SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

o	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 Incorporation or Organization)		(I.R.S. Employer 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 ý No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

At August 7, 2002 there were 9,934,280 outstanding shares of Common Stock, par value $.01 per share.

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

Anika Therapeutics, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30, 2002			December 31, 2001
ASSETS	(Unaudited)
Current assets:
Cash and equivalents	$	7,477,859		$	9,064,977
Short-term marketable securities	4,500,000			3,994,401
Accounts receivable, net of reserves of $25,000	2,228,694			2,240,929
Inventories	2,786,648			3,726,982
Prepaid expenses and other current assets	455,603			540,476
Total current assets	17,448,804			19,567,765
Property and equipment, at cost	9,572,235			9,530,047
Less: accumulated depreciation	(7,126,819		)	(6,583,175		)
	2,445,416			2,946,872
Long-term deposits	143,060			148,160
Notes receivable from officers	178,000			253,000
Total assets	$	20,215,280		$	22,915,797

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	765,938		$	954,585
Accrued expenses	1,740,923			1,842,399
Deferred revenue	566,010			15,001
Total current liabilities	3,072,871			2,811,985

Stockholders’ equity:
Redeemable convertible preferred stock, $.01 par value; 750,000 shares authorized, no shares issued and outstanding	—			—
Undesignated preferred stock, $.01 par value; 1,250,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $.01 par value; 30,000,000 shares authorized, 9,991,943 shares issued	99,919			99,919
Additional paid-in capital	31,640,234			31,640,234
Treasury stock (at cost, 57,663 shares)	(279,756		)	(279,756		)
Accumulated deficit	(14,317,988		)	(11,356,585		)
Total stockholders’ equity	17,142,409			20,103,812
Total liabilities and stockholders’ equity	$	20,215,280		$	22,915,797

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Anika Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Quarter Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001

Product revenue	$	3,415,877		$	2,919,034		$	5,800,594		$	5,097,652
License revenue	5,000			—			10,000			—
Total revenue	3,420,877			2,919,034			5,810,594			5,097,652
Cost of product revenue	2,201,318			2,109,049			4,288,732			4,077,997
Gross profit	1,219,559			809,985			1,521,862			1,019,655
Operating expenses:
Research and development	1,050,426			921,325			2,140,300			2,269,195
Selling, general and administrative	1,388,837			1,858,790			2,468,332			3,247,364
Litigation settlement costs	—			886,480			—			950,716
Total operating expenses	2,439,263			3,666,595			4,608,632			6,467,275
Loss from operations	(1,219,704		)	(2,856,610		)	(3,086,770		)	(5,447,620		)
Interest income, net	62,508			206,202			125,367			478,781
Net loss	$	(1,157,196	)	$	(2,650,408	)	$	(2,961,403	)	$	(4,968,839	)

Basic and diluted net loss per common share	$	(0.12	)	$	(0.27	)	$	(0.30	)	$	(0.50	)
Shares used to calculate basic and diluted net loss per common share	9,934,280			9,934,280			9,934,280			9,934,280

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Anika Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Six Months Ended

(Unaudited)

	June 30, 2002			June 30, 2001

Cash flows from operating activities:
Net loss	$	(2,961,403	)	$	(4,968,839	)
Adjustments to reconcile net loss to net cash used by operations:
Depreciation	543,644			471,360
Amortization of deferred compensation	—			127,645
Forgiveness of note receivable from officer	—			129,000
Changes in operating assets and liabilities:
Accounts receivable	12,235			486,309
Inventories	940,334			112,972
Prepaid expenses and other current assets	84,873			137,823
Accounts payable	(188,647		)	781,107
Accrued expenses	(101,476		)	485,363
Deferred revenue	551,009			237,657
Net cash used in operating activities	(1,119,431		)	(1,999,603		)

Cash flows from investing activities
Proceeds from sale of short-term marketable securities	1,994,401			12,001,865
Purchase of short-term marketable securities	(2,500,000		)	(9,383,839		)
Purchase of property and equipment	(42,188		)	(626,355		)
Note receivable from officers	75,000			—
Deposits	5,100			5,940
Net cash provided by (used in) investing activities	(467,687		)	1,997,611

Decrease in cash and cash equivalents	(1,587,118		)	(1,992		)
Cash and cash equivalents at beginning of period	9,064,977			8,265,936
Cash and cash equivalents at end of period	$	7,477,859		$	8,263,944

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ANIKA THERAPEUTICS, INC.

NOTES TO CONSOLIDATED 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 ^® , which is an HA product used in the treatment of some forms of osteoarthritis in humans, and HYVISC ^® , which is an HA product used in the treatment of equine osteoarthritis. ORTHOVISC ^® is currently approved for sale and is being marketed in Canada, parts of Europe, Turkey, and Israel. In the U.S., ORTHOVISC ^Ò is currently limited to investigational use. The Company manufactures AMVISC ^® and AMVISC ^® Plus for Bausch & Lomb Surgical, which are HA products used as viscoelastic supplements in ophthalmic surgery. The Company also manufactures CoEase Ô for Advanced Medical Optics, Inc., STAARVISC ^Ò II for STAAR Surgical Company and ShellGel Ô for Cytosol Ophthalmics, Inc. which are injectible ophthalmic viscoelastic products.

2. Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States. In the opinion of management, these consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the financial position of the Company as of June 30, 2002, the results of its operations for the quarter and six months ended June 30, 2002 and 2001 and it’s cash flows for the six months ended June 30, 2002 and 2001.

The accompanying consolidated 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, 2001. The results of operations for the quarter and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002. See “Risk Factors and Certain Factors Affecting Future Operating Results”.

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Anika Therapeutics, Inc. and its wholly owned subsidiaries, Anika Securities Corporation and Anika Therapeutics UK, Ltd. All intercompany transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and investments with original maturities of 90 days or less.

Marketable Securities

The Company follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Short-term marketable securities consist of investments with maturities within twelve months of the balance sheet date. The Company classifies these marketable securities as held to maturity, and accordingly they are carried at amortized cost. Aggregate fair value, amortized cost and average maturity for marketable securities held at June 30, 2002 and December 31, 2001 are as follows:

	June 30, 2002
	Amortized Cost		Gross Unrealized Holding Gain(Loss)			Fair Value
Commercial Bond (12 month maturity)	$	2,000,000	$	(3,040	)	$	1,996,960
Municipal Bond (12 month maturity)	2,500,000		—			2,500,000
Total	$	4,500,000	$	(3,040	)	$	4,496,960

	December 31, 2001
	Amortized Cost		Gross Unrealized Holding Gain(Loss)		Fair Value
Commercial Paper (weighted average maturity of 5.5 months)	$	3,994,401	$	39,802	$	4,034,203

During the six months ending June 30, 2002, securities classified as held to maturity, with an aggregate amortized cost of $2,032,000, including interest and realized gains of $37,599, matured.

Revenue Recognition

Product revenue is recognized upon shipment to the customer as long as there is persuasive evidence of an arrangement, the sales price is fixed or determinable and collection of the related receivable is probable. ORTHOVISC ^Ò has been sold through several distribution arrangements as well as two outsource order processing arrangements (“logistics agents”). Sales of product through third party logistics agents in certain markets are recognized as revenue upon shipment by the logistics agent to the customer. The Company recognizes non-refundable up-front or milestone payments received as part of supply, distribution, and marketing arrangements, ratably over the terms of the agreements to which the payments apply. Amounts received or billed prior to meeting the Company’s revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheet.

Reporting Comprehensive Income

SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income (loss) and its components in the financial statements. Comprehensive income (loss) is the total of net income (loss) and all other non-owner changes in equity including such items as unrealized holding gains/losses on securities, foreign currency translation adjustments and minimum pension liability adjustments. The Company had no other items of comprehensive income (loss) for the quarter and six months ended June 30, 2002 and 2001 except for its reported net loss.

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-makers, in making decisions regarding how to allocate resources and assess performance. The Company’s chief decision-making group consists of two individuals: the chief executive officer and president 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 geographic location in total and as a percentage of total revenues are as follows:

	Quarter Ended June,
	2002				2001
	Revenue		Percent of Revenue		Revenue		Percent of Revenue
United States	$	2,688,277	78.6	%	$	1,955,793	67.0	%
Middle East	30,000		0.9		—		—
Other/Europe	702,600		20.5		963,241		33.0
Total	$	3,420,877	100.0	%	$	2,919,034	100.0	%

	Six Months Ended June 30,
	2002				2001
	Revenue		Percent of Revenue		Revenue		Percent of Revenue
United States	$	4,551,380	78.3	%	$	3,396,275	66.6	%
Middle East	89,115		1.5		11,950		0.2
Other/Europe	1,170,099		20.2		1,689,427		33.1
Total	$	5,810,594	100.0	%	$	5,097,652	100.0	%

Since early 2001, sales of product for the Turkish market have been made to a European-based entity and have accordingly been classified in the “Other/Europe” category since that time.

Product revenue by significant customers as a percent of total revenues is as follows:

	Quarter Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001
AMVISC â Bausch & Lomb	42.2	%	50.9	%	47.1	%	56.9	%
HYVISC â Boehringer Ingelheim	16.6	%	9.8	%	15.1	%	7.9	%
ORTHOVISC â Pharmaren AG	11.6	%	23.7	%	8.9	%	22.1	%
	70.4	%	84.4	%	71.1	%	86.9	%

4. Earnings Per Share

The Company reports earnings per share in accordance with SFAS No. 1 28, Earnings per Share , which 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, dilutive net loss per share is equal to basic net loss per share. Accordingly, the dilutive effect of outstanding options totaling 126,875 and 416,500, respectively, at June 30, 2002 and 2001, are excluded from the calculation of diluted weighted average shares outstanding because to include them would have been antidilutive for the periods presented.

5. Inventories

Inventories consist of the following:

	June 30, 2002		December 31, 2001
Raw materials	$	1,256,422	$	1,542,511
Work-in-process	1,320,791		1,971,067
Finished goods	209,435		213,404
Total	$	2,786,648	$	3,726,982

Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method. Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead.

6. Notes Receivable from Officers

Notes receivable from officers of $178,000 consists of loans made to one officer and one former officer. The note receivable from the officer accrues interest at 6.22%. The note receivable from the former officer is secured by a mortgage on his primary residence, accrues interest at an annual rate of 6.0% and is due on August 12, 2004. A note in the amount of $75,000 from the Company’s former chief executive officer was repaid on June 12, 2002.

7. Licensing and Distribution Agreements

In July 2000, the Company entered into a seven-year supply agreement (the “BLS Agreement”) with Bausch & Lomb Surgical, a unit of Bausch & Lomb. Under the terms of the BLS Agreement, effective January 1, 2001, the Company became Bausch & Lomb’s exclusive provider of AMVISC ^® and AMVISC ^® Plus, ophthalmic viscoelastic products, in the U.S. and international markets. The BLS Agreement expires December 31, 2007, superceding an existing supply contract with Bausch & Lomb Surgical that was set to expire December 31, 2001 (the “Old BLS Agreement”). The BLS Agreement is subject to early termination and/or reversion to a non-exclusive basis under certain circumstances. The

BLS Agreement lifts contractual restrictions on the Company’s sales of certain ophthalmic products to other companies contained in the Old BLS Agreement, subject to payment of royalties to Bausch & Lomb by the Company. The Company agreed to a reduction in unit selling prices effective April 1, 2000, and the elimination of minimum unit purchase obligations by Bausch & Lomb Surgical. Under the terms of the BLS Agreement, the price for units sold in a calendar year is dependent on total unit volume of sales of certain ophthalmic products during the year. Accordingly, unit prices for sales occurring in the six months ended June 30, 2002 are subject to possible retroactive price adjustments when the actual annual unit volume for 2002 becomes known. In accordance with the Company’s revenue recognition policy, revenue is not recognized if the sale price is not fixed or determinable and any amounts received in excess of revenue recognized is recorded as deferred revenue. At June 30, 2002, the deferred revenue under the BLS Agreement amounted to approximately $488,000.

