Document:

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                                                                   EXHIBIT 10.29
                                                                   -------------

                              EMPLOYMENT AGREEMENT
                              --------------------

                  This EMPLOYMENT AGREEMENT ("AGREEMENT") effective as of
December 18, 2000 (the "EFFECTIVE Date"), between Gliatech Inc., a Delaware
corporation (the "COMPANY"), and Steven L. Basta ("EXECUTIVE").

                                   WITNESSETH:

                  WHEREAS, the Company desires to employ Executive as the
President of the Company, and Executive desires to accept employment as the
President of the Company;

                  WHEREAS, the Company recognizes that, as is the case with many
publicly held companies, the possibility of a Change in Control (as that term is
defined in Exhibit A hereof) exists;

                  WHEREAS, the Company wishes to assure itself of both present
and future continuity of management in the event of any Change in Control; and

                  WHEREAS, the Company wishes to ensure that certain of its
executives are not practically disabled from discharging their duties upon a
Change in Control.

                  NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                  1. EMPLOYMENT. The Company shall employ Executive, and
Executive accepts employment with the Company as of the date hereof, upon the
terms and conditions set forth in this Agreement, commencing on the Effective
Date.

                  2. POSITION AND DUTIES.

                  (a) During Executive's employment with the Company, Executive
shall serve as the President of the Company and, subject to the management of
the business and affairs of the Company at the direction of the Board of
Directors of the Company (the "BOARD"), shall have the normal duties,
responsibilities and authority of an executive serving in such position.
Initially, Executive shall have the title President of the Company, subject to
the power of the Board to change such title. Following an appropriate review
period, it shall be determined whether Executive shall be appointed as the Chief
Executive Officer of the Company.

                  (b) Executive shall report to the Board.

                  (c) During Executive's employment with the Company, Executive
shall devote his best efforts and his full business time and attention (except
for permitted vacation

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periods, reasonable periods of illness or other incapacity, and, provided such
activities do not have more than a DE MINIMIS effect on Executive's performance
of his duties under this Agreement, participation in charitable and civic
endeavors) to the business and affairs 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"). Executive shall perform his duties
and responsibilities to the best of his abilities in a diligent, trustworthy,
businesslike and efficient manner.

                  (d) Executive shall perform his duties and responsibilities
principally in the Cleveland, Ohio metropolitan area.

                  3. COMPENSATION AND BENEFITS.

                  (a) SALARY. The Company agrees to pay Executive a salary
during his employment with the Company in a manner consistent with the normal
payroll cycle of the Company. Executive's salary shall be at an annual rate of
not less than $260,000 per year for such periods that he is employed by the
Company between the Effective Date and December 31, 2002, subject to an annual
review as set forth below. If Executive remains an employee of the Company after
December 31, 2002, Executive's salary shall be payable at such rate as is
established from time to time by the Compensation Committee of the Board (or, if
there is no such Committee, the Board). During Executive's employment with the
Company, the Compensation Committee of the Board (or, if there is no such
Committee, the Board) shall review Executive's salary annually.

                  (b) BONUS(ES). During Executive's employment with the Company,
Executive will be eligible for an annual bonus of up to 40% of Executive's base
annual salary (or such higher percentage of Executive's base annual salary as
may be determined by the Compensation Committee of the Board (or, if there is no
such Committee, the Board)), based on the achievement of specified Company goals
(as determined by the Compensation Committee of the Board (or, if there is no
such Committee, the Board)).

                  (c) STOCK OPTIONS. (i) As soon as reasonably practicable after
the Effective Date, Executive shall be granted an option to purchase 375,000
shares of common stock, par value $0.01 per share, of the Company ("COMMON
STOCK"), at an exercise price equal to the fair market value of the Common Stock
at the date of grant (the "STOCK OPTIONS"). The terms of each such stock option
(such as length and exercisability) shall be as set forth in the stock option
agreement between the Company and Executive attached hereto as Exhibit A (the
"STOCK OPTION AGREEMENT").

                  (ii) As soon as reasonably practicable after Executive's
exercise of a Grossed-Up Option (as defined below), the Company shall pay to
Executive (x) an amount equal to A minus B (the "STOCK OPTION TAX PAYMENT"),
plus (y) an additional amount such that, after payment by Executive of all
applicable federal, state and local income taxes on all amounts paid to
Executive pursuant to this Section 3(c)(ii), Executive will retain an amount
equal to the Stock Option Tax Payment. For purposes of this Section 3(c)(ii):

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                  A    =   Executive's actual federal income tax liability
                           with respect to Executive's exercise of the number of
                           Stock Options which become exercisable for the first
                           time by Executive during a calendar year and have an
                           aggregate Option Price (as defined in the Stock
                           Option Agreement) which is less than $100,000 (the
                           "GROSSED-UP OPTIONS"); and

                  B    =   The amount of federal income tax liability
                           Executive would have incurred upon exercise of the
                           Grossed-Up Options if the amount of income recognized
                           by Executive upon such exercise for federal income
                           tax purposes had been subject to federal income tax
                           as long-term capital gain.

All determinations required to be made under this Section 3(c)(ii) shall be made
by the Company in consultation with Executive.

