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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998
REGISTRATION STATEMENT NO. 333-56057
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GLIATECH INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 34-1587242
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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23420 COMMERCE PARK ROAD
CLEVELAND, OHIO 44122
(216) 831-3200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
THOMAS O. OESTERLING, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GLIATECH INC.
23420 COMMERCE PARK ROAD
CLEVELAND, OHIO 44122
(216) 831-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
THOMAS C. DANIELS, ESQ.
JONES, DAY, REAVIS & POGUE
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114
(216) 586-3939
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement has become effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, please check the following
box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated July 15, 1998
100,000 SHARES
GLIATECH LOGO
COMMON STOCK
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All of the shares (the "Shares") offered hereby consist of 100,000 shares
of Common Stock, $0.01 par value per share (the "Common Stock"), of Gliatech
Inc. ("Gliatech" or the "Company") which are owned by the Selling Stockholder
listed herein under "Selling Stockholder." See "The Company" and "Selling
Stockholder." All expenses of registration incurred in connection herewith are
being borne by the Company, but all selling and other expenses incurred by the
Selling Stockholder will be borne by the Selling Stockholder. The Common Stock
is quoted on the Nasdaq National Market under the symbol "GLIA." On July 14,
1998, the last reported sale price of the Common Stock on the Nasdaq National
Market was $17.00
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SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES OF COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company has been advised by the Selling Stockholder that any or all of
the shares of Common Stock may be offered for sale and sold by or on behalf of
the Selling Stockholder from time to time in varying amounts on the Nasdaq
National Market (the "Nasdaq"), in privately negotiated transactions or by any
other legally available means, at fixed prices or prices related to the then
prevailing market price or as may be negotiated at the time of the sale. The
shares of Common Stock may be sold by the Selling Stockholder directly to one or
more purchasers, through agents designated from time to time or to or through
broker-dealers, underwriting syndicates represented by managing underwriters or
underwriters without a syndicate, designated from time to time. In the event the
shares of Common Stock are publicly offered through broker-dealers, agents or
underwriters, the Selling Stockholder may enter into agreements with such
broker-dealers, agents or underwriters with respect to such offerings. To the
extent required, the number of shares of Common Stock to be sold by the Selling
Stockholder, the purchase price, the public offering price, if applicable, the
name of any such agents, broker-dealers or underwriters and any applicable
commissions, discounts or other items constituting compensation to such agents,
broker-dealers or underwriters with respect to a particular offering will be set
forth in a supplement or supplements to this Prospectus (each, a "Prospectus
Supplement"). The aggregate proceeds to the Selling Stockholder from the sale of
Common Stock so offered will be the purchase price of the Common Stock, less the
aggregate commissions, discounts and other compensation, if any, paid by the
Selling Stockholder to such agents, broker-dealers or underwriters. See "Plan of
Distribution."
Any broker-dealers, agents or underwriters that participate with the
Selling Stockholder in the distribution of any of the shares of Common Stock may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933
(the "Securities Act") and any discount or commission received by them and any
profits on the resale of the shares of Common Stock purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
The date of this Prospectus is July , 1998
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AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3, of which this
Prospectus is a part (the "Registration Statement"), with the Securities and
Exchange Commission (the "Commission") under the Securities Act with respect to
the Shares of Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement,
including the financial statements and exhibits filed therewith. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document that is filed as an exhibit to the Registration Statement or otherwise
with the Commission are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed with the Commission. Each
such statement shall be deemed qualified in its entirety by such reference.
Copies of the Registration Statement, including all exhibits and schedules
thereto, may be examined or obtained from the Commission as described below.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports and other information with the Commission. Reports and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and Northeast Regional Office, Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
Website that contains reports, proxy and information statements and other
information regarding the Company filed electronically with the Commission. The
address of such site is: http://www.sec.gov. The Company's Common Stock is
quoted on the Nasdaq National Market and in connection therewith, reports and
other information concerning the Company may also be inspected at the offices of
The Nasdaq Stock Market, Inc. at 1735 K Street, N.W., Washington, D.C.
20006-1500.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus pursuant to the Exchange Act:
(1) The Annual Report of the Company on Form 10-K for the fiscal year ended
December 31, 1997;
(2) The Quarterly Report of the Company on Form 10-Q for the quarterly
period ended March 31, 1998;
(3) The Current Report on Form 8-K filed with the Commission on May 28,
1998;
(4) The description of the Common Stock of the Company contained in its
Registration Statement on Form 8-A filed with the Commission on October
3, 1995; and
(5) The description of the Rights attached to the Common Stock of the
Company contained in its Registration Statement on Form 8-A/A filed
with the Commission on July 2, 1997.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in a document all or a
portion of which is incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified will not be deemed to constitute a part of this Prospectus, except as
so modified, and any statement so superseded will not be deemed to constitute a
part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
(without exhibits other than exhibits specifically incorporated by reference) of
any or all documents incorporated by reference into this Prospectus. Requests
for such copies should be directed to Rodney E. Dausch, Vice President and Chief
Financial Officer, 23420 Commerce Park Road, Cleveland, Ohio 44122, telephone
(216) 831-3200.
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ADCON(R) is a registered trademark of the Company. Trade names and
trademarks of other companies appearing elsewhere in this Prospectus are the
property of their respective holders.
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THE COMPANY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under "Risk
Factors" and elsewhere in this Prospectus. Investors should consider carefully
the information set forth under the heading "Risk Factors." As used in this
Prospectus, unless otherwise indicated or the context otherwise requires, all
references to "Gliatech" or the "Company" include Gliatech Inc. and its wholly
owned subsidiaries.
