<PAGE> 1
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- --------------------------------------------------------------------------------
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 under Rule 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: ...........................................................
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- --------------------------------------------------------------------------------
<PAGE> 2
Gliatech Logo
23420 COMMERCE PARK ROAD
CLEVELAND, OHIO 44122
TELEPHONE: (216) 831-3200
April 14, 2000
Dear Gliatech Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Gliatech
Inc., which will be held on May 16, 2000, at 11:00 a.m. at the Embassy Suites
Hotel -- Beachwood, 3775 Park East Drive, Beachwood, Ohio.
This year, your Board of Directors is recommending that you elect two
Directors for a three-year term, approve the Directors' Equity 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 1999 Annual Report for the fiscal
year ended December 31, 1999 with this notice of annual meeting of stockholders
and proxy statement. If you would like another copy of the 1999 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.
Chairman of the Board and Chief
Executive Officer
<PAGE> 3
Gliatech Logo
23420 COMMERCE PARK ROAD
CLEVELAND, OHIO 44122
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2000
The Annual Meeting of Stockholders of Gliatech Inc., a Delaware corporation
(the "Company"), will be held on Tuesday, May 16, 2000, at 11:00 a.m. (the
"Annual Meeting") at the Embassy Suites Hotel -- Beachwood, 3775 Park East
Drive, Beachwood, Ohio for the purpose of:
(1) Electing two Directors for a three-year term;
(2) Approving the Directors' Equity Plan;
(3) Approving the appointment of the independent auditors
of the Company for the fiscal year ending December 31, 2000; and
(4) 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 20, 2000 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 14, 2000
The Company's 1999 Annual Report for the fiscal year ended December 31,
1999 is enclosed. The 1999 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 16, 2000
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 16, 2000 (the "Annual Meeting"). This Proxy Statement and the
related proxy card are being mailed to stockholders commencing on or about April
14, 2000.
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 20,
2000, will be entitled to vote at the Annual Meeting. On that date, the Company
had outstanding (excluding 75,000 shares held in treasury) and entitled to vote
9,500,533 shares of common stock, $0.01 par value per share (the "Common
Stock"). A list of such holders will be open to the examination of any
stockholders, for any purpose germane to the meeting, at the place of the Annual
Meeting for a period of ten days prior to the meeting. Each share of Common
Stock is entitled to one vote. At the Annual Meeting, inspectors of election
shall determine the presence of a quorum and shall tabulate the results of the
vote of the stockholders. The holders of a majority of the total number of
outstanding shares of Common Stock entitled to vote must be present in person or
by proxy to constitute the necessary quorum for any business to be transacted at
the Annual Meeting. Properly executed proxies marked "abstain" as well as
proxies held in street name by brokers that are not voted on all proposals to
come before the Annual Meeting ("broker non-votes") will be considered "present"
for purposes of determining whether a quorum has been achieved at the Annual
Meeting.
The two nominees for Director receiving the greatest number of votes cast
at the Annual Meeting in person or by proxy shall be elected. Consequently, any
shares of Common Stock present in person or by proxy at the Annual Meeting, but
not voted for any reason have no impact in the election of Directors, except to
the extent that the failure to vote for an individual may result in another
individual receiving a larger number of votes. All other matters to be
considered at the Annual Meeting require, for approval, the favorable vote of a
majority of shares voted at the meeting in person or by proxy. Stockholders have
no right to cumulative voting as to any matter, including the election of
Directors. If any proposal at the Annual Meeting must receive a specific
percentage of favorable votes for approval, abstentions in respect of such
proposal are treated as present and entitled to vote under Delaware law and
therefore such abstentions have the effect of a vote against such proposal.
Broker non-votes in respect of any proposal are not counted for purposes of
determining whether such proposal has received the requisite approval.
The shares represented by all valid proxies received will be voted in the
manner specified on the proxies. Where specific choices are not indicated on a
valid proxy, the shares represented by such proxies received will be voted: (1)
for the nominees for Director named in this Proxy Statement; (2) for approval of
the Directors' Equity Plan; (3) for approval of the appointment of Ernst & Young
LLP, as independent auditors; and (4) in accordance with the best judgment of
the persons named in the enclosed proxy, or their substitutes, for any other
matters that 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 the 2002 annual meeting of stockholders. Class II consists of Irving
S. Shapiro and John L. Ufheil and their current term of office will expire at
this Annual Meeting. 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. In addition, for attendance at each committee
meeting, each such Director receives $1,500 payable in deferred shares until
such time as the Directors' Equity Plan is approved. 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, Ufheil and
Clarke entered into Consulting Agreements with the Company as of December 30,
1997, April 1, 1998 and May 3, 1999, respectively. As consideration for services
rendered under these consulting agreements, Messrs. Henriksen, Ufheil and Clarke
received 3,000 options exercisable for Common Stock at a price of $10.125 per
share, 6,000 options exercisable for Common Stock at a price of $12.125 per
share and 5,000 options exercisable for Common Stock at a price of $21.0625 per
share, respectively.
At the Annual Meeting, two Directors are to be elected to hold office, each
for a term of three years and until his successor is elected and qualified. The
Board of Directors recommends that its two nominees for Director be elected at
the Annual Meeting. The nominees are Irving S. Shapiro and John L. Ufheil.
Messrs. Shaprio and Ufheil have each served as a Director of the Company since
1993. If either 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 Director nominee 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>
Thomas O. Oesterling, Ph.D. 62 Chairman and Chief Executive Officer
Robert P. Pinkas(1) 46 Director
William A. Clarke(2) 61 Director
Theodore E. Haigler, Jr.(2) 75 Director
Ronald D. Henriksen(1) 60 Director
Irving S. Shapiro(2) 83 Director
John L. Ufheil(1) 66 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
DIRECTOR NOMINEES
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 and Sola
International Inc.
2
<PAGE> 6
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.
CONTINUING DIRECTORS
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 University, a technology licensing and formation
company. From April 1996 through September 1998, he was Chief Executive Officer
of Itasca Ventures LLC, a medical technology company. From March 1993 through
January 1996, he was the President and Chief Executive Officer of Khepri
Pharmaceuticals Inc., 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.
