UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2019

 

☐   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)

 

Delaware 04-3145961
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)  
   
32 Wiggins Avenue, Bedford, Massachusetts 01730
(Address of Principal Executive Offices) (Zip Code)

 

(781) 457-9000

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
     
Common Stock, par value $0.01 per share ANIK NASDAQ Global Select Market

 

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 past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated
filer  ☐ 		  Accelerated filer  ☒   Non-accelerated filer  ☐  

Smaller reporting

company  ☐

Emerging growth

company  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

As of July 18, 2019, there were 13,782,928 outstanding shares of Common Stock, par value $0.01 per share.

 

  1  

 

ANIKA THERAPEUTICS, INC.

TABLE OF CONTENTS

 

 

 

Page

Part I Financial Information  
Item 1. Financial Statements (unaudited): 3
  Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 3
  Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2019 and 2018 4
  Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2019 and 2018 5
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 6
  Notes to Condensed Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 22
Part II Other Information  
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 6. Exhibits 24
Signatures 25

 

 

 

References in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” “our company,” and other similar references refer to Anika Therapeutics, Inc. and its subsidiaries unless the context otherwise indicates.

 

ANIKA, ANIKA THERAPEUTICS, CINGAL, HYAFF, MONOVISC, and ORTHOVISC are our registered trademarks. This Quarterly Report on Form 10-Q also contains additional registered marks, trademarks, and trade names, including ones that are the property of other companies and licensed to us.

 

 

 

  2  

 

PART I: FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

         

 

ASSETS   June 30,
2019 		  December 31,
2018
Current assets:                
Cash and cash equivalents   $ 69,407     $ 89,042  
Investments     72,045       69,972  
Accounts receivable, net of reserves of $1,089 and $1,525 at June 30, 2019 and December 31, 2018, respectively     23,073       20,775  
Inventories, net     22,986       21,300  
Prepaid expenses and other current assets     2,413       1,854  
Total current assets     189,924       202,943  
Property and equipment, net     52,960       54,111  
Operating lease right-of-use assets     23,495       -  
Other long-term assets     4,884       4,897  
Intangible assets, net     8,303       9,191  
Goodwill     7,798       7,851  
Total assets   $ 287,364     $ 278,993  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 2,287     $ 3,143  
Accrued expenses and other current liabilities     8,101       8,146  
Total current liabilities     10,388       11,289  
Other long-term liabilities     373       550  
Deferred tax liability     3,683       3,542  
Operating lease liabilities     21,974       -  
Commitments and contingencies (Note 13)                
Stockholders’ equity:                
Preferred stock, $0.01 par value; 1,250 shares authorized, no shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively     -       -  
Common stock, $0.01 par value; 90,000 shares authorized, 13,785 and 14,210 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively     138       142  
Additional paid-in-capital     24,329       50,763  
Accumulated other comprehensive loss     (5,696 )     (5,526 )
Retained earnings     232,175       218,233  
Total stockholders’ equity     250,946       263,612  
Total liabilities and stockholders’ equity   $ 287,364     $ 278,993  

 

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

 

  3  

 

Condensed Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

(unaudited)

                 

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
Product revenue   $ 30,413     $ 30,542     $ 55,130     $ 51,800  
Licensing, milestone and contract revenue     5       6       11       12  
Total revenue     30,418       30,548       55,141       51,812  
                                 
Operating expenses:                                
Cost of product revenue     6,836       8,152       14,147       15,996  
Research & development     4,165       4,733       8,423       9,895  
Selling, general & administrative     7,502       6,417       15,174       22,507  
Total operating expenses     18,503       19,302       37,744       48,398  
Income from operations     11,915       11,246       17,397       3,414  
Interest and other income, net     533       290       1,031       385  
Income before income taxes     12,448       11,536       18,428       3,799  
Provision for income taxes     3,013       1,444       4,486       394  
Net income   $ 9,435     $ 10,092     $ 13,942     $ 3,405  
                                 
Basic net income per share:                                
Net income   $ 0.68     $ 0.69     $ 0.99     $ 0.23  
Basic weighted average common shares outstanding     13,916       14,652       14,054       14,666  
Diluted net income per share:                                
Net income   $ 0.67     $ 0.68     $ 0.98     $ 0.23  
Diluted weighted average common shares outstanding     14,088       14,915       14,203       15,045  
                                 
Net income   $ 9,435     $ 10,092     $ 13,942   $ 3,405  
Foreign currency translation adjustment     145       (951 )     (170 )     (331 )
Comprehensive income   $ 9,580     $ 9,141     $ 13,772   $ 3,074  

          

 

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

  4  

 

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands)

 

    For the six months ended June 30, 2019
    Common Stock       Accumulated
Other 		  Total
    Number of
Shares 		  $0.01 Par
Value 		  Additional Paid
in Capital 		  Retained
Earnings 		  Comprehensive
Loss 		  Stockholders'
Equity
Balance, January 1, 2019     14,210     $ 142     $ 50,763     $ 218,233     $ (5,526 )   $ 263,612  
Issuance of common stock for equity awards     7       -       5       -       -       5  
Retirement of common stock for minimum tax withholdings     (3 )     -       (124 )     -       -       (124 )
Stock-based compensation expense     -       -       1,386       -       -       1,386  
Net income     -       -       -       4,507       -       4,507  
Other comprehensive loss     -       -       -       -       (315 )     (315 )
Balance, March 31, 2019     14,214     $ 142     $ 52,030     $ 222,740     $ (5,841 )   $ 269,071  
Issuance of common stock for equity awards     30       1       851       -       -       852  
Forfeiture of restricted stock     (7 )     -       -       -       -       -  
Stock-based compensation expense     -       -       1,443       -       -       1,443  
Repurchase of common stock     (452 )     (5 )     (29,995 )     -       -       (30,000 )
Net income     -       -       -       9,435       -       9,435  
Other comprehensive income     -       -       -       -       145       145  
Balance, June 30, 2019     13,785     $ 138     $ 24,329     $ 232,175     $ (5,696 )   $ 250,946  

 

 

    For the six months ended June 30, 2018
    Common Stock       Accumulated
Other 		  Total
    Number of
Shares 		  $0.01 Par
Value 		  Additional Paid
in Capital 		  Retained
Earnings 		  Comprehensive
Loss 		  Stockholders'
Equity
Balance, January 1, 2018     14,688     $ 147     $ 68,617     $ 199,511     $ (4,784 )   $ 263,491  
Issuance of common stock for equity awards     89       1       511       -       -       512  
Retirement of common stock for minimum tax withholdings     (32 )     (1 )     (1,735 )     -       -       (1,736 )
Stock-based compensation expense     -       -       7,565       -       -       7,565  
Net loss     -       -       -       (6,686 )     -       (6,686 )
Other comprehensive income     -       -       -       -       620       620  
Balance, March 31, 2018     14,745     $ 147     $ 74,958     $ 192,825     $ (4,164 )   $ 263,766  
Issuance of common stock for equity awards     273       3       2,372       -       -       2,375  
Stock-based compensation expense     -       -       1,322       -       -       1,322  
Repurchase of common stock     (434 )     (4 )     (29,996 )     -       -       (30,000 )
Net income     -       -       -       10,091       -       10,091  
Other comprehensive loss     -       -       -       -       (951 )     (951 )
Balance, June 30, 2018     14,584     $ 146     $ 48,656     $ 202,916     $ (5,115 )   $ 246,603  

 

                       

 

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

 

  5  

 

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

    Six Months Ended June 30,
    2019   2018
Cash flows from operating activities:                
Net income   $ 13,942     $ 3,405  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     2,943       2,920  
Non-cash operating lease cost     591       -  
Loss on disposal of fixed assets     721       172  
Loss on impairment of intangible asset     281       -  
Stock-based compensation expense     2,829       8,887  
Deferred income taxes     120       63  
Provision for doubtful accounts     -       (6 )
Provision for inventory     601       3,993  
Accretion to amortized cost of investments     (757 )     -  
Changes in operating assets and liabilities:                
Accounts receivable     (2,293 )     1,926  
Inventories     (3,033 )     (5,990 )
Prepaid expenses, other current and long-term assets     356     790  
Accounts payable     (906 )     (194 )
Operating lease liabilities     (534 )     -  
Accrued expenses, other current and long-term liabilities     (1,300 )     (100 )
Income taxes     371       (1,803 )
Net cash provided by operating activities     13,932       14,063  
                 
Cash flows from investing activities:                
Proceeds from maturity of investments     72,594       24,750  
Purchase of investments     (73,896 )     (14,000 )
Purchase of property and equipment     (2,131 )     (3,283 )
Net cash (used in) provided by investing activities     (3,433 )     7,467  
                 
Cash flows from financing activities:                
Repurchases of common stock     (30,000 )     (30,000 )
Cash paid for tax withheld on vested restricted stock awards     (125 )     (1,735 )
Proceeds from exercise of equity awards     6       2,886  
Net cash used in financing activities     (30,119 )     (28,849 )
                 
Exchange rate impact on cash     (15 )     110  
                 
Decrease in cash and cash equivalents     (19,635 )     (7,209 )
Cash and cash equivalents at beginning of period     89,042       133,256  
Cash and cash equivalents at end of period   $ 69,407     $ 126,047  
Supplemental disclosure of cash flow information:                
Right-of-use assets obtained in exchange for operating lease liabilities as of January 1, 2019   $ 24,110     $ -  
Non-cash activities:                
Purchases of property and equipment included in accounts payable and accrued expenses   $ 211     $ 462  

 

 

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

 

 

 

  6  

 

ANIKA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share amounts or as otherwise noted)

( unaudited )

 

1. Nature of Business

 

Anika Therapeutics, Inc. (the “Company”) is a global, integrated orthopedic and regenerative medicines company committed to improving the lives of patients with degenerative orthopedic diseases and traumatic conditions with clinically meaningful therapies along the continuum of care, from palliative pain management to regenerative tissue repair. The Company has over two decades of global expertise developing, manufacturing, and commercializing products based on its proprietary Hyaluronic Acid (“HA”) technology. The Company’s orthopedic medicine portfolio includes ORTHOVISC, MONOVISC, and CINGAL, viscosupplements which alleviate pain and restore joint function by replenishing depleted HA, and HYALOFAST, a solid HA-based scaffold to aid cartilage repair and regeneration.

 

The Company is subject to risks common to companies in the biotechnology and medical device industries including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with U.S. Food and Drug Administration (“FDA”) and foreign regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.

 

2.   Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”). The financial statements include the accounts of Anika Therapeutics, Inc. and its subsidiaries. Inter-company transactions and balances have been eliminated. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to SEC rules and regulations relating to interim financial statements. The December 31, 2018 balances reported herein are derived from the audited consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the condensed consolidated financial statements.

 

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three- and six-month periods ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ended December 31, 2019.

 

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases , which, among other things, results in the recognition of lease assets and lease liabilities on the Company’s balance sheets for virtually all leases. ASU 2016-02 supersedes most previous lease accounting guidance and is effective for interim and annual periods beginning after December 15, 2018. The Company adopted the new guidance as of January 1, 2019 using the modified retrospective adoption method, which did not require restatement of prior periods. The adoption of this standard did not have a material impact on the condensed consolidated statement of operations. See Note 12 for further details.

 

In August 2018, the FASB issued ASU No. 2018-15,  Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) , which amends ASU No. 2015-05,  Customers Accounting for Fees in a Cloud Computing Agreement , to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The most significant change will align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. Accordingly, the amendments in ASU 2018-15 require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as assets related to the service contract and which costs to expense. ASU 2018-15 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The Company is assessing ASU 2018-15 and the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures. 

 

  7  

 

3.   Revenue

 

The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. As of June 30, 2019, deferred revenue was $50 thousand.

  

The Company has agreements with DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopaedics, Inc. (“Mitek”) that include the grant of certain licenses, performance of development services, and supply of product. Revenues from the agreements with Mitek represent 68% and 70% of total Company revenues for the three- and six-month periods ended June 30, 2019, respectively. The Company has agreements with other customers that may include the delivery of a license and supply of product.

 

Product revenue by product group was as follows: 

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
Orthobiologics   $ 26,462     $ 26,192     $ 48,210     $ 45,681  
Surgical     2,101       1,263       3,493       2,509  
Dermal     444       623       573       83  
Other     1,406       2,464       2,854       3,527  
Product Revenue   $ 30,413     $ 30,542     $ 55,130     $ 51,800  

 

Total revenue by geographic location was as follows:

 

    Three Months Ended June 30,
    2019   2018
    Total
Revenue 		  Percentage of
Revenue 		  Total
Revenue 		  Percentage of
Revenue
Geographic Location:                                
United States   $ 22,937       76 %   $ 24,773       81 %
Europe     4,927       16 %     3,498       11 %
Other     2,554       8 %     2,277       8 %
Total Revenue   $ 30,418       100 %   $ 30,548       100 %

 

    Six Months Ended June 30,
    2019   2018
    Total
Revenue 		  Percentage of
Revenue 		  Total
Revenue 		  Percentage of
Revenue
Geographic Location:                                
United States   $ 43,026       78 %   $ 41,682       81 %
Europe     7,454       14 %     5,889       11 %
Other     4,661       8 %     4,241       8 %
Total Revenue   $ 55,141       100 %   $ 51,812       100 %

 

On May 2, 2018, the Company publicly disclosed a voluntary recall of certain lots of its HYAFF-based products, HYALOFAST, HYALOGRAFT C, and HYALOMATRIX. The Company initiated the recall after internal quality testing, which indicated that the products were at risk of not maintaining certain measures throughout their entire shelf life. While there was no indication of any safety or efficacy issue related to the products at the time, the Company removed the products from the field as a precautionary measure. During the three-month period ended March 31, 2018, the Company recorded a revenue reserve for this voluntary recall of $1.1 million of which $0.9 million was related to revenue recorded in prior periods. The adjustments related to the initial revenue reserve subsequent to June 30, 2018 were immaterial. The revenue reserves impacted Dermal and Orthobiologics product groups and all geographic locations. Recall recovery activities were completed during the fourth quarter of 2018, and product shipments resumed in December 2018.

 

4.   Investments

 

All of the Company’s investments are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income, net of related income taxes. The Company held investments, including U.S. treasury bills totaling $72.0 million and $70.0 million as of June 30, 2019 and December 31, 2018, respectively. Unrealized gains and losses as well as the associated tax impact on the Company’s available-for-sale securities were immaterial as of June 30, 2019 and December 31, 2018.

 

  8  

 

5.   Fair Value Measurements

 

The Company’s investments are all classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets. For cash and cash equivalents, current receivables, accounts payable, and interest accrual, the carrying amounts approximate fair value because of the short maturity of these instruments, and therefore fair value information is not included in the table below. 

