<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
Gliatech Logo
23420 Commerce Park Road
Cleveland, Ohio 44122
Telephone: (216) 831-3200
April 12, 1999
Dear Gliatech Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Gliatech
Inc., which will be held on Wednesday, May 19, 1999, at 11:00 a.m. at the
Radisson Inn Beachwood, 26300 Chagrin Boulevard, Beachwood, Ohio.
This year, your Board of Directors is recommending that you elect three
Directors for a three-year term, amend and restate the Amended and Restated 1989
Stock Option Plan, amend and restate the Amended and Restated 1995 Nonemployee
Directors Stock Option Plan and approve the appointment of the independent
auditors of the Company for the current fiscal year.
The Company has enclosed a copy of its 1998 Annual Report for the fiscal
year ended December 31, 1998 with this notice of annual meeting of stockholders
and proxy statement. If you would like another copy of the 1998 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 19, 1999
The Annual Meeting of Stockholders of Gliatech Inc., a Delaware corporation
(the "Company"), will be held on Wednesday, May 19, 1999, at 11:00 a.m. (the
"Annual Meeting"), at the Radisson Inn Beachwood, 26300 Chagrin Boulevard,
Beachwood, Ohio for the purpose of:
(1) Electing three Directors for a three-year term;
(2) Amending and restating the Amended and Restated 1989 Stock Option Plan;
(3) Amending and restating the Amended and Restated 1995
Nonemployee Directors Stock Option Plan;
(4) Approving the appointment of the independent auditors of the
Company for the fiscal year ending December 31, 1999; and
(5) 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 22, 1999 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 12, 1999
The Company's 1998 Annual Report for the fiscal year ended December 31,
1998 is enclosed. The 1998 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 19, 1999
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 19, 1999 (the "Annual Meeting"). This Proxy Statement and the
related proxy card are being mailed to stockholders commencing on or about April
12, 1999.
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 22,
1999, will be entitled to vote at the Annual Meeting. On that date, the Company
had outstanding and entitled to vote 9,468,922 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 three 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: (1)
for the nominees for Director named in this Proxy Statement; (2) for approval of
the amendments to the Amended and Restated 1989 Stock Option Plan; (3) for
approval of the amendments to the Amended and Restated 1995 Nonemployee
Directors Stock Option Plan; (4) for approval of the appointment of Ernst &
Young LLP, as independent auditors; and (5) 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 William A. Clarke, Theodore E.
Haigler, Jr. and Ronald D. Henriksen and their current term of office will
expire at this Annual Meeting. 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 the 2001 annual
meeting of stockholders. 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. In addition, after each annual
meeting of stockholders, every non-employee Director receives stock options to
purchase 8,000 shares of Common Stock. When a Director is first elected, such
Director receives a one-time award of stock options to purchase 8,000 shares of
Common Stock. In addition, each of Messrs. Henriksen and Ufheil entered into
Consulting Agreements with the Company as of December 30, 1997 and April 1,
1998, respectively. As consideration for services rendered under these
consulting agreements, Messrs. Henriksen and Ufheil received 3,000 options
exercisable for Common Stock at a price of $10.125 per share and 6,000 options
exercisable for Common Stock at a price of $12.125 per share, respectively.
At the Annual Meeting, three 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 three nominees for Director be
elected at the Annual Meeting. The nominees are William A. Clarke, Theodore E.
Haigler, Jr. and Ronald D. Henriksen. Messrs. Clarke, Haigler and Henriksen have
served as Directors of the Company since 1998, 1996 and 1997, 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) 45 Chairman of the Board and Treasurer
Thomas O. Oesterling, Ph.D. 61 President, Chief Executive Officer and
Director
William A. Clarke 60 Director
Theodore E. Haigler, Jr.(2) 74 Director
Ronald D. Henriksen(1) 59 Director
Irving S. Shapiro(2) 82 Director
John L. Ufheil(1) 65 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
DIRECTOR NOMINEES
WILLIAM A. CLARKE has served as a Director of the Company since May 1998.
From 1986 until his retirement in January 1996, he served as President of
Johnson and Johnson Medical, Inc., a medical device company.
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.
RONALD D. HENRIKSEN has served as a Director of the Company since May 1997.
In November 1998, Mr. Henriksen became President of Advanced Research &
Technology Institute of Indiana
2
<PAGE> 6
University, a technology licensing and formation company. From April 1996
through October 1998, he was 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, Inc.
CONTINUING DIRECTORS
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 of Collaborative Research, 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.
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 FSB of Florida,
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
1998.
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
1998.
The Board of Directors held nine meetings in fiscal 1998. With the
exception of John L. Ufheil who attended six of the nine meetings of the Board
of Directors, all of the Directors attended at least seventy-five percent (75%)
of the total meetings held by the Board of Directors and by the committees on
which they served in fiscal 1998.
3
<PAGE> 7
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 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." In addition, on April 1, 1998, Mr. Ufheil entered into a
Consulting Agreement with the Company whereby he received, as consideration for
such arrangement, 6,000 options exercisable for Common Stock of the Company at a
price of $12.125 per share. Mr. Henriksen also entered into a Consulting
Agreement with the Company on December 30, 1997, whereby he received, as
consideration for such arrangement, 3,000 options exercisable for Common Stock
of the Company at a price of $10.125 per share.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain beneficial ownership information as
of January 15, 1999 (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 735,400 7.8%
Board(1).............................
P.O. Box 7842
Madison, Wisconsin 53707
Shaker Investments, Inc.(2)............ 1,191,207 12.6%
801 Tower East 20600 Chagrin
Boulevard
Cleveland, Ohio 44127
Robert P. Pinkas(3).................... 71,761 *
Thomas O. Oesterling, Ph.D.(4)......... 284,729 2.9%
William A. Clarke(5)................... 6,600 *
Theodore E. Haigler, Jr.(6)............ 4,000 *
Ronald D. Henriksen(7)................. 2,333 *
Irving S. Shapiro(8)................... 15,200 *
John L. Ufheil(9)...................... 17,200 *
Rodney E. Dausch(10)................... 85,341 *
Jon D. Schoeler(11).................... 38,446 *
Michael A. Zupon, Ph.D.(12)............ 103,003 1.0%
All Directors and executive officers... 628,613 6.3%
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 February 2, 1999.
(2) Information with respect to beneficial ownership is based on a Schedule 13G
as filed with the Securities and Exchange Commission on February 9, 1999
and includes 359,230 shares of Common Stock owned by Shaker Investments
Management L.P.
(3) Includes 5,000 shares of Common Stock owned by Madaket Investment L.L.C.,
33,911 shares of Common Stock owned by Brantley Venture Management, L.P.
("BVM"), 21,039 shares of Common Stock owned by Brantley Venture Management
II, L.P. ("BVM II") and 3,811 shares of Common Stock owned by Pinkas Family
Partners, L.P. ("Family Partners"). Robert P. Pinkas, a Director of the
Company, is a general partner of Family Partners, the general partner of
each of BVM and BVM II. In addition, Mr. Pinkas serves as the managing
member of Madaket Investment L.L.C. Includes 8,000 shares of Common Stock
purchasable upon the exercise of stock options issued to Mr. Pinkas.
(4) Includes 251,400 shares of Common Stock purchasable upon the exercise of
stock options.
(5) Includes 6,000 shares of Common Stock purchasable upon the exercise of
stock option and 600 shares of Common Stock owned by Mr. Clarke's spouse.
(6) Includes 4,000 shares of Common Stock purchasable upon the exercise of
stock options.
(7) Includes 2,333 shares of Common Stock purchasable upon the exercise of
stock options.
(8) Includes 8,000 shares of Common Stock purchasable upon the exercise of
stock options.
(9) Includes 17,200 shares of Common Stock purchasable upon the exercise of
stock options.
(10) Includes 82,250 shares of Common Stock purchasable upon the exercise of
stock options.
(11) Includes 34,750 shares of Common Stock purchasable upon the exercise of
stock options.
(12) Includes 86,000 shares of Common Stock purchasable upon the exercise of
stock options.
(13) Includes 499,933 shares of Common Stock purchasable upon the exercise of
stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
On March 10, 1998 and October 14, 1998, 228,766 shares of Common Stock
owned by Brantley Venture Partners, L.P. ("BVP") and 296,842 shares of Common
Stock owned by Brantley Ventures II, L.P. ("BVP II"), respectively, were
distributed to the partners of each entity. Mr. Robert P. Pinkas, a Director of
the Company, is a general partner of Family Partners, the general partner of
each of BVM and BVM II, the general partners, respectively, of BVP and BVP II.
