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, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), performance restricted stock units (“PSUs”), restricted stock units (“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. On

June 18, 2019,

the Company’s stockholders approved an amendment to the Anika Therapeutics, Inc.

2017

Omnibus Incentive Plan (the

“2017

Plan”). The amendment increased the number of shares of common stock reserved under the

2017

Plan by

1,500,000

from

1,200,000

2,700,000.

Additionally, the amendment provided greater clarity with respect to the sections governing minimum vesting and tax withholding to facilitate plan administration.

other provisions of the

2017

Plan were amended. There are

1.7

million shares available for future grant at

December

31,

2019.

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

December 31, 2019

and

2018:

	December 31,
	2019		2018
Grants:
Stock options		254,517		199,970
RSAs		-		64,578
RSUs		189,507		15,457
PSUs		123,500		-
Exercises:
Stock options		518,991		284,548
SARs		35,250		-

Stock Options

The combined stock options and SARs activity for the year ended

December

31,

2019

is as follows:

	2019
				Weighted
				Average
				Exercise
	Number of			Price Per
	Shares			Share
Options and SARs outstanding at beginning of year		1,136,914		$	42.06
Granted		254,517		$	41.92
Cancelled		(97,575	)	$	48.40
Expired		(48,647	)	$	51.18
Exercised		(554,241	)	$	40.37
Options and SARs outstanding at end of year		690,968		$	41.65

All the

690,968

stock options outstanding at

December 31, 2019

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

$41.65

and as an aggregate intrinsic value of

$8.6

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

5.0

years as of

December

31,

2019.

As of

December 31, 2019,

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

$4.7

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

2.3

years.

The options exercisable at

December 31, 2019

are as follows:

	Number Outstanding		Weighted Avg Exercise Price		Weighted Average Remaining Term (in years)
Incentive stock options		115,871	$	22.90		3.7
Non-qualified stock options		158,601	$	38.82		5.8
Performance awards		23,269	$	46.51		6.6

The total intrinsic value of stock options and SARs exercised was

$8.5

million,

$8.5

million and

$0.5

million for the years ended

December

31,

2019,

2018

and

2017,

respectively. The

35,250

SARs exercised in

2019

resulted in the issuance of

31,541

shares of common stock. There are

remaining SARs outstanding as of

December 31, 2019.

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

December

31,

2019,

2018

and

2017

was approximately

$2.7

million,

$6.7

million and

$2.1

million, respectively.

Restricted Stock

The RSA, RSU and PSU activity for the year ended

December

31,

2019

is as follows:

	2019
				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Unvested at Beginning of year		59,083		$	47.26
Granted		313,007		$	33.64
Cancelled		(49,258	)	$	34.65
Vested/Released		(33,734	)	$	48.39
Unvested at end of year		289,098		$	34.53

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

December 31, 2019,

2018

and

2017

was

$1.4

million,

$6.8

million and

$2.3

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

December 31, 2019,

2018

and

2017

was

$33.64,

$58.84

and

$52.03,

respectively.

Stock Compensation Expense

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. The PSUs granted to employees contained performance conditions with business and financial targets. The business target, amounting to

30%

of the total performance condition awards, was measured and achieved in the

2019

fiscal year, while the financial targets, amounting to

70%

of the total performance condition awards, will ultimately vest depending on the financial operating results in with respect to the Company’s operating results in the

2021

fiscal year. The Company recorded

$1.2

million,

$0.7

million, and

$0.8

million related to performance-based units and options in the years ending

2019,

2018,

and

2017,

respectively.

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

3.5

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

2019,

2018

and

2017

was

$14.73,

$20.01

and

$16.87,

respectively. The fair value of each stock option during

2019,

2018,

and

2017

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

	2019			2018			2017
Risk free interest rate	1.41%	-	2.54%	2.15%	-	2.82%	1.60%	-	1.86%
Expected volatility	44.27%	-	48.52%	37.12%	-	45.61%	38.74%	-	44.31%
Expected life (years)		3.5		4.0	-	4.5		4.0
Expected dividend yield		0.00%			0.00%			0.00%

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:

	2019		2018			2017
Cost of product revenue	$	412	$	(160	)	$	439
Research & development		424		851			564
Selling, general & administrative		5,251		10,355			4,804
Total stock-based compensation expense	$	6,087	$	11,046		$	5,807

Tax benefits of

$0.1

million,

$1.5

million and

$0.4

million, respectively, are associated with the annual stock compensation expense above. 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. Upon the retirement of the Company’s former Chief Executive Officer

, Charles H. Sherwood, Ph.D.,

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.