 

The fair value hierarchy of the Company's cash equivalents and investments at fair value was as follows:

 

        Fair Value Measurements at Reporting Date Using    
    June 30, 2019   Quoted Prices in
Active Markets
for Identical Assets 
(Level 1) 		  Significant Other
Observable Inputs 
(Level 2) 		  Significant 
Unobservable Inputs 
(Level 3) 		  Amortized Cost
Cash equivalents:                                        
Money market funds   $ 1,305     $ 1,305     $ -     $ -     $ 1,305  
                                         
Investments:                                        
U.S. treasury bills   $ 72,045     $ 72,045     $ -     $ -     $ 72,032  

 

 

        Fair Value Measurements at Reporting Date Using    
    December 31, 2018   Quoted Prices in
Active Markets
for Identical Assets 
(Level 1) 		  Significant Other
Observable Inputs 
(Level 2) 		  Significant 
Unobservable Inputs 
(Level 3) 		  Amortized Cost
Cash equivalents:                                        
Money market funds   $ 4,984     $ 4,984     $ -     $ -     $ 4,984  
                                         
Investments:                                        
U.S. treasury bills   $ 69,972     $ 69,972     $ -     $ -     $ 69,972  

 

6. Equity Incentive Plan

 

The Company estimates the fair value of stock options and stock appreciation rights (“SARs”) using the Black-Scholes valuation model. Fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) are measured by the grant-date price of the Company’s shares. Fair value of performance restricted stock units (“PSUs”) is measured by the grant-date price of the Company’s shares with corresponding compensation cost recognized over the requisite service period. Compensation cost is recognized based on the estimated probabilities of achieving the performance goals. Changes to the probability assessment and the estimated shares expected to vest will result in adjustments to the related compensation cost that will be recorded in the period of the change. If the performance targets are not achieved, no compensation cost is recognized, and any previously recognized compensation cost is reversed. 

 

The fair value of each stock option award during the six-month periods ended June 30, 2019 and 2018 was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

 

    Six Months Ended June 30,
    2019   2018
Risk free interest rate   2.18% - 2.54%   2.15% - 2.75%
Expected volatility   44.05% - 44.72%   37.12% - 40.81%
Expected life (years)     3.5     4.0 - 4.5
Expected dividend yield     0.00%       0.00%  

 

The Company recorded $1.4 million and $1.3 million of stock-based compensation expense for the three-month periods ended June 30, 2019 and 2018, respectively. The Company recorded $2.8 million and $8.9 million of stock-based compensation expense for the six-month periods ended June 30, 2019 and 2018, respectively. Upon the retirement of the Company’s former Chief Executive Officer on March 9, 2018, all of his outstanding stock-based compensation awards vested in full and became exercisable in accordance with their terms, resulting in a one-time expense of $6.2 million that was fully recognized during the three-month period ended March 31, 2018.

  

  9  

 

The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows:

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
Cost of product revenue   $ 82     $ (28 )   $ 174     $ (244 )
Research & development     91       241       268       451  
Selling, general & administrative     1,270       1,109       2,387       8,680  
Total stock-based compensation expense   $ 1,443     $ 1,322     $ 2,829     $ 8,887  

 

On June 18, 2019, the Company’s stockholders approved an amendment to the Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”). The amendment increased the number of shares of common stock reserved under the 2017 Plan by 1,500,000 from 1,200,000 to 2,700,000. Additionally, the amendment provided greater clarity with respect to the sections governing minimum vesting and tax withholding to facilitate plan administration. No other provisions of the 2017 Plan were amended.

 

The following table sets forth share information for stock-based compensation awards granted and exercised during the three and six-month periods ended June 30, 2019 and 2018:

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
Grants:                
Stock Options     27,325       17,500       131,617       209,800  
RSAs     -       -       -       64,578  
RSUs     8,000       -       173,507       8,130  
PSUs     -       -       114,500       -  
Exercises:                                
Stock Options     22,400       273,123       22,900       284,548  
SARs     -       -       -       -  

 

 During the three- and six-month periods ended June 30, 2019, the Company granted stock-based compensation awards in the form of stock options, PSUs and RSUs to employees and RSUs to non-employee directors, the majority of which become exercisable or vest ratably over a three-year period. The PSUs granted to employees contained performance conditions with business and financial targets. The business target, amounting to 30% of the total performance conditions, will be measured based on achievement in the 2019 fiscal year, while the financial targets, amounting to 70% of the total performance conditions, will ultimately be measured with respect to the Company’s operating results in the 2021 fiscal year. The Company recorded $0.3 million and $0.4 million of stock-based compensation expense associated with PSUs for the three- and six-month periods ended June 30, 2019, respectively.

 

7.   Earnings Per Share (“EPS”)

 

Basic EPS is calculated by dividing net income by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, SARs, RSAs, RSUs, and PSUs using the treasury stock method.

 

The following table provides share information used in the calculation of the Company's basic and diluted earnings per share (in thousands):

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
Shares used in the calculation of basic earnings per share     13,916       14,652       14,054       14,666  
Effect of dilutive securities:                                
Stock options, SARs, RSAs, RSUs and PSUs     172       263       149       379  
Diluted shares used in the calculation of earnings per share     14,088       14,915       14,203       15,045  

 

Stock options of 1.0 million and 0.7 million shares were outstanding for the three-month periods ended June 30, 2019 and 2018, respectively, and were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive. Stock options of 1.0 million and 0.6 million shares were outstanding for the six-month periods ended June 30, 2019 and 2018 and were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive. 

  10  

 

On May 2, 2019, the Company announced that its Board of Directors had authorized the repurchase of up to $50.0 million shares of the Company’s common stock with $30.0 million to be repurchased through an accelerated share repurchase program and up to $20.0 million to be potentially repurchased on the open market from time-to-time. Through June 30, 2019, no open market repurchases had been executed. On May 7, 2019, the Company entered into an accelerated share repurchase agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) pursuant to a Fixed Dollar Accelerated Share Repurchase Transaction (“ASR Agreement") to purchase $30.0 million shares of the Company’s common stock. Pursuant to the terms of the ASR Agreement, the Company delivered $30.0 million cash to Morgan Stanley and received an initial delivery of 0.5 million shares of the Company’s common stock on May 8, 2019 based on a closing market price of $39.85 and the applicable contractual discount. This was approximately 60% of the then estimated total number of shares expected to be repurchased under the ASR Agreement. These shares were restored to the status of authorized but unissued shares. The initial delivery of shares resulted in an immediate reduction of the number of outstanding shares used to calculate the weighted-average of shares of the Company’s common stock outstanding for basic and diluted net income per share on the effective date of the ASR Agreement.

 

As of June 30, 2019, the Company has approximately $12.0 million remaining under the ASR Agreement, which was recorded as an equity forward sale contract and was included in additional paid-in capital in stockholders’ equity in the condensed consolidated balance sheet as it met the criteria for equity accounting. Pursuant to the terms of the ASR Agreement, the final number of shares and the average purchase price will be determined at the end of the applicable purchase period, which is expected to occur in the first quarter of 2020. Upon settlement of the ASR Agreement, the Company may receive additional shares or be required to either pay additional cash or deliver shares of its common stock (at its option) to Morgan Stanley, based on the forward price. If the ASR Agreement had been settled as of June 30, 2019, based on the volume-weighted average price since the effective date of the ASR Agreement, Morgan Stanley would have been required to deliver approximately 0.3 million additional shares to the Company’s common stock. However, the Company cannot predict the final number of shares to be received, or delivered, by it under the ASR Agreement. These shares are not included in the calculation of diluted weighted-average of shares of common stock outstanding during the period because the effect is anti-dilutive.

 

8. Inventories

 

Inventories consist of the following:

 

    June 30,
2019 		  December 31,
2018
Raw materials   $ 12,381     $ 13,688  
Work-in-process     6,399       4,626  
Finished goods     8,747       6,819  
Total   $ 27,527     $ 25,133  
                 
Inventories   $ 22,986     $ 21,300  
Other long-term assets   $ 4,541     $ 3,833  

 

Other long-term assets include $4.5 million and $3.8 million of inventory expected to remain on hand beyond one year as of June 30, 2019 and December 31, 2018, respectively. 

 

9. Intangible Assets

 

Intangible assets as of June 30, 2019 and December 31, 2018 consisted of the following:

 

        June 30, 2019   December 31, 2018    
    Gross Value   Accumulated
Currency
Translation
Adjustment 		  Impairment   Accumulated
Amortization 		  Net
Book
Value 		  Accumulated
Currency
Translation
Adjustment 		  Accumulated
Amortization 		  Net
Book
Value 		  Useful
Life
Developed technology   $ 17,100     $ (2,864 )   $ (281 )   $ (9,189 )   $ 4,766     $ (2,824 )   $ (8,672 )   $ 5,604       15  
In-process research & development     4,406       (1,191 )     -       -       3,215       (1,168 )     -       3,238       Indefinite  
Distributor relationships     4,700       (415 )     -       (4,285 )     -       (415 )     (4,285 )     -       5  
Patents     1,000       (172 )     -       (506 )     322       (169 )     (482 )     349       16  
Elevess trade name     1,000       -       -       (1,000 )     -       -       (1,000 )     -       9  
Total   $ 28,206     $ (4,642 )   $ (281 )   $ (14,980 )   $ 8,303     $ (4,576 )   $ (14,439 )   $ 9,191          

 

 

 

  11  

 

The aggregate amortization expense related to intangible assets was $0.2 million and 0.3 million for the three-month periods ended June 30, 2019 and 2018, respectively. The aggregate amortization expense related to intangible assets was $0.5 million for the six-month periods ended June 30, 2019 and 2018.

 

The Company recorded a $0.3 million impairment charge for the HYALOSPINE developed technology asset in the three-month period ended March 31, 2019. HYALOSPINE was an adhesion prevention gel for use after spinal surgery and received initial CE Mark approval in January 2015. In March 2019, the Company made the decision not to renew the CE Mark as the product was not aligned with the Company’s core strategic focus. As a result, an impairment charge was recorded. This amount is included in selling, general & administrative expenses on the Company’s condensed consolidated statements of operations. 

 

Through June 30, 2019, except as set forth in this paragraph, there have not been any other events or changes in circumstances that indicate that the carrying value of the other acquired intangible assets may not be recoverable. The Company was notified by the distributor of MEROGEL INJECTIBLE that it would not continue to order the product from the Company or market the product. As a result, the depreciation schedule of the remaining $0.1 million of net book value was accelerated. The Company continues to monitor and evaluate the financial performance of its business including the impact of general economic conditions, to assess the potential for the fair value of the reporting unit to decline below its recorded amount. 

 

10. Goodwill

 

The Company completed its annual impairment review as of November 30, 2018 and concluded that no impairment in the carrying value of goodwill exists as of that date. Through June 30, 2019, there have been no events or changes in circumstances that indicate that the carrying value of goodwill may not be recoverable. Changes in the carrying value of goodwill were as follows:

 

    June 30,
2019
Balance at January 1, 2019   $ 7,851  
Effect of foreign currency adjustments     (53 )
Balance at June 30, 2019   $ 7,798  

 

11. Accrued Expenses

 

Accrued expenses consist of the following:

 

    June 30,
2019 		  December 31,
2018
Compensation and related expenses   $ 3,584     $ 4,446  
Professional fees     1,609       1,989  
Operating lease liability - current     1,101       -  
Income taxes payable     757       385  
Research grants     398       400  
Clinical trial costs     320       577  
Other     332       349  
Total   $ 8,101     $ 8,146  

 

Included in Compensation and related expenses as of June 30, 2019 are the accrued and unpaid costs related to the retirement of the Company’s former Chief Executive Officer as of March 9, 2018. On the same date, the Company and the former Chief Executive Officer entered into a release agreement related to terms in his employment agreement. Under the terms of these agreements, the former Chief Executive Officer is entitled to receive from the Company, as a result of his retirement, aggregate benefits of $1.7 million over the 18-month period subsequent to March 9, 2018, among other benefits. The unpaid amounts under these agreements are included in accrued expenses. As more fully described in Note 6, all of the former Chief Executive Officer’s outstanding equity awards vested in full and became exercisable upon his retirement. The lease liability as of June 30, 2019 is the result of the Company adopting ASU 2016-02 as of January 1, 2019 as more fully described in Note 12.

 

12. Operating Leases

 

The Company adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective adoption method, which did not require it to restate prior periods, and there was no impact on retained earnings. The transition guidance associated with ASU 2016-02 also permitted certain practical expedients. The Company has elected the “package of 3” practical expedients permitted under the transition guidance which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. The Company also adopted the practical expedient to use hindsight to determine the lease term. The Company adopted an accounting policy which provides that leases with an initial term of 12 months or less and no purchase option the Company is reasonably certain of exercising will not be included within the lease right-of-use assets and lease liabilities on its consolidated balance sheet. The Company elected an accounting policy to combine the non-lease components (which include common area maintenance, taxes and insurance) with the related lease component. The Company elected this practical expedient to all asset classes upon the adoption of ASU 2016-02.

 

  12  

 

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities, and, if applicable, long-term lease liabilities. The Company includes renewal options to extend the lease in the lease term where it is reasonably certain that it will exercise these options. Lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the lease terms. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. Lease contracts do not include residual value guarantees nor do they include restrictions or other covenants. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid, incentives received or lease prepayments. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the lease liability by using revised inputs as of the reassessment date, and adjust the right-of-use asset.

 

The Company has two primary leases, which are its real estate leases in Bedford, Massachusetts and Padova, Italy. The Company leases approximately 134,000 square feet of administrative, research and development, and manufacturing space in Bedford, Massachusetts (the “Bedford lease”), and approximately 33,000 square feet of office, research and development, training, and warehousing space in Padova, Italy (the “Padova lease”). The current term of the Bedford lease extends to 2022 with several lease renewal options into 2038, and the current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option in 2026 without penalty.

 

The Company identified and assessed significant assumptions in recognizing the right-of-use asset and lease liability on January 1, 2019 as follows:

 

Incremental borrowing rate . The Company derives its incremental borrowing rate from information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate represents a collateralized rate of interest the Company would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s lease agreements do not provide implicit rates. As the Company did not have any external borrowings at the transition date with comparable terms to its lease agreements, the Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of the lease. The weighted average discount rate at June 30, 2019 is 4.1%.

 

Lease term. The Company applied the hindsight practical expedient and as a result the lease term for the Bedford lease was determined to include all lease renewal options. There were no changes to the lease terms for its other leases. For the Padova lease, the Company considered the termination option when determining the lease term. The weighted average lease term at June 30, 2019 is 17.3 years.

 

The components of lease expense and other information are as follows: 

 

    For the three months ended
June 30, 2019 		  For the six months ended
June 30, 2019
Lease cost                
Operating lease cost   $ 521     $ 1,043  
Short-term lease cost     4       6  
Variable lease cost     60       112  
Total lease cost   $ 585     $ 1,161  
                 
Other information                
Operating cash flows from operating leases   $ 497     $ 994  

  

 

  13  

 

Future commitments due under these lease agreements as of June 30, 2019 are as follows:

 

    Operating Lease Obligation As Of  
Years ending December 31,   June 30, 2019  
2019   $ 994    
2020     2,025    
2021     2,024    
2022     1,981    
2023     1,965    
Thereafter     23,530    
Present value adjustment     (9,444 )  
Present value of lease payments     23,075    
Less current portion included in Accrued expenses and other current liabilities     (1,101 )  
Operating lease liabilities   $ 21,974    

 

The following table summarizes the future minimum payments due for the Company’s operating leases under the prior lease guidance without the hindsight practical expedient for each of the next five years and the total thereafter as of December 31, 2018:

 

2019   $ 1,879  
2020     1,917  
2021     1,924  
2022     1,672  
2023     414  
2024 and thereafter     897  
Total   $ 8,703  

 

13. Commitments and Contingencies 

 

In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company may also warrant that the products it manufactures do not infringe, violate, or breach any U.S. or international patent or intellectual property right, trade secret, or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligent acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The Company had no accrued warranties as of June 30, 2019 or December 31, 2018 and has no history of claims paid.

 

The Company is also involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.