                  (d) CHANGE IN CONTROL SEVERANCE AGREEMENT. Executive and the
Company shall enter into the change in control severance agreement attached
hereto as Exhibit B (the "CHANGE IN CONTROL SEVERANCE AGREEMENT").

                  (e) RELOCATION EXPENSES. The Company shall reimburse
Executive, up to a maximum of $10,000, for the following reasonable and
documented expenses incurred by Executive in connection with Executive's
relocation to the Cleveland, Ohio area: (i) up to four trips by Executive
between the Boston, Massachusetts and Cleveland, Ohio areas to locate a home in
the Cleveland, Ohio area; and (ii) the actual moving expenses incurred by
Executive to move his household furnishings and other belongings to his home in
the Cleveland, Ohio area.

                  (f) EXPENSE REIMBURSEMENT. The Company shall reimburse
Executive for all reasonable expenses incurred by him during the period of
Executive's employment with the Company, in the course of performing his duties
under this Agreement that are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's requirements applicable generally with
respect to reporting and documentation of such expenses.

                  (g) BENEFITS. In addition to the salary, bonus(es), stock
options and expense reimbursements payable to Executive pursuant to this
paragraph 3, Executive shall be entitled during Executive's employment with the
Company to participate, on the same basis as other executives of the Company, in
those benefits (including insurance, vacation, equity-based benefits, and other
benefits) for which substantially all of the executives of the Company are from
time to time generally eligible, as determined from time to time by the Board.

                  4. TERMINATION OF EMPLOYMENT.

                  (a) Executive's employment with the Company shall terminate
upon Executive's death.

                  (b) The Company may terminate Executive's employment upon
Executive's having become (as determined by the Board in good faith) permanently
disabled within the

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meaning of the long-term disability plan of the Company in effect for, or
applicable to, Executive.

                  (c) In addition to its rights under paragraph 4(b), the
Company may terminate Executive's employment with the Company at any time for
any reason or for no reason.

                  (d) Executive may terminate Executive's employment with the
Company at any time for any reason or for no reason.

                  5. SEVERANCE PAYMENTS.

                  (a) Upon any termination of Executive's employment with the
Company, Executive shall cease to have any rights to salary, options, expense
reimbursements or other benefits other than: (i) any salary which has accrued
but is unpaid, any reimbursable expenses which have been incurred but are
unpaid, and any unexpired vacation days which have accrued under the Company's
vacation policy but are unused, as of the date Executive's employment is
terminated, (ii) any option rights or plan benefits which by their terms extend
beyond termination of Executive's employment (but only to the extent provided in
any option theretofore granted to Executive or in any other benefit plan in
which Executive has participated as an employee of the Company), (iii) any
benefits to which Executive is entitled under Part 6 of Subtitle B of Title I of
the Employee Retirement Income Security Act of 1974, as amended ("COBRA"), and
(iv) any other amount(s) payable pursuant to the succeeding provisions of this
paragraph 5.

                  (b) Subject to paragraph 7 hereof, if Executive's employment
with the Company is terminated by the Company pursuant to paragraph 4(c) hereof
other than for Cause (as defined below), or by Executive pursuant to paragraph
4(d) hereof for Good Reason (as defined below), the Company shall pay to
Executive at the time of such termination a lump sum payment equal to one times
Executive's base salary at the time of such termination. In addition, subject to
paragraph 7 hereof, (i) the Company shall, for a period of one year following
the date of such termination without Cause, reimburse Executive for any premiums
paid by Executive for health insurance provided to Executive (for Executive and
his dependents) by the Company subsequent to Executive's termination of
employment pursuant to the requirements of COBRA and (ii) the Stock Options
shall become exercisable in full upon such termination and shall remain
exercisable following such termination for the period specified in the Stock
Option Agreement. It is expressly understood that the Company's payment
obligations under this subparagraph (b) shall cease in the event Executive
breaches any of his agreements in paragraph 8 or 9 hereof. Notwithstanding any
other provision of this Agreement, no payments will be made and no benefits will
be provided to Executive under this paragraph 5(b) if Executive receives
severance compensation or benefits pursuant to the Change in Control Severance
Agreement. In the event Executive becomes entitled to receive any severance
payment or other severance benefits under the terms of the Change in Control
Severance Agreement, this paragraph 5(b) shall be of no force or effect.

                  (c) Without limiting the rights of Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided

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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 one percent (1%). 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.

                  (d) For purposes of this Agreement, "CAUSE" shall mean
Executive has:

                  (i) 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;

                  (ii) committed intentional wrongful damage to property of the
Company or any Subsidiary; or

                  (iii) 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. For purposes of this Agreement, no act or failure to act on the part of
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 Executive not in good faith and without reasonable belief
that Executive's action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to 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 Executive
and an opportunity for Executive, together with Executive's counsel (if
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, Executive had
committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of Executive
or his beneficiaries to contest the validity or propriety of any such
determination.

                  (e) For purposes of this Agreement, Executive shall have "GOOD
REASON" to terminate his employment with the Company if:

                  (i) Executive no longer serves as the most senior full-time
employee of the Company; or

                  (ii) The Company breaches any covenant or obligation contained
in this Agreement, which breach continues for a period of ten (10) days
following written notice by Executive to the Company informing the Company of
such breach.