Gliatech is engaged in the research, development and commercialization of
its ADCON family of proprietary, resorbable, carbohydrate polymer medical
devices designed to inhibit surgical scarring and adhesions. In addition to the
ADCON family of medical devices, the Company is pursuing the development of
small molecule drug candidates for the treatment of several central nervous
system disorders, including Attention Deficit Hyperactive Disorder ("ADHD"),
sleep disorders, obesity, anxiety and Alzheimer's Disease ("AD"). The Company is
pursuing its AD program through its strategic alliance with Janssen
Pharmaceutica, N.V. of Belgium ("Janssen"), a wholly-owned subsidiary of Johnson
& Johnson.
The Company was incorporated under the laws of the State of Delaware on
August 12, 1987 and commenced operations in 1988. The Company's executive
offices are located at 23420 Commerce Park Road, Cleveland, Ohio 44122,
telephone number (216) 831-3200.
RISK FACTORS
Prospective investors in the shares of Common Stock offered hereby should
consider carefully the following risk factors, in addition to the other
information contained in this Prospectus. This Prospectus contains forward-
looking statements which involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below, as well as those discussed
elsewhere in this Prospectus.
EARLY COMMERCIALIZATION; UNCERTAINTY OF MARKET ACCEPTANCE OF ADCON FAMILY OF
PRODUCTS
Since commencement of operations in 1988, the Company has been engaged in
the research, development and commercialization of medical devices designed to
inhibit postsurgical scarring and adhesions and the research and development of
pharmaceutical products for use in the treatment of several central nervous
system disorders. Although the Company has entered into agreements with
distributors for the sale of ADCON-L and ADCON-T/N in selected European
countries and certain other countries outside the U.S., it has generated only
limited revenues from such products and no assurances can be given that
commercialization of these products will be successful. On May 27, 1998, the
Company received approval from the FDA to begin marketing ADCON-L in the U.S. As
a result, the Company has only recently commenced marketing ADCON-L in the U.S.
The Company's success will depend in part upon the acceptance of the Company's
products, in particular, its ADCON family of products, by the medical community,
including health care providers, such as hospitals and physicians, and
third-party payors. Such acceptance may depend upon the extent to which the
medical community perceives the Company's products as a safe, reliable and
cost-effective alternative to certain existing products, a few of which are
already accepted by the medical community. See "-- Competition." In addition,
the Company is marketing its ADCON-L medical device outside the U.S. in new
packaging, which includes a redesigned applicator, that will require separate
U.S. regulatory approval. There can be no assurance that such U.S. approval will
be obtained. See "-- Government Regulation." There can be no assurance of market
acceptance of the new packaging or redesigned applicator in Europe, or, upon
approval of such new packaging or redesigned applicator, in the U.S. The market
acceptance of the Company's ADCON products is also dependent on the Company's
ability to convince surgeons and other medical professionals that the benefits
associated with the Company's ADCON products justify the modification of
standard medical techniques in order to use the Company's ADCON devices safely
and effectively. There can be no assurance that the Company's products will
achieve significant market acceptance on a timely basis, if at all. Failure of
some or all of the Company's products to achieve significant market acceptance
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
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UNCERTAINTY RELATED TO DEVELOPMENT OF ADCON PRODUCTS
The Company has products other than ADCON-L under development. ADCON-P and
ADCON-T/N are in clinical trials in the U.S. No assurances can be given as to
when such clinical trials will be completed, or that, if completed, ADCON-P or
ADCON-T/N will prove to be safe and effective in such U.S. clinical trials or
that required U.S. regulatory approvals or non-U.S. regulatory approvals will be
obtained for such products. Even if the Company is able to receive such required
regulatory approvals, there can be no assurance as to the extent, if any, that
any such product will receive market acceptance. In addition, the Company is
conducting preclinical studies with respect to ADCON-A, ADCON-I and ADCON-C.
These ADCON products are in a very early stage of development and will require
substantial additional research and development, including preclinical studies
and extensive clinical trials, before applying for regulatory approval with
applicable authorities. There can be no assurance that the Company will be
successful in developing these other ADCON products or, if developed, will prove
to be safe and effective in clinical trials and receive necessary regulatory
approvals. The Company may also encounter problems relating to research,
development, manufacturing, distribution and marketing of these products. The
failure or inability to address such problems adequately would have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
EARLY STAGE OF DEVELOPMENT FOR THERAPEUTIC PROGRAMS
The Company is engaged in the discovery and development of therapeutic
products for use in the treatment of certain central nervous system disorders.
Although several of these therapeutic products are in preclinical evaluation,
the products currently under development will require substantial additional
research and development, including preclinical studies and extensive clinical
trials, before applying for regulatory approval with applicable authorities.
There can be no assurance that the Company's research and development activities
will lead to the discovery or development of any suitable drugs or drug
candidates. The Company has not conducted any clinical trials with respect to
any such drug candidates, and accordingly, there can be no assurance that any
such drug candidates will prove to be safe and effective. Moreover, the drugs
developed or being developed by the Company may prove to have undesirable and
unintended side effects or may require complex delivery systems that may prevent
or limit their commercial use. Even if the Company is able to develop
therapeutic products for use in the treatment of certain central nervous system
disorders and even if such therapeutic products receive required regulatory
approvals, there can be no assurance as to the extent, if any, that any such
product will receive market acceptance. See "-- Government Regulation."
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY; FLUCTUATING RESULTS OF OPERATIONS
The Company is a development stage company that has not generated any
material revenues from operations. As a result, the Company has had net
operating losses since its inception and expects such losses to continue unless
and until such time as revenues are sufficient to fund its operations. The
Company has accumulated a deficit of $44.2 million for the period from inception
of operations (August 31, 1988) through March 31, 1998. The Company expects to
continue to incur losses over at least the next several years and the amount of
future net losses and time required by the Company to reach profitability are
uncertain. The Company's ability to generate significant revenue and become
profitable is dependent in large part on its success in obtaining regulatory
approvals or clearances for its products, commercializing ADCON products that
have obtained required regulatory approvals, developing and marketing new
products, the success of its independent distributors in marketing its products,
entering into additional marketing agreements where appropriate, and the ability
of its strategic partners to commercialize successfully products incorporating
the Company's technologies. There can be no assurance that the Company will
generate significant revenue or become profitable on a sustained basis, if at
all. In addition, the Company's results of operations have fluctuated in the
past on an annual and quarterly basis and may fluctuate significantly from
period to period in the future, depending upon a number of factors, many of
which are outside of the Company's control. Such factors include the conduct and
timing of clinical trials, the timing of government approvals, market acceptance
of the Company's products, the success of competitive products, the ability of
the Company to enter into strategic alliances with corporate partners, the
expenses associated with patent matters, and the timing of expenses related to
product launches. Due to one or
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more of these factors, in one or more future quarters, the Company's results of
operations may fall below the expectations of securities analysts and investors.