As a result, Mr. Pinkas is deemed to beneficially own the shares of Common Stock
held by BVP and BVP II. Due to an administrative oversight, the Statement of
Changes of Beneficial Ownership of Securities on Form 4 to report such
distributions was not filed in a timely manner. These distributions were
subsequently reported on a Form 5 Annual Statement of Beneficial Ownership of
Securities (the "Form 5") that was not filed in a timely manner. In addition,
Mr. John L. Ufheil received options to purchase 6,000 shares of Common Stock on
April 1, 1998. The Form 5 to report such option grant was not filed in a timely
manner due to an administrative oversight.
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, 1998 for the Chief
Executive Officer and the other named executive officers of the Company who
received compensation in excess of $100,000 in that year (the "Named Executive
Officers").
<TABLE>
<CAPTION>
COMPENSATION AWARDS
-------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING
NAME AND SALARY BONUS AWARD(S) OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) (#) COMPENSATION(1)
------------------ ---- -------- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Oesterling, Ph.D. 1998 $265,000 $112,000 $53,000 0 $ 3,510
Chief Executive Officer and 1997 240,000 0 0 10,800 1,425
President 1996 240,000 46,800 15,600 58,000 1,260
Rodney E. Dausch 1998 $170,000 $ 47,000 $27,000 0 $ 1,440
Vice President, Chief 1997 150,000 0 0 4,500 720
Financial Officer and Secretary 1996 150,000 23,625 7,875 15,000 1,564(2)
Jon D. Schoeler(3) 1998 $150,000 $ 55,000 $30,000 0 $ 870
Vice President, Worldwide 1997 140,000 0 0 4,500 48,482(4)
Sales and Marketing 1996 64,927 17,173 5,724 65,000 6,663(5)
Michael A. Zupon, Ph.D. 1998 $170,000 $ 48,500 $27,000 0 $ 510
Executive Vice President, 1997 150,000 0 0 4,500 255
Research and Development 1996 150,000 23,625 7,875 15,000 204
</TABLE>
- ---------------
(1) Includes premiums on life insurance policies paid by the Company on behalf
of each of the Named Executive Officers.
(2) Includes relocation living expenses of $988 paid by the Company on behalf of
Mr. Dausch in 1996.
(3) Jon D. Schoeler became Vice President, Worldwide Sales and Marketing of the
Company in July 1996. As of March 1999, Mr. Schoeler became Vice President,
International Sales.
(4) Includes relocation living expenses of $48,088 paid by the Company on behalf
of Mr. Schoeler in 1997.
(5) Includes relocation living expenses of $6,519 paid by the Company on behalf
of Mr. Schoeler in 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
No options were exercised by the Named Executive Officers during 1998. The
following table provides information regarding unexercised stock options held by
the Named Executive Officers as of December 31, 1998:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED VALUE YEAR-END YEAR-END
ON REALIZED EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE ($) UNEXERCISABLE(U) UNEXERCISABLE(U)
---- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Thomas O. Oesterling, Ph.D...................... 0 0 247,650(E) $6,259,925(E)
63,150(U) $1,370,825(U)
Rodney E. Dausch................................ 0 0 69,750(E) $1,538,157(E)
29,750(U) $ 653,154(U)
Jon D. Schoeler................................. 0 0 34,750(E) $ 773,155(E)
34,750(U) $ 773,155(U)
Michael A. Zupon, Ph.D.......................... 0 0 79,500(E) $1,753,780(E)
25,000(U) $ 545,030(U)
</TABLE>
6
<PAGE> 10
EMPLOYMENT AGREEMENTS
The Company is a party to letter agreements with each of Thomas O.
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.
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 certain 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 1998, 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 relative profitability and 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. In
addition, members of the Compensation Committee have experience in serving on
similar committees and performing similar functions for other companies. The
companies used as comparisons 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: (1) base salary; (2) annual cash and stock bonuses;
and (3) 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
7
<PAGE> 11
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 executives officers to achieve bonus payments of as much as 40%
and 30%, respectively, of their base salary if the Company achieves certain
performance objectives that are set annually by the Compensation Committee.
Performance objectives are generally set based on the Company's relative
profitability and sales performance, progress in its clinical approval process,
progress in its clinical trials and research development, 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
reevaluates 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 no stock options granted to executive officers in 1998. However, in
lieu of stock options there was an aggregate of 5,198 shares of Common Stock
awarded to the Named Executive Officers in 1999 for 1998 performance.
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 increased in
1998 by 10% over his 1997 annual base salary. He did not receive any stock
options in 1998.
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 1998, 1997 and 1996 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
8
<PAGE> 12
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, PEER GROUP INDEX AND MODIFIED PEER GROUP INDEX(1)
<TABLE>
<CAPTION>
GLIATECH INC. OLD PEER RUSSELL 2000 INDEX
------------- -------- ------------------
<S> <C> <C> <C>
'10/19/1995' 100 100 100
'12/29/1995' 88.16 113.81 106.95
'12/31/1996' 81.58 86.75 124.71
'12/31/1997' 107.89 86.44 152.57
'12/31/198' 315.79 132.93 148.29
</TABLE>
(1) For the period October 19, 1995 to December 31, 1997, the companies selected
to form the Company's line-of-business peer group index were: Alkermes Inc.,
Biomatrix Inc., Cambridge Neuroscience, Cephalon Inc., Cocensys Inc.,
Genzyme Corp., Neurogen C.P. and Regeneron Pharm Inc. In order to more
closely resemble the Company's line of business, which involves sales of
medical devices, the Company has elected to modify its peer group index. The
Company's modified line of business peer group consists of: Anika
Therapeutics, Inc., Biomatrix, Inc., Integra Life Sciences, Inc., Guilford
Pharmaceuticals, Inc., Lifecore Biomedical, Inc. and Osteotech, Inc. The
total return of each member of the Company's peer groups has been weighted
according to each member's stock market capitalization.
APPROVAL OF AMENDMENTS TO THE COMPANY'S
AMENDED AND RESTATED 1989 STOCK OPTION PLAN
The Company desires to continue its policy of encouraging greater ownership
of Common Stock of the Company by its key employees, including employee
Directors, in order to more closely align their interests with those of the
stockholders. For this purpose, subject to approval by the stockholders of the
Company at the Annual Meeting, the Board of Directors has amended and restated
the Amended and Restated 1989 Stock Option Plan (the "1989 Plan"). A summary of
the proposed amendments to the 1989 Plan is set forth below, followed by a
summary of the 1989 Plan. The full text of the 1989 Plan, as amended and
restated, is attached to this proxy statement as Exhibit A and the summary is
qualified in its entirety by reference to Exhibit A.
9
<PAGE> 13
1989 STOCK OPTION PLAN
Currently, the Company's 1989 Plan provides for the granting of stock
options for up to an aggregate of 1,270,000 shares of the Company's Common
Stock. The 1989 Plan includes provisions authorizing the Board of Directors or a
duly authorized committee thereof, which administers the 1989 Plan, to adjust
the number of shares of Common Stock covered by the 1989 Plan and outstanding
stock options granted thereunder, in the event of a stock dividend, stock split,
combination of shares, recapitalization, reorganization, merger, consolidation
or rights offering, or other event that causes a change in the capital structure
of the Company. The shares of Common Stock covered by the 1989 Plan may be
shares of original issue or shares held in treasury or a combination thereof.
The market value of the Company's Common Stock was $20 1/8 per share based on
the closing price on April 7, 1999 as reported by the Nasdaq National Market.
AMENDMENTS
The Board of Directors has approved an amendment to the 1989 Plan to
increase by 850,000 the number of shares authorized by the 1989 Plan for the
granting of stock options for up to an aggregate of 2,120,000 shares of the
Company's Common Stock. In addition, the Board of Directors has approved certain
other amendments to the 1989 Plan to reflect changes to Section 16(b) of the
Exchange Act and the rules and regulations promulgated thereunder.
The 1989 Plan was initially adopted by the Board of Directors on August 4,
1989 and was approved by stockholders in August 1990. An amendment to the 1989
Plan was adopted by the Board of Directors on September 13, 1995 and approved by
the stockholders effective October 1, 1995. A second amendment to the 1989 Plan
was adopted by the Board of Directors on February 26, 1997 and approved by the
stockholders effective May 14, 1997. The 1989 Plan was further amended, subject
to stockholder approval, by the Board of Directors on January 20, 1999.
PLAN SUMMARY
Purpose and Adoption. The purpose of the 1989 Plan is to provide incentive
to eligible Directors and other eligible key employees of the Company. This
purpose is accomplished by authorizing the grant to participants of options to
purchase shares of Common Stock thus benefitting the Company by giving the
participants a greater personal interest in the success of the Company.