         6. NO MITIGATION OBLIGATION. Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement by
seeking other employment or otherwise.

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         7. RELEASE. Notwithstanding anything herein to the contrary, the
Company shall not be obligated to make any payment or provide any benefit under
paragraph 5(b) hereof unless Executive executes a release of all current or
future claims, known or unknown, arising on or before the date of the release
against the Company, its Subsidiaries and its officers substantially in the form
attached hereto as Exhibit C, with such changes therein and modifications
thereto as the Company, in the exercise of its reasonable judgment, may
determine to be required by applicable law or rule in any jurisdiction.

         8. CONFIDENTIAL INFORMATION. During Executive's employment with the
Company, the Company agrees that it will disclose to Executive its confidential
or proprietary information (as defined in this paragraph 8) to the extent
necessary for Executive to carry out his obligations to the Company. Executive
hereby covenants and agrees that he will not, without the prior written consent
of the Company, during Executive's employment with the Company 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 paragraph 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 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. The foregoing
obligations imposed by this paragraph 8 will not apply (i) during Executive's
employment with the Company, 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 Executive, generally known to the public
or (iii) if Executive is required by law to make disclosure (after giving the
Company notice and an opportunity to contest such requirement).

         9. NON-COMPETE, NON-SOLICITATION.

         (a) During Executive's employment with the Company and for a period of
two years following the date on which Executive's employment with the Company
terminates, Executive shall not, directly or indirectly, do or suffer to be done
any of the following: own, manage, control or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise affiliated
or associated as a consultant, independent contractor or otherwise with any
other corporation, partnership, proprietorship, firm, association, or other
business entity, or otherwise engage in any business, which is in competition
with the Company's business; provided, however, that the ownership of not more
than one percent of any class of publicly-traded securities of any entity shall
not be deemed a violation of this Agreement. For purposes of this Agreement, the
"Company's business" shall mean the discovery and development of products
designed to inhibit post surgical scarring and adhesions.

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         (b) Executive agrees that, for a period of two years following the date
on which Executive's employment with the Company terminates, he will not,
without the consent of the Company, (i) employ, assist in employing, or
otherwise engage in a joint venture, partnership or other business enterprise
with any person who is, or has been in the 12 month period prior to such
individual's association with Executive, an employee or officer of the Company,
or any of its affiliated, related or subsidiary entities, unless such employee
was involuntarily terminated by the Company, or (ii) induce any person who is an
employee, officer or agent of the Company, or any of its affiliated, related, or
subsidiary entities, to terminate such relationship.

         (c) In the event Executive shall violate any provision of this
paragraph 9 as to which there is a specific time period during which he is
prohibited from taking certain actions or from engaging in certain activities as
set forth in such provision, then, in such event, such violation shall toll the
running of such time period from the date of such violation until such violation
shall cease. The foregoing shall in no way limit the Company's rights under
paragraph 10 of this Agreement.

         (d) Executive has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company
under this paragraph 9 and this Agreement, and hereby acknowledges and agrees
that the same are reasonable in time and territory, are designed to eliminate
competition which otherwise would be unfair to the Company, do not stifle the
inherent skill and experience of Executive, would not operate as a bar to
Executive's sole means of support, are fully required to protect the legitimate
interests of the Company and do not confer a benefit upon the Company
disproportionate to the detriment to Executive. Executive further acknowledges
that his obligations in this paragraph 9 are made in consideration of, and are
adequately supported by, the payments by the Company to Executive provided for
herein.

         10. ENFORCEMENT. Executive and the Company agree that the covenants
contained in paragraphs 8 and 9 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 paragraphs 8 and 9 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.

         11. EXECUTIVE REPRESENTATIONS. Executive represents and warrants to the
Company that (i) the execution, delivery and performance of this Agreement by
Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Executive is a party or by which he is bound, (ii)

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any employment agreement, noncompete agreement or confidentiality agreement
between Executive and any other person or entity shall not in any way impede or
otherwise affect Executive's ability to fully perform Executive's duties
hereunder and (iii) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of Executive,
enforceable in accordance with its terms.

         12. SURVIVAL. Subject to any limits on applicability contained therein,
paragraphs 8 and 9 hereof shall survive and continue in full force in accordance
with their terms notwithstanding any termination of Executive's employment.

         13. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, sent by reputable overnight
carrier or mailed by first class mail, return receipt requested, to the
recipient at the address below indicated:

                  NOTICES TO EXECUTIVE:

                  Steven L. Basta
                  28 Greenwich Park, #3
                  Boston, Massachusetts  02118

                  NOTICES TO THE COMPANY:

                  Gliatech Inc.
                  23420 Commerce Park Road
                  Cleveland, Ohio  44122

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered,
sent or mailed.

         14. SEVERABILITY, VALIDITY. (a) Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein;
PROVIDED, HOWEVER, that if the release agreement executed by Executive pursuant
to paragraph 7 hereof is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction, this Agreement
shall be null and void and the Company shall have no obligation to provide
Executive any of the benefits described in paragraph 5(b) hereof.

