SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. 1)
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box: [_] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
ORATEC Interventions, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
ORATEC INTERVENTIONS, INC.
3700 Haven Court
Menlo Park, CA 94025
Notice of Annual Meeting of Stockholders
To Be Held April 23, 2001
On Monday, April 23, 2001, ORATEC Interventions, Inc., a Delaware
corporation (the "Company"), will hold its Annual Meeting of Stockholders at
the offices of Venture Law Group, A Professional Corporation, located at 2775
Sand Hill Road, Menlo Park, California 94025. The meeting will begin at 2:00
p.m. local time.
Only stockholders who owned stock at the close of business on March 15, 2001
can vote at this meeting or any adjournment that may take place. At the
meeting we will:
. Elect two (2) Class I directors to serve until the annual meeting of the
Company's stockholders for the year ending December 31, 2004;
. Approve the amendment of the "evergreen" provision of the Company's 1999
Stock Plan (the "1999 Stock Plan") to increase the number of shares by
which this plan shall be automatically increased on the first day of each
year beginning in 2002, 2003, 2004 and 2005 from the lesser of 4% of the
outstanding shares of Common Stock on the last day of the immediately
preceding year, 1,250,000 shares or such lesser number as determined by
the Company's Board of Directors to the lesser of 5.5% of the outstanding
shares of Common Stock on the last day of the immediately preceding
fiscal year, 1,450,000 shares or such lesser number as determined by the
Company's Board of Directors;
. Approve the amendment of the Company's 1999 Directors' Stock Option Plan
to increase the number of nonstatutory stock options than can be granted
to nonemployee directors;
. Ratify the appointment of Ernst & Young LLP as the Independent Auditor of
the Company for the fiscal year ending December 31, 2001; and
. Transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
You can find more information about each of these items, including the
nominees for directors, in the attached Proxy Statement.
Our Board of Directors recommends that you vote in favor of each of the four
proposals outlined in the attached Proxy Statement.
We cordially invite all stockholders to attend the Annual Meeting in person.
However, whether or not you expect to attend the Annual Meeting in person,
please mark, date, sign and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope provided to ensure your
representation and the presence of a quorum at the Annual Meeting. If you send
in your proxy card and then decide to attend the Annual Meeting to vote your
shares in person, you may still do so. Your proxy is revocable in accordance
with the procedures set forth in the Proxy Statement.
At the meeting, we will also report on our business results and other
matters of interest to stockholders.
By Order of the Board of Directors,
/s/ Nancy V. Westcott
Nancy V. Westcott
Chief Financial Officer, Vice
President, Administration and
Secretary
Menlo Park, California
March 29, 2001
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED
EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND
SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
ORATEC INTERVENTIONS, INC.
3700 Haven Court
Menlo Park, CA 94025
PROXY STATEMENT
FOR THE
2001 ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 2001
Our Board of Directors is soliciting proxies for the 2001 Annual Meeting of
Stockholders. This Proxy Statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
The Board set March 15, 2001 as the record date for the meeting.
Stockholders of record who owned our common stock on that date are entitled to
vote at and attend the meeting, with each share entitled to one vote.
22,830,908 shares of common stock were outstanding on the record date.
Voting materials, which include this Proxy Statement, a proxy card and the
2000 Annual Report, will be mailed to stockholders on or about March 31, 2001.
In this Proxy Statement:
. "We," "us," "our" and the "Company" refer to ORATEC Interventions, Inc.,
. "Annual Meeting" or "Meeting" means our 2001 Annual Meeting of
Stockholders
. "Board of Directors" or "Board" means our Board of Directors
. "SEC" means the Securities and Exchange Commission
We have summarized below important information with respect to the Annual
Meeting.
Time And Place Of The Annual Meeting
The Annual Meeting is being held on Monday, April 23, 2001, at 2:00 p.m.
local time at the offices of Venture Law Group, A Professional Corporation
located at 2775 Sand Hill Road, Menlo Park, California 94025.
All stockholders who owned shares of our stock as of March 15, 2001, the
record date, may attend the Annual Meeting.
Purpose Of The Proxy Statement And Proxy Card
You are receiving a Proxy Statement and proxy card from us because you owned
shares of our common stock on March 15, 2001, the record date. This Proxy
Statement describes issues on which we would like you, as a stockholder, to
vote. It also gives you information on these issues so that you can make an
informed decision.
When you sign the proxy card, you appoint Kenneth W. Anstey and Nancy V.
Westcott as your representatives at the meeting. Mr. Anstey and Ms. Westcott
will vote your shares, as you have instructed them on the proxy card, at the
meeting. This way, your shares will be voted whether or not you attend the
Annual Meeting. Even if you plan to attend the meeting it is a good idea to
complete, sign and return your proxy card in advance of the meeting just in
case your plans change.
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Proposals To Be Voted On At This Year's Annual Meeting
You are being asked to vote on:
. The election of two (2) Class I directors to serve until the annual
meeting of the Company's stockholders for the year ending December 31,
2004;
. The amendment of the "evergreen" provision of the Company's 1999 Stock
Plan (the "1999 Stock Plan") to increase the number of shares by which
this plan shall be automatically increased on the first day of each year
beginning in 2002, 2003, 2004 and 2005 from the lesser of 4% of the
outstanding shares of Common Stock on the last day of the immediately
preceding year, 1,250,000 shares or such lesser number as determined by
the Company's Board of Directors to the lesser of 5.5% of the outstanding
shares of Common Stock on the last day of the immediately preceding
fiscal year, 1,450,000 shares or such lesser number as determined by the
Company's Board of Directors;
. The amendment of the Company's 1999 Directors' Stock Option Plan to
increase the number of nonstatutory stock options than can be granted to
nonemployee directors;
. The ratification of our appointment of Ernst & Young LLP as the
Independent Auditor of the Company for the fiscal year ending December
31, 2001; and
. Such other proposals as may properly come before the Annual Meeting and
any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR each proposal.
Voting Procedure
You may vote by mail
To vote by mail, please sign your proxy card and return it in the enclosed,
prepaid and addressed envelope. If you mark your voting instructions on the
proxy card, your shares will be voted as you instruct.
You may vote in person at the meeting.
We will pass out written ballots to anyone who wants to vote at the meeting.
If you hold your shares in street name, you must request a legal proxy from
your stockbroker in order to vote at the meeting. Holding shares in "street
name" means your shares of stock are held in an account by your stockbroker,
bank or other nominee, and the stock certificates and record ownership are not
in your name. If your shares are held in "street name" and you wish to attend
the Annual Meeting, you must notify your broker, bank or other nominee and
obtain the proper documentation to vote your shares at the Annual Meeting.
You may change your mind after you have returned your proxy.
If you change your mind after you return your proxy, you make revoke your
proxy at any time before the polls close at the meeting. You may do this by:
. signing another proxy with a later date, or
. voting in person at the Annual Meeting.
Multiple Proxy Cards
If you received more than one proxy card, it means that you hold shares in
more than one account. Please sign and return all proxy cards to ensure that
all your shares are voted.
