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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-20096
GLIATECH INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 34-1587242
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
23420 COMMERCE PARK ROAD, CLEVELAND, OHIO 44122
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (216) 831-3200
Securities registered pursuant to Section 12(b) of
the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
Indicate by check mark whether the registrant: (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K Annual Report
or any amendment to this Form 10-K. [ ]
Aggregate market value of Common Stock held by non-affiliates as of
March 27, 2000 at a closing price of $17 23/32 per share as reported by the
Nasdaq National Market was approximately $140,431,758. Shares of Common Stock
held by each officer and director, their respective spouses, and by each person
who owns or may be deemed to own 10% or more of the outstanding Common Stock
have been excluded because such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
Number of shares of Common Stock outstanding as of March 27, 2000 was 9,500,533.
DOCUMENTS INCORPORATED BY REFERENCE
Part of the following document is incorporated by reference to Part III
of this Annual Report on Form 10-K: the Proxy Statement for the Registrant's
2000 Annual Meeting of Stockholders (the "Proxy Statement").
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GLIATECH INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
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PART I ..........................................................................................................
ITEM 1. BUSINESS................................................................................
ITEM 2. PROPERTIES.............................................................................
ITEM 3. LEGAL PROCEEDINGS......................................................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.....................................
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY......................................................
PART II .........................................................................................................
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................................................
ITEM 6. SELECTED FINANCIAL DATA................................................................
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK......................................................................
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................................................
PART III .........................................................................................................
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................................
ITEM 11. EXECUTIVE COMPENSATION.................................................................
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................................................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................
PART IV .........................................................................................................
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K....................................................................
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ADCON, ADCON-A, ADCON-C, ADCON-I, ADCON-L, ADCON-P, ADCON-T/N are registered
trademarks of Gliatech Inc. Perceptin is a trademark of Gliatech Inc.
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PART I
ITEM 1. BUSINESS.
GENERAL
Gliatech is engaged in the discovery and development of biosurgical and
therapeutic products to improve surgical outcomes and to treat neurological
disorders. The biosurgical products include the ADCON family of products and a
proprietary monoclonal antibody to block the inappropriate activation of the
complement pathway. The ADCON family of products consist of proprietary,
resorbable, carbohydrate polymer medical devices designed to inhibit scarring
and adhesions following surgery. The proprietary monoclonal antibody is designed
to block the inappropriate activation of the complement pathway and inhibit
inflammation associated with a variety of indications such as coronary bypass
surgery, heart attack and stroke. In addition to the biosurgical products, the
Company is pursuing the development of small molecule drug candidates for the
treatment of several neurological disorders, including Attention Deficit
Hyperactive Disorder ("ADHD"), sleep disorders, anxiety, schizophrenia and
Alzheimer's Disease ("AD"). The discussion presented below should be read in
conjunction with the Company's consolidated financial statements and related
notes appearing elsewhere in this Annual Report on Form 10-K.
BIOSURGERY
ADCON FAMILY OF PRODUCTS
ADCON-L
ADCON-L is a proprietary, resorbable, carbohydrate polymer gel, which
is applied directly to the surgical site during lumbar surgery. ADCON-L is
designed to provide a physical barrier between the membranes covering the spinal
cord and the back muscles, and between the spinal nerve roots and the inner
surface of the vertebral body. This physical barrier inhibits excess scarring
and adhesions at the surgical site and improves surgical outcomes. Because it is
not possible to predict prior to surgery which patients are likely to develop
adhesion-related problems, ADCON-L is designed to be used prophylactically as a
physical barrier between tissues to inhibit scarring and adhesions in all
patients undergoing lumbar surgeries.
Clinical Results. To date, the Company has conducted clinical trials in
the United States and in Europe. These studies demonstrated that ADCON-L
inhibits peridural scar and improves surgical outcomes by reducing activity
related pain. In addition, in August 1999, the Company filed an Investigational
Device Exemption ("IDE") with the Food and Drug Administration ("FDA") to
initiate a pilot clinical trial evaluating ADCON-L following breast augmentation
surgeries. This pilot clinical trial will evaluate ADCON-L at two clinical study
sites. Patient enrollment in this pilot clinical trial was completed in the
first quarter of 2000 and the Company is currently collecting and evaluating
data from the trial.
ADCON-P
ADCON-P is a proprietary, resorbable, carbohydrate polymer liquid,
which is applied directly into the peritoneal cavity during pelvic and
gynecologic surgeries, such as reoperations to remove adhesions and uterine
tumor surgeries. ADCON-P is designed to provide a physical barrier to inhibit
scarring and adhesions, which may bind the uterus, fallopian tubes or ovaries to
the surrounding pelvic cavity and cause infertility or pain.
Development and Regulatory Status. After completing a pilot clinical
trial for ADCON-P in the United States, the Company received approval, in
November 1998, from the FDA to initiate a pivotal clinical trial for ADCON-P in
the United States. The Company commenced patient enrollment of its pivotal
clinical trial in January 1999. Patient enrollment for the Company's ADCON-P
pivotal clinical trial is expected to be completed in the second quarter of
2000. During the pivotal trial, ADCON-P will be evaluated at approximately 20
clinical study sites in over 200 patients undergoing minimally invasive
gynecological surgery.
In addition, in February 2000, the Company requested that ADCON-P be
reviewed under the FDA's "modular review" program to initiate the Premarket
Approval Application ("PMA") process. To date, the Company has submitted the
modular PMA shell, which is an outline of the PMA for ADCON-P, to the FDA. The
FDA's modular review program permits companies to submit to the FDA sections of
the PMA in stages, allowing the FDA to begin its review process as the modules
are submitted. The modules the Company proposes to submit are administrative,
preclinical, manufacturing and clinical. The proposed modules are in various
stages of preparation and the
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Company expects to submit such modules during 2000. The PMA will be considered
filed when the clinical data section and any remaining information is submitted
and accepted by the FDA.
ADCON-A
ADCON-A is a proprietary, resorbable, carbohydrate polymer liquid,
which is applied directly into the upper peritoneal cavity following certain
abdominal and colorectal surgeries. ADCON-A is designed to inhibit scarring and
adhesions, which can lead to, among other things, small bowel obstruction and
chronic pain in the abdominal area.
Development and Regulatory Status. In May 1999, the Company received
approval from the FDA to initiate a pilot clinical trial for ADCON-A. ADCON-A
and ADCON-P are identical products, but FDA regulations require that each be
evaluated separately for each intended clinical indication. The Company has
completed enrollment of its pilot clinical trial for ADCON-A and expects to
submit the results of this study and an IDE to the FDA in the third quarter of
2000 to seek approval to begin a pivotal clinical study.
ADCON-T/N
ADCON-T/N is a proprietary, resorbable, carbohydrate polymer gel, which
is applied directly to the surgical site following tendon and peripheral nerve
surgeries, such as primary tendon repair and reoperations to remove adhesions on
tendons or peripheral nerves. ADCON-T/N is designed to act as a physical barrier
between the peripheral nerve or tendon and the surrounding tissue.
Clinical Results. In November 1995, the Company completed open label
clinical trials in Europe to evaluate the use of ADCON-T/N in inhibiting
scarring and adhesions following various surgical procedures involving tendons
and nerves.
Early in 1995, the Company received approval from the FDA to initiate
two clinical trials. However, in order to focus its resources and efforts on the
acceleration of other ADCON clinical studies and on the continued progress of
its other preclinical and research programs, the Company closed patient
enrollment. This decision was made primarily because of the length of time and
difficulty in enrolling patients under the current protocol. Available data
gathered to date was submitted and reviewed with the FDA, but the number of
patients in the study were deemed by the FDA to be insufficient. The Company
will evaluate other alternatives to address the tendon and peripheral nerve
market in the United States.
OTHER ADCON PRODUCTS
The Company is also developing certain additional proprietary,
resorbable, carbohydrate polymer medical devices and is currently conducting
preclinical studies relating to applications of such ADCON technology in
inhibiting scarring and adhesions in certain other surgical procedures. Due to
the differences in the body environments in which each of the products would be
used, the Company's ADCON products are being designed to be adapted for use at
the specific surgical site. The additional devices include ADCON-I for use in
implant/prosthetic surgery and ADCON-C for use in cardiac surgery.
MONOCLONAL ANTIBODIES
PROPERDIN
The Company has developed a proprietary monoclonal antibody to the
complement protein properdin, which blocks the inappropriate activation of the
complement pathway. Inappropriate activation of this pathway can lead to
unwanted cellular inflammation associated with several acute inflammatory
disorders, including coronary bypass surgery, heart attack and stroke. This
monoclonal antibody has been effective in preclinical models in inhibiting the
activation of the complement pathway.
In order to assist in the development of this monoclonal antibody for
human clinical trials, the Company signed, in December 1999, a research license
and option agreement with Abgenix, Inc. under which the Company will use
Abgenix's XenoMouse(R) technology to generate fully human monoclonal
antibodies to the complement protein properdin. These human monoclonal
antibodies are being designed for use in the fields of cardiovascular and
inflammatory diseases. In return, Abgenix will receive a technology access
payment and could receive additional
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fees and milestone payments plus royalties on future product sales by the
Company. The Company will be responsible for product development, manufacturing
and marketing of any products developed through the collaboration.
NEUROLOGICAL DISORDERS PROGRAMS
The Company is also engaged in the research and development of small
molecule compounds for the treatment of several neurological disorders. These
neurological disorders include ADHD, sleep disorders, anxiety, schizophrenia and
AD.
COGNITION MODULATION - PERCEPTIN
The Company has identified classes of small molecules which act on
the histamine H(3) receptor in the brain. Histamine is a chemical messenger
released from certain neurons in the brain which regulates sleep/wake states and
modulates levels of arousal and alertness in the conscious state. The histamine
H(3) receptor is predominantly found in the brain and regulates the synthesis
and release of histamine in the brain. An antagonist to this receptor would lead
to enhanced states of arousal and alertness. The histamine H(3) receptor
antagonists may be useful in treating disorders in which central nervous system
arousal is desirable, such as ADHD or narcolepsy. An agonist to the receptor may
prove useful in treating disorders in which suppression of the central nervous
system is desirable, such as anxiety and insomnia.
Clinical Results. In February 1999, the Company completed a Phase I
double-blind human clinical trial of its H(3) receptor antagonist, Perceptin,
which was conducted at a single site in London, England. The trial involved 64
patients and was used to test the safety and tolerability profile of the H(3)
receptor antagonist. In the fourth quarter of 1999, the Company received FDA
approval to begin Phase II clinical trials of Perceptin for the treatment of
ADHD. Patient enrollment is expected to begin in the second quarter of 2000. The
potential uses for Perceptin include ADHD, dementia associated with AD and sleep
disorders, including narcolepsy.
SCHIZOPHRENIA
The Company initiated a product development program for schizophrenia
and dementia which involves the regulation of human glycine transporters. These
transporters modulate the levels of the neurotransmitter glycine in the central
nervous system. The Company is developing inhibitors of these glycine
transporters that would increase the levels of glycine at the glycine receptor
and may be useful in treating symptoms of schizophrenia and dementia. The
Company has identified a small molecule drug as a lead compound for this
program.
ALZHEIMER'S DISEASE
The human central nervous system is composed of two interrelated
networks of cells: neurons and glial cells. Neurons transfer and process
information from within and around the body. Glial cells support, protect and
repair the neurons and maintain the environment necessary for proper neuronal
activity and neurotransmitter transfer. Additionally, glial cells release
biological mediators which regulate the inflammatory and immune response
processes. AD is characterized by progressive dementia due to degeneration and
death of neuronal cells. The cause of AD is unknown and there are no proven
means of prevention or cure.
The Company's Alzheimer's Disease Program
Utilizing its core glial cell technology, the Company has demonstrated
that glial cells are involved in the neuronal death associated with AD. Until
May 1999, the Company was engaged in the discovery and development of compounds
to inhibit these unwanted glial cell associated events. This research, which
related to inhibitors of beta-amyloid induced inflammation, was pursued through
the Company's strategic alliance with Janssen Pharmaceutica, N.V. of Belgium, a
wholly owned subsidiary of Johnson & Johnson ("Janssen").
Inhibitors of Beta-Amyloid Induced Inflammation. The Company discovered
that the presence of beta-amyloid plaques results in a specific metabolic
consequence in glial cells, including the release of pro-inflammatory molecules,
which has been reported to occur in the brain of patients with AD. The Company
worked with Janssen on the development of compounds that would block the effects
of beta-amyloid plaques on glial cells and thus block or reduce the release of
inflammatory agents. The Company developed a number of high throughput in vitro
assay
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systems that were used to screen Janssen's pharmaceutical library for inhibitors
of these beta-amyloid-induced actions. As a result of the Company's efforts,
several lead compounds that block or reduce the release of inflammatory agents
were identified.
The Janssen Alliance
In October 1994, the Company entered into a strategic alliance with
Janssen to collaborate on the discovery and development of therapeutic models to
treat AD. In October 1998, this alliance was restructured to provide for further
research by the Company until May 1999. During such time, Janssen was required
to make payments to the Company upon the attainment of certain clinical and
developmental milestones. Janssen was responsible for all of its development
costs, including the cost associated with clinical trials and obtaining
regulatory approval. Janssen's parent, Johnson & Johnson, has worldwide
distribution rights for all products developed as a result of this
collaboration. In May 1999, Janssen ceased funding these research efforts. The
Company believes that Janssen does not intend to select a lead compound from the
identified compounds or pursue clinical trials relating to any such compound.
The Company is in discussion with Janssen to transfer development rights of
these compounds to the Company. There can be no assurance that the Company will
be successful in obtaining such development rights from Janssen or, if the
Company is successful, that such rights will be obtained on favorable terms.
MARKETING AND SALES
In the United States
In the United States, the Company markets ADCON-L through a network of
independent manufacturer's agents that serve the orthopaedic and neurosurgical
markets. The Company utilizes approximately 32 such independent organizations to
market ADCON-L in the United States. The sales representatives of these
organizations are trained and managed by the sales personnel of
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the Company, including a National Sales Manager and assisting regional sales
managers. In the United States, the Company establishes the price of its
products for sale to hospitals and the independent manufacturer's agents are
reimbursed on a commissioned basis.
After receiving FDA approval in May 1998 to market ADCON-L in the
United States, the Company commenced sales in the United States in June 1998.
In September 1999, the FDA issued an import alert relating to ADCON-L in
connection with a warning letter issued by the FDA to the Company's contract
manufacturing firm, European Medical Contract Manufacturing B.V. ("EMCM"),
located in The Netherlands. The import ban, which caused the Company to be
unable to import ADCON-L during the last two months of 1999, was removed after
a successful re-inspection of EMCM's facility in December. At such time, EMCM
immediately resumed production of ADCON-L for distribution in the United States
and, in the first quarter of 2000, the Company resumed distribution of ADCON-L
in the United States. All back orders have now been filled and new orders are
being processed and shipped.
Outside the United States
In August 1995, the Company obtained regulatory clearances to affix CE
Marking for ADCON-L, which allows the Company to market ADCON-L in the 19
European countries that recognize CE Marking. The Company currently markets
ADCON-L in approximately 30 countries outside the United States through
independent medical device distributors. The Company has entered into
distribution agreements for the sale of ADCON-L in certain countries, regions
and territories, including, without limitation, Argentina, Australia, Austria,
Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland,
Ireland, Italy, Korea, Latin America, Luxemburg, Mexico, The Netherlands, New
Zealand, Norway, Portugal, Puerto Rico, the Republic of South Africa, Spain,
Sweden, Switzerland and the United Kingdom (collectively, the "Distributing
Countries").
In January 1996, the Company obtained regulatory clearance to affix CE
Marking for ADCON-T/N, which allows the Company to market ADCON-T/N in the 19
European countries that recognize CE Marking. The Company is currently marketing
its ADCON-T/N medical device in approximately 30 Distributing Countries through
independent medical device distributors.
The Company provides ongoing technical and marketing support to its
independent medical device distributors through its Area Sales Managers and its
Marketing and Medical departments. In addition, the Company signed a development
and exclusive license agreement in December 1996 with Chugai Pharmaceutical Co.
Ltd. ("Chugai") for the sale of ADCON-L and ADCON-T/N in Japan. Chugai
subsequently filed an application requesting regulatory approval to market such
products in Japan.
The Company's distributor agreements provide the distributors with
exclusive distribution rights in their assigned territory. The agreements
require the distributors to meet specified minimum annual purchase targets and
to provide the Company with periodic reports on their sales to hospitals. In the
event such targets are not achieved, the Company may, upon the expiration of
applicable notice periods, terminate such arrangements. The Company currently
establishes the price of its products for sale to distributors and each
distributor then sets the price for sale to hospitals. The Company's
distributors are independent third parties, not employees of the Company, and
are not under the direct control or supervision of the Company, except that they
are subject to the terms and conditions of their respective distribution
agreements.
MANUFACTURING AND SUPPLIERS
Currently, the Company does not have any operational manufacturing
facilities and utilizes a sole third party manufacturer, EMCM, located in
Nijmegen, The Netherlands, for the manufacture of its commercial and clinical
requirements of ADCON-L, ADCON-P, ADCON-A and ADCON-T/N. The Company believes
that the manufacturer has the ability to supply sufficient products to satisfy
the Company's existing requirements worldwide and its future requirements for
ADCON products outside the United States. The Company currently purchases the
key components for ADCON-L, ADCON-P, ADCON-A and ADCON-T/N from suppliers and
provides such components to the contract manufacturer who formulates these
components into ADCON-L, ADCON-P, ADCON-A and ADCON-T/N. The contract
manufacturer is registered as a subcontractor for the manufacture of
pharmaceutical products by The Netherlands designated agency and is certified to
International Organization of Standardization ("ISO") requirements for
manufacture of such products. ISO Certification is an internationally recognized
standard of quality manufacturing. The manufacture of the Company's products is
subject to FDA Quality Standards Regulations ("QSR") or other requirements
prescribed by the appropriate regulatory agency in the country of use.
In September 1999, the FDA issued a warning letter indicating certain
concerns with EMCM, which subsequently resulted in the FDA issuing an import
alert causing shipments of ADCON-L into the United States to be detained. After
a successful re-inspection of EMCM's facilities to verify compliance with the
issues raised in the warning letter, the detention of ADCON-L was lifted in
December 1999 and EMCM resumed shipments in the United States in January 2000.
Although the Company continues to monitor EMCM's compliance with the applicable
regulatory requirements, there can be no assurance that the Company's current
manufacturer will continue to comply with all applicable regulatory requirements
or that such manufacturer will be able to supply the Company with such products
or that the Company will be able to identify additional manufacturers of its
products on terms acceptable to the Company.
In December 1998, the Company leased a 12,400 square foot facility in
Solon, Ohio to establish a manufacturing site for its sales of ADCON-L in the
United States. This facility will be subject to QSR requirements. After this
facility becomes operational, which is expected to occur during 2000, the
Company believes that it will have the ability at this facility to supply
sufficient products to satisfy its future requirements for the development and
commercialization of its ADCON products in the United States.
The Company currently obtains one of the key components for its ADCON
products from a single supplier. The Company also has developed its own
proprietary process to manufacture this key component and is currently
manufacturing it on a pilot basis through a contract manufacturer according to
QSR standards. The Company intends to have this proprietary process qualified
under applicable regulatory requirements in order to have an alternate source of
supply. In addition, the Company is pursuing qualification of additional
suppliers. There can be no assurance that such proprietary process will be
qualified or alternative sources will be located or that the current supply of
raw materials will continue to be provided on terms and conditions acceptable to
the Company.
COMPETITION
The Company competes with both biotechnology and pharmaceutical
companies in all of its product development programs. Furthermore, academic
institutions, governmental agencies, and other public and private research
organizations also continue to conduct research, seek patent protection and
establish collaborative arrangements with commercial entities for product
development and marketing. Products resulting from these activities may compete
directly with any products developed by the Company. These companies and
institutions also compete with the Company in recruiting and retaining highly
qualified scientific personnel.
There are significant efforts by others, including many large
pharmaceutical companies and academic institutions, to develop products that
may compete with products that are developed by the Company relating to its
biosurgical products, such as the ADCON family of products and its neurological
disorder programs, such as the Cognition Modulation Perceptin program, the AD
program and its other programs. Products that may compete with the ADCON family
of products include Intergel(R) from LifeCore Biomedical, Inc. and Seprafilm
from Genzyme Surgical Products, both of which may compete with ADCON-P, and
Hylagel-Nuro(R) from Biomatrix, which may compete with ADCON-L. The Intergel(R)
PMA was recently recommended for non-approval by an advisory panel to the FDA,
but the product could still be
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approved by the FDA. Hylagel-Nuro(R) has recently initiated pivotal clinical
trials to evaluate its use in reducing peridural scar following lumbar surgery.
Development of these as well as other products may be at a more advanced stage
of development than some of the Company's products. In addition, there may be
substantial competition in the biopharmaceutical and medical industries, both
from specialized firms and from major pharmaceutical, chemical, medical device
and surgical supply companies. Many of the Company's potential competitors have
product development capabilities and financial and human resources greater than
the Company and have manufacturing, marketing, sales and distribution
capabilities that the Company does not have. Universities and other research
institutions may develop similar technologies and processes which, in some
instances, may be utilized by others to compete with the Company's products.
The Company expects to encounter significant competition for each of
its product candidates. To compete successfully, the Company will be required to
develop and maintain scientifically advanced technology, develop proprietary
products, attract and retain highly qualified personnel, obtain patent or other
protection for its products, obtain required regulatory approvals and
manufacture and successfully market its products, either alone or through
collaboration with third parties.
GOVERNMENT REGULATION
The manufacture and sale of the Company's products are subject to
regulation by numerous authorities, principally the FDA. The regulatory approval
process is lengthy, expensive and uncertain. Prior to commercial sale in the
United States, the Company's products under development must be approved by the
FDA. The Company may also need to seek a new, separate approval for changes to a
marketed product, such as ADCON-L. Securing FDA approvals may require the
submission of extensive clinical data and supporting information. Product
approvals can be withdrawn for failure to comply with regulatory standards or
the occurrence of unforeseen problems following initial marketing. Failure to
comply with applicable FDA regulatory requirements could result in sanctions
being imposed on the Company or the manufacturer of its products, including
warning letters, fines, injunctions, product seizure, civil penalties, failure
of the FDA to grant premarket approval, operating restrictions, prohibitions on
importation and criminal prosecution. Sales of the Company's products outside of
the United States are subject to foreign regulatory requirements that may vary
widely from country to country. The time required to obtain clearance from a
foreign country may be longer or shorter than that required by the FDA or other
such agencies, and approval requirements may differ. There can be no assurance
that the Company will be able to obtain necessary regulatory approvals on a
timely basis, if at all, for any of its products under development, or that have
been modified, and delays in receipt or failure to receive such approvals, the
loss of previously received approvals or failure to comply with existing or
future regulatory requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.
There is no certainty that the ongoing clinical studies involving
ADCON-P and ADCON-A will be completed in a timely manner or that the data and
information obtained from these studies will be sufficient to support the filing
or approval of a premarket approval application. There can be no assurance that
the Company will be able to obtain the approvals necessary to market ADCON-P or
ADCON-A or any other products under development on a timely basis, if at all.
ADCON-L and any other products manufactured or distributed pursuant to
FDA approval are subject to pervasive and continuing regulation by the FDA,
including recordkeeping requirements and reporting of adverse patient
experience. In addition, the Federal Food, Drug, and Cosmetic Act (the "FDC
Act") requires that medical devices and drugs be manufactured in registered
establishments and in accordance with the Good Manufacturing Practices ("GMP")
requirements. Such manufacturing facilities are subject to periodic inspections
by the FDA.
Approval Process for Medical Devices - United States. The FDC Act
requires FDA approval prior to commercialization of medical devices. Pursuant to
the FDC Act, the FDA regulates the manufacture, sale and distribution of medical
devices in the United States. Medical devices are classified into class I, II or
III on the basis of the controls deemed by the FDA to be reasonably necessary to
ensure their safety and effectiveness. Class I devices are generally subject to
general controls (e.g., labeling and adherence to QSR requirements) and class II
devices are subject to general controls, premarket clearance and special
controls (e.g., performance standards, postmarket surveillance and FDA
guidelines). Generally, class III devices are those which require premarket
approval by the FDA in addition to general controls to ensure their safety and
effectiveness (e.g., life-sustaining, life-supporting or implantable devices
which have not been found to be substantially equivalent to legally marketed
devices). The FDA regulates the Company's ADCON-L, ADCON-P, ADCON-A and
ADCON-T/N products as class III medical devices.
