<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _____________
COMMISSION FILE NUMBER 0-20096
GLIATECH INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1587242
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
23420 COMMERCE PARK ROAD
CLEVELAND, OHIO 44122
(Address of principal executive offices) (Zip Code)
(216) 831-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
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
----- ------
The number of shares outstanding of the registrant's Common Stock, $0.01 par
value per share, as of May 9, 2000 was 9,511,087 shares.
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GLIATECH INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1 Financial Statements:
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 (unaudited)
Consolidated Statements of Income -
for the three months ended March 31, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows -
for the three months ended March 31, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLIATECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,555,685 $ 3,350,245
Short-term investments 8,070,543 15,750,620
Accounts receivable, net 3,109,233 899,696
Government grants receivable 656,360 413,608
Inventories 5,358,696 5,353,696
Prepaid expenses and other 737,578 824,720
------------ ------------
Total current assets 25,488,095 26,592,585
Long term investments 1,706,961 1,712,790
Property and equipment, net 3,353,939 3,232,712
Other assets, net 898,609 845,668
------------ ------------
TOTAL ASSETS $ 31,447,604 $ 32,383,755
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 802,825 $ 1,129,470
Accrued expenses 1,853,890 2,084,490
Accrued research contracts 331,692 485,470
Accrued compensation 162,999 207,558
Accrued clinical trial costs 1,532,124 2,085,011
------------ ------------
Total current liabilities 4,683,530 5,991,999
Stockholders' equity:
Common stock 95,756 95,536
Additional paid-in capital 74,224,279 73,967,823
Treasury stock (75,000 shares at cost) (1,448,950) (1,448,950)
Accumulated other comprehensive loss (56,434) (54,839)
Accumulated deficit (46,050,577) (46,167,814)
------------ ------------
Total stockholders' equity 26,764,074 26,391,756
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 31,447,604 $ 32,383,755
============ ============
</TABLE>
See notes to consolidated financial statements
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GLIATECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------------------
2000 1999
----------- -----------
REVENUES
<S> <C> <C>
Product sales $ 6,831,536 $ 7,756,270
Research contracts and licensing fees 342,796
Government grants 242,752 185,683
----------- -----------
Total revenues 7,074,288 8,284,749
OPERATING COSTS AND EXPENSES
Cost of products sold 1,202,134 1,147,130
Research and development 2,572,916 3,940,369
Selling, general and administrative 3,452,239 2,976,276
----------- -----------
Total operating costs and expenses 7,227,289 8,063,775
----------- -----------
Operating (loss) income (153,001) 220,974
Interest income, net 270,238 253,268
----------- -----------
NET INCOME $ 117,237 $ 474,242
=========== ===========
Earnings per share
Basic $ 0.01 $ 0.05
Diluted $ 0.01 $ 0.05
=========== ===========
Average shares outstanding
Basic 9,489,341 9,429,875
Diluted 9,698,465 10,154,459
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
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<TABLE>
<CAPTION>
GLIATECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------- -----------
Operating activities
<S> <C> <C>
Net income $ 117,237 $ 474,242
Adjustments to reconcile net loss to net cash used in (provided by)
operating activities:
Depreciation and amortization 159,049 125,467
Patent cost write-off 178,122
Provision (credit) for losses on accounts receivable 16,666 (52,396)
Compensation from issuance of stock and stock options 52,313 176,600
Changes in operating assets and liabilities:
Accounts receivable (2,226,203) (455,540)
Inventories (5,000) (522,018)
Government grants receivable and other assets (155,610) 534,921
Accounts payable and other accrued expenses (601,808) (359,555)
Deferred contract research revenue (342,796)
Other liabilities (706,665) 486,131
----------- -----------
Net cash used in (provided by) operating activities (3,350,021) 243,178
INVESTING ACTIVITIES
Sale (purchase) of investments, net 7,684,311 (974,318)
Payment for patent rights and trademarks (57,304) (71,453)
Purchase of property and equipment (275,909) (627,656)
----------- -----------
Net cash provided by (used in) investing activities 7,351,098 (1,673,427)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 204,363 252,417
----------- -----------
Net cash provided by financing activities 204,363 252,417
----------- -----------
Increase/(decrease) in cash and cash equivalents 4,205,440 (1,177,832)
Cash and cash equivalents at beginning of period 3,350,245 4,731,814
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,555,685 $ 3,553,982
=========== ===========
</TABLE>
See notes to consolidated financial statements
3
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GLIATECH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. These financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Annual Report on Form 10-K of Gliatech Inc. for the fiscal year
ended December 31, 1999 filed with the Securities and Exchange Commission.