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Quorum Requirement
Shares are counted as present at the meeting if the stockholder either:
. is present and votes in person at the meeting, or
. has properly submitted a proxy card.
A majority of our outstanding shares as of the record date must be present at
the meeting (either in person or by proxy) in order to hold the Annual Meeting
and conduct business. This is called a "quorum."
Consequences of Not Returning Your Proxy; Broker Non-Votes
If your shares are held in your name, you must return your proxy (or attend
the Annual Meeting in person) in order to vote on the proposals. If your
shares are held in street name and you do not vote your proxy, your brokerage
firm may either:
. vote your shares on routine matters, or
. leave your shares unvoted.
Under the rules that govern brokers who have record ownership of shares that
are held in "street name" for their clients, brokers may vote such shares on
behalf of their clients with respect to "routine" matters (such as the
election of directors or the ratification of auditors), but not with respect
to non-routine matters (such as a proposal submitted by a stockholder). If the
proposals to be acted upon at any meeting include both routine and non-routine
matters, the broker may turn in a proxy card for uninstructed shares that vote
FOR the routine matters, but expressly states that the broker is not voting on
non-routine matters. This is called a "broker non-vote."
Broker non-votes will be counted for the purpose of determining the presence
or absence of a quorum, but will not be counted for the purpose of determining
the number of votes cast.
We encourage you to provide instructions to your brokerage firm by voting
your proxy. This ensures that your shares will be voted at the meeting.
Effect Of Abstentions
Abstentions are counted as shares that are present and entitled to vote for
the purposes of determining the presence of a quorum and as votes AGAINST for
purposes of determining the approval of any matter submitted to the
stockholders for a vote.
Required Vote
Assuming a quorum is present, the two nominees receiving the highest number
of yes votes will be elected as directors. The amendment of the 1999 Stock
Plan and the 1999 Directors' Stock Option Plan, and the ratification of the
independent accountants will require the affirmative vote of a majority of
shares present in person or represented by proxy at the Meeting.
Vote Solicitation; Use Of Outside Solicitors
ORATEC Interventions, Inc. is soliciting your proxy to vote your shares at
the Annual Meeting. In addition to this solicitation by mail, our directors,
officers and other employees may contact you by telephone, Internet, in person
or otherwise to obtain your proxy. These persons will not receive any
additional compensation for assisting in the solicitation. We will also
request brokerage firms, nominees, custodians and fiduciaries to forward proxy
materials to the beneficial owners. We will reimburse these entities and our
transfer agent for their
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reasonable out-of-pocket expenses in forwarding proxy material. Skinner & Co.
has been hired to assist in the distribution of proxy materials and
solicitation of votes. They will be paid approximately $5,000 for these
services, plus reimbursement for certain out-of-pocket expenses.
Voting Procedures
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
a representative of American Stock Transfer & Trust Company, our transfer
agent, who will act as the Inspector of Election. The Inspector will also
determine whether a quorum is present at the Annual Meeting.
The shares represented by the proxy cards received, properly marked, dated,
signed and not revoked, will be voted at the Annual Meeting. If the proxy card
specifies a choice with respect to any matter to be acted on, the shares will
be voted in accordance with that specified choice. Any proxy card which is
returned but not marked will be voted FOR each of the director nominees, FOR
each of the other proposals discussed in this Proxy Statement, and as the
proxy holders deem desirable for any other matters that may come before the
Meeting. Broker non-votes will not be considered as voting with respect to any
matter for which the broker does not have voting authority.
We believe that the procedures to be used by the Inspector to count the
votes are consistent with Delaware law concerning voting of shares and
determination of a quorum.
Publication Of Voting Results
We will announce preliminary voting results at the meeting. We will publish
the final results in our quarterly report on Form 10-Q for the second quarter
of 2001, which we will file with the SEC. You can get a copy by contacting our
Investor Relations Department at (650) 369-9904 or the SEC at (800) 732-0330
for the location of the nearest public reference room, or through the EDGAR
system at www.sec.gov.
Other Business
We do not know of any business to be considered at the 2001 Annual Meeting
other than the proposals described in this proxy statement. However, if any
other business is properly presented at the Annual Meeting, your signed proxy
card gives authority to Kenneth W. Anstey and Nancy V. Westcott to vote on
such matters at their discretion.
Proposals For 2002 Annual Meeting
To have your proposal included in our proxy statement for the 2002 Annual
Meeting, you must submit your proposal in writing by November 29, 2001, to
Nancy V. Westcott, 3700 Haven Court, Menlo Park, California 94025.
If you submit a proposal for the 2002 Annual Meeting after November 29,
2001, management may or may not, at their discretion, present the proposal at
the meeting, and the proxies for the 2002 Annual Meeting will confer
discretion on the management proxy holders to vote against your proposal.
4
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our Certificate of Incorporation requires that the Board of Directors is
divided into three classes, with staggered three year terms. The Class I
directors, whose terms expire at the Annual Meeting are Richard M. Ferrari and
Wayne R. Moon, the Class II directors whose terms expire at the Company's 2002
Annual Meeting of Stockholders are Patrick F. Latterell, Jeffrey A. Saal, M.D.
and Hugh R. Sharkey and the Class III directors whose terms expire at the
Company's 2003 Annual Meeting are Kenneth W. Anstey and a vacancy which will
be filled at a later date. You only elect one class of directors at each
annual meeting. The other class continues to serve for the remainder of its
term. The Class I directors are nominees for re-election at the Annual
Meeting. Each nominee has consented to serve an additional three-year term. We
have nominated two candidates for election to the Board this year. Detailed
information on each of the nominees is provided below.
If any director is unable to stand for re-election, the Board may reduce the
size of the Board, designate a substitute or leave a vacancy unfilled. If a
substitute is designated, proxies voting on the original director candidate
will be cast for the substitute candidate. Each nominee listed has consented
to serve as a director.
Vote Required
If a quorum is present, the two nominees receiving the highest number of
affirmative votes of shares entitled to be voted for them will be elected as
directors for the ensuing year. Unless marked otherwise, proxies received will
be voted FOR the election of each of the two nominees named. If additional
people are nominated for election as directors, the proxy holders intend to
vote all proxies received by them in a way that will ensure that as many as
possible of the nominees listed above are elected. If this happens, the
specific nominees to be voted for will be determined by the proxy holders.
Nominees for the Board of Directors
The names of the nominees, their ages as of February 28, 2001 and certain
other information about them are set forth below:
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
Richard M. Ferrari(1)(2).. 47 General Partner, DeNovo Ventures 1996
Wayne R. Moon(1).......... 61 Retired, Chairman of the Board and 2000
Chief Executive Officer, Blue
Shield of California
- --------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Richard M. Ferrari has served as a director of ORATEC since May 1996 and was
elected Chairman of the Board in January 1997. Mr. Ferrari has been a general
partner at DeNovo Ventures since March 2000. From June 1995 until March 2000,
Mr. Ferrari served as Chief Executive Officer of CardioThoracic Systems, a
minimally invasive coronary bypass company, which was acquired by Guidant
Corporation in November 1999. From January 1991 to September 1995, Mr. Ferrari
was President and Chief Executive Officer of CVIS, a cardiovascular medical
device company, which was recently acquired by Boston Scientific. From April
1990 to January 1991, he served as President and Acting Chief Executive
Officer of Medstone International, a shockwave therapy company, and from
January 1986 to April 1990, he was an Executive Vice President and General
Manager with ADAC Laboratories, a nuclear medical imaging and healthcare
information systems company. Mr. Ferrari also serves as a director and advisor
for several start-up companies in the medical device industry. Mr. Ferrari
holds a B.S. degree in Health and Education from Ashland University and an
M.B.A. from the University of South Florida.