Awards. The 1989 Plan provides for the granting of "incentive stock
options" ("ISO") within the meaning of Section 422 of the Internal Revenue Code
(the "Code"), and "nonqualified stock options", which are not intended to
qualify under any provision of the Code. No optionees may be granted options for
more than 250,000 shares in a two-year period. The aggregate fair market value
(determined as of the date of grant of an ISO) of all shares of Common Stock
with respect to which ISO's are exercisable for the first time by an optionee
during any calendar year may not exceed $100,000. In the event that an optionee
is eligible to participate in any other stock option plans of the Company or any
of its subsidiaries that are also intended to comply with the provisions of
Section 422 of the Code, the annual $100,000 limitation applies to the aggregate
number of shares of Common Stock with respect to which ISO's may be granted
under all such plans. An ISO may be granted in excess of the $100,000
limitation, but that portion of the option that is exercisable for shares of
Common Stock in excess of the limitation will be treated as a nonqualified stock
option.
Administration. The 1989 Plan is administered by the Compensation Committee
of the Board of Directors (the "Compensation Committee"). No member of the
Compensation Committee is an employee of the Company. No member of the
Compensation Committee is eligible to receive awards under the 1989 Plan. The
Compensation Committee determines (a) the eligible persons to whom options may
be granted; (b) the times at which such persons will receive options; (c) the
number of shares subject to each option, the option price, and other terms and
conditions on which such option is granted and to which it is subject; and (d)
whether a particular option is to be designated as an ISO within the meaning of
Section 422(b) of the Code ("Qualified Stock Option") or an option that is not
qualified under any Code provision ("Nonqualified Stock Option").
10
<PAGE> 14
Eligibility. Officers, Directors (who are not members of the Committee)
and, in the judgment of the Compensation Committee, other key employees of the
Company or any of its subsidiaries are eligible to participate in the 1989 Plan.
Approximately 55 individuals are eligible to participate in the 1989 Plan.
Exercise Price and Annual Limitation. The 1989 Plan provides that the
exercise price of options granted thereunder is to be determined by the
Compensation Committee, provided that the exercise price per share, (i) with
respect to each ISO, cannot be less than 100% and (ii) with respect to each
Nonqualified Stock Option, cannot be less than 50% of the fair market value per
share at the time of the grant as determined by the Compensation Committee.
Under the 1989 Plan, the aggregate fair market value (determined as of the
time of the grant) of the shares of Common Stock with respect to each ISO under
the 1989 Plan or any ISO under any other stock option plan of the Company (or
any subsidiary) that is exercisable for the first time by an optionee during any
calendar year may not exceed $100,000. Such limitation does not apply to
Nonqualified Stock Options.
Installment Payments, Loans and Guarantees. The 1989 Plan provides that the
Compensation Committee, in its discretion, may assist any optionee in the
acquisition of Common Stock pursuant to the exercise or surrender of one or more
options under the 1989 Plan by (a) authorizing the extension of a loan from the
Company to the optionee, (b) permitting the optionee to pay the option price in
installments, and (c) authorizing a guarantee by the Company of a third party
loan to the optionee, if the option instrument permits or is amended to permit
such extension of credit. The Compensation Committee may specify the terms of
such extension of credit, with or without security, provided that the maximum
principal amount of such credit must be the purchase price paid for the shares
acquired plus the maximum taxes which the optionees might incur in connection
with such acquisition.
Vesting. The 1989 Plan authorizes the Compensation Committee to establish
vesting provisions with respect to each grant of options, regarding the
period(s) of continuous employment with the Company or any of its subsidiaries
that is necessary before an option (or installments thereof) will become
exercisable. The majority of options that have been granted to date under the
1989 Plan provide for vesting in four equal annual installments on the
anniversary of the grant date with the first installment vesting one year from
the grant date. The options that have been granted to date under the 1989 Plan
further provide for exercise to the extent exercisable by the optionee (i) for a
period of one year from (a) the date of the death of the optionee if he dies
while in the employ of the Company or a subsidiary or within 3 months from the
date of such employment or (b) termination due to the permanent disability of
the optionee or (ii) within 3 months of the date of termination of service of
the optionee if the termination is with the Company's consent.
Change of Control. The 1989 Plan provides that in the event a Change of
Control occurs (as defined below), options which are not vested pursuant to the
terms and conditions of the 1989 Plan immediately prior to the time such Change
of Control occurs shall become immediately and fully exercisable in an amount
equal to (a) a number of options determined by multiplying 25% of the aggregate
number of shares of Common Stock originally granted to each optionee under the
1989 Plan by a fraction, the denominator of which is 12 and the numerator of
which is the number of months that have elapsed since the vesting date
immediately preceding the occurrence of the Change of Control and the date of
the Change of Control, plus (b) a number of options determined by multiplying
the total number of options which are not fully exercisable as of the date of
the Change of Control (excluding the number of options determined in (a) above)
by 50%.
A "Change of Control" occurs if at any time during the term of the 1989
Plan any of the following events occur: (a) the Company is merged, consolidated
or reorganized into or with another corporation or other person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act),
and as a result of such merger, consolidation or reorganization less than fifty
percent (50%) of the combined voting power of the outstanding securities of such
corporation or person immediately after such transaction are held in the
aggregate by the holders of securities representing the combined voting power of
the outstanding securities entitled to vote generally in the election of
directors of the Company ("Voting Stock") immediately prior to such transaction
or (b) the Company sells or otherwise transfers all or substantially all of its
assets to another corporation or other person, and as a result of such sale or
transfer less than fifty percent (50%) of the combined voting power of the then
outstanding securities of such corporation or person immediately after such
11
<PAGE> 15
sale or transfer is held in the aggregate by the holders of Voting Stock
immediately prior to such sale or transfer.
Amendment. The 1989 Plan may be amended from time to time by the Board of
Directors, but without further approval by the stockholders of the Company no
such amendment may (a) change the aggregate number of shares of Common Stock
that may be issued and sold under the 1989 Plan, (b) change the designation of
the class of persons eligible to receive options, (c) reduce the minimum
exercise price or (d) materially increase the benefits accruing to an optionee
within the meaning of Rule l6b-3 (or any successor rule to the same effect)
under the Exchange Act.
Termination. The Board of Directors may terminate or abandon the 1989 Plan
at any time except with respect to options then outstanding. The options that
have been granted to date under the 1989 Plan provide for their termination upon
the earliest to occur of (a) 90 days after the optionee ceases to be an employee
of the Company or a subsidiary for any reason other than his death, permanent
disability or retirement under a retirement plan of the Company or a subsidiary
at or after the earliest voluntary retirement age provided for therein or at an
earlier age with the consent of the Board of Directors, (b) 90 days after the
optionee ceases to be an employee of the Company or a subsidiary as a result of
his retirement under a retirement plan of the Company or a subsidiary at or
after the earliest voluntary retirement age provided for therein or at an
earlier age with the consent of the Board of Directors, (c) one year after the
death or permanent disability of the optionee, if he dies or becomes permanently
disabled either while he is an employee of the Company or a subsidiary or within
90 days after he ceases to be an employee of the Company or a subsidiary as a
result of his retirement under a retirement plan of the Company or a subsidiary
at or after the earliest voluntary retirement age provided for therein or at an
earlier age with the consent of the Board of Directors, or (d) ten years after
the date of grant. Each option that has been granted to date under the 1989 Plan
further provides for its termination as of the date of the optionee's commission
of an act that the Board of Directors determines to have been intentionally
committed and to be materially inimical to the Company.
Adjustments. The Compensation Committee has the authority to change the
number and kind of shares available under the 1989 Plan (including substitution
of shares of another corporation) and the exercise price of any option granted
under the 1989 Plan in any manner as the Compensation Committee deems equitable
in the event of a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation or rights offering, or any other
change in the corporate structure or shares of the Company, pursuant to any of
which events the then outstanding shares of Common Stock are split up, combined
or changed into, become exchangeable at the holder's election for or entitle the
holder thereof to other shares of stock, or upon the occurrence of any other
transaction described in Section 424 of the Code. The Compensation Committee may
in no event, however, make a change to any ISO which would constitute a
"modification" thereof within the meaning of Section 424(h)(3) of the Code. The
Compensation Committee also has the authority, in the event of a sale of all or
substantially all of the assets or outstanding capital stock of the Company, the
dissolution or liquidation of the Company, the merger or consolidation of the
Company with or into any other company, the merger or consolidation of any other
company into the Company, or the making of a tender offer to purchase all or a
substantial portion of the shares of the Company, to amend all outstanding
options (upon conditions as the Compensation Committee deems fit) to require
their termination as of the effective date of the transaction. Upon this
termination, the Company must redeem the options for an amount equal to the
difference between the exercise prices of the options to the extent then
exercisable (unless a greater portion will otherwise be provided by the
Compensation Committee) and their fair market value, as of the date of
redemption of the shares subject to the options.