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Before a new device can be introduced into the market, the manufacturer
or distributor generally must obtain FDA clearance or approval through either a
510(k) premarket notification or a PMA application. A 510(k) clearance will be
granted if the submitted data establish that the proposed device is
"substantially equivalent" to a legally marketed class I or II medical device,
or to a preamendment class III medical device (i.e., one that was marketed
before May 28, 1976) for which the FDA has not called for premarket approvals. A
PMA must be filed if the proposed device is not substantially equivalent to a
legally marketed class I or II device or if it is a preamendment class III
device for which the FDA requires premarket approval. A PMA must be supported by
extensive data, including preclinical and clinical trial data to demonstrate the
safety and efficacy of the device. The Company's devices currently in
development will likely be subject to the PMA process.
If human clinical trials of a device are required and the device
presents a "significant risk," the sponsor of the device is required to file an
IDE application to obtain FDA permission prior to commencing human clinical
trials. The clinical trials must be conducted under the auspices of an
institutional review board ("IRB").
Following receipt of the PMA, if the FDA determines that the premarket
approval application is sufficiently complete to permit a substantive review,
the FDA will "file" the application. Once the submission is filed, the FDA
begins a substantive review of the PMA. The PMA process can be expensive,
uncertain and lengthy, frequently requiring several years to complete from the
date the PMA is accepted for filing. A number of devices for which premarket
approval has been sought by other companies have never been approved for
marketing. The review time may be significantly extended by the FDA, if it
requires more information or clarification of information already provided in
the submission. During the review period, an advisory committee may be convened
to review and evaluate the application and provide recommendations to the FDA as
to whether the device should be approved. In addition, the FDA will inspect the
manufacturing facility to ensure compliance with QSR requirements prior to
approval of a premarket approval application. If granted, the premarket approval
may include significant limitations on the indicated uses for which a product
may be marketed. The FDA prohibits promoting products for unapproved or
"off-label" uses.
Modifications to a device that is the subject of an approved PMA, its
labeling, or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.
Approval Process for Drugs - United States. Before a new drug may be
commercially sold in the United States, extensive clinical trials and other
tests on the product must be conducted and the results submitted to the FDA as
part of a lengthy approval process.
The steps required before a new drug product may be marketed in the
United States include (1) preclinical laboratory and animal tests conducted in
accordance with Good Laboratory Practices, (2) submission to the FDA of an
investigational new drug ("IND") application, which must become effective before
human clinical trials may commence, (3) well-controlled human clinical trials to
establish the safety and efficacy of the new drug product, (4) submission of a
new drug application ("NDA") to the FDA and (5) FDA approval of the NDA. The
Company's drug products are in preclinical and early Phase I development.
Approval by the FDA must be obtained for each product and for each indication to
be treated with each product. The submission of an NDA and the subsequent
marketing of approved prescription drugs also requires the payment of certain
user fees to the FDA.
Clinical trials involving the administration of an investigational drug
product to humans typically are conducted in three phases and are subject to
specific protocols. Each protocol indicating how the clinical trial will be
conducted must be submitted for review to the FDA as part of the IND. Further,
each clinical study must be conducted under the auspices of at least one IRB and
in accordance with informed consent requirements and other FDA requirements. The
IRB considers, among other factors, ethical concerns, the adequacy of informed
consent and protection of human subjects. The IRB or the FDA may require changes
in a protocol both prior to and after commencement of a trial. There is no
assurance that the IRB or the FDA will permit a study to go forward or, once
started, to be completed. The FDA's review of a study protocol does not
necessarily mean that if the study is successful in following the terms of the
protocol it will demonstrate the drug's safety and efficacy.
Reports of results of preclinical studies and clinical trials for
drugs, such as those likely to be developed by the Company, are submitted to the
FDA in the form of an NDA. The NDA also includes information pertaining to the
preparation of drug substances, analytical methods, drug product formulation and
details on the manufacture of finished product as well as proposed product
packaging and labeling. Submission of an NDA does not assure FDA
8
<PAGE> 10
approval for marketing. The application review process generally takes one or
more years to complete, although reviews of treatments for cancer and other
severely debilitating or life-threatening diseases may be accelerated. However,
the process may take substantially longer if, among other things, the FDA has
questions or concerns about the safety and/or efficacy of a product. No
assurance exists that the Company's drug products will qualify for expedited or
accelerated review procedures.
The product testing and approval process is likely to take a
substantial number of years and involve the expenditure of substantial
resources. The FDA also may require postmarket testing and surveillance to
monitor the use of the product. Continued compliance with regulatory
requirements is required. Upon approval, a drug only may be marketed only for
the approved indications in the approved dosage form(s) and at the approved
dosage(s).
Other Regulation. The Company is subject to regulation by the
Occupational Safety and Health Administration and by the United States
Environmental Protection Agency under such statutes as the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and other laws. Various
states and other foreign governments often have comparable health and
environmental laws.
Foreign Regulation. The Company is subject in many countries to
regulatory requirements concerning drugs and devices and relating to human
clinical trials, marketing approvals and product testing.
Medical devices can be marketed in the 18 countries of the European
Economic Area ("EEA") (including the 15 countries of the European Union) as well
as in Switzerland, only if these products are CE marked. CE marking attests
compliance with the requirements of the Medical Devices Directives ("MDD").
In order to qualify for CE marking, a medical device must be in
compliance with the MDD requirements related to the performance and safety of
medical devices (the "Essential Requirements"). In addition, the Company must
obtain conformity assessment certification from a body such as a testing
laboratory or other certifying body (the "Notified Body"). The Company is using
a Dutch Notified Body for this purpose and has chosen a particular conformity
assessment path involving type examination of the devices and auditing of the
Company's quality system used in production. There are also specific
requirements related to clinical investigation and reporting of adverse
incidents.
Once CE marked medical devices are placed on the market, they come
under regulatory surveillance of national Competent Authorities ("CAs"). CAs are
responsible for enforcement and can restrict, prohibit or recall CE marked
devices if they are unsafe. Such negative decisions must be reviewed by the
European Commission in order to remain valid.
Although countries of the EEA may require use of national language on
labels and instructions for use, they must accept CE marked devices in their
market without imposing additional technical requirements that would be in
violation of the MDD. There can be no assurances, however, that these countries
will always respect this principle in practice.
The regulatory system created by the MDD does allow in practice
substantial national variations in requirements relating to clinical
investigation and reporting of adverse incidents. Pricing and reimbursement
requirements are not covered by European Union legislation and therefore can be
freely regulated by the countries of the EEA.
Devices will be subject to, in addition to future legislation of
European Union or other countries, continued national regulation on pricing and
reimbursement, which may vary from country to country. Certain other
requirements, such as clinical investigations and post marketing surveillance,
will probably be subject to significant variation among countries. The
regulation of drugs in the European Union is subject to a separate and different
regulatory framework, which requires, among other things, premarket approval by
the applicable regulatory agencies before sale of such products.
PATENTS, TRADEMARKS AND TRADE SECRETS
Proprietary protection for the Company's product candidates, processes
and know-how is important to the Company's business. The Company's policy is to
file patent applications to protect technology, inventions and improvements that
are considered important to the development of its business. The Company also
relies upon trade
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<PAGE> 11
secrets, know-how and continuing technological innovation to develop and
maintain its competitive position. The Company plans to aggressively prosecute
and defend its patents and proprietary technology.
The Company owns five issued U.S. patents, three pending U.S. patent
applications, and corresponding foreign patents and patent applications relating
to its ADCON products.
Three U.S. patents, filed solely by the Company, have been issued
covering the composition of a matter for a series of synthetic H(3) receptor
antagonist compounds. Several additional U.S. patent applications and their
corresponding foreign applications for an additional series of H(3) receptor
antagonist and one series of H(3) receptor agonist compounds, their methods of
medical use and pharmaceutical compositions, are pending. No assurance can be
given that any claims relating to these products and methods will be issued.
In addition, one U.S. patent application concerning the anti-properdin
monoclonal antibody and two U.S. patent applications concerning the glycine
transporter and corresponding foreign applications are pending.
The Company is prosecuting its patent applications with the United
States Patent and Trademark Office ("USPTO") but the Company does not know
whether any of its applications will issue as patents or, if any patents are
issued, whether any issued patent will provide significant proprietary
protection or will be circumvented or invalidated. During the course of patent
prosecution, the USPTO may require that the claims of a patent application be
amended if it is determined that the scope of the claims includes subject matter
that is not useful, novel, nonobvious or enabled. Furthermore, in certain
instances, the practice of a patentable invention may require a license from the
holder of dominant patent rights.
There can be no assurance that additional patents will be obtained by
the Company or that issued patents will provide substantial protection or be of
commercial benefit to the Company. The issuance of a patent is not conclusive as
to its validity or enforceability, nor does it provide the patent holder with
freedom to operate without infringing the patent rights of others. A patent
could be challenged by litigation and, if the outcome of such litigation were
adverse to the patent holder, competitors could be free to use the subject
matter covered by the patent, or the patent holder may license the technology to
others in settlement of such litigation. The invalidation of key patents owned
by or licensed to the Company or non-approval of pending patent applications
could create increased competition, with potential adverse effects on the
Company and its business prospects. In addition, there can be no assurance that
any patents on, or applications of, the Company's technology will not infringe
patents or proprietary rights of others or that licenses that might be required
as a result of such infringement for the Company's processes or products would
be available on commercially reasonable terms, if at all.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Company's patent and proprietary rights and/or to determine the scope and
validity of others' proprietary rights. The Company may participate in
interference proceedings that may in the future be declared by the USPTO to
determine priority of invention, which could result in substantial cost to the
Company. There can be no assurance that the outcome of any such litigation or
interference proceedings will be favorable to the Company or that the Company
will be able to obtain licenses to technology that it may require or that, if
obtainable, such technology can be licensed at a reasonable cost.
The patent position of biotechnology and biopharmaceutical firms
generally is highly uncertain and involves complex legal and factual questions.
To date, no consistent policy has emerged regarding the breadth of claims
allowed in biotechnology and biopharmaceutical patents. Accordingly, there can
be no assurance that patent applications owned or licensed by the Company will
result in patents being issued or that the patents will afford protection
against competitors with similar technology.
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<PAGE> 12
The Company also attempts to protect its proprietary compounds,
products and processes by relying on trade secret laws, and on non-disclosure
and confidentiality agreements. The Company requires its employees, consultants,
outside scientific collaborators and sponsored researchers and other advisors to
execute confidentiality agreements upon the commencement of employment or
consulting relationships with the Company. These agreements generally provide
that all confidential information developed or made known to the individual
during the course of the relationships is to be kept confidential and not
disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that any inventions conceived by the
individual within the scope of his employment shall be the exclusive property of
the Company. There can be no assurance, however, that these agreements will
provide meaningful protection for any of the Company's trade secrets in the
event of unauthorized use or disclosure of such information.
The medical device and healthcare industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. There can be no assurance that the
Company will not become subject to patent infringement claims or litigation or
interference proceedings declared by the USPTO to determine the priority of
invention. The defense and prosecution of intellectual property suits, USPTO
interference proceedings and related legal and administrative proceedings are
both costly and time-consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect trade secrets or know-how owned by the Company
or to determine the enforceability, scope and validity of the proprietary rights
of others. Any litigation or interference proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party, including any
litigation that may arise against the Company as described in "Item 3: Legal
Proceedings" below, could subject the Company to significant liabilities to
third parties or require the Company to seek licenses from third parties or
prevent the Company from marketing its products in certain areas, or at all.
Although patent and intellectual property disputes regarding medical devices
have often been settled through licensing or similar arrangements, such
settlements may be substantial and could include ongoing royalties. Furthermore,
there can be no assurance that the necessary licenses would be available to the
Company on satisfactory terms, if at all. Adverse determinations in a judicial
or administrative proceeding or failure to obtain necessary licenses could
prevent the Company from marketing its products, which would have a material
adverse effect on the Company's business, prospects, financial condition and
results of operation.
RESEARCH AND DEVELOPMENT EXPENSES
As a result of the Company's ongoing research and development efforts
with respect to its biosurgical products and neurological disorders programs,
the Company's research and development expenses have increased since 1997.
Research and development expenses for fiscal years ended December 31, 1999, 1998
and 1997 were approximately $12.8 million, $10.1 million and $7.1 million,
respectively. The Company employs approximately 47 individuals who are engaged
in or directly support its research and development efforts.
DOMESTIC AND FOREIGN PRODUCT SALES
Sales of the Company's ADCON products, particularly ADCON-L, comprised
approximately 95%, 80% and 31% of the Company's revenues for years ending
December 31, 1999, 1998 and 1997, respectively. For a description of domestic
and foreign product sales and certain related information, see Note I of Notes
to Consolidated Financial Statements included herein.
EMPLOYEES
As of December 31, 1999, the Company had 89 full-time employees, 20 of
whom held a Ph.D. or M.D. Of the Company's 89 employees, 47 were engaged in, or
directly supported, research and development, 16 were engaged in the sales and
marketing of the ADCON family of products and the remaining 26 performed
manufacturing, executive or administrative functions.
ITEM 2. PROPERTIES.
The Company's operations are conducted at a 50,925 square foot, leased
facility in Beachwood, Ohio, a suburb of Cleveland. The lease expires on
December 31, 2001. In addition, the Company leases a 12,400 square foot facility
in Solon, Ohio, which will be used as a manufacturing facility for its sales of
ADCON-L in the United States. This lease expires on April 30, 2009.
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<PAGE> 13
The Company anticipates that it will relocate its headquarters and
research facility to an approximately 84,000 square-foot facility in the Village
of Highland Hills, Ohio, a suburb of Cleveland. The Company anticipates that it
will lease this facility for a 20-year term with two (2) five (5)-year
extensions. This project will be funded, in part, through state financing.
ITEM 3. LEGAL PROCEEDINGS.
On March 17, 2000, Derrick McKinley, M.D. filed a lawsuit against the
Company and certain of its officers in the Court of Common Pleas in Cuyahoga
County, Ohio alleging wrongful and tortious discharge and tortious interference
with employment. Such claims arose from the termination of his employment with
the Company. The complaint seeks unspecific monetary damages in an amount in
excess of $25,000 in the form of compensatory, consequential and punitive
damages. The Company believes this suit is without merit and intends to
vigorously defend this suit.
On August 18, 1999, Vance Carter filed a lawsuit against the Company in
the Fourth Judicial District Court of Louisana alleging certain product
liability claims as a result of the use of ADCON-L during surgery. The petition
for damages alleges that as a result of being administered ADCON-L during lumbar
disc surgery, Mr. Carter has been experiencing pain and discomfort and has been
unable to return to work. The petition for damages seeks unspecific monetary
damages. The Company believes this suit is without merit and intends to
vigorously defend this suit.
In addition, from time to time, the Company is involved in various
disputes arising in the ordinary course of business. In management's opinion,
the outcome of these matters will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The information under this Item 4A is furnished pursuant to Instruction
3 to Item 401(b) of Regulation S-K.
THOMAS O. OESTERLING, Ph.D. Dr. Oesterling has served as Chief
Executive Officer and a Director of the Company since June 1989. In May 1999, he
became Chairman of the Company. He also served as President of the Company from
June 1989 to October 1999. 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. Dr. Oesterling is 61 years old.
RODNEY E. DAUSCH. Rodney E. Dausch joined the Company as Vice President
and Chief Financial Officer in March 1995. In August 1995, Mr. Dausch was
elected Secretary of the Company. In October 1999, he was appointed Executive
Vice President of Finance of the Company. Prior to joining the Company and since
February 1994, Mr. Dausch was Vice President of Finance and Administration of
Oncologix, Inc., a biopharmaceutical company. From May 1987 to January 1994, he
was Vice President of Finance and Administration of Oncor, Inc., a manufacturer
of diagnostic products for detection of cancer diseases. Prior to 1987, he held
the position of Vice President of Finance and Administration with CPM Group,
Inc. and Bethesda Research Laboratories, Inc. Mr. Dausch is a Certified Public
Accountant. Mr. Dausch is 55 years old.
MICHAEL A. ZUPON, Ph.D. Dr. Zupon has served as Executive Vice
President of Research and Development since September 1998. Prior to that time,
he served as Vice President, Product Development and Operations since June 1993.
Prior to joining the Company, Dr. Zupon had 12 years of experience in a variety
of product development positions at Schering-Plough Corporation, a
pharmaceutical company, most recently as Director, Drug Delivery and Technology
Assessment from January 1991 to June 1993. Dr. Zupon is 45 years old.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock commenced trading on the Nasdaq National
Market under the symbol "GLIA" on October 17, 1995. The table below sets forth
for the quarterly periods indicated the high and low bid prices for the
Company's Common Stock as reported on the Nasdaq National Market.
HIGH LOW
---- ---
FISCAL 1999
Fourth Quarter $20 $7 3/4
Third Quarter $26 1/2 $15 5/8
Second Quarter $27 3/4 $18 3/4
First Quarter $31 3/8 $20
FISCAL 1998
Fourth Quarter $31 $14 1/2
Third Quarter $18 5/8 $12 1/2
Second Quarter $20 $11 1/2
First Quarter $12 1/4 $7 7/8
As of the close of business on March 20, 2000, the price of the Common
Stock of the Company was $17 5/16 per share, as reported on the Nasdaq National
Market, and there were approximately 254 stockholders of record for the Common
Stock of the Company.
The Company has never paid any cash dividends on its capital stock and
does not anticipate paying any in the foreseeable future. The payment of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including the Company's financial
position, operating results, current and anticipated cash needs and plans for
expansion.
In July 1999, the Company instituted a repurchase program whereby the
Company pursuant to Rule 10b-18 promulgated under the Securities Exchange Act of
1934, repurchased shares of Common Stock. As of March 20, 2000, the Company
purchased 75,000 shares, at an average price of $19.32 per share, for an
aggregate of $1,448,937.
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected consolidated financial data of the Company for
the years ended December 31, 1999 through 1995 are derived from the consolidated
financial statements of the Company. The information presented below should be
read in conjunction with the Company's Consolidated Financial Statements and
related Notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Annual Report on Form
10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES
Product sales $ 26,495 $ 13,925 $ 1,536 $ 901 $ 182
Research contracts 514 2,559 2,954 2,855 2,217
Government grants 944 846 410 122 255
--------------------------------------------------------------
Total revenues 27,953 17,330 4,900 3,878 2,654
OPERATING COSTS AND EXPENSES
Cost of products sold 4,973 2,468 614 342 123
Research and development 12,754 10,054 7,135 6,238 5,233
Selling, general and administrative 12,080 9,482 4,510 4,118 2,643
--------------------------------------------------------------
Total operating costs and
expenses 29,807 22,004 12,259 10,698 7,999
--------------------------------------------------------------
Loss from operations (1,854) (4,674) (7,359) (6,820) (5,345)
Settlement of claim (2,025)
Interest income, net 1,459 916 824 1,120 360
--------------------------------------------------------------
Net loss $ (395) $ (3,758) $(8,560) $ (5,700) $ (4,985)
========= ========= ======== ========= =========
Basic and diluted net
loss per common share $ (0.04) $ (0.44) $ (1.16) $ (0.78) $ (3.28)
========= ========= ======== ========= =========
Shares used for purposes
of computing basic
and diluted net loss
per common share 9,472,532 8,511,014 7,354,124 7,313,230 1,518,955
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments $ 19,101 $ 26,399 $ 11,542 $ 17,996 $ 23,023
Working capital 20,601 24,778 9,370 15,821 21,762
Total assets 32,384 33,962 14,805 20,804 25,346
Retained deficit (46,168) (45,772) (42,014) (33,454) (27,754)
Total stockholders'
equity $ 26,392 $ 27,153 $ 11,440 $ 17,627 $ 23,182
</TABLE>
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<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company is engaged in the discovery and development of biosurgical
and therapeutic products to improve surgical outcomes and to treat neurological
disorders. The biosurgical products include the ADCON family of products,
which are proprietary, resorbable, carbohydrate polymer medical devices
designed to inhibit surgical scarring and adhesions. Based on European pivotal
clinical studies and other compliance efforts and submission of data, the
Company obtained regulatory clearance to affix CE Marking on ADCON-L and
ADCON-T/N in August 1995 and January 1996, respectively, thereby allowing
ADCON-L and ADCON-T/N to be marketed in the 19 European countries which
recognize CE Marking for lumbar disc surgery and tendon and peripheral nerve
surgeries, respectively. The Company is currently marketing ADCON-L and
ADCON-T/N through independent medical device distributors in approximately 30
countries outside the United States, including the major countries in the
European Union pursuant to its CE Marking. The Company also commenced sales of
ADCON-L in the United States in June 1998. In September 1999, the FDA issued a
warning letter to EMCM, which led to an import ban on all ADCON-L shipments to
the United States. After a successful re-inspection of EMCM's facilities, the
import ban was lifted in December 1999 and the Company resumed shipments of
ADCON-L to the United States in January 2000. In addition, the Company signed a
development and exclusive license agreement in December 1996 with Chugai for
the sale of ADCON-L and ADCON-T/N in Japan.
The Company anticipates that a significant portion of revenue from
product sales will be derived from its ADCON family of products, primarily
ADCON-L. Further, the Company is also pursuing the development of other
biosurgical products and small molecule drug candidates for the treatment of
several neurological disorders, including ADHD, sleep disorders, anxiety,
schizophrenia and AD. In October 1994, the Company entered into a strategic
alliance with Janssen to collaborate on the discovery and development of
therapeutic models to treat AD. In May 1999, Janssen ceased funding this
endeavor. The Company believes that Janssen does not intend to select a lead
compound from the identified compounds or pursue clinical trials relating to any
such compound. The Company is in discussion with Janssen to transfer development
rights of these compounds to the Company. There can be no assurance that the
Company will be successful in obtaining such development rights from Janssen or,
if the Company is successful, that such rights will be obtained on favorable
terms. In addition, the Company receives revenues from various government grants
awarded to the Company. In June 1998, the Company received proceeds of
approximately $18.9 million in connection with the completion of a public
offering of 1,725,000 shares of Common Stock.
RESULTS OF OPERATIONS
Years ended December 31, 1999 and 1998.
Revenues. Total revenues for fiscal 1999 increased by approximately
$10.6 million or 61.3% to approximately $28.0 million from approximately $17.3
million in fiscal 1998. The increase in total revenues is primarily the result
of an increase in product sales, which increased to approximately $26.5 million
in 1999 from approximately $13.9 million in 1998. This increase in product sales
resulted primarily from the commercialization in the United States of the
Company's first product, ADCON-L. ADCON-L was approved for marketing in the
United States by the FDA in May 1998. The Company commenced sales of ADCON-L in
the United States in June 1998.
The increase in total revenues for fiscal 1999 is slightly offset by a
decrease in research contracts revenues. This decrease in the Company's research
contracts revenues was due to Janssen no longer funding the collaboration
efforts with the Company. The Company's government-funded grant revenues
increased slightly in 1999 compared to 1998. This increase was a result of the
award of two Small Business Innovation Research ("SBIR") Phase II grants, one
awarded in the third quarter of 1998 and one awarded in the second quarter of
1999.
Operating Costs and Expenses. Total operating expenses increased by
approximately $7.8 million or 35.5% to approximately $29.8 million in 1999,
compared to approximately $22.0 million in 1998. Cost of products sold increased
to $5.0 million in 1999 compared to approximately $2.5 million in 1998, and
increased, as a percentage of product sales, in 1999 to 18.8% from 17.7% 1998.
The percentage increase in 1999 was primarily due to: (1) fixed costs continuing
at anticipated levels during the last two months of 1999 when ADCON-L was unable
to be sold in the United States as a result of the import ban and (2) startup
costs associated with the new U.S. manufacturing plant.
Research and development expenses increased by $2.7 million or 26.8 %
to approximately $12.8 million in 1999 from approximately $10.0 million in 1998.
This increase was primarily due to four factors:
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<PAGE> 17
(1) An increase in development expenses for Perceptin , which
received approval from the FDA in the fourth quarter of 1999
to begin Phase II clinical trials;
(2) The increased clinical research costs associated with the
initiation of the pilot clinical trials of ADCON-A;
(3) The increased clinical research cost associated with the pilot
clinical trials for the use of ADCON-L in breast augmentation
surgeries; and
(4) The start of a product development program for schizophrenia
and dementia involving the regulation of human glycine
transporters.
