in Control. 6. CERTAIN LIMITATIONS. It is the intention of the Executive and of the Company that no payments by the Company to or for the benefit of the Executive under this Agreement or any other agreement or plan, if any, pursuant to which the Executive is entitled to receive payments or benefits shall be nondeductible to the Company by reason of the operation of Section 280G of the Code relating to parachute payments or any like statutory or regulatory provision. Accordingly, and notwithstanding any other provision of this Agreement or any such agreement or plan, if by reason of the operation of said Section 280G or any like statutory or regulatory provision, any such payments exceed the amount which can be deducted by the Company, such payments shall be reduced to the maximum amount which can be deducted by the Company. To the extent that payments exceeding such maximum deductible amount have been made to or for the benefit of the Executive, such excess payments shall be refunded to the Company with interest thereon at the applicable Federal rate determined under Section 1274(d) of the Code, compounded annually, or at such other rate as may be required in order that no such payments shall be nondeductible to the Company by reason of the operation of said Section 280G or any like statutory or regulatory provision. To the extent that there is more than one method of reducing the payments to bring them within the limitations of said Section 280G or any like statutory or regulatory provision, the Executive shall determine which method shall be followed, provided that if the Executive fails to make such determination within forty-five (45) days after the Company has given notice of the need for such reduction, the Company may determine the method of such reduction in its sole discretion. 4 7. TERM. This Agreement shall take effect on the date first set forth above and shall terminate upon the earliest of (a) the termination by the Company of the employment of the Executive for Cause; (b) the cessation of the Executive's employment with the Company for any reason or the resignation or termination of the Executive for any reason, in each case, prior to a Change in Control; or (c) the resignation of the Executive after a Change in Control for any reason other than for Good Reason. 8. WITHHOLDING. All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law. 9. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC. (a) Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 9. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (exclusive of the Executive) at a meeting of the Board (after reasonable notice to the Executive and an opportunity for the Executive, accompanied by the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the termination met the criteria for Cause set forth in Section 3(a) hereof. (b) Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean the date specified in the Notice of Termination. In the case of a termination by the Company other than a termination for Cause (which may be effective immediately), the Date of Termination shall not be less than 30 days after the Notice of Termination is given. In the case of a termination by the Executive, the Date of Termination shall not be less than 15 days from the date such Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a second Terminating Event for purposes of Section 3(a) of this Agreement. (c) No Mitigation. The Company agrees that, if the Executive's employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce 5 any amounts payable to the Executive by the Company pursuant to Sections 4 and 5 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. (d) Mediation of Disputes. The parties shall endeavor in good faith to settle within 90 days any controversy or claim arising out of or relating to this Agreement or the breach thereof through mediation with J.A.M.S./Endispute or similar organizations. If the controversy or claim is not resolved within 90 days, the parties shall be free to pursue other legal remedies in law or equity. 10. ASSIGNMENT; PRIOR AGREEMENTS; NON-SOLICITATION. Except for an assignment by the Company in connection with a Change in Control in which the successor, if other than the Company, shall assume and agree to perform this Agreement in writing, neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party, and without such consent any attempted transfer shall be null and void and of no effect. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. In the event of the Executive's death after a Terminating Event but prior to the completion by the Company of all payments due him under Sections 4 and 5 of this Agreement, the Company shall continue such payments to the Executive's beneficiary designated in writing to the Company prior to his death (or to his estate, if the Executive fails to make such designation). This Agreement supercedes all prior Agreements, whether written or oral with respect to the subject matter hereof. Notwithstanding the foregoing: (A) that certain Employment Letter dated March 30, 2000 by and between the Company and the Executive, (the "Employment Letter"), shall govern any termination of the Executive's employment with the Company (i) prior to the effective date of a Change in Control or (ii) following the expiration of twelve (12) months after a Change in Control; this Agreement shall govern in the event of any termination of Executive's employment with the Company within twelve (12) months after a Change in Control; and (B) that certain Non-Disclosure and Non-Competition Agreement of April 3, 2000 by and between Executive and the Company shall remain in full force and effect in accordance with its terms. Executive covenants to the Company that during his employment with the Company and until one (1) year from the date he is no longer employed by the Company, any affiliate thereof or any successor thereto, he will not in any manner, on his own behalf, or as a partner, officer, director, employee, agent or entity, directly or indirectly, induce or attempt to influence any person serving as an employee of the Company or any successor thereto to leave its employ or hire any such person. 6 11. ENFORCEABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 13. NOTICES. Any notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors. 14. EFFECT ON OTHER PLANS. Except as provided in Section 10 hereof, nothing in this Agreement shall be construed to limit the rights of the Executive under the Company's benefit plans, programs or policies. 15. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company. 16. GOVERNING LAW. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts. 17. OBLIGATIONS OF SUCCESSORS. In addition to any obligations imposed by law upon any successor to the Company, the Company will use its commercially reasonable efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 7 IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company by their duly authorized officers and by the Executive, as of the date first above written. COMPANY: ANIKA THERAPEUTICS, INC. By: /s/ J. MELVILLE ENGLE ---------------------------------------- J. Melville Engle President and Chief Executive Officer EXECUTIVE: /s/ DOUGLAS R. POTTER ---------------------------------------- Douglas R. Potter