 

14. Income Taxes

 

The provision for income taxes was $3.0 million and $4.5 million for the three- and six-month periods ended June 30, 2019, based on effective tax rates of 24.2% and 24.3%, respectively. The provision for income taxes was $1.4 million and $0.4 million for the three- and six-month periods ended June 30, 2018, based on effective tax rates of 12.5% and 10.4%, respectively. The net increase in the effective tax rate for the three- and six- month periods ended June 30, 2019, as compared to the same periods in 2018, was primarily due to the limitation on the deductibility of executive compensation for accelerated stock vesting upon the retirement of the Company’s former Chief Executive Officer on March 9, 2018 in addition to the windfall tax benefit the Company realized in June 2018 related to exercises of employee equity awards. The Company realized an immaterial shortfall for the three- and six-month periods ended June 30, 2019.

 

The Company files income tax returns in the United States on a federal basis, in certain U.S. states, and in Italy.  The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate.

 

In connection with the preparation of the financial statements, the Company assesses whether it was more likely than not that it would be able to utilize, in future periods, the net deferred tax assets associated with its net operating loss carry-forward. The Company has concluded that the positive evidence outweighs the negative evidence and, thus, the deferred tax assets not otherwise subject to a valuation allowance are realizable on a “more likely than not” basis. As such, the Company did not record a valuation allowance as of June 30, 2019 or December 31, 2018.

  14  

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (amounts in thousands, except per share amounts or as otherwise noted)

 

You should read the following discussion in conjunction with our financial statements and related notes appearing elsewhere in this report. In addition to historical information, this report 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 concerning our business, consolidated financial condition, and results of operations. The Securities and Exchange Commission ("SEC") encourages companies to disclose forward-looking statements so that investors can better understand a company’s prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as "will," "likely," "may," "believe," "expect," "anticipate," "intend," "seek," "designed," "develop," "would," "future," "can," "could," and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans, and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements regarding expected future operating results, expectations regarding the timing and receipt of regulatory results, anticipated levels of capital expenditures, and expectations of the effect on our financial condition of claims, litigation, and governmental and regulatory proceedings.

 

Please also refer to those factors described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018 for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

 

Management Overview

 

We are a global, integrated orthopedic and regenerative medicines company committed to improving the lives of patients with degenerative orthopedic diseases and traumatic conditions with clinically meaningful therapies along the continuum of care, from palliative pain management to regenerative tissue repair. We have over two decades of global expertise developing, manufacturing, and commercializing our products based on our proprietary hyaluronic acid (“HA”) technology. Our orthopedic medicine portfolio includes ORTHOVISC, MONOVISC, and CINGAL, viscosupplements which alleviate pain and restore joint function by replenishing depleted HA, and HYALOFAST, a solid HA-based scaffold to aid cartilage repair and regeneration.

 

Our therapeutic offerings consist of products in the following areas: Orthobiologics, Dermal, Surgical, and Other, which includes our ophthalmic and veterinary products. All of our products are based on 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.

 

Our proprietary technologies for modifying the HA molecule allow product properties to be tailored specifically to therapeutic use. Our patented technology chemically modifies HA to allow for longer residence time in the body. We also offer products made from HA based on two other technologies: HYAFF, which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Our technologies are protected by an extensive portfolio of owned and licensed patents.

 

Since our inception in 1992, we have utilized a commercial partnership model for the distribution of our products to end-users. Our strong, worldwide network of distributors has historically provided, and continues to provide, a solid foundation for our revenue growth and territorial expansion. For near-term and long-term opportunities in the U.S. market, especially with respect to surgical products utilized in an operating room environment, we are executing a hybrid commercial strategy in the U.S. that balances a small direct model with an optimal form of strategic partnership. We are initially utilizing this model to commercialize our injectable, HA-based, surgical bone repair product in the United States. For longer-term future products in the U.S. market, we intend to evaluate the appropriate commercial model for each instance on a case-by-case basis, based on market dynamics, product type and other factors. These models could include direct sales, distribution partnerships, or a hybrid of those forms. We believe that the combination of the direct and distribution commercial models will maximize the revenue potential from our current and future product portfolio.

 

Please see the section captioned “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Management Overview” in our Annual Report on Form 10-K for the year ended December 31, 2018, for a description of each of the above therapeutic areas, including the individual products.

 

On May 2, 2018, we publicly disclosed a voluntary recall of certain production lots of our HYAFF-based products, HYALOFAST, HYALOGRAFT C, and HYALOMATRIX. We communicated with all affected distributors in advance of that announcement, and we are taking all required or otherwise appropriate actions with respect to applicable regulatory bodies. We initiated the recall following internal quality testing, which indicated that the products were at risk of not maintaining certain measures throughout their entire shelf life. While there was no indication of any safety or efficacy issue related to the products, we are committed to the highest standards of quality and removed the products from the field as a precautionary measure. During the fourth quarter of 2018, we resolved this matter and resumed shipment of these products.

 

  15  

 

Key Developments during the Quarter Ended June 30, 2019

 

· We made the decision to advance our U.S. CINGAL development program to achieve FDA approval, initially through the execution of a pilot study.
· We executed a $30.0 million accelerated share repurchase agreement with Morgan Stanley & Co. LLC to repurchase common stock.
· We continued to build our U.S. commercial infrastructure to execute our hybrid commercial strategy for the launch of our injectable, HA-based, surgical bone repair product in the third quarter of 2019.
· We generated total revenue of $30.4 million for the second quarter of 2019.

 

Research and Development

 

Our research and development efforts primarily consist of the development of new medical applications for our HA-based technology, the management of clinical trials for certain product candidates, the preparation and processing of applications for regulatory approvals or clearances at all relevant stages of product development, and process development and scale-up manufacturing activities for our existing and new products. Our development focus is orthopedic and regenerative medicine and includes products for tissue protection, repair, and regeneration. We anticipate that we will continue to commit significant resources in the near future to research and development activities, including in relation to preclinical activities and clinical trials. These activities are aimed at the delivery of a steady cascade of new product development and launches over the next several years.

 

In the third quarter of 2017, we submitted an application to the FDA for 510(k) clearance of an injectable, HA-based surgical bone repair product that is reabsorbed by the body and replaced by the growth of new bone during the healing process. We received the 510(k) clearance from the FDA in December 2017, and we expect to make this bone repair product commercially available in the United States during the third quarter of 2019 utilizing the previously-described hybrid commercial approach. In addition, we are working to expand our regenerative medicine pipeline with a new product candidate in the form of an implant for rotator cuff repair utilizing our proprietary solid HA, which could be used to repair partial and full-thickness rotator cuff tears. We finalized development of an initial product prototype during the fourth quarter of 2018. We are currently working on refining the prototype and performing preclinical testing of and developing the surgical instrumentation for the potential product. We anticipate that we will seek 510(k) clearance for this product during 2020, with a potential commercial launch to occur in mid-2021.

 

Our third generation, single-injection osteoarthritis product under development in the United States, CINGAL, which is composed of our proprietary cross-linked HA material combined with an approved steroid and is designed to provide both short- and long-term pain relief to patients, is a main pipeline product and a component of our growth strategy. We completed an initial CINGAL Phase III clinical trial, including the associated statistical analysis for 368 enrolled patients, during the fourth quarter of 2014 with data indicating that the product met all primary and secondary endpoints relative to placebo set forth for the trial. During the first half of 2015, we completed a CINGAL retreatment study with 242 patients who had participated in the Phase III clinical trial and reported safety data related to the retreatment study. This initial Phase III clinical trial and the associated retreatment study supported the Health Canada and CE Mark approval of the product, and the commercial launch of the product in both Canada and the European Union occurred in the second quarter of 2016. In the United States, after discussions with the U.S. Food and Drug Administration (“FDA”) related to the regulatory pathway for CINGAL, we conducted a formal meeting with the FDA’s Office of Combination Products (“OCP”) to present and discuss our data in September 2015, and we submitted a formal request for designation with OCP a month later. In its response to our formal request for designation, OCP assigned the product to the FDA’s Center for Drug Evaluation and Research (“CDER”) as the lead agency center for premarket review and regulation. We then held discussions with CDER to understand the requirements for submitting a New Drug Application (“NDA”) for CINGAL. We held a meeting with CDER in September 2016 to align on an approval framework and on submission requirements for this NDA for CINGAL, including the execution of an additional Phase III clinical trial to supplement our existing CINGAL pivotal study data. We submitted an IND in late 2016, and discussions with CDER indicated that they did not have objections to our clinical protocol design. As a result, we commenced work on this second Phase III clinical trial (“CINGAL 16-02 Study”) in the first quarter of 2017, and the first patient was treated in the second quarter of 2017. Enrollment of the 576 patients in this second Phase III clinical trial was completed during October 2017, and we completed the six-month patient follow-up in April 2018. We received and analyzed the data from the CINGAL 16-02 Study during the second quarter of 2018, and, while substantial pain reduction associated with CINGAL was evident at each measurement point, we determined based on statistical analysis that it did not meet the primary study endpoint of demonstrating a statistically significant difference in pain reduction between CINGAL and the approved steroid component of CINGAL at the six-month time point. In the third quarter of 2017, we initiated an additional three-month extended follow-up study in conjunction with the CINGAL 16-02 Study to investigate the efficacy of CINGAL over this longer period. The first patients were enrolled in this follow-up study in the fourth quarter of 2017 and we completed the nine-month patient follow-up in the third quarter of 2018. In the first quarter of 2019, we met with the FDA to discuss the potential approval pathway for CINGAL in the United States moving forward in light of the work we have previously done. In the meeting, the FDA indicated that an additional Phase III clinical trial would be necessary to support U.S. marketing approval for CINGAL, and we received feedback from the FDA on the parameters and requirements for this additional clinical trial. After substantial internal review, we have decided to conduct a pilot study to enable us to evaluate our full-scale Phase III clinical trial design, including patient and site selection criteria, and increase the probability of success for the Phase III trial. We expect to begin enrolling patients in the pilot study in the first half of 2020.

  

  16  

 

We have several research and development programs underway for new products, including for HYALOFAST (in the United States), an innovative product for cartilage tissue repair, and other early stage regenerative medicine development programs. HYALOFAST, which received CE Mark approval in September 2009, is commercially available in Europe and certain international countries. During the first quarter of 2015, we submitted an Investigational Device Exemption (“IDE”) for HYALOFAST to the FDA, which was approved in July 2015. We commenced patient enrollment in a clinical trial in December 2015 and advanced site initiations and patient enrollment activities. In the second quarter of 2016, a supplement to the HYALOFAST IDE was approved to expand the inclusion criteria for the clinical study, which was aimed at decreasing the time needed to complete the clinical trial. An additional supplement to the HYALOFAST IDE was approved in June 2019, amending the clinical protocol to allow worldwide trial site locations and to adjust inclusion criteria with the goal of accelerating trial enrollment and maximizing our probability of a successful trial outcome. Given the changing medical landscape with respect to the randomization arm for this trial, the microfracture procedure, we are also actively pursuing other alternative strategies to accelerate patient enrollment. The previously-described voluntary recall of certain production lots of our HYAFF-based products did not impact the HYALOFAST clinical trial, as the product used in the clinical trial is not sourced from the affected production lots.

 

We are also currently proceeding with other research and development programs, one of which utilizes our proprietary HA technology to treat pain associated with common repetitive overuse injuries, such as lateral epicondylitis, also known as tennis elbow. We submitted a CE Mark application for this treatment during the first quarter of 2016 and received a CE Mark for the treatment of pain associated with tennis elbow in December 2016. We began work towards a post-market clinical study in relation to the CE Mark for this product in the fourth quarter of 2018. Outside of the United States, this product is marketed under the trade name ORTHOVISC-T. Additionally, in the second quarter of 2016, we submitted an IDE to the FDA to conduct a Phase III clinical trial for this treatment, which was approved by the FDA in June 2016. Notwithstanding that approval and in light of recent changes to the regulatory environment for HA-based products, in the first quarter of 2019, the FDA requested that we submit this product to OCP for designation, which we did early in the second quarter of 2019. We remain in discussions with the FDA with respect to the designation and approval pathway for this product. We also have several other research and development programs underway focused on expanding the indications of our current products, including MONOVISC. During 2019, we will also be performing post-market clinical work in relation to the CE Mark for MONOVISC.

 

In addition to other early stage research and development initiatives we are undertaking, we entered into an agreement with the University of Liverpool in January 2018 to develop an injectable mesenchymal stem cell therapy for the treatment of age-related osteoarthritis with the goal of bringing a therapeutics candidate through clinical trials to market to meet an unmet therapeutic need. We are currently in the preclinical phase of this program and aim to finalize proof of concept during the second quarter of 2020.

 

Results of Operations

 

Three- and Six-Months Ended June 30, 2019 Compared to Three- and Six-Months Ended June 30, 2018

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   $ Inc/(Dec)   % Inc/(Dec)   2019   2018   $ Inc/(Dec)   % Inc/(Dec)
    (in thousands, except percentages)   (in thousands, except percentages)
Product revenue   $ 30,413     $ 30,542     $ (129 )     (0 %)   $ 55,130     $ 51,800     $ 3,330       6 %
Licensing, milestone and contract revenue     5       6       (1 )     (17 %)     11       12       (1 )     (8 %)
Total revenue     30,418       30,548       (130 )     (0 %)     55,141       51,812       3,329       6 %
                                                                 
Operating expenses:                                                                
Cost of product revenue     6,836       8,152       (1,316 )     (16 %)     14,147       15,996       (1,849 )     (12 %)
Research & development     4,165       4,733       (568 )     (12 %)     8,423       9,895       (1,472 )     (15 %)
Selling, general & administrative     7,502       6,417       1,085       17 %     15,174       22,507       (7,333 )     (33 %)
Total operating expenses     18,503       19,302       (799 )     (4 %)     37,744       48,398       (10,654 )     (22 %)
Income from operations     11,915       11,246       669       6 %     17,397       3,414       13,983       410 %
Interest and other income, net     533       290       243       84 %     1,031       385       646       168 %
Income before income taxes     12,448       11,536       912       8 %     18,428       3,799       14,629       385 %
Provision for (benefit from) income taxes     3,013       1,444       1,569       109 %     4,486       394       4,092       1,039 %
Net income   $ 9,435     $ 10,092     $ (657 )     (7 %)   $ 13,942     $ 3,405     $ 10,537       309 %
Product gross profit   $ 23,577     $ 22,390     $ 1,187       5 %   $ 40,983     $ 35,804     $ 5,179       14 %
Product gross margin     77.5 %     73.3 %                     74.3 %     69.1 %                

 

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Product Revenue

 

Product revenue for the three-month period ended June 30, 2019 was $30.4 million, a decrease of $0.1 million as compared to $30.5 million for the three-month period ended June 30, 2018. Product revenue for the six-month period ended June 30, 2019 was $55.1 million, an increase of 6%, or $3.3 million, as compared to $51.8 million for the six-month period ended June 30, 2018. For the three-month period ended June 30, 2019, the decrease in product revenue was driven by growth in our orthobiologics and surgical franchises, offset by decreases resulting from order timing in our dermal and other franchises. For the six-month period ended June 30, 2019, the increase in product revenue was driven by growth in our orthobiologics, dermal and surgical franchises, partially offset by a decrease resulting from order timing in our other franchise.