THOMAS O. OESTERLING, PH.D. has served as Chief Executive Officer and a
Director of the Company since June 1989. In May 1999, he became Chairman of the
Company. From June 1989 to October 1999, he also served as President of the
Company. 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 a Director of the Company since May 1999. He
served as Chairman of the Board of Directors from 1988 to May 1999 and served as
Secretary of the Company from 1988 until August 1995. He served as Treasurer of
the Company from August 1995 to May 1999. Mr. Pinkas is the founding general
partner of Brantley 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 Caredata.com, Inc.
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. It
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. During fiscal 1999, the Audit Committee held two meetings.
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 of the
Company. During fiscal 1999, the Compensation Committee held two meetings.
The Board of Directors held six meetings in fiscal 1999. 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 1999.
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. No employees serve on the
Compensation Committee.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain beneficial ownership information as
of January 15, 2000 (except as otherwise noted) as to (i) 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 (ii)
the security ownership of equity securities of the Company by each of the
Directors of the Company, 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 Board(1)............. 1,405,000 14.8%
P.O. Box 7842
Madison, Wisconsin 53707
Lord, Abbett & Co.(2).............................. 882,294 9.3%
90 Hudson Street
Jersey City, NJ 07302
Shaker Investments, Inc.(3)........................ 564,428 6.0%
801 Tower East 20600 Chagrin Boulevard
Cleveland, Ohio 44127
Robert P. Pinkas(4)................................ 73,903 *
Thomas O. Oesterling, Ph.D.(5)..................... 304,628 3.1%
William A. Clarke(6)............................... 9,266 *
Theodore E. Haigler, Jr.(7)........................ 9,332 *
Ronald D. Henriksen(8)............................. 5,332 *
Irving S. Shapiro(9)............................... 20,532 *
John L. Ufheil(10)................................. 24,532 *
Rodney E. Dausch(11)............................... 98,841 1.0%
Michael A. Zupon, Ph.D.(12)........................ 117,753 1.2%
John A. Redmond(13)................................ 37,500 *
Jon D. Schoeler(14)................................ 54,388 *
All Directors and executive officers
as a group (11 persons)(15)...................... 756,007 7.5%
</TABLE>
- ---------------
* 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 8, 2000.
(2) Information with respect to beneficial ownership is based on a Schedule 13G
as filed with the Securities and Exchange Commission on February 9, 2000.
4
<PAGE> 8
(3) Information with respect to beneficial ownership is based on a Schedule 13G
as filed with the Securities and Exchange Commission on July 28, 1999.
Includes 88,022 shares owned by Shaker Investments Management, L.P. Shaker
Investments, Inc. disclaims ownership of the shares held by Shaker
Investments Management, L.P.
(4) Includes 13,332 shares of Common Stock purchasable upon the exercise of
stock options issued to Mr. Pinkas, 5,000 shares of Common Stock owned by
Madaket Investment L.L.C., 3,811 shares of Common Stock owned by Pinkas
Family Partners, L.P. ("PFP"), 32,299 shares of Common Stock owned by
Brantley Venture Management, L.P. ("BVM") and 19,461 shares of Common Stock
owned by Brantley Venture Management II, L.P. ("BVM II"). Mr. Pinkas, a
Director of the Company, serves as the managing member of Madaket
Investment L.L.C and as the general partner of PFP. PFP is general partner
of BVM and BVM II.
(5) Includes 226,300 shares of Common Stock purchasable upon the exercise of
stock options. Includes 78,329 shares of Common Stock held by the Thomas O.
Oesterling Trust, with Thomas O. Oesterling as trustee.
(6) Includes 8,666 shares of Common Stock purchasable upon the exercise of
stock options and 600 shares of Common Stock owned by Mr. Clarke's spouse.
(7) Includes 9,332 shares of Common Stock purchasable upon the exercise of
stock options.
(8) Includes 5,332 shares of Common Stock purchasable upon the exercise of
stock options.
(9) Includes 13,332 shares of Common Stock purchasable upon the exercise of
stock options.
(10) Includes 24,532 shares of Common Stock purchasable upon the exercise of
stock options.
(11) Includes 95,750 shares of Common Stock purchasable upon the exercise of
stock options.
(12) Includes 100,750 shares of Common Stock purchasable upon the exercise of
stock options.
(13) Includes 37,500 shares of Common Stock purchasable upon the exercise of
stock options.
(14) Includes 51,250 shares of Common Stock purchasable upon the exercise of
stock options.
(15) Includes 586,076 shares of Common Stock purchasable upon the exercise of
stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
On December 28, 1998, 1,612 shares of Common Stock owned by Brantley
Venture Partners, L.P. ("BVP") and 1,578 shares of Common Stock owned by
Brantley Venture Partners II, L.P. ("BVP II") were distributed to the respective
partners of each entity. Robert P. Pinkas, a Director of the Company, is a
general partner of PFP, which is the general partner of each of BVM and BVM II.
BVM and BVM II are the general partners of BVP and BVP II, respectively. 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, a Statement of Changes of
Beneficial Ownership of Securities on Form 4 (a "Form 4") was not filed in a
timely manner to report these distributions. These distributions were
subsequently reported on an Annual Statement of Beneficial Ownership of
Securities on Form 5 (a "Form 5") that was not filed in a timely manner.
During 1999, in two separate transactions, Thomas O. Oesterling, Ph.D.
exercised options to purchase an aggregate of 70,000 shares of Common Stock at
an exercise price of $0.35 per share. A Form 4 should have been filed for each
of these transactions. Due to an administrative oversight, the exercise of these
options was not reported in a timely manner. The exercise of these options was
subsequently reported on a Form 5. During 1999, in a single transaction, Jon D.
Schoeler exercised options to purchase an aggregate of 2,000 shares of Common
Stock at an exercise price of $7.50 per share. Due to an administrative
oversight, the Form 4 to report this transaction was not filed in a timely
manner. This transaction was subsequently reported on a Form 5.