In April 2001, the Company entered into a five-year supply agreement with Cytosol Ophthalmics, Inc. Under the terms of the agreement, effective April 11, 2001, the Company became Cytosol Ophthalmic’s exclusive provider of sterile sodium hyaluronate ophthalmic viscoelastic products in the U.S. and international markets. Under the agreement, in lieu of up-front payments, the Company is entitled to an increase in the price per unit it charges Cytosol of $2 per unit for the initial 50,000 units purchased. As a result, revenue of $2 per unit for the initial 50,000 units purchased will be deferred at the time of shipment and recognized ratably over the remaining term of the agreement. The agreement expires April 11, 2006. The agreement is subject to early termination and/or reversion to a non-exclusive basis under certain circumstances. At June 30, 2002, deferred revenue under this agreement amounted to approximately $73,000. At June 30, 2002, deferred revenue also includes $5,000 relating to fees paid to the Company under its agreement with AMA Pharmaceuticals.

8. Legal Matters

Securities and Exchange Commission Investigation . The SEC has issued a formal order of investigation and has required the Company to provide information in connection with certain revenue recognition matters. The Company has been cooperating fully. These matters, relating to the Company’s historical accounting for and disclosures concerning sales of ORTHOVISC ^Ò under a long-term supply and distribution agreement with Zimmer, were also the subject of the Company’s March 15, 2000 disclosure concerning an informal SEC inquiry and the restatement of results for 1998 and the first three quarters of 1999. As reported on August 14, 2001, as a result of the SEC’s ongoing investigation, the Company, in conjunction with its independent auditors, determined to again restate its financial results for the fourth quarter of 1998 and the first quarter of 1999. As a result of the SEC’s investigation, the Company has been informed that the staff of the Boston District Office of the SEC (the “Staff”) is considering recommending that the SEC authorize civil injunctive actions against the Company and others, including former officers of the Company, concerning these matters. The Company was invited by the Staff to submit its views as to why a civil injunctive action against the Company should not be instituted, and the Company did so. The Company is currently in discussions with the Staff concerning possible resolution of the matter by settlement. The Company is not in a position to predict whether such a settlement will be reached. In addition, if the Company expends substantial additional costs and fees in responding to this matter, then the matter may have an adverse effect on the Company’s financial position.

ITEM 2. MA NAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on 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, including statements regarding:

• our future sales and product revenues, including possible retroactive price adjustments, expectations regarding unit volumes or other offsets to price reductions;

• our efforts to increase sales of ophthalmic viscoelastic products;

• our manufacturing capacity and work-in-process manufacturing;

• the timing, scope, and rates of patient enrollment in clinical trials and related costs;

• FDA or other regulatory approvals and/or reimbursement approvals of new or potential products;

• the development of possible new products;

• the rate at which we use cash and the amounts used;

• possible negotiations or renegotiations with existing or new distribution and collaboration partners; and

• the possible resolution of the SEC investigation by settlement, and the effect of the SEC investigation on our financial position if we expend substantial additional costs and fees in our response to the investigation.

Statements identified by words such as “will,” “likely,” “may,” “believe,” “expect,” “anticipate,” “intend,” and other expressions, that are predictions of, or indicate future events and trends and which do not relate to historical matters, also identify forward-looking statements. Such forward looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, including those factors described in the section titled “Risk Factors and Certain Factors Affecting Future Operating Results” in this Quarterly Report on Form 10-Q. Our actual results, performance or achievement could differ materially from anticipated results, performance or achievement, expressed or implied in such forward-looking statements. Such forward looking statements are based upon the current assumptions and beliefs of management and are only expectations of future results. 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 10 of this Quarterly Report on Form 10-Q, as well as factors described in our Annual Report on Form 10-K for the year ended December 31, 2001 and our press releases and other filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise.

Results of Operations

Product revenue. Product revenue for the quarter ended June 30, 2002 was $3,415,877, an increase of $496,843, or 17.0%, from $2,919,034 for the quarter ended June 30, 2001. Product revenue for the six months ended June 30, 2002 was $5,800,594, an increase of $702,942, or 13.8%, from $5,097,652 for the six months ended June 30, 2001. The increase in product revenue for the quarter and six months ended June 30, 2002 compared to the same periods last year is primarily due to higher ophthalmic product sales and sales of HYVISC® partially offset by lower sales of ORTHOVISC®. Sales of ophthalmic products increased approximately $444,000 and $667,000 for the quarter and six months ended June 30, 2002, respectively, primarily due to new supply agreements with Cytosol Ophthalmics, Inc. and Advanced Medical Optics, Inc., and sales of HYVISC® increased approximately $283,000 and $476,000. The decrease in sales of ORTHOVISC® is primarily attributable to lower sales for the Turkish market.

We derive a substantial portion of our revenue from the sale of AMVISC ^â and AMVISC ^â Plus to Bausch & Lomb Surgical. For the quarter and six months ended June 30, 2002, AMVISC ^â and AMVISC ^â Plus sales accounted for 42.2% and 47.1% of product revenue, respectively, compared to 50.9% and 56.9% of product revenue for the quarter and six months ended June 30, 2001.

Revenues by geographic location in total and as a percentage of total revenues are as follows:

	Quarter Ended June,
	2002				2001
	Revenue		Percent of Revenue		Revenue		Percent of Revenue
United States	$	2,688,277	78.6	%	$	1,955,793	67.0	%
Middle East	30,000		0.9		—		—
Other/Europe	702,600		20.5		963,241		33.0
Total	$	3,420,877	100.0	%	$	2,919,034	100.0	%

	Six Months Ended June 30,
	2002				2001
	Revenue		Percent of Revenue		Revenue		Percent of Revenue
United States	$	4,551,380	78.3	%	$	3,396,275	66.6	%
Middle East	89,115		1.5		11,950		0.2
Other/Europe	1,170,099		20.2		1,689,427		33.1
Total	$	5,810,594	100.0	%	$	5,097,652	100.0	%

Since early 2001, sales of product for the Turkish market have been made to a European-based entity and have accordingly been classified in the “Other/Europe” category since that time.

License revenue. License revenue was $5,000 and $10,000 for the quarter and six months ended June 30, 2002, related to an annual up-front payment associated with a five year supply agreement with a purchaser of our ophthalmic products.

Gross profit. Gross profit for the quarter ended June 30, 2002 was $1,219,559, or 35.7% of revenue, an increase of $409,574, or 50.6%, from a gross profit of $809,985, or 27.7% of revenue, for the quarter ended June 30, 2001. Gross profit for the six months ended June 30, 2002 was $1,521,862, or 26.2% of revenue, an increase of $502,207, or 49.3%, from a gross profit of $1,019,655, or 20.0% of revenue, for the six months ended June 30, 2001. Gross profit for the quarter and six months ended June 30, 2002, as compared with same periods last year, benefited from improved manufacturing cost performance resulting from our efforts over the past year to reduce work in process inventories combined with increase sales volumes.

Research and development. Research and development expenses for the quarter ended June 30, 2002 was $1,050,426, an increase of $129,101, or 14.0%, compared to $921,325 for the quarter ended June 30, 2001. Research and development expenses for the six months ended June 30, 2002 was $2,140,300, a decrease of $128,895, or 5.7%, compared to $2,269195 for the six months ended June 30, 2001. Research and development expenses include costs for the current Phase III clinical trial for ORTHOVISC®, our product for treatment of osteoarthritis of the knee, for which we are currently seeking FDA approval. The increase in research and development expense for the quarter ended June 30, 2002 compared to the same period last year is primarily due to higher costs related to the ORTHOVISC® clinical trial partially offset by a decrease in employee related costs due to lower headcount. The decrease in research and development expense for the six months ended June 30, 2002 compared to the same period last year is primarily due to a decrease in employee related costs due to lower headcount partially offset by higher costs related to the ORTHOVISC® clinical trial. The increase in costs related to the ORTHOVISC® clinical trial for the six months ended June 30, 2002 compared to the same period last year was partially offset by expenditures in the first quarter of last year related to the preparation for initiation of a clinical trial for INCERT®, a therapy

for preventing post-surgical adhesions. As previously disclosed, we determined not to commence a clinical trial for INCERT® during 2001.

Selling, general and administrative. Selling, general and administrative expenses for the quarter ended June 30, 2002 was $1,388,837, a decrease of $469,953, or 25.3%, compared to $1,858,790 for the quarter ended June 30, 2001. Selling, general and administrative expenses for the six months ended June 30, 2002 was $2,468,332, a decrease of $779,032, or 24.0%, compared to $3,247,364 for the six months ended June 30, 2001. The decrease is primarily attributable to separation costs of $515,000 incurred in the first six months of 2001 related to management changes we implemented in June 2001 combined with lower professional service fees and lower ORTHOVISC® selling expenses in foreign markets in 2002 compared to 2001.

Litigation settlement costs. Litigation settlement costs for the quarter and six months ended June 30, 2001 included a charge of $850,000, which is the amount of a $1.25 million settlement amount contributed by us related to a putative class action suit. For the quarter and six months ended June 30, 2001, professional fees related to the putative class action suit were $36,480 and $100,716, respectively.

Interest income, net. Interest income, net, for the quarter ended June 30, 2002 was $62,508, a decrease of $143,694, or 69.7%, compared to $206,202 for the quarter ended June 30, 2001. Interest income, net, for the six months ended June 30, 2002 was $125,367, a decrease of $353,414, or 73.8%, compared to $478,781 for the six months ended June 30, 2001. The decrease in interest income, net, is primarily due to lower interest rates on investments combined with lower average cash balances during the quarter and six months ended June 30, 2002, compared to the same periods last year.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. Historically, we have funded our cash requirements from available cash and short-term marketable securities.

At June 30, 2002, we had cash, cash equivalents and short-term marketable securities of $12.0 million and working capital of $14.4 million compared to cash, cash equivalents and short-term marketable securities of $13.1 million and working capital of $16.8 million at December 31, 2001. Short-term marketable securities at June 30, 2002 consist of a commercial bond and a municipal bond each with an original maturity of one year.

Aggregate cash used in operating activities was $1,119,431 for the six months ended June 30, 2002 and $1,999,603 for the six months ended June 30, 2001. Cash used in operating activities for the six months ended June 30, 2002 included net loss, adjusted for depreciation and amortization, of $2,417,759. This cash used in operating activities was partially offset by cash provided by a reduction in inventory of $940,334 and an increase in deferred revenue of $551,009. The increase in deferred revenue largely relates to unit pricing provisions under the Company’s supply agreement with Bausch & Lomb (see Note 7). Cash used in operating activities for the six months ended June 30, 2001 included net loss, adjusted for depreciation and amortization, of $4,369,834. This cash used in operating activities was partially offset by cash provided by a reduction accounts receivable of $486,309, an increase in accounts payable and accrued expenses of $1,266,470 and an increase in deferred revenue of $237,657.

Capital expenditures were $42,188 for the six months ended June 30, 2002. Capital expenditures in 2002 are expected to include spending for small equipment, computers, and furniture and fixtures associated with normal operations. We anticipate that use of cash in 2002 will be significantly less than cash used in 2001.

Our future capital requirements and the adequacy of available funds will depend, 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 product development efforts;

• progress with pre-clinical studies, clinical trials and product clearances by the FDA and other agencies;

• the cost of maintaining adequate 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.