In that event, the market price of the Common Stock of the Company could be
materially and adversely affected.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's future capital requirements will depend on many factors,
including the commercial success of its ADCON family of products, the progress
of the Company's research and development, the scope and results of preclinical
studies and clinical trials, the cost of obtaining regulatory approvals, its
success in consummating the strategic alliances required to fund certain of its
programs, the rate of technological advances, determinations as to the
commercial potential of certain of the Company's product candidates, the status
of competitive products and the establishment of additional manufacturing
capacity. No assurance can be given that there will not be material adverse
changes in the Company's business or in the regulatory environment in which the
Company operates that will consume the Company's available capital resources. In
addition, the Company will need to raise or obtain substantial additional funds
to conduct research and preclinical and clinical trials, to apply for the
regulatory approvals necessary to bring additional products to market, and to
develop the necessary marketing, distribution and support capabilities required
to sell and distribute the Company's products and proposed products. No
assurance can be given that additional financing will be available or, if
available, that it will be available on satisfactory terms. Any subsequent
equity financing could result in dilution to the Company's then existing
stockholders. If adequate funds are not available, the Company may be required
to scale back or discontinue one or more of its product development programs, or
obtain funds through strategic alliances that may require the Company to
relinquish rights to certain of its technologies, product candidates or
products, if any. The Company expects that its existing capital resources,
together with the net proceeds of the offering and the interest earned thereon,
will enable the Company to maintain its current and planned operations for at
least the next two years.
DEPENDENCE ON INDEPENDENT DISTRIBUTORS; NO DIRECT SALES FORCE
The Company has entered into distribution agreements with third-party
distributors for its ADCON-L and ADCON-T/N products in 29 countries outside the
U.S. In addition, the Company has entered into a development and exclusive
license agreement with Chugai, which provides for the sale of ADCON-L and
ADCON-T/N in Japan upon receipt of regulatory approval to market such products.
As a result of receiving approval from the FDA, the Company has recently
commenced marketing ADCON-L in the U.S. through a network of independent
manufacturers' agents with an aggregate sales force of approximately 175 sales
representatives who serve the orthopaedic and neurosurgical market. The Company
has not, to date, engaged in direct marketing or sale of its products. In order
to market its product in additional countries and sell any additional products
that it may ultimately have available for commercial sale, the Company will need
to contract with additional distributors for sales and marketing functions.
These distributors and manufacturers' agents are independent third parties, who
are not employees of the Company and are not directly under the control or
supervision of the Company. There can be no assurance that the current
relationships with distributors will continue on acceptable terms and conditions
to the Company, nor can there be any assurances that the Company's arrangements
with independent manufacturer's agents will prove to be satisfactory to the
Company or that additional distributorship arrangements with third parties for
such functions will be obtained on acceptable terms. Moreover, there can be no
assurance that the distributors or agents will devote sufficient time and
resources to the Company's products or other products to enable the products to
be successfully commercialized. Furthermore, there can be no assurance that the
Company will be successful in marketing its ADCON products because the Company
does not control the distribution of its products and relies exclusively on
third parties for the distribution of its products. Failure of some or all of
the Company's products to be successfully and efficiently distributed could have
a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
RELIANCE ON THIRD-PARTY FOR MANUFACTURING; COMPREHENSIVE REGULATION OF
MANUFACTURING OF PRODUCTS
The Company does not have any manufacturing facilities and is currently
relying solely on a foreign contractor, European Medical Contract Manufacturing
("EMCM"), a third-party manufacturer located in
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Nijmegen, The Netherlands, for the supply of ADCON-L, ADCON-P and ADCON-T/N for
its commercial or clinical requirements, as the case may be. There can be no
assurance that the Company's current manufacturer will comply with all
applicable regulatory standards, that such manufacturer will have the capacity
to provide the Company with a future supply of products that is adequate to meet
the Company's commercialization or clinical requirements or that the Company
would be able to identify an alternate source of supply on terms acceptable to
the Company.
Manufacturers of medical devices and drugs also are required to adhere to
the FDA regulations setting forth Quality System Regulations requirements
("QSR") for medical devices and Good Manufacturing Practices requirements
("GMP") for drugs, and to similar requirements in other countries, which include
requirements relating to product testing and quality assurance as well as the
corresponding maintenance of records and documentation. Failure to comply with
applicable manufacturing regulations, other applicable regulatory standards, or,
where required by law, the standards of International Organization for
Standardization ("ISO"), could result in sanctions being imposed on the Company
or the manufacturer of its products, including warning letters, fines,
injunctions, civil penalties, failure of the FDA or other regulatory authorities
to grant premarket clearance or premarket approval of medical devices and drugs,
operating restrictions and criminal prosecution. There can be no assurance that
the current manufacturer of the Company's products will comply with all
applicable regulatory requirements or that the Company would be able to identify
new or additional manufacturers for its products on terms acceptable to the
Company. The failure of the Company's current manufacturers to comply with
applicable regulatory requirements or to make acceptable arrangements for the
manufacture of its products could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
DEPENDENCE ON STRATEGIC ALLIANCES
The Company's strategy for its AD and Cognition Modulation programs entails
entering into various arrangements with collaborative partners, licensors,
licensees and others for the development, marketing and distribution of
products, and is dependent upon the subsequent success of these outside parties
in performing their responsibilities. In October 1994, the Company entered into
a collaborative agreement with Janssen to research and develop treatments for AD
which extends through October 1998. Janssen has retained its right to extend the
Janssen Agreement for an additional period of one year. As of March 31, 1998,
the Company has received $9.7 million in revenues under the Janssen Agreement.