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, 1999 for the Chief
Executive Officer and the other named executive officers of the Company who
received compensation in excess of $100,000 in that year (the "Named Executive
Officers"):
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION RESTRICTED
---------------------- STOCK ALL OTHER
NAME AND SALARY BONUS AWARDS SECURITIES COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) UNDERLYING OPTIONS ($) (1)
------------------ ---- ---------- --------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Oesterling, Ph.D. 1999 $290,000 $ 40,600 $ 0 0 $ 1,980
Chairman and Chief 1998 265,000 112,000 53,000 0 3,510
Executive Officer(2) 1997 240,000 0 0 10,800 1,425
Michael A. Zupon, Ph.D. 1999 $180,000 $ 18,900 $ 0 0 $ 450
Executive Vice President, 1998 170,000 48,500 27,000 0 510
Research and Development 1997 150,000 0 0 4,500 255
Rodney E. Dausch 1999 $182,500 $ 23,275 $ 0 0 $ 1,290
Executive Vice President, 1998 170,000 47,000 27,000 0 1,440
Chief Financial Officer
and
Secretary 1997 150,000 0 0 4,500 720
John A. Redmond(3) 1999 $170,500 $ 0 $ 0 0 $31,831(4)
President and Chief 1998 0 0 0 0 0
Operating Officer 1997 0 0 0 0 0
Jon D. Schoeler(5) 1999 $170,000 $ 17,000 $ 0 0 $ 690
Vice President, Worldwide 1998 150,000 55,000 30,000 0 870
Sales and Marketing 1997 140,000 0 0 4,500 48,482(6)
</TABLE>
- ---------------
(1) Includes premiums on life insurance policies paid by the Company on behalf
of each of the Named Executive Officers.
(2) Thomas O. Oesterling, Ph.D. also served as President until October 1999.
(3) John A. Redmond was appointed President and Chief Operating Officer in
October 1999 and resigned in January 2000. Mr. Redmond received a severance
payment of $200,000 and certain other compensation in January 2000.
(4) Includes relocation living expenses of $31,456 paid by the Company on behalf
of Mr. Redmond in 1999.
(5) Jon D. Schoeler resigned in December 1999. Mr. Schoeler received a severance
payment of $170,000 and certain other compensation in January 2000.
(6) Includes relocation living expenses of $48,088 paid by the Company on behalf
of Mr. Schoeler in 1997.
6
<PAGE> 10
OPTION GRANTS
The following table sets forth certain information concerning individual
grants of stock options made during the last completed fiscal year to each of
the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT VALUE AT ASSUMED
SECURITIES OF TOTAL ANNUAL RATES OF
UNDERLYING OPTIONS STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------ ---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Oesterling, Ph.D...... 35,000 9.49% $17.56 7/26/09 $ 614,940 $1,558,380
20,000 $18.16 12/20/09
Michael A. Zupon, Ph.D.......... 25,000 6.04% $17.56 7/26/09 $ 390,307 $ 989,116
10,000 $18.16 12/20/09
Rodney E. Dausch................ 25,000 12.08% $17.56 7/26/09 $ 703,968 $1,783,994
25,000 $12.69 10/13/09
20,000 $18.16 12/20/09
John A. Redmond................. 100,000 25.88% $26.06 2/22/09 $2,038,043 $5,164,801
50,000 $12.69 10/13/09
Jon D. Schoeler................. 5,000 0.86% $17.56 7/26/09 $ 55,225 $ 139,951
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table provides information regarding unexercised stock
options held by the Named Executive Officers as of December 31, 1999:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED VALUE FISCAL YEAR-END FISCAL YEAR-END
ON REALIZED EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE ($) UNEXERCISABLE(U) UNEXERCISABLE(U)
---- -------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Thomas O. Oesterling, Ph.D.................. 70,000 $1,793,625 226,300(E) $2,207,675(E)
69,500(U) $ 126,875(U)
Michael A. Zupon, Ph.D...................... 0 $ 0 100,750(E) $ 868,313(E)
38,750(U) $ 32,813(U)
Rodney E. Dausch............................ 0 $ 0 95,750(E) $ 827,688(E)
73,750(U) $ 131,250(U)
John A. Redmond............................. 0 $ 0 0(E) $ 0(E)
150,000(U) $ 196,875(U)
Jon D. Schoeler............................. 2,000 $ 25,326 51,250(E) $ 451,625(E)
21,250(U) $ 146,875(U)
</TABLE>
EMPLOYMENT AGREEMENTS
The Company is a party to letter agreements with each of Thomas O.
Oesterling, Ph.D., Rodney E. Dausch 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. The Company is party to
agreements with each of Dr. Oesterling, Mr. Dausch and Dr. Zupon, which provide
for payments to be made to these individuals upon the occurrence at certain
events in the case of a change in control as such term is defined in such
agreements.
7
<PAGE> 11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This Compensation Committee report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the Exchange
Act, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The following report has been submitted by the Compensation 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 1999, 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 and 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 that 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 executive officers. Salary reviews are conducted annually
with input from the Chief Executive Officer and the Chief Financial Officer.
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<PAGE> 12
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 executive 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
and progress in its clinical trials and research development, and are
specifically set based on the established objectives that correspond 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.
In 1999, 315,000 stock options were granted to executive officers.
CHIEF EXECUTIVE OFFICER COMPENSATION
The annual compensation package for Thomas O. Oesterling, Ph.D., the
Company's 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 1999 by 9.43%
over his 1998 annual base salary.
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 1999 were based on an evaluation of the
Company's results in comparison to the Company's performance objectives.
Compensation and Stock Option Committee
Robert P. Pinkas, Chairman
Ronald D. Henriksen
John L. Ufheil
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<PAGE> 13
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return for the five year period ended December 31, 1999 with the Russell 2000
Index and an index 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 in each index was $100.00 on October 19,1995.
COMPARISON OF COMPANY'S COMMON STOCK, RUSSELL
2000 INDEX, PEER GROUP INDEX(1)
[GRAPH]
<TABLE>
<CAPTION>
GLIATECH INC. PEER GROUP INDEX RUSSELL 2000 INDEX
------------- ---------------- ------------------
<S> <C> <C> <C>
10/19/1995 100 100 100
12/29/1995 88.16 128.73 106.95
12/31/1996 81.58 136.83 124.71
12/31/1997 107.89 198.02 152.57
12/31/1998 315.79 232.76 148.29
12/31/1999 175 190.1 177.35
</TABLE>
(1) The Company's 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 THE COMPANY'S DIRECTORS' EQUITY PLAN
The Company desires to continue its policy of attempting to attract highly
qualified individuals who are not current employees of the Company to serve as
members of the Board of Directors, to adequately compensate and retain such
individuals and to 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 these purposes, subject to approval by the stockholders of the
Company at the Annual Meeting, the Board of Directors has adopted the Directors'
Equity Plan (the "Plan") to replace the 1995 Nonemployee Directors Stock Option
Plan (the "1995 Plan"). A summary of the Plan is set forth below. The full text
of the Plan is attached to this Proxy Statement as Exhibit A and the summary is
qualified in its entirety by reference to Exhibit A.
