<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
GLIATECH INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
Gliatich Logo
23420 Commerce Park Road
Cleveland, Ohio 44122
Telephone: (216) 831-3200
April 13, 1998
Dear Gliatech Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Gliatech
Inc., which will be held on Wednesday, May 20, 1998, at 11:00 a.m. at the
Embassy Suites Hotel, 3775 Park East Drive, Beachwood, Ohio.
This year, your Board of Directors is recommending that you elect two
Directors for a three-year term and approve the appointment of the independent
auditors of the Company for the current fiscal year.
The Company has enclosed a copy of its 1997 Annual Report for the fiscal
year ended December 31, 1997 with this notice of annual meeting of stockholders
and proxy statement. If you would like another copy of the 1997 Annual Report,
please contact Rodney E. Dausch, Secretary, at Gliatech Inc., 23420 Commerce
Park Road, Cleveland, Ohio 44122, (216) 831-3200, and you will be sent one.
Please read the enclosed information carefully before completing and
returning the enclosed proxy card. Returning your proxy card as soon as possible
will assure your representation at the meeting, whether or not you plan to
attend. If you do attend the annual meeting, you may, of course, withdraw your
proxy should you wish to vote in person.
Sincerely,
/s/ Thomas O. Oesterling
Thomas O. Oesterling, Ph.D.
President and Chief Executive Officer
<PAGE> 3
Gliatech Logo
23420 Commerce Park Road
Cleveland, Ohio 44122
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1998
The Annual Meeting of Stockholders of Gliatech Inc., a Delaware corporation
(the "Company"), will be held on Wednesday, May 20, 1998, at 11:00 a.m. (the
"Annual Meeting"), at the Embassy Suites Hotel, 3775 Park East Drive, Beachwood,
Ohio for the purpose of:
(1) Electing two Directors for a three-year term;
(2) Approving the appointment of the independent auditors of the Company
for the fiscal year ending December 31, 1998; and
(3) Transacting such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 27, 1998,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ Rodney E. Dausch
Rodney E. Dausch
Secretary
April 13, 1998
The Company's 1997 Annual Report for the fiscal year ended December 31,
1997 is enclosed. The 1997 Annual Report contains financial and other
information about the Company, but is not incorporated into the Proxy Statement
and is not deemed to be a part of the proxy soliciting material.
EVEN IF YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE,
SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY REVOKE THEIR PROXIES AND
VOTE IN PERSON IF THEY SO DESIRE.
<PAGE> 4
GLIATECH INC.
23420 Commerce Park Road
Cleveland, Ohio 44122
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON MAY 20, 1998
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Gliatech Inc., a Delaware corporation (the "Company"),
of proxies to be used at the annual meeting of stockholders of the Company to be
held on May 20, 1998 (the "Annual Meeting"). This Proxy Statement and the
related proxy card are being mailed to stockholders commencing on or about April
13, 1998.
If the enclosed proxy card is executed and returned, the shares represented
by it will be voted as directed on all matters properly coming before the Annual
Meeting for a vote. Returning your completed proxy will not prevent you from
voting in person at the Annual Meeting should you be present and desire to do
so. In addition, the proxy may be revoked at any time prior to its exercise
either by giving written notice to the Company or by submission of a later-dated
proxy.
Stockholders of record of the Company at the close of business on March 27,
1998, will be entitled to vote at the Annual Meeting. On that date, the Company
had outstanding and entitled to vote 7,601,273 shares of common stock, $0.01 par
value per share (the "Common Stock"). A list of such holders will be open to the
examination of any stockholders, for any purpose germane to the meeting, at the
place of the Annual Meeting for a period of ten days prior to the meeting. Each
share of Common Stock is entitled to one vote. At the Annual Meeting, inspectors
of election shall determine the presence of a quorum and shall tabulate the
results of the vote of the stockholders. The holders of a majority of the total
number of outstanding shares of Common Stock entitled to vote must be present in
person or by proxy to constitute the necessary quorum for any business to be
transacted at the Annual Meeting. Properly executed proxies marked "abstain" as
well as proxies held in street name by brokers that are not voted on all
proposals to come before the Annual Meeting ("broker non-votes"), will be
considered "present" for purposes of determining whether a quorum has been
achieved at the Annual Meeting.