Note 2. Inventories
Inventories consist of:
March 30, December 31,
2000 1999
-----------------------------------
Raw material $4,154,195 $4,549,976
Work in process 1,010,307 205,007
Finished goods 194,194 598,713
---------- ----------
$5,358,696 $5,353,696
========== ==========
Note 3. Business Segment
The Company operates in one business segment. The Company is engaged in the
discovery and development of biosurgical and therapeutic products to improve
surgical outcomes and to treat neurological disorders. The Company's principal
products are the ADCON(R) family of products, which are medical devices designed
to inhibit excess postsurgical scarring and adhesion following surgery. The
Company sells ADCON(R) products through independent medical device 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.
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Domestic and foreign product sales are as follows:
Three Months Ended
March 31,
------------------------------------------
2000 1999
---------- ----------
Domestic product sales $5,859,340 $6,831,494
Foreign product sales 972,196 924,776
---------- ----------
Total product sales $6,831,536 $7,756,270
========== ==========
Note 4. Comprehensive Income
The components of comprehensive income are as follows:
Three Months Ended
March 31,
--------------------------------------
2000 1999
---------- --------
Net income $ 117,237 $474,242
Unrealized loss on investments (1,595)
--------- --------
Total comprehensive income $ 115,642 $474,242
========= ========
The components of accumulated other comprehensive loss are as follows:
March 30, December 31,
2000 1999
-------- ------------
Unrealized loss on investments $(56,434) $(54,839)
-------- --------
Accumulated other comprehensive loss $(56,434) $(54,839)
========= =========
5
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Note 5. Earnings Per Share Calculation
The following table sets forth the computation of basic and diluted earnings per
share
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------- -----------
Basic Earnings Per Share Computation
- ------------------------------------
<S> <C> <C>
Net Income $ 117,237 $ 474,242
========== ===========
Average Common Shares outstanding 9,489,341 9,429,875
========== ===========
Basic Earnings Per Share $ .01 $ .05
========== ===========
Diluted Earnings Per Share Computation
- --------------------------------------
Net Income $ 117,237 $ 474,242
========== ===========
Basic Shares Outstanding 9,489,341 9,429,875
Stock Options Calculated Under the Treasury
Stock Method 209,124 724,585
---------- -----------
Total Shares 9,698,465 10,154,459
========== ===========
Diluted Earnings Per Share $ .01 $ .05
========== ===========
</TABLE>
6
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ITEM 2 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. The Company is also pursuing the
development of other biosurgical products and small molecule drug candidates for
the treatment of several neurological disorders, including Attention Deficit
Hyperactive Disorder ("ADHD"), sleep disorders, anxiety, schizophrenia and
Alzheimer Disease ("AD"). The Company anticipates that a significant portion of
revenue from product sales will be derived from its ADCON family of products,
primarily ADCON-L. 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 Food and Drug Administration ("FDA") issued a warning letter
to European Medical Contract Manufacturing ("EMCM"), the Company's third party
manufacturing contractor located in the Netherlands, which led to an import ban
on all ADCON-L shipments to the United States. After a successful re-inspection
of EMCM 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.
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.
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RESULTS OF OPERATIONS
For the three month period ended March 31, 2000 and 1999.