TAX CONSEQUENCES TO OPTIONEES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the 1989 Plan based on federal income
tax laws in effect on December 31, 1998. This summary is not intended to be
exhaustive and does not describe state or local tax consequences.
Nonqualified Stock Options Under the 1989 Plan. In general: (a) no income
will be recognized by an optionee at the time a Nonqualified Stock Option is
granted; (b) at the time of exercise of a Nonqualified
12
<PAGE> 16
Stock Option, ordinary income will be recognized by the optionee in an amount
equal to the difference between the option price paid for the shares and the
fair market value of the shares if they are nonrestricted on the date of
exercise; and (c) at the time of sale of shares acquired pursuant to the
exercise of a Nonqualified Stock Option, any appreciation (or depreciation) in
the value of the shares after the date of exercise will be treated as either
short-term or long-term capital gain (or loss) depending on how long the shares
have been held.
Incentive Stock Options Under the 1989 Plan. No income generally will be
recognized by an optionee upon the grant or exercise of an ISO. If shares of
Common Stock are issued to an optionee pursuant to the exercise of an ISO and no
disqualifying disposition of the shares is made by the optionee within two years
after the date of grant or within one year after the transfer of the shares to
the optionee, then upon the sale of the shares any amount realized in excess of
the option price will be taxed to the optionee as long-term capital gain and any
loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of either holding period described above, the
optionee generally will recognize ordinary income in the year of disposition in
an amount equal to any excess of the fair market value of the shares at the time
of exercise (or, if less, the amount realized on the disposition of the shares
in a sale or exchange) over the option price paid for the shares. Any further
gain (or loss) realized by the optionee generally will be taxed as short-term or
long-term capital gain (or loss) depending on the holding period.
TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY
To the extent that an optionee recognizes ordinary income in the
circumstance described above, the Company or subsidiary for which the optionee
performs services will be entitled to a corresponding deduction provided that,
among other things, the income meets the test of reasonableness, is an ordinary
and necessary business expense, is not disallowed under the annual compensation
limitation set forth in Section 162(m) of the Code and is not an "excess
parachute payment" within the meaning of Section 280G of the Code.
PLAN BENEFITS
Set forth in the table below are the number of options that were granted
under the 1989 Plan during the Company's last completed fiscal year and the
aggregate number granted to date to each of (a) the Named Executive Officers;
(b) all current executive officers as a group; (c) all current employee
Directors as a group and (d) all employees, including all current officers who
are not executive officers, as a group. The number of options that will be
granted to the aforementioned individuals and groups in the future is not
determinable at this time.
13
<PAGE> 17
PLAN BENEFITS
AMENDED AND RESTATED 1989 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF STOCK OPTIONS
GRANTED
-------------------------
DURING
LAST
NAME AND POSITION FISCAL YEAR TO DATE(1)
----------------- ----------- ----------
<S> <C> <C>
Thomas O. Oesterling, Ph.D., Chief Executive Officer and
President................................................. -0- 310,800
Rodney E. Dausch, Vice President, Chief Financial Officer
and Secretary............................................. -0- 99,500
Jon D. Schoeler, Vice President, Worldwide Sales and
Marketing................................................. -0- 69,500
Michael A. Zupon, Ph.D., Executive Vice President, Research
and Development........................................... -0- 104,500
All Current Executive Officers as a Group................... -0- 584,300
All Current Employee Directors as a Group................... -0- 310,800
All Employees, Including All Current Officers Who Are Not
Executive Officers, as a Group............................ 77,000 373,275
</TABLE>
- ---------------
(1) These numbers exclude options that have either been exercised or cancelled,
as the case may be.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
APPROVAL OF AMENDMENTS TO THE COMPANY'S
AMENDED AND RESTATED 1995 NONEMPLOYEE DIRECTORS
STOCK OPTION PLAN
The Company desires to continue its policy of attempting to attract, retain
and compensate highly qualified individuals to serve as members of the Board of
Directors who are not current employees of the Company and enable them to
increase their ownership of Common Stock of the Company in order to more closely
align their interests with those of the stockholders. For this purpose, subject
to approval by the stockholders of the Company at the Annual Meeting, the Board
of Directors has amended and restated the Amended and Restated 1995 Nonemployee
Directors Stock Option Plan (the "1995 Plan"). A summary of the proposed
amendments to the 1995 Plan is set forth below, followed by a summary of the
1995 Plan. The full text of the 1995 Plan, as amended and restated, is attached
to this proxy statement as Exhibit B and the summary is qualified in its
entirety by reference to Exhibit B.
1995 STOCK OPTION PLAN
Currently, the Company's 1995 Plan provides for the granting of stock
options for up to an aggregate of 150,000 shares of the Company's Common Stock.
The 1995 Plan includes provisions authorizing the Board of Directors to adjust
the number of shares of Common Stock covered by the 1995 Plan and outstanding
stock options granted thereunder, in the event of a stock dividend, stock split,
combination of shares, issuance of rights or warrants to purchase stock,
spin-off, recapitalization or other changes in the capital structure of the
Company, any merger, consolidation, reorganization or partial or complete
liquidation, or any other corporate transaction or event having an effect
similar to any of the foregoing. The shares of Common Stock covered by the 1995
Plan may be shares of original issue or shares held in treasury or a combination
thereof. The market value of the Company's Common Stock was $20 1/8 per share
based on the closing price on April 7, 1999 as reported by the Nasdaq National
Market.
AMENDMENTS
The Board of Directors has approved an amendment to the 1995 Plan to
increase by 150,000 the number of shares authorized by the 1995 Plan for the
granting of stock options for up to an aggregate of 300,000 shares of the
Company's Common Stock. In addition, the Board of Directors has approved certain
other amendments to the 1995 Plan to reflect changes to Section 16(b) of the
Exchange Act and the rules and regulations thereunder.
The 1995 Plan was initially adopted by the Board of Directors on September
13, 1995 and was approved by stockholders on October 1, 1995.
14
<PAGE> 18
PLAN SUMMARY
Purpose and Adoption. The purpose of the 1995 Plan is to attract, retain
and compensate highly qualified individuals to serve as members of the Board of
Directors who are not current employees of the Company and to enable them to
increase their ownership of shares of Common Stock of the Company. This purpose
will benefit the Company and its stockholders because it will allow these
directors to have a greater personal financial stake in the Company, in addition
to underscoring their common interest and identification with stockholders in
increasing the value of Common Stock.
Administration. The 1995 Plan is administered by a committee of the Board
of Directors of the Company consisting of all directors who are not eligible to
participate in the 1995 Plan and the Chief Financial Officer of the Company (the
"Committee"). Subject to the provisions of the 1995 Plan, the Committee is
authorized to interpret the 1995 Plan, to establish, amend and rescind any rules
and regulations relating to the 1995 Plan and to make all other determinations
necessary or advisable for the administration of the 1995 Plan. The Committee
has no discretion with respect to the eligibility or selection of directors to
receive options under the 1995 Plan, the times at which options shall be granted
or shall become exercisable, the number of shares subject to any such options or
the 1995 Plan, or the purchase price thereunder, except for adjustments required
to prevent dilution or enlargement of rights of optionees. The Committee does
not have the authority to take any action or make any determination that would
materially increase the benefits accruing to participants under the 1995 Plan.
Eligibility. All members of the Company's Board of Directors who are not
current employees of the Company or any of its subsidiaries at the time of an
option award ("Nonemployee Directors") are eligible to participate in the 1995
Plan.
Option Awards. All options granted under the 1995 Plan are non-qualified
stock options not intended to qualify under Section 422 of the Code. Each
Nonemployee Director who first becomes a member of the Board is granted an
option to purchase 8,000 shares of Common Stock, subject to adjustments required
to prevent dilution or enlargement of rights of optionees, automatically upon
election to the Board of Directors. Each Nonemployee Director is granted an
option to purchase 8,000 shares of Common Stock, subject to adjustments required
to prevent dilution or enlargement of rights of optionees, automatically each
year on the first Friday following the Company's Annual meeting of Stockholders.
Terms and Conditions. All options granted under the 1995 Plan are evidenced
by stock option agreements. Each option agreement is subject to the 1995 Plan,
and, in addition to such other terms and conditions as the Committee may deem
desirable which includes, without limitation, that: (a) subject to adjustments
required to prevent dilution or enlargement of rights of optionees, the purchase
price per share of Common Stock for which each option is exercisable is equal to
the fair market value of a share of Common Stock as of the date such option is
granted; (b) subject to subsection (c) of this paragraph, each option granted
under the 1995 Plan is exercisable 33 1/3% after one year from the date of the
grant, 66 2/3% after two years from the date of the grant and 100% after three
years from the date of the grant, and all such options will expire ten years
from the date of the grant and are subject to earlier termination; (c) with
certain exceptions, no option is exercisable after the date of cessation of the
optionee's service as a director of the Company; (d) all such options are
exercisable only by giving in each case written notice of exercise, accompanied
by full payment of the purchase price either in cash or in shares of Common
Stock with a fair market value equal to the purchase price or a combination of
cash and shares of Common Stock; and (e) each option agreement provides that any
option granted is not transferable by the optionee other than by will or the
laws of descent and distribution and that, during the lifetime of the optionee,
such option may be exercised only by the optionee or such optionee's legal
representative.