The two nominees for Director receiving the greatest number of votes cast
at the Annual Meeting in person or by proxy shall be elected. Consequently, any
shares of Common Stock present in person or by proxy at the Annual Meeting, but
not voted for any reason have no impact in the election of Directors, except to
the extent that the failure to vote for an individual may result in another
individual receiving a larger number of votes. All other matters to be
considered at the Annual Meeting require for approval the favorable vote of a
majority of shares voted at the meeting in person or by proxy. Stockholders have
no right to cumulative voting as to any matter, including the election of
Directors. If any proposal at the Annual Meeting must receive a specific
percentage of favorable votes for approval, abstentions in respect of such
proposal are treated as present and entitled to vote under Delaware law and
therefore such abstentions have the effect of a vote against such proposal.
Broker non-votes in respect of any proposal are not counted for purposes of
determining whether such proposal has received the requisite approval.
The shares represented by all valid proxies received will be voted in the
manner specified on the proxies. Where specific choices are not indicated on a
valid proxy, the shares represented by such proxies received will be voted: (i)
for the nominees for Director named in this Proxy Statement; (ii) for approval
of the appointment of Ernst & Young LLP, as independent auditors; and (iii) in
accordance with the best judgment of the persons named in the enclosed proxy, or
their substitutes, for any other matters which properly come before the Annual
Meeting.
<PAGE> 5
ELECTION OF DIRECTORS
The Company's Second Restated Certificate of Incorporation provides that
the Board of Directors will be divided into three classes of Directors to be as
nearly equal in number of Directors as possible. At each annual stockholders'
meeting, Directors are elected for a term of three years and hold office until
their successors are elected and qualified or until their earlier removal or
resignation. Class I currently consists of Allen H. Ford, Theodore E. Haigler,
Jr. and Ronald D. Henriksen and their current term of office will expire at the
1999 annual meeting of stockholders. Class II consists of Irving S. Shapiro and
John L. Ufheil and their current term of office will expire at the 2000 annual
meeting of stockholders. Class III consists of Thomas O. Oesterling, Ph.D. and
Robert P. Pinkas and their current term of office will expire at this Annual
Meeting. All non-employee Directors receive reimbursements for any and all
out-of-pocket expenses incurred in connection with attending each Board of
Directors meeting or committee meeting and prior to November 1997 stock options
to purchase 4,000 shares of Common Stock upon election as a Director and an
annual award of stock options to purchase 4,000 shares of Common Stock after
each annual meeting. In November 1997, the Company amended the 1995 Nonemployee
Director Stock Option Plan to provide for stock options to purchase 8,000 shares
of Common Stock upon election as a Director and an annual award of stock options
to purchase 8,000 shares of Common Stock after each annual meeting.
At the Annual Meeting, two Directors are to be elected to hold office, each
for a term of three years and until his successor is elected and qualified. The
Board of Directors recommends that its two nominees for Director be elected at
the Annual Meeting. The nominees are Thomas O. Oesterling, Ph.D. and Robert P.
Pinkas. Dr. Oesterling and Mr. Pinkas have served as Directors of the Company
since 1989 and 1988, respectively. If any nominee becomes unavailable for any
reason or should a vacancy occur before the election (which events are not
anticipated), the proxies will be voted for the election of such other person as
a Director as the Board of Directors may recommend.
Information regarding the nominees and continuing Directors of the Company
is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Robert P. Pinkas (1) 44 Chairman of the Board and Treasurer
Thomas O. Oesterling, Ph.D. 60 President, Chief Executive Officer and
Director
Allen H. Ford (2) 69 Director
Theodore E. Haigler, Jr. (2) 73 Director
Ronald D. Henriksen (1) 58 Director
Irving S. Shapiro (2) 81 Director
John L. Ufheil (1) 64 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
DIRECTOR NOMINEES
THOMAS O. OESTERLING, PH.D. has served as President, Chief Executive
Officer and a Director of the Company since June 1989. From 1984 to 1986, he was
Senior Vice President Research and Development of Collaborative Research, Inc.,
a manufacturer of diagnostic reagents for genetic research and testing, and from
1986 to 1989, he was President. Prior to 1984, Dr. Oesterling had 18 years of
experience in pharmaceutical and medical management and research and development
for the Upjohn Company, Johnson & Johnson, and Mallinckrodt Inc.
