EXHIBIT 10.2
October 29, 1997
Ms. Nancy V. Westcott
510 Brierhill Road
Deerfield, Illinois 60015
Dear Nancy:
On behalf of Oratec Interventions, Inc. (the "Company"), I am pleased to
-------
offer you the position of Chief Financial Officer and Vice President
Administration of the Company. Speaking for myself, as well as the other
members of the Company's management team, we are all very impressed with your
credentials and we look forward to your future success in this position.
The terms of your new position with the Company are as set forth below:
1. Position.
--------
a. You will become the Chief Financial Officer and Vice President
Administration of the Company, working out of the Company's headquarters office
in Menlo Park, CA. You will report to the Company's President and Chief
Executive Officer.
b. You agree to the best of your ability and experience that you will
at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the terms hereof. During the
term of your employment, you further agree that you will devote all of your
business time and attention to the business of the Company, the Company will be
entitled to all of the benefits and profits arising from or incident to all such
work services and advice, you will not render commercial or professional
services of any nature to any person or organization, whether or not for
compensation, without the prior written consent of the Company's President and
Chief Executive Officer, and you will not directly or indirectly engage or
participate in any business that is competitive in any manner with the business
of the Company. Nothing in this letter agreement will prevent you from
accepting speaking or presentation engagements in exchange for honoraria or from
serving on boards of charitable organizations, or from owning no more than one
percent (1%) of the outstanding equity securities of a corporation whose stock
is listed on a national stock exchange.
2. Start Date. Subject to fulfillment of any conditions imposed by this
----------
letter agreement, you will commence this new position with the Company on
November 3, 1997 (the "Start Date").
June 28, 1999
Page 2
3. Proof of Right to Work. For purposes of federal immigration law, you
----------------------
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your Start Date, or our
employment relationship with you may be terminated.
4. Compensation.
------------
a. Base Salary. You will be paid a monthly salary of $12,500, which
-----------
is equivalent to $150,000 on an annualized basis (the "Base Salary"). Your
salary will be payable in two equal payments per month pursuant to the Company's
regular payroll policy (or in the same manner as other officers of the Company).
b. Signing Bonus. In connection with the commencement of your
-------------
employment, you will be paid a cash bonus of $37,500 (as reduced applicable tax
withholdings) on your Start Date. In the event that you voluntarily terminate
your employment with the Company before the end of the first year of employment,
you agree to repay the Company 100% of such bonus by personal check or other
negotiable instrument.
c. Incentive Bonus. You will be eligible to receive an annual
---------------
incentive bonus of up to 25% of your Base Salary for the calendar year ending
December 31, 1998. Payment of the bonus will be based on achievement of
specified corporate and individual performance targets mutually agreed upon by
you and the Company's President and Chief Executive Officer within 60 days of
your Start Date. You will also be eligible to earn incentive bonuses in future
years, again based on achievement of objectives. With respect to the remainder
of the 1997 calendar year, you will be eligible to receive a prorated portion of
the annual incentive bonus specified above based on achievement of specified
corporate and individual performance targets mutually agreed upon by you and the
Company's President and Chief Executive Officer within 30 days of your Start
Date.
d. Annual Review. Your Base Salary will be reviewed at the end of
-------------
each calendar year as part of the Company's normal salary review process.
5. Stock Options.
-------------
a. Initial Grant. In connection with the commencement of your
-------------
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 150,000 shares of the Company's Common Stock ("Shares") with
------
an exercise price equal to the fair market value on the date of the grant. These
option shares will become exercisable at the rate of twelve forty-eighths
(12/48) of the Shares twelve months after the Vesting Commencement Date and one
forty-eighth (1/48) of the Shares at the end of each calendar month thereafter.
The Vesting Commencement Date will be your Start Date. Vesting will, of course,
depend on your continued employment with the Company. Notwithstanding the above,
in the event that (i) your employment is terminated by the Company or a
successor other than for Cause (as defined below), or (ii) your job duties,
responsibilities and requirements or compensation are materially reduced or
changed such that they are inconsistent with your prior duties, responsibilities
and requirements or
June 28, 1999
Page 3
compensation, in either case in connection with, or as a result of, a Change of
Control (as defined below), one hundred percent (100%) of the option that has
not yet become exercisable shall become exercisable on the effective date of
such termination, reduction or change. For purposes of this letter, a
termination or material reduction or change will be deemed to have occurred in
connection with, or as a result of, a Change in Control if it occurs within 12
months of such Change in Control. The option will be an incentive stock option
to the maximum extent allowed by the tax code and will be subject to the terms
of the Company's 1995 Stock Plan and the Stock Option Agreement between you and
the Company.
b. Subsequent Option Grants. Subject to the discretion of the
------------------------
Company's Board of Directors, you may be eligible to receive additional grants
of stock options from time to time in the future, on such terms and subject to
such conditions as the Board of Directors shall determine as of the date of any
such grant.
6. Benefits.
--------
a. Employee Benefits. You will be entitled to participate, to the
-----------------
extent you are eligible under the terms and conditions thereof, in any medical
insurance plans, 401(k) plans, deferred compensation plans, life insurance
plans, vacation, retirement or other employee benefit plans which are generally
available to executives of the Company or are available to senior executives or
a select group of executives of the Company and which may be in effect from time
to time during your employment with the Company. The Company shall be under no
obligation to institute or continue the existence of any employee benefit plan
described herein and may from time to time amend, modify or terminate any such
employee benefit plan.
b. Relocation Expenses. In connection with your relocation from the
-------------------
Chicago area to the San Francisco Bay Area, the Company will reimburse you for
the relocation expenses estimated on Schedule 1 hereto. Any amounts received by
you for relocation expense reimbursement will be reported as taxable income to
you in the year received as required by applicable tax law; provided that you
will be fully "grossed up" for the taxes you pay as a result of this relocation
expense reimbursement.