PURPOSE
In accordance with the policies stated above, the purpose of the Plan is to
attract, retain and compensate highly qualified individuals who are not
employees of the Company to serve as members of the Board of Directors and to
provide Directors with opportunities to invest amounts of their Director
compensation or to defer receipt of all or a portion of their compensation in an
equity-based instrument in order to further align
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<PAGE> 14
the interests of Directors with those of the stockholders of the Company and
promote the long-term success and growth of the Company.
ADMINISTRATION
The Plan is to be administered by the Compensation Committee of the Board
of Directors or any successor committee designated by the Board of Directors
(the "Committee"). The Committee will generally have such powers as may be
necessary to discharge its duties under the Plan, including the power to
delegate duties. The Committee may not, without further approval of the
stockholders, authorize the amendment of any outstanding option to reduce the
exercise price of the options. Further, no option may be cancelled and replaced
with awards having a lower exercise price without further approval of the
stockholders. However, these prohibitions do not prohibit the Committee from
making such adjustments as may be necessary to prevent dilution or enlargement
of rights from certain corporate transactions or events. Members of the
Committee will not be held liable for actions taken or determinations made in
good faith.
ELIGIBILITY
Any individual duly elected or chosen as a member of the Board of Directors
of the Company who is not also an employee of the Company or any of its
subsidiaries (a "Non-Employee Director") is eligible to participate in the Plan.
The Company presently has six Non-Employee Directors.
AWARDS
Each Non-Employee Director who first becomes a member of the Board of
Directors on or after the date the Plan is approved by the stockholders will
receive, at the first annual meeting of stockholders after he becomes a
Director, an award (an "Award") of compensation equal to a number of shares of
Common Stock equal to the value of an option to purchase 8,000 shares of Common
Stock, divided by the fair market value of one share of Common Stock on the date
of becoming a Director (or such other number of shares of Common Stock as the
Board may determine from time to time). For this purpose, value will be
determined by the Black-Scholes option pricing model, assuming volatility
computed by reference to the trading history of the Common Stock over the three
years preceding the date a Director becomes entitled to receive an Award. Awards
are subject to adjustment to prevent dilution or enlargement of rights resulting
from certain corporate transactions or events.
Following each annual meeting of stockholders, each Non-Employee Director
who has not, during that calendar year, received an Award pursuant to the terms
described in the preceding paragraph, will receive an Award.
Each Non-Employee Director will also receive an award of a number of shares
of Common Stock for each meeting day of each committee of the Board on which
that Director serves equal to $1,500 divided by the fair market value of one
share of Common Stock on the date of such meeting (unless the Board otherwise
determines).
No fractional shares will be awarded under the Plan. A full share will be
awarded in lieu of any fractional share.
ELECTION
A Non-Employee Director receiving an award of Common Stock pursuant to the
Plan may elect to receive options to purchase Common Stock or interests in an
equity-based account ("Deferred Stock") instead of shares of Common Stock. In
addition, a Non-Employee Director entitled to receive any cash compensation may
elect to receive that compensation in the form of stock, options or Deferred
Stock.
If a Non-Employee Director elects to receive an award in the form of
options to purchase Common Stock, the options will be evidenced by a written
agreement. Subject to the possibility of acceleration, the options will vest
over a period of three years, with one-third vesting on each anniversary of the
award. Options will expire ten years from the date of grant and will be subject
to earlier termination. The exercise price may
11
<PAGE> 15
be equal to or greater than the fair market value per share on the date of grant
and may be paid in cash or in shares of Common Stock. Unless otherwise
determined by the Committee, the exercise price of all options granted under the
Plan shall be 125% of the fair market value per share on the date of grant.
If a Non-Employee Director elects to receive an award in the form of
Deferred Stock, a number of shares of Deferred Stock equal to the number of
shares of Common Stock that the Non-Employee Director would have received will
be held in an account for the Director. The deferral period will end and the
Director will receive the shares of Deferred Stock in his account on a date
selected, subject to restrictions, by the Non-Employee Director. The deferral
period may be accelerated under certain conditions. During the deferral period,
the Non-Employee Director will have no rights of ownership as to the Deferred
Stock in his account, but the Deferred Stock will accrue dividend equivalents in
the form of additional shares of Deferred Stock in the account.
As of April 10, 2000, the latest practicable date for which the price of
the Common Stock is available before distribution of this Proxy Statement, the
price of the Common Stock was $19.00 per share.
SHARES AND ADJUSTMENT
A total of 200,000 shares, subject to adjustment, may be issued pursuant to
the Plan. As may be necessary to prevent dilution or enlargement of rights under
the Plan resulting from certain corporate transactions or events, the Committee
may adjust (i) the number of shares of Common Stock covered by the Plan and the
number of shares of Common Stock covered by outstanding options and by
outstanding shares of Deferred Stock granted under the Plan, (ii) the price per
share applicable to options and (iii) the kind of shares covered by options.
TERMINATION AND AMENDMENT
The Board of Directors may alter or amend the Plan or may terminate it in
its entirety, so long as such action does not affect awards pursuant to the Plan
made prior to the amendment or termination. However, no such action, except for
an acceleration of benefits may, without the consent of a Director, impair the
rights in any shares of Common Stock or any options issued or to be issued to
that Director under the Plan. In addition, any amendment required to be approved
by stockholders by law or by the rules of the principal exchange upon which the
Common Stock is traded or quoted will not be effective until stockholder
approval has been received. As described above under Awards, the value of each
award under the Plan is subject to adjustment by the Board of Directors.
TAX CONSEQUENCES TO NON-EMPLOYEE DIRECTORS
Stock Awards. A Director who receives shares of Common Stock pursuant to an
initial or annual award generally will be subject to tax at ordinary income
rates on the fair market value of unrestricted shares on the date that such
shares are transferred to the Director under the award, and the capital
gain/loss holding period for such shares will also commence on such date.