We have 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 than us. For the six months ended June 30, 2002, Bausch & Lomb accounted for 47.1% of product revenues and 46.4% of our accounts receivable balance and Boehringer Ingelheim accounted for 15.1% of product revenues and 25.6% of our accounts receivable balance. On March 11, 2002, Bausch & Lomb’s senior debt and short-term debt ratings were downgraded. Although Bausch & Lomb emphasized at that time it was not facing any issues with respect to liquidity, any such issues that impact their ability to pay their accounts with us could adversely impact future revenues.

There can be no assurance that we will record profits in future periods. However, we believe that our cash and investments on hand will be sufficient to meet our requirements at least through June 30, 2003. See “Risk Factors and Certain Other Factors Affecting Future Operating Results – History of Losses; Uncertainty of Future Profitability.”

The terms of any future equity financings may be dilutive to our stockholders and the terms of any debt financings may contain restrictive covenants, which could limit our ability to pursue certain courses of action. Our ability to obtain financing is dependent on the status of our 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 us or will be available on acceptable terms should such a need arise.

Critical Accounting Policies

In December 2001, the SEC requested that reporting companies discuss their most “critical accounting policies” in management’s discussion and analysis of financial condition and results of operations. The SEC indicated that a “critical accounting policy” is one that is important to the portrayal of a company’s financial condition and operating results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of this and other accounting policies, see Note 2 in the Notes to the

Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2001. Our preparation of this Quarterly Report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and we cannot make any assurances that actual results will not differ from those estimates.

Revenue Recognition. Product revenue is recognized upon shipment to the customer as long as there is (i) persuasive evidence of an arrangement, (ii) the sales price is fixed or determinable and (iii) collection of the related receivable is probable. Amounts billed or collected prior to recognition of revenue is classified as deferred revenue. Determination of criteria (ii) and (iii) are based on management’s judgments regarding the fixed nature of the product fee and collectibility of those fees. Under our agreement with Bausch and Lomb, the price for units sold in a calendar year is dependent on total unit volume of sales of certain ophthalmic products during the year. Accordingly, unit prices for sales occurring in interim quarters are subject to possible retroactive price adjustments when the actual annual unit volume for the year becomes known. In accordance with our revenue recognition policy, the amount of revenue subject to the contracted price adjustment is recorded as deferred revenue until the annual unit volume becomes known and the sales price becomes fixed. ORTHOVISC® has been sold through several distribution arrangements as well as outsource order-processing arrangements (“logistic agents”.) Sales of product through third party logistics agents in certain markets are recognized as revenue upon shipment by the logistics agent to the customer. We recognize non-refundable upfront or milestone payments received as part of supply, distribution, and marketing arrangements, ratably over the terms of the arrangements to which the payments apply.

Reserve for Obsolete/Excess Inventory. Inventories are stated at the lower of cost or market. We regularly review raw materials and work-in-process inventories and record a provision for excess and obsolete inventory if the inventory has not progressed through the manufacturing process for a period of time in excess of the typical inventory cycle period. The reserve is adjusted in subsequent periods to reflect the current movement of the inventory through the manufacturing process.

RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

Our business is subject to comprehensive and varied government regulation and, as a result, failure to obtain FDA or other governmental approvals for our products may materially adversely affect our business, results of operations or financial condition.

Product development and approval within the Food & Drug Administration 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 our new products on a timely basis if at all, or that FDA review will not involve delays that will adversely affect our 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 our product development process which may adversely affect approval of or delay an application or require additional expenditures by us. In the event our future products are regulated as human drugs or biologics, the FDA’s review process of such products typically would be substantially longer and more expensive than the review process to which they are currently subject as devices.

Class III devices are those that generally must receive pre-market approval from the FDA (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 us to commercially distribute ORTHOVISC ^® in the U.S., we must obtain a pre-market approval. The PMA process can be expensive, uncertain and lengthy. A number of devices for which PMAs have been sought have never

been approved for marketing. The review of an application often occurs over a protracted time period, potentially taking two years or more from the filing date to complete. We submitted a PMA application for ORTHOVISC® in December 1997. In October 1998, we were notified by the FDA that our PMA application for ORTHOVISC® was not approvable and that additional clinical data would be required to demonstrate the effectiveness of ORTHOVISC®. We submitted an IDE to the FDA in February 1999 and received approval in late March 1999 to commence a second Phase III clinical study. We received initial results from the Phase III clinical trial in late May 2000 that we determined did not show sufficient efficacy to support the filing of a PMA application. We have evaluated available information and in February 2001, we commenced another Phase III clinical trial of ORTHOVISC®. The trial is being conducted in up to 25 centers in the U.S. and Canada, with 360 patients expected to be enrolled, and with evaluation over a six-month period following treatment. There can be no assurances that:

• any additional clinical data will support the efficacy of ORTHOVISC ^® ;

• we will complete any additional clinical trials of ORTHOVISC ^® ;

• we will be able to successfully complete the FDA approval process; or

• any additional clinical trials will support a PMA application and/or FDA approval in a timely manner or at all.

There also can be no assurance that any delay in receiving FDA approvals will not continue to adversely affect our competitive position. Furthermore, even if we were to receive a PMA approval:

• the approval may include significant limitations on the indications and other claims sought for use for which the product may be marketed;

• the approval may include other significant conditions to approval such as post-market testing, tracking, or surveillance requirements; and

• we may not be able to achieve meaningful sales of ORTHOVISC® in the U.S.

Once obtained, marketing approval can be withdrawn by the FDA for a number of reasons, including, among other things, the failure to comply with regulatory standards, or the occurrence of unforeseen problems following initial approval. We may be required to make further filings with the FDA under certain circumstances. The FDA’s regulations require a PMA supplement for any changes that 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, and changes in performance or design specifications. Changes in manufacturing that affect safety and effectiveness may be deemed approved after a 30-day notice unless the FDA requests a supplement. Our failure 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, may have a material adverse effect on our business, financial condition, and results of operations. The FDA could also limit or prevent the manufacture or distribution of our products and has the power to require the recall of such products. Significant delay or cost in obtaining, or failure to obtain FDA approval to market products, any FDA limitations on the use of our products, or any withdrawal or suspension of approval or rescission of approval by the FDA could have a material adverse effect on our business, financial condition, and results of operations.

In addition, all FDA approved or cleared products manufactured by us must be manufactured in compliance with the FDA’s Good Manufacturing Practices (GMP) regulations and, for medical devices, the FDA’s Good Manufacturing Practices/Quality System Regulations (GMP/QSR). Ongoing compliance with GMP/QSR and other applicable regulatory requirements is enforced through periodic inspection by state and federal agencies, including the FDA. The FDA may inspect us and our facilities from time to time to determine whether we are 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 we 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 us. In addition, changes in the existing regulations or adoption of new governmental regulations or policies could prevent or delay regulatory approval of our 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 PMA’s for devices, withdrawal of approvals and criminal prosecution.

In addition to regulations enforced by the FDA, we are subject to other existing and 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. There can be no assurance that we will be able to achieve and/or maintain compliance required for CE marking or other foreign regulatory approvals for any or all of our products or that we will be able to produce our products in a timely and 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. We cannot predict what impact, if any, such changes might have on our business.

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 or clearances of our products will be granted or that we will have the necessary funds to develop certain of its products. Any failure to obtain, or delay in obtaining such approvals or clearances, could adversely affect our ability to market our products.

We have historically incurred operating losses and we cannot make any assurances about our future profitability.

From our inception through December 31, 1996 and in 1999, 2000, and 2001, we have incurred annual operating losses. As of June 30, 2002, we had an accumulated deficit of approximately $14.3 million. The continued development of our products will require the commitment of substantial resources to conduct research and preclinical and clinical development programs, and to establish sales and marketing capabilities or distribution arrangements. Our ability to reach profitability is highly uncertain. To achieve profitability, we must, among other things, successfully complete development of certain of our products, obtain regulatory approvals and establish sales and marketing capabilities or distribution arrangements for certain of our products.

Substantial competition could materially affect our financial performance.

We compete 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 us. We also compete with academic institutions, governmental agencies and other research organizations that may be involved in research, development and commercialization of products. Because a number of companies are developing or have developed HA products for similar applications, the successful commercialization of a particular product

will depend in part upon our ability to complete clinical studies and obtain FDA marketing and foreign regulatory approvals prior to our competitors, or, if regulatory approval is not obtained prior to competitors, to identify markets for our products that may be sufficient to permit meaningful sales of our products. For example, several of our competitors have already obtained FDA and foreign regulatory approvals for marketing HA products with applications similar to that of ORTHOVISC ^Ò . Thus, the successful commercialization of ORTHOVISC ^Ò will depend in part on our ability to effectively market ORTHOVISC ^Ò against more established products with a longer sales history. There can be no assurance that we will be able to compete against current or future competitors or that competition will not have a material adverse effect on our business, financial condition and results of operations. We are currently experiencing uncertainties in the Turkish market from economic, regional, political, and competitive factors. As a result, we are uncertain of the extent of our future sales in this market.

Our clinical trials may not support a PMA filing.

Several of our products, including ORTHOVISC ^Ò , will require clinical trials to determine their safety and efficacy for U.S. and international marketing approval by regulatory bodies, including the FDA. In late May 2000, our initial analysis of the results of our second Phase III clinical trial of ORTHOVISC ^Ò did not show sufficient efficacy to support the filing of a PMA application to obtain FDA approval. Although we have received (IDE) approval from the FDA for ORTHOVISC ^® there can be no assurance that:

• any additional clinical data will support the efficacy of ORTHOVISC®,

• we will complete any additional clinical trials of ORTHOVISC®,

• we will be able to successfully complete the FDA approval process for either ORTHOVISC®, or

• additional ORTHOVISC® clinical trials will support a PMA application and/or FDA approval in a timely manner, or at all.

There can be no assurance that we will not encounter additional problems that will cause us to delay, suspend or terminate the clinical trials. In addition, we cannot make any assurance that such clinical trials, if completed, will ultimately demonstrate these products to be safe and efficacious.

We are dependent upon marketing and distribution partners and the failure to maintain strategic alliances on acceptable terms will have a material adverse effect on our business, financial condition and results of operations .

Our success will be dependent, in part, upon the efforts of our marketing partners and the terms and conditions of our relationships with such marketing partners.

We cannot assure you that such marketing partners will not seek to renegotiate their current agreements on terms less favorable to us. Under the terms of the BLS Agreement, effective January 1, 2001, we became Bausch & Lomb’s exclusive provider of AMVISC ^® and AMVISC ^® Plus ophthalmic viscoelastic products, in the U.S. and international markets. The BLS Agreement expires December 31, 2007, and superceded an existing supply contract with Bausch & Lomb that was set to expire December 31, 2001. The BLS Agreement is subject to early termination and/or reversion to a non-exclusive basis under certain circumstances. The BLS Agreement lifts contractual restrictions on our ability to sell certain ophthalmic products to other companies, subject to our payment of royalties. We agreed to a reduction in unit selling prices retroactively effective to April 1, 2000 and the elimination of minimum unit purchase obligations of Bausch & Lomb.

We have not achieved incremental sales of our ophthalmic products to Bausch & Lomb and/or other companies sufficient to offset the effects of the price reduction and royalties to Bausch & Lomb and there can be no assurances that we will be able to do so in the future. The reduction in unit prices resulted in a decrease in our revenue and gross profit from Bausch & Lomb. We expect revenue in 2002 to be consistent with 2001. In addition, under certain circumstances, Bausch & Lomb has the right to terminate the agreement, and/or the agreement may revert to a non-exclusive basis; in each case, we cannot make any assurances that such circumstances will not occur. For the years ended December 31, 2001 and 2000, sales of AMVISC ^® products to Bausch & Lomb accounted for 65.2% and 54.1% of product revenues, respectively. For the six months ended June 30, 2002, sales to Bausch & Lomb amounted to 47.1% of our revenue. Although we intend to continue to seek new opthalmic product customers, there can be no assurances that we will be successful in obtaining new customers or to achieve meaningful sales to such new customers.