ROBERT P. PINKAS has served as Chairman of the Board of Directors since
1988 and served as Secretary of the Company from 1988 until August 1995. He
became Treasurer of the Company in August 1995. Mr. Pinkas is the founding
general partner of Brantley Venture Partners, a venture capital firm formed in
1987. He is also a director of Pediatric Services of America, Inc., Quad Systems
Corporation, Brantley Capital Corporation, Waterlink, Inc. and Medirisk, Inc.
2
<PAGE> 6
CONTINUING DIRECTORS
ALLEN H. FORD has served as a Director of the Company since 1988. Mr. Ford
has been an independent management consultant since his retirement in 1986. Mr.
Ford is also a director of First Union Real Estate Investments and
Parker-Hannifin Corporation.
THEODORE E. HAIGLER, JR. has served as Director of the Company since May
1996. Mr. Haigler has been an independent management consultant since his
retirement in 1989. From 1986 until his retirement in 1989, he served as
President, Chief Executive Officer and director of Burroughs Wellcome Co., a
pharmaceutical company, and director of Wellcome plc, London, England. Mr.
Haigler is also a director of FAC Realty Trust Inc.
RONALD D. HENRIKSEN has served as a Director of the Company since May 1997.
In April 1996, Mr. Henriksen became Chief Executive Officer of Itasca Ventures
LLC, a medical technology company. From March 1993 through December 1995, he was
the President and Chief Executive Officer of Khepri Pharmaceuticals, a
development stage biotechnology company. From 1970 to March 1993, he held a
series of managerial and executive positions, including Director of Business
Development, at Eli Lily and Company, a pharmaceutical company. Mr. Henriksen
currently serves as a Director of QLT Phototherapeutics.
IRVING S. SHAPIRO has served as a Director since December 1993. Mr. Shapiro
has been Of Counsel to the law firm of Skadden, Arps, Slate, Meagher & Flom in
Wilmington, Delaware since 1990 and from 1981 to 1989 was a partner of that
firm. He served as Chairman and Chief Executive Officer of E.I. du Pont de
Nemours & Company, a manufacturer of chemicals and other materials, from 1974 to
1981. Mr. Shapiro currently serves as director of J.P. Morgan Florida, FSB,
Pediatric Services of America Inc. and Sola International Inc.
JOHN L. UFHEIL has served as a Director of the Company since May 1993. From
April 1990 until his retirement in May 1994, he served as Chairman, President
and Chief Executive Officer of Celgene Corporation, a biotechnology company.
COMMITTEES AND DIRECTORS MEETINGS
The Board of Directors has two standing committees: the Audit Committee and
the Compensation Committee.
The Audit Committee recommends to the Board of Directors, subject to
stockholder approval, the appointment of the Company's independent auditors. The
Audit Committee discusses with the Company's management and the Company's
independent auditors the overall scope and specific plans for the audit. The
Audit Committee meets annually with the Company's senior management and
independent auditors to discuss the results of the auditors' examination and the
Company's financial reporting. The Audit Committee held one meeting in fiscal
1997.
The Compensation Committee oversees all matters relating to human resources
of the Company and administers (i) all stock option or stock-related plans and,
in connection therewith, all awards of options and performance units to
employees pursuant to any such stock option or stock related plan; (ii) all
bonus plans; and (iii) all compensation of the Chief Executive Officer and
President of the Company. The Compensation Committee held one meeting in fiscal
1997.
The Board of Directors held five meetings in fiscal 1997. With the
exception of Messrs. Ford and Haigler, all of the Directors attended at least
seventy-five (75%) of the total meetings held by the Board of Directors and by
the committees on which they served in fiscal 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The members of the Company's Compensation Committee are Robert P. Pinkas,
Chairman, Ronald D. Henriksen and John L. Ufheil. Except for Mr. Pinkas, no
officers or employees of the Company serve on the
3
<PAGE> 7
Compensation Committee. Although Mr. Pinkas is Treasurer of the Company, he
receives no compensation for holding such position. See "Compensation Committee
Report on Executive Compensation."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
On December 30, 1997, Messrs. T. Oesterling, R. Dausch, J. Schoeler and M.