5
Wayne R. Moon has served as a director of ORATEC since December 2000. Mr.
Moon was President and Chief Executive Officer of Blue Shield of California
from September 1993 until December 1995 and then served as Chief Executive
Officer and Chairman of the Board of Blue Shield of California from December
1995 until his retirement in January 2000. Mr. Moon was President, Chief
Operating Officer and Director of Kaiser Foundation Health Plan, Inc. and
Kaiser Hospitals where he was employed from June 1970 until September 1993.
Mr. Moon also serves as a director of Varian, Inc., a manufacturer of
scientific instruments and vacuum technologies, as well as several private
companies in the healthcare field. Mr. Moon is a past Chairman of the Board of
the American Association of Health Plans. He holds a B.A. degree in Business
Administration and an Masters degree in Hospital Administration from the
University of Michigan.
The names of the Class II and Class III directors, their ages as of February
28, 2001 and certain other information about them are set forth below:
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
Patrick F. Latterell.... 42 General Partner, Venrock Associates 1997
Jeffrey A. Saal, M.D.... 50 Doctor of Medicine 1995
Hugh R. Sharkey......... 50 Executive Vice President and Chief
Technology Officer, ORATEC 1993
President and Chief Executive
Kenneth W. Anstey....... 54 Officer, ORATEC 1996
Patrick F. Latterell has served as a director of ORATEC since October 1997,
and previously served as a director and Chairman of the Board from August 1996
to January 1997. Mr. Latterell has been a general partner at Venrock
Associates, a venture capital firm, since April 1989. Mr. Latterell also
serves as a director of Vical, a gene-based pharmaceutical company, as well as
several private companies. He holds S.B. degrees in both Biology and Economics
from the Massachusetts Institute of Technology and an M.B.A degree from the
Stanford University Graduate School of Business.
Jeffrey A. Saal, M.D. is a co-founder of ORATEC and has been a director
since August 1995. Since 1981, Dr. Saal has been conducting his medical
practice with the S.O.A.R. Physiatry Medical Group. Since 1992, he has been an
Associate Clinical Professor at Stanford University, and since 1981 he has
served as team physician to various college sports teams. Dr. Saal is on the
editorial boards of several peer review journals, including Spine. Dr. Saal
holds several positions with professional societies, including Founding
Chairman of PASSOR, the Physiatric Association of Spine Sports and
Occupational Rehabilitation. He was also a former President of the North
American Spine Society, or NASS. Dr. Saal holds a B.A. degree in Biology from
the State University of New York, Oneonta and an M.D. degree from Tulane
Medical School. He completed his residency training at the Boston VA Hospital
and Stanford University. Dr. Saal is board certified in Physical Medicine,
Internal Medicine and Electrodiagnostic Medicine.
Hugh R. Sharkey co-founded ORATEC and has served as a director since
inception. From July 1995 until July 1997, he served as Chief Executive
Officer, President and Chief Financial Officer, and in June 1997 he became
Executive Vice President and Chief Technical Officer. In March 1994, Mr.
Sharkey co-founded ZoMed International (now RITA Medical Systems), a
radiofrequency ablation company. In 1992, Mr. Sharkey co-founded VIDAMed, a
urology company, and in 1987, he co-founded Danforth Biomedical, a medical
device company. From May 1988 to May 1989, he served as Vice President and
General Manager of EP Technologies, a cardiac electrode company, which was
acquired by Boston Scientific, a minimally invasive medical device company.
Mr. Sharkey is listed as an inventor on over 62 patents for medical devices.
He holds an A.A. degree in Nursing and a B.S. degree in Business
Administration from the University of Phoenix.
Kenneth W. Anstey joined ORATEC in April 1996 as a director and has served
as President and Chief Executive Officer of ORATEC since July 1997. From
December 1995 to March 1997, Mr. Anstey was the Chief Executive Officer of
Biofield Corporation, a cancer diagnostic company. From August 1991 to
December 1995,
6
he served as President and Chief Executive Officer of Mitek Surgical Products,
an orthopedic implant company, which was subsequently acquired by Johnson &
Johnson. He currently serves as a director of Vision Sciences, a medical
device company. Mr. Anstey holds a B.A. degree in Advertising and an M.B.A.
degree from Michigan State University.
There are no family relationships among any of the directors or executive
officers of the Company.
2000 Board Resignations
Stephen Brackett resigned from the Board of Directors on September 1, 2000
and Dr. Gary Fanton resigned from the Board of Directors on October 23, 2000
for reasons unrelated to the Company's business.
Meetings and Committees of the Board of Directors
During the period from December 31, 1999 through December 31, 2000 (the
"last fiscal year"), the Board met eight times, and no director attended fewer
than 75% of the aggregate number of meetings of the Board and meetings of the
committees of the Board on which he serves, except that Wayne Moon did not
attend any meetings of the Board during the last fiscal year as he did not
become a member of the Board until December 28, 2000. The Board has an Audit
Committee and a Compensation Committee.
The Audit Committee consists of directors Richard Ferrari, Patrick Latterell
and Wayne Moon, three of the Company's non-employee directors, and held four
meetings during the last fiscal year. The Audit Committee recommends the
engagement of the firm of certified public accountants to audit the financial
statements of the Company and monitors the effectiveness of the audit effort,
the Company's financial and accounting organization and its system of internal
accounting controls.
The Compensation Committee consists of directors Richard Ferrari and Jeffrey
Saal, M.D., and held three meetings during the last fiscal year. Its functions
are to establish and administer the Company's policies regarding annual
executive salaries and cash incentives and long term equity incentives. The
Compensation Committee administers the Company's 1999 Stock Plan, 1999
Employee Stock Purchase Plan and 1999 Directors' Stock Option Plan.
Compensation of Directors
Directors currently receive no cash fees for services provided in that
capacity but are reimbursed for out-of-pocket expenses incurred in connection
with attendance at meetings of the Board. Employee directors and nonemployee
directors are eligible to participate in the 1999 Stock Plan. Employee
directors are eligible to participate in the 1999 Employee Stock Purchase
Plan. The Company's 1999 Directors' Stock Option Plan (the "Directors' Plan")
currently provides that each person who becomes a nonemployee director of the
Company will be granted a nonstatutory stock option to purchase 20,000 shares
of Common Stock on the date on which the optionee first becomes a nonemployee
director of the Company. Thereafter, on the date of each annual meeting of the
Company's shareholders at which such director is elected, each such
nonemployee director shall be granted an additional option to purchase 5,000
shares of Common Stock if, on such date, he or she shall have served on the
Company's Board of Directors for at least six months. Therefore, with the
exception of Mr. Moon who has recently joined the Company's Board of
Directors, each of the Company's nonemployee directors will receive options to
purchase 5,000 shares of the Company's Common Stock at the time of the Annual
Meeting. In addition, Mr. Ferrari and Mr. Latterell each received options to
purchase 20,000 shares and Dr. Saal received an option to purchase 25,000
shares under the 1999 Stock Plan in December 2000. Upon becoming a nonemployee
director in December 2000, Mr. Moon received an option to purchase 20,000
shares of Common Stock under the Directors' Plan and an option to purchase
10,000 shares under the 1999 Stock Plan. In addition, Mr. Moon received $2,500
during 2000 as payment for consulting services.