 

The following tables present product revenue by product group:

 

    Three Months Ended June 30,
    2019   2018   $ Inc/(Dec)   % Inc/(Dec)
    (in thousands, except percentages)
Orthobiologics   $ 26,462     $ 26,192     $ 270       1 %
Surgical     2,101       1,263       838       66 %
Dermal     444       623       (179 )     (29 %)
Other     1,406       2,464       (1,058 )     (43 %)
Total   $ 30,413     $ 30,542     $ (129 )     (0 %)

 

    Six Months Ended June 30,
    2019   2018   $ Inc/(Dec)   % Inc/(Dec)
    (in thousands, except percentages)
Orthobiologics   $ 48,210     $ 45,681     $ 2,529       6 %
Surgical     3,493       2,509       984       39 %
Dermal     573       83       490       591 %
Other     2,854       3,527       (673 )     (19 %)
Total   $ 55,130     $ 51,800     $ 3,330       6 %

 

 

Orthobiologics

 

Our orthobiologics franchise consists of orthopedic pain management and regenerative therapies. Overall, sales increased 1% and 6% for the three- and six-month periods ended June 30, 2019, respectively, as compared to the same periods in 2018. For the three-month period ended June 30, 2019, there were increased sales of our international viscosupplement products, led by strong CINGAL sales. This increase was partially offset by a decrease in U.S. viscosupplement revenue in the period. The increase in revenue for the six-month period ended June 30, 2019 was primarily driven by increased revenue from MONOVISC domestically and internationally, as well as increased revenue from CINGAL in international markets. We expect orthobiologics product revenue in 2019 to continue to increase as compared to 2018, primarily due to the growth in international CINGAL and MONOVISC revenue and the commercial launch of our injectable, HA-based surgical bone repair product in the U.S. via the previously-described hybrid commercial approach.

 

Surgical  

 

Our surgical franchise consists of products used to prevent surgical adhesions and to treat ear, nose, and throat (“ENT”) disorders. Sales of our surgical products increased 66% and 39% for the three- and six-month periods ended June 30, 2019, to $2.1 million and $3.5 million, respectively, as compared to the same periods in 2018. The increase in surgical product revenue for the three- and six-month periods was due to increased sales to our worldwide ENT commercial partner and higher sales of surgical anti-adhesion products to our international distributors. We expect surgical product revenue to increase in 2019 as compared to 2018 primarily due to increased worldwide revenue associated with sales of our surgical anti-adhesion product and ENT sales.

 

Dermal

 

Our dermal franchise  consists of advanced wound care products, which are based on our HYAFF technology, and aesthetic dermal fillers. Our advanced wound care products treat complex skin wounds ranging from burns to diabetic ulcers, with HYALOMATRIX and HYALOFILL as the lead products. For the three-month period ended June 30, 2019, dermal product sales decreased by $0.2 million as compared to the same period in 2018 resulting primarily from order timing. For the six-month period ended June 30, 2019, sales increased $0.5 million as compared to the same period in 2018. This increase was due to recovery from the previously-described voluntary recall of certain production lots of our HYAFF-based products in 2018. We expect dermal sales to increase in 2019 as a result of resuming HYALOMATRIX shipments in late 2018 after the product was impacted by the voluntary recall in 2018.

 

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 Other

 

Other product revenue includes revenues from our ophthalmic and veterinary franchises. Other product revenue decreased for the three-month period ended June 30, 2019 by $1.1 million or 43%, and decreased by $0.7 million or 19%, for the six-month period ended June 30, 2019, each as compared to the corresponding period in 2018. We expect other revenue to decrease modestly in 2019 as compared to 2018, primarily as a result of decreased sales to one of our ophthalmic distributors offset in part by increased revenue from veterinary products.

   

Product Gross Profit and Margin

 

Product gross profit for the three- and six-month periods ended June 30, 2019 increased $1.2 million and $5.2 million to $23.6 and $41.0 million, respectively, representing 77.5% and 74.3% of product revenue. Product gross profit for the three- and six-month periods ended June 30, 2018 was $22.4 million and $35.8 million, respectively, or 73.3% and 69.1% of product revenue for the periods, respectively. The increase in product gross margin for the three- and six-month periods ended June 30, 2019, as compared to the same periods in 2018, was primarily due to favorable changes in revenue mix and certain inventory charges related to our solid HA product lines incurred during the 2018 periods.

  

Research and Development

 

Research and development expenses for the three- and six-month periods ended June 30, 2019 were $4.2 million and $8.4 million, representing 14% and 15% of total revenue for the respective periods, a decrease of $0.6 million and $1.5 million, respectively, as compared to the same periods in 2018. The decrease in research and development expense was primarily due to lower clinical trial expenses related to CINGAL for the three- and six-month periods ended June 30, 2019, as compared to the same periods in 2018, offset in part by higher pre-clinical product development activities associated with the development of product candidates in our research and development pipeline, including our rotator cuff therapy, and additional expenses associated with compliance activities related to the European Union Medical Device Regulation. Research and development expenses may potentially increase in 2019 as compared to 2018 as we further develop new products and clinical trial activities, including preparation for the CINGAL pilot study, perform required post-market clinical follow-ups for our MONOVISC and ORTHOVISC-T products in the European Union, and as a result of current or future changes to the regulatory environments in the jurisdictions in which we do business.

 

Selling, General and Administrative

 

Selling, general and administrative (“SG&A”) expenses for the three- and six-month periods ended June 30, 2019 were $7.5 million and $15.2 million, representing 25% and 28% of total revenue for the period, an increase of $1.1 million and decrease of $7.3 million, respectively, as compared to the same periods in 2018. The increase in SG&A expenses for the three-month period ended June 30, 2019 was primarily the result of increased personnel-related costs and external professional fees. The decrease for the six-month period was primarily due to the one-time, non-cash, stock-based compensation expense of approximately $8.0 million in the three-month period ended March 31, 2018 related to the retirement of our former Chief Executive Officer. We expect SG&A expenses for 2019 to decrease in comparison to 2018 due to the above mentioned one-time charge. The decrease will be partially offset by investments in our global commercial capabilities and the implementation of improved business and financial technology platforms required to grow our business.

 

Income Taxes

 

The provision for income taxes was $3.0 million and $4.5 million for the three- and six-month periods ended June 30, 2019, based on effective tax rates of 24.2% and 24.3%, respectively. The provision for income taxes was $1.4 million and $0.4 million for the three- and six-month periods ended June 30, 2018, based on effective tax rates of 12.5% and 10.4%, respectively. The net increase in the effective tax rate for the three- and six- month periods ended June 30, 2019, as compared to the same periods in 2018, was primarily due to the limitation on the deductibility of executive compensation for accelerated stock vesting upon the retirement of our former Chief Executive Officer on March 9, 2018 in addition to the windfall tax benefit we realized in June 2018 related to exercises of employee equity awards. We realized an immaterial shortfall for the three- and six-month periods ended June 30, 2019.

 

  19  

 

How We Evaluate Our Operations

 

We present information below with respect to adjusted EBITDA, which we define as our net income excluding interest and other income, net, income tax benefit (expense), depreciation and amortization, and stock-based compensation. This financial measure is not based on any standardized methodology prescribed by accounting principles generally accepted in the United States (“GAAP”) and are not necessarily comparable to similarly titled measures presented by other companies.

 

We have presented adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business. We believe this financial measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. In particular, we believe that the exclusion of the expenses eliminated in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

 

Adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent. Some of these limitations are:

 

  • adjusted EBITDA excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;

 

  • we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;

 

  • the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

 

  • adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

 

  • adjusted EBITDA does not reflect provision for (benefit from) income taxes or the cash requirements to pay taxes; and

 

  • adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments.

 

The following is a reconciliation of net income to adjusted EBITDA for the three- and six-month periods ended June 30, 2019 and 2018, respectively:

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
Net income   $ 9,435     $ 10,092     $ 13,942     $ 3,405  
Interest and other income, net     (533 )     (290 )     (1,031 )     (385 )
Provision for income taxes     3,013       1,444       4,486       394  
Depreciation and amortization     1,466       1,447       2,943       2,920  
Stock-based compensation     1,443       1,322       2,829       8,887  
Adjusted EBITDA   $ 14,824     $ 14,015     $ 23,169     $ 15,221  

 

Adjusted EBITDA in the three- and six-month periods ended June 30, 2019, increased $0.8 million and $7.9 million, respectively, as compared with the comparable periods in 2018. The increase in adjusted EBITDA for the periods was primarily due to an increase in product gross profit and operating income as a result of a reduction in inventory related charges and a more favorable revenue mix.

 

Liquidity and Capital Resources

 

We require cash to fund our operating expenses and to make capital expenditures. We expect that our requirements for cash to fund these uses will increase as our operations expand. Historically we have generated positive cash flow from operations, which, together with our available cash, investments, and debt, have met our cash requirements. Cash, cash equivalents, and investments aggregated $141.5 million and $159.0 million, and working capital totaled $179.5 million and $191.7 million as of June 30, 2019 and December 31, 2018, respectively. In addition, as of June 30, 2019, we have $50.0 million of available credit under our senior revolving credit facility with Bank of America, N.A. We believe that we have adequate financial resources to support our business for at least the twelve months from the issuance date of our financial statements. As of June 30, 2019, we were in compliance with the terms of our credit agreement with Bank of America, N.A.

 

  20  

 

Cash provided by operating activities was $13.9 million for the six-month period ended June 30, 2019, as compared to cash provided by operating activities of $14.1 million for the same period in 2018. The decrease was primarily related to a decrease in collections of our accounts receivable due to timing of receipts and a decrease in accrued expenses. These factors were partially offset by a decrease in prepayments of income taxes and payments for inventory.

 

Cash used in investing activities was $3.4 million for the six-month period ended June 30, 2019, as compared to cash provided by investing activities of $7.5 million for the same period in 2018. The change was due to increased purchases of investments, partially offset by lower capital expenditures as compared to the same period in 2018.

 

Cash used by financing activities was $30.1 million for the six-month period ended June 30, 2019, as compared to cash used by financing activities of $28.8 million for the same period in 2018. In each period, we executed a $30 million accelerated share repurchase agreement. The increase in cash used in financing activities for the six-month period ended June 30, 2019, was primarily attributable to a $2.9 million decrease in proceeds from the exercise of employee equity awards as compared to the corresponding period in the prior year.

 

Critical Accounting Policies and Estimates

 

There were no other significant changes in our critical accounting policies or estimates during the three months ended June 30, 2019 to augment the critical accounting estimates disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, other than those described in the Notes to the condensed consolidated financial statements included in this report, including the adoption of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, Leases , (ASC 842) effective January 1, 2019. As a result of our adoption of the new lease standard, we re-assessed the estimates, assumptions, and judgments that are most critical in our recognition of leases.  For information regarding the impact of recently adopted accounting standards, refer to Notes 2 and 12 to the condensed financial statements included in this report.

 

Recent Accounting Pronouncements

 

A discussion of Recent Accounting Pronouncements is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and is updated in the Notes to the condensed consolidated financial statements included in this report.

 

Contractual Obligations and Other Commercial Commitments

 

Our contractual obligations and other commercial commitments are summarized in the section captioned “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Other Commercial Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2018. We had no material changes outside the ordinary course to our contractual obligations reported in our 2018 Annual Report on Form 10-K during the six months ended June 30, 2019. For additional discussion, see Note 13 to the condensed consolidated financial statements included in this report.

 

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. 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.

 

Off-balance Sheet Arrangements

 

We do not use special purpose entities or other off-balance sheet financing techniques that we believe have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our market risks and the ways we manage them are summarized in the section captioned “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes in the first six months of 2019 to our market risks or to our management of such risks.

 

  21  

 

ITEM 4. CONTROLS AND PROCEDURES

 

  (a) Evaluation of disclosure controls and procedures.

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. On an on-going basis, we review and document our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. 

  

  (b) Changes in internal controls over financial reporting.

 

There were no changes in our internal control over financial reporting during the three-month period ended June 30, 2019 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II: OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these occasional legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flow. There have been no material changes to the information provided in the section captioned “Part I, Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes to the risk factors described in the section captioned “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section captioned “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition, and/or operating results.

 

 

  22  

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Issuer Purchases of Equity Securities

 

Under our equity compensation plans, and subject to the specific approval of the Compensation Committee of our Board of Directors, grantees have the option of electing to satisfy tax withholding obligations at the time of vesting or exercise by allowing us to withhold shares of stock otherwise issuable to the grantee. During the three-month period ended June 30, 2019, there were no shares withheld to satisfy grantee tax withholding obligations on restricted stock award vesting events.

 

Following is a summary of stock repurchases for the three-month period ended June 30, 2019 (in thousands, except share data):

 

Period   Total Number 
of Shares
Purchased 		  Average 
Price Paid
per Share 		  Total Number of 
Shares Purchased as
Part of Publicly
Announced Plans
or Programs 		  Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet be Purchased
Under the Plans or
Programs
April 1 to 30, 2019     -       -       -     $ -  
May 1 to 31, 2019     451,694     $ 39.85       451,694     $ 32,000  
June 1 to 30, 2019     -       -       -     $ 32,000  
Total     451,694               451,694          

 

(1) On May 2, 2019, we announced that our Board of Directors approved a $50.0 million share repurchase program with $30.0 million to be utilized for an accelerated share repurchase program and $20.0 million reserved for open market repurchases. On May 7, 2019, we entered into a previously-announced accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $30.0 million of common stock. During the second quarter of 2019, 451,694 shares were delivered to us, constituting the initial delivery of shares and representing 60% of the then estimated total number of shares expected to be repurchased under the ASR Agreement. Through June 30, 2019, we have made no open market repurchases.

 

 

 

 

 

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ITEM 6. EXHIBITS

 

Exhibit No.   Description
     
* 10.1   F ixed Dollar Accelerated Share Repurchase Transaction, dated May 7, 2019, by and between Anika Therapeutics, Inc. and Morgan Stanley & Co. LLC
     
10.2   Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (as amended effective June 18, 2019)
     
10.3   Consulting Agreement, effective July 5, 2019, by and between Anika Therapeutics, Inc. and Edward S. Ahn, Ph.D.
     
10.4   Separation Agreement, effective July 8, 2019, by and between Anika Therapeutics, Inc. and Edward S. Ahn, Ph.D.
     
(31)   Rule 13a-14(a)/15d-14(a) Certifications
       
*31.1   Certification of Joseph G. Darling, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
*31.2   Certification of Sylvia Cheung, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
(32)   Section 1350 Certifications
       
**32.1   Certification of Joseph G. Darling, and Sylvia Cheung, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
(101)   XBRL
       
*101   The following materials from Anika Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 as filed with the SEC on July 26, 2019, formatted in XBRL (eXtensible Business Reporting Language), as follows:
     
    i. Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 (unaudited)
    ii. Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2019 and June 30, 2018 (unaudited)
    iii. Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and June 30, 2018 (unaudited)
    iv. Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and June 30, 2018 (unaudited)
    v. Notes to Condensed Consolidated Financial Statements (unaudited)

 

* Filed herewith.
**  Furnished herewith.

 

 

 

 

 

 

  24  

 

  SIGNATURES

 

Pursuant to the requirements 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.

 

    ANIKA THERAPEUTICS, INC.
   
Date: July 26, 2019 By: /s/ SYLVIA CHEUNG  
    Sylvia Cheung
    Chief Financial Officer
    (Authorized Officer and Principal Financial Officer)

 

 

 

 

 

25

 

MORGAN STANLEY & CO. LLC

1585 BROADWAY

NEW YORK, NY 10036-8293

(212) 761-4000

 

May 7, 2019

 

Fixed Dollar Accelerated Share Repurchase Transaction

 

 

Anika Therapeutics, Inc.

32 Wiggins Avenue

Bedford, MA 01730

United States

 

 

Dear Sir/Madam:

 

The purpose of this letter agreement (this “ Confirmation ”) is to confirm the terms and conditions of the Transaction entered into between Morgan Stanley & Co. LLC (“ MSCO ”) and Anika Therapeutics, Inc. (“ Issuer ”) on the Trade Date specified below (the “ Transaction ”). This confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

 

The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (as published by the International Swaps and Derivatives Association, Inc. (“ ISDA ”)) (the “ Equity Definitions ”) are incorporated into this Confirmation. The Transaction is a Share Forward Transaction for purposes of the Equity Definitions. Any reference to a currency shall have the meaning contained in Section 1.7 of the 2006 ISDA Definitions, as published by ISDA.