         (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 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

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transaction which is a Change of Control as a "pooling of interests" under U.S.
generally acceptable accounting principles.

         15. COMPLETE AGREEMENT. This Agreement embodies the complete agreement
and understanding between the parties with respect to the subject matter hereof
and effective as of its date supersedes and preempts any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way.

         16. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of which
taken together shall constitute one and the same agreement.

         17. 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 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.

         (b) This Agreement will inure to the benefit of and be enforceable by
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 paragraphs 17(a) and 17(b). Without limiting the generality or
effect of the foregoing, 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 paragraph 17(c), the Company shall have
no liability to pay any amount so attempted to be assigned, transferred or
delegated.

         18. CHOICE OF LAW. This Agreement shall be governed by the internal
law, and not the laws of conflicts, of the State of Delaware.

         19. AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.

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         20. 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.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date written below.

                                                     GLIATECH INC.

Date: December 18, 2000                     By  /s/ Robert P. Pinkas
      ---------------------------               --------------------------------
                                            Its CHAIRMAN OF THE BOARD AND CHIEF
                                                EXECUTIVE OFFICER

Date: December 18, 2000                     /s/ Steven L. Basta
      ---------------------------           ------------------------------------
                                            STEVEN L. BASTA

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                                                                       EXHIBIT A
                                                                       ---------

                                  GLIATECH INC.

                       NONQUALIFIED STOCK OPTION AGREEMENT

         This Agreement (the "Agreement") is made as of December 18, 2000 (the
"DATE OF GRANT") by Gliatech Inc., a Delaware corporation (the "COMPANY"), and
Steven L. Basta ("OPTIONEE").

SECTION 1. GRANT OF OPTION. The Company hereby grants to Optionee an option (the
"OPTION") to purchase, on the terms and conditions hereinafter set forth,
375,000 shares (the "OPTION SHARES") of the Company's common stock, $0.01 par
value (the "COMMON STOCK"), at the option price of $8.00 per share (the "OPTION
PRICE"). The Option is intended not to be an "incentive stock option" within the
meaning of that term under Section 422 of the Internal Revenue Code of 1986, as
amended, or any successor provision thereto; this Agreement shall be construed
in a manner that will effectuate such intent.

SECTION 2. TERM OF OPTION. Subject to the provisions of Sections 4, 6 and 7
hereof, the term of this Option shall commence on the Date of Grant and will
expire at the close of business on the day before the tenth anniversary of the
Date of Grant (the "EXPIRATION DATE").

SECTION 3. RIGHT OF EXERCISE. Subject to the provisions of Sections 4, 6 and 7
hereof, this Option shall become exercisable as to ten percent (10%) of the
Option Shares covered by the Option on the date which is ninety (90) days
following the Date of Grant, if Optionee remains in the continuous employment of
the Company, and as to an additional twenty-two and one-half percent (22-1/2%)
of the Option Shares covered by the Option on each of the first four
anniversaries of the Date of Grant, if Optionee remains in the continuous
employment of the Company. The exercisability of this Option also may be
accelerated pursuant to Section 5(b)(ii) of the Employment Agreement dated
December 18, 2000 between the Company and Optionee or pursuant to Section 4(e)
of the Change in Control Severance Agreement dated December 18, 2000 between the
Company and Optionee. Optionee shall have none of the rights of a stockholder of
the Company until the shares to which the exercise of this Option relates have
been issued to Optionee.

SECTION 4. EXERCISE OF OPTION.

(a) METHOD OF EXERCISE OF OPTION. This Option may be exercised by written notice
to the Company in a form satisfactory to it. The notice shall specify the number
of Option Shares being purchased, and shall be accompanied by payment in full of
the purchase price for such shares in cash, by certified or bank cashier's
check, by delivery of shares of Common Stock that have been owned by Optionee
for more than six months prior to the date of exercise, having a fair market
value on the date of exercise equal to the purchase price for the shares as to
which this Option is being exercised or by payment in the form of a combination
of cash (or check as provided above) and shares of Common Stock in a sum equal
to such purchase price; PROVIDED,

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HOWEVER, that payment may not be made in whole or in part with shares of Common
Stock if such form of payment may violate applicable law. The requirement of
payment in cash shall be deemed satisfied if Optionee makes arrangements that
are satisfactory to the Company with a broker that is a member of the National
Association of Securities Dealers, Inc. to sell on the exercise date a
sufficient number of Option Shares that are being purchased pursuant to the
exercise, so that the net proceeds of the sale transaction will at least equal
the amount of the aggregate Option Price plus payment of any applicable
withholding taxes, and pursuant to which the broker undertakes to deliver to the
Company the amount of the aggregate Option Price plus payment of any applicable
withholding taxes on a date satisfactory to the Company, but not later than the
date on which the sale transaction will settle in the ordinary course of
business. Optionee under this Option may use the proceeds of any loan or other
extension of credit authorized by the Company and extended to Optionee to pay
the purchase price of the Option Shares being purchased.