Selling, general and administrative expenses increased by approximately
$2.6 million or 27.4% to approximately $12.1 million in 1999 compared to
approximately $9.5 million in 1998. This increase was primarily due to an
increase in the sales and marketing expenses and sales commissions resulting
from the sales and marketing of ADCON-L in the United States and a non-recurring
expense of $780,000 for severance obligations for former employees. These
increases were somewhat offset by a reduction to the bad debt allowance
resulting from a more favorable collection history than originally anticipated.
The 1998 expense included $647,000 of costs associated with the Company's effort
to select and finance a new building for its future research and development and
corporate headquarters facility. This project was terminated as of December 31,
1998. Since then, the Company has pursued an alternate site.
Interest Income. Interest income increased to approximately $1.5
million in 1999 from approximately $916,000 in 1998. This increase in 1999 is
due to carrying higher short-term investments for a full year due to the
proceeds from the public offering in June 1998 and the revenue generated from
the sale of ADCON-L in the United States.
Net Loss. Gliatech's net loss decreased to approximately $395,000 in
1999, compared to approximately $3.8 million in 1998. The decrease in net loss
is a result of ADCON-L product sales in the United States, offset somewhat by an
increase in total expenses. The net loss per common share was $0.04 in 1999,
compared to $0.44 in 1998.
Years ended December 31, 1998 and 1997.
Revenues. Total revenues more than tripled to approximately $17.3
million in 1998 from approximately $4.9 million in fiscal 1997. The increase in
total revenues is primarily the result of an increase in product sales, which
increased to approximately $13.9 million in 1998 from approximately $1.5 million
in 1997. This increase in product sales resulted primarily from the
commercialization in the United States of the Company's first product, ADCON-L,
which was approved for marketing by the FDA in May 1998. The Company commenced
sales of ADCON-L in the United States in June 1998.
The Company's research contract revenues decreased by 15.4% to
approximately $2.6 million in 1998 from approximately $3.0 million in 1997.
These research contract revenues were from the Company's research contract with
Janssen, which was restructured in October 1998 to provide for further research
by the Company and revenues from Janssen until May 1999.
The Company's government-funded grant revenues more than doubled to
approximately $846,000 in 1998 from approximately $410,000 in 1997. This
increase was a result of an increase in the number of government- funded grants
to the Company. The Company received a second Phase II SBIR award from the
National Institute of Neurological Disorders and Stroke ("NINDS") in September
1998, for the research to evaluate the histamine H(3) antagonists. The Company's
first Phase II SBIR Program grant from the NINDS was awarded in February 1997
for the research to evaluate the histamine H(3) receptor antagonists. Both Phase
II grants have a two-year term and each may provide as much as $750,000 in
funding. In addition, in 1998 the Company received three additional Phase I
grants. Two were in the second quarter, each in the amount of approximately
$98,000 from the National Institutes of Health ("NIH"). One was for the research
development of drugs for schizophrenia and dementia and the other was to
evaluate anti-properdin agents as novel anti-inflammatories. The Company
received a third Phase I grant in the third quarter from NIH for approximately
$100,000 to research combinatorial construction of novel imidazole libraries. In
1997 the Company received two Phase I grants in the third quarter. One was from
NINDS in the amount of approximately $100,000, and the other from the National
Institute of Nursing Research ("NINR") in the amount of approximately $99,000.
Operating Costs and Expenses. Total operating costs and expenses
increased by 78.9% to approximately $22.0 million in 1998, compared to
approximately $12.3 million in 1997. Cost of products sold increased to
approximately $2.5 million in 1998 compared to approximately $614,000 in 1997,
but decreased, as a percentage of
16
<PAGE> 18
products sales in 1998 to 17.7% from 40.0% in 1997. The percentage decrease in
1998 was primarily due to: (1) the favorable impact of the unit sales prices of
ADCON-L in the United States and (2) increased production volumes.
Research and development expenses increased by 41.0% to approximately
$10.1 million in 1998 from approximately $7.1 million in 1997. This increase was
primarily due to: (1) an increase in development expenses for the Company's lead
compound for its Cognition Modulation program, which commenced a Phase I human
clinical trial in the fourth quarter of 1998 and (2) increased clinical research
costs associated with the pilot clinical trial of ADCON-P, which was completed
in the third quarter of 1998.
Selling, general and administrative expenses increased 110.2% to
approximately $9.5 million in 1998 compared to approximately $4.5 million in
1997. This increase was primarily due to an increase in the sales and marketing
expenses and sales commissions resulting from the sales and marketing of ADCON-L
in the U.S. The increase was also due to $647,000 of costs associated with the
Company's efforts to select and finance a new building for its future research
and development and corporate headquarters facilities. This project was
terminated as of December 31, 1998 when project costs were estimated to be
substantially in excess of available funding.
Interest Income. Interest income increased to approximately $916,000 in
1998 from approximately $824,000 in 1997. This increase in 1998 was primarily
due to higher cash, cash equivalents and short-term investment balances due to
the proceeds from the public offering in June 1998.
Net Loss. Gliatech's net loss decreased to approximately $3.8 million
in 1998, compared to approximately $8.6 million in 1997. The decrease in net
loss is a result of ADCON-L product sales in the U.S., offset somewhat by an
increase in total expenses. The diluted net loss per common share was $0.44 in
1998, compared to approximately $1.16 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
In order to preserve principal and maintain liquidity, the Company's
funds are invested primarily in commercial paper and other short-term
investments. As of December 31, 1999 and December 31, 1998, the Company's cash
and cash equivalents, short-term and long term investments totaled approximately
$20.8 million and approximately $26.4 million, respectively. The Company expects
that its existing capital resources, interest earned thereon, and product sales
will enable the Company to maintain its current and planned operations for the
foreseeable future.
Prior to the commercialization of ADCON-L in the United States, the
Company historically financed its operations primarily through the private
placement and public offering of its equity securities, research contract
licensing fees, and, to a lesser extent, through federally sponsored research
grants. In June 1998, the Company raised additional funds through a public
offering of 1,725,000 shares of its Common Stock at a price of $12.00 per share,
including the exercise of the over-allotment option of 225,000 shares. The net
proceeds to the Company from this offering were approximately $18.9 million. The
Company also has established a $1.5 million line of credit with a bank. As of
December 31, 1999, the Company had no borrowings against the line of credit.
In the second quarter of 1999 the Company was awarded a third Phase II
SBIR Program grant from the National Cancer Institute ("NCI"), a division of the
NIH, for the research of inhibition of postoperative gynecological adhesions. In
September 1998 the Company was awarded a Phase II SBIR Program grant from the
NINDS for research evaluating H (3) agonists. Each of these Phase II grants has
a two-year term and each may provide as much as approximately $750,000 in
funding. The Company was also awarded a Phase I SBIR grant for up to
approximately $100,000 in the third quarter of 1998 to aid in additional
research studies. In the second quarter of 1998 the Company was awarded two
Phase I grants for up to approximately $98,000 each from the National Heart,
Lung and Blood Institute and National Institute of Mental Health, both
divisions of the NIH. In February 1997 the Company was awarded a two-year Phase
II SBIR Program grant from NINDS for research evaluating histamine H (3)
receptor antagonists to treat ADHD, which may provide as much as $750,000 in
funding. In addition, in the fourth quarter of 1997 the Company was awarded two
Phase I SBIR grants for up to approximately $100,000 each from the NINDS and
the NINR division of the NIH. In 1996, the Company received revenues from a
Phase I SBIR grant for up to approximately $100,000 from the NINDS division of
the NIH relating to the development of histamine H (3) receptor agents. If the
Company is successful in other Phase I research, additional Phase II awards may
be sought for funding to aid in further development of pharmaceutical
compounds,
17
<PAGE> 19
however, there is no assurance that such Phase I research will be successful or
that additional funding will be obtained.
The Company does not expect to generate a positive cash flow from
operations until the fourth quarter of 2000 due to the substantial costs for
commercialization of ADCON-L, additional research and development costs for its
other biosurgical products and costs related to its neurosurgical disorders
programs, preclinical testing, clinical trials and operating expenses associated
with supporting such activities. The Company's ability to generate a positive
cash flow from operations is dependent upon several factors, including the
timing and content of decisions by the FDA. There is no assurance when the
Company will generate a positive cash flow, if at all.
The Company may need to raise substantial additional capital to fund
its operations prior to such time. The Company's future capital requirements
will depend on, and could increase as a result of many factors, including, but
not limited to, the cost for commercialization of ADCON-L, the commercialization
success of its ADCON family of products, the progress of the Company's research
and development, including the costs related to its Cognition
Modulation Perceptin, AD, schizophrenia and other neurological disorders
programs, the scope, timing and results of preclinical studies and clinical
trials, the cost and timing of obtaining regulatory approvals, the Company's
success in obtaining the strategic alliances required to fund certain of its
programs, the rate of technological advances, determinations as to the
commercial potential of certain of the Company's product candidates, the status
of competitive products and the establishment of additional manufacturing
capacity.
The Company from time to time is involved in various stages of
discussion or negotiation regarding acquisitions or mergers and from time to
time other strategic alternatives. As of the date hereof, no definitive
agreement with respect to any such transaction or other strategic alternative
has been entered into.
Net Operating Loss Carryforwards. As of December 31, 1999, the Company
has available net operating loss carryforwards of approximately $29.6 million,
and research and development credit carryforwards of approximately $3.6 million.
These carryforwards expire at various dates between 2003 and 2013. The Company
has offset the tax benefit of the net operating loss and tax credit
carryforwards with a valuation allowance, as realization of the benefit is not
assured. Pursuant to the Tax Reform Act of 1986, the utilization of net
operating loss and research and development tax credit carryforwards for tax
purposes may be subject to an annual limitation if a cumulative change in
ownership of more than 50% occurs over a three-year period. The future issuance
of securities by the Company and/or sales of securities by the Company's
principal stockholders could result in such a change in ownership. See Note F of
Notes to Consolidated Financial Statements included herein.
YEAR 2000.
The Company did not experience any significant malfunctions or errors
in its operating or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, the Company does not expect any
significant impact to its on-going business as a result of the "Year 2000
issue." However it is possible that the full impact of the date change, which
was of concern due to computer programs that use two digits instead of four
digits to define years, has not been fully recognized. For example, it is
possible that Year 2000 or similar issues such as leap year-related problems may
occur with billing, payroll, or financial closing at month, quarterly or
year-end. The Company believes that any such problems are likely to be minor and
correctable. In addition, the Company could still be negatively impacted if the
Year 2000 or similar issues adversely affect its customers or suppliers. The
Company currently is not aware of any significant Year 2000 or similar problems
that have arisen for its customers and suppliers.
The Company expended approximately $20,000 on Year 2000 readiness
efforts from 1998 to 1999. These efforts included replacing some outdated,
noncompliant hardware and noncompliant software as well as identifying and
remediating Year 2000 problems. The funds for Year 2000 readiness were from
normal operating cash flow.
EURO CONVERSION.
On January 1, 1999, eleven of the fifteen countries (the "Participating
Countries") that are members of the European Union established a new uniform
currency known as the "Euro." The currencies existing prior to such date in the
Participating Countries will be phased out during the transition period
commencing January 1, 1999 and ending January 1, 2002. During such transition
period both the Euro and the existing currencies will be available in the
Participating Countries. Although certain of the Company's products are being
sold in the Participating Countries through independent distributors, the
Company receives revenues from such sales in U.S. dollars. As a
18
<PAGE> 20
result, the Company does not anticipate that the introduction and use of the
Euro will materially affect the Company's business, prospects, results of
operations or financial condition.
FORWARD-LOOKING STATEMENTS.
Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements." When used in this Report, the words "believes,"
"anticipates," "expects," "intends" and other predictive, interpretive and
similar expressions are intended to identify such forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results of the Company to be
different from expectations expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, commercial uncertainty
of regulatory approvals of the Company's ADCON products, including the timing
and content of decisions made by the FDA, commercial uncertainty of market
acceptance of the Company's ADCON family of products, delays in product
development of additional ADCON products, uncertainty of outcomes of future FDA
audits and inspections, uncertainty due to the early stage of development for
the neurological disorders programs, the possible need for additional funding,
the ability of the Company to establish and maintain collaborative arrangements
with others, the potential market size for ADCON products, the ability to
extend research collaborations, the productivity of distributors of ADCON
products, shortages of supply of ADCON products from the Company's sole
manufacturer, the ability of the Company to commence manufacturing of its ADCON
products at its manufacturing facility located in the United States, the lack
of supply of raw materials for the Company's products, uncertainty of future
profitability, uncertainties related to the Company's proprietary rights in its
products, the loss of key management, and personnel and technological change.
These statements are based on certain assumptions and analysis made by the
Company in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate in the circumstances. Such statements are subject to a number
of other assumptions, risks, uncertainties, general economic and business
conditions, and the business opportunities (or lack thereof) that may be
presented to and pursued by the Company. Prospective investors are cautioned
that any such statements are not guarantees of future performance and that
actual results or developments may differ materially from those projected in
the forward-looking statements. The accompanying information contained in this
Annual Report on Form 10-K, including, without limitation, the information set
forth in this section and under "Item 1: Business," identifies important
factors that could cause such differences.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not enter into derivative financial instruments. The
Company primarily invests in commercial paper and corporate bonds that have
short-term maturities. The Company has no outstanding debt. Exposure to foreign
currency has been minimal because the Company's foreign product sales are in
U.S. currency. As a result, the Company believes that its market risk exposure
is not material to the Company's financial position, liquidity or results of
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
Report of Independent Auditors.
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
19
<PAGE> 21
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Gliatech Inc.
We have audited the accompanying consolidated balance sheets of Gliatech Inc.
and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gliatech Inc. and
Subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 3, 2000
20
<PAGE> 22
GLIATECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998
--------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,350,245 $4,731,814
Short-term investments 15,750,620 21,667,064
Accounts receivable less allowances of
$26,000 in 1999 and $602,568 in 1998 899,696 2,995,548
Government grants receivable 413,608 401,160
Inventories 5,353,696 776,057
Prepaid expenses and other 824,720 1,016,098
--------------------------------------
Total current assets 26,592,585 31,587,741
Long term investments 1,712,790
Property and equipment, net 3,232,712 1,556,815
Other assets, net 845,668 817,630
--------------------------------------
TOTAL ASSETS $32,383,755 $33,962,186
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,129,470 875,462
Accrued expenses 2,084,490 2,083,273
Accrued research contracts 485,470 1,418,653
Accrued compensation 207,558 790,041
Accrued clinical trial costs 2,085,011 1,127,991
Deferred research contract revenue 514,194
--------------------------------------
Total current liabilities 5,991,999 6,809,614
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares-5,000,000 at December 31, 1999 and 1998; None
issued and outstanding at December 31, 1999 or 1998
Common stock, $.01 par value
Authorized shares-30,000,000 at December 31, 1999 and
1998; Issued shares -9,553,562 at December 31, 1999 and
9,410,825 at December 31, 1998 95,536 94,109
Additional paid-in capital 73,967,823 72,830,961
Treasury stock (75,000 shares at cost) (1,448,950)
Accumulated other comprehensive loss (54,839)
Accumulated deficit (46,167,814) (45,772,498)
--------------------------------------
Total stockholders' equity 26,391,756 27,152,572
--------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $32,383,755 $33,962,186
======================================
</TABLE>
See notes to consolidated financial statements
21
<PAGE> 23
GLIATECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Product sales $26,494,760 $13,925,206 $1,536,440
Research contracts and licensing fees 514,194 2,559,131 2,954,000
Government grants 943,533 846,202 410,333
------------- ------------- -------------
Total revenues 27,952,487 17,330,539 4,900,773
OPERATING COSTS AND EXPENSES
Cost of products sold 4,972,863 2,468,296 614,424
Research and development 12,753,446 10,054,363 7,135,213
Selling, general and administrative 12,080,255 9,481,907 4,510,315
------------- ------------- -------------
Total operating cost and expenses 29,806,564 22,004,566 12,259,952
------------- ------------- -------------
Loss from operations (1,854,077) (4,674,027) (7,359,179)
Settlement of claim (2,025,000)
Interest income 1,458,761 915,582 823,891
------------- ------------- -------------
Net loss $ (395,316) $(3,758,445) $(8,560,288)
============= ============= =============
Basic and diluted net
loss per common share $(0.04) $(0.44) $(1.16)
============= ============= =============
Shares used for purposes of computing basic
and diluted net loss per common share 9,472,532 8,511,014 7,354,124
============= ============= =============
</TABLE>
See notes to consolidated financial statements
22
<PAGE> 24
GLIATECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
----------------- ---------------- ACCUMULATED
NUMBER ADDITIONAL NUMBER OTHER TOTAL
OF PAR PAID-IN OF COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES VALUE CAPITAL SHARES COST LOSS DEFICIT EQUITY
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 7,320,089 $73,201 $51,007,673 $(33,453,765) $17,627,109
Net loss (8,560,288) (8,560,288)
Exercise of stock options 76,000 760 306,365 307,125
Issuance of stock bonus 5,184 52 40,772 40,824
Settlement of claim 2,025,000 2,025,000
------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 7,401,273 74,013 53,379,810 (42,014,053) 11,439,770
Net loss (3,758,445) (3,758,445)
Exercise of stock options 84,552 846 610,052 610,898
Issuance of common stock for 200,000 2,000 (2,000)
settlement of claim
Issuance of common stock 1,725,000 17,250 18,843,099 18,860,349
------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 9,410,825 94,109 72,830,961 (45,772,498) 27,152,572
Net loss (395,316) (395,316)
Unrealized loss on
available for sale securities $(54,839) (54,839)
----------------
Total other comprehensive (450,155)
income
Exercise of stock options 123,700 1,237 462,355 463,592
Issuance of stock bonus 5,198 52 136,948 137,000
Exercise of stock warrants 13,839 138 (138)
Compensation from issuance 537,697 537,697
of stock options
Purchase of treasury shares 75,000 $(1,448,950) (1,448,950)
------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 9,553,562 $95,536 $73,967,823 75,000 $(1,448,950) $(54,839) $(46,167,814) $26,391,756
================================================================================================
</TABLE>
See notes to consolidated financial statements
23
<PAGE> 25
GLIATECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (395,316) $ (3,758,445) $ (8,560,288)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 589,222 419,293 292,746
Patent cost write-off 148,122 30,002 48,668
Provision (credit) for losses on accounts receivable (347,642) 560,680
Compensation from issuance of stock options 537,697
Settlement of claim 2,025,000
Changes in operating assets and liabilities:
Accounts receivable 2,443,494 (3,012,177) (212,894)
Inventories (4,577,639) (611,979) 223,040
Government grants receivable and other assets 178,930 (931,464) (201,228)
Accounts payable and other accrued expenses (190,258) 1,698,715 316,773
Deferred contract research revenue (514,194) (295,165) 3,000
Other liabilities 23,837 2,040,446 (90,462)
------------ ------------ ------------
Net cash used in operating activities (2,103,747) (3,860,094) (6,155,645)
INVESTING ACTIVITIES
Sale (purchase) of investments, net 4,148,815 (15,726,588) 2,934,746
Payment for patent rights and trademarks (194,927) (103,770) (186,812)
Purchase of property and equipment (2,246,352) (650,378) (418,563)
------------ ------------ ------------
Net cash provided by (used in) investing activities 1,707,536 (16,480,736) 2,329,371
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 18,860,349
Proceeds from exercise of stock options 463,592 610,898 307,125
Purchase of treasury shares (1,448,950)
------------ ------------ ------------
Net cash (used in) provided by financing activities (985,358) 19,471,247 307,125
------------ ------------ ------------
Decrease in cash and cash equivalents (1,381,569) (869,584) (3,519,149)
Cash and cash equivalents at beginning of period 4,731,814 5,601,398 9,120,547
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,350,245 $ 4,731,814 $ 5,601,398
============ ============ ============
</TABLE>
See notes to consolidated financial statements
24
<PAGE> 26
GLIATECH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
A. BACKGROUND AND ACCOUNTING POLICIES
Background
Gliatech Inc. is engaged in the discovery and development of biosurgical and
therapeutic products to improve surgical outcomes of patients and to treat
neurological disorders. The biosurgical products include the ADCON family of
products and a proprietary monoclonal antibody to block the inappropriate
activation of the complement pathway. The ADCON family of products consist of
proprietary, resorbable, carbohydrate polymer medical devices designed to
inhibit surgical scarring and adhesions. The Company is also pursuing the
development of small molecule drug candidates for the treatment of several
neurological disorders, including Attention Deficit Hyperactive Disorder
("ADHD"), sleep disorders, anxiety, schizophrenia and Alzheimer's disease
("AD").
Historically, since commencing operations in 1988, the Company had been a
development stage company. However, the Company introduced its first product,
ADCON-L, in the United States during 1998, resulting in significant product
sales. As a result, the Company no longer considers itself a development stage
company. The Company recognizes revenue from product sales upon shipment.
The consolidated financial statements reflect the financial position and results
of operations of Gliatech Inc. and its wholly-owned subsidiaries (the
"Company"). Intercompany balances and transactions have been eliminated.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amount of the
Company's cash equivalents approximates fair value due to the short maturity of
those investments. Cash equivalents are primarily commercial paper.
Short and long term investments
The Company's short-term and long-term investments, all of which are classified
as available-for-sale, consist primarily of corporate bonds and commercial
paper. Such investments are stated at fair market value with unrealized gains
and losses charged or credited to shareholders' equity. Investments with
maturity dates of less than one year are classified as short-term; investments
with maturity dates of more than one year are classified as long-term.
Inventories
Inventories are stated at the lower of cost or market and are valued using the
first-in, first-out method.
Property and equipment
Property and equipment are stated at cost. Laboratory, manufacturing and office
equipment and leasehold improvements are depreciated on the straight-line basis
over the shorter of the estimated useful lives or the lease period (3 to 10
years).
Patent rights and trademarks
Patent rights are amortized on the straight-line basis over the shorter of the
estimated useful life of the patented technology or the useful life of the
patent, beginning at the time the patent is granted. Costs associated with
patents that are abandoned are expensed at the date of abandonment. Trademark
costs are amortized on the straight-line basis over the estimated useful life of
the trademark, beginning at the time the trademark is granted.
25
<PAGE> 27
Government grants
Revenues from government grants are recognized ratably over the period of the
grant.
Research contracts and licensing fee revenue
Revenue from the research collaboration agreements are recorded when earned as
defined under the terms of the agreements. Periodic research funding payments
received which are related to future performance are deferred and recognized as
income when earned. Licensing fees and other milestone payments are recognized
as income when earned.
Research and development
Research and development expenditures are expensed when incurred.
Income taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
Stock-based compensation
The Company accounts for stock-based compensation in accordance with APBO No.
25, "Accounting for Stock Issued to Employees."
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year
financial statement presentation.
B. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---------- --------
<S> <C> <C>
Raw material $4,549,976 $349,550
Work in process 205,007 272,390
Finished goods 598,713 154,117
---------- ---------
$5,353,696 $776,057
========== =========
</TABLE>
26
<PAGE> 28
C. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
----------- ----------
<S> <C> <C>
Laboratory equipment $ 1,419,385 $1,332,594
Manufacturing equipment 1,451,623 139,609
Office equipment 1,026,864 815,180
Leasehold improvements 1,749,184 1,113,321
----------- ----------
5,647,056 3,400,704
Accumulated depreciation and amortization (2,414,344) (1,843,889)
------------ -----------
Property and equipment, net $ 3,232,712 $1,556,815
=========== ==========
</TABLE>
D. OTHER ASSETS
Other assets consist of:
December 31,
------------
1999 1998
---- ----
Patent rights, net of accumulated amortization of $124,722
at December 31, 1999 and $110,955 at December 31, 1998 $791,139 $764,182
Trademark cost, net 40,241 39,951
Other 14,288 13,497
-------- --------
$845,668 $817,630
======== ========
E. FINANCING ARRANGEMENTS
The Company has an unsecured line of credit that provides for borrowings up to
$1,500,000 at an interest rate of 1% above the bank's insured money market
savings account rate. No borrowings were outstanding at December 31, 1999 and
1998. Rent expense relating to the operating lease of office space was
approximately $479,000, $356,000 and $318,000 in 1999, 1998 and 1997,
respectively. Rent expense for 1999 includes $76,000 for the Company's new
manufacturing plant, which is expected to be placed in service during 2000.