Recommendation of the Board:
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 1.
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PROPOSAL NO. 2
ADOPTION OF AMENDMENT TO THE COMPANY'S 1999 STOCK PLAN
You are being asked to approve an amendment to our 1999 Stock Plan (the
"1999 Stock Plan") to adjust the evergreen provisions of the 1999 Stock Plan.
The 1999 Stock Plan was originally adopted by the board of directors in
November 1999 and approved by the Company's stockholders in January 2000. As
of December 31, 2000, a total of 1,808,645 shares of Common Stock were
reserved for issuance under the 1999 Stock Plan. As of December 31, 2000, a
total of 1,662,594 shares were subject to outstanding options under this plan,
19,468 shares had been issued on exercise of options or stock purchase rights
and 126,583 shares remained available for future option grant and purchase
pursuant to the 1999 Stock Plan. Unless terminated earlier by the board of
directors, the 1999 Stock Plan will terminate in November 2009.
In March 2001, the board of directors adopted, subject to stockholder
approval, an amendment to the 1999 Stock Plan to modify the "evergreen"
provision of the 1999 Stock Plan relating to the number of additional shares
that will automatically be reserved for issuance under the 1999 Stock Plan at
the beginning of each year from 2002 through 2005. Before this amendment, the
1999 Stock Plan provided for an automatic annual increase in the number of
shares reserved under this plan on the first day of each year beginning in
2000, 2001 and 2002 equal to the lesser of 1,250,000 shares, 4% of the
Company's outstanding Common Stock on the last day of the immediately
preceding year, or a lesser number of shares as determined by the board of
directors. The Board has amended this provision to provide for an automatic
annual increase in the number of shares reserved under the 1999 Stock Plan on
the first day of each year beginning in 2002, 2003, 2004, and 2005 equal to
the lesser of 1,450,000 shares, 5.5% of the Company's outstanding Common Stock
on the last day of the immediately preceding year, or a lesser number of
shares as determined by the board of directors.
The purpose of the amendment of the 1999 Stock Plan is to allow the Company
to have a sufficient number of shares reserved for issuance to employees and
consultants of the Company. The Company is experiencing a period of rapid
growth, and must continue to recruit, retain and motivate highly skilled
management, sales, marketing and engineering personnel in order to remain
competitive. Competition for these skilled employees in the medical device
industry is intense, and if the Company is not successful in attracting and
retaining these skilled employees, its sales and product development efforts
would suffer. The board of directors believes that the amendment of the
"evergreen" provision to increase the number of shares by which the 1999 Stock
Plan will be automatically increased in each of the years 2002, 2003, 2004 and
2005 is in the best interests of the Company and its stockholders, as the
availability of an adequate number of shares for issuance under the 1999 Stock
Plan and the ability to grant stock options and stock purchase rights are
critical factors in attracting, motivating and retaining the highly skilled
personnel that are essential to the Company's success.
Required Vote
The approval of the amendment to the 1999 Stock Plan requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present at the Annual Meeting in person or by proxy and entitled
to vote.
1999 Stock Plan Summary
The following summary sets forth the principal features of the 1999 Stock
Plan. The summary is not a complete description of all the provisions of the
1999 Stock Plan. If you wish to obtain a copy of the actual plan document,
please send a written request to Nancy V. Westcott at the Company's principal
offices at 3700 Haven Court, Menlo Park, California 94025.
8
General
The 1999 Stock Plan provides for grants to employees (including officers and
employee directors) of ORATEC and any ORATEC subsidiaries of "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue
Code, and for grants of nonstatutory stock options ("NSOs") and stock purchase
rights to employees (including officers and employee directors) and
consultants (including non-employee directors) of ORATEC and any subsidiaries
or affiliates of ORATEC.
The 1999 Stock Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
Purpose
We adopted the 1999 Stock Plan to attract and retain the best available
personnel for positions of substantial responsibility, to give our employees
and consultants a greater personal stake in the success of our business, to
provide additional incentive to our employees and consultants to continue
their professional advancement, and to promote the success of our business.
Administration
The 1999 Stock Plan is administered by the Board of Directors and/or a
committee of the Board. Currently, the 1999 Stock Plan is being administered
by the Compensation Committee of the Board of Directors. The administrator may
determine the terms of the options granted, including the exercise or purchase
price, the number of shares subject to each option and the vesting and/or
exercisability provisions applicable to the option. The administrator also has
the full power to select the individuals to whom options will be granted and
to make any combination of grants to any participants. The administrator's
interpretation and construction of any provision of the Plan will be final and
binding upon all participants.
Eligibility
The 1999 Stock Plan provides that options and stock purchase rights may be
granted to employees (including officers and directors who are also employees)
and consultants of the Company (including non-employee directors). Incentive
stock options may be granted only to employees. The administrator selects the
award recipients and determines the number of shares and the exercise price or
purchase price to be associated with each option or stock purchase right,
respectively. In making such determination, the administrator takes into
account the duties and responsibilities of the award recipient, the value of
the award recipient's services, the award recipient's present and potential
contribution to the success of the Company, and other relevant factors.
The 1999 Stock Plan provides that the maximum number of shares of Common
Stock which may be granted under options or stock purchase rights to any one
employee under the 1999 Stock Plan during any fiscal year is 1,000,000 shares,
subject to adjustment as provided in the 1999 Stock Plan. In addition, to the
extent the aggregate market value of shares with respect to which options are
exercisable for the first time by an optionee during any calendar year exceeds
$100,000, such exercises will be treated as nonstatutory stock options.
Terms of Options
The terms of options granted under the 1999 Stock Plan are determined by the
administrator. Each option is evidenced by a stock option agreement between
the Company and the recipient and is subject to the following additional terms
and conditions:
(a) Exercise of the Option. The optionee must earn the right to exercise
the option by continuing to work for the Company. The administrator
determines when options are exercisable. An option is exercised by giving
written notice of exercise to the Company specifying the number of full
shares of Common Stock
9
to be purchased, and by tendering payment of the purchase price to the
Company. The method of payment of the exercise price of the shares
purchased upon exercise of an option is determined by the administrator,
and generally includes cash, shares of the Company's Common Stock, or a
cashless brokers' exercise.