EX-10.8 9 ex-10_8.txt EXHIBIT 10.8 EXHIBIT 10.8 ANIKA THERAPEUTICS, INC. CHANGE IN CONTROL, BONUS AND SEVERANCE AGREEMENT AGREEMENT made as of April 26, 2000 by and among Anika Therapeutics, Inc., a Massachusetts corporation with its principal place of business in Woburn, Massachusetts (the "Company"), and Edward Ross, Jr., of Lexington, Massachusetts (the "Executive"), an individual presently employed as the Vice President of Sales and Marketing of the Company. 1. PURPOSE. The Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. The Board of Directors of the Company (the "Board") recognizes, however, that, as is the case with many publicly held corporations, the possibility of a Change in Control (as defined in Section 2 hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Therefore, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Nothing in this Agreement shall be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 2. CHANGE IN CONTROL. A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the Company, any of its subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 51% or more of the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors ("Voting Securities"); or (b) persons who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Agreement, be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate 51% of the voting shares of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate voting power represented by the Voting Securities beneficially owned by any person to 51% or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a share split, stock dividend or similar transaction or direct purchase from the Company), then a "Change in Control" shall be deemed to have occurred for purposes of the foregoing clause (a). 3. TERMINATING EVENT. A "Terminating Event" shall mean any of the events provided in this Section 3 occurring within twelve (12) months subsequent to a Change in Control as defined in Section 2: (a) termination by the Company of the employment of the Executive with the Company for any reason other than for Cause or the death of the Executive. "Cause" shall mean, and shall be limited to, the occurrence of any one or more of the following events: (i) a willful act of dishonesty by the Executive with respect to any matter involving the Company; (ii) conviction of the Executive of a crime involving moral turpitude; or 2 (iii) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform the Executive's duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of written notice specifying the scope and nature of such failure and its intention to terminate the Executive for Cause. A Terminating Event shall not be deemed to have occurred pursuant to this Section 3(a) solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company following a Change in Control. (b) termination by the Executive of the Executive's employment with the Company for Good Reason. "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Executive's responsibilities or duties from the responsibilities or duties exercised by the Executive immediately prior to the Change in Control, it being understood by the parties hereto, that so long as the Executive retains primary sales and marketing responsibilities for the business conducted by Anika immediately prior to the Change in Control, Good Reason shall not exist under this Section 3(b)(i); or (ii) a reduction in the Executive's annual base salary and/or benefits as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary and/ or benefits reductions similarly affecting all or substantially all management employees. For purposes of this Section 3, unless the context otherwise requires, Company shall mean the Company or any successor thereto or to the business thereof in a transaction involving a Change in Control. 4. SPECIAL TERMINATION PAYMENTS. In the event a Terminating Event occurs within twelve (12) months after a Change in Control in lieu of any payments under the Employment Letter (as hereinafter defined), (a) the Company shall pay to the Executive, in addition to the payment, if any, required by Section 5, an amount equal to 100% of the Executive's annual salary as in effect immediately prior to the Change in Control, said amount shall be paid in one lump sum payment no later than thirty-one (31) days following the Date of Termination (as such term is defined in Section 9(b)); and 3 (b) the Company shall continue to provide health, dental, long-term disability, life insurance and other fringe benefits to the Executive, on the same terms and conditions (including any required co-payments) as though the Executive had remained an active employee, for twelve (12) months; and (c) the Company shall provide COBRA benefits to the Executive following the end of the period referred to in Section 4(c) above, such benefits to be determined as though the Executive's employment had terminated at the end of such period. 5. PAYMENT UPON EFFECTIVE DATE OF CHANGE IN CONTROL. Upon the effective date of a Change in Control, regardless of whether a Terminating Event has occurred, in addition to any other payment required by Section 4, the Company shall pay the Executive an amount in cash representing fifty percent (50%) of the Executive's annual salary as in effect immediately prior to the Change in Control. Said amount shall be paid in one lump sum payment no later than thirty-one (31) days following the effective date of a Change in Control. 