We have a relationship with a logistic agent (outsource order processing providers) to distribute ORTHOVISC ^® to customers in certain European countries previously served by Zimmer. We have entered into new distribution agreements for ORTHOVISC ^® in Canada and the U.K. We are seeking to establish long-term distribution and marketing relationships with new distribution partners in additional countries. There can be no assurance that we will be able to identify or engage appropriate distribution or collaboration partners or effectively transition to any such partners. There can be no assurance that we 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.

We will need to obtain the assistance of additional marketing partners to bring new and existing products to market. The failure to establish strategic partnerships for the marketing and distribution of our products on acceptable terms will have a material adverse effect on our business, financial condition, and results of operations.

Our future success depends upon market acceptance of our existing and future products .

Our success will depend in part upon the acceptance of our existing and 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 our products as safer, more effective or cost-competitive than other similar products. Ultimately, for our new products to gain general market acceptance, it will also be necessary for us to develop marketing partners for the distribution of our products. There can be no assurance that our new products will achieve significant market acceptance. Failure of some or all of our future products to achieve significant market acceptance could have a material adverse effect on our business, financial condition, and results of operations.

We may be unable to adequately protect our intellectual property rights.

Our success will depend, in part, on our ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when necessary, and conduct our business without infringing on the proprietary rights of others. The patent positions of pharmaceutical, medical products and biotechnology firms, including ours, 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, we may have to participate in interference proceedings declared by the 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 us, such interference proceedings could result in substantial

cost to us, and diversion of management’s attention away from our operations. Submission and prosecution of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement 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 our patents, if issued, will not be 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 us to lose exclusivity covered by the disputed rights. If a third party is found to have rights covering products or processes used by us, we could be forced to cease using the technologies or marketing the products covered by such rights, we could be subject to significant liabilities to such third party, or we could be required to license technologies from such third party. Furthermore, even if our 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 us using the resulting alternative technology.

We have a policy of seeking patent protection for patentable aspects of our proprietary technology. We intend to seek patent protection with respect to products and processes developed in the course of our activities when we believe such protection is in our 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 us 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 our patents. Our issued patents and any patents, which arise from our licensed application, would provide competitive protection, if at all, only 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 we develop will not infringe on the patent rights of others in the future. Any such infringement may have a material adverse effect on our business, financial condition, and results of operations. We received notice from the PTO in 1995 that a third party was attempting to provoke a patent interference with respect to one of our co-owned patents covering the use of INCERT ^® for post-surgical adhesion prevention. It is unclear whether an interference will be declared. If an interference is declared, it is not possible at this time to determine the merits of the interference or the effect, if any, the interference will have on our development or marketing of INCERT ^® for this use. No assurance can be given that we would be successful in any such interference proceeding. If the third-party interference were to be decided adversely to us, involved claims of our patent would be cancelled and the third party may enforce patent rights against us which could prohibit the sale and use of INCERT ^® products.

We also rely upon trade secrets and proprietary know-how for certain non-patented aspects of our technology. To protect such information, we require 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 we would have adequate remedies for any such breach, or that our trade secrets, proprietary know-how, and our technological advances will not otherwise become known to others. In addition, there can be no assurance that, despite precautions taken by us, others have not and will not obtain access to our proprietary technology. Further, there can be no assurance that third parties will not independently develop substantially equivalent or better technology.

Pursuant to the BLS Agreement, we have agreed to transfer to Bausch & Lomb, upon expiration of the term of the BLS agreement on December 31, 2007, or in connection with earlier termination in certain circumstances, our manufacturing process, know-how and technical information, which relate to AMVISC ^® products. Upon expiration of the BLS Agreement, there can be no assurance that Bausch &

Lomb will continue to use us to manufacture AMVISC ^® and AMVISC ^® Plus. If Bausch & Lomb discontinues using us as a manufacturer after such time, our business, financial condition, and results of operations would likely be materially and adversely affected.

Our manufacturing processes involve inherent risks and disruption could materially adversely affect our business, financial condition and results of operations.

Our results of operations are dependent upon the continued operation of our manufacturing facility in Woburn, Massachusetts. The operation of biomedical manufacturing plants involves many risks, including the risks of breakdown, failure or substandard performance of equipment, the occurrence of natural and other disasters, and the need to comply with the requirements of directives of government agencies, including the FDA. In addition, we rely 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 our HA products. Furthermore, our manufacturing processes and research and development efforts 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 our 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 our business, financial condition, and results of operations during the period of such operational difficulties.

Our financial performance depends on the continued growth and demand for our products and we may not be able to successfully manage the expansion of our operations

Our 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 our products is achieved, we will be able to:

• develop the necessary manufacturing capabilities;

• obtain the assistance of additional marketing partners;

• attract, retain and integrate the required key personnel; or

• implement the financial, accounting and management systems needed to manage growing demand for our products

Our failure to successfully manage future growth could have a material adverse effect on our business, financial condition, and results of operations.

Sales of our products are largely dependent upon third party reimbursement and our performance may be harmed by 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 our 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. We depend upon the distributors for our products to secure reimbursement and reimbursement approvals. Reimbursement by third party payors may depend on a number of factors, including the payor’s determination that the use of our products is 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 us or our marketing partners to provide supporting scientific, clinical and cost-

effectiveness data for the use of our products separately to each payor. 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 we develop. Outside the U.S., the success of our 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 our products and services could have a material adverse effect on our business, financial condition, and results of operations.

We may seek financing in the future, which could be difficult to obtain and which could dilute your ownership interest or the value of your shares.

We had cash, cash equivalents and short-term marketable securities of approximately $12.0 million as of June 30, 2002. Our future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including:

• market acceptance of our existing and future products;

• the successful commercialization of products in development;

• progress in our product development efforts;

• the magnitude and scope of such product development efforts,

• progress with preclinical studies, clinical trials and product clearances by the FDA and other agencies;

• the cost and timing of our efforts to manage our manufacturing capabilities and related costs;

• 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 our products.

To the extent that funds generated from our operations, together with our existing capital resources are insufficient to meet future requirements, we 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 you and the terms of any debt financings may contain restrictive covenants, that limit our ability to pursue certain courses of action. Our ability to obtain financing is dependent on the status of our 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 us or will be available on acceptable terms should such a need arise.

We could become subject to product liability claims, which, if successful, could materially adversely affect our business, financial condition and results of operations.

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 us. Although we have not received any material product liability claims to date and have an insurance policy of $5,000,000 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 our 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 our business, financial condition and results of operations.

Our business is dependent upon hiring and retaining qualified management and scientific personnel.

We are highly dependent on the members of our management and scientific staff, the loss of one or more of whom could have a material adverse effect on us. In June 2001, Mr. Engle, the former Chief Executive Officer and Chairman of the Board of Directors, and Mr. Slater, the former Vice President of Operations, ceased to be employees. As of April 2, 2002, Mr. Sherwood, previously President and Chief Operating Officer succeeded Mr. Potter as the Chief Executive Officer of the Company. Mr. Potter agreed to remain the Chief Financial Officer until a new Chief Financial Officer was appointed in order to effect an orderly transition. As of March 25, 2002, we appointed a new Senior Vice President of Sales and Marketing. As of July 8, 2002, we appointed a new Chief Financial Officer to succeed Mr. Potter. There can be no assurances that such management changes will not adversely affect our business. In addition, we believe that our future success will depend in large part upon our ability to attract and retain highly skilled, scientific, managerial and manufacturing personnel. We face significant competition for such personnel from other companies, research and academic institutions, government entities and other organizations. There can be no assurance that we will be successful in hiring or retaining the personnel we require. The failure to hire and retain such personnel could have a material adverse effect on our business, financial condition and results of operations.

We are subject to environmental regulation and any failure to comply with applicable laws could subject us to significant liabilities and harm our business .

We are 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 our products. Any failure by us to control the use, disposal, removal or storage of hazardous chemicals or toxic substances could subject us to significant liabilities, which could have a material adverse effect on our business, financial condition, and results of operations.

Our future operating results may be harmed by economic, political and other risks relating to international sales.

During the years ended December 31, 2001 and 2000, approximately, 27.9% and 20.2%, respectively, of our product sales were sold to international distributors. During the six months ended June 30, 2002 approximately 21.7% of our product sales were sold to international distributors. Our representatives, agents and distributors who sell products in international markets are subject to the laws and regulations of the foreign jurisdictions in which they operate and in which our 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 and/or economic instability, trade restrictions, changes in tariffs, difficulties in managing international operations, import restrictions and fluctuations in foreign currency exchange rates. We sell our ORTHOVISC ^® product to a European sales and marketing company to supply the Turkish market. The Turkish economic situation has been volatile and the impacts of this volatility on future sales of ORTHOVISC ^® are uncertain. Such changes in the volume of sales may continue to have adverse effects on our business, financial condition, and results of operations.

Our stock price has been and may remain highly volatile, and we cannot assure you that market making in our common stock will continue .

The market price of shares of our common stock may be highly volatile. Factors such as announcements of new commercial products or technological innovations by us or our 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 us and general market conditions may have a significant effect on the market price of our common stock. In particular, our stock price declined significantly in October 1998 following our announcement that the FDA had notified us that its PMA for ORTHOVISC® was not approvable and that additional clinical data would be required to demonstrate the effectiveness of ORTHOVISC®. The stock price declined again in May 2000 following our announcements that initial analysis of results from the Phase III clinical trial of ORTHOVISC® 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 us to provide information in connection with certain revenue recognition matters. The trading price of our common stock could be subject to wide fluctuations in response to quarter-to-quarter variations in our operating results, material announcements by us or our 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 our control. In addition, the stock market has 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. Our operating results in future quarters may be below the expectations of equity research analysts and investors. In such event, the price of our common stock would likely decline, perhaps substantially.

No person is under any obligation to make a market in the common stock or to publish research reports on us, and any person making a market in the common stock or publishing research reports on us may discontinue market making or publishing such reports at any time without notice. There can be no assurance that an active public market in our common stock will be sustained.

There is a risk that we may be unable to maintain our listing on the Nasdaq National Market.

Our common stock is currently traded on the Nasdaq National Market. Under NASDAQ’s listing maintenance standards, if the minimum bid price of our Common Stock is under $1.00 per share for 30 consecutive trading days, NASDAQ may choose to notify us that it is delisting our common stock from its National Market. If the minimum bid price of our common stock does not thereafter regain compliance for a minimum of 10 consecutive trading days during the 90 days following notification by NASDAQ, our common stock may be delisted from trading on the NASDAQ. There is a risk that our common stock will not meet NASDAQ’s listing maintenance standards and fail to remain eligible for trading on the NASDAQ National Market. If our common stock is delisted, the delisting would most likely have a material adverse effect on the price and liquidity of our common stock and your ability to sell any of our Common Stock at all would be severely limited.

Our charter documents contain anti-takeover provisions that may prevent or delay any attempt to acquire us.

Certain provisions of our 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 us 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, and 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. We are also 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 us at a price considered attractive by many stockholders, since such provisions could have the effect of preventing or delaying a potential acquirer from acquiring control of us and our Board of Directors.

The SEC commenced an investigation concerning our revenue recognition matters .