REVENUES
Total revenues decreased by 14.6% to $7.1 million in the first quarter of 2000
from $8.3 million in the first quarter of 1999. The decrease in total revenues
is primarily the result of a decrease in product sales, which decreased to $6.8
million in the first quarter of 2000 from $7.8 million in the first quarter of
1999. This decrease in sales resulted primarily from the unavailability of
ADCON(R)-L for sale in the United States until the end of January 2000. The
decrease in total revenues was also due to no research contract revenues during
this period because, as of June 1999, Janssen was no longer funding the
collaboration efforts with the Company.
The decrease in revenues was slightly offset by the Company's government-funded
grant revenues, which increased to $242,752 in the first quarter of 2000 from
$185,683 in the first quarter of 1999. This increase is the result of the
Company having two Phase II Small Business Innovation Research ("SBIR") grants.
OPERATING COSTS AND EXPENSES
Total operating expenses decreased by 10.4% to $7.2 million in the first quarter
of 2000, compared to $8.1 million in the first quarter of 1999. Cost of products
sold increased to $1.2 million in the first quarter of 2000 compared to $1.1
million in the first quarter of 1999, and increased, as a percentage of product
sales, in the first quarter of 2000 to 17.6% from 14.8% in the first quarter of
1999. The percentage increase in the first quarter of 2000 is primarily due to
startup costs associated with the Company's new manufacturing plant in Solon,
Ohio, which is currently undergoing validation testing.
Research and development expenses decreased by 34.7 % to $2.6 million in the
first quarter of 2000 from $3.9 million in the first quarter of 1999. This
decrease was primarily in clinical development costs due to: i) the ADCON(R)-P
pivotal trial nearing completion in patient enrollment resulting in a lesser
cost incurred during the first quarter of 2000 versus the first quarter of 1999
and ii) the pilot studies for ADCON(R)-A (for inhibition of postsurgical
scarring and adhesion following abdominal or colorectal surgeries) and
ADCON(R)-L gel (for inhibition of postsurgical scarring and adhesion following
breast augmentation surgery) were fully enrolled and expensed by the end of
fiscal 1999.
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Selling, general and administrative expenses increased 16.0% to $3.5 million in
the first quarter of 2000 compared to $3.0 million in the first quarter of 1999.
This increase was primarily due to an increase in the sales and marketing
expenses incurred in connection with the successful relaunch of ADCON(R)-L in
the U.S.
INTEREST INCOME
Interest income, net increased by 6.7% to $270,238 in the first quarter of 2000
from $253,268 in the first quarter of 1999.
NET INCOME
Gliatech's net income decreased by 75.3% to $117,237 in the first quarter of
2000, compared to a net income of $474,242 in the first quarter of 1999. The
decrease in net income is primarily from the unavailability of ADCON(R)-L for
sales in the United States until the end of January 2000. The basic and diluted
earnings per common share was $0.01 in the first quarter of 2000, compared to a
net income per common share of $0.05 in the first quarter of 1999.
CONSOLIDATED BALANCE SHEETS
Accounts receivable increased by $2.2 million to $3.1 million at March 31,
2000, compared to $.9 million at December 31, 1999. This increase was due to
the Company resuming shipments of ADCON(R)-L in the United States in
January 2000.
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
March 31, 2000 and December 31, 1999, the Company's cash and cash equivalents,
short-term and long-term investments totaled $17.3 million and $20.8 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. The Company
also has established a $1.5 million line of credit with a bank. As of March 31,
2000, the Company had no borrowings against the line of credit.
The Company may need to raise substantial additional capital to fund its
operations. The Company's future capital requirements will depend on, and could
increase as a result of many factors, including,
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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.
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. 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. 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, however, there is no assurance that such Phase I research will be
successful or that additional funding will be obtained.
While the Company had a positive cash flow for the first quarter of 2000 it may
not be indicative of future quarters 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.
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, the Company has not entered into
any definitive agreement with respect to any such transaction or other strategic
alternative.