Future annual minimum lease commitments at December 31, 1999 are as follows:
2000 $ 521,501
2001 521,501
2002 105,003
2003 105,003
2004 112,003
Thereafter 500,514
----------
$1,865,525
==========
F. INCOME TAXES
At December 31, 1999, the Company has available net operating loss carryforwards
of approximately $29.6 million. In addition, the Company has approximately $3.6
million in research and development tax credit carryforwards. Such losses and
carryforwards may be used to reduce future tax liabilities and expire at various
dates between 2003 and 2014. The Company has offset the tax benefit of the net
operating loss and tax credit carryforwards and other deferred tax assets with a
valuation allowance as realization of the benefits is not assured.
27
<PAGE> 29
The Company's net deferred tax assets and liabilities consist of the following:
December 31,
------------
1999 1998
------------- ------------
Deferred tax liabilities $ (283,000) $ (290,000)
Deferred tax Assets:
Amortization of capitalized
research and development
expenses for tax 3,060,000 3,740,000
Research and development
tax credit carryforwards 3,577,000 2,783,000
Net operating tax
loss carryforwards 12,644,000 12,369,000
Other 1,296,000 957,000
------------ -----------
Total deferred tax assets 20,577,000 19,849,000
Valuation allowance (20,294,000) (19,559,000)
------------ -----------
Net deferred taxes $ 0 $ 0
============ ===========
Pursuant to the Tax Reform Act of 1986, the utilization of net operating loss
and research and development tax credit carryforwards for tax purposes may be
subject to an annual limitation if a cumulative change in ownership of more than
50% occurs over a three-year period.
G. RIGHTS PLAN
On July 1, 1997, the Company declared a dividend distribution of one right (a
"Right") for each outstanding share of Common Stock. The terms of the Rights are
set forth in the Rights Agreement, dated July 1, 1997, between the Company and a
rights agent. The Rights generally will become exercisable and allow a holder to
acquire Common Stock at a discounted price if a person or group acquires 15% or
more of the outstanding shares of Common Stock of the Company. The Rights
Agreement was amended in November 1999 to allow a certain holder to acquire up
to 20% of the outstanding shares of Common Stock without Rights becoming
exercisable. The Company is also subject to provisions of state law which will
prohibit the Company from engaging in any "business combination" with a person
who, together with affiliates and associates, owns 15% or more of the Company's
Common Stock (an "Interested Stockholder") for a period of three years following
the date that such person became an Interested Stockholder, unless the business
combination is approved in a prescribed manner or certain other requirements are
satisfied.
H. STOCK OPTION PLANS
The Company has a 1989 Stock Option Plan for employees and 1992 and 1995 Stock
Options Plans for members of the Company's Board of Directors. These plans
provide for the granting of 2,120,000 options to employees and 340,000 options
to Directors. These options generally vest over a three or four year period and
become exercisable in part one year after date of grant and expire at the end of
ten years. At December 31, 1999, there were 494,217 options available for future
grants.
A summary of the status of the Company's three stock option plans as of December
31, 1999, 1998 and 1997 and changes during the years then ended is presented
below:
28
<PAGE> 30
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,124,816 $ 8.67 1,110,175 $ 7.56 978,375 $ 6.85
Granted 682,500 19.83 131,000 17.66 225,300 9.46
Exercised (123,700) 3.75 (84,552) 7.23 (76,000) 4.04
Canceled (45,575) 10.16 (31,807) 11.15 (17,500) 8.14
-----------------------------------------------------------------------------------
Outstanding at end of year 1,638,041 $ 13.65 1,124,816 $ 8.67 1,110,175 $ 7.56
=====================================================================================
Options exercisable at year-end 766,391 723,370 491,692
Weighted-average fair value
of options granted during the year $ 14.03 $ 11.16 $ 6.12
</TABLE>
The following table summarizes information about options outstanding at December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Yrs) Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0-5 57,800 2.14 $ 1.81 57,800 $ 1.81
5-10 664,341 6.07 8.08 580,541 8.08
10-28 915,900 9.17 18.45 128,050 13.67
------------------------------------------------------------------------------
1,638,041 766,391
==============================================================================
</TABLE>
At December 31, 1999 2,132,258 shares of common stock are reserved for issuance
under the stock options plans.
The Company applies APBO No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the fixed stock option plans to
employees except for modifications made in 1999 to certain stock options
previously granted to terminated employees, which resulted in expense of
$372,000. Had compensation cost for the Company's three stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net loss and net loss per share would
have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Net loss As reported $(395,316) $(3,758,445) $(8,560,288)
Pro forma $(2,817,515) $(5,011,723) $(9,166,993)
Basic and diluted net loss per common share As reported $(.04) $(.44) $(1.16)
Pro forma $(.30) $(.59) $(1.25)
</TABLE>
For pro forma calculations, the fair value of each option granted is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Expected volatility 87% 77% 75%
Risk-free interest rates 4.68 -6.36% 4.31-5.60% 5.71-6.48%
Expected life 4 or 5 years 4 or 5 years 4 or 5 years
</TABLE>
29
<PAGE> 31
I. BUSINESS SEGMENT INFORMATION
The Company operates in one business segment. It is engaged in the development
and commercialization of the Company's principal products, the ADCON family,
which are medical devices designed to inhibit scarring and adhesion following
surgery. The Company sells ADCON products to independent distributors in
approximately 30 countries outside the United States and directly to hospitals
in the United States. The Company does not have foreign facilities and
therefore does not measure operating profit or loss from foreign sales.
Domestic and foreign product sales are as follows:
Year ended December 31,
-----------------------
1999 1998 1997
----------- ----------- ----------
Domestic product sales $23,243,534 $11,648,214
Foreign product sales 3,251,226 2,276,992 $1,536,440
----------- ----------- ----------
Total product sales $26,494,760 $13,925,206 $1,536,440
=========== =========== ==========
J. RESEARCH COLLABORATION AGREEMENTS
In October 1994, the Company established a research and development
collaboration with Janssen Pharmaceutica, N.V. ("Janssen"), a wholly owned
subsidiary of Johnson & Johnson, for the discovery and development of compounds
suitable for the treatment of Alzheimer's disease. In October 1998, this
collaboration was restructured to provide for further research by the Company
until May 1999. In May 1999, Janssen ceased funding these research efforts and
elected not to renew the research collaboration.
K. RESEARCH, CLINICAL TRIAL, CONSULTING AND LICENSE AGREEMENTS
Since beginning operations, the Company has entered into research agreements and
clinical trial agreements with universities and third parties and consulting
agreements with scientific advisors. The research agreements require the Company
to fund certain research activities, and are generally renewable on an annual
basis. In return, the Company has rights to obtain and use exclusive licenses
for the results of the research. Under license agreements with various
universities, ownership of all patents resulting from research agreements will
remain with the universities or researchers. The Company is required to incur
all cost associated with applying for and maintaining the patents. The Company
generally will obtain exclusive worldwide licensing rights and is required to
remit fixed percentages, as defined, of the net selling price of licensed
products and royalties received from sublicensees to the universities and
researchers. The clinical trial agreements require the Company to fund the
performance of specific clinical procedures and the cost of administering the
clinical trials.
As of December 31, 1999, minimum commitments under research, clinical trial and
consulting agreements are $1,783,850 for 2000.
L. SETTLEMENT OF CLAIM AND CONTINGENCIES
In 1995, a dispute regarding inventorship of the ADCON products and the rights
of Case Western Reserve University ("CWRU") to receive royalties from sales of
ADCON products arose between the Company and CWRU. After extensive discussions
between the Company and CWRU, a complaint was filed by the Company on September
8, 1997 in the United States District Court Northern District of Ohio, Eastern
Division ("Court") against CWRU and one of its employees, requesting the Court
to confirm that there was no error in the omission of the employee as a named
inventor of the Company's patents. The complaint was filed in response to
repeated statements to the Company and the general public made by the employee
and CWRU alleging that the inventorship of the patent was in error because the
employee was not named. The complaint did not seek monetary damages. An
agreement in principle was reached between the Company and CWRU in 1997 and the
Company recorded a charge of $2,025,000 based on the fair value of the Company's
common stock at that time. The Company recorded the offset to the charge as a
component of stockholders' equity in 1997 since the settlement was to be made in
shares of common stock. In March 1998 the suit was dismissed pursuant to the
terms and conditions of a Settlement Agreement among
30
<PAGE> 32
the Company, CWRU and the employee, and the Company issued 200,000 shares of
common stock to CWRU and the employee.
In addition, from time to time, the Company is involved in various disputes
arising in the ordinary course of business. In management's opinion, the outcome
of these matters will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
M. YEAR END ADJUSTMENTS (UNAUDITED)
In the fourth quarter of 1999 the Company recorded certain non-recurring and
year-end adjustments that reduced selling, general and administrative expenses.
In the fourth quarter, the Company settled a claim with a former distributor of
ADCON-L for approximately $184,000. The Company had previously recorded an
accrual for this loss contingency of $400,000. The Company reduced its bad debt
allowance by $347,000 due to a more favorable collection history than originally
anticipated. The Company also reduced its year end bonus accrual by $471,000 due
to fourth quarter losses caused by the Company being unable to ship ADCON-L to
its U.S. customers for the last two months of the year. These changes in
estimates were offset by a non-recurring expense of $780,000 related to
severance arrangements with former employees.
31
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Information with respect to Directors of the Company is set forth in
the Proxy Statement under the heading "Election of Directors," which information
is incorporated herein by reference. Information regarding the executive
officers of the Company is included as Item 4A of Part I of this Annual Report
on Form 10-K, as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
Information required by Item 405 of Regulation S-K is set forth in the Proxy
Statement under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance," which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is set forth in the
Proxy Statement under the heading "Election of Directors" and under the heading
"Compensation of Executive Officers," which information is incorporated herein
by reference (except for the Compensation Committee Report on Executive
Compensation and the Comparative Stock Performance Graph).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information with respect to security ownership of certain beneficial
owners and management is set forth in the Proxy Statement under the heading
"Beneficial Ownership of Common Stock," which information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No disclosure is responsive to the disclosure requirements for this
Item, and, accordingly, no disclosure is set forth herein or in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) The following documents are filed as a part of this Annual
Report on Form 10-K and are included in Part II, Item 8.
1. Financial Statements.
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
32
<PAGE> 34
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts.
<TABLE>
<CAPTION>
Additions
------------------------------------
Balance at Charged to Other
Beginning of Charged to Costs Accounts- Deductions- Balance at End
Description Period and Expenses Describe Describe of Period
- ----------- ------ ------------ -------- -------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Reserves and allowances deducted from asset
accounts:
Allowances for uncollectible accounts $602,568 $(347,642) A $194,661 C
$ 34,265 D $ 26,000
Inventory obsolescence reserve $382,763 $ 623,739 B $244,331 E $762,171
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible $ 41,888 $ 560,680 $602,568
Inventory obsolescence reserve $ 138,000 $ 244,763 $382,763
</TABLE>
Note A - Principally the provision for bad debts and sales returns reserve
Note B - Principally the provision for obsolete inventory
Note C - Sales returns written off against allowance
Note D - Uncollectible accounts written off
Note E - Inventories written off against the reserve
The Company was in the development stage for the year ended
December 31, 1997, as principal operations had not commenced.
Due to the lack of significant sales, the trade receivable
allowances and inventory obsolescence reserve were not
significant for the years then ended and have been excluded
herein.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore are omitted.
33
<PAGE> 35
3. Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1(i) Second Restated Certificate of Incorporation of the Company is
incorporated hereby by reference to Exhibit 4(a) of the Company's Form
S-8 Registration Statement with respect to the 1995 Nonemployee
Directors Stock Option Plan filed January 18, 1996 (Registration No.
333-00408).
3.1(ii) Amended and Restated By-Laws of the Company are incorporated herein by
reference to Exhibit 4(b) of the Company's Form S-8 Registration
Statement with respect to the 1995 Nonemployee Directors Stock Option
Plan filed January 18, 1996 (Registration Statement No. 333-00408).
4.1 Rights Agreement, dated as of July 1, 1997, by and between the Company
and American Stock Transfer & Trust Company, as rights agent, is
incorporated by reference to Exhibit 1 of the Company's Current Report
on Form 8-K as filed on July 2, 1997 (File No. 0-20096).
4.2 Amendment No. 1, dated as of November 17, 1999, to the Rights Agreement
between the Company and American Stock Transfer & Trust Company, as
rights agent, is incorporated by reference to Exhibit 4.1 of the
Company's Form 8-A/A Amended Registration Statement filed on November
19, 1999 (File No. 000-20096).
10.1 Lease Agreements, as amended, between Gliatech R&D, Inc. and Commerce
Corner Associates (facility lease) which is guaranteed by the Company
is incorporated by reference to Exhibit 10.1 of the Company's Form S-1
Registration Statement filed September 1, 1995 (Registration No.
33-96460).
10.2 Master Lease and Warrant Agreement between the Company and Pacificorp
Credit, Inc. d/b/a Pacific Venture Finance, Inc., dated October 15,
1990, and Amendment No. 1, dated October 15, 1991 (equipment lease
line) is incorporated by reference to Exhibit 10.2 of the Company's
Form S-1 Registration Statement filed September 1, 1995 (Registration
No. 33-96460).
10.3 Sublease between Gliatech R&D, Inc. and Spectrum Surgical Instruments
Corporation, dated November 7, 1994 is incorporated by reference to
Exhibit 10.3 of the Company's Form S-1 Registration Statement filed
September 1, 1995 (Registration No. 33-96460).
10.4 Master Commercial Demand Note of the Company to National City Bank,
dated September 11, 1996 is incorporated by reference to Exhibit 10.4
of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-20096).
*10.5 Employment letter between the Company and Thomas O. Oesterling, Ph.D.,
dated May 19, 1989 is incorporated by reference to Exhibit 10.7 of the
Company's Form S-1 Registration Statement filed September 1, 1995
(Registration No. 33-96460).
*10.6 Employment letter between the Company and Mr. Rodney E. Dausch, dated
February 7, 1995 is incorporated by reference to Exhibit 10.9 of the
Company's Form S-1 Registration Statement filed September 1, 1995
(Registration No. 33-96460).
*10.7 The Company's Amended and Restated 1989 Stock Option Plan is
incorporated by reference to Exhibit A of the Company's Proxy Statement
on Schedule 14A for the fiscal year ended December 31, 1998 (File No.
0-20096).
*10.8 The Company's 1992 Directors Stock Option Plan is incorporated by
reference to Exhibit 10.11 of the Company's Form S-1 Registration
Statement filed September 1, 1995 (Registration No. 33- 96460).
*10.9 The Company's Amended and Restated 1995 Nonemployee Directors Stock
Option Plan is incorporated by reference to Exhibit B of the Company's
Proxy Statements on Schedule 14A for the fiscal year ended December 31,
1998 (File No. 0-20096).
34
<PAGE> 36
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
10.10 Manufacturing Agreement between the Company and European Medical
Contract Manufacturing, dated October 10, 1994 (certain portions of
this exhibit have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a grant of confidential treatment)
is incorporated by reference to Exhibit 10.12 of the Company's
Amendment No. 2 to Form S-1 Registration Statement filed October 10,
1995 (Registration No. 33-96460).
10.11 Form of Distribution Agreement between the Company and various of its
distributors is incorporated by reference to Exhibit 10.13 of the
Company's Amendment No. 1 to Form S-1 Registration Statement filed
September 22, 1995 (Registration No. 33-96460).
10.12 Agreement between the Company and Janssen Pharmaceutica, N.V., dated
October 14, 1994 (certain portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission
pursuant to a grant of confidential treatment) is incorporated by
reference to Exhibit 10.14 of the Company's Amendment No. 2 to Form S-1
Registration Statement filed October 10, 1995 (Registration No.
33-96460).
10.13 First Addendum to Agreement between the Company and Janssen
Pharmaceutica, N.V., dated September 1, 1995 (certain portions of this
exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a grant of confidential treatment) is
incorporated by reference to Exhibit 10.16 of the Company's Amendment
No. 2 to Form S-1 Registration Statement filed October 10, 1995
(Registration No. 33-96460).
10.14 Seventh Amended and Restated Rights of First Refusal, Co-Sale and
Registration Rights Agreement is incorporated by reference to Exhibit
4.8 of the Company's Amendment No. 2 to Form S-1 Registration Statement
filed October 10, 1995 (Registration No. 33-96460).
10.15 Amended Form of Distribution Agreement between the Company and various
of its distributors is incorporated by reference to Exhibit 10.19 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-20096).
*10.16 Employment letter between the Company and Michael A. Zupon, Ph.D.,
dated April 19, 1993 is incorporated by reference to Exhibit 10.21 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-20096).
10.17 Development and Exclusive License Agreement, dated December 10, 1996,
between the Company and Chugai Pharmaceutical Company, Ltd. is
incorporated by reference to Exhibit 10.20 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 (File
No. 0-20096).
10.18 Form of Indemnification Agreement is incorporated by reference to
Exhibit 10.21 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 0-20096).
10.19 Form of U.S. Manufacturer's Representative Agreement is incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (File No. 0-20096).
10.20 Research Agreement, dated as of October 13, 1998, between the Company
and Janssen Pharmaceutica, N.V. is incorporated by reference to Exhibit
10.23 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-20096).
10.21 Research Collaboration, Option and License Agreement, dated as of
December 23, 1999, by and between the Company and Abgenix, Inc.
(certain portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
request by the Company for confidential treatment).
*10.22 Form of Severance Agreement.
35
<PAGE> 37
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
*10.23 Separation Agreement and General Release, dated December 7, 1999, by
and between the Company and Jon D. Schoeler.
*10.24 Separation Agreement and General Release, dated January 12, 2000, by
and between the Company and John A. Redmond.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
* Reflects management contract or other compensatory arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1999, the Company filed one
Current Report on Form 8-K, dated as of November 17, 1999 relating to
an amendment to the Rights Agreement, dated as of July 1, 1997, between
the Company and American Stock Transfer & Trust Company, as rights
agent.
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLIATECH INC.
BY: /s/ RODNEY E. DAUSCH
Rodney E. Dausch
Executive Vice President and
Chief Financial Officer
DATE: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
*
Thomas O. Oesterling, Ph.D. Chairman and Chief Executive March 30, 2000
Officer (Principal Executive
Officer) and Director
/s/ RODNEY E. DAUSCH
Rodney E. Dausch Executive Vice President and Chief March 30, 2000
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
*
Robert P. Pinkas Director March 30, 2000
*
William A. Clarke Director March 30, 2000
*
Theodore E. Haigler, Jr. Director March 30, 2000
*
Ronald D. Henriksen Director March 30, 2000
*
Irving S. Shapiro Director March 30, 2000
*
John L. Ufheil Director March 30, 2000
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Annual Report on Form 10-K pursuant to the Powers of Attorney executed
by the above-named officers and Directors of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and
Directors.
By: /s/ RODNEY E. DAUSCH March 30, 2000
RODNEY E. DAUSCH, ATTORNEY-IN-FACT
37
<PAGE> 39
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1(i) Second Restated Certificate of Incorporation of the Company is
incorporated hereby by reference to Exhibit 4(a) of the Company's Form
S-8 Registration Statement with respect to the 1995 Nonemployee
Directors Stock Option Plan filed January 18, 1996 (Registration No.
333-00408).
3.1(ii) Amended and Restated By-Laws of the Company are incorporated herein by
reference to Exhibit 4(b) of the Company's Form S-8 Registration
Statement with respect to the 1995 Nonemployee Directors Stock Option
Plan filed January 18, 1996 (Registration Statement No. 333-00408).
4.1 Rights Agreement, dated as of July 1, 1997, by and between the Company
and American Stock Transfer & Trust Company, as rights agent, is
incorporated by reference to Exhibit 1 of the Company's Current Report
on Form 8-K as filed on July 2, 1997 (File No. 0-20096).
4.2 Amendment No. 1, dated as of November 17, 1999, to the Rights Agreement
between the Company and American Stock Transfer & Trust Company, as
rights agent, is incorporated by reference to Exhibit 4.1 of the
Company's Form 8-A/A Amended Registration Statement filed on November
19, 1999 (File No. 0-20096).
10.1 Lease Agreements, as amended, between Gliatech R&D, Inc. and Commerce
Corner Associates (facility lease) which is guaranteed by the Company
is incorporated by reference to Exhibit 10.1 of the Company's Form S-1
Registration Statement filed September 1, 1995 (Registration No.
33-96460).
10.2 Master Lease and Warrant Agreement between the Company and Pacificorp
Credit, Inc. d/b/a Pacific Venture Finance, Inc., dated October 15,
1990, and Amendment No. 1, dated October 15, 1991 (equipment lease
line) is incorporated by reference to Exhibit 10.2 of the Company's
Form S-1 Registration Statement filed September 1, 1995 (Registration
No. 33-96460).
10.3 Sublease between Gliatech R&D, Inc. and Spectrum Surgical Instruments
Corporation, dated November 7, 1994 is incorporated by reference to
Exhibit 10.3 of the Company's Form S-1 Registration Statement filed
September 1, 1995 (Registration No. 33-96460).
10.4 Master Commercial Demand Note of the Company to National City Bank,
dated September 11, 1996 is incorporated by reference to Exhibit 10.4
of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-20096).
*10.5 Employment letter between the Company and Thomas O. Oesterling, Ph.D.,
dated May 19, 1989 is incorporated by reference to Exhibit 10.7 of the
Company's Form S-1 Registration Statement filed September 1, 1995
(Registration No. 33-96460).
*10.6 Employment letter between the Company and Mr. Rodney E. Dausch, dated
February 7, 1995 is incorporated by reference to Exhibit 10.9 of the
Company's Form S-1 Registration Statement filed September 1, 1995
(Registration No. 33-96460).
*10.7 The Company's Amended and Restated 1989 Stock Option Plan is
incorporated by reference to Exhibit A of the Company's Proxy Statement
on Schedule 14A for the fiscal year ended December 31, 1998 (File No.
0-20096).
*10.8 The Company's 1992 Directors Stock Option Plan is incorporated by
reference to Exhibit 10.11 of the Company's Form S-1 Registration
Statement filed September 1, 1995 (Registration No. 33- 96460).
*10.9 The Company's Amended and Restated 1995 Nonemployee Directors Stock
Option Plan is incorporated by reference to Exhibit B of the Company's
Proxy Statements on Schedule 14A for the fiscal year ended December 31,
1998 (File No. 0-20096).
x-1
<PAGE> 40
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
10.10 Manufacturing Agreement between the Company and European Medical
Contract Manufacturing, dated October 10, 1994 (certain portions of
this exhibit have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a grant of confidential treatment)
is incorporated by reference to Exhibit 10.12 of the Company's
Amendment No. 2 to Form S-1 Registration Statement filed October 10,
1995 (Registration No. 33-96460).
10.11 Form of Distribution Agreement between the Company and various of its
distributors is incorporated by reference to Exhibit 10.13 of the
Company's Amendment No. 1 to Form S-1 Registration Statement filed
September 22, 1995 (Registration No. 33-96460).
10.12 Agreement between the Company and Janssen Pharmaceutica, N.V., dated
October 14, 1994 (certain portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission
pursuant to a grant of confidential treatment) is incorporated by
reference to Exhibit 10.14 of the Company's Amendment No. 2 to Form S-1
Registration Statement filed October 10, 1995 (Registration No.
33-96460).
10.13 First Addendum to Agreement between the Company and Janssen
Pharmaceutica, N.V., dated September 1, 1995 (certain portions of this
exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a grant of confidential treatment) is
incorporated by reference to Exhibit 10.16 of the Company's Amendment
No. 2 to Form S-1 Registration Statement filed October 10, 1995
(Registration No. 33-96460).
10.14 Seventh Amended and Restated Rights of First Refusal, Co-Sale and
Registration Rights Agreement is incorporated by reference to Exhibit
4.8 of the Company's Amendment No. 2 to Form S-1 Registration Statement
filed October 10, 1995 (Registration No. 33-96460).
10.15 Amended Form of Distribution Agreement between the Company and various
of its distributors is incorporated by reference to Exhibit 10.19 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-20096).
*10.16 Employment letter between the Company and Michael A. Zupon, Ph.D.,
dated April 19, 1993 is incorporated by reference to Exhibit 10.21 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-20096).
10.17 Development and Exclusive License Agreement, dated December 10, 1996,
between the Company and Chugai Pharmaceutical Company, Ltd. is
incorporated by reference to Exhibit 10.20 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 (File
No. 0-20096).
10.18 Form of Indemnification Agreement is incorporated by reference to
Exhibit 10.21 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 0-20096).
10.19 Form of U.S. Manufacturer's Representative Agreement is incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (File No. 0-20096).