Option Awards. The options granted under the Plan will be non-qualified
stock options. In general, (i) no income will be recognized by a Director at the
time an option is granted in lieu of an award of shares of Common Stock; (ii) at
exercise, ordinary income will be recognized by the Director in an amount equal
to the difference between the option price paid for the shares received upon
exercise and the fair market value of the shares, if unrestricted, on the date
of exercise; and (iii) at sale, appreciation (or depreciation) after the date of
exercise will be treated as a capital gain (or loss).
Deferred Stock Awards. No income generally will be recognized by a Director
at the time Deferred Stock is awarded in lieu of an award of shares of Common
Stock. The Director generally will be subject to tax at ordinary income rates on
the fair market value of unrestricted shares on the date that shares are
transferred to the Director under the award, and the capital gain/loss holding
period for such shares will also commence on that date.
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<PAGE> 16
TAX CONSEQUENCES TO THE COMPANY
To the extent that a Director recognizes ordinary income in the
circumstances described above, the Company 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 and is not an
"excess parachute payment" within the meaning of Section 280G of the Code.
TERMINATION OF 1995 PLAN
Upon stockholder approval of the Plan, no further awards of options will be
made pursuant to the 1995 Plan.
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, 2000. During fiscal 1999,
Ernst & Young LLP examined the financial statements of the Company and its
subsidiaries, including those included in its Annual Report to the 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 15, 2000 any proposal of a stockholder
intended to be presented at the 2001 annual meeting of stockholders of the
Company (the "2001 Meeting") and to be included in the Company's proxy, notice
of meeting and proxy statement related to the 2001 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 2001
Meeting ("Non-Rule 14a-8 Proposals") must be received by the Company by February
13, 2001 or such proposals will be considered untimely under Rule 14a-4(c) of
the Exchange Act. The Company's proxy related to the 2001 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 13, 2001.
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, 1999, 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.
13
<PAGE> 17
The Directors know of no other matters that are likely to be brought before
the Annual Meeting. The Company did not receive notice by February 28, 2000 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 14, 2000
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> 18
EXHIBIT A
GLIATECH INC. DIRECTORS' EQUITY PLAN
This Gliatech Inc. Directors' Equity Plan ("Plan") is effective as of
August 25, 1999. Certain features of the Plan are subject to approval of
stockholders.
ARTICLE I. DEFINITIONS
Whenever the following terms are used in this Plan they shall have the
meanings specified below unless the context clearly indicates to the contrary:
(a) "Account": A booking account in which Deferred Stock shall be
recorded and to which dividends and distributions may be credited in
accordance with the Plan.
(b) "Beneficiary" or "Beneficiaries": The person or persons designated
by a Director in accordance with the Plan to receive payment of the
Director's Account in the event of the death of the Director.
(c) "Beneficiary Designation": An agreement in substantially the form
adopted and modified from time to time by the Committee pursuant to which a
Director may designate a Beneficiary or Beneficiaries.
(d) "Board": The Board of Directors of the Company.
(e) "Business Combination": The meaning set forth in Section 3 of
Article VII.
(f) "Change in Control": The meaning set forth in Article VII.
(g) "Committee": The Compensation Committee of the Board or any
successor committee designated by the Board.
(h) "Company": Gliatech Inc. or any successor or successors thereto.
(i) "Compensation": All compensation that is payable to a Director in
cash or stock, whether as annual retainer, for attendance at Board or
committee meetings, for service in committee positions or otherwise, but
excluding amounts reimbursed for expenses.
(j) "Deferred Stock": Shares of Stock which my be delivered pursuant
to Article VI.
(k) "Director": An individual duly elected or chosen as a Director of
the Company who is not also an employee of the Company or any of its
subsidiaries.
(l) "Effective Date": The date first above written.
(m) "Fair Market Value": The average of the "bid" and "asked" prices
of the 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 trading day, or if the 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.
(n) "Incumbent Board": The meaning set forth in Section 2 of Article
VII.
(o) "Option": An option to purchase Stock granted pursuant to Section
5.1.
(p) "Participation Agreement": An agreement in substantially the form
adopted and modified from time to time by the Committee pursuant to which a
Director may elect to participate in the Plan.
(q) "Person": The meaning set forth in Section 1 of Article VII.
(r) "Plan": The Plan set forth in this instrument as it may from time
to time be amended.
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(s) "Plan Year": The fiscal year of the Company.
(t) "Predecessor Plan": The Company's 1995 Nonemployee Directors Stock
Option Plan, as amended.
(u) "Stock": The Company's common stock, $0.01 par value per share.
Stock may be shares of original issuance or treasury shares or a
combination of the foregoing.
(v) "Stockholder Approval": The approval of the Plan by the holders of
a majority of the shares of Stock present in person or represented by proxy
and entitled to vote on approval of the Plan at a meeting of the
stockholders of the Company duly called and held for such purpose.
(w) "Voting Stock": Securities entitled to vote generally in the
election of Directors.
ARTICLE II. PURPOSE
The purpose of this Plan is to attract, retain and compensate highly
qualified individuals to serve as Directors, to enable them to increase their
ownership of Stock and to provide Directors with opportunities to invest amounts
of their Compensation in Options, or defer receipt of all or a portion of such
Compensation in an equity-based instrument, in order to further align the
interests of Directors with the stockholders of the Company and thereby promote
the long-term success and growth of the Company.
ARTICLE III. DIRECTOR COMPENSATION
3.1. Initial Stock Awards. Each Director who first becomes a member of the
Board on or after the date of Stockholder Approval shall receive an award of
Compensation equal to a number of shares of Stock equal to the value of an
option to purchase 8,000 shares of Stock, divided by the Fair Market Value of
one share of Stock on the date of becoming a Director (or such other number of
shares of Stock as the Board may determine from time to time). For this purpose,
value shall be determined by the Black-Scholes option pricing model, assuming
volatility computed by reference to the trading history of the Stock over the
three years preceding the date a Director becomes entitled to receive an award.
To the extent that the application of the foregoing formula would result in
fractional shares of stock, the number of shares shall be rounded up to the
nearest whole share. Such shares shall be delivered to the Director at the time
of the Company's next Annual Meeting of Stockholders after the Director became a
member of the Board, but only if the Director served as a member of the Board
throughout the intervening period, unless such service terminated due to death
or disability or after a Change in Control. In any such case, such shares shall
be delivered immediately after such termination.