Adjustments. The Board of Directors has the authority to make adjustments
in the price of options and in the number or kind of shares or other securities
covered by outstanding options as the Board of Directors determines is equitably
required to prevent dilution or enlargement of rights of optionees that would
otherwise result from (a) any stock dividend, stock split, combination of
shares, issuance of rights or warrants to purchase stock, spin-off,
recapitalization or other changes in the capital structure of the Company, (b)
any merger, consolidation, reorganization or partial or complete liquidations,
or (c) any other corporate
15
<PAGE> 19
transaction or event having an effect similar to any of the foregoing. The Board
of Directors also shall make or provide for such adjustment in the number or
kind of shares of the Company's capital stock or other securities which may be
acquired pursuant to options granted under the 1995 Plan and the number of such
securities to be awarded to each optionee as the Board of Directors shall
determine is appropriate to reflect any transaction or event described in the
preceding sentence.
Fractional Shares. No fractional shares will be issued pursuant to options
granted under the 1995 Plan and any fractional shares resulting from an
adjustment will be eliminated.
Term. The 1995 Plan will terminate at such time as all of the shares of
Common Stock authorized to be issued under the 1995 have been granted. In the
event that at any future grant date the aggregate number of options to be
granted at such time exceed the remaining options available under the 1995 Plan,
the remaining options available will be granted on a pro-rated basis among each
Nonemployee Director. Termination of the 1995 Plan, however, shall not affect
outstanding options which have been granted prior to such termination, and all
unexpired options will continue in full force and operation after termination of
the 1995 Plan, except as they shall lapse or terminate by their own terms and
conditions, and the terms of the 1995 Plan will continue to apply to such
options.
Amend, Suspend or Termination. At any time, the Board of Directors may
amend, suspend or terminate the 1995 Plan, provided, however, that (a) no
amendment which requires stockholder approval in order for the exemptions
available under Rule 16b-3 to continue to be applicable will be effective unless
the same will be approved by the stockholders of the Company entitled to vote
thereon, and (b) amendments revising the amount, price or timing of option
awards shall not be made more frequently than once every six months unless
necessary to comply with the Code, the Employee Retirement Income Security Act,
or the rules thereunder. Without the written consent of the optionee, no
amendment, suspension or termination of the 1995 Plan will adversely affect any
option previously granted under the 1995 Plan, but it will be conclusively
presumed that any adjustment or change does not adversely affect any such right.
Tax Consequences. The tax consequences for options granted under the 1995
Plan will be substantially similar to the tax consequences for non-qualified
stock options granted under the 1989 Plan that have been described above.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
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, 1999. During fiscal 1998,
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.
SUBMISSION OF STOCKHOLDERS' PROPOSALS AND ADDITIONAL INFORMATION
The Company must receive by December 14, 1999 any proposal of a stockholder
intended to be presented at the 2000 annual meeting of stockholders of the
Company (the "2000 Meeting") and to be included in the Company's proxy, notice
of meeting and proxy statement related to the 2000 Meeting pursuant to Rule
14a-8 under the Exchange Act. Such proposals should be submitted by certified
mail, return receipt requested. Proposals of stockholders submitted outside the
processes of Rule 14a-8 under the Exchange Act in connection with the 2000
Meeting ("Non-Rule 14a-8 Proposals") must be received by the Company by February
28, 2000 or such proposals will be considered untimely under Rule 14a-4(c) of
the Exchange Act. The Company's proxy related to the 2000 Meeting will give
discretionary authority to the proxy holders to vote with respect to all
Non-Rule 14a-8 Proposals received by the Company after February 28, 2000.
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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, 1998, 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. The Company did not receive notice by February 27,
1999 of any matter intended to be raised by a stockholder at the Annual Meeting.
Therefore, the enclosed proxy card grants to the persons named in the proxy card
the authority to vote in their best judgment regarding all other matters
properly raised at the Annual Meeting.
By Order of the Board of Directors
/S/ Rodney E. Dausch
Rodney E. Dausch
Secretary
April 12, 1999
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.
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<PAGE> 21
EXHIBIT A
GLIATECH INC.
AMENDED AND RESTATED 1989 STOCK OPTION PLAN
(AS AMENDED AND RESTATED)
SECTION 1. PURPOSE.
The purpose of the Gliatech Inc. 1989 Stock Option Plan (this "Plan") is to
provide incentives to eligible employees of Gliatech Inc., a Delaware
corporation (the "Company"), and its Subsidiaries (as hereinafter defined), and
other selected persons, by authorizing the grant to such eligible employees and
such other selected persons of options ("Options") to purchase shares of Common
Stock, $0.01 par value (the "Common Stock"), of the Company, and thus to benefit
the Company by giving such persons a greater personal interest in the success of
the Company and its Subsidiaries.
SECTION 2. ADMINISTRATION.
This Plan shall be administered by the Company's Board of Directors or, if
the Board of Directors so directs, by a committee consisting of at least two
directors, who are not employees of the Company or any Subsidiary, appointed
from time to time by the Board of Directors (the "Committee"). For purposes of
this Plan, the term "Committee" shall mean those members of the Board of
Directors or the Committee who are serving as administrators of this Plan. The
Committee shall act by a majority of members at a meeting or by unanimous
written consent. Options shall be granted in accordance with and pursuant to
determinations made by the Committee, all in accordance with the provisions of
this Plan, as to (a) the eligible persons to whom Options may be granted, (b)
the times at which such persons shall receive Options, (c) the number of shares
to be subject to each Option, the price therefor to be paid upon the exercise of
such Option and the other terms and conditions on which such Option is granted
and to which it is subject and (d) whether a particular Option is to be
designated as (i) an incentive stock option within the meaning of Section 422(b)
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
and the Income Tax Regulations thereunder (the "Regulations"), as the same or
any successor statute or regulations may at the time be in effect (an "Incentive
Stock Option"), or (ii) an Option that is not an Incentive Stock Option (a
"Non-Qualified Stock Option"). The Committee may, from time to time, adopt such
rules and regulations for carrying out this Plan and its duties hereunder as it
may deem proper and in the best interests of the Company.
Options shall be evidenced by written instruments, executed by the Company,
containing such provisions not inconsistent with the terms of this Plan as the
Committee may determine. The interpretation and construction by the Committee of
the provisions of this Plan and the Options shall be final and conclusive on all
persons.
SECTION 3. SHARES SUBJECT TO PLAN.
Subject to adjustment under the provisions of Section 10 hereof, the
maximum number of shares of Common Stock which may be issued and sold under this
Plan is 2,120,000 shares; provided, however, that no optionee shall be granted
Options for more than 250,000 shares of Common Stock in a two-year period. Such
shares may be either authorized and unissued shares or shares issued and
thereafter acquired by the Company, or a combination thereof. Shares issued
pursuant to the exercise of Options shall be subject to all applicable
provisions of the Certificate of Incorporation and By-Laws of the Company in
existence at the time of issuance thereof and at all times thereafter. If an
Option shall terminate or cease to be exercisable by reason of expiration,
surrender for cancellation or otherwise without having been wholly exercised,
the shares as to which the Option was not exercised shall no longer be charged
against the aggregate limitation under this Section and shall thereafter be
available for other grants. At no time may the sum of the maximum number of
shares issuable pursuant to outstanding Options and the number of shares
previously issued pursuant to Options exceed the maximum number of shares that
may be issued under this Plan as set forth above.
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SECTION 4. ELIGIBILITY.
Subject to Section 12, options shall be granted only to persons who at the
time of grant are officers, directors or, in the Committee's judgment, other key
employees of the Company or any Subsidiary or other selected persons. No
Committee member shall be eligible for any option grant under the Plan. Each
Option granted to a person who is not an employee of the Company or of a
Subsidiary on the date of grant shall be designated as a Non-Qualified Stock
Option. In selecting individuals to be granted Options, the Committee may take
into consideration such factors as it may deem relevant, including its
estimation of the individual's present and potential contributions to the
success of the Company or of a Subsidiary. For purposes of this Plan, the term
"Subsidiary" shall mean any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain, and shall include any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of the
corporations other than the Company owns stock possessing 50% or more of the
combined voting power of all classes of stock in one of the other corporations
in such chain.