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 result, the
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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 Quarterly Report on Form
10-Q constitute "forward-looking statements." When used in this Form 10-Q, 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 included, but are not limited to,
commercial uncertainty of market acceptance of the Company's ADCON(R) family of
products, including the timing and content of decisions made by the FDA,
commercial uncertainty of the market acceptance of the Company's ADCON(R) family
of products, delays in product development of additional ADCON(R) products,
uncertainty of outcomes of future FDA audits and inspections, uncertainty due to
the early stage of development for the neurological disorder programs, the
possible need for additional funding, the ability the Company to establish and
maintain collaborative arrangements with others, the potential market size of
ADCON(R) products, the ability to extend research collaborations, uncertainties
relating to the integration and completion of any strategic alternative, the
productivity of distributors of the ADCON(R) products, the uncertainty of
shortages of supply of ADCON(R) products from the Company's sole manufacturer,
the ability of the Company to commence manufacturing of its ADCON(R) 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.
11
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ITEM 3 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.
12
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PART II
OTHER INFORMATION
ITEM 1: 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.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amended Form of U.S. Manufacturer's Representative Agreement
27.1 Financial data schedule
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K for the period
covered by this Quarterly Report on Form 10-Q
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SIGNATURES
Pursuant to the requirements 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.
Date: May 15, 2000 GLIATECH INC.
By: /s/Rodney E. Dausch
------------------------------------------------
Rodney E. Dausch
Executive Vice President, Chief Financial Officer
and Secretary
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description of Exhibit Page Number
- ----------- ---------------------- -----------
10.1 Amended Form of U.S. Manufacturer's 16
Representative Agreement
27.1 Financial Data Schedule 17
15
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Exhibit 10.1
AMENDED FORM OF U.S. MANUFACTURER'S REPRESENTATIVE
AGREEMENT
This agreement is effective ___________and is by and between Gliatech Medical,
an Ohio corporation, having offices at 23420 Commerce Park Road, Cleveland, Ohio
44122, (hereinafter "Gliatech"), and [CompanyName] a corporation, having
offices at [CorrAddress], [Expr2] (hereinafter "Manufacturers
Representative").
WHEREAS, Gliatech markets and sells a medical device, ADCON(R)-L Anti-Adhesion
Barrier Gel (the "Product") to the medical industry; and
WHEREAS, Manufacturers Representative promotes sales of products, including
medical devices such as instruments, implants and supplies, to the medical
industry; and
WHEREAS, Gliatech desires to appoint Manufacturers Representative as an
independent representative for promoting sales of the Product manufactured and
distributed by Gliatech, and Manufacturers Representative desires to be an
appointed independent representative for promoting sales of the Product;
NOW, THEREFORE, in consideration of the premises and covenants herein contained,
the parties hereto agree as follows:
1. APPOINTMENT OF MANUFACTURERS REPRESENTATIVE
Gliatech hereby appoints, and Manufacturers Representative hereby
accepts, the appointment as the exclusive, independent representative
of Gliatech for the promotion of sales of the Product for the Territory
(as defined below) designated. Gliatech shall have the right to amend,
from time to time, the Territory as defined in Appendix 2, upon 30 days
written notice to the Manufacturers Representative. Manufacturers
Representative shall not sell or solicit sales of products or otherwise
represent companies selling or otherwise distributing products
competitive to Gliatech's products without prior written approval from
Gliatech. Gliatech shall have the sole right to make the determination
of those products which are competitive to Gliatech's products. Subject
to the terms of this Agreement, Manufacturer's Representative is free
to engage in any other activities it wishes.
2. TERRITORY
The Territory specified hereunder within which the Manufacturer's
Representative shall solicit sales of the Product shall be the
geographical area shown in Appendix 2 attached hereto (the
"Territory").
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3. MANUFACTURERS REPRESENTATIVE'S DUTIES AND OBLIGATIONS
A. Manufacturers Representative shall promote the Product and
solicit orders for sales of the Product within the Territory.