Although the current term of this arrangement does not expire until October 1998
with an optional renewal for one year, there can be no assurance that Janssen
will exercise its right to renew the collaboration agreement beyond the current
term. In addition, although the Company is currently funding the development of
its ADCON family of products and its Cognition Modulation program independently
of strategic partners, the Company may enter into agreements with strategic
partners for certain of its ADCON products, other than ADCON-L, and may enter
into agreements with strategic partners prior to the completion of clinical
trials for therapeutic products relating to its Cognition Modulation program.
There can be no assurance that the Company will be able to enter into an
agreement with such a strategic partner for such ADCON products or its Cognition
Modulation program on acceptable terms, if at all. Furthermore, there can be no
assurance that development of such ADCON products, the AD program or the
Cognition Modulation program will be successfully completed or that the Company
will be able to successfully commercialize the products developed as part of any
collaborative efforts for such ADCON products, pursuant to the Janssen
Agreement, or as part of any future Cognition Modulation collaborative
arrangements. Failure to obtain or maintain strategic alliances, including its
alliance with Janssen, or the failure of any such strategic alliances to
successfully commercialize such products, could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations.
UNCERTAINTY OF HEALTH CARE REIMBURSEMENT
The Company's ability to successfully commercialize its products will
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health coverage insurers and other
organizations. In addition, in both the U.S. and elsewhere, sales of health care
products are dependent on the availability of reimbursement to the consumer
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from third-party payers, such as government and private insurance plans.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, and third-party payers are increasingly challenging the
prices charged for medical products and services. There can be no assurance that
ADCON-L and the other ADCON products will be considered cost effective or that
reimbursement will be available or will be sufficient to allow the Company to
sell its products on a competitive basis. There can be no assurance that the
Company's business, prospects, financial condition and results of operations
will not be materially adversely affected by the continuing efforts of
governmental and third-party payors to contain or reduce the costs of health
care. For example, in certain international markets the pricing or profitability
of health care products is subject to government control. In the U.S., there
have been, and the Company expects that there will continue to be, a number of
federal and state proposals to implement similar government control. While the
Company cannot predict whether any legislative or regulatory proposals or
reforms will be adopted, such proposals or reforms could have a material adverse
effect on the Company's business, prospects, financial condition or results of
operations. Inadequate coverage or reimbursement by government and third-party
payers for uses of the Company's products, particularly ADCON-L, could adversely
effect the market acceptance of these products which would have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. See "-- Early Commercialization; Uncertainty of Market
Acceptance of ADCON Family of Products" and "-- Government Regulation."
RELIANCE ON SINGLE SOURCE SUPPLIER
The Company currently obtains one of its key components for the production
of its ADCON products from one supplier. The Company currently has no
contractual supply agreement with such supplier. The Company also has developed
its own proprietary process to manufacture this key component and is currently
manufacturing it on a pilot basis through a contract manufacturer according to
QSR requirements. In addition, the Company is pursuing qualification of
additional suppliers. There can be no assurance that the current supply of raw
materials will continue to be provided on acceptable terms and conditions to the
Company, if at all, or that such alternative sources will be successfully
located or developed. The failure to obtain adequate supplies from the sole
source or to locate or develop alternative supplies could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
GOVERNMENT REGULATION
The manufacture and sale of the Company's products are subject to
regulation by numerous authorities, principally the FDA, and corresponding state
and foreign agencies. The regulatory process is lengthy, expensive and
uncertain. Prior to commercial sale in the U.S., most medical devices and new
drugs, including the Company's products under development, must be cleared or
approved by the FDA. Securing FDA clearances and approvals may require the
submission of extensive clinical data and supporting information to the FDA.
Product clearances and approvals can be withdrawn for failure to comply with
regulatory requirements or upon the occurrence of unforeseen problems following
initial marketing. Sales of the Company's products outside of the U.S. are
subject to foreign regulatory requirements that may vary widely from country to
country. Prior to commercial sale of medical devices in the countries of the
European Union, the Company is required to comply with the Essential
Requirements of the Medical Devices Directive, which primarily relate to safety
and performance, and to undergo conformity assessment certification by a
Notified Body in order to qualify for CE Marking. The regulation of drugs in the
European Union is subject to a separate and different regulatory framework which
requires, among other things, premarket approval by the applicable regulatory
agencies before sale of such products. The time required to obtain clearance
from a foreign country may be longer or shorter than that required by the FDA or
other such agencies, and clearance or approval or other regulatory requirements
may differ. There can be no assurance that the Company will be able to obtain
necessary regulatory clearances or approvals on a timely basis, if at all, for
any of its products under development, and delays in receipt or failure to
receive such clearances or approvals, the loss of previously received clearances
or approvals, or failure to comply with existing or future regulatory
requirements could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. Moreover, regulatory
clearances or approvals for products such as medical devices and new drugs, even
if granted, may include significant limitations on the uses for which such
products may be marketed. Additionally, product clearances or approvals can be
withdrawn for failure to
7
<PAGE> 9
comply with regulatory requirements. In addition, certain material changes to
medical devices and drugs also are subject to FDA and other foreign governmental
review and approval. For example, the Company is marketing its ADCON-L medical
device outside the U.S. in a redesigned applicator that will require separate
U.S. regulatory approval. There can be no assurance that any clearances or
approvals that are required, will be obtained or that once obtained will not be
withdrawn or that compliance with other regulatory requirements can be
maintained. In addition, because certain of the Company's products are in
research or development phases, the Company cannot accurately predict all
relevant regulatory requirements or related issues. Changes in existing laws,
regulations or policies and the adoption of new laws, regulations or policies
could prevent the Company from, or could affect the timing of, achieving
compliance with regulatory requirements, including current and future regulatory
clearances or approvals, where necessary. See "-- Risks Associated with
International Sales."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
The Company intends to market the Company's products in international
markets as well as domestically. To date, a significant portion of the Company's
product sales have been generated in international markets. A number of risks
are inherent in international transactions. In order for the Company to market
its products in Europe, Australia, Canada and certain other non-U.S.