10.20 Research Agreement, dated as of October 13, 1998, between the Company
and Janssen Pharmaceutica, N.V. is incorporated by reference to Exhibit
10.23 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-20096).
10.21 Research Collaboration, Option and License Agreement, dated as of
December 23, 1999, by and between the Company and Abgenix, Inc.
(certain portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
request by the Company for confidential treatment).
*10.22 Form of Severance Agreement.
x-2
<PAGE> 41
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
*10.23 Separation Agreement and General Release, dated December 7, 1999, by
and between the Company and Jon D. Schoeler.
*10.24 Separation Agreement and General Release, dated January 12, 2000, by
and between the Company and John A. Redmond.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
* Reflects management contract or other compensatory arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.
X-3
<PAGE> 1
Exhibit 10.21
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
RESEARCH COLLABORATION, OPTION AND LICENSE AGREEMENT
THIS RESEARCH COLLABORATION, OPTION AND LICENSE AGREEMENT (this
"Agreement"), effective as of December 23, 1999 (the "Effective Date"), is made
between ABGENIX, INC., a Delaware corporation ("ABX"), having a place of
business at 7601 Dumbarton Circle, Fremont, California 94555, and GLIATECH
MEDICAL INC., an Ohio corporation ("Gliatech"), having a place of business at
23420 Commerce Park Road, Cleveland, Ohio 44122, with respect to the following
facts:
RECITALS
A. ABX has rights in certain strains of transgenic mice, XenoMouse(TM)
mice, that are capable of producing human antibodies when immunized with an
antigen.
B. Gliatech has rights in the Antigen (as defined below).
C. The parties desire to commence a research program, pursuant to which
ABX would immunize XenoMouse Animals, with the Antigen provided by Gliatech to
ABX, to generate human monoclonal antibodies to the Antigen.
D. ABX additionally is willing to offer to Gliatech the opportunity to
obtain an exclusive license to develop and commercialize certain antibody
products for human medical purposes on the terms and conditions described
herein.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the terms set forth in this Article 1
shall have the respective meanings set forth below:
1.1 "ABX IN-LICENSE" shall mean a license, sublicense or other
agreement under which ABX acquired rights to the ABX Patent Rights or ABX
Know-How.
1.2 "ABX KNOW-HOW" shall mean, collectively, all inventions,
discoveries, data, information, methods, techniques, technology and other
results, whether or not patentable but which are not generally known, regarding
ABX Materials and Information. All ABX Know-How shall be Confidential
Information of ABX.
1.3 "ABX MATERIALS AND INFORMATION" shall mean, collectively, [***]
<PAGE> 2
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
1.4 "ABX PATENT RIGHTS" shall mean, collectively, (a) all patents and
patent applications listed on Exhibit B and any foreign counterparts claiming
priority thereof; (b) all patent applications heretofore or hereafter filed in
any country which claim (and only to the extent they claim) the ABX Materials
and Information described in clauses (a) and (b) of Section 1.3 above or the use
thereof; (c) all patents that have issued or in the future issue from any of the
foregoing patent applications, including without limitation utility, model and
design patents and certificates of invention; and (d) all divisionals,
continuations, continuations-in-part, reissues, renewals, extensions or
additions to any such patents and patent applications; PROVIDED, HOWEVER, that
ABX Patent Rights shall exclude Research Program Patent Rights.
1.5 "AFFILIATE" shall mean, with respect to any person or entity, any
other person or entity which controls, is controlled by or is under common
control with such person or entity. A person or entity shall be regarded as in
control of another entity if it owns or controls at least fifty percent (50%) of
the equity securities of the subject entity entitled to vote in the election of
directors (or, in the case of an entity that is not a corporation, for the
election of the corresponding managing authority).
1.6 "ANTIBODY" shall mean a composition comprising (a) a whole
antibody, or any fragment thereof, derived from the XenoMouse Animals, or (b) a
whole antibody, or any fragment thereof, which is derived from a whole antibody,
or any fragment thereof, which itself is derived from the XenoMouse Animals (or
the nucleotide sequences that encode, or amino acid sequences of, a whole
antibody, or any fragment thereof, derived from the XenoMouse Animals).
1.7 "ANTIBODY CELLS" shall mean all cells that contain, express, or
secrete antibodies or genetic materials that encode antibodies.
1.8 "ANTIGEN" shall mean [***]
1.9 "BLA" shall mean a Biologics License Application, Product License
Application, New Drug Application, or a similar application for marketing
approval submitted to the U.S. FDA or its counterpart in another country.
1.10 "COLLABORATION COMMITTEE" shall mean the joint collaboration
committee comprising representatives of ABX and Gliatech described in Section
3.1 below.
1.11 "CONFIDENTIAL INFORMATION" shall mean, with respect to a party,
all information of any kind whatsoever (including without limitation,
compilations, data, formulae, models, patent disclosures, procedures, processes,
projections, protocols, results of experimentation and testing, specifications,
strategies and techniques), and all tangible and intangible embodiments thereof
of any kind whatsoever (including without limitation, apparatus, biological or
chemical materials, animals, cells, compositions, documents, drawings,
machinery, patent applications, records, reports), which is owned or controlled
by one party as provided herein and/or disclosed by such party to the other
party hereunder. Confidential Information includes, without limitation, the
Research Program Materials and Information and all tangible and intangible
embodiments thereof of any kind. Notwithstanding the foregoing, Confidential
<PAGE> 3
Information of a party shall not include information which the other party can
establish by written documentation (a) to have been publicly known prior to
disclosure of such information by the disclosing party to the other party, (b)
to have become publicly known before the use or disclosure of such information
by the other party (other than as permitted hereby), (c) to have been received
by the other party at any time from a source, other than the disclosing party,
rightfully having possession of and the right to disclose such information free
of confidentiality obligations, (d) to have been otherwise known by the other
party free of confidentiality obligations prior to disclosure of or access to
such information, or (e) to have been independently developed (as demonstrated
by contemporaneous written evidence maintained in the ordinary course of the
business of the other party) after the expiration or termination of this
Agreement by employees or agents of the other party without access to or use of
such information. The parties acknowledge that the foregoing exceptions shall be
narrowly construed and that the obligations imposed upon each party under
Article 8 below shall be relieved solely with respect to such Confidential
Information of the other party which falls within the above exceptions and not
with respect to related portions, other combinations, or characteristics of the
Confidential Information of the other party including, without limitation,
advantages, operability, specific purposes, uses and the like.
1.12 "DERIVED" or "DERIVED" shall mean obtained, developed, created,
synthesized, designed, derived or resulting from, based upon or otherwise
generated (whether directly or indirectly, or in whole or in part).
1.13 "EXCLUDED TECHNOLOGY" shall mean, collectively, all patent rights,
know-how and other intellectual property rights of ABX in (a) all antigens other
than the Antigen, including without limitation (i) compositions of such antigens
or of Genetic Materials that encode such antigens; (ii) uses of such antigens;
(iii) antibodies or other compositions that bind to such antigens, Genetic
Material that encodes such antibodies or compositions, and Antibody Cells that
contain, express or secrete such antibodies, Genetic Materials or compositions;
and (iv) uses of such antibodies, Genetic Materials or compositions; (b) methods
to discover novel antigens; (c) methods of using antigens other than to create
antibodies; (d) ABX Materials and Information (except for those described in
clauses (a) and (b) of Section 1.1 above); and (e) inventions, discoveries,
data, information, methods, techniques, technology and other results, whether or
not patentable, other than ABX Materials and Information.
1.14 "FEE AND ROYALTY COMMENCEMENT DATE" shall mean either the Net
Sales Royalty Commencement Date or the Sublicensing Revenue Fee Commencement
Date, as applicable.
1.15 "FIELD" shall mean the use of Products for human medical purposes.
1.16 "FIRST COMMERCIAL SALE" shall mean, with respect to each Product
in each country, the date of first commercial sale (other than for purposes of
obtaining regulatory approval) of such Product by Gliatech, its Sublicensee or
their respective Affiliates to an unaffiliated Third Party in such country.
<PAGE> 4
- --------------------------------------------------------------------------------
Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
1.17 "GENETIC MATERIAL" shall mean a nucleotide sequence, including
DNA, RNA, and complementary and reverse complementary nucleotide sequences
thereto, whether coding or noncoding and whether intact or a fragment.
1.18 "GENPHARM CROSS LICENSE AGREEMENT" shall mean that certain Cross
License Agreement entered into by and between ABX, JTI, XT, Cell Genesys, Inc.,
and GenPharm International, Inc., effective as of March 26, 1997, as the same
may be amended from time to time.
1.19 "GLIATECH MATERIALS AND INFORMATION" shall mean, collectively,
[***]
1.20 "IND" shall mean an Investigational New Drug application submitted
to Food and Drug Administration in the United States, or any similar submission
to, or filing with, any foreign regulatory authority, to commence human clinical
testing of any Product in any country.
1.21 "JTI" shall mean Japan Tobacco Inc., a Japanese corporation.
1.22 "LICENSED TECHNOLOGY" shall mean ABX's rights in the ABX Patent
Rights, ABX Know-How, Research Program Patent Rights and Research Program
Know-How; PROVIDED, HOWEVER, that the Licensed Technology (a) is all to the
extent and only to the extent that ABX has the right to grant (sub)licenses
thereunder (including without limitation to the extent permitted under the
applicable ABX In-Licenses); (b) is expressly subject to the ABX In-Licenses;
and (c) shall exclude the Excluded Technology.
1.23 "MATERIALS AND INFORMATION" shall mean, collectively, the ABX
Materials and Information, Gliatech Materials and Information and Research
Program Materials and Information.
1.24 "MILESTONE COMMENCEMENT DATE" shall mean, with respect to a
Product, the date which is thirty (30) days after the earlier of (a) the first
grant of a Sublicense with respect to such Product or (b) the enrollment of the
first patient in the first Phase III clinical trial for such Product by Gliatech
or its Affiliate.
1.25 "NET SALES" shall mean, with respect to each Product, the gross
sales price charged by a Person and its Affiliates for sales of such Product to
non-Affiliate customers, less: (i) normal and customary rebates, cash and trade
discounts and credits for returns and allowances; (ii) sales, consumption or
other excise taxes or duties imposed upon and paid by such Person and its
Affiliates with respect to such sales; (iii) charges included as part of the
gross sales price for freight, postage, shipping and insurance charges, to the
extent billed; (iv) taxes, duties or other governmental charges when included in
the billing; (v) reasonable reserves for uncollectable accounts, as reflected in
financial statements of such Person and its Affiliates, to the extent such
accounts are not actually collected, and (vi) withholding taxes required to be
deducted under Section 6.6 below. Net Sales shall not include sales among such
Person, its Sublicensees and their respective Affiliates for resale, provided
that Net Sales shall include the
<PAGE> 5
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
amounts invoiced by such Person, its Sublicensees and their respective
Affiliates to third parties on the resale of such Products.
1.26 "NET SALES ROYALTY COMMENCEMENT DATE" shall mean, with respect to
each Product in each country, the date of the First Commercial Sale of such
Product in such country.
1.27 "PATENT CLAIM" shall mean a claim of a pending patent application
or issued and unexpired patent included within the Licensed Technology which has
not been held unenforceable or invalid by a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal and which has not been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise.
1.28 "PERSON" shall mean an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
1.29 "PHASE II CLINICAL TRIAL" shall mean a human clinical trial in any
country that is intended to initially evaluate the effectiveness of a Product
for a particular indication or indications in patients with the disease or
indication under study, or that would otherwise satisfy requirements of 21 CFR
312.21(b).
1.30 "PHASE III CLINICAL TRIAL" shall mean a human clinical trial in
any country the results of which could be used as pivotal to establish safety
and efficacy of a Product as a basis for a marketing approval application
submitted to the U.S. FDA, or that would otherwise satisfy requirements of 21
CFR 312.21(c).
1.31 "PRODUCT" shall mean any dosage or formulation of a product
comprising an Antibody which binds to the Antigen.
1.32 "RESEARCH PROGRAM KNOW-HOW" shall mean, collectively, all
inventions, discoveries, data, information, methods, techniques, technology and
other results, whether or not patentable but which are not generally known,
regarding the Research Program Materials and Information or the use thereof.
1.33 "RESEARCH PROGRAM MATERIALS AND INFORMATION" shall mean,
collectively, [***]
1.34 "RESEARCH PROGRAM PATENT RIGHTS" shall mean, collectively, (a) all
patent applications heretofore or hereafter filed in any country which claim
Research Program Materials and Information or the use thereof; (b) all patents
that have issued or in the future issue from any of the foregoing patent
applications, including without limitation utility, model and design patents and
certificates of invention; and (c) all divisionals, continuations,
continuations-in-part, reissues, renewals, extensions or additions to any such
patents and patent applications.
<PAGE> 6
1.35 "RESEARCH PLAN" shall mean the written research work plan
established by the parties pursuant to Section 2.2.1 below, as modified from
time to time pursuant to Section 2.2.1 below.
1.36 "RESEARCH PROGRAM" shall mean the research and preclinical
development program described in Article 2 for the generation, creation and
identification of Antibodies that bind to the Antigen.
1.37 "FEE AND ROYALTY COMMENCEMENT DATE" shall mean either the Net
Sales Royalty Commencement Date or the Sublicensing Revenue Fee Commencement
Date, as applicable.
1.38 "SUBLICENSE" shall mean an agreement or arrangement pursuant to
which such a sublicense or distribution right has been granted to a Sublicensee.
1.39 "SUBLICENSEE" shall mean a Third Party that is granted (a) a
sublicense under the license granted under Section 4.2.1, or (b) a right to
distribute Product in the Field, provided that such Person is responsible for
marketing and promotion of Product within the applicable territory.
1.40 "SUBLICENSING REVENUE" shall mean, with respect to a Sublicensee,
all cash amounts (other than cash royalty payments calculated as a percentage of
sales of Products), and the fair market value of all non-cash consideration,
received by Gliatech or its Affiliates from such Sublicensee in consideration
for or otherwise in connection with the grant of a Sublicense to such
Sublicensee (excluding amounts received in reimbursement of the actual cost to
Gliatech or its Affiliates of conducting research and development activities).
1.41 "SUBLICENSING REVENUE FEE COMMENCEMENT DATE" shall mean, with
respect to each Product, the date of the first grant of a Sublicense with
respect to such Product in the Territory.
1.42 "TERRITORY" shall mean all the countries of the world.
1.43 "THIRD PARTY" shall mean any Person other than ABX, Gliatech and
their respective Affiliates.
1.44 "XENOMOUSE ANIMALS" shall mean the transgenic mice utilized by ABX
for immunization with the Antigen under this Agreement.
1.45 "XT" shall mean Xenotech, L.P., a California limited partnership.
1.46 "XT MASTER RESEARCH LICENSE AND OPTION AGREEMENT" shall mean that
certain Master Research License and Option Agreement entered into by and among
XT, JTI and Cell Genesys, Inc. effective as of June 28, 1996, and subsequently
assigned to ABX by Cell Genesys, Inc., as the same may be amended from time to
time.
<PAGE> 7
1.47 "XT/ABX PRODUCT LICENSE AGREEMENT" shall mean a license agreement
between XT and ABX entered into pursuant to the XT Master Research and License
Agreement granting to ABX a license (with the right to grant sublicenses) to
commercialize Products in one or more territories.
2. RESEARCH PROGRAM
----------------
2.1 COLLABORATIVE RESEARCH. The goal of the Research Program is: (a) to
generate, through immunization of the XenoMouse Animals with the Antigen and IN
VITRO screening, Antibodies that bind to the Antigen to serve as potential lead
candidates for the development of a commercial pharmaceutical product; and (b)
to perform certain preclinical development.
2.2 CONDUCT OF RESEARCH PROGRAM.
2.2.1 RESEARCH PLAN. An initial Research Plan is attached as
Exhibit C. Prior to each anniversary of the Effective Date during the Research
Program Term, the parties shall use their good faith efforts to prepare a
mutually acceptable Research Plan for the following year. If, notwithstanding
the good faith efforts of ABX and Gliatech to negotiate a mutually acceptable
Research Plan for such year, the parties fail to reach agreement, the Research
Program and this Agreement shall terminate immediately, and neither party shall
be held responsible for failure to agree on a Research Plan. The Collaboration
Committee may recommend changes to the Research Plan at any time during the
Research Program Term. Such changes shall only be effective if in a written
amendment duly executed by both parties.
2.2.2 SPECIFIC OBLIGATIONS OF GLIATECH. Gliatech shall provide to
ABX sufficient quantities of the Antigen, the assay components and any Gliatech
technology necessary or useful for the performance of assays in accordance with
the Research Program, and any information known and available to Gliatech
concerning the storage or handling of the Antigen that may be unique or peculiar
to the Antigen. Gliatech shall use its commercially reasonable efforts to
perform its obligations under the Research Program in accordance with the
applicable Research Plan within the time schedules contemplated therein.
Gliatech shall perform its obligations under the Research Program in accordance
with generally accepted scientific and professional standards, and in compliance
in all material respects with the requirements of applicable laws and
regulations and shall provide all commercially reasonable assistance to ABX in
connection with ABX's performance of the Research Program.
2.2.3 SPECIFIC OBLIGATIONS OF ABX. ABX shall immunize the XenoMouse
Animals with the Antigen, and conduct certain Antibody characterization as set
forth in the applicable Research Plan. ABX shall use its commercially reasonable
efforts to perform its obligations under the Research Program in accordance with
the applicable Research Plan within the time schedules contemplated therein. ABX
shall provide personnel, materials, equipment and other resources required to
conduct its obligations under the Research Program. ABX shall perform its
obligations under the Research Program in accordance with generally accepted
scientific and professional standards, and in compliance in all material
respects with the
<PAGE> 8
requirements of applicable laws and regulations and shall provide all
commercially reasonable assistance to Gliatech in connection with Gliatech's
performance of the Research Program.
2.2.4 MATERIALS AND INFORMATION.
a. Each party shall use the Materials and Information owned
by the other party solely for purposes of conducting the Research Program under
commercially and scientifically reasonable containment conditions, and not for
any commercial, business or other use or purpose, without the prior express
written consent of the other party. A party shall not transfer or transport the
Materials and Information owned by the other party from its address identified
above to any other location, and shall limit access to the Materials and
Information owned by the other party to those of its employees working on its
premises at the address identified above, to the extent such access is
reasonably necessary in connection with its activities as expressly authorized
by this Agreement; provided, however, (i) either party may transfer the Research
Program Materials and Information to other locations with the prior written
consent of the other party, which shall not be unreasonably withheld, and
subject to the terms and conditions of this Agreement; and (ii) if Gliatech has
obtained the license under Section 4.2.1 below with respect to the Antigen for
commercial use by Gliatech as provided herein, Gliatech thereafter shall have
the right to transfer the Research Program Materials and Information to other
locations without such consent subject to the terms and conditions of this
Agreement.
b. Notwithstanding anything to the contrary in this
Agreement, a party shall not transfer or provide access to the Materials and
Information owned by the other party to any Affiliate or Third Party, without
the prior express written consent of the other party; provided, however, that if
Gliatech has obtained the license under Section 4.2.1 below with respect to the
Antigen for commercial use by Gliatech as provided herein, Gliatech thereafter
shall have the right to transfer the Research Program Materials and Information
to any Affiliate or Third Party without such consent to the extent permitted by
such license grant.
c. Except as Gliatech is otherwise permitted by the license
under Section 4.2.1 below, with respect to the Antigen for commercial use by
Gliatech (provided that Gliatech has timely obtained such license as provided
herein), a party shall not (and shall not attempt or purport to) assign, sell,
have sold, lease, offer to sell or lease, otherwise transfer title to, or
otherwise distribute or license, sublicense or otherwise commercialize or
exploit, any Materials and Information owned by the other party or any interest
therein.
2.2.5 FUNDING OF THE RESEARCH PROGRAM. Each party shall be
responsible for funding its own obligations under the Research Program until its
completion or termination.
2.2.6 TERM OF THE RESEARCH PROGRAM. Unless earlier terminated as
provided herein, the term of the Research Program shall begin on the Effective
Date and
<PAGE> 9
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
continue through the earlier of (a) [***]. If either party has not completed its
obligations under the Research Program and made all reports required under this
Agreement prior to the expiration or termination of the Research Program Term,
the parties shall discuss in good faith and attempt to reach mutually acceptable
agreement on terms and conditions upon which the parties would extend the
Research Program Term.
2.3 RESEARCH RECORDS AND REPORTS.
2.3.1 RECORDS. Gliatech and ABX each shall maintain records, in
sufficient detail and in accordance with generally accepted scientific standards
appropriate for patent purposes, which shall be complete and accurate and shall
fully and properly reflect all work done and results achieved in the performance
of the Research Program.
2.3.2 INSPECTION OF RECORDS. Gliatech and ABX each shall have the
right, during normal business hours and upon not less than five (5) days prior
written notice, to inspect and obtain copies, upon consent of the other party
(which shall not be unreasonably withheld or delayed), of such records of the
other party to the extent commercially reasonably required for the performance
of its obligations under the Agreement (with the party owning the records
determining what is commercially reasonably required). Each party shall maintain
such records and the information of the other party contained therein in
confidence in accordance with Article 8 below and shall not use such records or
information except to the extent otherwise permitted by the Agreement.
2.3.3 RESEARCH REPORTS AND INFORMATION. Gliatech and ABX each shall
keep the other informed of the progress of its own activities under the Research
Program. At a minimum, within thirty (30) days following the last day of each
December, March, June and September during the term of the Research Program and
within thirty (30) days following the expiration or termination of the Research
Program, Gliatech and ABX each shall prepare, and provide to the other party, a
reasonably detailed written summary report which shall describe the work
performed by such party to date under the Research Program.
3. RESEARCH PROGRAM MANAGEMENT
3.1 COLLABORATION COMMITTEE.
3.1.1 RESPONSIBILITIES. Gliatech and ABX shall establish a
Collaboration Committee to oversee, review and coordinate the Research Program.
The Collaboration Committee shall be responsible for (a) establishing the
Research Plan and recommending modifications thereto, (b) monitoring and
reporting the progress of the Research Program, and (c) facilitating open and
frequent exchange between the parties with respect to Research Program
activities.
3.1.2 COMPOSITION OF THE COLLABORATION COMMITTEE. The Collaboration
Committee shall comprise three (3) named representatives of Gliatech and three
(3) named representatives of ABX. Each party shall appoint its respective
representatives to the
<PAGE> 10
Collaboration Committee from time to time, and may substitute one or more of its
representatives, in its sole discretion, effective upon notice to the other
party of such change.
3.1.3 CONFERENCES. The Collaboration Committee shall conference
monthly during the term of the Research Program. The Collaboration Committee
shall conference in person not less than once each six (6) month period during
the term of the Research Program, on such dates and at such times and places as
agreed to by Gliatech and ABX, alternating between Fremont, California and
Cleveland, Ohio, or such other locations as the parties shall agree. For all
other conferences, the Collaboration Committee may conference by telephone or in
person, as the parties mutually agree. With the consent of the parties, other
representatives of Gliatech or ABX may attend Collaboration Committee
conferences as non-voting observers. Each party shall be responsible for all its
own personnel and travel costs and expenses relating to Collaboration Committee
conferences. The first conference of the Collaboration Committee shall occur as
soon as practicable after the Effective Date, but in no event later than
forty-five (45) days after the Effective Date. Members of the Collaboration
Committee may participate in conferences, in person, by telephone or by video
conference. A Gliatech representative of the Collaboration Committee shall
prepare written minutes of each conference and a written record of all
Collaboration Committee decisions, whether made at a Collaboration Committee
conference or otherwise, in form and content reasonably acceptable to ABX.
3.1.4 COMMITTEE ACTIONS. ABX and Gliatech each shall be entitled to
cast one vote on matters before the Collaboration Committee. Decisions of the
Collaboration Committee shall be made by unanimous approval.
3.2 DISAGREEMENTS. The parties shall use their good faith efforts
to resolve all disagreements within the Collaboration Committee in a mutually
acceptable manner as soon as reasonably practicable. If, notwithstanding the
good faith efforts of the parties to resolve any such disagreement, any such
unresolved disagreements within the Collaboration Committee shall be resolved in
the following manner:
3.2.1 The representatives of the Collaboration Committee promptly
shall present the disagreement to the Chief Executive Officer of Gliatech and
the Chief Executive Officer of ABX (or their respective officer designees who
are not members of the Collaboration Committee).