Zupon received options to purchase shares of Common Stock as part of bonus
compensation for fiscal 1997. Dr. Oesterling received options to purchase 10,800
shares and Messrs. Dausch, Schoeler and Dr. Zupon each received options to
purchase 4,500 shares. On December 30, 1997, Messrs. J. Ufheil and R. Henriksen
received options to purchase 2,000 and 3,000 shares of Common Stock,
respectively, pursuant to the 1992 Director's Stock Option Plan. Each of the
above described option grants were reportable to the Securities and Exchange
Commission under Section 16(a) of the Securities Exchange Act of 1934. The Form
4s to report each of such option grants were not filed in a timely manner due to
an administrative oversight. Each option grant was subsequently reported on a
Form 5.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of February 12, 1998
(except as otherwise noted) as to the security ownership of those persons owning
of record or known to the Company to be the beneficial owner of more than five
percent of the voting securities of the Company and the security ownership of
equity securities of the Company by each of the Directors of the Company, and
each of the executive officers named in the Summary Compensation Table, and all
Directors and executive officers as a group. Except as otherwise noted, all
information with respect to beneficial ownership has been furnished by the
respective Director, executive officer or person beneficially owning five
percent or more of the Common Stock, as the case may be. Unless otherwise
indicated, the persons named below have sole voting and investment power with
respect to the number of shares set forth opposite their names. Beneficial
ownership of the Common Stock has been determined for this purpose in accordance
with the applicable rules and regulations promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act").
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE SHARES OF
NAME AND ADDRESS OF OF BENEFICIAL OWNERSHIP COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK BENEFICIALLY OWNED
------------------- ----------------------- ------------------
<S> <C> <C>
State of Wisconsin Investment 711,000 9.6%
Board(1).............................
P.O. Box 7842
Madison, Wisconsin 53707
Morgenthaler Venture Partners II & 641,818 8.7%
III(2)...............................
700 National City Bank Building
Cleveland, Ohio 44114
Brantley Venture Partners(3)........... 525,608 7.1%
20600 Chagrin Boulevard
Cleveland, Ohio 44122
Robert P. Pinkas(3).................... 525,608 7.1%
Thomas O. Oesterling, Ph.D.(4)......... 229,319 3.1%
Allen H. Ford(5)(6).................... 46,986 *
Theodore E. Haigler, Jr.(7)............ 1,320 *
Ronald D. Henriksen.................... 0 *
Irving S. Shapiro(8)................... 11,187 *
John L. Ufheil(9)...................... 11,187 *
Rodney E. Dausch(10)................... 45,816 *
Jon D. Schoeler(11).................... 16,977 *
Michael A. Zupon, Ph.D.(12)............ 74,228 1.0%
All Directors and executive officers... 971,614 13.1%
as a group (10 persons)(13)
</TABLE>
4
<PAGE> 8
- ---------------
* Represents less than 1% of the outstanding shares.
(1) Information with respect to beneficial ownership is based on a Schedule 13G
as filed with the Securities and Exchange Commission on January 20, 1998.
(2) Includes 481,292 shares of Common Stock owned by Morgenthaler Venture
Partners II ("MVPII") and 160,526 shares of Common Stock owned by
Morgenthaler Venture Partners III ("MVPIII"). Voting and investment power
with respect to the shares of Common Stock owned by MVPII and MVPIII is
shared by the general partners of the respective management partnerships of
MVPII and MVPIII.
(3) Includes 228,766 shares of Common Stock owned by Brantley Venture Partners,
L.P. and 296,842 shares of Common Stock owned by Brantley Venture Partners
II, L.P. Robert P. Pinkas, a Director of the Company, is a general partner
of Pinkas Family Partners, L.P., the general partner of each of Brantley
Venture Management, L.P. and Brantley Venture Management II, the general
partners, respectively, of Brantley Venture Partners, L.P. and Brantley
Venture Partners II, L.P. Includes 8,987 shares of Common Stock purchasable
upon the exercise of stock options issued to Mr. Pinkas.