Promotional activity shall include, but not be limited to,
Product display advertising and promotion at medical doctor or
hospital meetings and exhibitions, such as conventions and
trade shows, and state and regional medical or hospital
meetings. Manufacturers Representative shall appoint employee
sales representatives (the "Sales Representatives") to assist
in the promotion and sale of the Product. The Sales
Representative shall be the sole responsibility of
Manufacturer's Representative who shall (i) ensure the filing
of all appropriate business registrations, (ii) compliance
with the requirements of tax withholding and reporting
occasioned by the engagement of such Sales Representatives and
(iii) compliance by such Sales Representatives with all
obligations of Manufacturers Representative hereunder.
B. Manufacturers' Representative shall be responsible for
assuring its Sales Representatives are thoroughly trained to
promote and sell the Product consistent with the training
guidelines provided by Gliatech.
C. Manufacturers' Representative sole compensation for services
provided hereunder shall be compensation in the form of a
commission on the sale of the Product in the Territory.
D. In order to comply with applicable law and in order to protect
Gliatech from claims and liabilities, Manufacturers
Representatives communications and representations to
customers shall be true, accurate, complete and consistent
with the labeling of the Product. Manufacturers Representative
shall under no circumstances modify, repackage, adulterate,
misbrand, alter or add labels to or remove labels from the
Product.
E. All advertising and all participation by Manufacturers
Representative in public exhibitions, relating to the Product
and the use of Gliatech's name and trademarks, shall be
subject to prior written approval of Gliatech, which approval
shall not be unreasonably withheld.
F. Manufacturers Representative's sales quota for the
______________________ are set forth in Appendix 1 attached
hereto. Manufacturers Representative shall receive its
proposed sales quota for any subsequent year no later than
December 1. Achievement of the annual and quarterly sales
quotas is a material obligation of this Agreement.
2
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G. Except as otherwise agreed, Manufacturers Representative shall
be responsible for providing its own equipment, offices,
working facilities and such other facilities and services as
may be required at its own expense. Manufacturers
Representative shall maintain an inventory of demonstration
equipment, and deliverable Product (the "Inventory") to
promote and solicit orders for Product. Manufacturer's
Representative shall be responsible for the risk of loss or
damage of such Inventory whether or not held at Manufacturers
Representatives business location. Manufacturers
Representative will be charged for each lost unit of Product
at the average selling price per unit for its Territory for
that year, less its commission. Upon termination of this
Agreement, Inventory of Product shall be returned to Gliatech.
H. Manufacturer's Representative and all sales representatives
shall attend one national sales meeting per year for the
purposes of training related to the promotion of the Product.
I. Manufacturer's Representative shall submit an annual
comprehensive Business Plan as set forth in Appendix 4,
attached hereto.
J. The authorized person executing this Agreement on behalf of
the Manufacturer's Representative shall be personally, as an
individual, liable to see that the Manufacturer's
Representative meets all of its obligations herein.
K. Manufacturer's Representative shall not make any
representation or statement, written or otherwise, concerning
prices, terms of delivery, terms of payment or conditions of
sale except and to the extent that the same is specifically
authorized by Gliatech. Manufacturers Representative shall
have no right or authority to make any price guarantees, offer
or agree to any discounts and/or accept any orders on
Gliatech's behalf or return any products to Gliatech without
prior written approval by Gliatech.
4. GLIATECH DUTIES AND OBLIGATIONS
A. Gliatech shall sell and deliver the Product with respect to
orders solicited by Manufacturer's Representative in
accordance with published price lists in effect. Gliatech may
accept or refuse any order for the Product and will not be
bound by any order until it is finally accepted by Gliatech.
Gliatech shall not be liable for any loss or damage caused by
non-acceptance of orders or delays in making shipments.
B. Gliatech shall pay a commission to Manufacturer's
Representative on orders solicited within and delivered to the
Territory as set forth in Appendix 3 attached hereto (which
may be from time to time amended).
3
<PAGE> 4
Commissions shall be deemed earned by Manufacturer's
Representative upon invoicing of Product sales by Gliatech to
customers. Commissions earned by Manufacturers Representative
shall be computed on the net amount of the invoices rendered
(less credit memos) in accordance with published price lists
for each order or part of an order, exclusive of all freight
and transportation costs (including insurance), normal and
recurring bona fide trade discounts having Gliatech's prior
written approval and any applicable sales or similar taxes.
