12.

Equity Incentive Plan

The Anika Therapeutics, Inc. Stock Option and Incentive Plan, as amended, (the

“2003

Plan”) provides for grants of nonqualified and incentive stock options, common stock, RSA’s, RSU’s, and SAR’s to employees, directors, officers, and consultants. The

2003

Plan was originally approved by the Board of Directors on

April 4, 2003,

approved by the Company’s shareholders on

June 4, 2003,

and reserved

1,500,000

shares of common stock for grant pursuant to its terms.

May 29, 2009,

the Board of Directors approved changes to the

2003

Plan and adopted the Amended and Restated

2003

Stock Option and Incentive Plan (the “Amended

2003

Plan”) to increase the number of shares available to grant by

850,000.

The Amended

2003

Plan was approved by the Company’s shareholders on

June 5, 2009,

and it resulted in a total of

2,350,000

shares of common stock being reserved for issuance under the Amended

2003

Plan.

At the

2011

Annual Meeting of Stockholders on

June 7, 2011,

the shareholders of the Company approved the Anika Therapeutics, Inc. Second Amended and Restated Stock Option and Incentive Plan (the

“2003

Plan”), which, among other things, increased the number of shares reserved for issuance under the Company’s predecessor stock option and incentive plan by

800,000

3,150,000

shares. Pursuant to this amendment and restatement to the

2003

Plan approved by the Company’s shareholders, each share award issued after

June 7, 2011

other than stock options or SAR’s will reduce the number of total shares available for grant by

1.9

shares.

At the

2013

Annual Meeting of Stockholders on

June 18, 2013,

the shareholders of the Company approved an additional amendment to the Amended

2003

Plan, which, among other things, increased the number of shares reserved for issuance under the Company’s stock option and incentive plan by

650,000

3,800,000

shares. Pursuant to this amendment and restatement to the

2003

Plan approved by the Company’s shareholders, each share award issued after

June 18, 2013

other than stock options or SAR’s will reduce the number of total shares available for grant by

1.5

shares.

June 13, 2017,

the Company’s shareholders approved the Anika Therapeutics, Inc.

2017

Omnibus Incentive Plan (the

“2017

Plan”). The

2017

Plan replaced the

2003

Plan, as the plan under which future grants to employees, directors, officers, and consultants will be made. The

2017

Plan was originally approved by the Company’s Board of Directors on

March 31, 2017.

The terms of the

2017

Plan provide for the grant of incentive stock options, nonqualified stock options, SAR’s, RSA’s, RSU’s, and performance options that

may

be settled in cash, stock, or other property. In accordance with the

2017

Plan approved by the Company’s shareholders, each share award other than stock options or SAR’s will reduce the number of total shares available for grant by

2.0

shares. Subject to adjustment for specified types of changes in our capitalization,

more than

1.2

million shares of common stock

may

be issued under the

2017

Plan. There are

1.1

million shares available for future grant at

December

31,

2017.

The Company

may

satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly-issued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over

one

four

years.

The Company estimates the fair value of stock options and SAR’s using the Black-Scholes valuation model. Fair value of restricted stock is measured by the grant-date price of the Company’s shares. Key input assumptions used to estimate the fair value of stock options and SAR’s include the exercise price of the award, the expected award term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the award’s expected term, and the Company’s expected annual dividend yield.

The expected volatility assumption is evaluated against the historical volatility of the Company’s common stock over a

four

-year average, and it is adjusted if there are material changes in historical volatility. The risk-free interest rate assumption is based on U.S. Treasury interest rates at the time of grant.

The fair value of each stock option during

2017,

2016,

and

2015

was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	2017			2016			2015
Risk free interest rate	1.60%	-	1.86%	0.94%	-	1.55%	1.15%	-	1.46%
Expected volatility	38.74%	-	44.31%	47.33%	-	51.61%	53.15%	-	54.65%
Expected life (years)		4.0			4.5			4.5
Expected dividend yield		0.00%			0.00%			0.00%

Stock Options and Restricted Stock

During the year ended

December 31, 2017,

a total of

85,109

stock options and

26,306

RSA’s were granted under the

2017

Plan, and a total of

407,635

stock options were granted under the

2003

Plan. The stock options granted to employees become exercisable or vest ratably over a

three

-year period. In

January 2017,

the Company executed its annual grant under the

2003

Plan of

9,970

RSU’s to non-employee directors; these RSU’s vest over a

one

-year period.