The SEC has issued a formal order of investigation and has required us to provide information in connection with certain revenue recognition matters. We have been cooperating fully. These matters, relating to our historical accounting for and disclosures concerning sales of ORTHOVISC ^® under a long-term supply and distribution agreement with Zimmer, were also the subject of our March 15, 2000 disclosure concerning an informal SEC inquiry and the restatement of results for 1998 and the first three quarters of 1999. On August 14, 2001, as a result of the SEC’s ongoing investigation, we, in conjunction with our independent auditors, determined to again restate our financial results for the fourth quarter of 1998 and the first quarter of 1999 as discussed in Note 15 of the consolidated financial statements included in the company’s Annual Report on Form 10-K for the year ended December 31, 2001. As a result of the SEC’s investigation, we have been informed that the staff of the Boston District Office of the SEC (the “Staff”) is considering recommending that the SEC authorize civil injunctive actions against us and others, including former officers, concerning these matters. We were invited by the Staff to submit our views as to why a civil injunctive action against us should not be instituted, and we have done so. We are currently in discussions with the Staff concerning possible resolution of the matter by settlement. We are not in a position to predict whether such a settlement will be reached. In addition, if we expend substantial additional costs and fees in responding to this matter, then the matter may have an adverse effect on our financial position.

Our revenues are derived from a small number of customers, the loss of which could materially adversely affect our business, financial condition and results of operations .

We have 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 who are significantly larger companies than us. For the six months ended June 30, 2002, Bausch & Lomb accounted for 47.1% of product revenues and 46.4% of our accounts receivable balance and Boehringer Ingelheim accounted for 15.1% of product revenues and 25.6% of our accounts receivable balance. Our failure to generate as much revenue as expected from these customers or the failure of these customers to purchase our products would adversely affect our business. On March 11, 2002, Bausch & Lomb’s senior debt and short-term debt ratings were downgraded. Although Bausch & Lomb emphasized at that time it was not facing any issues with respect to liquidity, any such issues that impact their ability to pay their accounts with us could adversely impact future revenues. In addition, if present and future customers terminate their purchasing arrangements with us, significantly reduce or delay their orders, or seek to renegotiate their agreements on terms less favorable to us, our business, financial condition, and results of operations will be adversely affected. If we accept terms less favorable than the terms of the current agreement, such renegotiations may have a material adverse effect on our business, financial condition, and/or results of operations. Furthermore, we may be subject to the perceived or actual advantage the customers may have given their relative size and importance to us in any future negotiations. Any termination, change, reduction or delay in orders could seriously harm our business, financial condition, and results of operations. Accordingly, unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and size of future purchases by our largest customers and the financial and operational success of these customers. Product revenue in the future may continue to be adversely impacted by economic uncertainties associated with the Turkish market.

The loss of any one of our major customers or the delay of significant orders from such customers, even if only temporary, could reduce or delay our recognition of revenues, harm our reputation in the industry, and reduce our ability to accurately predict cash flow, and, as a consequence, could seriously harm our business, financial condition, and results of operations.

We, through our distributors, distribute ORTHOVISC ^® in territories such as Canada, Spain, Portugal, Turkey, and Israel. Due to the result of the unfavorable results of the U.S. ORTHOVISC ^® Phase III clinical trial announced on May 31, 2000, marketing efforts in these countries have been and may continue to be negatively affected. There can be no assurance that past ORTHOVISC ^® sales levels will be maintained or that sales will occur at all in these countries.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2002, we do not participate in any derivative financial instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107. All of our investments consist of money market funds and commercial paper that are carried on our books at amortized cost, which approximates fair market value. Accordingly, we have no quantitative information concerning the market risk of participating in such investments.

Primary Market Risk Exposures

Our primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. Our investment portfolio of cash equivalent and short-term investments is subject to interest rate fluctuations, but we believe this risk is immaterial due to the short-term nature of these investments. Our exposure to currency exchange rate fluctuations is specific to certain sales to a foreign customer and is expected to continue to be modest. The impact of currency exchange rate movements on sales to this foreign customer was immaterial for the quarter ended June 30, 2002. Currently, we do not engage in foreign currency hedging activities.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

See Note 8, “Legal Matters” of the consolidated financial statements. The description of such matters is incorporated herein by reference to such financial statements.

Item 4. Submission of Matters to a Vote of Security Holders

On June 5, 2002, we held our 2002 Annual Meeting of Stockholders. At our annual meeting, stockholders were asked to consider a proposal to elect a Class III Director of Anika to serve until the 2005 annual meeting of stockholders and until his successors is duly elected and qualified (the “Election Proposal”).

With respect to the Election Proposal, Steven E. Wheeler was nominated as a Class III Director of Anika. Mr. Wheeler received 9,218,811shares voted in favor of his election and 244,087 votes were withheld. Mr. Wheeler was therefore elected as Class III Director. Joseph L. Bower and Eugene A. Davidson, Ph.D. (Class I Directors), and Samuel F. McKay and Harvey S. Sadow (Class II Directors) continued to serve their respective terms after the Annual Meeting.

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 Certificate of Vote of Directors Establishing a Series of Convertible Preferred Stock, incorporated herein by reference to Exhibits to the Company’s Registration Statement on Form 10 (File no. 000-21326), filed with the Securities and Exchange Commission on March 5, 1993.

	3.3* Amendment to the Amended and Restated Articles of Organization of the Company, dated January 8, 1997.

	3.4 Certificate of Vote of Directors Establishing a Series of a Class of Stock, incorporated herein by reference to Exhibit 3.1 of the Company’s Registration Statement on Form 8-AB12 (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 1998.

	3.5 Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to the Company’s quarterly report on Form 10-QSB for the quarterly period ending June 30, 1998 (File no. 001-14027), filed with the Securities and Exchange Commission on August 14, 1998.

	3.6* Amended and Restated By-laws of the Company.

	(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 to the Company’s Registration Statement on Form 8-A12B (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 1998.

	(10) Material Contracts

	10.1* Separation Agreement dated April 2, 2002 by and between the Company and Edward Ross, Jr.

	10.2* Letter Agreement dated June 25, 2002 by and between the Company and William J. Knight.

	10.3* Change in Control, Bonus and Severance Agreement dated July 8, 2002 by and between the Company and William J. Knight.

	10.4* Amended and Restated Change in Control, Bonus and Severance Agreement dated July 8, 2002 by and between the Company and Charles H. Sherwood.

	(11) Statement Regarding the Computation of Per Share Earnings

	11.1 See Note 4 to the Financial Statements included herewith.

* filed herewith

(b)	Reports on Form 8-K:

	The Registrant filed the following Reports on Form 8-K during the quarter ended June 30, 2002:

	1. Current Report on Form 8-K filed June 10, 2002, as amended by Current Report on Form 8-K/A filed June 20, 2002, announcing that the Company had terminated Arthur Andersen LLP as independent auditor.

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, 2002.

	Anika Therapeutics, Inc.

August 14, 2002	By:	/s/ William J. Knight
		William J. Knight
		Chief Financial Officer and Treasurer
		(Principal Financial Officer and Accounting Officer)

EXHIBIT 3.3

-0033257

Examiner

Name Approved

CPM R.A.

P.C.

NO. 04-3145961

THE COMMONWEALTH OF MASSACHUSETTS

WILLIAM FRANCIS GALVIN

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(GENERAL LAWS, CHAPTER 156B, SECTION 72)

We, J. Melville Engle, *President, and Sean F. Moran, *Clerk,

of	Anika Research, Inc. ,
	(Exact name of corporation)

located at	236 West Cummings Park, Woburn, MA 01801
	(Street address of corporation in Massachusetts)

certify that these Articles of Amendment affecting articles numbered:

	Article 1
	(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)

of the Articles of Organization were duly adopted at a meeting held on January 8, 1997, by vote of:

4,197,334 shares of Common of 4,917,023 shares outstanding,

(type, class & series, if any)

125,476 shares of Series A Preferred of 126,259 shares outstanding, and

(type, class & series, if any)

	shares of	of		shares outstanding,
(type, class & series, if any)

/1**/ being at least a majority of each type, class or series outstanding and entitled to vote thereon:

Changed name of corporation to Anika Therapeutics, Inc.

/*/ Delete the inapplicable words.

/**/ Delete the inapplicable clause.

/1/ For amendments adopted pursuant to Chapter 156B, Section 70.

/2/ For amendments adopted pursuant to Chapter 156B, Section 71.

NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON ONE SIDE ONLY OF SEPARATE 8 1/2 X 11 SHEETS OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS CLEARLY INDICATED.

To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following:

The total presently authorized is:

WITHOUT PAR VALUE STOCKS		WITH PAR VALUE STOCKS
TYPE	NUMBER OF SHARES	TYPE	NUMBER OF SHARES	PAR VALUE
Common:	N/A	Common:	N/A
Preferred:	N/A	Preferred:	N/A

Change the total authorized to:

WITHOUT PAR VALUE STOCKS		WITH PAR VALUE STOCKS
TYPE	NUMBER OF SHARES	TYPE	NUMBER OF SHARES	PAR VALUE
Common:	N/A	Common:	N/A
Preferred:	N/A	Preferred:	N/A

The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the Amendment will become effective on such later date.

SIGNED UNDER THE PENALTIES OF PERJURY, this 8th day of January, 1997,

/s/ J. Melville Engle, *President,
J. Melville Engle

/s/ Sean F. Moran, *Clerk.
Sean F. Moran

/*/ Delete the inapplicable words.

Exhibit 3.6

AMENDED AND RESTATED BY-LAWS

ANIKA THERAPEUTICS, INC.

Article 1 - Stockholders

1.1 Place of Meetings . All meetings of stockholders shall be held within the Commonwealth of Massachusetts unless the Articles of Organization permit the holding of stockholders’ meetings outside Massachusetts, in which event such meetings may be held either within or without Massachusetts. Meetings of stockholders shall be held at the principal office of the Corporation unless a different place is fixed by the Board of Directors or the President and stated in the notice of the meeting.

1.2 Annual Meeting . The annual meeting of stockholders shall be held within six months after the end of each fiscal year of the Corporation on a date to be fixed by the Board of Directors or the President (which date shall not be a legal holiday in the place where the meeting is to be held) at the time and place to be fixed by the Board of Directors or the President and stated in the notice of the meeting. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization or by these By-Laws, may be specified by the Board of Directors or the President. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu of the annual meeting, and any action taken at that special meeting shall have the same effect as if it had been taken at the annual meeting, and in such case all references in these By-Laws to the annual meeting of stockholders shall be deemed to refer to such special meeting.

1.3 Special Meetings . Special meetings of stockholders may be called at any time by the President or by the Chairman of the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of the meeting. Notwithstanding any other provision of law, these By-Laws or the Corporation’s Articles of Organization, as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast at any annual election of directors or class of directors shall be required to amend or repeal this Section 1.3 or to adopt any provision inconsistent with this Section 1.3.

1.4 Notice of Meetings . A written notice of each meeting of stockholders, stating the place, date and hour thereof, and the purposes for which the meeting is to be held, shall be given by the Clerk, Assistant Clerk or other person calling the meeting at least seven days before the meeting to each stockholder entitled to vote at the meeting and to each stockholder who by law, by the Articles of Organization or by these By-Laws is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it postage prepaid and addressed to him at his address as it appears in the records of the Corporation. Whenever any notice is required to be given to a stockholder by law, by the Articles of Organization or by these By-Laws, no such notice need be given if a written waiver of notice, executed before or

after the meeting by the stockholder or his authorized attorney, is filed with the records of the meeting.

1.5 Quorum . Unless the Articles of Organization otherwise provide, the holders of a majority of the number of shares of the stock issued, outstanding and entitled to vote on any matter shall constitute a quorum with respect to that matter, except that if two or more classes of stock are outstanding and entitled to vote as separate classes, then in the case of each such class a quorum shall consist of the holders of a majority of the number of shares of the stock of that class issued, outstanding and entitled to vote. Shares owned directly or indirectly by the Corporation shall not be counted in determining the total number of shares outstanding for this purpose.

1.6 Adjournments . Except as provided in Section 1.3 hereof, any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting, although less than a quorum, or by any officer entitled to preside or to act as clerk of such meeting, if no stockholder is present. It shall not be necessary to notify any stockholder of any adjournment. Any business which could have been transacted at any meeting of the stockholders as originally called may be transacted at any adjournment of the meeting.