6. CERTAIN LIMITATIONS. It is the intention of the Executive and of the Company that no payments by the Company to or for the benefit of the Executive under this Agreement or any other agreement or plan, if any, pursuant to which the Executive is entitled to receive payments or benefits shall be nondeductible to the Company by reason of the operation of Section 280G of the Code relating to parachute payments or any like statutory or regulatory provision. Accordingly, and notwithstanding any other provision of this Agreement or any such agreement or plan, if by reason of the operation of said Section 280G or any like statutory or regulatory provision, any such payments exceed the amount which can be deducted by the Company, such payments shall be reduced to the maximum amount which can be deducted by the Company. To the extent that payments exceeding such maximum deductible amount have been made to or for the benefit of the Executive, such excess payments shall be refunded to the Company with interest thereon at the applicable Federal rate determined under Section 1274(d) of the Code, compounded annually, or at such other rate as may be required in order that no such payments shall be nondeductible to the Company by reason of the operation of said Section 280G or any like statutory or regulatory provision. To the extent that there is more than one method of reducing the payments to bring them within the limitations of said Section 280G or any like statutory or regulatory provision, the Executive shall determine which method shall be followed, provided that if the Executive fails to make such determination within forty-five (45) days after the Company has given notice of the need for such reduction, the Company may determine the method of such reduction in its sole discretion. 4 7. TERM. This Agreement shall take effect on the date first set forth above and shall terminate upon the earliest of (a) the termination by the Company of the employment of the Executive for Cause; (b) the cessation of the Executive's employment with the Company for any reason or the resignation or termination of the Executive for any reason, in each case, prior to a Change in Control; or (c) the resignation of the Executive after a Change in Control for any reason other than for Good Reason. 8. WITHHOLDING. All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law. 9. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC. (a) Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 9. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (exclusive of the Executive) at a meeting of the Board (after reasonable notice to the Executive and an opportunity for the Executive, accompanied by the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the termination met the criteria for Cause set forth in Section 3(a) hereof. (b) Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean the date specified in the Notice of Termination. In the case of a termination by the Company other than a termination for Cause (which may be effective immediately), the Date of Termination shall not be less than 30 days after the Notice of Termination is given. In the case of a termination by the Executive, the Date of Termination shall not be less than 15 days from the date such Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a second Terminating Event for purposes of Section 3(a) of this Agreement. (c) No Mitigation. The Company agrees that, if the Executive's employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce 5 any amounts payable to the Executive by the Company pursuant to Sections 4 and 5 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. (d) Mediation of Disputes. The parties shall endeavor in good faith to settle within 90 days any controversy or claim arising out of or relating to this Agreement or the breach thereof through mediation with J.A.M.S./Endispute or similar organizations. If the controversy or claim is not resolved within 90 days, the parties shall be free to pursue other legal remedies in law or equity. 10. ASSIGNMENT; PRIOR AGREEMENTS; NON-SOLICITATION. Except for an assignment by the Company in connection with a Change in Control in which the successor, if other than the Company, shall assume and agree to perform this Agreement in writing, neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party, and without such consent any attempted transfer shall be null and void and of no effect. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. In the event of the Executive's death after a Terminating Event but prior to the completion by the Company of all payments due him under Sections 4 and 5 of this Agreement, the Company shall continue such payments to the Executive's beneficiary designated in writing to the Company prior to his death (or to his estate, if the Executive fails to make such designation). This Agreement supercedes all prior Agreements, whether written or oral with respect to the subject matter hereof. Notwithstanding the foregoing: (A) that certain Employment Letter dated November 7, 1996 by and between the Company and the Executive, (the "Employment Letter"), shall govern any termination of the Executive's employment with the Company (i) prior to the effective date of a Change in Control or (ii) following the expiration of twelve (12) months after a Change in Control; this Agreement shall govern in the event of any termination of Executive's employment with the Company within twelve (12) months after a Change in Control; and (B) that certain Non-Disclosure and Non-Competition Agreement of December 3, 1996 by and between Executive and the Company shall remain in full force and effect in accordance with its terms. Executive covenants to the Company that during his employment with the Company and until one (1) year from the date he is no longer employed by the Company, any affiliate thereof or any successor thereto, he will not in any manner, on his own behalf, or as a partner, officer, director, employee, agent or entity, directly or indirectly, induce or attempt to influence any person serving as an employee of the Company or any successor thereto to leave its employ or hire any such person. 6 11. ENFORCEABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 13. NOTICES. Any notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors. 14. EFFECT ON OTHER PLANS. Except as provided in Section 10 hereof, nothing in this Agreement shall be construed to limit the rights of the Executive under the Company's benefit plans, programs or policies. 15. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company. 16. GOVERNING LAW. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts. 17. OBLIGATIONS OF SUCCESSORS. In addition to any obligations imposed by law upon any successor to the Company, the Company will use its commercially reasonable efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 7 IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company by their duly authorized officers and by the Executive, as of the date first above written. COMPANY: ANIKA THERAPEUTICS, INC. By: /s/ J. MELVILLE ENGLE ----------------------------------------- J. Melville Engle President and Chief Executive Officer EXECUTIVE: By: /s/ EDWARD ROSS, JR. ----------------------------------------- Edward Ross, Jr.
EX-27 10 ex-27.txt EXHIBIT 27
5 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 5,469,430 13,681,829 2,176,788 (61,159) 7,234,413 28,987,195 8,496,529 (5,032,638) 32,928,686 4,660,963 0 0 0 99,919 25,517,804 32,928,686 3,668,765 3,768,765 2,422,617 2,422,617 1,884,437 0 0 (208,548) 9,941 (218,489) 0 0 0 (218,489) (0.02) (0.02)
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