Commissions earned by the Manufacturers Representative shall
be due and payable on or before the 25th day of the month
immediately following the month during which invoices are
issued for orders received by Gliatech.
C. Gliatech shall forward to Manufacturers Representative those
inquiries for the Product which are reasonably identifiable as
having been generated through the advertising or sales
promotion efforts of Manufacturers Representative or any of
its Sales Representatives.
D. Subject to reasonable charges as determined by Gliatech,
Gliatech shall supply Manufacturers Representative with
reasonable quantities of descriptive literature, promotional
and other materials (the "Promotional Literature") relating to
the Product.
E. Gliatech shall indemnify Manufacturers Representative, its
employees and Sales Representatives against any and all third
party claims and demands for losses, damages and injuries,
including legal expenses and attorneys fees, arising out of
any claim of a defect in the manufacture or design of the
Product or written representation or omission in Gliatech's
Promotional Literature concerning the Product. This indemnity
shall not extend to any malfeasance, nonfeasance or other
negligent conduct of Manufacturers Representative, its
employees or Sales Representatives in connection with any acts
related to the Manufacturers Representative's activity
hereunder. Except as otherwise expressly provided,
Manufacturers Representative is liable for all its own
expenses and all claims made against it.
F. Gliatech shall make a good faith effort to collect monies owed
on invoices from orders solicited by Manufacturers
Representative and shall provide Manufacturers Representative
with a monthly statement of past due accounts in the
Territory. In the event that Gliatech has not received payment
from any customer upon which a commission was paid within one
hundred twenty (120) days from the date on which any payment
was due, Gliatech reserves the right to charge back to the
Manufacturers Representative the full amount of the commission
paid on such sale.
4
<PAGE> 5
Upon subsequent receipt of the outstanding monies, Gliatech
will pay the original commission amount.
5. CONFIDENTIALITY, IMPROVEMENTS, PATENTS AND TRADEMARKS
A. Manufacturers Representative shall take all reasonable steps
to do those things reasonably necessary to ensure that
confidential information relating to the Product and to the
technology and business of Gliatech is not disclosed or made
use of outside the business of Manufacturers Representative
and Gliatech including, without limitation, causing such Sales
Representative to maintain the confidential information;
provided, however, that the foregoing shall not apply to
information (a) which be can shown to be in writing and known
to Manufacturers Representative prior to disclosure by
Gliatech; (b) which is or becomes public knowledge through no
fault of Manufacturers Representative; or (c) which is
disclosed to Manufacturers Representative by a third party
with the lawful right to make such disclosure. Manufacturers
Representative's obligation of confidentiality shall survive
the termination of this Agreement until and unless such
confidential information shall have become, through no fault
of the Manufacturers Representative, generally in the public
domain.
B. During the term of this agreement Manufacturers Representative
shall be permitted to use Gliatech's servicemark, trademarks
and identification solely on or in connection with the
solicitation of orders for the Product during the term of this
Agreement. It is the obligation of the Manufacturers
Representative to notify Gliatech of any infringement of
Gliatech's trademarks and identification. Manufacturers
Representative shall discontinue the use of all such marks
upon the termination of this Agreement. All goodwill generated
hereunder in the use of such trademarks shall accrue to the
benefit of Gliatech. The Manufacturers Representative hereby
disclaims any rights in Gliatech's trademarks and
identification other than the aforementioned use.
6. TERMS AND TERMINATION
A. This Agreement shall continue in full force and effect
beginning on April 1, 2000 and continuing through December 31,
2000. This Agreement shall thereafter automatically renew for
additional yearly periods unless written notice is made by
either party 30 days prior to expiration, provided however
that as of December 1, the parties hereto have agreed to a
sales quota per Section 3 (F) hereto.
B. Gliatech shall have the right to terminate this Agreement if
the sales quota as determined by Gliatech and specified in
Appendix 1 is not achieved. In
5
<PAGE> 6
this case, Gliatech will provide Manufacturers Representative
30 days written notice prior to termination.