jurisdictions, the Company must obtain and maintain required regulatory
approvals or clearances and otherwise comply with extensive regulations
regarding safety, manufacturing processes and quality. These regulations,
including the requirements for approvals or clearances to market, may differ
from the FDA regulatory scheme and may be subject to change or modification
after the Company has obtained approval or complied with the existing regulatory
scheme. There can be no assurance that the Company will obtain or maintain
regulatory approvals or clearances in such countries, as the case may be, or
that it will not be required to incur significant costs in obtaining or
maintaining its foreign regulatory approvals or clearances, as the case may be.
In addition, in the event existing regulations are changed or modified, there
can be no assurance that the Company will be able to comply with any such
changes or modifications or that such changes or modifications will not result
in significant costs to the Company in order to comply with such changes or
modifications. Delays in receipt of approvals or clearances to market the
Company's products in international countries, failure to receive such approvals
or clearances or the future loss of previously received approvals or clearances
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. International sales also may be
limited or disrupted by political instability, price controls, trade
restrictions and the impositions of or changes in tariffs, any of which could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. There can be no assurance that the Company
will be able to successfully commercialize its current or future products in any
international market. See "-- Government Regulation."
TECHNOLOGICAL CHANGE
The field of technology relating to the Company's research and development
activities has undergone rapid and significant technological development. The
Company expects that the technology associated with the Company's research and
development will continue to develop rapidly, and the Company's success will
depend in large part on its ability to maintain a competitive position with
respect to this technology. Rapid technological development by the Company or
others may result in products or processes becoming obsolete before the Company
recovers any or all of its research, development and commercialization expenses.
Failure of the Company to adapt to or outpace technological development, as the
case may be, could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
COMPETITION
There is substantial competition in the medical device and pharmaceutical
industries, both from specialized firms and from major medical device,
pharmaceutical, chemical and surgical supply companies. Many of the Company's
competitors have product development capabilities and financial and human
resources greater than the Company, and have manufacturing, marketing, sales and
distribution capabilities that the Company does not have. The Company also
competes with universities and other research institutions in the development of
technologies and processes and, in some instances, competes with others in
acquiring technology from
8
<PAGE> 10
universities and research institutions. There can be no assurance that the
Company will be able to produce medical devices or drugs that are commercially
viable. Even if the Company achieves significant product commercialization, one
or more of the Company's competitors may achieve product commercialization or
patent protection earlier or more effectively than the Company. Further, certain
products that may compete with the Company's ADCON-P medical device are already
marketed in the U.S., such as Interceed and Seprafilm. In addition, the
Company's products may be subject to competition from related products developed
by competitors or different products developed using technology other than those
developed by the Company or based on advances that may render the Company's
products less competitive, obsolete or uneconomical. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competition will not have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company's success will depend to a significant extent on its ability to
obtain and maintain patent protection for its products and technologies, to
preserve trade secrets and to operate without infringing the proprietary rights
of others. The patent situation in the field of biopharmaceutical products
generally is highly uncertain and involves complex legal, scientific and factual
questions. To date, there has emerged no consistent policy regarding the breadth
of claims allowed in biopharmaceutical patents. Accordingly, there can be no
assurance that patent applications filed by or on behalf of the Company will
result in patents being issued or that, if issued, the patents will afford
protection against competitors with similar technology. Furthermore, there can
be no assurance that others will not independently develop similar technologies
or technologies which are superior to those developed by the Company. Because of
the extensive time required for development, testing and regulatory review of a
potential product, it is possible that before any of the Company's potential
products can be commercialized, any related patent may expire, or remain in
existence for only a short period following commercialization, thus reducing any
advantage of the patent.
The Company owns three issued U.S. patents, one of which expires in 2014,
and two of which expire in 2015, two pending U.S. patent applications, and
corresponding foreign patent applications relating to its ADCON products. The
issued patents cover compositions included in the ADCON products and methods for
their use. Claims directed to related compositions and methods are being pursued
in the pending applications.
The Company has been approached by a third-party regarding the potential
infringement, by the ADCON line of products, of two U.S. patents for which the
third-party is the licensee. Based upon its investigation, the Company believes
that the claims of such issued patents are invalid or not infringed by the ADCON
products. There can, however, be no assurance that the Company will not be sued
by such third party, and the Company could incur substantial costs and diversion
of management resources with respect to the defense of any such lawsuit, which
costs and diversion could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. Further,
there can be no assurance that infringement of these two patents will not be
found to exist, that the Company will not be enjoined from making, using and
selling its ADCON products, or that the Company will not be ordered to pay
damages that would have a material adverse effect on the Company's ability to
conduct its business. Moreover, there can be no assurance that a sublicense
under these patents, if necessary, will be available on reasonable terms, if at
all.
A U.S. patent application, filed solely by the Company, has been issued
covering the composition of matter for a series of synthetic histamine H(3)
receptor antagonist compounds, which is due to expire in 2015. Several
additional U.S. patent applications and their corresponding foreign applications
for additional series of histamine H(3) receptor antagonists and one series of
histamine H(3) receptor agonist compounds, their methods of medical use and
pharmaceutical compositions, are pending. No assurance can be given that any
claims relating to these products and methods will be issued.
The Company's processes and potential products may conflict with patents
which have been or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands and more patents are issued, the risk
increases that the Company's processes and products may give rise to claims that
they infringe the patents of others. Such other persons could bring legal
actions against the Company claiming damages and
9
<PAGE> 11
seeking to enjoin manufacture, use or sale of the affected product or process.