In the event that you voluntarily terminate your employment with the
Company before the end of your first year of employment, you agree to repay the
Company 100% of the relocation expenses estimated in Schedule 1 hereto by
personal check or other negotiable instrument.
7. Severance Agreement. If your employment is terminated by the Company
-------------------
or its successor for any reason other than Cause, as defined below, you will be
entitled to receive continuation of your Base Salary and medical insurance
benefits for the number of months following the date of termination of your
employment as set forth below:
a. Twelve (12) months if the termination occurs within two (2) years
of your Start Date.
June 28, 1999
Page 4
b. Six (6) months if the termination occurs more than two (2) years
after your Start Date.
c. Twelve (12) months if the termination or the material reduction or
change (as described in Section 5(a)(ii)) occurs at any time during your
employment with the Company in connection with, or as a result of, a Change of
Control of the Company.
In addition, if your employment is terminated by the Company or its
successor for any reason other than Cause, the Company will provide executive-
level outplacement services to you.
8. Definitions.
-----------
a. Cause. For purposes of this letter agreement, "Cause" shall mean
----- -----
(a) willful misconduct or gross negligence in performance of your duties
hereunder; (b) refusal to comply in any material respect with the legal
directives of the Company's Board of Directors so long as such directives are
not inconsistent with your position and duties, which is not remedied (if
remediable) within twenty (20) working days after written notice from the
Company's Board of Directors, which written notice shall state that failure to
remedy such conduct may result in termination for Cause; (c) a deliberate
attempt to do an injury to the Company; (d) conduct, dishonest, fraudulent or
otherwise, that materially discredits the Company or is materially detrimental
to the reputation of the Company; (e) conviction of a felony or a crime
involving moral turpitude causing material harm to the standing and reputation
of the Company; or (f) material breach of any element of the Company's
Proprietary Information Agreement, including without limitation, the theft or
other misappropriation of the Company's proprietary information, in each case as
determined in good faith by the Company's Board of Directors.
b. Change of Control. For purposes of this letter agreement, a
-----------------
"Change of Control" shall mean the occurrence of any of the following events:
-----------------
(i) an acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation but excluding any merger effected
exclusively for the purpose of changing the domicile of the Company), or (ii) a
sale of all or substantially all of the assets of the Company (collectively, a
"Merger"), so long as in either case (x) the Company's shareholders of record
immediately prior to such Merger will, immediately after such Merger, hold less
than fifty percent (50%) of the voting power of the surviving or acquiring
entity, or (y) the Company's shareholders of record immediately prior to such
Merger will, immediately after such Merger, hold less than sixty percent (60%)
of the voting power of the surviving or acquiring entity and a majority of the
members of the Board of Directors of the surviving or acquiring entity
immediately after such Merger were not members of the Board of Directors of the
Company immediately prior to such Merger.
9. Limitation on Change of Control Benefits. In the event that the
----------------------------------------
severance and stock option acceleration benefits provided in this letter
agreement in connection with, or as a result of, a Change of Control of the
Company (i) constitute "parachute payments" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for
this Section, would be subject to the excise tax imposed by Section 4999 of the
Code,
June 28, 1999
Page 5
then such benefits shall be payable either: (a) in full, or (b) as to such
lesser amount which would result in no portion of such benefits being subject to
excise tax under Section 4999 of the Code, whichever of the foregoing amounts,
taking into account the applicable federal, state and local income taxes and the
excise tax imposed by Section 4999, results in your receipt on an after-tax
basis, of the greatest amount of benefits, notwithstanding that all or some
portion of such benefits may be taxable under Section 4999 of the Code. Unless
you and the Company otherwise agree in writing, any determination required under
this Section 9 shall be made in writing by independent public accountants
appointed by you and reasonably acceptable to the Company (the "Accountants"),
whose determination shall be conclusive and binding upon you and the Company for
all purposes. For purposes of making the calculations required by this Section
9, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Section 280G and 4999 of the Code. The Company and
you shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Section. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 9.
10. Proprietary Information Agreement. Your acceptance of this offer and
---------------------------------
commencement of employment with the Company is contingent upon the execution,
and delivery to an officer of the Company, of the Company's Proprietary
Information Agreement, a copy of which is enclosed for your review and execution
(the "Proprietary Information Agreement"), prior to or on your Start Date.
---------------------------------
11. Confidentiality of Terms. You agree to follow the Company's strict
------------------------
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
12. At-Will Employment. Notwithstanding the Company's obligation
------------------
described in Sections 5a, 7 or elsewhere herein, your employment with the
Company will be on an "at will" basis, meaning that either you or the Company
may terminate your employment at any time for any reason or no reason, without
obligation or liability, except as specifically provided herein. We are all
delighted to be able to extend you this offer and look forward to working with
you. To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me, along with a signed
and dated copy of the Proprietary Information Agreement. This letter, together
with the Proprietary Information Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
Very truly yours,
June 28, 1999
Page 6
ORATEC INTERVENTIONS, INC.
By: /s/ Kenneth W. Anstey
---------------------
Title: President and Chief Executive Officer
ACCEPTED AND AGREED:
NANCY V. WESTCOTT
/s/ Nancy V. Westcott
- ---------------------
Signature
10/30/97
- ---------------------
Date
Enclosure: Proprietary Information Agreement
SCHEDULE 1
ESTIMATED RELOCATION EXPENSES
-----------------------------