3.2. Annual Stock Awards. Each Director shall receive after the Company's
Annual Meeting of Stockholders in the year 2000 and each year thereafter (unless
such Director received an award pursuant to Section 3.1 hereof after December 31
of the preceding year) an award of Compensation equal to a number of shares of
Stock equal to the value of an option to purchase 8,000 shares of Stock on the
first Friday after such Annual Meeting, divided by the Fair Market Value of one
share of Stock on such date (or such other number of shares of Stock as the
Board may determine from time to time). For this purpose, value shall be
determined by the Black-Scholes option pricing model, assuming volatility
computed by reference to trading history of the Stock over the three years
preceding such date. To the extent that the application of the foregoing formula
would result in fractional shares of Stock, the number of shares shall be
rounded up to the nearest whole share. Such shares shall be delivered to the
Director at the time of the Company's next Annual Meeting of Stockholders after
the Director became entitled to receive such award, but only if the Director
served as a member of the Board throughout the intervening period, unless such
service terminated due to death or disability or after a Change in Control. In
any such case, such shares shall be delivered immediately after such
termination.
3.3. Other Director Compensation. Each Director shall be entitled to
receive an award of a number of shares of Stock for each meeting day of each
committee of the Board on which such Director serves equal to $1,500 divided by
the Fair Market Value of one share of Stock on the date of such meeting (unless
the Board
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otherwise determines). To the extent that the application of the foregoing
formula would result in fractional shares of stock, the number of shares shall
be rounded up to the nearest whole share. Such shares shall be delivered to the
Director within 30 days after the meeting date. Each Director shall be entitled
to receive such other Compensation, if any, payable in cash or Stock, as the
Board may determine from time to time.
ARTICLE IV. DIRECTOR ELECTIONS
4.1. Choice of Form of Equity Compensation. Subject to Section 4.4, a
Director may choose to receive any Compensation that is payable in Stock
pursuant to Article III in the form of Options as provided in Article V.
Alternatively, a Director may elect to have such Compensation paid in the form
of Deferred Stock (subject to Section 4.4) in accordance with Article VI.
4.2. Cash Compensation. If a Director becomes entitled to receive
Compensation in the form of cash, such Director may elect to receive such
Compensation in Stock having the same Fair Market Value and may further elect to
have such Stock paid in the form of Options or Deferred Stock in the same manner
as provided herein for Compensation originally payable in Stock.
4.3. Election Procedures.
(a) Prior to becoming a Director, a prospective Director who desires
to receive his or her initial award provided for in Section 3.1 in the form
of Options or Deferred Stock must complete and deliver a Participation
Agreement to the Committee before the date of his or her election to the
Board.
(b) A Director who desires to receive any other Compensation in the
form of Options or Deferred Stock for a Plan Year must complete and deliver
a Participation Agreement to the Committee before the first day of the Plan
Year for which such Compensation will be earned. An election that is timely
delivered shall be effective for the succeeding Plan Year and in addition,
except as otherwise specified by a Director in his or her election, shall
continue to be effective from Plan Year to Plan Year until revoked or
modified by written notice to the Committee or until terminated
automatically upon the termination of the Plan. In order to be effective to
revoke or modify an election with respect to the Compensation for a Plan
Year, a revocation or modification must be delivered prior to the first day
of the Plan Year for which such Compensation is payable. Notwithstanding
the foregoing, (i) elections for the first Plan Year may be delivered at
any time before the Company's Annual Meeting of Stockholders in the year
2000, with respect to Compensation that will be earned after such date, and
(ii) a new Director may file his or her election with respect to such other
Compensation at any time within 30 days after first becoming a Director,
and, in such case, the election will be effective only with respect to
Compensation earned after the date the election has been filed.
(c) Unless otherwise determined by the Committee, a Director shall
only be permitted to receive all Stock, all Options or all Deferred Stock
under this Plan for a Plan Year.
4.4. Form of Payment Pending Stockholder Approval. Notwithstanding the
foregoing provisions of Article III and this Article IV, no Stock shall be
issued or transferred pursuant to the Plan, and no Options shall be granted
pursuant to the Plan, before the date of Stockholder Approval. Pending
Stockholder Approval, the following interim provisions shall apply.
(a) If a Director joins the Board after the Effective Date and before
the date of Stockholder Approval, such Director shall be granted an option
to purchase 8,000 shares of Stock pursuant to the Predecessor Plan instead
of receiving the Compensation specified in Section 3.1 hereof.
(b) Compensation for service as a member of a Committee prior to
Stockholder Approval, which a Director would otherwise be entitled to
receive in Stock pursuant to Section 3.3, shall be payable in Deferred
Stock as if the Director had elected to receive such Deferred Stock in
accordance with Article VI, payable upon such Director's termination of
service on the Board (unless he or she actually elects another date as
provided in Section 6.2); provided, however, that if any such payout would
occur before the date of Stockholder Approval, the Fair Market Value of the
shares otherwise deliverable at such time shall be paid in cash instead.
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<PAGE> 21
4.5. Termination of Predecessor Plan. After Stockholder Approval, no
further awards of Options shall be made pursuant to the Predecessor Plan. If
this Plan does not receive Stockholder Approval before January 1, 2002, the
Predecessor Plan shall continue in effect in accordance with its terms, and no
Compensation shall be awarded pursuant to this Plan except for amounts payable
pursuant to Section 4.4(b).
ARTICLE V. ELECTIONS TO RECEIVE OPTIONS
5.1. Grant of Options. A Director may elect to receive all of his or her
initial award or all of his or her other Compensation in the form of Options.
Pursuant to any such election, an Option shall be automatically granted,
effective as of the date such Compensation would otherwise have been paid, for
that number of shares of Stock equal to the Fair Market Value of such
Compensation, divided by the value on the effective date of such Option of an
Option for one Share having the terms provided for in this Article. For this
purpose, value shall be determined by the Black-Scholes option pricing model,
assuming volatility computed by reference to trading history of the Stock over
the three years preceding the date of grant, and taking into account the vesting
period of the Option. To the extent that the application of the foregoing
formula would result in an Option covering a fractional share, the number of
shares covered by the Option shall be rounded up to the nearest whole share.
5.2. Written Agreement. Each grant of Options shall be evidenced by a
written agreement in a form approved by the Committee and shall be subject to
the additional terms and conditions set forth in this Article V.
5.3. Exercisability of Options. Subject to the expiration or earlier
termination of the Option, on each anniversary of the effective date of the
grant, 33-l/3% of the Option shall become exercisable on a cumulative basis
until the Option is fully exercisable.