 

1. This Confirmation evidences a complete and binding agreement between MSCO and Issuer as to the terms of the Transaction to which this Confirmation relates and shall supersede all prior or contemporaneous written or oral communications with respect thereto. This Confirmation shall be subject to an agreement (the “ Agreement ”) in the form of the 2002 ISDA Master Agreement as if MSCO and Issuer had executed an agreement in such form without any Schedule but with the elections set forth in this Confirmation (and the election of USD as the Termination Currency).

 

The Transaction shall be the only transaction under the Agreement. If there exists any ISDA Master Agreement between MSCO and Issuer or any confirmation or other agreement between MSCO and Issuer pursuant to which an ISDA Master Agreement is deemed to exist between MSCO and Issuer, then, notwithstanding anything to the contrary in such ISDA Master Agreement, such confirmation or agreement or any other agreement to which MSCO and Issuer are parties, the Transaction shall not be considered a transaction under, or otherwise governed by, such existing or deemed to be existing ISDA Master Agreement.

 

If there is any inconsistency between the Agreement, this Confirmation and the Equity Definitions, the following will prevail for purposes of the Transaction in the order of precedence indicated: (i) this Confirmation; (ii) the Equity Definitions; and (iii) the Agreement.

 

2. The terms of the particular Transaction to which this Confirmation relates are as follows:

 

GENERAL TERMS:

 

Trade Date: As specified in Schedule I

 

Buyer: Issuer

 

Seller: MSCO

 

 

 

Shares: Common Stock, par value USD 0.01 per share, of Issuer (Ticker: ANIK)

 

Forward Price: A price per Share (as determined by the Calculation Agent) equal to (i) the arithmetic mean (not a weighted average) of the 10b-18 VWAP on each Trading Day during the Calculation Period minus (ii) the Discount.
   
Discount: As specified in Schedule I
   
10b-18 VWAP: On any Trading Day, a price per Share equal to the volume-weighted average price of the Rule 10b-18 eligible trades in the Shares for the entirety of such Trading Day as determined by the Calculation Agent by reference to the screen entitled “ANIK  <Equity> AQR SEC” or any successor page as reported by Bloomberg L.P. or any successor (without regard to pre-open or after-hours trading outside of any regular trading session for such Trading Day or block trades (as defined in Rule 10b-18(b)(5) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) on such Trading Day) or, if the price displayed on such screen is clearly erroneous, as determined by the Calculation Agent in good faith and in a commercially reasonable manner.

 

Calculation Period: The period from, and including, the first Trading Day that occurs on the Prepayment Date to, and including, the relevant Valuation Date.

 

Trading Day: Any Exchange Business Day that is not a Disrupted Day in whole.

 

Initial Shares: As specified in Schedule I
   
Initial Share Delivery Date: One Exchange Business Day following the Trade Date.  On the Initial Share Delivery Date, Seller shall deliver to Buyer a number of Shares equal to the Initial Shares in accordance with Section 9.4 of the Equity Definitions, with the Initial Share Delivery Date being deemed to be a “Settlement Date” for purposes of such Section 9.4.

 

Prepayment: Applicable

 

Prepayment Amount: As specified in Schedule I

 

 

 

Prepayment Date: One Exchange Business Day following the Trade Date.  On the Prepayment Date, Buyer shall pay to Seller the Prepayment Amount.

 

Exchange: Nasdaq Global Select Market

 

Related Exchange: All Exchanges on which options or futures on the Shares are traded.

 

Market Disruption Event:

The definition of “Market Disruption Event” in Section 6.3(a) of the Equity Definitions is hereby amended by deleting the words “at any time during the one-hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be,” starting in the third line thereof.

 

Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the term “Scheduled Closing Time” in the fourth line thereof.

 

Notwithstanding anything to the contrary in the Equity Definitions, if any Exchange Business Day in the Calculation Period is a Disrupted Day, the Calculation Agent shall have the option in its sole discretion to take one or more of the following actions: (i) determine that such Exchange Business Day is a Disrupted Day in part, in which case the Calculation Agent shall (x) determine the 10b-18 VWAP on such Exchange Business Day based on Rule 10b-18 eligible trades in the Shares on such day taking into account the nature and duration of the relevant Market Disruption Event and (y) determine the Forward Price using an appropriately weighted average of 10b-18 VWAPs instead of an arithmetic mean, and/or (ii) elect to postpone the Scheduled Valuation Date by up to one Scheduled Trading Day for every Trading Day that is a Disrupted Day during the Calculation Period. For the avoidance of doubt, if the Calculation Agent takes the action described in clause (i) above, then such Disrupted Day shall be a Trading Day for purposes of calculating the Forward Price.

 

Any Exchange Business Day on which, as of the date hereof, the Exchange is scheduled to close prior to its normal close of trading shall be deemed not to be an Exchange Business Day; if a closure of the Exchange prior to its normal close of trading on any Exchange Business Day is scheduled following the date hereof, then such Exchange Business Day shall be deemed to be a Disrupted Day in full.

 

If a Disrupted Day occurs during the Calculation Period and each of the nine immediately following Scheduled Trading Days is a Disrupted Day, then the Calculation Agent may, in its good faith and commercially reasonable discretion, deem such ninth Scheduled Trading Day to be an Exchange Business Day that is not a Disrupted Day and determine the 10b-18 VWAP Price for such ninth Scheduled Trading Day using its good faith and commercially reasonable estimate of the value of the Shares on such ninth Scheduled Trading Day based on the volume, historical trading patterns and price of the Shares and such other factors as it deems appropriate.

 

 

 

VALUATION:

 

Valuation Date:

The earlier of (i) the Scheduled Valuation Date and (ii) any earlier accelerated Valuation Date as a result of MSCO’s election in accordance with the immediately succeeding paragraph.

 

MSCO shall have the right, in its absolute discretion but subject to the limitation set forth in the immediately succeeding paragraph, to accelerate the Valuation Date, in whole or in part, to any Exchange Business Day that is on or after the Lock-Out Date and prior to the Scheduled Valuation Date by notice (each such notice, an “ Acceleration Notice ”) to Issuer by 9:00 p.m., New York City time, on the Exchange Business Day immediately following the accelerated Valuation Date (the “ Acceleration Date ”).

 

On each Valuation Date, the Calculation Agent shall calculate the Settlement Amount.

   
Scheduled Valuation Date: As specified in Schedule I, subject to postponement in accordance with “Market Disruption Event” above.
   
Lock-Out Date: As specified in Schedule I
   

SETTLEMENT TERMS:

 

Physical Settlement:

 

 

 

Applicable.

 

On the Settlement Date, Seller shall deliver to Buyer a number of Shares equal to (a) (i) the Prepayment Amount divided by (ii) the Forward Price, minus (b) the Initial Shares (such number of Shares, the “ Settlement Amount ”), rounded to the nearest whole number of Shares; provided , however , that if the Settlement Amount is less than zero, then Buyer shall deliver to Seller a number of Shares which shares shall be delivered to Seller by means of a private placement equal to 101% of the absolute value of the Settlement Amount (such number of Shares, the “ Payment Shares ”).

 

Notwithstanding the proviso in the immediately preceding paragraph, if the Settlement Amount is less than zero, Buyer may cash settle its obligation to deliver the Payment Shares by delivering to Seller a notice by no later than the Valuation Date (or, if later, the date on which MSCO delivers an Acceleration Notice) electing to cash settle its obligation to deliver the Payment Shares. Any such cash settlement shall be effected in accordance with “Cash Settlement of Payment Shares” below.

 

For the avoidance of doubt, upon the date that (i) Issuer satisfies its obligation to deliver the Payment Shares to MSCO in accordance with the terms of this paragraph or (ii) the Settlement Balance (as defined below) is reduced to zero in connection with the cash settlement of the Issuer’s obligation to deliver Payment Shares (as described under “Cash Settlement of Payment Shares” below), Issuer shall have no further delivery or payment obligations under the terms of the Transaction and the Transaction shall be deemed to have been settled as of such date.

 

 

 

Settlement Currency: USD
   
Settlement Date: The date that falls one Settlement Cycle after the relevant Valuation Date; provided that with respect to any accelerated Valuation Date, the date shall be the date that falls one Settlement Cycle following the Acceleration Date.
   
Cash Settlement of Payment Shares:

If Buyer elects to cash settle its obligation to deliver Payment Shares, then on the Valuation Date a notional Share balance (the “ Settlement Balance ”) shall be created with an initial balance equal to the absolute value of the Settlement Amount.  On the Settlement Date, Buyer shall deliver to Seller an amount in USD equal to the Payment Shares multiplied by a price per Share as reasonably determined by the Calculation Agent (such cash amount, the “ Initial Cash Settlement Amount ”).  On the Exchange Business Day immediately following the Valuation Date, Seller may begin purchasing Shares in a commercially reasonable manner (all such Shares purchased, “ Cash Settlement Shares ”) and a notional cash balance (the “ Cash Balance ”) shall be created with an initial balance equal to the Initial Cash Settlement Amount.  At the end of each Exchange Business Day on which Seller purchases Cash Settlement Shares, Seller shall reduce (i) the Settlement Balance by the number of Cash Settlement Shares purchased on such Exchange Business Day and (ii) the Cash Balance by the aggregate purchase price (including commissions) of the Cash Settlement Shares purchased on such Exchange Business Day.  If, on any Exchange Business Day, the Cash Balance is reduced to or below zero but the Settlement Balance is greater than zero, the Buyer shall (i) deliver to Seller or as directed by Seller on the next Currency Business Day after such Exchange Business Day an additional amount in USD (an “ Additional Cash Settlement Amount ”) equal to the Settlement Balance as of such Exchange Business Day multiplied by a price per Share as reasonably determined by the Calculation Agent, and the Cash Balance shall be increased by such amount.  This provision shall be applied successively until the Settlement Balance is reduced to zero.  On the Currency Business Day immediately following the Exchange Business Day that the Settlement Balance is reduced to zero, Seller shall return to Buyer an amount in USD equal to the remaining Cash Balance, if any, as of such Exchange Business Day.  In making any purchases of Cash Settlement Shares contemplated by this paragraph, MSCO shall use commercially reasonable efforts to purchase such Shares in a manner that would qualify for the safe harbor provided by Rule 10b-18 under the Exchange Act (“ Rule 10b-18 ”) if such purchases were made by or on behalf of Issuer and subject to Rule 10b-18.  The period until the Settlement Balance is reduced to zero shall be considered to be part of the Calculation Period for purposes of the representations, warranties and covenants and other provisions herein as the context requires (but, for the avoidance of doubt, not for purposes of determining the Forward Price).

 

 

 

   
Other Applicable Provisions: The last sentence of Section 9.2, Sections 9.8, 9.9, 9.10 and 9.11 (except that the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws arising as a result of the fact that Buyer is the issuer of the Shares) and Section 9.12 of the Equity Definitions will be applicable to the Transaction.

 

SHARE ADJUSTMENTS:

 

Potential Adjustment Event:

Notwithstanding anything to the contrary in Section 11.2(e) of the Equity Definitions, an Extraordinary Dividend shall not constitute a Potential Adjustment Event.

 

It shall constitute a Potential Adjustment Event if a Disrupted Day occurs or, pursuant to Section 11 below, is deemed to occur (in whole or in part) on any Trading Day on or prior to the Valuation Date.

   
Extraordinary Dividend: Any dividend or distribution on the Shares with an ex-dividend date occurring during the period from, and including, the Trade Date to, and including, the later of (i) the last day of the Calculation Period or (ii) the day upon which the transactions contemplated under “Cash Settlement of Payment Shares” are complete.

 

Method of Adjustment: Calculation Agent Adjustment

 

Extraordinary Events:

 

Consequences of Merger Events:

 

Share-for-Share: Modified Calculation Agent Adjustment

 

Share-for-Other: Cancellation and Payment on that portion of the Other Consideration that consists of cash; Modified Calculation Agent Adjustment on the remainder of the Other Consideration

 

Share-for-Combined:

Component Adjustment

 

 

 

 

 
Tender Offer: Applicable

 

Consequences of Tender Offers:

 

Share-for-Share: Modified Calculation Agent Adjustment

 

Share-for-Other: Modified Calculation Agent Adjustment

 

Share-for-Combined: Modified Calculation Agent Adjustment
   
New Shares: In the definition of New Shares in Section 12.1(i) of the Equity Definitions, the text in clause (i) thereof shall be deleted in its entirety (including the word “and” following such clause (i)) and replaced with “publicly quoted, traded or listed on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors)”.

 

For purposes of the Transaction,

 

(i) the definition of Merger Date in Section 12.1(c) of the Equity Definitions shall be amended to read, “Merger Date shall mean the Announcement Date.”;

 

(ii) the definition of Tender Offer Date in Section 12.1(e) of the Equity Definitions shall be amended to read, “Tender Offer Date shall mean the Announcement Date.”;

 

(iii) the definition of “Announcement Date” in Section 12.1(l) of the Equity Definitions is hereby amended by (a) replacing the words “a firm” with the word “any” in the second and fourth lines thereof, (b) replacing the word “leads to the” with the words “, if completed, would lead to a” in the third and the fifth lines thereof, (c) replacing the words “voting shares” with the word “Shares” in the fifth line thereof, (d) inserting the words “by any entity” after the word “announcement” in the second and the fourth lines thereof, (e) inserting the words “or to explore the possibility of engaging in” after the words “engage in” in the second line thereof and (f) inserting the words “or to explore the possibility of purchasing or otherwise obtaining” after the word “obtain” in the fourth line thereof; and

 

(iv) Section 12.2 of the Equity Definitions is hereby amended by inserting the words “Announcement Date in respect of any Merger Event or any potential” before the words “Merger Event” in the final line thereof.

 

Composition of Combined Consideration: Not Applicable

 

Nationalization, Insolvency or Delisting: Cancellation and Payment; provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Market or The NASDAQ Global Select Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall thereafter be deemed to be the Exchange.

 

 

 

ADDITIONAL DISRUPTION EVENTS:

 

Change in Law: Applicable; provided that (i) any determination as to whether (A) the adoption of or any change in any applicable law or regulation (including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute) or (B) the promulgation of or any change in the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law or regulation (including any action taken by a taxing authority), in each case, constitutes a “Change in Law” shall be made without regard to Section 739 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any similar legal certainty provision in any legislation enacted, or rule or regulation promulgated, on or after the Trade Date, and (ii) Section 12.9(a)(ii) of the Equity Definitions is hereby amended by replacing the parenthetical beginning after the word “regulation” in the second line thereof the words “(including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute)”.

 

Failure to Deliver: Applicable

 

Insolvency Filing: Applicable

 

Hedging Disruption: Applicable

 

Increased Cost of Hedging: Applicable
   
Loss of Stock Borrow: Applicable
   
Maximum Stock Loan Rate: 100 bps

 

Increased Cost of Stock Borrow: Applicable
   
Initial Stock Loan Rate: 25 bps

 

Determining Party: For all applicable events, MSCO

 

Hedging Party: For all applicable events, MSCO

 

Additional Termination Event(s): The declaration by the Issuer of any Extraordinary Dividend, the ex-dividend date for which occurs or is scheduled to occur during the Relevant Dividend Period, will constitute an Additional Termination Event, with Issuer as the sole Affected Party and all Transactions hereunder as the Affected Transactions.

