11.

Commitments and Contingencies

Leasing Arrangements

October 9, 2015,

our Italian subsidiary, Anika Therapeutics S.r.l. (“Anika S.r.l.”) entered into a build-to-suit lease agreement with Consorzio Zona Industriale E Porto Fluviale di Padova (“ZIP”) as landlord, pursuant to which Anika S.r.l. leases a new European headquarters facility, consisting of approximately

33,000

square feet of general office, research and development, training, and warehousing space located in Padova, Italy. The lease has an initial term of

fifteen

years, which commenced on

March 1, 2017.

The lease will automatically renew for up to

three

additional

six

-year terms, subject to certain terms and conditions. The Company has the ability to withdraw from this lease subject to certain financial penalties after

six

years and with

penalties after the

ninth

year. Beginning on the commencement date, the lease provides for an initial yearly rent of approximately

$0.3

million.

Construction of the new facility commenced during the

first

quarter of

2016.

During the period of construction, the Company was the deemed owner of the facility. Accordingly, the landlord's costs of constructing the facility were capitalized, as a non-cash transaction, offset by a corresponding facility lease obligation in the Company’s consolidated balance sheet. When the construction concluded on

March 1, 2017,

the Company removed the construction-in-process asset of

$3.1

million and related liability from its consolidated balance sheet. The Company commissioned ZIP for additional tenant improvements of

$0.8

million, which are recorded within Other long-term assets. The lease is accounted for as an operating lease based on the Company’s assessment of the applicable accounting principles.

Prior to

April 2017,

Anika S.r.l. leased approximately

28,000

square feet of laboratory, warehouse, and office space in Abano Terme, Italy that served as headquarters for Anika S.r.l. On

December 29, 2016

Anika S.r.l. notified the landlord of its intention to terminate the lease agreement as of

March 31, 2017.

Rental expense in connection with the various facility leases totaled

$1.8

million,

$1.3

million, and

$1.3

million for the years ended

December 31, 2017,

2016,

and

2015,

respectively. The increased expense in

2017

is primarily a result of finalizing the exercise of our

first

option under the lease to extend the terms from

November 1, 2017

through

October 31, 2022,

including the determination of a new annual base rent for the Company’s headquarters facility in Bedford, Massachusetts.

The Company’s future lease commitments as of

December

31,

2017

are as follows:

2018	$	1,879
2019		1,880
2020		1,916
2021		1,924
2022		1,673
2023 and thereafter		1,311
Total	$	10,583

Warranty and Guarantor Arrangements

In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company

may

also warrant that the products it manufactures do

not

infringe, violate or breach any U.S. patent or intellectual property rights, trade secret, or other proprietary information of any

third

party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligence or acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The Company has

accrued warranties at

December 31, 2017

2016,

respectively, and has

history of claims paid.

Legal Proceedings

The Company is involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of potential legal proceedings are inherently difficult to predict, the Company does

not

expect the resolution of potential legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.