If any such actions are successful, in addition to any potential liability for
damages, the Company could be required to obtain a license in order to continue
to manufacture, use or sell the affected product or process. There can be no
assurance that the Company would prevail in any such action or that any license
required under any such patent would be made available on acceptable terms, if
at all. If the Company becomes involved in litigation, litigation could consume
a substantial portion of the Company's resources.
The Company is prosecuting its patent applications with the U.S. Patent and
Trademark Office ("USPTO"), but the Company does not know whether any of its
applications will result in the issuance of any patents or, if any patents are
issued, whether any issued patent will provide significant proprietary
protection or will be circumvented or invalidated. During the course of patent
prosecution, patent applications are evaluated, inter alia, for utility,
novelty, nonobviousness and enablement. The USPTO may require that the claims of
an initially filed patent application be amended if it is determined that the
scope of the claims includes subject matter that is not useful, novel,
nonobvious or enabled. Furthermore, in certain instances, the practice of a
patentable invention may require a license from the holder of dominant patent
rights. In cases where one party believes that it has a claim to an invention
covered by a patent application or patent of a second party, the first party may
provoke an interference proceeding in the USPTO or such a proceeding may
otherwise be declared by the USPTO. In general, in an interference proceeding,
the USPTO would review the competing patents and/or patent applications to
determine the validity of the competing claims, including but not limited to
determining priority of invention. Any such determination would be subject to
appeal in the appropriate U.S. federal courts.
There can be no assurance that additional patents will be obtained by the
Company or that issued patents will provide substantial protection or be of
commercial benefit to the Company. The issuance of a patent is not conclusive as
to its validity or enforceability, nor does it provide the patent holder with
freedom to operate without infringing the patent rights of others. A patent
could be challenged by litigation and, if the outcome of such litigation were
adverse to the patent holder, competitors could be free to use the subject
matter covered by the patent, or the patent holder may license the technology to
others in settlement of such litigation. The invalidation of key patents owned
by or licensed to the Company or non-approval of pending patent applications
could create increased competition, with potential adverse effects on the
Company and its business prospects. In addition, there can be no assurance that
any applications of the Company's technology will not infringe patents or
proprietary rights of others or that licenses that might be required as a result
of such infringement for the Company's processes or products would be available
on commercially reasonable terms, if at all.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Company's patent and proprietary rights and/or to determine the scope and
validity of the patents or proprietary rights of others. The Company may
participate in interference proceedings which may in the future be declared by
the USPTO to determine priority of invention, which could result in substantial
cost to the Company. There can be no assurance that the outcome of any such
litigation or interference proceedings will be favorable to the Company or that
the Company will be able to obtain licenses to technology that it may require or
that, if obtainable, such technology can be licensed at a reasonable cost.
The Company also relies upon unpatented trade secrets, and no assurance can
be given that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its right to its unpatented trade secrets.
EXPOSURE TO PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The research, development and commercialization of medical devices, drugs
and therapeutic products entail significant product liability risks. If the
Company succeeds in commercializing ADCON-L, ADCON-P or ADCON-T/N and if it
succeeds in developing additional devices and new drugs, the use of such
products in clinical trials and the commercial sale of such products may expose
the Company to liability claims. These claims might be made directly by
consumers or by pharmaceutical companies or others selling such products. The
Company currently has product liability insurance in an aggregate amount of two
million dollars; however, there
10
<PAGE> 12
can be no assurance that the Company will be able to maintain such insurance on
acceptable terms or that such insurance will be sufficient to protect the
Company against potential claims or that insurance will be available in the
future in amounts sufficient to protect the Company. A product liability claim,
product recall or other claim, as well as any claims for uninsured liabilities
or in excess of insured liabilities, could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
Recruiting and retaining qualified scientific and management personnel is
critical to the Company's success. Although the Company believes that it has
been successful in attracting and retaining skilled and experienced personnel,
there can be no assurance that the Company will be able to continue to attract
and retain such personnel as employees, advisors and consultants on acceptable
terms. Certain executive officers are covered by key man life insurance policies
and have employment agreements with the Company. In addition, the Company's
anticipated growth and expansion into areas and activities requiring additional
expertise, such as clinical testing, obtaining government approvals,
manufacturing and marketing, will place increased demands on the Company's
management resources. These demands are expected to require the addition of new
management personnel. The Company has a limited number of executive personnel
with prior relevant business experience. The failure to acquire additional
qualified personnel could materially adversely affect prospects for the
Company's success. Certain advisors and consultants to the Company are employed
by others and may have commitments to, or consulting or advisory contracts with,
other entities that limit their availability to the Company.