1.7 Voting and Proxies . Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by the Articles of Organization. Stockholders may vote either in person or by written proxy dated not more than six months before the meeting named in the proxy. Proxies shall be filed with the clerk of the meeting, or of any adjourned meeting, before being voted. Except as otherwise limited by their terms, a proxy shall entitle the persons named in the proxy to vote at any adjournment of such meeting, but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by any one of them, unless at or prior to exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them. A proxy purported to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise.

1.8 Action at Meeting . When a quorum is present at any meeting, the holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter), shall decide any matter to be voted on by the stockholders, except when a larger vote is required by law, the Articles of Organization or these By-Laws. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. The Corporation shall not directly or indirectly vote any share of its own stock.

1.9 Introduction of Business at Meeting . Except as otherwise provided by law, at any annual or special meeting of stockholders only such business shall be conducted as shall have been properly brought before the meeting. In order to be properly brought before the meeting,

2 such business must have been either (A) specified in the written notice of the meeting (or any supplement thereto) given to stockholders of record on the record date for such meeting by or at the direction of the Board of Directors, (B) brought before the meeting at the direction of the Board of Directors or the chairman of the meeting or (C) specified in a written notice given by or on behalf of a stockholder of record on the record date for such meeting entitled to vote thereat or a duly authorized proxy for such stockholder, in accordance with all of the following requirements. A notice referred to in clause (C) hereof must be delivered personally to or mailed to and received at the principal executive office of the Corporation, addressed to the attention of the Clerk, not more than ten (10) days after the date of the initial notice referred to in clause (A) hereof, in the case of business to be brought before a special meeting of stockholders, and not less than thirty (30) days prior to the first anniversary date of the initial notice referred to in clause (A) hereof to the previous year’s annual meeting, in the case of business to be brought before an annual meeting of stockholders; provided , however , that such notice shall not be required to be given more than sixty (60) days prior to an annual meeting of stockholders. Such notice referred to in clause (C) hereof shall set forth (i) a full description of each such item of business proposed to be brought before the meeting, (ii) the name and address of the person proposing to bring such business before the meeting, (iii) the class and number of shares held of record, held beneficially and represented by proxy by such person as of the record date for the meeting (if such date has been made publicly available) and as of the date of such notice, (iv) if any item of such business involves nomination for director, all information regarding each such nominee that would be required to be set forth in a definitive proxy statement filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor thereto, and the written consent of each such nominee to serve if elected, and (v) all other information that would be required to be filed with the Securities and Exchange Commission if, with respect to the business proposed to be brought before the meeting, the person proposing such business was a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor thereto. No business shall be brought before any meeting of stockholders of the Corporation otherwise than as provided in this paragraph.

Notwithstanding the foregoing provisions, the Board of Directors shall be obligated to include information as to any nominee for director in any proxy statement or other communication sent to stockholders.

The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that any proposed item of business was not brought before the meeting in accordance with the foregoing procedure and, if he should so determined, he shall so declare to the meeting and the defective item of business shall be disregarded.

1.10 Action without Meeting . Until the Corporation becomes subject to the reporting requirements of the Securities Exchange Act of 1934 (the “Triggering Event”), any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on such action were present and voted. Prompt notice of the taking of corporate action without a meeting by less than unanimous

3 written consent shall be given to those stockholders who have not consented in writing. Effective upon the date of the Triggering Event, stockholders of the Corporation may not take any action by written consent in lieu of a meeting. Notwithstanding any other provision of law, these By-Laws or the Corporation’s Articles or Organization, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast at any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Section 1.9.

Article 2 - Directors

2.1 Powers . The business of the Corporation shall be managed by a Board of Directors, who may exercise all the powers of the Corporation except as otherwise provided by law, by the Articles of Organization or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.

2.2 Number, Election and Qualification . The number of Directors which shall constitute the whole Board of Directors shall be determined by vote of the stockholders or the Board of Directors, but shall consist of not less than three Directors (except that whenever there shall be only two stockholders the number of Directors shall be not less than two and whenever there shall be only one stockholder or prior to the issuance of any stock, there shall be at least one Director). The number of Directors may be decreased at any time and from time to time either by the stockholders or by a majority of the Directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more Directors. The Directors shall be elected at the annual meeting of stockholders by such stockholders as have the right to vote on such election. No Director need be a stockholder of the Corporation. The number of Directors may be increased at any time and from time to time by the stockholders or by a majority of the Directors then in office.

2.3 Classes of Directors . The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. No one class shall have more than one director more than any other class. If a fraction is contained in the quotient arrived at by dividing the authorized number of directors by three, then, if such fraction is one-third, the extra directors shall be a member of Class I and, if such fraction is two-thirds, one of the extra directors shall be a member of Class I and the other extra director shall be a member of Class II, unless otherwise provided for from time to time by resolution adopted by a majority of the Board of Directors.

2.4 Election of Directors . Elections of directors need not be by written ballot except as and to the extent provided in the By-Laws of the Corporation.

2.5 Terms of Office . Each director shall serve for a term ending on the date of the third annual meeting following the annual meetings at which such director was elected; provided , however , that each initial director in Class I shall serve for a term ending on the date of the annual meeting next following the end of the Corporation’s fiscal year ending August 31, 1994; each initial director in Class II shall serve for a term ending on the date of the annual meeting next following the end of the Corporation’s fiscal year ending August 31, 1995; and each initial

4 director in Class III shall serve for a term ending on the date of the annual meeting next following the end of the Corporation’s fiscal year ending August 31, 1996.

2.6 Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors . In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term or his prior death, retirement or resignation and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure than no one class has more than one director more than any other class. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of office are to expire at the earliest dates following such allocation, unless otherwise provided for form time to time by resolution adopted by a majority of the directors then in office, although less than a quorum.

2.7 Tenure . Notwithstanding any provisions to the contrary contained herein, each director shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal.

2.8 Vacancies . Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may be filled by a vote of a majority of directors then in office. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, if applicable, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election of the class for which such director shall have been chosen and until his successor is elected or qualified, or until his earlier death, resignation or removal.

2.9 Resignation . Any Director may resign by delivering his written resignation to the Corporation at its principal office or to the President or Clerk. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

2.10 Removal . A Director may be removed from office with or without cause by vote of the holders of a majority of the shares entitled to vote in the election of Directors. However, the Directors elected by the holders of a particular class or series of stock may be removed from office with or without cause only by vote of the holders of a majority of the outstanding shares of such class or series. In addition, a Director may be removed from office for cause by vote of a majority of the Directors then in office. A Director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him.

2.11 Regular Meetings . Regular meetings of the Directors may be held without call or notice at such places, within or without Massachusetts, and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice immediately after and at the same place as the annual meeting of

5 stockholders. Meetings of the Directors shall be held at least once in every fiscal quarter of the Company.

2.12 Special Meetings . Special meetings of the Directors may be held at any time and place, within or without Massachusetts, designated in a call by the Chairman of the Board, President, Treasurer, two or more Directors, any one Director who is a member of the Executive Committee or by one Director in the event that there is only a single Director in office.

2.13 Meetings by Telephone Conference Calls . Directors or members of any committee designated by the Directors may participate in a meeting of the Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting.

2.14 Notice of Special Meetings . Notice of any special meeting of the Directors shall be given to each Director by the Clerk or by the officer or one of the Directors calling the meeting. Notice shall be duly given to each Director (i) by notice given to such Director in person or by telephone at least 48 hours in advance of the meeting, (ii) by sending a telegram or telecopy, or by delivering written notice by hand to his last known business or home address at least 48 hours in advance of the meeting, or (iii) by mailing written notice to his last known business or home address at least 72 hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior to the meeting or at its commencement the lack of notice to him. A notice or waiver of notice of a Directors’ meeting need not specify the purposes of the meeting. If notice is given in person or by telephone, an affidavit of the Clerk, officer or Director who gives such notice that the notice has been duly given shall, in the absence of fraud, be conclusive evidence that such notice was duly given.

2.15 Quorum . A majority of the total number of the whole Board of Directors shall constitute a quorum at all meetings of the Board of Directors. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.

2.16 Action at Meeting . At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, by the Articles of Organization or by these By-Laws.

2.17 Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the Directors consent to the action in writing and the written consents are filed with the records of the Directors’ meetings. Each such consent shall be treated for all purposes as a vote at a meeting.

6 2.18 Committees . The Board of Directors may, by vote of a majority of the Directors then in office, elect from their number an executive committee or other committees and may by like vote delegate to committees so elected some or all of their powers to the extent permitted by law. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided by these By-Laws for the Directors. The Board of Directors shall have the power at any time to fill vacancies in any such committee, to change its membership or to discharge the committee.

2.19 Executive Committee . The Executive Committee of the Board of Directors shall consist of up to four members. The Executive Committee will be responsible for formulating and establishing a strategic business plan for the future and presenting same to the full Board of Directors. The Executive Committee will review and approve the Annual Operating Plan before it is submitted to the Board of Directors for formal approval. The Executive Committee will review and monitor actual business and financial performance against the Annual Operating Plan and the Strategic Plan and report to the full Board of Directors thereon. The Executive Committee will be responsible for reviewing the operating activities of the Company including sales and marketing, regulatory, manufacturing, product development, finance and administration. The Executive Committee shall meet at least once every calendar month until the Corporation shall have positive net income for a fiscal year.

2.20 Compensation of Directors . Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.

2.21 Consent to Certain Actions . The approval of two-thirds of the Board of Directors shall be required to take any of the actions set forth in Section 8 of the Series A Preferred Stock Purchase Agreement dated as of May , 1995 by and among the Corporation and the investors listed on Schedule 1 thereto to the extent such actions would otherwise be prohibited by such Section 8 unless such prohibition is waived by the holders of the Corporation’s Series A Preferred Stock.

Article 3 - Officers

3.1 Enumeration . The officers of the Corporation shall consist of a President, a Treasurer, a Clerk and such other officers with such other titles as the Board of Directors may determine, including, but not limited to, a Chairman of the Board, a Vice Chairman of the Board, a Clerk and one or more Vice Presidents, Assistant Treasurers, and Assistant Clerks.

3.2 Election . The president, Treasurer and Clerk shall be elected annually by the Board of Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen or appointed by the Board of Directors at such meeting or at any other meeting.

3.3 Qualification . Neither the President nor any other officer need be a director or stockholder. Any two or more offices may be held by the same person. The Clerk shall be a

7 resident of Massachusetts unless the Corporation has a resident agent appointed for the purpose of service of process. Any officer may be required by the Directors to give bond for the faithful performance of his duties to the Corporation in such amount and with such sureties as the Directors may determine. The premiums for such bonds may be paid by the Corporation.

3.4 Tenure . Except as otherwise provided by law, by the Articles of Organization or by these By-Laws, the President, Treasurer and Clerk shall hold office until the first meeting of the Directors following the next annual meeting of stockholders and until their respective successors are chosen and qualified; and all other officers shall hold office until the first meeting of the Directors following the annual meeting of stockholders, unless a different term is specified in the vote choosing or appointing them, or until his earlier death, resignation or removal.

3.5 Resignation and Removal . Any officer may resign by delivering his written resignation to the Corporation at its principal office or to the President, or Clerk. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

Any officer may be removed at any time, with or without cause, by vote of a majority of the entire number of Directors then in office. An officer may be removed for cause only after reasonable notice and opportunity to be heard by the Board of Directors prior to action thereon.

Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or the year or otherwise, unless such compensation is expressly provided in a duly authorized written agreement with the Corporation.

3.6 Vacancies . The Board of Directors may fill any vacancy occurring in any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Clerk. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is chosen and qualified, or until he sooner dies, resigns or is removed.