3.2.2 Such executives (or designees) shall conference to discuss
each party's view and to explain the basis for their respective positions of
such disagreement, and in good faith shall attempt to resolve such disagreement
among themselves; PROVIDED, HOWEVER, that the parties do not waive any rights
which they may have under the Agreement or otherwise as a result of the
resolution of a disagreement under this Section 3.2.2.
3.2.3 If such executives (or designees) cannot promptly resolve
such disagreement, then any disagreement concerning the Research Program shall
be settled by such means as such executives (or designees) determine.
Notwithstanding the foregoing, the parties
<PAGE> 11
- --------------------------------------------------------------------------------
Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
do not waive any rights which they may have under the Agreement or otherwise as
a result of the resolution of a disagreement under this Section 3.2.3.
3.2.4 If any disagreement regarding the Research Program is not
promptly resolved pursuant to this Section 3.2, then upon written notice from
either party to the other party, the Research Program shall terminate and INTER
ALIA the provisions of Section 12.5.4 below shall apply.
4. COMMERCIAL LICENSE
4.1 OPPORTUNITY TO OBTAIN COMMERCIAL LICENSE.
4.1.1 On or before the second regularly scheduled board meeting of
XT in 2000, ABX shall nominate the Antigen under the XT Master Research License
and Option Agreement and obtain the right thereunder to obtain an XT/ABX Product
License Agreement with respect to the Antigen for commercial use by Gliatech.
ABX shall give prompt written notice to Gliatech upon nominating the Antigen
under the XT Master Research License and Option Agreement and obtaining the
right thereunder to obtain an XT/ABX Product License Agreement with respect to
the Antigen for commercial use by Gliatech.
4.1.2 After ABX has nominated the Antigen under the XT Master
Research License and Option Agreement and obtained the right thereunder to
obtain an XT/ABX Product License Agreement with respect to the Antigen, subject
to the terms and conditions of this Agreement, if Gliatech desires to obtain the
commercial license described in Section 4.2.1 below, Gliatech shall give express
written notice (the "License Notice") to ABX thereof. If Gliatech fails to give
the License Notice to ABX on or before [***], this Agreement immediately shall
terminate.
4.1.3 If (a) on or before the date that is [***], Gliatech
demonstrates to ABX's reasonable satisfaction its ability to manufacture Product
in accordance with Good Manufacturing Practices, has demonstrated its ability to
scale up such manufacture for quantities required for clinical trials and has
completed Stage III of the Research Program, and (b) Gliatech timely provides
the License Notice to ABX in accordance with Section 4.1.2 above, ABX shall
exercise its option under the XT Master Research License and Option Agreement to
obtain, and shall obtain, the XT/ABX Product License Agreement for the Antigen.
ABX shall notify Gliatech at such time as ABX has obtained the XT/ABX Product
License Agreement for the Antigen.
4.2 GRANT OF COMMERCIAL LICENSE.
4.2.1 Provided that (a) [***], Gliatech has demonstrated to ABX's
reasonable satisfaction its ability to manufacture Product in accordance with
Good Manufacturing Practices, has demonstrated its ability to scale up such
manufacture for quantities required for clinical trials and has completed Stage
III of the Research Program; (b) Gliatech has timely provided ABX with the
License Notice; and (c) ABX has obtained the XT/ABX Product License Agreement
for the Antigen, effective as of the date that ABX has obtained the XT/ABX
<PAGE> 12
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
Product License Agreement for the Antigen and subject to the terms and
conditions of this Agreement, ABX shall grant to Gliatech an exclusive license
or sublicense, as the case may be (with the right to grant sublicenses), under
the Licensed Technology, to make and use Research Program Materials and
Information solely to make and have made Product and to use, sell, lease, offer
to sell or lease, import, export, otherwise transfer physical possession of or
otherwise transfer title to Product, in the Territory for use in the Field.
4.2.2 Notwithstanding anything to the contrary in this Agreement,
Gliatech shall not commence manufacturing for commercial use, under current Good
Manufacturing Practices in the United States (or their foreign equivalent), any
Product, unless and until Gliatech successfully obtains the commercial license
under Section 4.2.1 above.
4.3 SUBLICENSES. Gliatech shall have the right to grant Sublicenses
under the license granted under Section 4.2.1 above. Gliatech shall provide ABX
with a copy of each such Sublicense promptly after executing the same. Any such
Sublicense shall be subject and subordinate to the terms and conditions of this
Agreement. Notwithstanding the foregoing, Gliatech shall not have the right to
Sublicense any right under this Agreement in or to a XenoMouse Animal or other
transgenic animal covered by the Licensed Technology.
4.4 NO OTHER RIGHTS. No rights other than those expressly set forth
in this Agreement are granted to Gliatech hereunder, and no additional rights
shall be deemed granted to Gliatech by implication, estoppel or otherwise.
5. CONSIDERATION
5.1 TECHNOLOGY ACCESS FEES. Gliatech shall pay to ABX the following
non-refundable, non-creditable technology access fees on or before the
applicable dates set forth below:
[***]
5.2 MILESTONE PAYMENTS.
5.2.1 AMOUNTS. Subject to the provisions of Sections 5.2.2 and
5.2.3 below, within thirty (30) days following the achievement of each of the
following milestones with respect to each Product, on a Product-by-Product
basis, Gliatech shall give written notice to ABX thereof and shall pay to ABX
the corresponding milestone payments:
[***] upon entering into a Sublicense for each Product (for
reimbursement of research costs previously incurred by ABX)
[***] upon the Milestone Commencement Date
[***] upon (a) the submission of the first IND for each Product by
Gliatech, its Affiliate or Sublicensee, or (b) the enrollment
of the first subject in the first human clinical trial for
such Product if no IND is required therefor
<PAGE> 13
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
[***] upon enrollment of the first patient in the first Phase II
clinical trial for the each Product by Gliatech, its Affiliate
or Sublicensee
[***] upon enrollment of the first patient in the first Phase III
clinical trial for each Product by Gliatech, its Affiliate or
Sublicensee
[***] upon submission of the first BLA for each Product by Gliatech,
its Affiliate or Sublicensee
5.2.2 COMMENCEMENT OF MILESTONE PAYMENTS. Notwithstanding anything
to the contrary in Section 5.2.1 above, the due date for Gliatech's obligation
to pay any milestone payment described in Section 5.2.1 above with respect to a
Product shall be suspended with respect to such Product until the Milestone
Commencement Date.
5.2.3 OFFSET OF SUBLICENSING REVENUES ROYALTIES. With respect to
each milestone payment under Section 5.2.1 above owing after the Milestone
Commencement Date, Gliatech shall have the right to offset fees paid to ABX
under Section 5.3.2 below prior to the date of such milestone payment owing
under Section 5.2.1 above, against such milestone payment owing under Section
5.2.1 above.
5.2.4 MINIMUMS. In the event that Gliatech enters into Sublicenses
with more than one Sublicensee, the Milestone payments set forth in Section
5.2.1 above shall be paid with respect to the first Sublicensee, but not
subsequent Sublicensees.
5.3 ROYALTIES AND SUBLICENSE REVENUES FEE.
5.3.1 NOTICE OF FEE AND ROYALTY COMMENCEMENT DATES. Within thirty
(30) days following the Net Sales Royalty Commencement Date for each Product in
each country and the Sublicensing Revenue Fee Commencement Date for each
Product, Gliatech shall give written notice to ABX thereof.
5.3.2 SUBLICENSING REVENUES FEE.
a. Subject to the provisions of Sections 5.3.2(b) below,
Gliatech shall pay to ABX the following fees with respect to each Sublicense for
each Product:
If such Sublicense for such Product is granted prior to the initiation
of GMP manufacture of such Product for use in human clinical trials,
Gliatech shall pay to ABX [***] of Sublicensing Revenues for such
Product.
If such Sublicense for such Product is granted following the initiation
of GMP manufacture of such Product for use in human clinical trials,
but prior to the earlier of (a) the submission of an IND for such
Product, or (b) the enrollment of the first subject in the first human
clinical trial for such Product if no IND is required therefor,
Gliatech shall pay to ABX [***] of Sublicensing Revenues for such
Product.
<PAGE> 14
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
If such Sublicense for such Product is granted following the earlier of
(a) the submission of an IND for such Product, or (b) the enrollment of
the first subject in the first human clinical trial for such Product if
no IND is required therefor, but prior to enrollment of the first
patient in the first Phase II clinical trial for such Product, Gliatech
shall pay to ABX [***] of Sublicensing Revenues for such Product.
If such Sublicense for such Product is granted following the enrollment
of the first patient in the first Phase II clinical trial for such
Product, but prior to submission of the first BLA for such Product,
Gliatech shall pay to ABX [***] of Sublicensing Revenues for such
Product.
If such Sublicense for such Product is granted following submission of
the first BLA for such Product, Gliatech shall pay to ABX [***] of
Sublicensing Revenues for such Product.
b. Gliatech shall have the right to offset any milestone
payment paid under Section 5.2.1 above with respect to a Product against the
Sublicensing Revenues fee payments thereafter owing under Section 5.3.2(a) above
with respect to such Product.
5.3.3 NET SALES ROYALTY. Gliatech shall pay to ABX a royalty with
respect to each Product equal to (a) [***] of the aggregate Net Sales of such
Product by Gliatech and its Affiliates, and (b) the greater of (i) the
applicable percentage set forth in Section 5.3.2(a) of the cash royalty payments
(that are calculated as a percentage of sales of such Product) received by
Gliatech or its Affiliates from each Sublicensee in consideration for or
otherwise in connection with the grant of a Sublicense with respect to such
Product to such Sublicensee, or (ii) [***] of the aggregate Net Sales of such
Product by each Sublicensee and its Affiliates.
5.3.4 LENGTH OF FEE AND ROYALTY OBLIGATIONS. Gliatech's obligation
to pay royalties under clause (a) of Section 5.3.3 with respect to each Product
in each country shall commence on the Net Sales Royalty Commencement Date for
such Product in such country. Gliatech's obligation to pay fees under Sections
5.3.2 and Royalties under clause (b) of Section 5.3.3 with respect to each
Product shall commence on the Sublicensing Revenue Fee Commencement Date for
such Product. Gliatech's obligation to pay fees and royalties with respect to
each Product under Sections 5.3.2 and 5.3.3 shall continue for such Product in
each country until (a) if, as of the First Commercial Sale of such Product in
such country, there exists a Patent Claim in the country where such Product is
made, used or sold that covers (i) Gliatech's or its Affiliate's or
Sublicensee's manufacture, use or sale of such Product, or (ii) XenoMouse
Animals or their use, such date as no such Patent Claim exists in the country
where such Product is made, used or sold, or (b) otherwise, ten (10) years after
the First Commercial Sale of such Product in such country.
6. ACCOUNTING AND RECORDS
6.1 FEE AND ROYALTY REPORTS AND PAYMENTS. Commencing with the first
calendar quarter in which the first Fee and Royalty Commencement Date occurs,
Gliatech shall
<PAGE> 15
make written reports to ABX within thirty (30) days after the end of each
calendar quarter, stating in each such report the number, description, and
aggregate Net Sales of Product sold during the calendar quarter, the
Sublicensing Revenues for such calendar quarter, and the calculation of the
royalties payable under Article 5 above. Concurrently with the making of such
reports, Gliatech shall pay to ABX all amounts payable pursuant to Article 5
above.
6.2 RECORDS; INSPECTION. Gliatech shall keep (and cause its
Affiliates and Sublicensees to keep) complete, true and accurate books of
account and records for the purpose of determining the fee and royalty amounts
payable to ABX under this Agreement. Such books and records shall be kept at the
principal place of business of Gliatech or its Affiliates or Sublicensees, as
the case may be, for at least three years following the end of the calendar
quarter to which they pertain. Such records of Gliatech or its Affiliates will
be open for inspection during such three-year period by representatives of ABX
(which representatives may also represent XT) for the purpose of verifying the
fee and royalty statements. Gliatech shall require each of its Sublicensees to
maintain similar books and records and to open such records for inspection
during normal business hours upon reasonable prior written notice during the
same three-year period by a representative of Gliatech reasonably satisfactory
to ABX on behalf of, and as required by, ABX for the purpose of verifying the
fee and royalty statements. All such inspections may be made no more than once
each calendar year at reasonable times mutually agreed by Gliatech and ABX. The
representative of ABX will be obliged to execute a reasonable confidentiality
agreement prior to commencing any such inspection. Inspections conducted under
this Section 6.2 shall be at the expense of ABX, unless a variation or error
producing an increase exceeding ten percent (10%) of the amount stated for any
period is established in the course of any such inspection, whereupon all costs
relating to the audit of such period will be paid by Gliatech.
6.3 PAYMENT METHOD. All payments by Gliatech to ABX hereunder shall
be in United States Dollars in immediately available funds and shall be made by
wire transfer from a United States bank located in the United States to such
bank account as designated by ABX to Gliatech.
6.4 CURRENCY CONVERSION. If any currency conversion shall be
required in connection with the calculation of royalties hereunder, such
conversion shall be made using the selling exchange rate for conversion of the
foreign currency into United States Dollars, quoted for current transactions
reported in THE WALL STREET JOURNAL for the last business day of the calendar
quarter to which such payment pertains.
6.5 LATE PAYMENTS. Any payments due from Gliatech that are not paid
on the date such payments are due under this Agreement shall bear interest at a
rate per annum equal to the lesser of (i) the prime rate as reported by the Bank
of America in San Francisco, California on the date such payment is due, plus an
additional one percent (1%), or (ii) the maximum rate permitted by applicable
law, in each case calculated on the number of days such payment is delinquent.
This Section 6.5 shall in no way limit any other remedies available to any
party.
6.6 WITHHOLDING TAXES. All payments required to be made pursuant to
Article 5 above shall be without deduction or withholding for or on account of
any taxes or
<PAGE> 16
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
similar governmental charge imposed by a jurisdiction, such taxes being referred
to herein as "Withholding Taxes." Withholding Taxes shall be the sole
responsibility of the withholding party. The withholding party shall provide a
certificate evidencing payment of any Withholding Taxes hereunder.
7. DILIGENCE
7.1 DILIGENCE OBLIGATION. Gliatech shall use its reasonable commercial
efforts to actively research, develop and obtain regulatory approvals to market
in major markets throughout the world at least one Product hereunder as
expeditiously as possible, and following such approval to maximize sales of such
Product. Without limiting the foregoing, Gliatech shall meet the following
diligence milestones by the dates set forth below:
7.1.1 SUBMISSION OF IND.
a. Gliatech or its Sublicensee shall submit an IND with the
U.S. FDA for one or more Products under this Agreement within [***] after the
grant by ABX to Gliatech of a commercial license in accordance with Section
4.2.1.
b. Notwithstanding Section 7.1.1(a)[***]
c. After the submission of an IND for a Product, Gliatech, or
its Sublicensee, shall be required to have an active IND and to be actively and
diligently conducting a program of clinical trials in pursuit of regulatory
approval (as soon as commercially practicable) for such Product in the United
States until such Product may be sold commercially in the United States.
7.1.2 OBTAIN REGULATORY APPROVALS. Gliatech or its Sublicensee
shall use its reasonable commercial efforts to obtain, as soon as commercially
practicable, regulatory approval to market in the United States at least one
Product.
7.1.3 MARKETING AND SALES. Gliatech or its Sublicensee (a) shall
commence marketing each Product in a country within [***] after receipt of the
applicable governmental approvals, including, without limitation, pricing
approvals, in such country, and (b) shall use its reasonable commercial efforts
to market, and shall meet the reasonably foreseeable market demands for, each
approved Product in such country.
7.2 FAILURE TO MEET DILIGENCE OBLIGATION. If the diligence
requirements set forth in Section 7.1 are not met by Gliatech (or its
Sublicensees), ABX shall have the right to terminate this Agreement pursuant to
Section 12.2 below as its sole and exclusive remedy for a failure to satisfy
such diligence requirements.
7.3 OBLIGATIONS OF GLIATECH. The work performed by Gliatech, its
Sublicensees and their respective Affiliates under this Agreement shall be
performed in accordance with generally accepted scientific and professional
standards, and in compliance in all material respects with the requirements of
applicable laws and regulations. Gliatech, its
<PAGE> 17
Sublicensees and their respective Affiliates shall be solely responsible for
providing the personnel, materials, equipment, and other resources therefor in
connection with the work performed by any of Gliatech, its sublicensees or their
respective Affiliates.
7.4 NO CONFLICTS.
7.4.1 OTHER PRODUCTS. During the term of this Agreement, Gliatech
shall not directly or indirectly sell or commercialize for human medical use, or
conduct research or development toward the human medical use of any product
(other than the Products), comprising (a) an antibody, antibody fragment,
peptide or amino acid sequence derived from an antibody, in each case which
binds to the Antigen, or (b) Genetic Material that encodes such any such
composition.
7.4.2 UNAUTHORIZED PRODUCTS. During the term of this Agreement,
Gliatech shall not directly or indirectly sell or commercialize for any purpose
any product comprising any chemical or biological material derived by Gliatech
from XenoMouse Animals immunized with the Antigen other than strictly in
accordance with the terms and conditions of this Agreement.
7.5 REPORTS. Gliatech shall keep ABX informed of the progress of
its, its Affiliates and Sublicensees' activities to develop and commercialize
Products following the expiration or termination of the Research Program. At a
minimum, within thirty (30) days following the last day of each December and
June following the expiration or termination of the Research Program, Gliatech
shall prepare, and provide to ABX, a reasonably detailed written summary report
which shall describe such activities since the last report under this Section
7.5.
8. CONFIDENTIALITY
8.1 During the term of this Agreement and for a period of ten (10)
years following the expiration or earlier termination hereof, each party shall
maintain in confidence the Confidential Information of the other party, and
shall not disclose, use or grant the use of the Confidential Information of the
other party except on a need-to-know basis to such party's directors, officers
and employees, and to such party's consultants working on such party's premises,
and (in the case of Gliatech) to the inventors of the technology pertaining to
the Research Program, to the extent such disclosure is reasonably necessary in
connection with such party's activities as expressly authorized by this
Agreement. To the extent that disclosure to any person is authorized by this
Agreement, prior to disclosure, a party shall obtain written agreement of such
person to hold in confidence and not disclose, use or grant the use of the
Confidential Information of the other party except as expressly permitted under
this Agreement. Each party shall notify the other promptly upon discovery of any
unauthorized use or disclosure of the other party's Confidential Information.
Upon the expiration or earlier termination of this Agreement, each party shall
return to the other party all tangible items regarding the Confidential
Information of the other party and all copies thereof; PROVIDED, HOWEVER, that
each party shall have the right to retain one (1) copy for its legal files for
the sole purpose of determining its obligations hereunder.
<PAGE> 18
8.2 For purposes of this Agreement, (a) the ABX Materials and
Research Program Materials and Information and all oral or written
communications received by Gliatech regarding the ABX Materials and Research
Program Materials and Information are, and shall remain, Confidential
Information of ABX; and (b) the Gliatech Materials and Information and all oral
or written communications received by ABX regarding the Gliatech Materials and
Information are, and shall remain, Confidential Information of Gliatech.
8.3 This Article 8 shall neither (a) prevent ABX from using or
disclosing for any purpose the ABX Materials and Information, nor (b) prevent
Gliatech from using or disclosing for any purpose the Gliatech Materials and
Information.
8.4 Neither party shall disclose any terms or conditions of this
Agreement to any Third Party without the prior consent of the other party;
PROVIDED, HOWEVER, that either party may disclose the terms or conditions of
this Agreement, (a) on a need-to-know basis to its legal and financial advisors
to the extent such disclosure is reasonably necessary in connection with such
party's activities as expressly permitted by this Agreement or for the conduct
of its business, (b) to a Third Party in connection with (i) an equity
investment in such party by a Third Party, (ii) a merger, consolidation or
similar transaction entered into by such party, or (iii) the sale of all or
substantially all of the assets of such party, and (c) as may, in the reasonable
opinion of such party's counsel, be required by applicable law, regulation or
court order, including without limitation, a disclosure in connection with such
party's filing of a registration statement or other filing with the United
States Securities and Exchange Commission (in which event such party will first
reasonably consult with the other party with respect to such disclosure).
Notwithstanding the foregoing, prior to execution of this Agreement Gliatech and
ABX shall agree upon the form of a press release that can be used to describe
the terms of this transaction, and Gliatech and ABX may disclose the information
contained in such press release, together with such additional information as
the parties from time to time mutually agree, without the other party's consent.
9. MATERIALS AND INFORMATION AND PATENT RIGHTS
-------------------------------------------
9.1 OWNERSHIP.
9.1.1 ABX shall solely own all right title and interest in the ABX
Materials and Information, the Research Program Materials and Information and
all patent rights and other intellectual property rights therein. Gliatech shall
solely own all right title and interest in the Gliatech Materials and
Information and all patent rights and other intellectual property rights
therein. The transfer of physical possession of any Materials and Information
owned by, and the physical possession and use of any Materials and Information
by, Gliatech or ABX, as the case may be, shall not be (nor be construed as) a
sale, lease, offer to sell or lease, or other transfer of title of such
Materials and Information to Gliatech or ABX, as the case may be.
9.1.2 During the term of this Agreement, neither party shall (and
neither party shall attempt or purport to) assign, sell, have sold, lease, offer
to sell or lease, otherwise transfer title to, or otherwise distribute or
license, sublicense or otherwise commercialize or exploit, any Research Program
Materials and Information, except as otherwise set forth herein,
<PAGE> 19
or the parties otherwise expressly agree in writing. Except as otherwise
provided herein, upon the expiration or earlier termination of the term of this
Agreement, Gliatech shall deliver to ABX all Research Program Materials and
Information in its possession.
9.1.3 ABX shall not (and shall not attempt or purport to) file or
prosecute any patent application in any country which claims or purports to
claim the Gliatech Materials and Information, unless the parties otherwise
expressly agree in writing. Gliatech shall not (and shall not attempt or purport
to) file or prosecute any patent application in any country which claims or
purports to claim the ABX Materials and Information or the Research Program
Materials and Information, unless the parties otherwise expressly agree in
writing.
9.2 ASSIGNMENT AND DISCLOSURE. Each party shall cause all employees
and others conducting work on its behalf under this Agreement to promptly
disclose to the other party all Materials and Information in which the other
party has an ownership interest, and to assign any and all right, title and
interest in all Materials and Information and all patent rights and other
intellectual property rights therein in accordance with this Agreement. Each
party shall maintain records in sufficient detail and in accordance with
generally accepted scientific and professional standards appropriate for patent
purposes to properly reflect all work done and results achieved in conducting
its work hereunder, and shall respond to reasonable requests the other party for
information regarding Materials and Information in which the other party has an
ownership interest.
9.3 RESEARCH PROGRAM PATENT RIGHTS.
9.3.1 PROSECUTION AND MAINTENANCE. Gliatech shall have the first
right (but not the obligation), at its sole expense, to prepare, file, prosecute
and maintain the Research Program Patent Rights, subject to the following:
a. With respect to each patent application and patent within
the Research Program Patent Rights, Gliatech shall (i) provide ABX with any
patent application filed by Gliatech prior to filing in order to provide ABX
with an opportunity to comment thereon, and consider in good faith reasonable
comments by ABX thereon; (ii) provide ABX with any patent application filed by
Gliatech promptly after such filing; and (iii) provide ABX promptly with copies
of all substantive communications received from or filed in patent office(s)
with respect to such filings and consider in good faith reasonable comments by
ABX thereon.
b. ABX shall assist Gliatech, upon Gliatech's request, and to
the extent commercially reasonable, in preparing, filing or maintaining the
patent applications and patents within the Research Program Patent Rights.
c. If Gliatech fails to undertake the filing of a patent
application (or continuing or divisional application) within ninety (90) days
after a written request from ABX to do so, or if Gliatech discontinues the
prosecution or maintenance of a patent application or a patent, within the
Research Program Patent Rights, ABX shall have the right (but not the
obligation), at its sole expense, to undertake such filing, prosecution or
maintenance thereof.