(b) DELIVERY OF STOCK CERTIFICATES UPON EXERCISE. Upon each exercise of this
Option, the Company shall mail or deliver to Optionee as promptly as practicable
a stock certificate or certificates representing the shares then purchased, and
will pay all stamp taxes payable in connection therewith, provided that the
Company shall not be obligated to deliver any such certificate or certificates
upon exercise of this Option until the Company shall have received from its
counsel such assurances as the Company may reasonably request that the exercise
of this Option and the issuance of Option Shares pursuant thereto will not
violate the Securities Act of 1933 or any successor thereto or the securities
laws of any state applicable to such exercise, issuance or transfer. Such
assurances may include, without limitation, opinions of counsel to the Company,
covenants and representations by the holder or transferee with respect to
compliance with such Act and laws and the placement of a legend on such
certificate or certificates restricting subsequent transfers or sales except in
compliance with such Act and laws. The Company or a subsidiary may also make
such provisions as it may deem appropriate for the withholding or payment of any
taxes which it determines it may be required to withhold or pay in connection
with any Option or Option Shares.

SECTION 5. NON-TRANSFERABILITY OF OPTION.

(a) Except as provided in Section 5(b) below, this Option shall not be
transferable by Optionee otherwise than by will or the laws of descent and
distribution, and it shall be exercisable during the lifetime of Optionee only
by Optionee.

(b) Notwithstanding Section 5(a) above, the Option may be transferred by
Optionee through a gift or a domestic relations order, to a "family member" of
Optionee, as the term "family member" is defined in, or may be defined from time
to time under, the general instructions to Form S-8 under the Securities Act of
1933 or any successor thereto, provided that no such transfer may be for value
within the meaning of the general instructions to such Form S-8.

SECTION 6. TERMINATION OF EMPLOYMENT.

(a) This Option shall terminate forthwith upon termination of Optionee's
employment by the Company for Cause (as defined in the employment agreement of
even date herewith between the

                                      A-2
<PAGE>   13

Company and Optionee). This Option confers no right upon Optionee with respect
to the continuation of Optionee's employment with the Company, and shall not
interfere with the right of the Company or Optionee to terminate Optionee's
employment at any time, subject, however, to the terms of any employment
agreement between them.

(b) If Optionee's employment by the Company terminates for any reason other than
death, disability or termination for Cause, this Option shall be exercisable by
Optionee, as and to the extent exercisable by Optionee at the time of such
termination, within, but only within, the period of one year beginning on the
date of such termination, but in no event after the Expiration Date.

SECTION 7. DEATH OR DISABILITY OF OPTIONEE. If Optionee dies on or before the
Expiration Date while Optionee is an employee of the Company or a subsidiary or
within three months beginning on the date that Optionee ceases to be an employee
of any such entity (other than by reason of termination for Cause), this Option
shall be exercisable by the person to whom such Option is transferred by will or
the laws of descent and distribution, to the extent such Option was exercisable
by Optionee on the date of death of Optionee, within, but only within, the
period of one year beginning on the date of death of Optionee, but in no event
after the Expiration Date. Except as otherwise indicated by the context, the
term "Optionee," as used in this Option, shall be deemed to include the estate
of Optionee and any person who acquires the right to exercise this Option by
bequest or inheritance or otherwise by reason of the death of Optionee.

If Optionee becomes disabled on or before the Expiration Date while Optionee is
an employee of the Company or a subsidiary and Optionee's employment terminates
by reason of such disability, this Option shall be exercisable by Optionee, as
and to the extent exercisable by Optionee at the time of such termination,
within, but only within, the period of one year beginning on such termination,
but in no event after the Expiration Date.

SECTION 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation or rights offering, or any other change in the
corporate structure or shares of the Company, pursuant to any of which events
the then outstanding shares of Common Stock are split up or combined or are
changed into, become exchangeable at the holder's election for or entitle the
holder thereof to other shares of stock, the Committee may change the number and
kind of shares (including substitution of shares of another corporation) and
option price in any manner as it shall deem equitable. In the event of a sale of
all or substantially all of the assets or outstanding capital stock of the
Company, the dissolution or liquidation of the Company, the merger or
consolidation of the Company with or into any other company, the merger or
consolidation of any other company into the Company or the making of a tender
offer to purchase all or a substantial portion of the shares of the Company, the
Company may terminate this Option as of the effective date of such transaction;
PROVIDED, HOWEVER, that upon such termination, the Company shall redeem this
Option for an amount equal to the difference between the aggregate Option Price
of the Option Shares that then remain subject to this Option, and the fair
market value as of the date of such transaction of the Option Shares that then
remain subject to this Option.

                                      A-3
<PAGE>   14

SECTION 9. NOTICES, ETC. Any notice hereunder by Optionee shall be given to the
Company in writing, and such notice and any payment by Optionee hereunder shall
be deemed duly given or made only upon receipt thereof at the Company's office
at 23420 Commerce Park Road, Cleveland, Ohio 44122 or at such other address as
the Company may designate by notice to Optionee.

Any notice or other communication to Optionee hereunder shall be in writing and
any such communication and any delivery to Optionee hereunder shall be deemed
duly given or made if mailed or delivered to Optionee at such address as
Optionee may have on file with the Company.

         Executed on December 18, 2000.

                                   GLIATECH INC.