SECTION 5. EXERCISE PRICE OF OPTIONS AND ANNUAL LIMITATION.
The exercise price with respect to each Option shall be determined by the
Committee, provided that the exercise price per share (i) with respect to each
Incentive Stock Option, shall not be less than 100%, and (ii) with respect to
each Non-Qualified Stock Option, shall not be less than 50%, of the fair market
value per share of the Common Stock at the date of the grant of such Option, as
determined by the Committee. The fair market value per share of the Common Stock
at the date of grant of an Incentive Stock Option shall be determined by the
Committee in accordance with the provisions of the Internal Revenue Code and the
Regulations from time to time in effect with respect to "incentive stock
options."
The aggregate fair market value (determined as of the time of grant) of the
stock with respect to which Incentive Stock Options under this Plan (or
incentive stock options, within the meaning of Section 422(b) of the Internal
Revenue Code, under any other stock option plan of the Company or any
Subsidiary) are exercisable for the first time by an employee during any
calendar year shall not exceed the sum of $100,000. The limitation of the
preceding sentence shall not apply to the grant of Non-Qualified Stock Options
under this Plan.
SECTION 6. OPTION PERIOD AND RIGHT TO EXERCISE OPTION.
Subject to the provisions of Section 9 below, the option period under each
Option and the vesting schedule for such Option shall be determined by the
Committee at the time the Option is granted, provided that (a) no Incentive
Stock Option shall be exercisable for a period of more than ten years from the
date such Incentive Stock Option is granted and (b) no Non-Qualified Stock
Option shall be exercisable for a period of more than ten years from the date
such Non-Qualified Stock Option is granted. Unless otherwise determined by the
Committee and provided in the option instrument, no Option granted under this
Plan may be exercised unless, at the time of such exercise, the optionee is
employed by the Company or a Subsidiary (or, in the case of a NonQualified
Option, the optionee is providing services to the Company or to a Subsidiary)
and has been continuously employed by one or more of such corporations (or, in
the case of a Non-Qualified Option, has been continuously providing services to
one or more of such corporations) since the date of grant of such Option, and
except that if the Option so provides:
(i) the Option shall be exercisable, as and to the extent exercisable
at the time of the termination of such optionee's employment, within, but
only within, the period of three months beginning with the date the
optionee terminates employment with the Company or a Subsidiary if the
termination is with the consent of the Company; provided, however, that in
no event may any Option be exercised after the date the Option expires; and
(ii) if the optionee dies while in the employ of the Company or a
Subsidiary or within three months beginning on the date that the optionee
ceases to be such an employee, the Option shall be exercisable by
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the person to whom it is transferred by will or the laws of descent and
distribution, as and to the extent it was exercisable by the optionee on
the date of the optionee's death, within, but only within, the period of
one year beginning with the date of optionee's death; provided, however,
that in no event may any Option be exercised after the date the Option
expires; and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Internal Revenue Code) while in the employ of the Company
or a Subsidiary and such optionee's employment terminates by reason of such
disability, the Option shall be exercisable by such optionee, as and to the
extent exercisable by such optionee at the time of such termination,
within, but only within, the period of one year beginning with the date of
such termination; provided, however, that in no event may any Option be
exercised after the date the Option expires; and
(iv) where such Option is a Non-Qualified Option, it may have terms
substantially consistent with clauses (i), (ii) and (iii) above in the case
of an optionee who is not an employee.
For purposes of each Incentive Stock Option, "employment" shall be defined
in accordance with the provisions of Section 1.421-7(h) of the Regulations or
any successor provisions. Nothing in this Plan or in any Option shall confer on
any individual any right to continue in the employ of the Company or any
Subsidiary or interfere in any way with the right of the Company or such
Subsidiary to terminate such person's employment at any time.
Options shall be exercised by written notice to the Company in form
satisfactory to it. Subject to the provisions of Section 14, the option price
shall be paid in cash, certified or bank cashier's check or, if the Option so
permits, in shares of Common Stock (valued at the fair market value thereof as
determined by the Committee) or a combination of cash, check (as provided above)
and/or shares of Common Stock. An optionee shall have none of the rights of a
stockholder of the Company until the shares to which the exercise of an Option
relates are issued to such person.
Two or more Options may be granted under this Plan to the same person, one
or more of which may be Incentive Stock Options and one or more of which may be
Non-Qualified Stock Options. Such Options, which may relate to different numbers
of shares and may contain different terms (including different purchase prices),
may be granted simultaneously and/or from time to time during the duration of
this Plan, provided that in no event may any Incentive Stock Option provide that
the number of shares that the optionee may purchase thereunder shall be reduced
in relation to the number of shares that the optionee has purchased under any
other Option, nor may any Non-Qualified Stock Option provide that the number of
shares that the optionee may purchase thereunder shall be reduced in relation to
the number of shares that the optionee has purchased under any Incentive Stock
Option.
The Committee may permit the voluntary surrender of all or a portion of any
Option to be conditioned upon the granting to the optionee of a new Option to
purchase the same or a different number of shares as the Option surrendered, or
may require surrender of all or a portion of any Option as a condition precedent
to the grant of a new Option to such employee. Such new Option shall be
exercisable at the price, during the period and in accordance with all other
terms and conditions specified by the Committee at the time the new Option is
granted, all determined in accordance with the provisions of this Plan without
regard to the price, period of exercise or any other terms or conditions of the
Option surrendered.
SECTION 7. NON-TRANSFERABILITY.
Except as otherwise specified by the Committee with respect to
Non-Qualified Stock Options, no Option granted under this Plan shall be
transferable by the person to whom it is granted otherwise than by will or the
laws of descent and distribution, and each Option shall be exercisable, during
the lifetime of the person to whom it is granted, only by such person.
SECTION 8. COMPANY'S RIGHT TO REPURCHASE OPTION SHARES.
At the discretion of the Committee, the Company may reserve to itself or
its assignee(s) at the time of any grant of Options to any person a right to
repurchase from such person any or all shares of Common Stock
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as to which such Options are exercised upon such person's termination of
employment or service with the Company or any Subsidiary for any reason within a
specified time as determined by the Committee at the time of grant. The price
for any such repurchase shall equal, in the Committee's discretion, as set forth
in the granting instrument, either (i) the original purchase price for such
shares (provided that the right to repurchase at such price shall, if so
determined by the Committee, lapse with regard to at least 20% of such shares
for each year from the date of grant), (ii) the fair market value of such shares
as determined by the Committee in good faith or (iii) a price determined by a
formula or other provision set forth in the grant.
SECTION 9. SPECIAL PROVISIONS APPLICABLE TO OPTIONS GRANTED TO TEN PERCENT
STOCKHOLDERS.
In the event that any Incentive Stock Option is granted under this Plan to
any individual who, at the time such Option is granted, owns stock possessing
more than ten percent of the total combined voting power of all classes of stock
of the Company or any Subsidiary, the exercise price per share with respect to
such Incentive Stock Option shall be at least 110% of the fair market value per
share of the Common Stock at the time such Incentive Stock Option is granted
(determined as provided in Section 5 hereof) and such Incentive Stock Option
shall not be exercisable after the expiration of five years from the date it is
granted.
SECTION 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation or rights offering, or
any other change in the corporate structure or shares of the Company, pursuant
to any of which events the then outstanding shares of Common Stock are split up,
combined or changed into, become exchangeable at the holder's election for or
entitle the holder thereof to other shares of stock, or upon the occurrence of
any other transaction described in Section 424 of the Internal Revenue Code, the
Committee may change the number and kind of shares available under this Plan
(including substitution of shares of another corporation) and the exercise price
of any Option in any manner as it shall deem equitable, provided that in no
event may any change be made under this Section 10 to any Incentive Stock Option
which would constitute a "modification" thereof within the meaning of Section
424(h)(3) of the Internal Revenue Code. The Committee shall also have the
authority, in the event of a sale of all or substantially all of the assets or
outstanding capital stock of the Company, the dissolution or liquidation of the
Company, the merger or consolidation of the Company with or into any other
company, the merger or consolidation of any other company into the Company, or
the making of a tender offer to purchase all or a substantial portion of the
shares of the Company, to amend all outstanding Options (upon such conditions as
it shall deem fit) to require the termination of such Options as of the
effective date of such transaction; provided, however, that upon such
termination, the Company shall redeem such Options for an amount equal to the
difference between the exercise price of such Options to the extent then
exercisable (unless a greater portion shall otherwise be provided by the
Committee) and the fair market value, as of the date of such redemption, of the
shares subject to such Options. The Options shall contain such provisions as are
consistent with the foregoing with respect to adjustments to be made in the
number and kind of shares covered by such Options and in the exercise price per
share in the event of any such change.
SECTION 11. CHANGE OF CONTROL.