<PAGE> 20
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Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
9.3.2 ENFORCEMENT. Gliatech shall have the first right (but not the
obligation), at its sole expense, to enforce the Research Program Patent Rights,
subject to the following:
a. Gliatech shall keep ABX informed and consider in good
faith the reasonable comments of ABX, both prior to and during any such
enforcement. ABX shall assist Gliatech, upon request and at Gliatech's sole
expense, and to the extent commercially reasonable, in taking any action to
enforce the Research Program Patent Rights to the extent ABX has the right to do
so.
b. If Gliatech fails to abate an infringement of the Research
Program Patent Rights, or to file an action to abate such infringement, within
ninety (90) days after a written request from ABX to do so, or if Gliatech
discontinues the prosecution of any such action after filing, ABX at its expense
may, in its discretion, undertake such action as it determines appropriate to
enforce the Research Program Patent Rights. In such case, Gliatech shall assist
ABX, upon request and at ABX's sole expense, and to the extent commercially
reasonable, in taking any action to enforce the Research Program Patent Rights
to the extent Gliatech has the right to do so.
c. All monies recovered upon the final judgment or settlement
of any such action shall be used (i) first, to reimburse the costs and expenses
(including reasonable attorneys' fees and costs) of ABX and Gliatech, and (ii)
the remainder, to be divided [***] to the controlling party of the litigation
and [***] to the other party.
9.4 INFRINGEMENT CLAIMS. Subject to Section 9.6 below, if the
production, sale or use of Product pursuant to this Agreement results in any
claim, suit or proceeding alleging patent infringement against Gliatech (or its
Affiliates or Sublicensees), Gliatech shall promptly notify ABX thereof in
writing setting forth the facts of such claim in reasonable detail. Gliatech
shall keep ABX reasonably informed of all material developments in connection
with any such claim, suit or proceeding as it relates to the Licensed
Technology. Notwithstanding the above, Gliatech shall not admit the invalidity
of any patent within the Licensed Technology without written consent from ABX.
9.5 PATENT MARKING. Gliatech agrees to mark and have its Affiliates
and all Sublicensees mark all Products sold pursuant to this Agreement in
accordance with the applicable statutes or regulations in the country or
countries of manufacture and sale thereof.
9.6 LIMITATION. Notwithstanding any other provision in this Article
9, (a) ABX shall not be obligated to prepare, file, prosecute, and maintain
patents and patent applications, or to bring or pursue enforcement proceedings
or defend declaratory judgment actions regarding the Licensed Technology if, and
to the extent that, ABX is not entitled to do so under one or more ABX
In-Licenses, and (b) any rights conveyed under this Article 9 permitting
Gliatech to prepare, file, prosecute and maintain certain patents and patent
applications, or to bring and pursue enforcement proceedings, or defend
declaratory judgment actions, regarding the Licensed Technology, shall be
subject to all applicable ABX In-Licenses, and are conveyed only to the extent
permitted under such agreements.
<PAGE> 21
10. INDEMNIFICATION
10.1 ABX. ABX shall indemnify and hold harmless Gliatech, and its
directors, officers, employees and agents, from and against all losses,
liabilities, damages and expenses, including reasonable attorneys' fees and
costs (collectively, "Liabilities"), resulting from any claims, demands, actions
or other proceedings by any Third Party arising from (a) the material breach of
any representation, warranty or covenant by ABX under this Agreement, (b) any
use, handling or storage by ABX of the Gliatech Materials and Information or the
Research Program Materials and Information, (c) the use, sale, handling or
storage by ABX of the Antibody or the Products, or (d) any use by ABX of the
Confidential Information of Gliatech; PROVIDED, HOWEVER, that ABX shall not be
obligated to indemnify or hold harmless Gliatech for such Liabilities to the
extent that such Liabilities arise from the gross negligence or willful
misconduct of Gliatech.
10.2 GLIATECH. Gliatech shall indemnify and hold harmless ABX, and
its directors, officers, employees and agents, from and against all Liabilities
resulting from any claims, demands, actions or other proceedings by any Third
Party arising from (a) the material breach of any representation, warranty or
covenant by Gliatech under this Agreement, (b) any use, handling or storage by
Gliatech of the ABX Materials and Information or the Research Program Materials
and Information, (c) the manufacture, use, sale, handling or storage by
Gliatech, its Affiliates or Sublicensees of the Products (without regard to
culpable conduct), or (d) any use by Gliatech of the Confidential Information of
ABX; PROVIDED, HOWEVER, that Gliatech shall not be obligated to indemnify or
hold harmless ABX for such Liabilities to the extent that such Liabilities arise
from the gross negligence or willful misconduct of ABX.
10.3 PROCEDURE. If a party (an "Indemnitee") intends to claim
indemnification under this Article 10, it shall promptly notify the indemnifying
party (the "Indemnitor") in writing of any claim, demand, action or other
proceeding for which the Indemnitee intends to claim such indemnification, and
the Indemnitor shall have the right to participate in, and, to the extent the
Indemnitor so desires, to assume the defense thereof with counsel mutually
satisfactory to the parties with the fees of such counsel to be paid by the
Indemnitor; PROVIDED, HOWEVER, that an Indemnitee shall have the right to retain
its own counsel, with the fees and expenses to be paid by the Indemnitor, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceeding. The indemnity agreement in this Article 10 shall not apply to
amounts paid in settlement of any claim, demand, action or other proceeding if
such settlement is effected without the consent of the Indemnitor, which consent
shall not be withheld or delayed unreasonably. The failure to deliver written
notice to the Indemnitor within a reasonable time after the commencement of any
such action, if prejudicial to its ability to defend such action, shall relieve
such Indemnitor of any liability to the Indemnitee under this Article 10, but
the omission so to deliver written notice to the Indemnitor shall not relieve it
of any liability that it may have to any party claiming indemnification
otherwise than under this Article 10. The party claiming indemnification under
this Article 10, its employees and agents, shall reasonably cooperate with the
Indemnitor and its legal representatives in the investigation of any claim,
demand, action or other proceeding covered by this indemnification.
<PAGE> 22
10.4 INSURANCE. Gliatech shall maintain insurance, including
product liability insurance, with respect to development, manufacture and sales
of Products in such amount as Gliatech customarily maintains with respect to the
development, manufacture and sale of its other products. ABX shall be named as
an additional insured on any such Gliatech policies. Gliatech shall maintain
such insurance for so long as it continues to develop, manufacture or sell any
Products, and thereafter for so long as Gliatech customarily maintains insurance
for itself covering the development, manufacture and sale of its other products.
11. REPRESENTATIONS AND WARRANTIES
11.1 MUTUAL REPRESENTATIONS. Each party hereby represents and
warrants to the other party as follows:
11.1.1 EXISTENCE. Such party is duly organized, validly existing
and in good standing under the laws of the state in which it is organized.
11.1.2 AUTHORIZATION AND ENFORCEMENT OF OBLIGATIONS. Such party:
(a) has the requisite power and authority and the legal right to enter into this
Agreement and to perform its obligations hereunder; and (b) has taken all
requisite action on its part to authorize the execution and delivery of this
Agreement and the performance of its obligation hereunder. This Agreement has
been duly executed and delivered on behalf of such party, and constitutes a
legal, valid, binding obligation enforceable against such party in accordance
with its terms except as enforcement may be limited by equitable remedies or
defenses and applicable bankruptcy laws.
11.1.3 NO CONSENTS. All necessary consents, approvals and
authorizations of all governmental authorities and other person required to be
obtained by such party in connection with this Agreement have been obtained.
11.1.4 NO CONFLICT. The execution and delivery of this Agreement
and the performance of such party's obligations hereunder: (a) do not conflict
with or violate any requirement of applicable laws or regulations; and (b) do
not conflict with, or constitute a default under, any contractual obligation of
it.
11.2 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, ABX MAKES NO REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND
REGARDING MATERIALS, PRODUCTS OR LICENSED TECHNOLOGY EITHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NONINFRINGEMENT, AND VALIDITY OF TECHNOLOGY OR PATENT
CLAIMS, ISSUED OR PENDING. SUCH MATERIALS PROVIDED PURSUANT TO THIS AGREEMENT
ARE PROVIDED "AS IS."
12. TERM; TERMINATION
12.1 TERM. The term of this Agreement shall commence on the
Effective Date and, unless earlier terminated as provided in Articles 2 or 4 or
this Article 12, shall continue in
<PAGE> 23
- --------------------------------------------------------------------------------
Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
full force and effect on a Product-by-Product and country-by-country basis until
the expiration of all fee and royalty obligations pursuant to this Agreement for
such Product in such country. Following the expiration, but not earlier
termination, of this Agreement on a Product-by-Product and country-by-country
basis, Gliatech shall have a fully-paid up, non-exclusive license to use the ABX
Know-How and the Research Program Know-How solely to make and have made Product
and to use, sell, lease, offer to sell or lease, import, export, otherwise
transfer physical possession of or otherwise transfer title to Product, for use
in the Field.
12.2 TERMINATION FOR BREACH. In the event that a party shall have
materially breached or defaulted in the performance of any of its material
obligations hereunder, and such breach or default shall have continued for
thirty (30) days after written notice of such breach was provided to the
breaching party by the nonbreaching party, the nonbreaching party shall have the
right at its option to terminate this Agreement effective at the end of such
thirty (30) day period.
12.3 TERMINATION FOR FAILURE TO TIMELY GIVE LICENSE NOTICE. If
Gliatech fails to give the License Notice to ABX on or before the expiration or
termination of the Research Program Term, this Agreement immediately shall
terminate.
12.4 TERMINATION BY GLIATECH. Gliatech may terminate this Agreement
at any time upon ninety (90) days prior written notice to ABX.
12.5 EFFECT OF EXPIRATION OR TERMINATION.
12.5.1 Expiration or termination of this Agreement shall be
without prejudice to any rights which shall have accrued to the benefit of a
party prior to such expiration or termination. Without limiting the foregoing,
Articles 8, 9, 10 and 11 shall survive any expiration or termination of this
Agreement.
12.5.2 If ABX terminates this Agreement under Section 12.2 or if
Gliatech terminates pursuant to 12.4 above, or if this Agreement automatically
terminates under Section 12.3 above, at the request of ABX, Gliatech and its
Affiliates shall grant to ABX an exclusive, worldwide, royalty-bearing license
under their respective intellectual property rights regarding the Gliatech
Materials and Information and Research Program Materials and Information to make
and have made Product and to use, sell, lease, offer to sell or lease, import,
export, otherwise transfer physical possession of or otherwise transfer title to
Product, in the Territory for use in the Field. In consideration therefor, ABX
shall pay royalties to Gliatech equal to [***] of Net Sales of Products by ABX,
its Affiliates and sublicensees that infringe a valid claim of an issued patent
of Gliatech or its Affiliates. The royalty payment and reporting provisions of
Article 6 above shall apply to ABX MUTATIS MUTUNDIS.
12.5.3 If this Agreement is terminated for any reason, Gliatech
and its Affiliates and Sublicensees shall have the right to sell or otherwise
dispose (consistent with all applicable regulations and law and subject to
Articles 4 and 5 of this Agreement) of the stock of any Product subject to this
Agreement then on hand. Upon termination of this Agreement by ABX for any
reason, any sublicense granted by Gliatech hereunder shall survive, provided
that
<PAGE> 24
upon request by ABX, such Sublicensee promptly agrees in writing to be bound by
the applicable terms of this Agreement.
12.5.4 Except as otherwise provided herein or as otherwise
expressly agreed in writing by the parties, promptly upon the expiration or
earlier termination of this Agreement, (a) each party shall destroy all
remaining Research Program Materials and Information, (b) ABX shall destroy or
return to Gliatech (as Gliatech shall direct) all remaining Gliatech Materials
and Information, and (c) Gliatech shall destroy or return to ABX (as ABX shall
direct) all remaining ABX Materials and Information.
13. MISCELLANEOUS PROVISIONS
13.1 NOTICES. Except as otherwise set forth in this Agreement, all
requests and notices required or permitted to be given to the parties hereto
shall be given in writing, shall expressly reference the section(s) of this
Agreement to which they pertain, and shall be delivered to the other party,
effective on receipt, at the appropriate address as set forth below or to such
other addresses as may be designated in writing by the parties from time to time
during the term of this Agreement.
If to ABX:
Abgenix, Inc.
7601 Dumbarton Circle
Fremont, California 94555
Attn: President
with a copy to:
Pillsbury Madison & Sutro LLP
101 West Broadway, Suite 1800
San Diego, California 92101
Attn: Mark R. Wicker
If to Gliatech:
Gliatech Medical Inc.
23420 Commence Park Road
Cleveland, Ohio 44122
Attn: President
13.2 COMPLIANCE WITH LAWS. Each party shall use the Materials and
Information of the other party and the Research Program Materials and
Information in compliance in all material respects with all applicable laws,
guidelines and regulations which are applicable to such Materials and
Information or the use thereof, including without limitation any biosafety
procedures and all safety precautions accompanying such Materials and
Information. Except as otherwise expressly agreed in this Agreement or otherwise
expressly agreed in writing
<PAGE> 25
by the parties, neither party shall administer the Materials and Information of
the other party or the Research Program Materials and Information to humans
under any circumstances.
13.3 ASSIGNMENT. Neither party shall assign its rights or
obligations under this Agreement, in whole or in part, by operation of law or
otherwise, without the prior express written consent of the other party;
PROVIDED, HOWEVER, that either party may, without such consent, assign this
Agreement and its rights and obligations hereunder in connection with the
transfer or sale of all or substantially all of its business, or in the event of
its merger or consolidation or change in control or similar transaction. Any
permitted assignee shall assume all obligations of its assignor under this
Agreement. Any purported assignment in violation of this Section 13.3 shall be
void.
13.4 WAIVERS AND AMENDMENTS. No change, modification, extension,
termination or waiver of this Agreement, or any of the provisions herein
contained, shall be valid unless made in writing and signed by duly authorized
representatives of the parties hereto.
13.5 INJUNCTIVE RELIEF. In addition to any other rights and
remedies available to a party for any breach by the other party of this
Agreement, the non-breaching party shall have the right to seek injunctive or
other equitable relief to enforce the provisions of this Agreement.
13.6 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties regarding the subject matter of this Agreement and
supersedes any previous understandings, representations, acknowledgements,
commitments or agreements, oral or written, regarding such subject matter.
13.7 GOVERNING LAW. This Agreement shall be governed by and
construed under laws of the State of California, without regard to its conflicts
of laws principles.
13.8 INDEPENDENT CONTRACTORS. The relationship of the parties
hereto is that of independent contractors. The parties hereto are not deemed to
be agents, partners or joint venturers of the others for any purpose as a result
of this Agreement or the transactions contemplated thereby.
13.9 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL A PARTY HERETO BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, INCLUDING WITHOUT LIMITATION
LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT,
REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 13.9 IS
INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF
EITHER PARTY.
13.10 EXPORT LAWS. Notwithstanding anything to the contrary
contained herein, all obligations of ABX and Gliatech are subject to prior
compliance with United States export regulations and such other United States
laws and regulations as may be applicable, and to obtaining all necessary
approvals required by the applicable agencies of the government of the
<PAGE> 26
United States. Gliatech shall be responsible for obtaining such approvals, and
shall use efforts consistent with prudent business judgment to obtain such
approvals. ABX agrees to cooperate reasonably with Gliatech and provide
reasonable assistance to Gliatech as may be reasonably necessary to obtain any
required approvals.
13.11 THIRD PARTY RIGHTS. Notwithstanding anything to the contrary
in this Agreement, the grant of rights by ABX under this Agreement shall be
subject to and limited in all respects by the terms of the applicable ABX
In-License(s) pursuant to which ABX acquired any Licensed Technology, and all
rights or sublicenses granted under this Agreement shall be limited to the
extent that ABX may grant such rights and sublicenses under such ABX
In-Licenses. Additionally, and without limiting the foregoing, the rights
granted to Gliatech hereunder, including without limitation any grant of
"exclusive" rights, shall be subject to the rights granted to or retained by
GenPharm under the GenPharm Cross License Agreement.
13.12 NO THIRD-PARTY BENEFICIARIES. None of the provisions of this
Agreement shall be for the benefit of, or enforceable by, any Third-Party. The
agreements herein contained are made for the sole benefit of the parties hereto
and no other Person is intended to or shall have any rights or benefits
hereunder, whether as a third party beneficiary or otherwise.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written.
ABGENIX, INC.
By: /s/ Raymond M. Withy
----------------------------
(Signature)
Raymond M. Withy, Ph.D.
-----------------------
(Printed Name)
Vice President, Corporate Development
-------------------------------------
(Title)
GLIATECH MEDICAL INC.
By: /s/ Thomas O. Oesterling
------------------------
(Signature)
Thomas O. Oesterling, Ph.D.
---------------------------
(Printed Name)
Chairman and Chief Executive Officer
------------------------------------
(Title)
<PAGE> 27
- --------------------------------------------------------------------------------
Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
EXHIBIT A
ABX MATERIALS AND INFORMATION
[***] mg of an anti-KLH antibody (generated in XenoMouse Animals)
<PAGE> 28
- --------------------------------------------------------------------------------
Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
EXHIBIT B
[***]
<PAGE> 29
- --------------------------------------------------------------------------------
Confidential treatment has been requested for the redacted portions of this
exhibit, and such confidential portions have been omitted and filed separately
with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
EXHIBIT C
INITIAL RESEARCH PLAN
---------------------
[***]
<PAGE> 1
Exhibit 10.22
Form of Severance Agreement
[Gliatech Inc. Letterhead]
[Name of employee]
[Address of employee]
Dear _____________:
Gliatech Inc. (the "Company") recognizes that, as is the case
for most publicly held companies, the possibility of a change in control exists.
The Company wishes to ensure that its senior executives and management are not
distracted from performing their duties in the event of a proposed or actual
transaction involving a change of control. Accordingly, the Company has
determined that as an additional inducement for you (the "Executive") to
continue to remain in the employ of the Company and to assure itself of both
present and future continuity of management, the Company agrees to provide the
Executive with severance benefits under the following circumstances pursuant to
the following terms and conditions (the "Agreement"):
1. (a) Term. This Agreement shall commence as of the date
hereof and expire as of the later of (i) the close of business on December 31,
2002, or (ii) the expiration of the Severance Period (as described below);
provided, however, that (A) commencing on January 1, 2003 and each January 1
thereafter, the term of this Agreement will automatically be extended for an
additional year unless, not later than September 30 of the immediately preceding
year, the Company or the Executive shall have given notice that it or the
Executive, as the case may be, does not wish to have the Term extended and (B)
subject to the last sentence of Section 9, if, prior to a Change in Control (as
described below), the Executive ceases for any reason to be an employee of the
Company and any entity in which the Company directly or indirectly beneficially
owns 50% or more of the outstanding Voting Stock (a "Subsidiary"), thereupon
without further action this Agreement will immediately terminate and be of no
further effect (the "Term"). For purposes of this Section 1(a), the Executive
shall not be deemed to have ceased to be an employee of the Company and any
Subsidiary by reason of the transfer of Executive's employment between the
Company and any Subsidiary, or among any Subsidiaries.
(b) Change in Control. For purposes of this Agreement, "Change
in Control" means the occurrence during the Term of any of the following events:
(i) The Company is merged, consolidated or
reorganized into or with another corporation or other legal person, and
as a result of such merger, consolidation or reorganization less than a
majority of the combined voting power of the then-outstanding voting
stock (the "Voting Stock") of such corporation or person immediately
after such transaction is held in the aggregate by the holders of
Voting Stock of the Company immediately prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal
person, and as a result of such sale or transfer less than a majority
of the combined voting power of the then-outstanding Voting Stock of
such corporation or person immediately after such sale or transfer is
held in the
<PAGE> 2
aggregate by the holders of Voting Stock of the Company immediately
prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange Act of 1934 ("Exchange
Act"), disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) (a "Person")
has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 20% or
more of the combined voting power of the then-outstanding Voting Stock
of the Company;
(iv) The Company files a report or proxy statement
with the Securities and Exchange Commission pursuant to the Exchange
Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a change in
control of the Company has occurred or will occur in the future
pursuant to any then-existing contract or transaction; or
(v) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Directors of the Company cease for any reason to constitute at least a
majority thereof; provided, however, that for purposes of this clause
(v) each Director who is first elected, or first nominated for election
by the Company's stockholders, by a vote of at least two-thirds of the
Directors of the Company (or a committee thereof) then still in office
who were Directors of the Company at the beginning of any such period
will be deemed to have been a Director of the Company at the beginning
of such period, but excluding, for this purpose, any such Director
whose initial assumption of office occurs as a result of an actual or
threatened election contest (within the meaning of Rule 14a-1 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 of Directors of the Company
(the "Board").
Notwithstanding the foregoing provisions of Section 1(b)(iii) or 1(b)(iv),
unless otherwise determined in a specific case by majority vote of the Board, a
"Change in Control" shall not be deemed to have occurred for purposes of Section
1(b)(iii) or 1(b)(iv) solely because (A) the Company, (B) a Subsidiary, or (C)
any Company-sponsored employee stock ownership plan or any other employee
benefit plan of the Company or any Subsidiary either files or becomes obligated
to file a report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) under the Exchange Act disclosing beneficial ownership
by it of shares of Voting Stock, whether equal to or in excess of 20% or
otherwise, or because the Company reports that a change in control of the
Company has occurred or will occur in the future by reason of such beneficial
ownership.
2. Operation of Agreement. This Agreement will be effective
and binding immediately upon its execution, but, notwithstanding anything in
this Agreement to the contrary, this Agreement will not be operative unless and
until a Change in Control (as defined below) occurs. Upon the occurrence of a
Change in Control at any time during the Term, without further
2
<PAGE> 3
action, this Agreement shall become immediately operative, including, without
limitation, the last sentence of Section 9 notwithstanding that the Term may
have theretofore expired.
3. Termination Following a Change in Control. (a) In the event
of the occurrence of a Change in Control, the Executive's employment may be
terminated by the Company or any Subsidiary during the period of time commencing
on the date of the first occurrence of a Change in Control and continuing until
the earlier of (i) the first anniversary of the occurrence of the Change in
Control, or (ii) the Executive's death; provided, however, that commencing on
each anniversary of the Change in Control, this period will automatically be
extended for an additional year unless, not later than 90 calendar days prior to
such anniversary date, either the Company or the Executive shall have given
written notice to the other that this period is not to be so extended (the
"Severance Period"). In the event of such termination, the Executive shall be
entitled to the benefits provided by Section 4 unless such termination is the
result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive disability
benefits pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control; or
(iii) Prior to any termination pursuant to Section
3(b) or Section 3(c), the Executive shall have:
(x) been convicted of a criminal violation
involving fraud, embezzlement or theft in connection
with his duties or in the course of his employment
with the Company or any Subsidiary;
(y) committed intentional wrongful damage to
property of the Company or any Subsidiary; or
(z) committed intentional wrongful
disclosure of secret processes or confidential
information of the Company or any Subsidiary;
and any such act shall have been demonstrably and materially harmful to
the Company ("Cause"). For purposes of this Agreement, no act or
failure to act on the part of the Executive shall be deemed
"intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done or omitted
to be done by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest
of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for "Cause" hereunder unless and
until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three
quarters of the Board then in office at a meeting of the Board called
and held for such purpose, after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel
(if the Executive chooses to have counsel present at such meeting), to
be heard before the Board, finding that, in the good faith opinion of
the Board, the Executive had committed
3
<PAGE> 4
an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of
the Executive or his beneficiaries to contest the validity or propriety
of any such determination.