 

Relevant Dividend Period: The period from, and including, the Trade Date for the Transaction to, and including, the third Scheduled Trading Day following the Scheduled Valuation Date for the Transaction.

 

Non-Reliance: Applicable

 

 

 

Agreements and Acknowledgements Regarding Hedging Activities: Applicable

 

Additional Acknowledgments: Applicable

 

3.   Calculation Agent : MSCO

 

4. Account Details and Notices :

 

(a)       Account for delivery of Shares to Issuer:

 

Company: 12629

Anika Therapeutics, Inc.

American Stock Transfer & Trust Company, LLC

6201 15 th Avenue

Brooklyn, NY 11219

 

(b)        Account for payments to Issuer:

 

Bank of America, NY

ABA#: 026009593

Anika Therapeutics, Inc.

Account#: 9363574995

 

(c)        Account for payments to MSCO:

 

Citibank, NY

ABA #: 021000089

Morgan Stanley & Co.

Account #: 38890774

Anika Therapeutics, Inc.

# 023-05370

 

(d)       For purposes of this Confirmation:

 

(i)       Address for notices or communications to Issuer:

 

Anika Therapeutics, Inc.

32 Wiggins Avenue

Bedford, MA 01730

Attention: Sylvia Cheung

Telephone: 781-457-9214

Facsimile: 781-305-9720

Email Address: scheung@anikatherapeutics.com

 

With a copy to:

Anika Therapeutics, Inc.

32 Wiggins Avenue

Bedford, MA 01730

Attention: Charles Sherwood III

Telephone: 781-457-9261

Facsimile: 781-305-9720

Email: chsherwoodiii@anikatherapeutics.com

 

 

 

(ii)       Address for notices or communications to MSCO:

 

Morgan Stanley & Co. LLC

1585 Broadway

New York, NY 10036-8293

Attention: Usman Khan

Telephone: 212-761-0955

Facsimile: 212-507-4261

Email Address: usman.s.khan@morganstanley.com

 

With a copy to:

Morgan Stanley & Co. LLC

1585 Broadway

New York, NY 10036-8293

Attention: Steven Seltzer

Telephone: 212-761-1719

Email: Steven.Seltzer1@morganstanley.com

 

5. Amendments to the Equity Definitions .

 

(a)        Section 9.2(a)(iii) of the Equity Definitions is hereby amended by deleting the words “the Excess Dividend Amount, if any, and”.

 

(b)       Section 11.2(a) of the Equity Definitions is hereby amended by deleting the words “a diluting or concentrative effect on the theoretical value of the relevant Shares” and replacing them with the words “a material economic effect on the relevant Transaction”.

 

(c)       The first sentence of Section 11.2(c) of the Equity Definitions, prior to clause (A) thereof, is hereby amended to read as follows: ‘(c) If “Calculation Agent Adjustment” is specified as the Method of Adjustment in the related Confirmation of a Share Option Transaction or Share Forward Transaction, then, following the announcement or occurrence of any Potential Adjustment Event, the Calculation Agent will determine whether such Potential Adjustment Event has a material economic effect on the Transaction and, if so, will (i) make appropriate adjustment(s), if any, to any one or more of:’ and the portion of such sentence immediately preceding clause (ii) thereof is hereby amended by deleting the words “diluting or concentrative” and the words “(provided that no adjustments will be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Share)” and replacing such latter phrase with the words “(including adjustments to account for changes in volatility, stock loan rate or liquidity relevant to the Shares or to the Transaction)”.

 

(d)       Section 11.2(e)(vii) of the Equity Definitions is hereby amended by deleting the words “diluting or concentrative effect on the theoretical value of the relevant Shares” and replacing them with the words “material economic effect on the relevant Transaction”.

 

(e)       Section 12.6(c)(ii) of the Equity Definitions is hereby amended by replacing the words “the Transaction will be cancelled,” in the first line with the words “MSCO will have the right to cancel the Transaction,”.

 

(f)       Section 12.9(b)(iv) of the Equity Definitions is hereby amended by (A) deleting (1) subsection (A) in its entirety, (2) the phrase “or (B)” following subsection (A) and (3) the phrase “in each case” in subsection (B); and (B) deleting the phrase “neither the Non-Hedging Party nor the Lending Party lends Shares in the amount of the Hedging Shares or” in the penultimate sentence.

 

 

 

(g)       Section 12.9(b)(v) of the Equity Definitions is hereby amended by (A) adding the word “or” immediately before subsection “(B)” and deleting the comma at the end of subsection (A); and (B)(1) deleting subsection (C) in its entirety, (2) deleting the word “or” immediately preceding subsection (C) and (3) replacing in the penultimate sentence the words “either party” with “the Hedging Party” and (4) deleting clause (X) in the final sentence.

 

6. Certain Payments and Deliveries by MSCO .

Notwithstanding anything to the contrary herein, or in the Equity Definitions, if at any time (i) an Early Termination Date occurs and MSCO would be required to make a payment pursuant to Section 6 of the Agreement or (ii) an Extraordinary Event occurs and MSCO would be required to make a payment pursuant to Article 12 of the Equity Definitions (the amount of any such payment obligation described in Section 6(i) or (ii) above, an “ MSCO Payment Amount ”), then Issuer shall have the right, by prior written notice to MSCO, to require MSCO to settle such payment obligation in Shares in lieu of cash; provided , however , that Issuer shall not have the right to so elect in the event of (i) an Insolvency, a Nationalization, a Merger Event or a Tender Offer, in each case, in which the consideration or proceeds to be paid to holders of Shares consists solely of cash or (ii) an Event of Default in which Issuer is the Defaulting Party or a Termination Event in which Issuer is an Affected Party, which Event of Default or Termination Event resulted from an event or events within Issuer’s control. If Issuer does not so elect for MSCO to settle an MSCO Payment Amount in Shares, then MSCO shall have the right, in its sole discretion, to elect to settle such MSCO Payment Amount in Shares. If either Issuer or MSCO so elects, then MSCO shall deliver to Issuer, on or within a commercially reasonable time following the date on which such MSCO Payment Amount would have been due, a number of Shares with a market value, as determined by the Calculation Agent, equal to all or a portion (which portion may be zero) of the MSCO Payment Amount. If the market value of such Shares equals a portion, but not all, of the MSCO Payment Amount, then, on the date such MSCO Payment Amount is due, a notional balance (the “ Settlement Balance ”) shall be established equal to the remaining portion of the MSCO Payment Amount, and MSCO shall commence purchasing Shares for delivery to Issuer. At the end of each Trading Day on which MSCO purchases Shares pursuant to this Section 6, MSCO shall reduce the Settlement Balance by the amount paid by MSCO to purchase the Shares purchased on such Trading Day. MSCO shall deliver any Shares purchased on a Trading Day pursuant to this Section 6 to Issuer on the third Exchange Business Day following such Trading Day. MSCO shall continue so purchasing and delivering Shares until the Settlement Balance has been reduced to zero. In making any purchases of Shares contemplated by this Section 6, MSCO shall use commercially reasonable efforts to purchase such Shares in a manner that would qualify for the safe harbor provided by Rule 10b-18 if such purchases were made by or on behalf of Issuer and subject to Rule 10b-18. The period until the Settlement Balance is reduced to zero shall be considered to be part of the Calculation Period for purposes of the representations, warranties and covenants and other provisions herein as the context requires.

 

7. Certain Payments and Deliveries by Issuer .

 

Notwithstanding anything to the contrary herein, or in the Equity Definitions, if at any time (i) an Early Termination Date occurs and Issuer would be required to make a payment pursuant to Section 6 of the Agreement or (ii) an Extraordinary Event occurs and Issuer would be required to make a payment pursuant to Article 12 of the Equity Definitions (any such payment described in (i) or (ii) above, an “ Early Settlement Payment ”), then Issuer shall have the right, by prior written notice to MSCO, in lieu of making such cash payment, to settle such payment obligation in Shares (such Shares, “ Early Settlement Shares ”); provided , however , that Issuer shall not have the right to so elect in the event of (i) an Insolvency, a Nationalization, a Merger Event or a Tender Offer, in each case, in which the consideration or proceeds to be paid to holders of Shares consists solely of cash or (ii) an Event of Default in which Issuer is the Defaulting Party or a Termination Event in which Issuer is an Affected Party, which Event of Default or Termination Event resulted from an event or events within Issuer’s control. In order to elect to deliver Early Settlement Shares, (i) Issuer must notify MSCO of its election by no later than 4:00 p.m., New York City time, on the date that is three Exchange Business Days before the date that the Early Settlement Payment is due, (ii) Issuer must specify whether such Early Settlement Shares are to be sold by means of a registered offering or by means of a private placement and (iii) Issuer must comply with Section 8 below.

 

 

 

8. Provisions Relating to Delivery of Early Settlement Shares .

 

(a)       Issuer may deliver Early Settlement Shares and Make-Whole Shares (as defined below) by means of a registered offering only if the following conditions are satisfied:

 

(i)        On the later of (A) the Trading Day following Issuer’s election to deliver Early Settlement Shares and any Make-Whole Shares by means of a registered offering (the “ Registration Notice Date ”), and (B) the date on which the Registration Statement is declared effective by the SEC or becomes effective, but in no event later than the date the Early Settlement Payment is due, Issuer shall deliver to MSCO a number of Early Settlement Shares equal to the quotient of (I) the relevant Early Settlement Payment divided by (II) a price per Share as reasonably determined by the Calculation Agent (the date of such delivery, the “ Registered Share Delivery Date ”).

 

(ii)        Promptly following the Registration Notice Date, Issuer shall file with the SEC a registration statement (“ Registration Statement ”) covering the public sale by MSCO of the Early Settlement Shares and any Make-Whole Shares (collectively, the “ Registered Securities ”) on a continuous or delayed basis pursuant to Rule 415 (or any similar or successor rule), if available, under the Securities Act of 1933, as amended (the “ Securities Act ”); provided that no such filing shall be required pursuant to this paragraph (ii) if Issuer shall have filed a similar registration statement with unused capacity at least equal to the relevant Early Settlement Payment and such registration statement has become effective or been declared effective by the SEC on or prior to the Registration Notice Date and no stop order is in effect with respect to such registration statement as of the Registration Notice Date, in which case such registration statement shall be the Registration Statement.  Issuer shall use its commercially reasonable efforts to file the Registration Statement as an automatic shelf registration statement or have the Registration Statement declared effective by the SEC as promptly as possible. The Registration Statement shall be effective and subject to no stop order as of the Registered Share Delivery Date.

 

(iii)        Promptly following the Registration Notice Date, Issuer shall afford MSCO a reasonable opportunity to conduct a due diligence investigation with respect to Issuer customary in scope for underwritten offerings of equity securities for companies of comparable size, maturity and line of business (including, without limitation, the availability of senior management to respond to questions regarding the business and financial condition of Issuer and the right to have made available to MSCO for inspection all financial and other records, pertinent corporate documents and other information reasonably requested in connection with underwritten offerings of this type by MSCO), and MSCO shall be satisfied in all material respects with the results of such due diligence investigation of Issuer. For the avoidance of doubt, Issuer shall not have the right to deliver Shares pursuant to this Section 8(a) (and the conditions to delivery of Early Settlement Shares specified in this Section 8(a) shall not be satisfied) unless and until MSCO is satisfied in all material respects with the results of such due diligence investigation of Issuer.

 

(iv)        From the effectiveness of the Registration Statement until all Registered Securities have been sold by MSCO, Issuer shall, at the request of MSCO, make available to MSCO a printed prospectus relating to the Registered Securities in form and substance (including, without limitation, any sections describing the plan of distribution) reasonably satisfactory to MSCO (a “ Prospectus ”, which term shall include any prospectus supplement thereto), in such quantities as MSCO shall reasonably request.

 

(v)        Issuer shall use its commercially reasonable efforts to avoid or prevent the issuance of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any Prospectus and, if any such order is issued, to obtain the lifting thereof as soon thereafter as is possible.  If the Registration Statement, the Prospectus or any document incorporated therein by reference contains a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make any statement therein not misleading, Issuer shall as promptly as practicable file any required document and prepare and furnish to MSCO a reasonable number of copies of such supplement or amendment thereto as may be necessary so that the Prospectus, as thereafter delivered to the purchasers of the Registered Securities, will not contain a misstatement of a material fact or omit to state a material fact required to be stated therein or necessary to make any statement therein not misleading.

 

 

 

(vi)        On or prior to the Registered Share Delivery Date, Issuer shall enter into an agreement (a “ Transfer Agreement ”) with MSCO (or any affiliate of MSCO designated by MSCO) relating to the public sale of the Registered Securities and substantially similar to underwriting agreements customary for underwritten offerings of equity securities for companies of comparable size, maturity and line of business, in form and substance reasonably satisfactory to MSCO (or such affiliate), which Transfer Agreement shall (without limiting the foregoing) contain provisions substantially similar to those contained in such underwriting agreements relating to:

 

(A)        the indemnification of, and contribution in connection with the liability of, MSCO and its affiliates,

 

(B)        the delivery to MSCO (or such affiliate) of customary letters and opinions (including, without limitation, accountants’ comfort letters, opinions relating to the due authorization, valid issuance and fully paid and non-assessable nature of the Registered Securities and letters of counsel relating to the lack of material misstatements and omissions in the Registration Statement and the Prospectus); and

 

(C)        the payment by Issuer of all fees and expenses in connection with such resale, including all registration costs and all reasonable fees and expenses of one counsel for MSCO (or such affiliate).

 

(vii)        On the Registered Share Delivery Date, a notional balance (the “ Early Settlement Balance ”) shall be established with an initial balance equal to the amount of the Early Settlement Payment.  Following the delivery of Early Settlement Shares or any Make-Whole Shares, MSCO shall sell all such Early Settlement Shares or Make-Whole Shares in a commercially reasonable manner.

 

(viii)        At the end of each day on which sales have been made pursuant to paragraph 8(a)(vii) above, the Early Settlement Balance shall be (A) reduced by an amount equal to the net proceeds to be received by MSCO upon settlement of such sales, and (B) increased by an amount (as reasonably determined by the Calculation Agent) equal to MSCO’s funding cost with respect to the Early Settlement Balance as of the close of business on the day one Settlement Cycle prior to such day.

 

(ix)        If, on any date, the Settlement Balance has been reduced to zero but not all of the Early Settlement Shares have been sold, no additional Early Settlement Shares shall be sold and MSCO shall promptly deliver to Issuer (A) any remaining Early Settlement Shares and (B) if the Early Settlement Balance has been reduced to an amount less than zero, an amount in cash equal to the absolute value of the then-current Early Settlement Balance.

 

(x)        If, on any date, all of the Early Settlement Shares have been sold and the Settlement Balance has not been reduced to zero, Issuer shall, at its election, either pay the remaining Early Settlement Balance to MSCO in cash or promptly deliver to MSCO an additional number of Shares (“ Make-Whole Shares ”) equal to (A) the Settlement Balance as of such date divided by (B) a price per Share as reasonably determined by the Calculation Agent. This clause (x) shall be applied successively until the Settlement Balance is reduced to zero.

 

(xi)        If at any time the number of Shares covered by the Registration Statement is less than the number of Registered Securities required to be delivered pursuant to this Section 8(a), Issuer shall, at the request of MSCO, file additional registration statement(s) to register the sale of all Registered Securities required to be delivered to MSCO.

 

(xii)        Issuer shall cooperate with MSCO and use its commercially reasonable efforts to take any other action necessary to effect the intent of the provisions set forth in this Section 8(a).