3.7 Chairman of the Board and Vice-Chairman of the Board . The Board of Directors may appoint a Chairman of the Board and may designate him as Chief Executive Officer. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of Directors. If the Board of Directors appoints a Vice-Chairman of the Board, he shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be vested in him by the Board of Directors.

3.8 President . The President shall, subject to the direction of the Board of Directors, have general charge and supervision of the business of the Corporation. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders and, if he is a Director, at all meetings of the Board of Directors. Unless the Board of Directors has designated the Chairman of the Board or another officer as Chief Executive Officer, the

8 President shall be the Chief Executive Officer of the Corporation. The President shall perform such other duties and shall possess such other powers as the Board of Directors may from time to time prescribe.

3.9 Vice Presidents . Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.

3.10 Treasurer and Assistant Treasurers . The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the Corporation, to deposit funds of the Corporation in depositories selected in accordance with these By-Laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the Corporation.

The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer.

3.11 Clerk and Assistant Clerks . The Clerk shall perform such duties and shall possess such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Clerk shall perform such duties and have such powers as are incident to the office of the clerk, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.

Any Assistant Clerk shall perform such duties and possess such powers as the Board of Directors, the President or the Clerk may from time to time prescribe. In the event of the absence, inability or refusal to act of the Clerk, the Assistant Clerk (or if there shall be more than one, the Assistant Clerks in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Clerk.

In the absence of the Clerk or any Assistant Clerk at any meeting of stockholders or Directors, the person presiding at meeting shall designate a temporary clerk to keep a record of the meeting.

9 3.12 Salaries . Officers of the Corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.

Article 4 - Capital Stock

4.1 Issue of Capital Stock . Unless otherwise voted by the stockholders, the whole or any part of any unissued balance of the authorized capital stock of the Corporation or the whole or any part of the capital stock of the Corporation held in its treasury may be issued or disposed of by vote of the Board of Directors, in such manner, for such consideration and on such terms as the Directors may determine.

4.2 Certificate of Stock . Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may be prescribed from time to time by the Directors. The certificate shall be signed by the President or a Vice President, and by the Treasurer or an Assistant Treasurer, but when a certificate is countersigned by a transfer agent or a registrar, other than a Director, officer or employee of the Corporation, such signature may be a facsimile. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the time of its issue.

Every certificate for shares of stock which are subject to any restriction on transfer pursuant to the Articles of Organization, the By-Laws, applicable securities laws or any agreement to which the Corporation is a party, shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a Stockholder of the existence of such restrictions and a statement that the Corporation will furnish a copy of the restrictions to the holder of such certificate upon written request and without charge. Every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued or a statement of the existence of such preferences, powers, qualifications and rights and a statement that the Corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge.

4.3 Transfers . Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the Corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Articles of Organization or by these By-Laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of a any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-Laws.

It shall be the duty of each stockholder to notify the Corporation of his post office address and of his taxpayer identification number.

4.4 Record Date . The Board of Directors may fix in advance a time not more than 60 days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting, and any adjournment, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the Corporation after the record date. Without fixing such record date the Directors may for any of such purposes close the transfer books for all or any part of such period.

If no record date is fixed and the transfer books are not closed, the record date for determining the stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, and the record date for determining the stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect to such purpose.

4.5 Replacement of Certificates . In case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place of the lost, destroyed or mutilated certificate, upon such terms as the Directors may prescribe, including the presentation of reasonable evidence of such loss, destruction or mutilation and the giving of such indemnity as the Directors may require for the protection of the Corporation or any transfer agent or registrar.

Article 5 - Miscellaneous Provisions

5.1 Fiscal Year . Except as otherwise set forth in the Articles of Organization or as otherwise determined from time to time by the Board of Directors, the fiscal year of the Corporation shall in each year end on December 31.

5.2 Seal . The seal of the Corporation shall, subject to alteration by the Directors, bear its name, the word “Massachusetts” and the year of its incorporation.

5.3 Voting of Securities . Except as the Board of Directors may otherwise designate, the President or Treasurer may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney–in–fact for this Corporation (with or without power of substitution) at, any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this Corporation.

5.4 Corporate Records . The original, or attested copies, of the Articles of Organization, By-Laws and records of all meetings of the incorporators and stockholders, and the stock records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the Corporation, or at an office of its transfer agent or of the Clerk. These copies and records need

11 not all be kept in the same office. They shall be available at all reasonable times for the inspection of any stockholder for any proper purpose, but not to secure a list of stockholders for the purpose of selling the list or copies of the list or of using the list for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the Corporation.

5.5 Evidence of Authority . A certificate by the Clerk or an Assistant Clerk, or a temporary Clerk, as to any action taken by the stockholders, Directors, any committee or any officer or representative of the Corporation shall as to all persons who rely on the certificate in good faith be conclusive of such action.

5.6 Articles of Organization . All references in these By-Laws to the Articles of Organization shall be deemed to refer to the Articles of Organization shall be deemed to refer to the Articles of Organization of the Corporation, as amended and in effect from time to time.

5.7 Severability . Any determination that any provision of these By-Laws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-Laws.

5.8 Pronouns . All pronouns used in these By-Laws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identify of the person or persons may require.

Article 6 - Amendments

Unless otherwise provided for therein, these By-Laws may be amended by vote of the holders of a majority of the shares of each class of the capital stock at the time outstanding and entitled to vote at any annual or special meeting of stockholders, if notice of the substance of the proposed amendment is stated in the notice of such meeting. If authorized by the Articles of Organization and unless otherwise provided for therein, the Directors, by a majority of their number then in office, may also make, amend or repeal these By-Laws, in whole or in part, except with respect to (a) the provisions of these By-Laws governing (i) the removal of Directors and (ii) the amendment of these By-Laws and (b) any provision of these By-Laws which by law, the Articles of Organization or these By-Laws requires action by the stockholders.

Not later than the time of giving notice of the meeting of stockholders next following the making, amending or repealing by the Directors of any By-Law, notice stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-Laws.

Any By-Law adopted by the Directors may be amended or repealed by the stockholders entitled to vote or amending the By-Law.

Exhibit 10.1

[ANIKA THERAPEUTICS LETTERHEAD]

April 2, 2002

PERSONAL & CONFIDENTIAL

Mr. Edward Ross, Jr.

26 Locke Lane

Lexington, MA 02173

Dear Ed:

This letter notifies you in writing of the termination of your employment with Anika Therapeutics, Inc. (the “Company”). This letter also proposes an agreement between you and the Company.

Your employment will terminate effective March 22, 2002. The Company shall pay you your current base salary through March 22, 2002. In addition, the Company will pay you for all accrued but unused vacation time through March 22, 2002, which will be based on 270.91 hours of accrued but unused vacation time. The Company also will provide you with the right to continue group medical and dental insurance coverage under the terms of the law known as “COBRA”. The termination of other benefits will be addressed in separate correspondence. For further details refer to Section 3a.

The payment and other terms set forth above will not be affected by whether or not you agree to the terms set forth below.

The remainder of this letter proposes an agreement (the “Agreement”) between you and the Company. The purpose of this Agreement is to establish an amicable arrangement for ending your employment relationship, to release the Company and related persons or entities from any claims to establish a brief Consultancy Period (as defined herein) and to permit you to receive fair and reasonable separation pay and related benefits.

If you agree to the terms of this Agreement, you acknowledge that you are entering into this Agreement voluntarily. It is customary in employment separation agreements that provide for severance pay for the departing employee to release the employer from any possible claims, even if the employer believes, as is the case here, that no such claims exist. You understand that you are giving up your right to bring any and all possible legal claims against the Company. Neither the Company nor you want your employment relationship to end with a legal dispute. By entering into this Agreement, you understand that the Company is not admitting in any way that it violated any legal obligation that it owed to you. To the contrary, the Company’s willingness to enter into this Agreement demonstrates that it is continuing to deal with you fairly and in good faith.

With those understandings, you and the Company agree as follows:

1. Termination

As we have discussed, you understand that your employment with the Company as its Vice President of Sales and Marketing and from any and all other positions that you may hold with the Company will terminate effective March 22, 2002 (the “Termination Date”). You agree that up to and including March 22, 2002, you shall work diligently and responsibly in performing the duties associated with your current position as Vice President of Sales and Marketing.

2. Severance Pay

If this Agreement becomes effective, the Company will not assert that your employment was terminated for “cause” due to non-performance and shall agree to provide severance pay (“Severance Pay”) to you consisting of the continuation of your current base salary rate of $166,049.00 per year for the six-month period plus 5-week consulting period (see paragraph 4) beginning March 23, 2002 (the “Salary Continuation Period”), payable on the Company’s regular bi-weekly payroll dates. The Company will suspend the payment of Severance Pay until such time as the Agreement becomes effective in accordance with Section 15. If the Agreement becomes effective, the Company will reinstate you to the payroll and shall provide any suspended payroll payments to you no later than the second payroll date after this Agreement becomes effective.

3. Benefits

a. Medical and Dental Benefits

By agreeing to this Agreement, you elect to continue your medical and dental insurance coverage under COBRA. Your COBRA period will commence on March 23, 2002. Provided that you remain eligible for COBRA continuation coverage, the Company shall continue to pay the premiums for your group medical and dental insurance coverage on the same basis as if you continued to be employed during the Salary Continuation period. Thereafter, you may continue coverage at your own expense for the remainder of the COBRA period to the extent you remain eligible.

b. Stock and Stock Option Plans

Nothing in this Agreement is intended to reduce or expand your rights under the Company’s Stock Option Plan dated March 3, 1993, as amended (the “Plan”), or the agreements you entered into pursuant to the Plan.

c. Outplacement

The Company shall pay up to $10,000 to Stybell Peabody & Associates to assist you in your efforts to obtain new employment, provided that such outplacement services are provided on or prior to October 1, 2002.

d. Other Benefits

Your eligibility to participate in any other employee benefit plans and programs sponsored by or made available to employees of the Company or its affiliated or related entities ceases effective on or after your Termination Date in accordance with applicable benefit plan terms and benefit practices. Your rights to benefits, if any, are governed by the terms of those benefit plans and programs.

4. Consultancy Period

For the six-week period commencing on Monday, March 25, 2002 (the “Consultancy Period”), you agree that you shall perform for the Company any requested services that are reasonably performed by someone of your knowledge and skill level, including, but not limited to, services that will assist the Company in the transition from your position as Vice President of Sales and Marketing, and may include the application of any factual or scientific knowledge you may have related to the Company’s business or products (the “Consultancy”), as follows:

• Through April 5, 2002, you agree that you will report to the office for no fewer than 20 hours, but no more than 40 hours as requested by the Company.

• From April 6, 2002 through April 26, 2002, you should not report to the office unless directed to do so by the Company. At its discretion, the Company will determine the number of hours to be worked and when those hours are to be worked, provided that such times are reasonable and do not unreasonably interfere with your search for new employment.

You agree that during the Consultancy Period, you shall perform the Consultancy in a responsible and diligent manner and that you will not take any actions intended to damage the Company or its products.

In the event that you sign this Agreement, the Company will pay your regular base pay as of the Termination Date for the Consultancy Period, payable on the Company’s regular bi-weekly payroll dates after the Effective Date of this Agreement. If you do not sign this Agreement, the Company will compensate you for time actually spent by you consulting as contemplated in this paragraph 4 of the Agreement at a rate of $80.00 per hour, rounded to the nearest half hour.

5. Tax Treatment

The Company shall undertake to make deductions, withholdings and tax reports with respect to payments and benefits under this Agreement to the extent that it reasonably and in good faith believes that it is required to make such deductions, withholdings and tax reports. Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall be construed to require the Company to make any payments to compensate you for any adverse tax effect associated with any payments or benefits or for any deduction or withholding from any payment or benefit.