(b) Exercise Price. Generally, the exercise price of options granted
under the 1999 Stock Plan is determined by the administrator. In the case
of incentive stock options, the exercise price must be at least equal to
the fair market value of the shares on the date of grant (the closing sale
price of the Company's Common Stock on the Nasdaq National Market on the
date of grant of the option, as reported in The Wall Street Journal).
Incentive stock options granted to stockholders owning more than 10% of the
total combined voting power of all classes of the Company's stock (such
holders are referred to as "10% Stockholders") are subject to the
additional restriction that the exercise price on such options must be at
least 110% of the fair market value on the date of the grant. Nonstatutory
stock options may have any exercise price determined by the administrator,
however, nonstatutory stock options granted to a "covered employee" under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), will generally equal at least 100% of the fair market value on the
date of grant.
(c) Termination of Employment. If the optionee's employment or consulting
relationship with the Company is terminated for any reason other than death
or total and permanent disability, options under the 1999 Stock Plan may
generally be exercised for 90 days (or such other period of time as is
determined by the administrator) after the date of such termination to the
extent the option was exercisable on the date of such termination. In no
event may an option be exercised by any person after the expiration of its
term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with he Company as a result of or her
disability, options may be exercised within six months (or such other
period of time as is determined by the administrator) after the date of
termination and may be exercised only to the extent the option was
exercisable on the date of termination, but in no event may the option be
exercised after its termination date.
(e) Death. If an optionee should die while employed or retained by the
Company, and such optionee has been continuously employed or retained by
the Company since the date of grant of the option, the option may be
exercised within six months after the date of death (or such other period
of time as is determined by the administrator) by the optionee's estate or
by a person who acquired the right to exercise the option by bequest or
inheritance to the extent the optionee would have been entitled to exercise
the option at the date of death, but in no event may the option be
exercised after its termination date.
(f) Option Termination Date. Stock options granted under the 1999 Stock
Plan expire ten years from the date of grant unless a shorter period is
provided in the option agreement. Incentive stock options granted to 10%
Stockholders may not have a term of more than five years.
(g) Nontransferability of Options. Incentive stock options are not
transferable by the optionee, other than by will or the laws of descent and
distribution, and are exercisable only by the optionee during his or her
lifetime or, in the event of death, by a person who acquires the right to
exercise the option by bequest or inheritance or by reason of the death of
the optionee. In the case of nonstatutory stock options, the administrator
may at its discretion in certain circumstances allow the transferability of
such options.
(h) Corporate Transactions. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise
provided by the administrator. If the Company sells all or substantially
all of its assets or is acquired by another corporation, each outstanding
option and stock purchase right may be assumed or an equivalent award
substituted by the acquiror. If the acquiror does not agree to this
assumption or substitution, then unexercised awards terminate. In addition,
the 1999 Stock Plan provides, under the circumstances as described in
detail in the 1999 Stock Plan, for the accelerated vesting of outstanding
options and repurchase rights if an optionee is involuntarily terminated
without cause by the Company or a successor corporation within two years
after a change of control transaction. If an acquiror does not agree to
assume or substitute outstanding Company options and repurchase rights with
an equivalent award at the time of the transaction, the acceleration of
vesting described above shall be effective
10
on the date immediately prior to the effective date of the transaction. If
a change of control transaction is consummated, all unvested shares held by
consultants shall automatically become vested immediately prior to the
effective date of the change of control transaction.
(i) Other Provisions. The option agreement and restricted stock purchase
agreement may contain such other terms, provisions and conditions not
inconsistent with the 1999 Stock Plan as may be determined by the
administrator.
Terms of Stock Purchase Rights
The 1999 Stock Plan also permits the administrator to issue stock purchase
rights to employees, directors and consultants. In making such grants, the
administrator determines the number of shares subject to the right, the
purchase price (which may be any price set by the administrator), the
consideration to be paid for shares (which may be any consideration allowed by
the administrator), the vesting, and other applicable terms and conditions, as
all set forth in a stock purchase agreement between the Company and the
recipient. The purchase price of stock purchase rights issued to "covered
employees" under Section 162(m) of the Code will generally be equal to the
full fair market value of the shares on the date the award is issued. Shares
purchased upon exercise of a stock purchase right are generally subject to a
repurchase right in favor of the Company which would allow the Company to
repurchase the shares from the recipient at his or her original purchase price
after the recipient's relationship with the Company terminates. This
repurchase right generally lapses over time as the recipient continues to
provide services to the Company, so that the recipient would own the shares
outright after the period of time specified in the purchase agreement.
Capital Changes
In the event any change is made in the Company's capitalization, such as a
stock split or stock dividend, that results in an increase or decrease in the
number of shares of Common Stock outstanding without receipt of consideration
by the Company, appropriate adjustment shall be made to the number of shares
subject to outstanding options under the 1999 Stock Plan, the number of shares
authorized for issuance under the Pool, and the price per share of Common
Stock covered by outstanding options.
Amendment and Termination of the 1999 Stock Plan
The Board of Directors may amend or terminate the 1999 Stock Plan, provided
that, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act (or any other applicable law or regulation) the Company shall
obtain approval of the shareholders to such amendments to the extent required
by such law or regulation. If not terminated earlier, the 1999 Stock Plan will
have a term of ten (10) years.
U.S. Federal Income Tax Information
The following is a brief summary of the U.S. federal income tax consequences
of transactions under the 1999 Stock Plan based on federal income tax laws in
effect on the date of this Proxy Statement. This summary is not intended to be
exhaustive and does not address all matters which may be relevant to a
particular optionee based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax laws of any state, municipality, non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
law. We advise all optionees to consult their own tax advisor concerning the
tax implications of option grants and exercises and the disposition of stock
acquired upon such exercises, under the 1999 Stock Plan.
Options granted under the 1999 Stock Plan may be either incentive stock
options, which are intended to qualify for the special tax treatment provided
by Section 422 of the Internal Revenue Code, or nonstatutory stock options,
which will not qualify. If an option granted under the 1999 Stock Plan is an
incentive stock option, the optionee will recognize no income upon grant of
the incentive stock option and will incur no tax liability due to
11
the exercise, except to the extent that such exercise causes the optionee to
incur alternative minimum tax. (See discussion below.) We will not be allowed
a deduction for federal income tax purposes as a result of the exercise of an
incentive stock option regardless of the applicability of the alternative
minimum tax. Upon the sale or exchange of the shares more than two years after
grant of the option and one year after exercise of the option by the optionee,
any gain will be treated as a long-term capital gain. If both of these holding
periods are not satisfied, the optionee will recognize ordinary income equal
to the difference between the exercise price and the lower of the fair market
value of the common stock on the date of the option exercise or the sale price
of the common stock. We will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee. Any gain or loss recognized on
a disposition of the shares prior to completion of both of the above holding
periods in excess of the amount treated as ordinary income will be
characterized as long-term capital gain if the sale occurs more than one year
after exercise of the option or as short-term capital gain if the sale is made
earlier. For individual taxpayers, the current U.S. federal income tax rate on
long-term capital gains is 20%, whereas the maximum rate on other income is
39.6%. Capital losses for individual taxpayers are allowed in full against
capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory stock option.