                                   By:      /s/ Robert P. Pinkas
                                            -------------------------------
                                   Name:    Robert P. Pinkas
                                            -------------------------------
                                   Title:   Chairman of the Board and
                                            Chief Executive Officer
                                            -------------------------------

                                            /s/ Steven L. Basta
                                            -------------------------------
                                                      STEVEN L. BASTA

                                      A-4
<PAGE>   15

                                                                       EXHIBIT B
                                                                       ---------

Steven L. Basta

Dear Mr. Basta:

                  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

<PAGE>   16

         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 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

                                      C-2
<PAGE>   17

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 occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further 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

                                      C-3
<PAGE>   18

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 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,
         including, without limitation, if Executive ceases to serve as the most
         senior full-time employee of the Company, (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

                                      C-4
<PAGE>   19

         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 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

                                      C-5
<PAGE>   20

                           (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 pursuant to any agreement, policy, plan,
program or arrangement of the Company or any Subsidiary providing Employee
Benefits, which rights shall be governed by the terms thereof. However, in no
event shall Executive receive payments and benefits in connection with the
termination of his employment under both this agreement and the Employment
Agreement between Executive and the Company of even date herewith (the
"EMPLOYMENT AGREEMENT"). As provided in paragraph 5(b) of the Employment
Agreement, no payments will be made and no benefits will be provided to
Executive under paragraph 5(b) of the Employment Agreement if Executive receives
severance compensation or benefits pursuant to 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)(i),
3(a)(ii) or 3(a)(iii), 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.

                                      C-6
<PAGE>   21

                  (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) Upon the occurrence of a Change of Control, the stock
option granted to Executive pursuant to the Stock Option Agreement dated
December 18, 2000 shall become fully vested and exercisable. In addition, upon
the occurrence of a Change of Control, all other equity incentive awards held by
the Executive pursuant to any other plan, program or agreement shall become
vested and exercisable, unless otherwise provided under or precluded by such
plan, program or agreement. Executive shall exercise such equity incentive
awards in accordance with the applicable plan, program or agreement.

                  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

                                      C-7
<PAGE>   22

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
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

                                      C-8
<PAGE>   23

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 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

                                      C-9
<PAGE>   24

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.

                  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

                                      C-10
<PAGE>   25

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 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

                                      C-11
<PAGE>   26

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.

                  (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

                                      C-12
<PAGE>   27

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 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.

                                      C-13
<PAGE>   28

                  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.

                                      C-14
<PAGE>   29

                  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: /s/ Robert P. Pinkas
                                        ---------------------------------
                                     Name:   Robert P. Pinkas
                                     Title:  Chairman of the Board and
                                             Chief Executive Officer

                                                 And

                                         /s/ Steven L. Basta
                                     ------------------------------------
                                                 Steven L. Basta

                                      C-15<PAGE>   1

                                                                   EXHIBIT 10.30
                                                                   -------------

                                SUPPLY AGREEMENT
                                ----------------

         AGREEMENT, made as of this 10th day of January, 2001 by and between
GLIATECH MEDICAL INC., a corporation organized under the laws of the State of
Delaware, with offices at 23420 Commerce Park Road, Beachwood, OH 44122
(hereinafter referred to as "Purchaser"), and PHARMACIA CORPORATION, a
corporation organized under the laws of the State of Delaware, having a place of
business at 100 Route 206 North, Peapack, New Jersey 07977 (hereinafter referred
to as "Supplier").

                                   WITNESSETH:
                                   -----------

         WHEREAS, Purchaser desires to purchase all of its needs of bulk
quantities of the Product listed below (hereinafter referred to as "Product"),
from Supplier and Supplier desires to sell Product as raw material to Purchaser
for use in Purchaser's products Adcon T/N and Adcon L, in the quantities and
upon the terms and conditions hereinafter set forth:

         NOW, THEREFORE, in consideration of the mutual obligations of the
parties herein set forth, it is agreed as follows:

         1. PRODUCT
            -------

                  The Product is identified as Absorbable Gelatin Powder 1 gm.,
(non-sterile powder) for Gliatech. Product shall be supplied to Purchaser
without the over seal PVC heat shrink band. Purchaser agrees that Supplier will
be Purchaser's exclusive source for the Product, and further agrees that it will
not resell the product in the form supplied by Supplier.

         2. TERM
            ----

                  This Agreement shall be effective commencing January 1st, 2001
and shall continue for a period of two (2) years (the "Term"). The Term may be
extended for successive two (2) -- one (1) year periods upon the written consent
of both Supplier and Purchaser at least three (3) months prior to the end of the
Term.

<PAGE>   2

SUPPLY AGREEMENT
PAGE 2

         3. QUANTITY/PRODUCT FORECAST/PURCHASE ORDERS
            -----------------------------------------

                  3.1 Supplier will manufacture and sell and Purchaser will
purchase, for further manufacture and commercial distribution, bulk quantities
of Product. Purchaser understands that one (1) lot of Product consists of
approximately 7,000+/- 10% one (1) gram jars.

                  3.2 Upon implementation of this Agreement, Purchaser will
provide to Supplier a twelve (12) month non-binding rolling forecast for the
quantity of Product it intends to purchase on a monthly basis. Said forecast
shall be updated at the beginning of each calendar quarter thereafter.