6. Release of Claims

In consideration for, among other terms, the payments and benefits described in Sections 2, 3 (c) and 4, to which you otherwise would not be entitled, you voluntarily release and forever discharge the Company, its affiliated and related entities, its and their respective predecessors, successors and assigns, and each of their current and former officers, directors, shareholders, employees, attorneys, accountants and agents in their official and personal capacities (collectively referred to as the “Releasees”) generally from all claims, demands, debts, damages and liabilities of every name and nature, known or unknown, that, as of the date that you sign this Agreement, you now have, ever had, now claim to have or ever claimed to have had against any or all of the Releasees (“Claims”). This release includes, without limitation, all Claims relating to your employment by and termination of employment with the Company; all Claims of wrongful discharge; all Claims of breach of contract; all Claims of retaliation or discrimination under federal, state or local law (including, without limitation, Claims of age discrimination under the Age Discrimination in Employment Act); all Claims of defamation or other torts; all Claims of violation of public policy; all Claims for wages, bonuses, incentive compensation, vacation pay or any other compensation or benefits; and all Claims for damages of any sort, including, without limitation, compensatory damages, punitive damages and attorneys fees; provided, however, that this release shall not affect your right to enforce this Agreement.

You agree that you shall not seek or accept reinstatement with any Releasees. You also agree that you shall not seek damages of any nature, equitable or legal remedies, attorney’s fees, or costs from any of the Releasees with respect to any Claim. As a material inducement to the Company to enter into this Agreement, you hereby represent that you have not heretofore assigned to any third party and you have not heretofore filed with any agency or court any Claim released by this Agreement.

7. Return of Property

You will return all Company property that is in your possession, custody or control, including, without limitation, computer equipment, software, cellular telephones, keys and access cards, credit cards, files and any other documents (including computerized data and any

copies made of any computerized data or software) containing information concerning the Company, its business or customer relationships (in the latter two cases, actual or prospective), no later than the date when this Agreement becomes effective.

8. Cooperation

You agree that, at any time in the future, you shall cooperate fully with the Company as reasonably requested, consistent with your schedule, in all regulatory matters, in the gathering of information for the Company’s annual reports, filings and statements with the Securities and Exchange Commission and the Nasdaq Stock Market, Inc. or exchange on which the Company’s securities are listed, and in the defense or prosecution of any legal claims or actions that already have been brought or that may be brought in the future against or on behalf of the Company that related to events or occurrences that transpired during your employment with the Company. Your full cooperation in connection with such regulatory matters, information gathering claims, actions or disputes shall include, without limitation, being available to meet with representatives of the Company to prepare for regulatory processes and counsel to prepare for discovery or trial and to testify truthfully as a witness when reasonably requested by the Company. The Company will reimburse you for any reasonable out-of-pocket expenses (which shall not be construed to include your personal attorney’s fees) that you incur in connection with such cooperation, provided that you provide the Company reasonable documentation of such out-of-pocket expenses. In addition, with the exception of any time spent by you actually testifying as a witness, the Company shall reimburse you at a rate of $100.00 per hour for each hour that you spend cooperating with the Company, or acting in furtherance thereof, in accordance with this Section.

9. Confidentiality of Agreement

You agree to keep the existence and terms of this Agreement in the strictest confidence and to not reveal, unless legally compelled to do so, the existence or terms of this Agreement to any persons except your attorney and your financial advisors, provided that they also agree to keep such information confidential. You shall be considered to have breached this Agreement if any of those individuals fails to keep such information completely confidential. Nothing in this Section 9 shall be construed to prevent you from disclosing such matters to the extent required by a lawfully issued subpoena or duly issued court order; provided that you provide the Company with advance written notice as soon as is practicable and a reasonable opportunity to contest such subpoena or court order. Nothing contained herein shall be deemed to limit your rights under applicable law, including 29 U.S.C. § 626(f)(4).

The Company agrees to keep the existence and terms of this Agreement in the strictest confidence and to not reveal, unless legally compelled to do so, the existence or terms of this Agreement to any persons except its attorney and its financial advisors, provided that they also agree to keep such information confidential.

10. Validity of Non-Disclosure and Non-Competition Agreement

You acknowledge and agree that you remain bound by the terms of the Company’s Non-Disclosure and Non-Competition Agreement that was executed by you on December 2, 1996.

11. Non-Disparagement

You will refrain from making any disparaging statements, taking any actions, or conducting yourself in any way that adversely affects the reputation or goodwill of the Company and/or its affiliated entities and the current and former officers, directors, shareholders, employees and agents of any of them. These non-disparagement obligations shall not in any way affect your obligation to testify truthfully in any legal proceeding.

The Company, as represented by the Anika management team as of the signature date of this agreement, will refrain from making any disparaging statements, taking any actions, or conducting itself in any way that adversely affects your reputation or goodwill. These non-disparagement obligations shall not in any way affect the Company’s obligation to testify truthfully in any legal proceeding.

12. Treatment of Reference Inquiries

The Company agrees that any inquiries regarding your employment will be referred to the Human Resources Department which will respond to any such inquiries by stating the dates of your employment, the position held by you and that your termination followed changes in management.

13. Consideration of the Agreement

This Agreement is a legally binding document. Provided that you do not revoke this Agreement in accordance with Section 15 below, your signature will commit you to the terms of this Agreement. You acknowledge that you have been advised to discuss all aspects of this Agreement with your attorney, that you have carefully read and fully understand all of the provisions of this Agreement and that you are voluntarily entering into this Agreement.

14. Consent to Jurisdiction

You and the Company hereby consent to the jurisdiction of the Superior Court of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts with respect to any claim of violation of this Agreement. With respect to any such court action you (a) submit to the jurisdiction of such courts, (b) consent to service of process, and (c) waive any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction or venue.

15. Other Provisions

You acknowledge that you have been given the opportunity to consider this Agreement for twenty-one (21) days before signing it. You further acknowledge that any changes made to this Agreement since it was originally issued to you on March 22, 2002 are not material and do not restart the running of any period in which you are statutorily permitted to review this Agreement. If you sign this Agreement within less than twenty-one (21) days of the date of its delivery to you, you acknowledge that such decision was entirely voluntary and that you had the opportunity to consider this Agreement for the entire twenty-one (21) day period. To accept this Agreement, you must provide the fully signed Agreement to the undersigned by the end of the twenty-one (21) day period. For a period of seven (7) days from the date you sign this Agreement, you have the right to revoke this Agreement by written notice to the undersigned. If you do not revoke this Agreement, it shall become effective on the eighth (8th) day after you sign it. This Agreement shall not become effective or enforceable until the expiration of the seven (7) day revocation period (the “Effective Date”).

This Agreement constitutes the entire agreement regarding the termination of your employment with the Company. This Agreement supersedes any previous agreements or understandings between us, except for any agreements under the Company’s Stock Option Plan, as described in Section 3(b) and the Non-Disclosure and Non-Competition Agreement described in Section 10. In signing this Agreement, you are not relying upon any oral promises or representations made by anyone at or on behalf of the Company.

This Agreement will be interpreted and enforced under the laws of the Commonwealth of Massachusetts, without regard to conflict of law principles. In the event of any dispute, this Agreement will be construed as a whole, will be interpreted in accordance with its fair meaning, and will not be construed strictly for or against either you or the Company. This Agreement is executed under seal. Please indicate your agreement to the terms of this Agreement by signing and returning to me a copy of this letter. You are advised to consult with an attorney before signing this Agreement.

	Sincerely,

	ANIKA THERAPEUTICS, INC.


	By:	/s/ Douglas R. Potter
Accepted and agreed to:			Douglas R. Potter
			Chief Financial Officer


/s/ Edward Ross, Jr.
Edward Ross, Jr.
Date: April 9, 2002

Exhibit 10.2

[ANIKA THERAPEUTICS LETTERHEAD]

June 25, 2002

Mr. William J. Knight

39 Bare Hill Road

Boxford, MA 01921

Dear Bill:

I am pleased to present our offer to you to join Anika Therapeutics, Inc. as an employee. The terms of our offer, subject to approval by the Compensation Committee of the Board of Directors, are outlined below:

Position : Chief Financial Officer.

Description of duties : You will have responsibility for all the financial activities of the Company including financial plans and policies, accounting practices and procedures, and the Company’s relationship with its shareholders and the outside financial community.

Reporting to : Charles H. Sherwood, Ph.D., President and Chief Executive Officer.

Employment date : Your anticipated start date is no later than July 15, 2002.

Rate of pay : $6,923.08 per bi-weekly payroll (annualized $180,000).

Management bonus plan : Target 20% of salary at plan. Bonus is payable shortly after year-end based on Company performance and personal performance against key objectives. In accordance with the Management Bonus Plan, your bonus for 2002 will be prorated based on the number of months of your employment.

Stock options : 75,000 options. Options will vest over 4 years in accordance with the terms of the stock option agreement.

Benefits : You will be eligible to participate in the Anika employee benefit programs upon commencement of employment. This program currently covers comprehensive medical and dental benefits, life and disability insurance, 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 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 documents and Summary Plan Descriptions.

Vacation : You will accrue three weeks of vacation during your first year of employment and are subject to the terms of 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 :

1) 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 premium payment of the active employee share of premium payments for such coverage.

2) 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 on Anika finding that you committed an act of 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 days advance notice, including notice of the agenda of such meeting. As used herein, the term “cause” shall mean :

	i.		conviction of a felony involving the Company,
	ii.		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 days after receiving written notice of the Company’s position with respect to such action; or
	iii.		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 days after your receipt of written notice requesting that you remedy such breach.

Change in Control, Bonus, and Severance Agreement : Subject to the approval of the Compensation Committee of the Board of Directors, an Agreement (attached) between you and Anika Therapeutics, Inc. shall be executed providing terms pertaining to a 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 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 Anika Non-Disclosure and Non-Competition Agreement as an employee of Anika Therapeutics. In addition, all employees are subject to a background check including verification of education.

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.

Finally, this offer is conditioned 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 full time and attention to your work at Anika Therapeutics, Inc. Upon commencement of your employment, 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.

If the terms of this offer are acceptable, please indicate your acceptance by signing both copies of this letter and the Anika Non-Disclosure and Non-Competition Agreement and return one copy of each to me. I am enthusiastic about Anika’s future prospects and look forward to your leadership and contribution to the Anika team.

Sincerely,

/s/ Charles H. Sherwood
Charles H. Sherwood, Ph.D.
President and Chief Executive Officer


Agreed and accepted:


/s/ William J. Knight
William J. Knight
Date: June 27, 2002

Enclosures

Exhibit 10.3

ANIKA THERAPEUTICS, INC.

Change in Control, Bonus and Severance Agreement

AGREEMENT made as of July 8, 2002 by and among Anika Therapeutics, Inc., a Massachusetts corporation with its principal place of business in Woburn, Massachusetts (the “Company”), and William J. Knight of Boxford, 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

(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

(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.

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 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 that certain Non-Disclosure and Non-Competition Agreement of June 27, 2002 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.

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.

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/ Charles H. Sherwood
			Charles H. Sherwood, Ph.D.
			President and Chief Executive Officer


	EXECUTIVE :


	/s/ William J. Knight
	William J. Knight

Exhibit 10.4

ANIKA THERAPEUTICS, INC.

First Amended and Restated

Change in Control, Bonus and Severance Agreement

FIRST AMENDMENT AND RESTATEMENT, dated as of July 8, 2002 to that certain 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 President and Chief Executive Officer of the Company.

2. Change in Control . A “Change in Control” shall mean the occurrence of any one of the following events:

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

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:

(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

(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.

(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 management responsibilities for the business conducted by the Company 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.

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 one hundred percent (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 effective date of a Change in Control.

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.

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.

Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

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.

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/ William J. Knight
	Name:	William J. Knight
	Title:	Chief Financial Officer


EXECUTIVE :


/s/ Charles H. Sherwood
Charles H. Sherwood