ANTI-TAKEOVER PROVISIONS
The Company's Second Restated Certificate of Incorporation (the "Second
Restated Certificate") divides the Board of Directors into three classes. In
addition, the Board of Directors have the authority, without any action by
stockholders, to fix the rights of any shares of preferred stock, par value
$0.01 per share (the "Preferred Stock"). On July 1, 1997, the Company declared a
dividend distribution of one right (a "Right") for each outstanding share of
Common Stock. The terms of the Rights are set forth in a Rights Agreement, dated
July 1, 1997, between the Company and American Stock Transfer & Trust Company,
as Rights Agent. In the absence of further action by the Board of Directors, the
Rights generally will become exercisable and allow the holder to acquire Common
Stock at a discounted price if a person or group acquires 15% or more of the
outstanding shares of Common Stock of the Company. The Company is also subject
to provisions of the Delaware General Corporate Law which, subject to certain
exceptions, will prohibit the Company from engaging in any "business
combination" with a person who, together with affiliates and associates, owns
15% or more of the Company's Common Stock (an "Interested Stockholder") for a
period of three years following the date that such person became an Interested
Stockholder, unless the business combination is approved in a prescribed manner
or certain other requirements are satisfied. It is possible that the existence
of a staggered Board of Directors, the ability of the Board of Directors to
issue Preferred Stock and the Rights Agreement, as well as certain provisions of
the Delaware General Corporation Law, could have the effect of deterring hostile
takeovers or delaying or preventing changes in control or management of the
Company.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute "forward-looking
statements." When used in this Prospectus, the words "believes," "anticipates,"
"expects," "intends" and other predictive, interpretive and similar expressions
are intended to identify such forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of the Company to be different from
expectations expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, commercial uncertainty of market
acceptance of the Company's ADCON family of products, delays in product
development of ADCON products other than ADCON-L, uncertainty due to the early
stage of development for the therapeutic programs, the possible need for
additional funding, the ability of the Company to establish and maintain
collaborative arrangements with others, the potential market size for ADCON
products, the ability to renew research collaborations, the productivity of
distributors of the ADCON products, shortages of supply of ADCON products from
the Company's sole manufacturer, the lack of supply of raw
11
<PAGE> 13
materials for the Company's products, particularly from the sole source supplier
of certain key components for its ADCON products, uncertainty of future
profitability, uncertainties related to the Company's proprietary rights in its
products, the loss of key management personnel, and technological change. These
statements are based on certain assumptions and analysis made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate in the circumstances. Such statements are subject to a number of
other assumptions, risks, uncertainties, general economic and business
conditions, and the business opportunities (or lack thereof) that may be
presented to and pursued by the Company. Prospective investors are cautioned
that any such statements are not indicative of future performance and that
actual results or developments may differ materially from those projected in the
forward-looking statements. The information set forth in this section identifies
important factors that could cause such differences.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholder.
SELLING STOCKHOLDER
The following table sets forth certain information with respect to the
Selling Stockholder, including (i) the name and address of the Selling
Stockholder, (ii) the number of shares of Common Stock owned by, and percentage
ownership of, the Selling Stockholder both immediately prior to and following
the sale of the Shares offered hereby and (iii) the maximum number of shares of
such Common Stock offered hereby. Because the Selling Stockholder may offer all
or a portion or none of the Common Stock offered pursuant to this Prospectus, no
assurance can be given as to the amount of Common Stock that will be held by the
Selling Stockholder immediately following the offering. The following table
assumes that all Shares offered hereby by the Selling Stockholder will be sold
by such Selling Stockholder. There are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares. The Shares are
being registered to permit public secondary trading of the Shares, and the
Selling Stockholder may offer the Shares for resale from time to time. See "Plan
of Distribution."
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES TO BE
BENEFICIALLY OWNED PRIOR BENEFICIALLY OWNED AFTER
TO THE OFFERING NUMBER OF THE OFFERING
------------------------- SHARES -------------------------
NUMBER OF BEING NUMBER OF
NAME OF SELLING STOCKHOLDER SHARES PERCENTAGE OFFERED SHARES PERCENTAGE
- ------------------------------------ ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Dr. Jerry Silver
29900 Detroit Road 100,000 1.1% 100,000 -- --
Westlake, Ohio 44145
</TABLE>
The Selling Stockholder does not have and has not had a material
relationship with the Company within the past three years other than the
relationship between the Company and the Selling Stockholder based on the
Research Agreements, which both the Company and the Selling Stockholder entered
into as of August 31, 1988 and September 1, 1991.
12
<PAGE> 14
PLAN OF DISTRIBUTION
Any or all of the shares of Common Stock covered by this Prospectus may be
offered for sale and sold by or on behalf of the Selling Stockholder from time
to time in varying amounts on Nasdaq in privately negotiated transactions or by
any other legally available means, at fixed prices or prices related to the then
prevailing market price or as may be negotiated at the time of the sale. The
shares of Common Stock may be sold by the Selling Stockholder directly to one or
more purchasers, through agents designated from time to time or to or through
broker-dealers, underwriting syndicates represented by managing underwriters or
underwriters without a syndicate, designated from time to time. In the event the
shares of Common Stock are publicly offered through broker-dealers, agents or
underwriters, the Selling Stockholder may enter into agreements with such
broker-dealers, agents or underwriters with respect to such offerings. Such
broker-dealers, agents or underwriters may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder or the
purchasers of the shares of Common Stock. At the time a particular offer of
shares of Common Stock is made by the Selling Stockholder, to the extent
required, a Prospectus Supplement will be distributed which will set forth the
aggregate number of shares of Common Stock being offered, and the terms of the
offering, including the public offering price thereof, the name or names of any
broker-dealers, agents or underwriters, any discounts, commissions and other
items constituting compensation from, and the resulting net proceeds to, the
Selling Stockholder and any agreement by the Company restricting its ability to
offer, sell or otherwise dispose of shares of Common Stock following the
completion of any such offering.
Any broker-dealers, agents or underwriters that participate in the
distribution of the shares of Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any profit on the sale of the
shares of Common Stock by them and any discounts, commissions or concessions
received by them may be deemed to be underwriting discounts and commissions
under the Securities Act.
In order to comply with the securities laws of certain states, sales of
shares of Common Stock covered by this Prospectus to the public in such states
may be made only through broker-dealers who are registered or licensed in such
states.
The Company has been advised by the Selling Stockholder that he has not, as
of the date of this Prospectus, entered into any arrangement with an agent,
broker-dealer or underwriter for the sale of the shares of Common Stock covered
by this Prospectus owned by him.
Agents, broker-dealers and underwriters may engage in transactions with,
and perform investment banking and advisory services for the Company.