5.4. Term. An Option shall expire ten years from the date the Option is
granted and shall be subject to earlier termination as hereinafter provided.
Once an Option becomes exercisable, it may thereafter be exercised, wholly or in
part, at any time prior to its expiration or termination. In the event of the
Director's termination from service on the Board, other than as provided in
Section 5.5, an outstanding Option may be exercised only to the extent it was
exercisable on the date of such termination and shall expire three years after
such termination, or on its stated expiration date, whichever occurs first.
5.5. Early Vesting. Upon the occurrence of any of the following events, the
Option shall become immediately and fully exercisable: the death of the
Director, the disability of the Director, or a Change in Control. Following the
death of a Director, the Option shall expire one year from the date of death, or
on its stated expiration date, whichever occurs first.
5.6. Exercise Price. The exercise price of an Option granted to a Director
may be equal to or greater than the Fair Market Value per share on the date of
grant, as determined by the Committee from time to time prior to each Plan Year.
Until otherwise determined by the Committee, the exercise price of all Options
granted under the Plan shall be 125% of the Fair Market Value per share on the
effective date of the grant.
5.7. Payment. An Option may be exercised by a Director only upon payment to
the Company in full of the exercise price of the Option corresponding to the
portion of the Option to be exercised. Such payment shall be made in cash or in
shares of Stock previously owned by the Director for more than six months, or in
a combination of cash and such shares. If the Director agrees to have sufficient
shares sold upon exercise to pay the exercise price and to have the exercise
price then delivered to the Company, the requirement for payment in full shall
be considered satisfied.
5.8. Option Nontransferable. Unless otherwise determined by the Committee,
the Option shall be neither transferable nor assignable by the Director other
than by will or by the laws of descent and distribution and may be exercised,
during the lifetime of the Director, only by the Director, or in the event of
his or her legal incapacity, by his or her guardian or legal representative
acting on behalf of the Director in a fiduciary capacity under the state law and
court supervision.
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ARTICLE VI. ELECTIONS TO RECEIVE DEFERRED STOCK
6.1. Grant of Deferred Stock. A Director may elect to receive all of his or
her initial award or all of his or her other Compensation for a Plan Year in the
form of Deferred Stock, which shall be credited to the Director's Account. The
number of shares of Deferred Stock, which shall be credited effective as of the
day such Compensation was awarded, shall be equal to the number of shares of
Stock that would otherwise have been delivered pursuant to such award.
6.2. Deferral Period. Each grant of Deferred Stock shall be subject to a
deferral period beginning on the date of crediting to the Director's Account and
ending upon termination of service as a Director or such other period as the
Director may have elected. The period of deferral shall be (x) for a minimum
period of one year, except in the case where the Director elects a deferral
period determined by reference to his termination of service as a Director, and
(y) for a maximum period of not more than 10 years after the date of termination
of service as a Director. During the deferral period, the Director shall have no
right to transfer any rights under his or her Deferred Stock and shall have no
other rights of ownership therein.
6.3. Dividend Equivalents. A Director's Account will be credited as of the
last day of each calendar quarter with that number of additional shares of
Deferred Stock equal to the amount of cash dividends paid by the Company during
such quarter on the number of shares of Stock equivalent to the number of shares
of Deferred Stock in the Director's Account from time to time during such
quarter divided by the Fair Market Value of one share of Common Stock on the
last business day of such calendar quarter. Such dividend equivalents, which
shall likewise be credited with dividend equivalents, shall be deferred until
the end of the deferral period for the Deferred Stock with respect to which the
dividend equivalents were credited.
6.4. Death of a Director. In the event of the death of a Director, the
Director's Account shall be immediately paid to the Beneficiary or Beneficiaries
designated on the Director's Beneficiary Designation or, if no such designation
is in effect or no Beneficiary is then living, then to the Director's estate.
6.5. Small Payments. Notwithstanding the foregoing, if the value of a
Director's Account is less than $500, the amount of such Director's Account, at
the discretion of the Committee, may immediately be paid to the Director in cash
or Stock.
6.6. Acceleration. Notwithstanding the provisions of the foregoing: (a) if
a Change in Control occurs, the amount of each Director's Account shall
immediately be paid to the Director in full; (b) in the event of an
unforeseeable emergency, as defined in section 1.457-2(h)(4) and (5) of the
Income Tax Regulations, that is caused by an event beyond the control of the
Director or Beneficiary and that would result in severe financial hardship to
the individual if acceleration were not permitted, the Committee may in its sole
discretion accelerate the payment to the Director of the amount of his or her
Account, but only up to the amount necessary to meet the emergency.
ARTICLE VII. CHANGE IN CONTROL
For purposes of this Plan, a "Change in Control" means the first to occur
of the following events:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1933 (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of
the combined voting power of the then outstanding Voting Stock of the
Company; provided, however, that for purposes of this Section 1 of this
Article, the following acquisitions shall not constitute a Change in
Control: (a) any issuance of Voting Stock of the Company directly from the
Company that is approved by the Incumbent Board (as defined in Section 2 of
this Article, below), (b) any acquisition by the Company or a Subsidiary of
Voting Stock of the Company, (c) any acquisition of Voting Stock of the
Company by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, or (d) any acquisition of
Voting Stock of the Company by any Person pursuant to a Business
Combination that complies with clauses (a), (b) and (c) of Section 3 of
this Article, below; or
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<PAGE> 23
(2) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a Director
after the date hereof whose election or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
Directors then comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company in which such person is
named as a nominee for director, without objection to such nomination)
shall be deemed to have been a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
(within the meaning of Rule 14a-11 of the Exchange Act) with respect to the
election or removal of Directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board; or
(3) consummation of a reorganization, merger or consolidation, a sale
or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (a) all or
substantially all of the individuals and entities who were the beneficial
owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries), (b) no Person (other than the
Company, such entity resulting from such Business Combination, or any
employee benefit plan (or related trust) sponsored or maintained by the
Company, any Subsidiary or such entity resulting from such Business
Combination) beneficially owns, directly or indirectly, 15% or more of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination, and (c) at least a
majority of the members of the Board of Directors of the entity resulting
from such Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement or of the action of the
Board providing for such Business Combination; or
(4) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a Business
Combination that complies with clauses (a), (b) and (c) of Section 3 of
this Article.