                  3.3 Purchaser shall periodically deliver to Supplier written
purchase orders specifying quantity(ies) and deliver date(s). Each order must be
specified in case(s), not jars, with each case containing twenty-four (24) jars
each. Subsequent purchase orders shall be in writing and except as hereinafter
provided, shall specify quantities and delivery dates for each monthly period
and shall be delivered at least three (3) months prior to the beginning of the
period of which they relate.

                  3.4 Supplier shall manufacture and sell to Purchaser only such
quantities of Product that are subject to firm purchase orders. Purchaser shall
be obligated to purchase, and Supplier shall be obligated to sell, the quantity
of Product which is the subject of a firm purchase order. A purchase order
becomes firm ten (10) days after receipt by Supplier unless earlier rejected.
Rejection of a purchase order by Supplier shall not be unreasonable and may be
communicated to Purchaser telephonically if followed by written confirmation.

                  3.5 If Purchaser desires to purchase more than the quantities
listed in the purchase orders for such period, then Supplier shall use
reasonable efforts to supply such additional quantities upon the same terms and
conditions herein, but shall be under no obligation to supply any additional
quantities and shall not be responsible for any losses or damages which may
occur if it does not supply additional quantities.

                  3.6 All written forecasts and written purchase orders shall
include Purchaser's Account Number: 33-45353, which Account Number may be
changed from time to time by written notice to Purchaser. Further, all notice of
forecast and written purchase orders as required under the terms of this
Agreement, must be transmitted by facsimile with a written confirmation to
follow to Supplier at:

<PAGE>   3
SUPPLY AGREEMENT
PAGE 3

                           Janice M. Glessner, Demand Manager
                           PHARMACIA CORPORATION
                           OU8915-298-375
                           7000 Portage Road
                           Kalamazoo, MI 49001
                           Phone:   (616) 833-7397
                           Fax:     (616) 833-4443

         4. PRICE
            -----

                  The price for Product sold by Supplier to Purchaser commencing
with the implementation of this Agreement and expiring at midnight December
31st, 2002 shall be $49.75/1 gram jar. Changes in pricing will be renegotiated
if any new package sizes of absorbable gelatin powder 1 gram jars (non-sterile)
are developed.

         5. INVOICE AND PAYMENT
            -------------------

                  5.1 All orders under this Agreement shall be invoiced at the
time of shipment. Supplier shall use its best efforts to ship the Product, at
Supplier's expense, to such locations in the United States and at such times as
Purchaser shall from time to time designate in the purchase order. All shipments
of Product to Purchaser shall be FOB destination; terms two percent (2%) thirty
(30), Net thirty-one (31) days. Purchaser shall make payment therefor in U.S.
dollars by check mailed to Supplier by regular first class mail. If payment is
not promptly made, Supplier may refuse, in its sole discretion, all further
orders until Purchaser's account is paid in full or, if all amounts past due
under this Agreement have not been paid in full within thirty (30) days after
written notice to Purchaser, Supplier, in its sole discretion, may terminate
this Agreement with the effect set forth in Section 8 hereof.

                  5.2 LATE CHARGES. If any amount due hereunder is not paid on
or before the date due, Purchaser shall pay a late charge. The late charge shall
be equal to interest on the amount overdue, at the lesser of the maximum amount
allowed by law or eighteen percent (18%) per annum, compounded quarterly, from
the date such payment was due until the date paid.

                  5.3 RISK OF LOSS. Title and risk of loss of any Product from
time to time purchased by Purchaser from Supplier shall pass at F.O.B. shipping
point thereof to the Purchaser.

<PAGE>   4
SUPPLY AGREEMENT
PAGE 4

         6. WARRANTY AND SPECIFICATION CHANGES
            ----------------------------------

                  Supplier warrants that the Product to be supplied to Purchaser
will comply in all respects with the Specifications provided by Purchaser and
agreed to by Supplier (the "Specifications" attached hereto and made a part
hereof), or as hereafter amended from time to time by Purchaser and agreed to by
Supplier, and to the extent applicable, the United States Food and Drug
Administration's regulations concerning Good Manufacturing Practice. Prior to
the sale of product to purchaser Supplier agrees to provide Purchaser a
"Certificate of Analysis" for each lot purchased by Purchaser from Supplier, in
a form similar to that set forth in Exhibit "A" attached hereto. If said
certificate of analysis for that specific lot does not meet purchasers required
specification then in such event purchaser shall so notify supplier and shall
not be required to take delivery of that specified lot. THIS WARRANTY IS
EXCLUSIVE AND IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER WRITTEN OR ORAL,
IMPLIED OR STATUTORY. EXCEPT WITH RESPECT TO THE FOREGOING WARRANTY REGARDING
SPECIFICATIONS, THERE IS NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE.