(4) Includes 198,000 shares of Common Stock purchasable upon the exercise of
stock options.
(5) Excludes 139,000 shares of Common Stock owned by Case Western Reserve
University as of March 31, 1998 of which Mr. Ford is a member of the Board
of Trustees and as to which he may be deemed to share voting and investment
power. Mr. Ford disclaims any beneficial interest in such shares.
(6) Includes 6,987 shares of Common Stock purchasable upon the exercise of
stock options.
(7) Includes 1,320 shares of Common Stock purchasable upon the exercise of
stock options.
(8) Includes 11,187 shares of Common Stock purchasable upon the exercise of
stock options.
(9) Includes 11,187 shares of Common Stock purchasable upon the exercise of
stock options.
(10) Includes 43,750 shares of Common Stock purchasable upon the exercise of
stock options.
(11) Includes 16,250 shares of Common Stock purchasable upon the exercise of
stock options.
(12) Includes 58,250 shares of Common Stock purchasable upon the exercise of
stock options.
(13) Includes 355,917 shares of Common Stock purchasable upon the exercise of
stock options.
5
<PAGE> 9
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information relating to the annual
and long-term compensation for the year ended December 31, 1997 for the Chief
Executive Officer and the other named executive officers of the Company who
received compensation in excess of $100,000 in that year (the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL -------------------------
COMPENSATION RESTRICTED SECURITIES
------------------ STOCK UNDERLYING
NAME AND SALARY BONUS AWARD(S) OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) (#) COMPENSATION(1)
------------------ ---- -------- ------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Oesterling, Ph.D. 1997 $240,000 $ 0 $ 0 10,800 $ 1,425
Chief Executive Officer and 1996 240,000 46,800 15,600 58,000 1,260
President 1995 210,000 63,000 21,000 115,000 1,260
Rodney E. Dausch(2) 1997 $150,000 $ 0 $ 0 4,500 $ 720
Vice President, Chief 1996 150,000 23,625 7,875 15,000 1,564(3)
Financial Officer and Secretary 1995 120,652 27,185 9,062 80,000 51,623(4)
Jon D. Schoeler(5) 1997 $140,000 $ 0 $ 0 4,500 $48,482(6)
Vice President, Worldwide 1996 64,927 17,173 5,724 65,000 6,663(7)
Sales and Marketing 1995 -- -- -- -- --
Michael A. Zupon, Ph.D. 1997 $150,000 $ 0 $ 0 4,500 $ 255
Vice President, Product 1996 150,000 23,625 7,875 15,000 204
Development and Operations 1995 125,000 28,125 9,375 61,000 153
</TABLE>
- ---------------
(1) Includes premiums on life insurance policies paid by the Company on behalf
of each of the Named Executive Officers.
(2) Rodney E. Dausch became Vice President and Chief Financial Officer of the
Company effective March 1995.
(3) Includes relocation living expenses of $988 paid by the Company on behalf of
Mr. Dausch in 1996.
(4) Includes relocation living expenses of $35,623 paid by the Company on behalf
of Mr. Dausch in 1995 and a bonus of $15,000.
(5) Jon D. Schoeler became Vice President, Worldwide Sales and Marketing of the
Company in July 1996.
(6) Includes relocation living expenses of $48,088 paid by the Company on behalf
of Mr. Schoeler in 1997.
(7) Includes relocation living expenses of $6,519 paid by the Company on behalf
of Mr. Schoeler in 1996.
