13.

Equity Incentive Plan

The Anika Therapeutics, Inc.

2017

Omnibus Incentive Plan (the

“2017

Plan”) was approved by the Company’s stockholders on

June 13, 2017

and provides for the grant of incentive stock options, nonqualified stock options, SARs, RSAs, RSUs, and performance options that

may

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

2017

Plan approved by the Company’s stockholders, 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 the Company’s capitalization,

more than

1.2

million shares of common stock

may

be issued under the

2017

Plan. There are

0.9

million shares available for future grant at

December

31,

2018.

The

2017

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

“2003

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

2003

Plan provide for grants of nonqualified and incentive stock options, common stock, RSAs, RSUs, and SARs to employees, directors, officers, and consultants. The

2003

Plan was approved by the Company’s stockholders on

June 4, 2003

and subsequently amended by the Board of Directors on

May 29, 2009

and by the Company’s stockholders on

June 7, 2011

and

June 18, 2013

to increase the number of shares reserved for issuance. Pursuant to the

2011

amendment, each share award issued after

June 7, 2011,

other than stock options or SARs, reduced the number of total shares available for grant by

1.9

shares. Pursuant to the

2013

amendment, each share award issued after

June 18, 2013,

other than stock options or SARs, reduced the number of total shares available for grant by

1.5

shares.

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 with a maximum contractual term of

ten

years.

The Company estimates the fair value of stock options and SARs 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 SARs 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

4.5

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 weighted-average grant-date fair value per share of stock options granted in

2018,

2017

and

2016

was

$20.01,

$16.87

and

$16.65,

respectively. The fair value of each stock option during

2018,

2017,

and

2016

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

	2018			2017			2016
Risk free interest rate	2.15%	-	2.82%	1.60%	-	1.86%	0.94%	-	1.55%
Expected volatility	37.12%	-	45.61%	38.74%	-	44.31%	47.33%	-	51.61%
Expected life (years)	4.0	-	4.5		4.0			4.5
Expected dividend yield		0.00%			0.00%			0.00%

Stock Options and Restricted Stock

The following table sets forth share information for stock-based compensation awards granted and exercised during the period ended

December 31, 2018

and

2017:

	Twelve Months Ended December 31,
	2018		2017
Grants:
Stock options		199,970		440,688
RSAs		64,578		26,306
RSUs		15,457		9,970
Exercises:
Stock options		284,548		12,941
SARs		-		5,000

The Company recorded

$11.0

million,

$5.8

million, and

$3.4

million of stock-based compensation expense for the years ended

December

31,

2018,

2017,

and

2016,

respectively, for stock options, SARs, RSAs and RSUs with corresponding tax benefits of

$1.5

million,

$0.4

million and

$0.6

million, respectively. Upon the retirement of the Company’s former Chief Executive Officer on

March 9, 2018,

all of his outstanding stock-based compensation awards vested in full and became exercisable in accordance with their terms, resulting in a

one

-time expense of

$6.2

million that was fully recognized during the

three

-month period ended

March 31, 2018.

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:

	2018			2017		2016
Cost of product revenue	$	(160	)	$	439	$	148
Research & development		851			564		467
Selling, general & administrative		10,355			4,804		2,777
Total stock-based compensation expense	$	11,046		$	5,807	$	3,392

The decrease in stock-based compensation expense within the cost of product revenue line item for the year ended

December 31, 2018

is due to forfeitures associated with unvested stock option awards from the resignation of a former executive.

The combined stock options and SARs activity for the year ended

December

31,

2018

is as follows:

	2018
	Number of Shares			Weighted Average Exercise Price Per Share
Options and SARs outstanding at beginning of year		1,327,200		$	33.70
Granted		199,970		$	58.11
Cancelled		(104,629	)	$	50.19
Expired		(1,079	)	$	46.49
Exercised		(284,548	)	$	10.14
Options and SARs outstanding at end of year		1,136,914		$	42.06

All the

1,136,914

stock options and SARs outstanding at

December 31, 2018

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

$42.06

as well as an aggregate intrinsic value of

$3.7

million. The weighted average remaining contractual term of the vested and expected to vest stock options and SARs was

5.0

years as of

December

31,

2018.

As of

December 31, 2018,

total unrecognized compensation costs related to non-vested stock options and SARs was approximately

$4.4

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

2.4

years.

The exercisable options and SARs at

December 31, 2018

are as follows:

	Number Outstanding		Weighted Avg Exercise Price		Weighted Average Remaining Term (in years)
Incentive stock options		139,674	$	24.53		4.1
Non-qualified stock options		453,790	$	40.74		3.2
Performance awards		100,963	$	40.72		3.1
Stock appreciation rights		35,250	$	6.36		1.1

The total intrinsic value of stock options and SARs exercised was

$8.5

million,

$0.5

million and

$2.1

million for the years ended

December

31,

2018,

2017

and

2016,

respectively.

The total fair value of stock options and SARs vested during the years ended

December

31,

2018,

2017

and

2016

was approximately

$6.7

million,

$2.1

million and

$1.3

million, respectively.

The RSA and RSU activity for the year ended

December

31,

2018

is as follows:

	2018
	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at Beginning of year		229,226		$	42.47
Granted		80,035		$	58.84
Cancelled		(126,946	)	$	42.47
Vested/Released		(123,232	)	$	50.80
Unvested at end of year		59,083		$	47.26

The total fair value of RSAs and RSUs vested during the years ended

December 31, 2018,

2017

and

2016

was

$6.8

million,

$2.3

million and

$1.0

million. The weighted-average grant-date fair value of RSAs and RSUs granted during the years ended

December 31, 2018,

2017

and

2016

was

$58.84,

$52.03

and

$38.11,

respectively.