The Company recorded

$5.8

million,

$3.4

million, and

$2.2

million of stock-based compensation expense for the years ended

December

31,

2017,

2016,

and

2015,

respectively, for stock options, SAR’s, RSA’s and RSU’s. The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows:

	2017		2016		2015
Cost of product revenue	$	439	$	148	$	42
Research & development		564		467		269
Selling, general & administrative		4,804		2,777		1,914
Total stock-based compensation expense	$	5,807	$	3,392	$	2,225

Combined stock options and SAR’s activity under the Company’s plans is summarized as follows for the years ended

December

31,

2017

and

2016,

respectively:

	2017					2016
				Weighted					Weighted
				Average					Average
				Exercise					Exercise
	Number of			Price Per		Number of			Price Per
	Shares			Share		Shares			Share
Options and SAR's outstanding at beginning of year		979,569		$	26.15		762,260		$	18.75
Granted		440,688		$	50.22		354,275		$	40.77
Cancelled		(74,527	)	$	45.56		(58,841	)	$	30.05
Expired		(589	)	$	32.86		(3,310	)	$	11.37
Exercised		(17,941	)	$	20.56		(74,815	)	$	15.46
Options and SAR's outstanding at end of year		1,327,200		$	33.70		979,569		$	26.15

All the

1,327,200

stock options and SAR’s outstanding at

December 31, 2017

are vested or are expected to vest, with a weighted-average exercise price of

$33.70

as well as an aggregate intrinsic value of

$27.6

million related to these awards. The weighted average remaining contractual term of the vested and expected to vest stock options and SAR’s was

7.0

years as of

December

31,

2017.

As of

December 31, 2017,

total unrecognized compensation costs related to non-vested stock options and SAR’s was approximately

$7.6

million and is expected to be recognized over a weighted average period of

2.1

years.

The exercisable options and SAR’s at

December 31, 2017

are as follows:

	Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Term (in years)
Incentive stock options		182,472	$	14.12		4.3
Nonqualified stock options		374,211	$	20.18		5.3
Performance options		32,598	$	38.79		7.7
SAR's		35,250	$	6.36		2.1

The aggregate intrinsic value of stock options and SAR’s fully vested at

December

31,

2017

and

2016

was

$22.0

million and

$16.7

million, respectively. The aggregate intrinsic value of stock options and SAR’s outstanding at

December

31,

2017

and

2016

was

$27.6

million and

$22.3

million, respectively.

The total intrinsic value of stock options and SAR’s exercised was

$0.5

million and

$2.1

million for the years ended

December

31,

2017

and

2016,

respectively.

The total fair value of stock options and SAR’s vested during the years ended

December

31,

2017

and

2016

was approximately

$2.1

and

$1.3

million, respectively.

The Company received

$0.3

million and

$1.0

million for exercises of stock options during the years ended

December

31,

2017

and

2016,

respectively.

The RSA and RSU activity for the years ended

December

31,

2017

and

2016

is as follows:

	2017					2016
				Weighted					Weighted
				Average					Average
	Number of			Grant Date		Number of			Grant Date
	Shares			Fair Value		Shares			Fair Value
Unvested at Beginning of year		207,077		$	36.44		150,384		$	34.29
Granted		67,567		$	52.03		87,158		$	38.11
Cancelled		-		$	-		(4,950	)	$	36.20
Expired		-		$	-		-		$	-
Vested/Released		(45,418	)	$	35.32		(25,515	)	$	33.35
Unvested at end of year		229,226		$	42.47		207,077		$	36.44

The total fair value of RSA’s and RSU’s vested during the years ended

December 31, 2017

and

2016

was

$2.3

million and

$1.0

million.