6
<PAGE> 10
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grants of options
made during 1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT ANNUAL RATES OF
SECURITIES OF TOTAL STOCK PRICE
UNDERLYING OPTIONS/SARS APPRECIATION FOR
OPTION/SARS GRANTED TO EXERCISE OF OPTION TERM(2)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Oesterling, Ph.D..... 10,800 4.8% $10.125 12/30/07 $30,211 $66,759
Rodney E. Dausch............... 4,500 2.0% $10.125 12/30/07 $12,588 $27,816
Jon D. Schoeler................ 4,500 2.0% $10.125 12/30/07 $12,588 $27,816
Michael A. Zupon, Ph.D......... 4,500 2.0% $10.125 12/30/07 $12,588 $27,816
</TABLE>
- ---------------
(1) Represents options granted pursuant to the Company's Amended and Restated
1989 Stock Option Plan with an exercise price equal to the fair market value
as determined by the Board of Directors on the date of grant. Options become
exercisable with respect to one-fourth of the shares covered thereby on each
anniversary of the date of grant, commencing on the first anniversary of
such date. Each option has a maximum term of ten years, subject to earlier
termination in the event of the optionee's cessation of service with the
Company.
(2) The potential realizable value is based on the term of the option at the
time of grant (ten years). The potential realizable value is calculated by
assuming that the deemed fair value of the Company's Common Stock for
financial statement presentation purposes on the date of grant appreciates
at the indicated rate for the entire term of the option and that the option
is exercised at the exercise price and sold on the last day of its term at
the appreciated price.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
No options were exercised by the Named Executive Officers during 1997. The
following table provides information regarding unexercised stock options held by
the Named Executive Officers as of December 31, 1997:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES VALUE YEAR-END YEAR-END
ACQUIRED ON REALIZED EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE ($) UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ----------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Thomas O. Oesterling, Ph.D............. 0 0 198,000(E) $1,252,162(E)
112,800(U) $ 201,437(U)
Rodney E. Dausch....................... 0 0 43,750(E) $ 98,438(E)
55,750(U) $ 115,313(U)
Jon D. Schoeler........................ 0 0 16,250(E) $ 41,250(E)
53,250(U) $ 123,750(U)
Michael A. Zupon, Ph.D................. 0 0 58,250(E) $ 134,000(E)
46,250(U) $ 87,874(U)
</TABLE>
EMPLOYMENT AGREEMENTS
The Company is a party to letter agreements with each of Thomas D.
Oesterling, Ph.D., Rodney E. Dausch, Jon D. Schoeler and Michael A. Zupon, Ph.D.
that provide for severance payments in the event these individuals are
terminated without cause. Such agreements provide that these individuals will
receive 12 months of pay at their base salary rate if terminated without cause.
7
<PAGE> 11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This Compensation Committee report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the Exchange
Act, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The following report has been submitted by the Compensation and Stock
Option Committee (the "Committee") of the Board of Directors. It is the
responsibility of the Committee to exercise the authority of the Board of
Directors with respect to (i) evaluation of performance of management, (ii)
compensation of executive officers and (iii) administration of the Company's
stock option plans.
EXECUTIVE COMPENSATION POLICY
The Company's overall compensation philosophy is as follows:
- Attract and retain quality talent, which is critical to both the
short-term and long-term success of the Company.
- Reinforce financial and strategic performance objectives through
bonus and incentive stock option compensation that shares the
rewards and risks of strategic decision-making.
To reflect this philosophy in determining executive compensation levels,
the Committee conducts annual reviews of all executive officers to evaluate the
performance of each individual employee, including each person's decision-making
responsibilities and work-related accomplishments, as well as such individual's
contribution to the performance of the Company over the previous year.
In determining the level of executive compensation, including the executive
compensation level for 1997, the Committee weighed the performance of the
Company during the prior year and the contribution of the executive officers of
the Company to such performance. The performance of the Company is determined by
the Company's sales performance, progress in its clinical approval process,
progress in its clinical trials and research development. The compensation
levels of the Company's executive officers are also compared to the levels of
executive compensation paid by other corporations in the healthcare industry. In
particular, comparisons are made by the Committee with respect to salary levels,
bonuses and stock option awards. Such comparisons are made to companies in the
healthcare industry with which the members of the Committee are familiar and to
the companies which are similar in size and complexity to the operations and
research-related functions of the Company. These companies are not chosen based
on any published index or the peer group index used in the stock performance
graph below. The Company strives to set its aggregate compensation level, as
well as the individual components of such compensation, near the median of such
comparison companies.