If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a), the Executive
will be entitled to the benefits provided by Section 4 hereof.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 upon the occurrence of one or more of the following events (regardless
of whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including, without limitation, other
employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the Company
and/or a Subsidiary (or any successor thereto by operation of law of or
otherwise), as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
Director of the Company and/or a Subsidiary (or any successor thereto)
if the Executive shall have been a Director of the Company and/or a
Subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions, responsibilities or
duties attached to the position with the Company and any Subsidiary
which the Executive held immediately prior to the Change in Control,
(B) a reduction in the aggregate of the Executive's annual base salary
rate as in effect from time to time ("Base Pay") and annual bonus,
incentive or other payment of compensation, in addition to Base Pay,
made or to be made in regard to services rendered in any year or other
period pursuant to any bonus, incentive, profit-sharing, performance,
discretionary pay or similar agreement, policy, plan, program or
arrangement (whether or not funded) of the Company or a Subsidiary, or
any successor thereto (collectively "Incentive Pay") received from the
Company and any Subsidiary, or (C) the termination or denial of the
Executive's rights to the perquisites, benefits and service credit for
benefits as provided under any and all employee retirement income and
welfare benefit policies, plans, programs or arrangements in which
Executive is entitled to participate, including, without limitation,
any stock option, performance share, performance unit, stock purchase,
stock appreciation, savings, pension, supplemental executive
retirement, or other retirement income or welfare benefit, deferred
compensation, incentive compensation, group or other life, health,
medical/hospital or other insurance (whether funded by actual insurance
or self-insured by the Company or a Subsidiary), disability, salary
continuation, expense reimbursement and other employee benefit
policies, plans, programs or arrangements that may now exist or any
equivalent successor policies, plans, programs or arrangements that may
be adopted hereafter by the Company or a Subsidiary, providing
perquisites, benefits and service credit for benefits at least as great
in the aggregate as are payable thereunder prior to a Change in Control
(collectively, "Employee Benefits") or a reduction in the scope or
value thereof, any of which is not remedied by the Company
4
<PAGE> 5
within 10 calendar days after receipt by the Company of written notice
from the Executive of such change, reduction or termination, as the
case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties hereto
provided it has been made in good faith and in all events will be
presumed to have been made in good faith unless otherwise shown by the
Company by clear and convincing evidence) that a change in
circumstances has occurred following a Change in Control, including,
without limitation, a change in the scope of the business or other
activities for which the Executive was responsible immediately prior to
the Change in Control, which has rendered the Executive substantially
unable to carry out, has substantially hindered Executive's performance
of, or has caused Executive to suffer a substantial reduction in, any
of the authorities, powers, functions, responsibilities or duties
attached to the position held by the Executive immediately prior to the
Change in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of such
determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of all or
substantially all of its business and/or assets, unless the successor
or successors (by liquidation, merger, consolidation, reorganization,
transfer or otherwise) to which all or substantially all of its
business and/or assets have been transferred (by operation of law or
otherwise) assumed all duties and obligations of the Company under this
Agreement pursuant to Section 11(a);
(v) The Company relocates its principal executive
offices (if such offices are the principal location of Executive's
work), or requires the Executive to have his principal location of work
changed, to any location that, in either case, is in excess of 50 miles
from the location thereof immediately prior to the Change in Control,
or requires the Executive to travel away from his office in the course
of discharging his responsibilities or duties hereunder at least 20%
more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any
prior year) than was required of Executive in any of the three full
years immediately prior to the Change in Control without, in either
case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto which is not remedied by the Company within 10
calendar days after receipt by the Company of written notice from the
Executive of such breach.
[(c) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, other than a Change of
Control satisfying the provisions of Section 3(b)(iv), the Executive may
terminate employment with the Company and any Subsidiary for any reason, or
without reason, during the 30-day period immediately following the first
anniversary of the first occurrence of a Change in Control with the right to
severance compensation as provided in Section 4.]
(d) A termination by the Company pursuant to Section 3(a) or
by the Executive pursuant to Section 3(b) or Section 3(c) will not affect any
rights that the Executive may have
5
<PAGE> 6
pursuant to any agreement, policy, plan, program or arrangement of the Company
or Subsidiary providing Employee Benefits, which rights shall be governed by the
terms thereof, which rights shall, during the Severance Period, be superseded by
this Agreement.
4. Severance Compensation. (a) If, following the occurrence of
a Change in Control, the Company or Subsidiary terminates the Executive's
employment during the Severance Period other than pursuant to Section 3(a), or
if the Executive terminates his employment pursuant to Section 3(b) or Section
3(c), the Company will pay to the Executive the amounts described in Annex A
within five business days after the date on which the Executive's employment is
terminated (the effective date of which shall be the date of termination, or
such other date that may be specified by the Executive if the termination is
pursuant to Section 3(b) or Section 3(c)) (the "Termination Date") and will
continue to provide to the Executive the benefits described on Annex A for the
periods described therein.
(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided hereunder on a timely basis, the Company will pay
interest on the amount or value thereof at an annualized rate of interest equal
to the so-called composite "prime rate" as quoted from time to time during the
relevant period in the Midwest Edition of The Wall Street Journal, plus 1.0%.
Such interest will be payable as it accrues on demand. Any change in such prime
rate will be effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this Section 4
and under Sections 5, 7, 8 and the last sentence of Section 9 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
(d) Unless otherwise expressly provided by the applicable
plan, program or agreement, after the occurrence of a Change in Control, the
Company shall pay in cash to the Executive a lump sum amount equal to the value
of any annual bonus or long-term incentive pay (including, without limitation,
incentive-based annual cash bonuses and performance units, but not including any
equity-based compensation or compensation provided under a qualified plan)
earned or accrued with respect to the Executive's service during the performance
period or periods that includes the date on which the Change in Control
occurred, disregarding any applicable vesting requirements; provided that such
amount shall be calculated at the plan target or payout rate, but prorated to
base payment only on the portion of the Executive's service that had elapsed
during the applicable performance period. Such payment shall take into account
service rendered through the payment date and shall be made at the earlier of
(i) the date prescribed for payment pursuant to the applicable plan, program or
agreement and (ii) within five business days after the Termination Date.
(e) Pursuant to the terms and conditions of any applicable
plan, program or agreement, upon the occurrence of a Change of Control, all
equity incentive awards held by the Executive shall become vested and
exercisable in accordance with such plan, program or agreement.
6
<PAGE> 7
5. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding, in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its affiliates to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including, without
limitation, any stock option, performance share, performance unit, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any successor
provision thereto) by reason of being considered "contingent on a change in
ownership or control" of the Company, within the meaning of Section 280G of the
Code (or any successor provision thereto) or to any similar tax imposed by state
or local law, or any interest or penalties with respect to such tax (such tax or
taxes, together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment or payments (collectively, a "Gross-Up
Payment"); provided, however, that no Gross-up Payment shall be made with
respect to the Excise Tax, if any, attributable to (i) any incentive stock
option, as defined by Section 422 of the Code ("ISO") granted prior to the
execution of this Agreement, or (ii) any stock appreciation or similar right,
whether or not limited, granted in tandem with any ISO described in clause (i).
The Gross-Up Payment shall be in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Termination Date, if
applicable, and any such other time or times as may be requested by the Company
or the Executive. If the Accounting Firm determines that any Excise Tax is
payable by the Executive, the Company shall pay the required Gross-Up Payment to
the Executive within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it shall, at the
same time as it makes such determination, furnish the Company and the Executive
an opinion that the Executive has substantial authority not to report any Excise
Tax on his federal, state or local income or other tax return. As a result of
the uncertainty in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
5(f) and the Executive thereafter is required to make a payment of any Excise
Tax, the Executive shall direct the Accounting Firm to determine the amount of
the Underpayment that has occurred and to submit its determination and detailed
7
<PAGE> 8
supporting calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment shall be promptly paid by the Company to, or for
the benefit of, the Executive within five business days after receipt of such
determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his federal income tax return as filed
with the Internal Revenue Service and corresponding state and local tax returns,
if relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such payment. If prior
to the filing of the Executive's federal income tax return, or corresponding
state or local tax return, if relevant, the Accounting Firm determines that the
amount of the Gross-Up Payment should be reduced, the Executive shall within
five business days pay to the Company the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 10
business days after the Executive actually receives notice of such claim and the
Executive shall further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the 30-calendar-day period following the date
on which he gives such notice to the Company and (ii) the date that any payment
of amount with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without
8
<PAGE> 9
limitation, accepting legal representation with respect to
such claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 5(f), the Company shall control all proceedings taken in connection with
the contest of any claim contemplated by this Section 5(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his own cost
and expense) and may, at its option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax, including interest
or penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested claim
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
9
<PAGE> 10
6. No Mitigation Obligation. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date. Accordingly,
the payment of the severance compensation by the Company to the Executive in
accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable, and the Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise, except as
expressly provided in the last sentence of Paragraph 2 set forth on Annex A.
7. Legal Fees and Expenses. It is the intent of the Company
that the Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including,
without limitation, the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing; provided that, in regard to such matters,
the Executive has not acted in bad faith or with no colorable claim of success.
8. Confidentiality. (a) During the Term, the Company agrees
that it will disclose to Executive its confidential or proprietary information
(as defined in this Section 8) to the extent necessary for Executive to carry
out his obligations to the Company. The Executive hereby covenants and agrees
that he will not, without the prior written consent of the Company, during the
Term or thereafter disclose to any person not employed by the Company, or use in
connection with engaging in competition with the Company, any confidential or
proprietary information of the Company. For purposes of this Agreement, the term
"confidential or proprietary information" will include all information of any
nature and in any form that is owned by the Company and that is not publicly
available (other than by Executive's breach of this Section 8) or generally
known to persons engaged in businesses similar or related to those of the
Company. Confidential or proprietary information will include, without
limitation, the Company's financial matters, customers, employees, industry
contracts, strategic business plans, product development (or other proprietary
product data), marketing plans, and all other secrets
10
<PAGE> 11
and all other information of a confidential or proprietary nature. For purposes
of the preceding two sentences, the term "Company" will also include any
Subsidiary (collectively, the "Restricted Group"). The foregoing obligations
imposed by this Section 8 will not apply (i) during the Term, in the course of
the business of, and for the benefit of, the Company, (ii) if such confidential
or proprietary information will have become, through no fault of the Executive,
generally known to the public or (iii) if the Executive is required by law to
make disclosure (after giving the Company notice and an opportunity to contest
such requirement).
(b) Executive and the Company agree that the covenants
contained in this Section 8 are reasonable under the circumstances, and further
agree that if in the opinion of any court of competent jurisdiction any such
covenant is not reasonable in any respect, such court will have the right, power
and authority to excise or modify any provision or provisions of such covenants
as to the court will appear not reasonable and to enforce the remainder of the
covenants as so amended. Executive acknowledges and agrees that the remedy at
law available to the Company for breach of any of his obligations under this
Section 8 would be inadequate and that damages flowing from such a breach may
not readily be susceptible to being measured in monetary terms. Accordingly,
Executive acknowledges, consents and agrees that, in addition to any other
rights or remedies that the Company may have at law, in equity or under this
Agreement, upon adequate proof of his violation of any such provision of this
Agreement, the Company will be entitled to immediate injunctive relief and may
obtain a temporary order restraining any threatened or further breach, without
the necessity of proof of actual damage.
9. Employment Rights. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary that occurs (i) not more than 90 days
prior to the date on which a Change in Control occurs, and (ii) following the
commencement of any discussion with a third person that ultimately results in a
Change in Control, shall be deemed to be a termination or removal of the
Executive after a Change in Control for purposes of this Agreement.
10. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any applicable law, regulation
or ruling.
11. Successors and Binding Agreement. (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
11
<PAGE> 12
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 11(a) and 11(b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 11(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
12. Notices. For all purposes of this Agreement, all
communications, including, without limitation, notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier service
addressed to the Company (to the attention of the Secretary of the Company) at
its principal executive office and to the Executive at his principal residence,
or to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
13. Governing Law. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to the principles of conflict of laws of such State.
14. Validity. (a) If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
(b) Notwithstanding any provision contained herein to the
contrary, this Agreement shall become null and void and have no further force or
effect without any action by the Executive or the Company, if it is determined
by the independent accountants of the Company that as a result of this
Agreement, the Company will not be permitted to account for any proposed
transaction which is a Change of Control as a "pooling of interests" under U.S.
generally acceptable accounting principles.
15. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be
12
<PAGE> 13
performed by such other party will be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, expressed or implied with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. References to Sections are to
references to Sections of this Agreement.
16. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
GLIATECH INC.
By:
----------------------------------------
Name:
Title:
AND
-------------------------------------------
[Executive]
14
<PAGE> 1
Exhibit 10.23
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
1. I, JON D. SCHOELER ("Employee"), accept the termination of my
employment from Gliatech Inc. ("Gliatech") effective 12/31/99 (the
"Separation Date"), in accordance with the terms of this Agreement. In
accepting the consideration stated in Paragraph 2 below, Employee
hereby releases Gliatech and each of its successors, assigns,
shareholders, officers, directors, employees, agents and counsel from
any and all actions, suits, claims, and demands of any kind, in law or
equity, that Employee ever had or now has, by reason of any event,
claim, matter, cause or thing, and particularly any claim relating in
any way to Employee's employment or the termination of Employee's
employment with Gliatech, including without limitation any claim under
the Age Discrimination in Employment Act, any claim arising under any
federal, state, or local law, and any claim under common law.
2. In full consideration of Employee signing this Separation Agreement and
General Release ("Agreement") and the covenants contained herein,
Gliatech agrees to the following:
A. Employee shall be paid a total of ONE HUNDRED SEVENTY THOUSAND
DOLLARS ($170,000.00) (representing ONE (1) YEAR of severance
pay) (the "Severance Amount"), less all applicable withholding
taxes, payable in a lump sum on or before January 31, 2000,
plus 1999 bonus of 10% of salary ($17,000.00).
B. Employee shall be paid for credited but unused vacation time
determined as of the Separation Date, with such payment to be
made within fifteen days of the Separation Date.
C. Employee shall be entitled to continuation of medical and
dental coverage at Employee's present level of benefits as
provided under COBRA, for the period of THREE (3) MONTHS
following separation date.
D. Gliatech will provide Employee with an employee outplacement
service with Drake Beam Morin for a period of SIX (6) MONTHS
following Employee's termination with Gliatech.
3. Gliatech's obligations hereunder shall terminate in the event Employee
breaches any of Employee's obligations under this Agreement.
4. Employee agrees that Employee will maintain the confidentiality of
confidential information Employee has received by virtue of Employee's
employment with Gliatech and will not use such information or disclose
it to any person other than
<PAGE> 2
Gliatech. For purposes of this Agreement, confidential information is
information which Gliatech endeavors to keep proprietary, including
without limitation customer lists, employee lists, rate schedules,
underwriting information, the terms of contracts and policies,
marketing plans, program designs, trade secrets, proprietary
information, and any information provided by a third-party to Gliatech
in confidence. Employee agrees that, upon Employee's separation,
Employee will return to Gliatech any records in Employee's possession
containing confidential information of Gliatech and all records which
are the property of Gliatech.
5. Employee acknowledges that the consideration set forth in Paragraph 2
is solely in exchange for the promises in this Agreement and is an
amount in excess of any amount to which he is entitled under any law,
regulation or company policy, procedure or practice. Employee further
acknowledges that such payment does not constitute an admission by
Gliatech or the other released parties of liability or of violation of
any applicable law or regulation, all of whom deny any liability or
alleged violation and state that payment has been made solely for the
purpose of compromising any and all actual or potential claims of
Employee.
6. Employee may revoke and cancel this Agreement in writing at any time
within seven days after Employee's execution of this Agreement by
providing notice of revocation to GLIATECH INC., ATTENTION: MONICA
THAYER, AT 23420 COMMERCE PARK ROAD, BEACHWOOD, OH 44122. For
revocation to be effective, written notice must be received by
REGISTERED MAIL no later than the close of business on the seventh day
after Employee signs this Agreement. If Employee does so revoke, this
Agreement will be null and void and Gliatech shall have no obligation
to make the payments provided in Paragraph 2. This Agreement shall not
become effective and enforceable until after the expiration of the
seven-day revocation period; after such time, if there has been no
revocation, this Agreement shall be fully effective and enforceable.
7. Employee agrees that he has had the opportunity to consult counsel,
that no deadline of less than 21-days has been imposed upon him to
execute this Agreement, and that Employee has had time to read and
consider this Agreement before signing it.
8. Employee has read and understands all of the terms of this Agreement
and signs this Agreement in exchange for the consideration to be given
to Employee. Neither Gliatech nor any of its agents, representatives or
employees has made any representations to Employee concerning the terms
or effects of this Agreement other than those contained in this
Agreement.
9. This Agreement shall be governed and interpreted in accordance with the
laws of the State of Ohio.
IN WITNESS WHEREOF, the parties have executed this Agreement this 7 day of
December, 1999.
/s/Jon Schoeler Gliatech Inc.
- ---------------------------- By:/s/Rodney E. Dausch
Jon Schoeler -------------------------------
Name: Rodney E. Dausch
/s/Monica Thayer Title: Executive Vice President
- ----------------------------
Monica Thayer /s/Jodi Baldi
Witness -----------------------------------
Jodi Baldi
Witness
<PAGE> 1
Exhibit 10.24
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
1. I, JOHN A. REDMOND ("Employee"), accept the termination of my
employment from Gliatech Inc. ("Gliatech") effective JANUARY 12, 2000
(the "Separation Date"), in accordance with the terms of this
Separation Agreement and General Release ("Agreement"). In accepting
the consideration and promise stated in Paragraphs 2 and 9 below,
Employee hereby releases Gliatech and each of its successors, assigns,
shareholders, officers, directors, employees, agents and counsel from
any and all actions, suits, claims and demands of any kind other than
any claims arising under a breach of this agreement, in law or equity,
that Employee ever had or now has, by reason of any event, claim,
matter, cause or thing, and particularly any claim relating in any way
to Employee's employment or the termination of Employee's employment
with Gliatech, including without limitation any claim under the Age
Discrimination in Employment Act, any claim arising under any federal,
state, or local law, and any claim under common law.
2. In full consideration of Employee signing this Agreement and the
covenants contained herein, Gliatech agrees to the following:
A. Employee shall be paid a total of TWO HUNDRED THOUSAND
DOLLARS ($200,000.00) (representing ONE 1 YEAR of
severance pay) (the "Severance Amount"), less all applicable
withholding taxes, payable in a lump sum on or before
January 15, 2000.
B. Employee shall be paid for credited but unused vacation time
determined as of the Separation Date, with such payment to be
made within thirty days of the Separation Date.
C. Employee shall be entitled to continuation of medical and
dental coverage at Employee's present level of benefits as
provided under COBRA. Accordingly, for a period of THREE
months from the Separation Date, Gliatech will continue to
pay Employee's full premium for such coverage.
D. Gliatech will provide Employee with an employee outplacement
service with Drake Beam Morin for a period of SIX months
following the Separation Date.
3. Gliatech's obligations hereunder shall terminate in the event Employee
breaches any of Employee's obligations under this Agreement.
<PAGE> 2
4. Employee agrees that Employee will maintain the confidentiality of
confidential information Employee has received by virtue of Employee's
employment with Gliatech and will not use such information or disclose
it to any person other than Gliatech. For purposes of this Agreement,
confidential information is information which Gliatech endeavors to
keep proprietary, including without limitation customer lists, employee
lists, rate schedules, underwriting information, the terms of contracts
and policies, marketing plans, program designs, trade secrets,
proprietary information, and any information provided by a third-party
to Gliatech in confidence. Employee agrees that, upon Employee's
separation, Employee will return to Gliatech any records in Employee's
possession containing confidential information of Gliatech and all
records which are the property of Gliatech.
5. Employee acknowledges that the consideration set forth in Paragraphs 2
and 9 is solely in exchange for the promises in this Agreement and is
an amount in excess of any amount to which he is entitled under any
law, regulation or company policy, procedure or practice. Employee
further acknowledges that such payment does not constitute an admission
by Gliatech or the other released parties of liability or of violation
of any applicable law or regulation, all of whom deny any liability or
alleged violation and state that payment has been made solely for the
purpose of compromising any and all actual or potential claims of
Employee.
6. Employee may revoke and cancel this Agreement in writing at any time
within seven days after Employee's execution of this Agreement by
providing notice of revocation to GLIATECH INC., ATTENTION: MONICA
THAYER, AT 23420 COMMERCE PARK ROAD, BEACHWOOD, OH 44122. For
revocation to be effective, written notice must be received by
REGISTERED MAIL no later than the close of business on the seventh day
after Employee signs this Agreement. If Employee does so revoke, this
Agreement will be null and void and Gliatech shall have no obligation
to make the payments or to undertake the obligations provided in
Paragraphs 2 and 9. This Agreement shall not become effective and
enforceable until after the expiration of the seven-day revocation
period; after such time, if there has been no revocation, this
Agreement shall be fully effective and enforceable.
7. Employee agrees that he has had the opportunity to consult counsel,
that no deadline of less than 21-days has been imposed upon him to
execute this Agreement, and that Employee has had time to read and
consider this Agreement before signing it.
8. Employee has read and understands all of the terms of this Agreement
and signs this Agreement in exchange for the consideration to be given
to Employee. Neither Gliatech nor any of its agents, representatives or
employees has made any representations to Employee concerning the terms
or effects of this Agreement other than those contained in this
Agreement.
9. Employee has been granted two stock options dated FEBRUARY 22, 1999 and
OCTOBER 13, 1999. Employee will be entitled to exercise any options
that have vested or would have vested through OCTOBER 13, 2000 pursuant
to these grants. Employee
<PAGE> 3
will have 180 days after the Separation Date to exercise these options.
Any and all options not exercised within 180 days after the Separation
Date will be forfeited.
10. This Agreement shall be governed and interpreted in accordance with the
laws of the State of Ohio. Gliatech has taken or will take all
necessary corporate action with respect to the performance of its
obligations hereunder.
11. Gliatech shall issue the press release attached as Exhibit A and shall
not make or issue any announcements or press releases contrary to that
press release. Gliatech shall provide a reference for employee that is
consistent with the attached press release. Gliatech and Employee each
agree that they will not disparage to any person any aspcet of his or
its past relationship with the other.
IN WITNESS WHEREOF, the parties have executed this Agreement this 12th day of
January, 2000.
/s/John A. Redmond
_________________________________
/s/Monica M. Thayer
_________________________________
Witness
Gliatech Inc.
By: Thomas O. Oesterling, Ph.D.
_____________________________
Title: Chairman of the Board & CEO
__________________________
/s/Jodi Baldi
_________________________________
Witness
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Company
Name State of Incorporation Business Name
- ---- ---------------------- -------------
Gliatech Medical Inc. Ohio Gliatech Medical Inc.
(formerly Gliatech R & D, Inc.)
GIC, Inc. Delaware GIC, Inc.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-00406) pertaining to the Amended and Restated 1989
Stock Option Plan and 1992 Directors Stock Option Plan of Gliatech Inc., and in
the Registration Statement (Form S-8 No. 333-00408) pertaining to the 1995
Nonemployee Directors Stock Option Plan of Gliatech Inc. of our reported dated
March 3, 2000, with respect to the consolidated financial statements and
schedule of Gliatech Inc. included in the 1999 Annual Report (Form 10-K) for the
year ended December 31, 1999.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 29, 2000
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
directors and officers of Gliatech Inc., a Delaware corporation, hereby
constitutes and appoints Thomas O. Oesterling, Ph.D., Rodney E. Dausch, Michael
A. Zupon, Ph.D. and Thomas C. Daniels, and each of them, as the true and lawful
attorney or attorneys-in-fact, with full power of substitution and revocation,
for each of the undersigned and in the name, place and stead of each of the
undersigned, to sign on behalf of each of the undersigned an Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, pursuant to Section 13 of
the Securities Exchange Act of 1934 and to sign any and all amendments to such
Annual Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, including, without limitation, a Form 12b-25,
with the Securities and Exchange Commission, granting to said attorney or
attorneys-in-fact, and each of them, full power and authority to do so and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorney or attorneys-in-fact or any of them or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in multiple counterparts,
each of which shall be deemed an original with respect to the person executing
it.
Executed as of this 17th day of February, 2000.
/s/ Robert P. Pinkas /s/ William A. Clarke
- ---------------------------- ----------------------------------
Robert P. Pinkas William A. Clarke
Director Director
/s/ Ronald D. Henriksen /s/ Irving S. Shapiro
- ---------------------------- ----------------------------------
Ronald D. Henriksen Irving S. Shapiro
Director Director
/s/ Theodore E. Haigler, Jr. /s/ Thomas O. Oesterling
- ---------------------------- ----------------------------------
Theodore E. Haigler, Jr. Thomas O. Oesterling, Ph.D.
Director Chief Executive Officer (Principal
Executive Officer) and Director
/s/ John L. Ufheil /s/ Rodney E. Dausch
- ---------------------------- ----------------------------------
John L. Ufheil Rodney E. Dausch
Director Executive Vice President of Finance, Secretary
and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) GLIATECH
INC'S ANNUAL REPORT ON FORM 10K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,350
<SECURITIES> 15,751
<RECEIVABLES> 926
<ALLOWANCES> 26
<INVENTORY> 5,354
<CURRENT-ASSETS> 26,593
<PP&E> 5,647
<DEPRECIATION> 2,414
<TOTAL-ASSETS> 32,384
<CURRENT-LIABILITIES> 5,992
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 26,296
<TOTAL-LIABILITY-AND-EQUITY> 32,384
<SALES> 26,495
<TOTAL-REVENUES> 27,952
<CGS> 4,973
<TOTAL-COSTS> 4,973
<OTHER-EXPENSES> 24,834
<LOSS-PROVISION> (348)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (395)
<INCOME-TAX> 0
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<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (395)
<EPS-BASIC> (.04)
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