 

 

 

(xiii)       The provisions of Section 8(b) shall apply to any then-current Early Settlement Balance if (i) on any given day, Issuer cannot satisfy any of the conditions set forth in this Section 8(a) or (ii) for a period of at least 10 consecutive Exchange Business Days, MSCO has determined that it is inadvisable to effect sales of Registered Securities, unless in either case Issuer pays such then-current Early Settlement Balance to MSCO in cash pursuant to the Registration Statement.

 

(b)        If Issuer timely elects to deliver Early Settlement Shares and Make-Whole Shares by means of a private placement, the following provisions shall apply:

 

(i)       All Early Settlement Shares and Make-Whole Shares shall be delivered to MSCO (or any affiliate of MSCO designated by MSCO) pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) thereof.

 

(ii)        Issuer shall afford MSCO and any potential purchaser of any such Shares from MSCO (or any affiliate of MSCO designated by MSCO) identified by MSCO a commercially reasonable opportunity to conduct a due diligence investigation with respect to Issuer customary in scope for private placements of equity securities for companies of comparable size, maturity and line of business (including, without limitation, the right to have made available to them for inspection all financial and other records, pertinent corporate documents and other information reasonably requested by them in connection with underwritten offerings of this type) and Issuer shall not disclose material non-public information in connection with such due diligence investigation.

 

(iii)        Issuer shall enter into an agreement (a “ Private Placement Agreement ”) with MSCO (or any affiliate of MSCO designated by MSCO) in connection with the private placement of such Shares by Issuer to MSCO (or any such affiliate) and the private resale of such Shares by MSCO (or any such affiliate), substantially similar to private placement purchase agreements customary for private placements of equity securities for companies of comparable size, maturity and line of business, in form and substance commercially reasonably satisfactory to MSCO and Issuer, which Private Placement Agreement shall include, without limitation, provisions substantially similar to those contained in such private placement purchase agreements relating to the indemnification of, and contribution in connection with the liability of, MSCO and its affiliates, and shall provide for the payment by Issuer of all fees and expenses in connection with such resale, including all reasonable fees and expenses of one counsel for MSCO but not including any underwriter or broker discounts and commissions, and shall contain representations, warranties and agreements of Issuer and MSCO reasonably necessary or advisable to establish and maintain the availability of an exemption from the registration requirements of the Securities Act for such resales.

 

(iv)        Issuer shall not take or cause to be taken any action that would make unavailable either (A) the exemption set forth in Section 4(a)(2) of the Securities Act for the sale of any Early Settlement Shares or Make-Whole Shares by Issuer to MSCO or (B) an exemption from the registration requirements of the Securities Act reasonably acceptable to MSCO for resales of Early Settlement Shares and Make-Whole Shares by MSCO.

 

(v)        On the date requested by MSCO, Issuer shall deliver a number of Early Settlement Shares equal to the quotient of (A) the amount of the Early Settlement Payment divided by (B) a per Share value, determined by MSCO in a commercially reasonable manner, which value shall take into account transfer restrictions applicable to such Shares and may be based on indicative bids from institutional “accredited investors” (as defined in Rule 501 under the Securities Act), and the provisions of Section 8(a)(vii) through (x) shall apply to the Early Settlement Shares delivered pursuant to this Section 8(b)(v). For purposes of applying the foregoing, the Registered Share Delivery Date referred to in Section 8(a)(vii) shall be the date on which Issuer delivers the Early Settlement Shares.

 

(c)        If Issuer elects to deliver Early Settlement Shares to settle its obligation to make an Early Settlement Payment, then, if necessary, Issuer shall use its commercially reasonable efforts to cause the number of authorized but unissued Shares of Common Stock to be increased to an amount sufficient to permit Issuer to fulfill its obligations under Sections 8(a) and/or 8(b) above.

 

 

 

9. Special Provisions for Merger Transactions .

 

Notwithstanding anything to the contrary herein or in the Equity Definitions:

 

(a)       Issuer agrees that:

 

(i)       It will not during the term of the Transaction make, or, to the extent within its control, permit to be made, any public announcement (as defined in Rule 165(f) under the Securities Act) of any Merger Transaction or potential Merger Transaction unless such public announcement is made prior to the open or after the close of the regular trading session on the Exchange for the Shares.

 

(ii)       To the extent that an announcement of a potential Merger Transaction occurs during the term of the Transaction and such announcement does not cause the Transaction to be cancelled or terminated in whole pursuant to “Extraordinary Events” in Section 2 above, then as soon as practicable following such announcement (but in any event prior to the next opening of the regular trading session on the Exchange), Issuer shall provide MSCO with written notice of such announcement; promptly (but in any event prior to the next opening of the regular trading session on the Exchange), Issuer shall provide MSCO with written notice specifying (x) Issuer’s average daily “Rule 10b-18 purchases” (as defined in Rule 10b-18) during the three full calendar months immediately preceding the Announcement Date that were not effected through MSCO or its affiliates and (y) the number of Shares purchased pursuant to the block purchase proviso in Rule 10b-18(b)(4) under the Exchange Act for the three full calendar months preceding the Announcement Date. Such written notice shall be deemed to be a certification by Issuer to MSCO that such information is true and correct. Issuer understands that MSCO will use this information in calculating the trading volume for purposes of Rule 10b-18. In addition, Issuer shall promptly notify MSCO of the earlier to occur of the completion of such transaction and the completion of the vote by target shareholders. Issuer acknowledges that any such public announcement may trigger the provision set forth in Section 11 below. Accordingly, Issuer acknowledges that its actions in relation to any such announcement or transaction must comply with the standards set forth in Section 13(b) below.

 

(b)        Upon the occurrence of any public announcement of a Merger Transaction, MSCO in its sole discretion may (i) apply the provisions of Section 11 below and/or (ii) treat the occurrence of such announcement as an Additional Termination Event with respect to which the Transaction shall be the sole Affected Transaction, Issuer shall be the sole Affected Party and MSCO shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.

 

“ Merger Transaction ” means any merger, acquisition or similar transaction involving a recapitalization of Issuer as contemplated by Rule 10b-18(a)(13)(iv) under the Exchange Act.

 

10. Special Provisions for Acquisition Transaction Announcements .

 

(a)        If an Acquisition Transaction Announcement occurs on or prior to the final Valuation Date, then the Forward Price shall be determined as if the words “minus (ii) the Discount” were deleted from the definition thereof. If an Acquisition Transaction Announcement occurs after the Trade Date but prior to the Lock-Out Date, the Lock-Out Date shall be deemed to be the date of such Acquisition Transaction Announcement.

 

(b)        “ Acquisition Transaction Announcement ” means (i) the announcement of an Acquisition Transaction, (ii) an announcement that Issuer or any of its subsidiaries has entered into an agreement, a letter of intent or an understanding designed to result in an Acquisition Transaction, (iii) the announcement of the intention to solicit or enter into, or to explore strategic alternatives or other similar undertaking that may include, an Acquisition Transaction or (iv) any announcement subsequent to an Acquisition Transaction Announcement relating to a material amendment, extension, withdrawal or other material change to the subject matter of the previous Acquisition Transaction Announcement. For the avoidance of doubt, the term “announcement” as used in the definition of Acquisition Transaction Announcement refers to any public announcement whether made by Issuer or by a third party that is reasonably likely to be a party to the Acquisition Transaction.

 

 

 

(c)       “ Acquisition Transaction ” means (i) any Merger Event (for purposes of this definition, the definition of Merger Event shall be read with the references therein to “100%” being replaced by “25%” and to “50%” by “75%” and without reference to the clause beginning immediately following the definition of Reverse Merger therein to the end of such definition), Tender Offer or Merger Transaction or any other transaction involving the merger of Issuer with or into any third party, (ii) the sale or transfer of all or substantially all of the assets or liabilities of Issuer, (iii) a recapitalization, reclassification, binding share exchange or other similar transaction, (iv) any acquisition, lease, exchange, transfer, disposition (including by way of spin-off or distribution) of assets or liabilities (including any capital stock or other ownership interests in subsidiaries) or other similar event by Issuer or any of its subsidiaries where the aggregate consideration transferable or receivable by or to Issuer or its subsidiaries exceeds 25% of the market capitalization of Issuer and (v) any transaction with respect to which Issuer or its board of directors has a legal obligation to make a recommendation to its shareholders in respect of such transaction (whether pursuant to Rule 14e-2 under the Exchange Act or otherwise).

 

11. MSCO Adjustments .

 

In the event that MSCO reasonably determines, based on advice of counsel, that it is appropriate with regard to any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by MSCO, and including, without limitation, Rule 10b-18, Rule 10b-5, Regulations 13D-G and Regulations 14 D-E under the Exchange Act, provided that such requirements, policies and procedures are generally applicable in similar situations and applied in a consistent manner in similar transactions), for MSCO to refrain from purchasing Shares or engaging in other market activity or to purchase fewer than the number of Shares or to engage in fewer or smaller other market transactions MSCO would otherwise purchase or engage in on any Trading Day on or prior to the last day of the Calculation Period, then MSCO may, in its reasonable discretion, elect that a Market Disruption shall be deemed to have occurred on such Trading Day. Such Trading Day shall be treated as a Disrupted Day in full. MSCO shall notify Issuer upon the exercise of MSCO’s rights pursuant to this Section 11 and shall subsequently notify Issuer on the day MSCO believes that the circumstances giving rise to such exercise have changed.

 

12. Covenants .

 

Issuer covenants and agrees that:

 

(a)        Until the end of the Potential Purchase Period (as defined below), neither it nor any of its affiliated purchasers (as defined in Rule 10b-18 under the Exchange Act) shall directly or indirectly (which shall be deemed to include the writing or purchase of any cash-settled or other derivative or structured Share repurchase transaction with a hedging period, calculation period or settlement valuation period or similar period that overlaps with the Transaction) purchase, offer to purchase, place any bid or limit order relating to a purchase of or commence any tender offer relating to Shares (or any security convertible into or exchangeable for Shares) without the prior written approval of MSCO or take any other action that would cause the purchase by MSCO of any Shares in connection with this Agreement not to qualify for the safe harbor provided in Rule 10b-18 under the Exchange Act (assuming for the purposes of this paragraph that such safe harbor were otherwise available for such purchases).

 

Notwithstanding the immediately preceding paragraph or anything herein to the contrary (i) an agent independent of Issuer may purchase Shares on behalf of an issuer plan sponsored by Issuer or any affiliate in accordance with the requirements of Section 10b-18(a)(13)(ii) under the Exchange Act (with “issuer plan” and “agent independent of Issuer” each being used herein as defined in Rule 10b-18), (ii) Issuer or any “affiliated purchaser” may purchase Shares in (x) unsolicited transactions or (y) privately negotiated (off-market) transactions, in each case, that are not and are not reasonably likely to result in “Rule 10b-18 purchases” (as defined in Rule 10b-18), in each case, without MSCO’s consent, (iii) Issuer may repurchase Shares from holders of awards granted under Issuer’s equity incentive plans for the purpose of paying the tax withholding obligations arising from the vesting of, or paying the exercise price in connection with the exercise of, or reacquiring Shares as a result of the forfeiture of, any such awards, and (iv) Issuer may repurchase Shares on any Exchange Business Day pursuant to any Rule 10b5-1 or Rule 10b-18 repurchase plan entered into with MSCO or an Affiliate of MSCO, so long as, on any such Exchange Business Day, such purchases do not in the aggregate exceed Specified ADTV Percentage (as specified in Schedule I) of the Share’s ADTV (as such term is defined in Rule 10b-18(a)(1)) on such Exchange Business Day (collectively, (i) through (iv) referred to herein as the “ Permitted Purchases ”).

 

 

 

“ Potential Purchase Period ” means the period from, and including, the Trade Date to, and including, the latest of (i) the last day of the Calculation Period, (ii) the earlier of (A) the date ten Exchange Business Days immediately following the last day of the Calculation Period and (B) the Scheduled Valuation Date and (iii) if an Early Termination Date occurs or the Transaction is cancelled pursuant to Article 12 of the Equity Definitions, a date determined by MSCO in its commercially reasonable discretion and communicated to Issuer no later than the Exchange Business Day immediately following such date.

 

(b)        It will comply with all laws, rules and regulations applicable to it (including, without limitation, the Securities Act and the Exchange Act) in connection with the transactions contemplated by this Confirmation.

 

(c)        Without limiting the generality of Section 13.1 of the Equity Definitions, it is not relying, and has not relied, upon MSCO or any of its representatives or advisors with respect to the legal, accounting, tax or other implications of this Agreement and that it has conducted its own analyses of the legal, accounting, tax and other implications of this Agreement, and that MSCO and its affiliates may from time to time effect transactions for their own account or the account of customers and hold positions in securities or options on securities of Issuer and that MSCO and its affiliates may continue to conduct such transactions during the term of this Agreement. Without limiting the generality of the foregoing, Issuer acknowledges that MSCO is not making any representations or warranties or taking any position or expressing any view with respect to the treatment of the Transaction under any accounting standards including ASC Topic 260, Earnings Per Share , ASC Topic 815, Derivatives and Hedging , or ASC Topic 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity (or any successor issue statements) or under FASB’s Liabilities & Equity Project.

 

(d)       Neither it nor any affiliates shall take any action that would cause a restricted period (as defined in Regulation M under the Exchange Act (“ Regulation M ”)) to be applicable to any purchases of Shares, or of any security for which Shares is a reference security (as defined in Regulation M), by Issuer or any affiliated purchasers (as defined in Regulation M) of Issuer during the Potential Purchase Period.

 

(e)       It will not make any election or take any other action in connection with the Transaction while aware of any material nonpublic information regarding Issuer or the Shares.

 

13. Representations, Warranties and Acknowledgments .

 

(a)        Issuer hereby represents and warrants to MSCO on the date hereof and on and as of the Initial Share Delivery Date that:

 

(i)       (A) None of Issuer and its officers and directors is aware of any material nonpublic information regarding Issuer or the Shares, and Issuer is entering into the Transaction in good faith and not as part of a plan or scheme to evade the prohibitions of federal securities laws, including, without limitation, Rule 10b-5 under the Exchange Act and (B) Issuer agrees not to alter or deviate from the terms of the Agreement or enter into or alter a corresponding or hedging transaction or position with respect to the Shares (including, without limitation, with respect to any securities convertible or exchangeable into the Shares) during the term of the Agreement. Without limiting the generality of the foregoing, all reports and other documents filed by Issuer with the Securities and Exchange Commission pursuant to the Exchange Act when considered as a whole (with the more recent such reports and documents deemed to amend inconsistent statements contained in any earlier such reports and documents) do not contain any untrue statement of a material fact or any omission of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading.

 

 

 

(ii)       The transactions contemplated by this Confirmation have been authorized under Issuer’s publicly announced program to repurchase Shares.

 

(iii)        Issuer is not entering into this Agreement to facilitate a distribution of the Shares (or any security convertible into or exchangeable for Shares) or in connection with a future issuance of securities.

 

(iv)        Issuer is not entering into this Agreement to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress the price of the Shares (or any security convertible into or exchangeable for Shares) in violation of the federal securities laws.

 

(v)        There have been no purchases of Shares in Rule 10b-18 purchases of blocks pursuant to the once-a-week block exception contained in Rule 10b-18(b)(4) by or for Issuer or any of its affiliated purchasers during each of the four calendar weeks preceding the Trade Date and during the calendar week in which the Trade Date occurs (“Rule 10b-18 purchase”, “blocks” and “affiliated purchaser” each being used as defined in Rule 10b-18).