GENERAL COMPENSATION POLICIES
The Committee's approach to compensation programs is to offer competitive
salaries in comparison to competitive market practices. The Committee is
responsible for the Company's executive compensation program which consists of
three principal components: (i) base salary; (ii) annual cash and stock bonuses;
and (iii) long-term equity incentives. The Committee uses market compensation
levels as a frame of reference for starting salary, stock option awards and
annual salary adjustments. The Committee considers the decision-making
responsibilities of each position, and the experience and work performance of
each of its existing executive officers. Salary reviews are conducted annually
with input from the Chief Executive Officer and the Chief Financial Officer.
ANNUAL BONUS PLANS
The Company's annual bonus plan is designed to be an attractive and
powerful incentive to achieve improved performance results at the Company. Each
of the Company's executive officers participates in the Company's management
bonus plan. This plan permits the Chief Executive Officer and other
participating
8
<PAGE> 12
executives officers to achieve bonus payments of as much as 30% and 20%,
respectively, of their base salary if the Company achieves certain performance
objectives that are set annually by the Board of Directors. Performance
objectives are generally set based on the Company's sales performance, progress
in its product approval process, progress in its clinical trials and research
developments, and are specifically set based on the objectives that are
established which corresponds to the position held by the executive officer. The
Board believes that by making a portion of annual compensation contingent on the
Company's performance, executive officers are motivated to achieve improvements
in operating results.
BENEFIT PLANS
The Company maintains several benefit plans designed to provide an
attractive package to its executive officers. The Company periodically
re-evaluates the nature and extent of the benefit plans in light of the plans
available to executives at competitors in the healthcare industry.
STOCK OPTIONS
Historically, the Committee has awarded stock options to each of the
Company's executive officers to (i) attract new quality officers to join the
Company, (ii) reward executive officers for accomplishing performance objectives
and (iii) motivate management with long-term ownership incentives to build the
value of the Company both in the short-term and the long-term. The Committee
considers market practices for similar positions in the healthcare industry and
the amount and terms of prior awards to an individual in granting stock options.
There were 24,300 stock options granted to executive officers in 1997.
CHIEF EXECUTIVE OFFICER COMPENSATION
The annual compensation package for Thomas O. Oesterling, Ph.D., the
Company's President and Chief Executive Officer, was established by the
Committee after reviewing his accomplishments during the prior year, his
experience with the Company, and the salaries of other chief executive officers
in comparable companies. The annual base salary of Dr. Oesterling in 1997
remained the same as his 1996 annual base salary, which was a 14% increase from
his 1995 annual base salary. In addition, he received options for shares of
Common Stock in 1997 at an exercise price of $10.125 per share.
Stock granted as bonuses was valued at the fair market value of the
Company's stock as reflected on the Nasdaq National Market. Dr. Oesterling's
bonuses and stock option grants in the years of 1997, 1996 and 1995 were in
recognition of meeting the Company's performance objectives and to keep pace
with bonuses and options being paid and granted to other chief executive
officers in the healthcare industry.
Compensation and Stock Option Committee
Robert P. Pinkas, Chairman
Ronald D. Henriksen
John L. Ufheil
9
<PAGE> 13
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return since the Common Stock became publicly traded on October 19, 1995 with
the Russell 2000 Index and indices of certain companies selected by the Company
as comparative to the Company. The graph assumes that the value of the
investment in the Company's Common Stock at its initial public offering price of
$9.50 per share and each index was $100.00 on October 19, 1995.
COMPARISON OF COMPANY'S COMMON STOCK, RUSSELL 2000
INDEX AND A PEER GROUP INDEX (1)
<TABLE>
<CAPTION>
PEER
MEASUREMENT PERIOD GLIATECH GROUP RUSSELL
(FISCAL YEAR COVERED) INC. INDEX 2000 INDEX
<S> <C> <C> <C>
10/19/95 100.00 100.00 100.00
12/31/95 88.16 112.89 106.95
12/31/96 81.58 87.77 124.71
12/31/97 107.89 84.09 152.57
</TABLE>
(1) The companies selected to form the Company's line-of-business peer group
index are: Alkermes Inc., Biomatrix Inc., Cambridge Neuroscience, Cephalon
Inc., Cocensys Inc., Genzyme Corp., Neurogen C.P. and Regeneron Pharm Inc.