However, upon its exercise, the optionee will recognize ordinary income for
tax purposes measured by the excess of the fair market value of the shares
over the exercise price. The income recognized by an optionee who is also an
employee will be subject to income and employment tax withholding by payment
in cash by the optionee or out of the optionee's current earnings. Upon the
sale of such shares by the optionee, any difference between the sale price and
the fair market value of the shares as of the date of exercise of the option
will be treated as capital gain or loss, and will qualify for long-term
capital gain or loss treatment if the shares have been held for more than one
year from date of exercise.
Alternative Minimum Tax
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Internal Revenue Code. The
alternative minimum tax is calculated by applying a tax rate of 26% to
alternative minimum taxable income of joint filers up to $175,000 ($87,500 for
married taxpayers filing separately) and 28% to alternative minimum taxable
income above that amount. Alternative minimum taxable income is equal to (i)
taxable income adjusted for certain items, plus (ii) items of tax preference
less (iii) an exemption amount of $45,000 for joint returns, $33,750 for
unmarried individual returns and $22,500 in the case of married taxpayers
filing separately (which exemption amounts are phased out for upper income
taxpayers). Alternative minimum tax will be due if the tax determined under
the foregoing formula exceeds the regular tax of the taxpayer for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to
the excess of the fair market value of the Common Stock on the date of
exercise over the option exercise price. Because the alternative minimum tax
calculation may be complex, optionees should consult their own tax advisors
prior to exercising incentive stock options.
If an optionee pays alternative minimum tax, the amount of such tax may be
carried forward as a credit against any subsequent year's regular tax in
excess of the alternative minimum tax for such year.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
12
PROPOSAL NO. 3
ADOPTION OF AMENDMENT TO THE COMPANY'S 1999 DIRECTORS' STOCK OPTION PLAN
You are being asked to approve the amendment of the 1999 Directors' Stock
Option Plan (the "Directors' Plan") to increase the number of nonstatutory
stock options than can be granted to nonemployee directors under the plan.
The Directors' Plan was originally adopted by the board of directors in July
1999 and approved by the Company's stockholders in August 1999. As of December
31, 2000, a total of 250,000 shares of Common Stock were reserved for issuance
under the Directors' Plan. As of December 31, 2000, 20,000 options were
outstanding and 230,000 shares remained available for future option grant and
purchase pursuant to the Directors' Plan. Unless terminated earlier by the
board of directors, the Directors' Plan will terminate in April 2010.
The Directors' Plan provides for the grant of nonstatutory stock options to
our nonemployee directors. It is designed to work automatically and not to
require administration; however, to the extent administration is necessary, it
will be provided by the Board of Directors.
The Board of Directors believes that, in order to provide an incentive for
directors to continue to serve and to assist us in recruiting highly qualified
individuals when vacancies occur on the Board of Directors, it is necessary to
grant options to purchase common stock to such persons pursuant to the
Directors Plan. Accordingly, we are asking the stockholders to approve the
amendment of the Directors' Plan.
In March 2001, the Board adopted, subject to stockholder approval, an
amendment to the Directors' Plan to increase the number of options initially
granted to a nonemployee director upon joining the Board and the number of
options granted to nonemployee directors on an annual basis. The Directors'
Plan currently provides that, each person who becomes a nonemployee director
of the Company will be granted a nonstatutory stock option to purchase 20,000
shares of common stock on the date on which the individual first becomes a
member of our Board. This initial grant will vest monthly over three years.
Thereafter, on the date of each annual shareholder meeting, each nonemployee
director will be granted a nonstatutory stock option to purchase 5,000 shares
of common stock, if on the date of that meeting, the nonemployee director has
been a member of the Board for at least six months. Each of these subsequent
grants will vest monthly over one year. The amendment to the Directors' Plan
provides that each person who becomes a nonemployee director of the Company
will be granted a nonstatutory stock option to purchase 30,000 shares of
common stock on the date on which the individual first becomes a member of our
Board. Thereafter, on the date of each annual shareholder meeting, each
nonemployee director will be granted a nonstatutory stock option to purchase
10,000 shares of common stock, if on the date of that meeting, the nonemployee
director has been a member of the Board for at least six months. The vesting
schedule for both the initial grant and the subsequent grants will remain
unchanged.
The purpose of the amendment to the Directors' Plan is to allow the Company
to provide nonemployee directors with an initial incentive to join the
Company's Board and an ongoing incentive to remain on the Board, which is
competitive with other companies in the medical device industry. If the
Company is unable to attract and retain the best available individuals for
service on its Board, the Company's ability to meet its business objectives
could suffer. The Board believes that the amendment to the Directors' Plan
increasing the number of options available for grant to its nonemployee
directors is in the best interests of the Company.
Required Vote
The approval of the amendment to the Directors' Plan requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present at the Annual Meeting in person or by proxy and entitled
to vote.
13
Directors' Plan Summary
The following summary sets forth the principal features of the Directors'
Plan. The summary is not a complete description of all the provisions of the
Directors' Plan. If you wish to obtain a copy of the actual plan document,
please send a written request to Nancy V. Westcott at the Company's principal
offices at 3700 Haven Court, Menlo Park, California 94025.
General
The Directors' Plan provides for the grant of nonstatutory stock options to
nonemployee directors of the Company. The Directors' Plan is designed to work
automatically and not to require administration; however, to the extent
administration is necessary, it will be provided by the Board.
Purpose
The purposes of the Directors' Plan are to attract and retain the best
available individuals for service as directors of the Company, to provide
additional incentive for directors to continue to serve the Company as
directors and to encourage their continued service on the Board.
Grant and Exercise of Option
The Directors' Plan provides that the maximum number of shares for which
options may be granted under the Directors' Plan is 250,000 (the "Pool").
However, the Directors' Plan does not specify a maximum or minimum number of
shares for which options may be granted to any one nonemployee director so
long as the total number of shares so granted does not exceed the Pool. The
Directors' Plan does specify the number of shares that may be included in any
grant and the method of making a grant. The Directors' Plan currently provides
that each person who becomes a nonemployee director after the completion of
the initial public offering will be granted: (1) a nonstatutory stock option
to purchase 20,000 shares of common stock on the date on which such individual
first becomes a member of our Board and (2) an additional option to purchase
5,000 shares of Common Stock on the date of each annual shareholder meeting,
provided that the new director has been a member of the Board for at least 6
months as of the meeting date. No option granted under the Directors' Plan is
transferable by the optionee other than by will or the laws of descent or
distribution or pursuant to a qualified domestic relations order, and each
option is exercisable, during the lifetime of the optionee, only by such
optionee or permitted transferee.
The initial grant to a new director under the Directors' Plan vests monthly
over three years and each subsequent grant vests monthly over one year. If a
nonemployee director ceases to serve as a director for any reason other than
death or disability, he or she may, but only within 60 days after the date he
or she ceases to be a director, exercise options granted under the Directors'
Plan. If he or she does not exercise the option within such 60-day period, the
option shall terminate. If a director's service terminates as a result of his
or her total and permanent disability or death, or if a director dies within
three months following termination for any reason, the director or his or her
estate will have 12 months after the date of termination or death, as
applicable, to exercise options that were vested as of the date of
termination.