Agents, broker-dealers and underwriters may be entitled under agreements
entered into with the Company and the Selling Stockholder to indemnification by
the Company and the Selling Stockholder against certain liabilities, including
liabilities under the Securities Act, or to contribution with respect to certain
payments which such agents, broker-dealers or underwriters may be required to
make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
EXPERTS
The consolidated financial statements of Gliatech Inc. appearing in
Gliatech Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1997
and for the period from inception of operations (August 31, 1988) through
December 31, 1997, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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<PAGE> 15
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY PERSON DEEMED TO BE AN UNDERWRITER WITHIN THE MEANING OF
THE SECURITIES ACT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 2
The Company............................ 3
Risk Factors........................... 3
Use of Proceeds........................ 12
Selling Stockholder.................... 12
Plan of Distribution................... 13
Legal Matters.......................... 13
Experts................................ 13
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
100,000 SHARES
GLIATECH LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
JULY , 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Common Stock
being registered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 525
Printing costs.............................................. *5,000
Accounting fees and expenses................................ *20,000
Legal fees and expenses (not including Blue Sky)............ *20,000
Blue Sky fees and expenses.................................. *3,000
Miscellaneous expenses...................................... *2,475
-------
Total.................................................. $51,000
=======
</TABLE>
- ---------------
* Reflects estimates made by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Second Restated Certificate of Incorporation ("Second
Restated Certificate") provides in Article Seventh that the Company will
indemnify its officers, directors and each person who is or was serving or who
had agreed to serve at the request of the Board of Directors or an officer of
the Company as an employee or agent of the Company or as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise to the full extent permitted by the General Corporation Law of
the State of Delaware (the "DGCL") or any other applicable laws as from time to
time may be in effect and that the Company may enter into agreements which
provide for indemnification greater or different from that provided in the
Second Restated Certificate. In addition, the Company has provided in Article
Eighth of its Second Restated Certificate that no director will be personally
liable to the Company or its stockholders for or with respect to any acts or
omissions in the performance of his or her duty as a director, to the full
extent permitted by the DGCL or any other applicable laws as from time to time
may be in effect. The Second Restated Certificate further provides that any
repeal or modification of Article Seventh or Article Eighth will not adversely
affect the right or protection existing under such provision prior to such
repeal or modification.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted under standards similar to those set forth in the paragraph above, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
that despite the adjudication of liability but in view of all the circumstances
of the
II-1
<PAGE> 17
case, such person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 further provides that, to the extent that a director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, such person will be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith; that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) will be made
by a corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standard of conduct
set forth in subsections (a) and (b) of Section 145; that expenses (including
attorney's fees) incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation; that
indemnification provided for by Section 145 will not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that a
corporation is empowered to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under Section 145.
The Company has entered into indemnity agreements (the "Indemnity
Agreements") with the current Directors and executive officers of the Company
and expects to enter into similar agreements with any Director or those
executive officers designed by the Board of Directors of the Company which may,
from time to time, be elected or appointed.
Pursuant to the Indemnity Agreements, the Company will indemnify a Director
or officer of the Company (the "Indemnitee") if the Indemnitee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that the Indemnitee is or was a Director or officer of the
Company, or is or was serving at the request of the Company in certain
capacities with another entity, against any and all costs, charges and expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Indemnitee in connection with the defense or settlement of such
proceeding. Indemnity is available to the Indemnitee unless it is proved by
clear and convincing evidence that the Indemnitee's action or failure to act was
not in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Company.
The Indemnity Agreements provide for advancement of expenses to the
Indemnitee if the Indemnitee provides the Company with a written undertaking
that (i) he has reasonably incurred or will reasonably incur actual expenses in
defending an actual civil, criminal, administrative or investigative action,
suit, proceeding or claim and (ii) he will repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
*4.1 Rights Agreement, dated as of July 1, 1997, by and between
the Company and American Stock Transfer & Trust Company, as
rights agent, is incorporated by reference to Exhibit 1 of
the Company's Current report on Form 8-K as filed on July 2,
1997 (File No. 0-20096).
*5.1 Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
*23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
23.2 Consent of Ernst & Young LLP.
*24.1 Powers of Attorneys.
</TABLE>
- ---------------
* Previously filed.
II-2
<PAGE> 18
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sale are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraph (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THE AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO, ON JULY 15,
1998.
GLIATECH INC.
By: /s/ THOMAS O. OESTERLING
------------------------------------
Thomas O. Oesterling, Ph.D.
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS O. OESTERLING President and Chief Executive July 15, 1998
- --------------------------------------------- Officer (Principal Executive
Thomas O. Oesterling, Ph.D. Officer) and Director
* Vice President and Chief July 15, 1998
- --------------------------------------------- Financial
Rodney E. Dausch Officer (Principal Financial and
Accounting Officer)
* Chairman of the Board July 15, 1998
- ---------------------------------------------
Robert P. Pinkas
* Director July 15, 1998
- ---------------------------------------------
William A. Clarke
* Director July 15, 1998
- ---------------------------------------------
Thomas E. Haigler, Jr.
* Director July 15, 1998
- ---------------------------------------------
Ronald D. Henriksen
* Director July 15, 1998
- ---------------------------------------------
Irving S. Shapiro
* Director July 15, 1998
- ---------------------------------------------
John L. Ufheil
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of
Attorney executed by the above-named officers and directors of the Company,
which previously have been filed with the Securities and Exchange Commission
on behalf of such officers and directors.
By: /s/ THOMAS O. OESTERLING
--------------------------------
Thomas O. Oesterling, Ph.D.
Attorney-in-Fact
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
*4.1 Rights Agreement, dated as of July 1, 1997, by and between
the Company and American Stock Transfer & Trust Company, as
rights agent, is incorporated by reference to Exhibit 1 of
the Company's Current report on Form 8-K as filed on July 2,
1997 (File No. 0-20096).
*5.1 Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
*23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
23.2 Consent of Ernst & Young LLP.
*24.1 Powers of Attorney.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 23.2
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 No. 333-56057) and related
Prospectus of Gliatech Inc. for the resale registration of 100,000 shares of its
common stock and to the incorporation by reference therein of our report dated
March 10, 1998, with respect to the consolidated financial statements of
Gliatech Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1997, and for the period from inception of operations (August 31,
1988) through December 31, 1997, filed with the Securities and Exchange
Commission.
/s/Ernst & Young LLP
Cleveland, Ohio
July 14, 1998