 

(vi)       Issuer is as of the date hereof, and after giving effect to the transactions contemplated hereby will be, Solvent. As used in this paragraph, the term “ Solvent ” means, with respect to a particular date, that on such date (A) the present fair market value (or present fair saleable value) of the assets of Issuer is not less than the total amount required to pay the liabilities of Issuer on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (B) Issuer is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business, (C) assuming consummation of the transactions as contemplated by this Agreement, Issuer is not incurring debts or liabilities beyond its ability to pay as such debts and liabilities mature, (D) Issuer is not engaged in any business or transaction, and does not propose to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which Issuer is engaged, (E) Issuer is not a defendant in any civil action that could reasonably be expected to result in a judgment that Issuer is or would become unable to satisfy, (F) Issuer is not “insolvent” (as such term is defined under Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the “ Bankruptcy Code ”)) and (G) Issuer would be able to purchase Shares with an aggregate purchase price equal to the Prepayment Amount in compliance with the corporate laws of the jurisdiction of its incorporation.

 

(vii)        Issuer is not, and after giving effect to the transactions contemplated hereby will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

 

(viii)        No state or local (including non-U.S. jurisdictions) law, rule, regulation or regulatory order applicable to the Shares would give rise to any reporting, consent, registration or other requirement (including without limitation a requirement to obtain prior approval from any person or entity) as a result of MSCO or its affiliates owning or holding (however defined) Shares other than any such law, rule, regulation or regulatory order that applies solely as a result of the business, identity, place of business or jurisdiction of organization of MSCO or any such affiliate.

 

 

 

(b)       Issuer acknowledges and agrees that the Initial Shares may be sold short to Issuer. Issuer further acknowledges and agrees that MSCO may purchase Shares in connection with the Transaction, which Shares may be used to cover all or a portion of such short sale or may be delivered to Issuer. Such purchases and any other market activity by MSCO will be conducted independently of Issuer by MSCO as principal for its own account. All of the actions to be taken by MSCO in connection with the Transaction shall be taken by MSCO independently and without any advance or subsequent consultation with Issuer. It is the intent of the parties that the Transaction comply with the requirements of Rule 10b5-1(c)(1)(i)(B) of the Exchange Act, and the parties agree that this Confirmation shall be interpreted to comply with the requirements of such Rule, and Issuer shall not take any action that results in the Transaction not so complying with such requirements. Without limiting the generality of the preceding sentence, Issuer acknowledges and agrees that (A) Issuer does not have, and shall not attempt to exercise, any influence over how, when or whether MSCO effects any market transactions in connection with the Transaction and (B) neither Issuer nor its officers or employees shall, directly or indirectly, communicate any information regarding Issuer or the Shares to any employee of MSCO or its Affiliates that have been identified by MSCO to Issuer in writing as employees responsible for executing market transactions in connection with the Transaction. Issuer also acknowledges and agrees that any amendment, modification, waiver or termination of this Confirmation must be effected in accordance with the requirements for the amendment or termination of a “plan” as defined in Rule 10b5-1(c) under the Exchange Act. Without limiting the generality of the foregoing, any such amendment, modification, waiver or termination shall be made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5 under the Exchange Act, and no such amendment, modification or waiver shall be made at any time at which Issuer or any officer or director of Issuer is aware of any material nonpublic information regarding Issuer or the Shares.

 

(c)       Each of Issuer and MSCO represents and warrants to the other that it is an “eligible contract participant” as defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended.

 

(d)        Each of Issuer and MSCO acknowledges that the offer and sale of the Transaction to it is intended to be exempt from registration under the Securities Act by virtue of Section 4(2) thereof. Accordingly, it represents and warrants to the other party that (i) it has the financial ability to bear the economic risk of its investment in the Transaction and is able to bear a total loss of its investment, (ii) it is an “accredited investor” as that term is defined in Regulation D as promulgated under the Securities Act, (iii) it is entering into the Transaction for its own account and without a view to the distribution or resale thereof and (iv) the assignment, transfer or other disposition of the Transaction has not been and will not be registered under the Securities Act.

 

14. Acknowledgements of Issuer Regarding Hedging and Market Activity .

 

Issuer agrees, understands and acknowledges that:

 

(a)       during the period from (and including) the Trade Date to (and including) the Settlement Date, MSCO and its Affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative transactions in order to adjust its Hedge Position with respect to the Transaction;

 

(b)       MSCO and its Affiliates also may be active in the market for the Shares or options, futures contracts, swaps or other derivative transactions relating to the Shares other than in connection with hedging activities in relation to the Transaction;

 

(c)       MSCO shall make its own determination as to whether, when and in what manner any hedging or market activities in Issuer’s securities or other securities or transactions shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Transaction; and

 

(d)       any such market activities of MSCO and its Affiliates may affect the market price and volatility of the Shares, including the 10b-18 VWAP and the Forward Price, each in a manner that may be adverse to Issuer.

 

 

 

15. Indemnification .

 

In the event that MSCO becomes involved in any capacity in any third-party action, proceeding or investigation brought by or against any person in connection with any matter referred to in this Agreement, Issuer will reimburse MSCO for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. Issuer also will indemnify and hold MSCO harmless against any losses, claims, damages or liabilities to which it may become subject in connection with any matter referred to in this Confirmation. If for any reason the foregoing indemnification is unavailable to MSCO or insufficient to hold it harmless, then Issuer shall contribute to the amount paid or payable by MSCO as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of Issuer on one hand and MSCO on the other hand with respect to such loss, claim, damage, or liability and any other relevant equitable considerations. The reimbursement, indemnity and contribution obligations of Issuer under this Section 15 shall be in addition to any liability that Issuer may otherwise have, shall extend upon the same terms and conditions to any Affiliate of MSCO and the partners, directors, officers, agents, employees and controlling persons (if any), as the case may be, of MSCO and any such Affiliate and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of Issuer, MSCO, any such Affiliate and any such person. Issuer also agrees that neither MSCO nor any of such Affiliates, partners, directors, officers, agents, employees or controlling persons shall have any liability to Issuer for or in connection with any matter referred to in this Confirmation. Notwithstanding the foregoing, the reimbursement, indemnity, contribution and exculpation obligations of Issuer under this Section 15 shall not apply for the benefit of any person to the extent that any losses, claims, damages, liabilities or expenses result from the negligence or bad faith of such person in effecting the Transaction. The foregoing provisions shall survive any termination or completion of the Transaction. The foregoing reimbursement, indemnity and contribution obligations of Issuer shall be paid promptly in cash.

 

16. Other Provisions .

 

(a)       Issuer agrees and acknowledges that MSCO is a “financial institution” and “financial participant” within the meaning of Sections 101(22) and 101(22A) of the Bankruptcy Code. The parties hereto further agree and acknowledge that it is the intent of the parties that (A) this Confirmation is a “securities contract,” as such term is defined in Section 741(7) of the Bankruptcy Code, with respect to which each payment and delivery hereunder or in connection herewith is a “termination value,” “payment amount” or “other transfer obligation” within the meaning of Section 362 of the Bankruptcy Code and a “settlement payment,” within the meaning of Section 546 of the Bankruptcy Code, and (B) MSCO is entitled to the protections afforded by, among other sections, Sections 362(b)(6), 362(b)(17), 362(o), 546(e), 555 and 561 of the Bankruptcy Code.

 

(b)       MSCO and Issuer hereby agree and acknowledge that MSCO has authorized Issuer to disclose the Transaction to any and all persons, and there are no express or implied agreements, arrangements or understandings to the contrary, and authorizes Issuer to use any information that Issuer receives or has received with respect to the Transaction in any manner.

 

(c)       In the event Issuer becomes the subject of proceedings (“ Bankruptcy Proceedings ”) under the Bankruptcy Code or any other applicable bankruptcy or insolvency statute, any rights or claims of MSCO hereunder in respect of the Transaction shall rank for all purposes no higher than, but on a parity with, the rights or claims of holders of Shares, and MSCO hereby agrees that its rights and claims hereunder shall be subordinated to those of all parties with claims or rights against Issuer (other than common stockholders) to the extent necessary to assure such ranking. Without limiting the generality of the foregoing, after the commencement of Bankruptcy Proceedings, the claims of MSCO hereunder shall for all purposes have rights equivalent to the rights of a holder of a percentage of the Shares equal to the aggregate amount of such claims (the “ Claim Amount ”) taken as a percentage of the sum of (i) the Claim Amount and (ii) the aggregate fair market value of all outstanding Shares on the record date for distributions made to the holders of such Shares in the related Bankruptcy Proceedings. Notwithstanding any right it might otherwise have to assert a higher priority claim in any such Bankruptcy Proceedings, MSCO shall be entitled to receive a distribution solely to the extent and only in the form that a holder of such percentage of the Shares would be entitled to receive in such Bankruptcy Proceedings, and, from and after the commencement of such Bankruptcy Proceedings, MSCO expressly waives (i) any other rights or distributions to which it might otherwise be entitled in such Bankruptcy Proceedings in respect of its rights and claims hereunder and (ii) any rights of setoff it might otherwise be entitled to assert in respect of such rights and claims.

 

 

 

(d)       Notwithstanding any provision of this Confirmation or any other agreement between the parties to the contrary, neither the obligations of Issuer nor the obligations of MSCO hereunder are secured by any collateral, security interest, pledge or lien.

 

(e)       Each party waives any and all rights it may have to set off obligations arising under the Agreement and the Transaction against other obligations between the parties, whether arising under any other agreement, applicable law or otherwise.

 

(f)       Notwithstanding anything to the contrary herein, MSCO may, by prior notice to Issuer, satisfy its obligation to deliver any Shares or other securities on any date due (an “ Original Delivery Date ”) by making separate deliveries of Shares or such securities, as the case may be, at more than one time on or prior to such Original Delivery Date, so long as the aggregate number of Shares and other securities so delivered on or prior to such Original Delivery Date is equal to the number required to be delivered on such Original Delivery Date.

 

(g)       It shall constitute an Additional Termination Event with respect to which the Transaction is the sole Affected Transaction and Issuer is the sole Affected Party and MSCO shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement if, at any time on or prior to the Valuation Date, the price per Share on the Exchange, as determined by the Calculation Agent, is at or below the Threshold Price (as specified in Schedule I).

 

17. Share Cap .

 

Notwithstanding any other provision of this Confirmation or the Agreement to the contrary, in no event shall Issuer be required to deliver to MSCO in the aggregate a number of Shares that exceeds the Share Cap as of the date of delivery (as specified in Schedule I), subject to reduction by the number of Shares delivered hereunder by Issuer on any prior date.

 

18. Transfer and Assignment .

 

MSCO may transfer or assign its rights and obligations hereunder and under the Agreement, in whole or in part, to any of its Affiliates of equivalent credit quality (or whose obligations are guaranteed by an entity of equivalent credit quality) without the consent of Issuer. MSCO will provide prompt written notice of any such transfer to Issuer.

 

19. 2018 ISDA U.S. Resolution Stay Protocol Incorporation by Reference

The parties agree that (i) to the extent that prior to the date hereof both parties have adhered to the 2018 ISDA U.S. Resolution Stay Protocol (the “Protocol”), the terms of the Protocol are incorporated into and form a part of this Agreement, and for such purposes this Agreement shall be deemed a Protocol Covered Agreement and each party shall be deemed to have the same status as Regulated Entity and/or Adhering Party as applicable to it under the Protocol; (ii) to the extent that prior to the date hereof the parties have executed a separate agreement the effect of which is to amend the qualified financial contracts between them to conform with the requirements of the QFC Stay Rules (the “Bilateral Agreement”), the terms of the Bilateral Agreement are incorporated into and form a part of this Agreement and each party shall be deemed to have the status of “Covered Entity” or “Counterparty Entity” (or other similar term)  as applicable to it under the Bilateral Agreement; or (iii) if clause (i) and clause (ii) do not apply, the terms of Section 1 and Section 2 and the related defined terms (together, the “Bilateral Terms”) of the form of bilateral template entitled “Full-Length Omnibus (for use between U.S. G-SIBs and Corporate Groups)” published by ISDA on November 2, 2018 (currently available on the 2018 ISDA U.S. Resolution Stay Protocol page at www.isda.org and, a copy of which is available upon request),  the effect of which is to amend the qualified financial contracts between the parties thereto to conform with the requirements of the QFC Stay Rules, are hereby incorporated into and form a part of this Agreement, and for such purposes this Agreement shall be deemed a “Covered Agreement,” MSCO  shall be deemed a “Covered Entity” and Issuer shall be deemed a “Counterparty Entity.” In the event that, after the date of this Agreement, both parties hereto become adhering parties to the Protocol, the terms of the Protocol will replace the terms of this paragraph. In the event of any inconsistencies between this Agreement and the terms of the Protocol, the Bilateral Agreement or the Bilateral Terms (each, the “QFC Stay Terms”), as applicable, the QFC Stay Terms will govern. Terms used in this paragraph without definition shall have the meanings assigned to them under the QFC Stay Rules. For purposes of this paragraph, references to “this Agreement” include any related credit enhancements entered into between the parties or provided by one to the other.

 

 

“QFC Stay Rules” means the regulations codified at 12 C.F.R. 252.2, 252.81–8, 12 C.F.R. 382.1-7 and 12 C.F.R. 47.1-8, which, subject to limited exceptions, require an express recognition of the stay-and-transfer powers of the FDIC under the Federal Deposit Insurance Act and the Orderly Liquidation Authority under Title II of the Dodd Frank Wall Street Reform and Consumer Protection Act and the override of default rights related directly or indirectly to the entry of an affiliate into certain insolvency proceedings and any restrictions on the transfer of any covered affiliate credit enhancements.

 

20. Governing Law; Jurisdiction; Waiver .

 

THIS CONFIRMATION AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS CONFIRMATION SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ALL MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN, AND ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS.

 

Each PARTY hereby irrevocably waives (on its own behalf and, to the extent permitted by applicable law, on behalf of its stockholders) all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to the Transaction or the actions of ISSUER or its affiliates in the negotiation, performance or enforcement hereof.

 

 

Remainder of Page Intentionally Blank

 

 

 

 

 

 


 

 

 

 

 

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning it to us by facsimile to the number provided on the attached facsimile cover page.

 

Confirmed as of the date first written above:

 

ANIKA THERAPEUTICS, INC.

 

MORGAN STANLEY & CO. LLC

 

 

By: /s/Joseph Darling ________________

Name: Joseph Darling

Title: President and Chief Executive Officer

By: /s/Darren McCarley _________________

Name: Darren McCarley

Title: Managing Director

 

 

 

 
   

 

Exhibit 31.1

 

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Joseph G. Darling, certify that:

 

  1.

I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2019 of Anika Therapeutics, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

Date: July 26, 2019
/s/ JOSEPH G. DARLING
  Joseph G. Darling
  President and Chief Executive Officer
  Principal Executive Officer

Exhibit 31.2

 

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Sylvia Cheung, certify that:

 

  1.

I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2019 of Anika Therapeutics, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

 Date:  July 26, 2019
/s/ SYLVIA CHEUNG
  Sylvia Cheung
  Chief Financial Officer
  Principal Financial Officer

Exhibit 32.1

 

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

The undersigned officers of Anika Therapeutics, Inc. (the “Company”) hereby certify to their knowledge and in their respective capacities that the Company’s quarterly report on Form 10-Q to which this certification is attached (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: July 26, 2019
/s/ JOSEPH G. DARLING
  Joseph G. Darling.
  President and Chief Executive Officer
  Principal Executive Officer
 

 

 

Date: July 26, 2019
/s/ SYLVIA CHEUNG
  Sylvia Cheung
  Chief Financial Officer
  Principal Financial Officer

 

This certification shall not be deemed “filed” for any purpose, nor shall it be deemed to be incorporated by reference into any filing, under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.