C. Gliatech shall have the right to terminate this Agreement upon
notice of Manufacturers Representative's (i) commission or
suffering of any act of bankruptcy or insolvency, (ii) failing
to cure any material breach in the provisions of this
agreement within thirty (30) days after written notice of such
breach, except as otherwise provided by Section 6(B), (iii)
conviction in any court of a felony under applicable city,
state, or federal laws.
D. If this Agreement shall terminate for any reason whatsoever,
the Manufacturers Representative shall be entitled to receive
commissions as determined in accordance with the above
provisions with respect to orders solicited prior to the
effective date of such termination, regardless of when such
orders were accepted by Gliatech (provided such orders can be
demonstrated to be orders that were solicited prior to the
effective date of such termination) and regardless of when
such shipments are made and invoices rendered.
E. Goods returned according to Gliatech's Customer Returns Policy
as set forth in Appendix 5 hereto, shall be charged against
Manufacturers Representative commission payable. Ninety days
(90) after termination of this agreement, the commission
account shall be closed and all proceeds over the uncollected
accounts receivable shall be paid to the Manufacturers
Representative.
7. FORCE MAJEURE
Obligations of either party to perform under this Agreement shall be
excused and, in Manufacturers Representative's case, sales quotas
addressed in Section 3(F) hereof will be reduced proportionately during
such period of delay caused by matters such as strikes, shortages of
power or raw materials, government orders, or Acts of God, which are
reasonably beyond the control of the party obligated to perform.
8. NOTICES
Any notice required by this Agreement shall be deemed sufficient if
sent by certified mail, postage prepaid, facsimile transmission or
overnight courier to the party to be notified at the address set forth
below, until a different address is supplied in writing.
In the case of Gliatech, such notice shall be sent to:
Gliatech Inc.
6
<PAGE> 7
23420 Commerce Park Road
Cleveland, Ohio 44122
Attn: Thomas O. Oesterling, Ph.D.
Fax: 216-831-4220
In the case of Manufacturers Representative, such notice shall be sent
to:
Fax:
9. ENTIRE AGREEMENT
This document and the Appendices attached hereto and incorporated
herein by reference thereto represent the entire agreement between the
parties hereto, and supersede all prior agreements regardless of their
terms or cancellation provisions, and this Agreement shall be modified
only by a written agreement signed by Gliatech and the Manufacturers
Representative.
10. APPLICABLE LAW
This Agreement shall be governed by the laws of the State of Ohio as
applicable to contracts made and to be performed in that state.
11. ASSIGNABILITY
This agreement shall not be assigned either by the parties or by
operation of law without prior written consent of the other party;
however, in the case of Gliatech, Gliatech may, without obtaining the
consent of the Manufacturers Representative, assign its rights and
obligations under this Agreement to any corporation with which Gliatech
may merge or consolidate or to which Gliatech may transfer
substantially all of its assets.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the First day of April 2000.
GLIATECH MEDICAL INC. [CompanyName]
By:__________________________________ By: ____________________________
Thomas O. Oesterling, Ph.D. Name:___________________________
Chairman and Chief Executive Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GLIATECH INC.'S QUARTERLY REPORT ON FORM 10Q FOR THE QUARTER ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,556
<SECURITIES> 8,071
<RECEIVABLES> 3,152
<ALLOWANCES> 43
<INVENTORY> 5,359
<CURRENT-ASSETS> 25,488
<PP&E> 5,923
<DEPRECIATION> 2,569
<TOTAL-ASSETS> 31,448
<CURRENT-LIABILITIES> 4,684
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 26,668
<TOTAL-LIABILITY-AND-EQUITY> 31,448
<SALES> 6,832
<TOTAL-REVENUES> 7,074
<CGS> 1,202
<TOTAL-COSTS> 1,202
<OTHER-EXPENSES> 6,025
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 117
<INCOME-TAX> 0
<INCOME-CONTINUING> 117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