Exercise Price and Term
The exercise price of all stock options granted under the Directors' Plan
shall be equal to the fair market value of a share of the Company's Common
Stock (defined as the closing sale price of the Company's Common Stock on the
Nasdaq National Market on the date of grant of the option, as reported in The
Wall Street Journal) on the date of grant of the option. Options granted under
the Directors' Plan have a term of ten (10) years.
Capital Changes
In the event any change is made in the Company's capitalization, such as a
stock split or stock dividend, that results in an increase or decrease in the
number of shares of Common Stock outstanding without receipt of
14
consideration by the Company, appropriate adjustment shall be made to the
number of shares subject to outstanding options under the Directors' Plan, the
number of shares that will be automatically granted on an initial or annual
basis to directors, the number of shares authorized for issuance under the
Pool, and the price per share of Common Stock covered by outstanding options.
The Directors' Plan provides that, in the event of a dissolution or
liquidation of the Company, a sale of all or substantially all of the
Company's assets, or a merger, consolidation or other capital reorganization
of the Company with or into another corporation, each outstanding option shall
be assumed or an equivalent option shall be substituted by the successor
corporation or parent or subsidiary of such successor corporation, unless the
successor corporation does not agree to assume the outstanding options or to
substitute equivalent options, in which case the options shall terminate upon
the consummation of the transaction.
Amendment and Termination of the Directors' Plan
The Board may amend or terminate the Directors' Plan, provided that, to the
extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act (or any other applicable law or regulation) the Company shall obtain
approval of the shareholders to such amendments to the extent required by such
law or regulation. If not terminated earlier, the Directors' Plan will have a
term of ten (10) years.
U.S. Federal Income Tax Information
The following is a brief summary of the effect of federal income taxation
with respect to the grant and exercise of options under the Directors' Plan,
does not purport to be complete, and does not discuss the income tax laws of
any municipality, state or foreign country in which an optionee may reside. We
advise all eligible directors to consult their own tax advisors concerning tax
implications of option grants and exercises and the disposition of stock
acquired upon such exercises under the Directors' Plan.
Options granted under the Directors' Plan are nonstatutory stock options. An
optionee will not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. However upon its exercise, the optionee
will recognize ordinary income for tax purposes measured by the excess of the
then fair market value of the shares over the option price. Because the
optionee is a director the date of taxation (and the date of measurement of
taxable ordinary income) may be deferred unless the optionee files an election
with the Internal Revenue Service under Section 83(b) of the Internal Revenue
Code. Upon resale of such shares by the optionee, any difference between the
sale price and the exercise price, to the extent not recognized as ordinary
income as provided above will be treated as capital gain (or loss), and will
be long-term capital gain if the optionee has held the shares more than one
year. For individual taxpayers, the current U.S. federal income tax rate on
long-term capital gains is 20%, whereas the maximum rate on other income is
39.6%. Capital losses for individual taxpayers are allowed under U.S. tax laws
in full against capital gains plus $3,000 of other income. We will be entitled
to a tax deduction in the amount and at the time that the optionee recognizes
ordinary income with respect to shares acquired upon exercise of a
nonstatutory stock option.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
15
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has recommended, and the Board has approved, the
appointment of Ernst & Young LLP as our independent auditors. Ernst & Young
has served as our independent auditors since 1994. In the event that
ratification of this selection of auditors is not approved by a majority of
the shares of Common Stock voting at the Annual Meeting in person or by proxy,
the Board will review its future selection of auditors.
A representative of Ernst & Young is expected to be present at the Annual
Meeting. This representative will have an opportunity to make a statement and
will be available to respond to appropriate questions.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
16
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows how much common stock is owned by the directors,
the Named Executive Officers identified on page 19, all officers and directors
as a group, and owners of more than 5% of our outstanding common stock, as of
February 28, 2001.
Amount and
Nature of Percent of
Beneficial Common
Name and Address Ownership(1) Stock(1)(2)
---------------- ------------ -----------
Patrick F. Latterell(3).............................. 1,678,825 7.38%
Entities affliated with Venrock Associates(4)........ 1,673,825 7.35%
Entities affiliated with Delphi Ventures(5).......... 1,354,496 5.95%
Kenneth W. Anstey(6)................................. 590,126 2.58%
Richard M. Ferrari(7)................................ 171,000 *
Calvin K. Lee(8)..................................... 138,649 *
Jeffrey A. Saal, M.D.(9)............................. 571,277 2.51%
Hugh R. Sharkey(10).................................. 479,298 2.11%
Nancy V. Westcott(11)................................ 155,503 *
Wayne R. Moon(12).................................... 2,777 *
Roger H. Lipton(13).................................. 191,905 *
All directors and executive officers as a group (nine
persons)(14)........................................ 3,979,360 17.14%
- --------
* Less than 1%.
(1) The persons named in this table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and except as
indicated in the other footnotes to this table.
(2) In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days after February 28, 2001 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(3) Includes 1,673,825 shares held by entities associated with Venrock
Associates, of which Mr. Latterell is a general partner. Mr. Latterell
disclaims beneficial ownership of the shares held by the entities except
to the extent of his pecuniary interest therein.
(4) Consists of 795,296 shares held by Venrock Associates II, L.P. and
878,529 shares held by Venrock Associates. The general partners of these
funds who share voting and dispositive power over these shares are
Anthony B. Evnin and Anthony Sun. Beneficial ownership calculation is
based solely on a review of Schedule 13G filings made with the Securities
and Exchange Commission. Such filings set forth beneficial ownership as
of December 31, 2000.
(5) Consists of 1,330,542 shares held by Delphi Ventures III, L.P. and 23,954
shares held by Delphi BioInvestments III, L.P. The general partner of
these funds is Delphi Management Partners III, L.L.C., and the managing
members of Delphi Management Partners, all of whom share voting and
dispositive power over these shares, are James J. Bochnowski, David L.
Douglas and Donald J. Lothrop. Beneficial ownership calculation is based
solely on a review of Schedule 13G filings made with the Securities and
Exchange Commission. Such filings set forth beneficial ownership as of
December 31, 2000.
(6) Includes 78,931 shares issuable upon exercise of options exercisable
within 60 days of February 28, 2001 and 16,666 shares held by Mary Jo
Anstey, Mr. Anstey's spouse.
(7) Includes 10,000 shares issuable upon exercise of options exercisable
within 60 days of February 28, 2001, 85,000 shares held by Saratoga
Ventures, a limited partnership of which Mr. Ferrari is a general partner
and 5,000 shares held by Ferrari Partners, a limited partnership of which
Mr. Ferrari is a limited partner. Mr. Ferrari disclaims beneficial
ownership of the shares held by Ferrari Partners except to the extent of
his pecuniary interest in the partnership.
17
(8) Includes 64,999 shares issuable upon exercise of options exercisable
within 60 days of February 28, 2001.
(9) Includes 5,000 shares issuable upon exercise of options exercisable
within 60 days of February 28, 2001 and 62,000 shares held in trust for
Dr. Saal's children.