In the event a Change of Control (as defined below) occurs, Options which
are not vested pursuant to the terms and conditions of this Agreement
immediately prior to the time such Change of Control occurs shall become
immediately and fully exercisable in an amount equal to (A) a number of Options
determined by multiplying 25% of the aggregate number of Shares of Common Stock
originally subject to this Agreement by a fraction, the denominator of which is
12 and the numerator of which is the number of months that have elapsed since
the Vesting Date immediately preceding the occurrence of the Change of Control
and the date of the Change of Control, plus (B) a number of Options determined
by multiplying the total number of Options which are not fully exercisable as of
the date of the Change of Control (excluding the number of
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Options determined in A above) by 50%. For purposes of this Agreement, a "Change
in Control" shall have occurred if at any time during the term of this Agreement
any of the following events shall occur:
(a) The Company is merged, consolidated or reorganized into or with
another corporation or other person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange Act"), and as a result of such merger, consolidation or
reorganization less than fifty percent (50%) of the combined voting power
of the outstanding securities of such corporation or person immediately
after such transaction are held in the aggregate by the holders of
securities representing the combined voting power of the outstanding
securities entitled to vote generally in the election of directors of the
Company ("Voting Stock") immediately prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all
of its assets to another corporation or other person, and as a result of
such sale or transfer less than fifty percent (50%) of the combined voting
power of the then outstanding securities of such corporation or person
immediately after such sale or transfer is held in the aggregate by the
holders of Voting Stock immediately prior to such sale or transfer.
SECTION 12. SUBSTITUTED OPTIONS.
Options may be granted from time to time in substitution for stock options
and/or stock appreciation rights held by employees of other corporations who
become associated with the Company or a Subsidiary as the result of a merger or
consolidation of such other corporation with the Company or such Subsidiary, the
acquisition by the Company or a Subsidiary of the assets of such other
corporation or the acquisition by the Company or a Subsidiary of stock of such
other corporation as the result of which such other corporation becomes a
Subsidiary, or such options or rights may be assumed by the Company. The terms
and conditions of the substitute Options so granted may vary from the terms and
conditions set forth in Section 5 hereof to such extent as the Board of
Directors may deem appropriate to conform, in whole or in part, to the
provisions of the instruments in substitution for which they are granted.
SECTION 13. REGISTRATION, LISTING AND QUALIFICATION.
Each Option shall be subject to the requirement that if at any time the
Board of Directors shall determine that the registration, listing or
qualification of the Common Stock issuable upon exercise thereof on any
securities exchange or under any federal or state law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of or in connection with the granting of such Option or the purchase
of shares of Common Stock pursuant to exercise thereof, such Option may not be
exercised unless and until such registration, listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors. The Company shall not be obliged to
register any securities pursuant to the Securities Act of 1933, as now in effect
or as hereafter amended (the "Securities Act"), or to take any other action in
order to cause the issuance and delivery of share certificates pursuant to the
Plan to comply with any law, regulation or requirement; provided, however, that
the Company will use its best efforts to make available an exemption from
registration under the Securities Act. Shares received upon exercise of Options
may be legended to the extent deemed necessary by the Company, and the Company
may require that any person exercising an Option shall make such representations
and agreements and furnish such information as it deems appropriate to assure
compliance with the foregoing and all other applicable legal requirements.
SECTION 14. INSTALLMENT PAYMENTS, LOANS AND GUARANTEES OF LOANS.
The Committee may, in its discretion, assist any optionee (including an
optionee who is an officer of the Company) in the acquisition of shares pursuant
to the exercise or surrender of one or more Options under this Plan by (a)
authorizing the extension of a loan from the Company to such optionee, (b)
permitting the optionee to pay the option price in installments over a period of
years and (c) authorizing a guarantee by the Company of a third party loan to
the optionee, provided that the instrument evidencing the Option permits, or is
amended to permit, such an extension of credit. Any such extension of credit
shall be upon such terms, with
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or without security, as the Committee shall specify, provided that the maximum
principal amount of such credit shall be the purchase price, if any, paid for
the shares acquired plus the maximum federal, state and local income and
employment tax which the optionee might incur in connection with such
acquisition.
SECTION 15. EFFECTIVE DATE, DURATION AND TERMINATION OF PLAN.
This Plan shall become effective upon adoption by the Board of Directors
and approval by the Company's stockholders at the 1992 annual meeting. Options
may be granted under this Plan at any time on or prior to the tenth anniversary
of the effective date hereof as set forth above, on which date this Plan shall
expire except as to Options then outstanding hereunder, which Options shall
remain in effect until they have been exercised or have expired. This Plan may
be abandoned or terminated at any time by the Board of Directors except with
respect to Options then outstanding hereunder.
SECTION 16. OTHER ACTIONS.
Nothing contained herein shall be construed to limit the authority of the
Company to exercise its corporate rights and powers, including, without
limitation, its right to grant or assume options other than under this Plan with
respect to any employee or other person, firm, corporation or other entity.
SECTION 17. AMENDMENT OR MODIFICATION OF PLAN.
The Board of Directors may, from time to time, discontinue, alter, amend or
modify this Plan for the purpose of meeting any changes in legal requirements or
for any other purpose that the Board may deem advisable, provided that no such
amendment or modification, except as permitted by the provisions of Section 10
above, shall (a) change the maximum number of shares to be issued pursuant to
exercise of Options, (b) change the class of employees eligible to receive
Options, (c) reduce the minimum exercise price of Options or (d) materially
increase the benefits accruing to an optionee under this Plan, within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
unless such amendment or modification shall be approved by a majority in
interest of the Company's stockholders.
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EXHIBIT B
GLIATECH INC.
AMENDED AND RESTATED
1995 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
SECTION 1. PURPOSE.
The purpose of the Gliatech Inc. Nonemployee Directors 1995 Stock Option
Plan (the "Plan") is to attract, retain and compensate highly qualified
individuals to serve as members of the Board of Directors who are not current
employees of Gliatech Inc. (the "Company") and to enable them to increase their
ownership of shares of Common Stock, $0.01 par value per share, of the Company
("Common Stock"). The Plan will be beneficial to the Company and its
stockholders since it will allow these directors to have a greater personal
financial stake in the Company through the ownership of Common Stock, in
addition to underscoring their common interest and identification with
stockholders in increasing the value of Common Stock.
SECTION 2. SHARES SUBJECT TO PLAN.
The total number of shares of Common Stock with respect to which options
may be granted under the Plan shall not exceed 300,000 (as adjusted pursuant to
Section 7 hereof). Shares issued upon exercise of options granted under the Plan
may be either authorized and previously unissued shares, issued shares which
have been reacquired by the Company, or any combination thereof. In the event
that any option granted under the Plan shall terminate, expire or, with the
consent of the optionee, be cancelled as to any shares of Common Stock, without
having been exercised in full, new options may be granted with respect to such
shares without again being charged against the maximum share limitations set
forth above in this Section 2.
SECTION 3. ADMINISTRATION.
The plan shall be administered by a committee consisting of all directors
who are not eligible to participate in the Plan and the Chief Financial Officer
of the Company (the "Committee"). Subject to the provisions of the Plan, the
Committee shall be authorized to interpret the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee shall have no discretion with respect to the eligibility or selection
of directors to receive options under the Plan, the times at which options shall
be granted or shall become exercisable, the number of shares subject to any such
options or the Plan, or the purchase price thereunder, except for adjustments as
described in Section 7. The Committee shall not have the authority to take any
action or make any determination that would materially increase the benefits
accruing to participants under the Plan. The determination of the Committee in
the administration of the Plan, as described herein, shall be final and
conclusive and binding upon all persons, including, without limitation, the
Company, its shareholders and persons granted options under the Plan. The
Secretary of the Company shall be authorized to implement the Plan in accordance
with its terms and to take such actions of a ministerial nature as shall be
necessary to effectuate the intent and purposes hereof. The validity,
construction, and effect of the Plan and any rules and regulations relating to
the Plan shall be determined in accordance with the internal substantive laws of
the State of Delaware.
SECTION 4. ELIGIBILITY.
All members of the Company's Board of Directors who are not current
employees of the Company or any of its subsidiaries at the time of option award
("Nonemployee Directors") are eligible to participate in the Plan.
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SECTION 5. OPTION AWARDS.
(a) Initial Awards After the IPO. Each Nonemployee Director who was in
office prior to the IPO Date and remains in office as of the IPO Date shall
be granted options to purchase 4,000 shares of Common Stock. Such options
shall be granted on the IPO Date. For purposes of this Plan, "IPO Date"
means the date of the closing of the initial public offering of the
Company's Common Stock pursuant to the Registration Statement on Form S-1
(Registration No. 33-96460) of the Company filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 (the "IPO").
(b) Future Awards.