ARTICLE VIII. ADMINISTRATION, AMENDMENT AND TERMINATION
8.1. Administration. The Plan shall be administered by the Committee. The
Committee shall have such powers as may be necessary to discharge its duties
hereunder. The Committee may, from time to time, employ, appoint or delegate to
an agent or agents (who may be an officer or officers of the Company) and
delegate to them such administrative duties as it sees fit, and may from time to
time consult with legal counsel who may be counsel to the Company. No member of
the Committee shall be liable for any action taken or determination made in good
faith. Decisions of the Committee shall be made by the vote of the majority,
except that actions taken in writing without a meeting shall be taken by
unanimous consent. All elections, notices and directions under the Plan by a
Director shall be made on such forms as the Committee shall prescribe.
8.2. Amendment and Termination. The Board may alter or amend this Plan from
time to time or may terminate it in its entirety; provided, however, that no
such action, except for an acceleration of benefits, shall, without the consent
of a Director, impair the rights in any Stock or Options issued or to be issued
to such Director under the Plan; and further provided, that any amendment that
must be approved by the stockholders of the Company in order to comply with
applicable law or the rules of the principal exchange upon which the Stock is
traded or quoted shall not be effective unless and until such approval has been
obtained in compliance with such applicable law or rules. Presentation of this
Plan or any amendment hereof for stockholder approval shall not be construed to
limit the Company's authority to offer similar or dissimilar benefits through
plans or other arrangements that are not subject to stockholder approval.
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<PAGE> 24
8.3. No Repricing of Options. Neither the Board nor the Committee shall,
without the further approval of the stockholders of the Company, authorize the
amendment of any outstanding Option to reduce the exercise price of the Option.
Furthermore, no Option shall be cancelled and replaced with awards having a
lower exercise price without further approval of the stockholders of the
Company. This Section is intended to prohibit the repricing of "underwater"
Options and shall not be construed to prohibit the adjustments provided for in
Section 10.2.
ARTICLE IX. FINANCING OF BENEFITS
9.1. Financing of Benefits. The shares of Stock and benefits payable in
cash under the Plan to a Director or, in the event of his or her death, to his
or her Beneficiary shall be paid by the Company from its general assets,
including treasury shares. The right to receive payment of the shares of Stock
and benefits payable in cash represents an unfunded, unsecured obligation of the
Company.
9.2. Security for Benefits. Notwithstanding the provisions of Section 9.1,
nothing in this Plan shall preclude the Company from setting aside Stock or
funds in a so-called "rabbi trust" pursuant to one or more trust agreements
between a trustee and the Company. However, no Director or Beneficiary shall
have any secured interest or claim in any assets or property of the Company or
any such trust and all Stock or funds contained in such trust shall remain
subject to the claims of the Company's general creditors.
ARTICLE X. SHARES SUBJECT TO PLAN
10.1. Shares Subject to Plan. Subject to adjustment as provided in this
Plan, the total number of shares of Stock which may be issued under this Plan
shall be 200,000.
10.2. Adjustments. The Committee may make or provide for such adjustments
in the (a) number of shares of stock covered by this Plan and by outstanding
Options and awards of Deferred Stock granted or awarded hereunder, (b) prices
per share applicable to such Options, and (c) kind of shares covered thereby, as
the Committee in its sole discretion may in good faith determine to be equitably
required in order to prevent dilution or enlargement of the rights of Directors
that otherwise would result from (x) any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure
of the Company, (y) any merger, consolidation, spin-off, spin-out, split-off,
split-up, reorganization, partial or complete liquidation of the Company or
other distribution of assets, issuance of rights or warrants to purchase
securities of the Company, or (z) any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding grants or awards under this Plan such alternative consideration as
it may in good faith determine to be equitable under the circumstances and may
require in connection therewith the surrender of all awards so replaced.
Moreover, the Committee may on or after the date of grant provide in the
agreement evidencing any grant or award under this Plan that the holder of the
grant or award may elect to receive an equivalent grant or award in respect of
securities of the surviving entity of any merger, consolidation or other
transaction or event having a similar effect, or the Committee may provide that
the holder will automatically be entitled to receive such an equivalent grant or
award. The Committee may also make or provide for such adjustments in the number
of shares specified in Section 10.1 as the Committee in its sole discretion may
in good faith determine to be appropriate in order to reflect any transaction or
event described in this Section 10.2. This Section 10.2 shall not be construed
to permit the re-pricing of any Options in the absence of any of the
circumstances described above in contravention of Section 8.3.
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<PAGE> 25
ARTICLE XI. GENERAL PROVISIONS
11.1. Governing Law. The provisions of this Plan shall be governed by and
construed in accordance with the laws of the State of Delaware.
11.2. Miscellaneous. Headings are given to the sections of this Plan solely
as a convenience to facilitate reference. Such headings, numbering and
paragraphing shall not in any case be deemed in any way material or relevant to
the construction of this Plan or any provisions thereof. The use of the singular
shall also include within its meaning the plural, and vice versa.
11.3. 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.
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<PAGE> 26
GLIATECH INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL STOCKHOLDERS MEETING ON MAY 16, 2000.
The undersigned hereby constitutes and appoints Thomas O. Oesterling,
Ph.D., Robert P. Pinkas and William A. Clarke, and each of them, his true and
lawful agents and proxies with full power of substitution in each, to represent
the undersigned at the annual meeting of stockholders of Gliatech Inc., to be
held at the Embassy Suites, Beachwood, 3775 Park East Drive, Beachwood, Ohio, on
Tuesday, May 16, 2000, 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.
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.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
SEE REVERSE
SIDE
<PAGE> 27
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
GLIATECH INC.
MAY 16, 2000
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
[X] Please mark your vote as in this example.
1. Election of Directors FOR WITHHOLD NOMINEES
[ ] [ ] Irving S. Shapiro
John L. Ufheil
For, except vote withheld from the following nominee(s):
- -------------------------------
FOR AGAINST ABSTAIN
2. Approval of Ernst & Young LLP as [ ] [ ] [ ]
Independent Auditors
3. Approval of the Directors' Equity Plan [ ] [ ] [ ]
Change of Address [ ]
Attend Meeting [ ]
SIGNATURE(S) _____________________________________ DATE: ________________
NOTE: Please sign exactly as name appears. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee, guardian or
attorney, please give your title as such.