                  The liability of Supplier for Product found not to comply with
the Specifications in effect at the time of manufacture or found to contain
outside contaminants which were present when such Product left Supplier's
possessions ("Non-Conforming Product") shall be limited, at the election of
Supplier, to refunding the purchase price, replacing the Product or
reconditioning the same. Upon the request of Purchaser, Supplier shall make such
changes in the Specifications as are required by law or regulation or which are
not unduly burdensome for Supplier. Purchaser shall pay all Supplier's expenses
in making such changes and in continuing to manufacture Product with such
changes and Purchaser shall indemnify and hold Supplier harmless from any loss,
cost, damage, liability or expense (including reasonable legal expenses) in
connection therewith or arising therefrom.

         7. INDEMNIFICATION
            ---------------

                  7.1 Supplier agrees to indemnify and hold Purchaser harmless
with respect to any claims for injury or damage where such injury or damage is
attributable to the negligence of Supplier.

<PAGE>   5
SUPPLY AGREEMENT
PAGE 5

                  7.2 Purchaser shall indemnify Supplier for all loss, cost,
damage or expense incurred by Supplier from liability claims with respect to
Product, except to the extent that such loss, cost, damage or expense resulted
from Non-Conforming Product and shall further indemnify and hold harmless
Supplier against all claims, proceedings, damages, losses, liabilities, costs
and expenses.

         8. TERMINATION
            -----------

                  This Agreement may be terminated by the mutual written
agreement of the Supplier and the Purchaser.

                  Supplier may also terminate this Agreement upon thirty (30)
days' advance written notice to Purchaser in the event that (i) Purchaser shall
make an assignment for the benefit of creditors, permit or procure the
appointment of a receiver for its assets, or become the subject of any
bankruptcy, insolvency or similar proceeding which shall have remained in force,
undischarged or unstayed for a period of sixty (60) days from the date of
institution thereof; or (ii) Purchaser shall fail to perform any obligation
under this Agreement. Upon termination of this Agreement, neither party shall
have any further obligation to the other hereunder except for obligations which
by their terms are to be performed after termination of this Agreement,
obligations pursuant to Section 6 and 7 hereof, and except that Purchaser shall
remain obligated to pay (a) any unpaid invoices issued by Supplier prior to or
within three (3) months after such termination and (b) any costs or damages to
Supplier associated with such termination.

                  Either party may terminate this Agreement for any reason or
for no reason upon ninety (90) days written notice to the other party.

         9. FORCE MAJEURE
            -------------

                  Neither party shall be deemed to be in default hereunder for
failure to perform, except for non-payment of sums due, if performance is
prevented or delayed by reason of fire, floods, storms, explosions, strikes, or
other labor troubles, riots, material shortages, car shortages, or other
transportation difficulties, governmental regulations, Acts of God, wars,
hostilities, belligerent activities, or other cause beyond such party's control.

<PAGE>   6
SUPPLY AGREEMENT
PAGE 6

         10. WAIVER
             ------

                  No waiver by either party of any breach of any of the terms
and conditions contained herein shall be construed as a waiver of any succeeding
breach of the same or any other term or condition herein.

         11. NOTICE
             ------

                  All notices and other communications permitted or required to
be given under this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or transmitted by telex or facsimile
(provided there has been confirmation of receipt) or received by registered or
certified mail, return receipt requested, if to Purchaser to it at:

                           GLIATECH MEDICAL INC.
                           23420 Commerce Park Road
                           Beachwood, OH 44122
                           ATTN:  Director of Manufacturing

And if to Supplier to it at:

                           PHARMACIA CORPORATION
                           7000 Portage Road
                           Kalamazoo, MI 49001
                           ATTN:  Demand Manager - Gelfoam

Or to such other person or address as either party shall hereinafter designate
to the other from time to time by similar notice, and as shall be required under
Section 3.6 herein.

         12. ASSIGNABILITY
             -------------

                  This Agreement may not be assigned by either party hereto
without the prior written consent of the other, except that Supplier may assign
this Agreement in connection with the sale of its manufacturing facility
responsible for manufacturing said Product without the prior written consent of
Purchaser, and further provided that either party may assign any of its rights
and obligations to any affiliate, but no such assignment shall relieve Supplier
or Purchaser of its obligations hereunder. Subject to the foregoing, all
covenants, agreements, representations and

<PAGE>   7

SUPPLY AGREEMENT
PAGE 7

warranties contained in this Agreement shall bind and enure to the benefit of
the respective successors and assignees of the parties hereto.

         13. GOVERNING LAW
             -------------

                  This Agreement shall be governed by and construed under the
laws of the State of New Jersey.

         14. MODIFICATIONS; SEVERABILITY
             ---------------------------

                  This Agreement may not be modified or amended except as
expressly set forth herein, by any course of dealing, usage of trade, oral
agreement or any writing, unless signed by an officer of the party to be charged
therewith. Each provision of this Agreement is severable. If any provision
hereof is invalid for any length of time, the remaining provisions shall remain
valid and binding provided that the invalidity of any provision does not
substantially affect the interest of either party.

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and first above written.

<TABLE>
<CAPTION>
PHARMACIA CORPORATION                                   GLIATECH MEDICAL INC.

<S>                                                     <C>
BY: /S/ DAVID ENGELS                                    BY: /S/ RODNEY E. DAUSCH
    ----------------------------------                  ------------------------------------

TITLE:  Marketing Director-Diversified Products         TITLE: Chief Operating Officer
</TABLE>

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