(i) Each Nonemployee Director who first becomes a member of the
Board after the IPO shall be granted an option to purchase 8,000 shares
of Common Stock (as adjusted pursuant to Section 7 hereof) automatically
upon election to the Board of Directors.
(ii) Each Nonemployee Director shall be granted an option to
purchase 8,000 shares of Common Stock (as adjusted pursuant to Section 7
hereof) automatically each year on the first Friday following the
Company's Annual Meeting of Stockholders.
(c) Non-Statutory Stock Options. All options granted under the Plan
shall be non-statutory options not intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). Each option
granted under the Plan shall provide that such option shall not be treated
as an "incentive stock option," as that term is defined in Section 422(b)
of the Code.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
All options granted under the Plan shall be evidenced by stock option
agreements in writing (hereinafter referenced to as "option agreements"), in
such form as the Committee may from time to time approve, executed on behalf of
the Company by the Chairman of the Board or President of the Company. Each
option agreement shall be subject to the Plan, and, in addition to such other
terms and conditions as the Committee may deem desirable, shall provide in
substance as follows:
(a) Purchase Price. The purchase price per share of Common Stock for
which each option is exercisable shall be equal to 100% of the Fair Market
Value of a share of Common Stock as of the date such option is granted
("Fair Market Value"). Such Fair Market Value shall be the average of the
"bid" and "asked" prices of Common Stock on the date next preceding such
date as reported by the Nasdaq National Market, or in the event that no
"bid" and "asked" prices shall be reported by the Nasdaq National Market on
such next preceding day, the average of the "bid" and "asked" prices
reported by the Nasdaq National Market on the next preceding day, or if the
Common Stock is no longer listed on the Nasdaq National Market, the fair
market value on such date as determined by the Committee in accordance with
applicable law and regulations. The option price shall be subject to
adjustment as provided in Section 7 hereof.
(b) Exercisability and Terms of Options. Subject to Section 6(c)
hereof, each option granted under the Plan shall be exercisable 33 1/3
percent after 1 year from date of grant, 66 2/3 percent after 2 years from
date of grant and 100 percent after 3 years from date of grant. Each option
granted under the Plan shall expire 10 years from the date of grant and
shall be subject to earlier termination as hereinafter provided. If a
Nonemployee Director subsequently becomes an employee of the Company while
remaining a member of the Board of Directors, any options held under the
Plan by such individual at the time of such commencement of employment
shall not be affected thereby.
(c) Cessation of Service. Except as hereinafter set forth, no option
shall be exercisable after the date of cessation of an optionee's service
as a director of the Company. Upon the death of an optionee at any time or
upon cessation of service six months or more after the date of grant, all
of the then outstanding options of such optionee shall be come immediately
exercisable. If an optionee's service ceases for any reason, such
exercisable options may be exercised by the optionee within three months
after such cessation of service. If an optionee shall die within such
three-month period, or if cessation of his or her
B-2
<PAGE> 29
service shall have been due to such optionee's death, such options may be
exercised at any time within one year after such death by the optionee's
executor or administrator or by his or her distributee to whom such options
may have been transferred by will or by the laws of descent and
distribution. The foregoing provisions shall not extend the period during
which an option may be exercised beyond the date it expires by its terms.
(d) Manner of Exercise. Each option agreement shall provide that any
option therein granted shall be exercisable only by giving in each case
written notice of exercise, accompanied by full payment of the purchase
price either (i) in cash (including check, bank draft, or money order, or
wire or other transfer of funds, or advice of credit to the Company), or
(ii) in shares of Common Stock with a fair market value equal to the
purchase price or a combination of cash and shares of Common Stock which in
the aggregate are equal in value to such purchase price. At the discretion
of the Committee, the option agreement may provide that shares of Common
Stock may be issued in the name of the optionee and another person jointly
with the right of survivorship.
(e) Nontransferability. Each option agreement shall provide that any
option therein granted is not transferable by the optionee other than by
will or by the laws of descent and distribution and that, during the
lifetime of the optionee, such option may be exercised only by the optionee
or such optionee's legal representative.
SECTION 7. ADJUSTMENT UPON CHANGES IN STOCK.
The Board of Directors shall make or provide for such adjustments in the
option price and in the number or kind of shares or other securities covered by
outstanding options as the Board of Directors in its sole discretion, exercised
in good faith, shall determine is equitably required to prevent dilution or
enlargement of rights of optionees that would otherwise result from (a) any
stock dividend, stock split, combination of shares, issuance of rights or
warrants to purchase stock, spin-off, recapitalization or other changes in the
capital structure of the Company, (b) any merger, consolidation, reorganization
or partial or complete liquidations, or (c) any other corporate transaction or
event having an effect similar to any of the foregoing. The Board of Directors
also shall make or provide for such adjustment in the number or kind of shares
of the Company's capital stock or other securities which may be acquired
pursuant to options granted under the Plan and the number of such securities to
be awarded to each optionee as the Board of Directors in its sole discretion,
exercised in good faith, shall determine is appropriate to reflect any
transaction or event described in the preceding sentence. The determination of
the Board of Directors as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive.
SECTION 8. FRACTIONAL SHARES.
No fractional shares shall be issued pursuant to options granted hereunder
and any fractional share resulting from an adjustment pursuant to Section 7
hereof shall be eliminated.
SECTION 9. GOVERNMENT REGULATIONS.
The Plan, the grant and exercise of options hereunder, and the Company's
obligation to sell and deliver shares of stock pursuant to any such exercise,
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any regulatory or government agency as shall be
required. The Company shall not be required to issue or deliver any certificate
or certificates for shares of its Common Stock prior to (a) the inclusion of
such shares for quotation on the Nasdaq National Market and (b) the completion
of any registration or other qualification of such shares under any state or
federal law or rulings or regulations of any government body, which the Company
shall, in its sole discretion, determine to be necessary or advisable.
SECTION 10. TERM OF THE PLAN.
The plan shall become effective immediately upon the closing of the IPO
(the "Effective Date"). The Plan shall terminate at such time as all of the
shares of Common Stock authorized under Section 2 of this Plan have been
granted. In the event that at any future grant date as determined under Section
5 hereof, the
B-3
<PAGE> 30
aggregate number of options to be granted at such time exceed the remaining
options available under the Plan as determined in accordance with Section 2
hereof, the remaining options available shall be granted on a pro-rata basis
among each Nonemployee Director. Termination of the Plan, however, shall not
affect outstanding options which have been granted prior to such termination,
and all unexpired options shall continue in full force and operation after
termination of the Plan, except as they shall lapse or terminate by their own
terms and conditions, and the terms of the Plan shall continue to apply to such
options.
SECTION 11. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
The Board of Directors at any time and from time to time may amend, suspend
or terminate the Plan; provided, however, that (a) no amendment which requires
stockholder approval in order for the exemptions available under Rule 16b-3 to
continue to be applicable shall be effective unless the same shall be approved
by the stockholders of the Company entitled to vote thereon, and (b) amendments
revising the amount, price or timing of option awards shall not be made more
frequently than once every six months unless necessary to comply with the Code,
the Employee Retirement Income Security Act, or the rules thereunder. Without
the written consent of the optionee, no amendment, suspension or termination of
the Plan shall adversely affect any option previously granted under the Plan,
but it shall be conclusively presumed that any adjustment or change as provided
in Section 7 does not adversely affect any such right.
SECTION 12. NO RIGHT TO CONTINUE AS DIRECTOR.
Neither the Plan, nor the granting of an option nor any other action taken
pursuant to the Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that a director has a right to continue as a
director for any period of time, or at any particular rate of compensation.
B-4
<PAGE> 31
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 19, 1999.
The undersigned hereby constitutes and appoints Thomas O. Oesterling, Ph.D.,
Robert P. Pinkas and Irving S. Shapiro, 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 Radisson Inn Beachwood, 26300 Chagrin Boulevard, Beachwood, Ohio on
Wednesday, May 19, 1999, 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 (change of address)
(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
<PAGE> 32
[X] Please mark your votes as in this example.
FOR WITHHELD Nominees
1. Election of [ ] [ ] William A. Clarke
Directors [ ] [ ] Theodore E. Haigler, Jr.
(see reverse) [ ] [ ] Ronald D. Henriksen
FOR AGAINST ABSTAIN
2. Approval of Ernst [ ] [ ] [ ]
& Young LLP as
Independent Auditors.
3. Approval of amendments [ ] [ ] [ ]
to Amended and Restated
1989 Stock Option Plan
4. Approval of amendments [ ] [ ] [ ]
to Amended and Restated
1995 Nonemployee
Director Stock Option
Plan
For, except vote withheld from the following nominee(s):
Change [ ]
of
Address
Attend [ ]
Meeting
SIGNATURE(S) DATE
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.