The total return of each member of the Company's peer group has been
weighted according to each member's stock market capitalization.
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends a vote for approval of the appointment of
Ernst & Young LLP, as the independent auditors of the Company and its
subsidiaries, to audit the books and accounts for the Company and its
subsidiaries for the fiscal year ending December 31, 1998. During fiscal 1997,
Ernst & Young LLP examined the financial statements of the Company and its
subsidiaries, including those included in its Annual Report to Stockholders. It
is expected that representatives of Ernst & Young LLP will attend the Annual
Meeting, with the opportunity to make a statement if they so desire, and will be
available to answer appropriate questions.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
10
<PAGE> 14
SUBMISSION OF STOCKHOLDERS' PROPOSALS AND ADDITIONAL INFORMATION
Proposals of stockholders intended to be eligible for inclusion in the
Company's proxy statement and proxy card relating to the 1999 annual meeting of
stockholders of the Company must be received by the Company on or before
December 14, 1998. Such proposals should be submitted by certified mail, return
receipt requested.
The Company will furnish without charge to each person whose proxy is being
solicited, upon written request of any such person, a copy of the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1997, as
filed with the Securities and Exchange Commission, including the financial
statements and schedules thereto. Requests for copies of such Annual Report on
Form 10-K should be directed to: Rodney E. Dausch, Secretary, Gliatech Inc.,
23420 Commerce Park Road, Cleveland, Ohio 44122.
OTHER MATTERS
The Company will bear the costs of soliciting proxies from its
stockholders. In addition to the use of the mails, proxies may be solicited by
the Directors, officers and employees of the Company by personal interview,
telephone or telegram. Such Directors, officers and employees will not be
additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation materials to the beneficial owners of Common
Stock held of record by such persons, and the Company will reimburse such
brokerage houses, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred in connection therewith.
The Directors know of no other matters which are likely to be brought
before the Annual Meeting, but if any such matters properly come before the
meeting the persons named in the enclosed proxy, or their substitutes, will vote
the proxy in accordance with their best judgment.
By Order of the Board of Directors
/S/ Rodney E. Dausch
Rodney E. Dausch
Secretary
April 13, 1998
It is important that the proxies be returned promptly. Even if you expect
to attend the Annual Meeting, please promptly complete, sign, date and mail the
enclosed proxy card in the enclosed envelope, which requires no postage if
mailed in the United States.
11
<PAGE> 15
P
R
O
X
Y
GLIATECH INC.
Proxy Solicited on Behalf of the Board of
Directors of the Company for the Annual
Stockholders Meeting on May 20, 1998.
The undersigned hereby constitutes and appoints Ronald D. Henriksen and
John L. Ufheil, and each of them, his true and lawful agents and proxies with
full power of substitution in each, to represent the undersigned at the annual
meeting of stockholders of Gliatech Inc. to be held at the Embassy Suites Hotel
3775 Park East Drive, Beachwood, Ohio on Wednesday, May 20, 1998, at 11:00
a.m., and at any adjournments or postponements thereof, as follows and in
accordance with their judgment upon any other matters coming before said
meeting.
Election of Directors, Nominees: (change of address)
Thomas O. Oesterling, Ph.D. and ----------------------------------------
Robert P. Pinkas
----------------------------------------
----------------------------------------
----------------------------------------
(If you have written in the above space,
please mark the corresponding box on the
reverse side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, and shares represented by this proxy when properly executed will
be voted as directed or, if directions are not indicated, will be voted in
accordance with the Board of Directors' recommendations. The proxies cannot vote
your shares unless you sign and return this card.
---------------------
SEE REVERSE
SIDE
---------------------
1
<PAGE> 16
/X/ Please mark your
votes as in this
example.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. Approval of Ernst [ ] [ ] [ ]
Directors & Young LLP as
(see reverse) Independent Auditors.
For, except vote withheld from the following nominee(s):
- ----------------------------------------------------------
Change [ ]
of
Address
Attend [ ]
Meeting
SIGNATURE(S) DATE
----------------------------------------------- ---------------------------
</TABLE>
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
2