(10) Includes 47,591 shares held on behalf of Mr. Sharkey's children, 274,453
shares held by the Sharkey-Daly Family Trust and 6,666 shares issuable
upon exercise of options exercisable within 60 days of February 28, 2001.
(11) Includes 26,978 shares issuable upon exercise of options exercisable
within 60 days of February 28, 2001.
(12) Includes 2,777 shares issuable upon exercise of options exercisable
within 60 days of February 28, 2001.
(13) Includes 128,541 shares issuable upon exercise of options exercisable
within 60 days of February 28, 2001.
(14) Includes 454,517 shares issuable upon exercise of options exercisable
within 60 days of February 28, 2001.
18
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation earned by (a) the individual who
served as the Company's Chief Executive Officer during the fiscal year ended
December 31, 2000; (b) the four other most highly compensated individuals who
served as an executive officer of the Company during the fiscal year ended
December 31, 2000 (the "Named Executive Officers"); and (c) the compensation
received by each such individual for the Company's two preceding fiscal years.
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------------------------- ---------------------------
Other Annual Restricted Securities
Fiscal Salary Bonus Compensation Stock Underlying
Name & Principal Position Year ($) ($) ($) Award(s) ($)(1) Options (#)
- ------------------------- ------ -------- -------- ------------ --------------- -----------
Kenneth W. Anstey........ 2000 $239,231 $ 50,000 $ 25,316(2) $ 2,678(5) 50,000
President and Chief
Executive 1999 $220,000 $118,000 $ 55,439(3) -- 100,000
Officer 1998 $200,000 $ 38,000 $101,629(4) $40,001(6) --
Hugh R. Sharkey.......... 2000 $176,154 $ 20,000 $ 6,000(7) $ 882(8) 20,000
Executive Vice President
and Chief 1999 $160,000 $ 35,000 $ 6,000(7) -- --
Technical Officer 1998 $150,000 $ 37,500 $ 6,000(7) -- --
Nancy V. Westcott........ 2000 $169,615 $ 25,000 -- $ 2,475(10) 40,000
Chief Financial Officer, 1999 $160,000 $ 40,000 -- -- --
Vice President,
Administration 1998 $150,000 $ 50,000 $103,738(9) -- --
and Secretary
Roger H. Lipton.......... 2000 $179,423 $ 25,000 $ 26,035(11) $ 2,621(13) 40,000
Vice President, Sales
and Marketing 1999 $165,000 $ 65,000 $ 50,480(12) -- --
1998 $150,000 $ 45,000 $ 3,600(7) -- 5,000
Calvin K. Lee............ 2000 $169,615 $ 20,000 -- $ 2,475(14) 20,000
Vice President,
Operations 1999 $153,000 $ 30,000 -- -- --
1998 $135,000 $ 10,000 -- -- 10,000
- --------
(1) As of December 31, 2000, the Named Executive Officers held restricted
stock in the following aggregate numbers and values, based on the
December 29, 2000 closing price of $5.125:
-- Kenneth W. Anstey held 398,279 shares of Common Stock representing the
aggregate value of $2,041,180.
-- Hugh R. Sharkey held 824,494 shares of Common Stock representing the
aggregate value of $4,225,532.
-- Nancy V. Westcott held 94,150 shares of Common Stock representing the
aggregate value of $482,519.
-- Roger H. Lipton held 63,364 shares of Common Stock representing the
aggregate value of $324,741.
-- Calvin K. Lee held 73,650 shares of Common Stock representing the
aggregate value of $377,457.
(2) Consists of $19,316 in perquisite (including reimbursement of taxes) and
$6,000 car allowance.
(3) Consists of $49,670 in perquisite (including reimbursement of taxes) and
$5,769 car allowance.
(4) Consists of $95,629 in payments for moving and relocation costs and
$6,000 car allowance.
(5) Represents 1,785 shares purchased by Mr. Anstey on October 31, 2000
pursuant to the Company's 1999 Employee Stock Purchase Plan at a purchase
price of $8.50 per share. The fair market value of these shares was
$10.00 on the date of purchase. These shares were fully vested on the
date of issuance. No dividend will be paid on these shares.
19
(6) Represents 9,412 shares of common stock valued at the fair market value
on October 27, 1998, the issuance date, of $4.25 per share. The fair
market value of these shares was also $4.25 per share on December 31,
1998. These shares were fully vested on the grant date. No dividend will
be paid on these shares.
(7) Consists of car allowance.
(8) Represents 588 shares purchased by Mr. Sharkey on October 31, 2000
pursuant to the Company's 1999 Employee Stock Purchase Plan at a purchase
price of $8.50 per share. The fair market value of these shares was
$10.00 on the date of purchase. These shares were fully vested on the
date of issuance. No dividend will be paid on these shares.
(9) Consists of $63,366 in payments for moving and relocation costs and
$40,372 in tax reimbursement in connection with relocation.
(10) Represents 1,650 shares purchased by Ms. Westcott on October 31, 2000
pursuant to the Company's 1999 Employee Stock Purchase Plan at a purchase
price of $8.50 per share. The fair market value of these shares was
$10.00 on the date of purchase. These shares were fully vested on the
date of issuance. No dividend will be paid on these shares.
(11) Consists of $22,435 in perquisite (including reimbursement of taxes) and
$3,600 car allowance.
(12) Consists of $46,880 in perquisite (including reimbursement of taxes) and
$3,600 car allowance.
(13) Represents 1,747 shares purchased by Mr. Lipton on October 31, 2000
pursuant to the Company's 1999 Employee Stock Purchase Plan at a purchase
price of $8.50 per share. The fair market value of these shares was
$10.00 on the date of purchase. These shares were fully vested on the
date of issuance. No dividend will be paid on these shares.
(14) Represents 1,650 shares purchased by Mr. Lee on October 31, 2000 pursuant
to the Company's 1999 Employee Stock Purchase Plan at a purchase price of
$8.50 per share. The fair market value of these shares was $10.00 on the
date of purchase. These shares were fully vested on the date of issuance.
No dividend will be paid on these shares.
20
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the Named Executive Officers in the last fiscal year. In
addition, as required by Securities and Exchange Commission rules, the table
sets forth the hypothetical gains that would exist for the options based on
assumed rates of annual compound stock price appreciation during the option
term.
Individual Grants(1)
-----------------------------------------------------
Potential
Realizable Value
at Assumed Annual
Percent Rates of Stock
Number of of Total Options Price
Securities Granted Exercise Appreciation For
Underlying to Employees of Base Option Term(2)
Options/SARs in Fiscal Price Expiration -----------------
Name Granted (#) Year (%)(3) ($/sh)(4) Date 5% ($) 10% ($)
---- ------------ ---------------- --------- ---------- -------- --------
Kenneth W. Anstey....... 50,000(5)(7) 3.10% $4.6875 12/28/2010 $147,396 $373,533
Hugh R. Sharkey......... 20,000(6) 1.24% $ 10.50 1/24/2010 $132,067 $334,685
Nancy V. Westcott....... 20,000(6)(8) 1.24% $ 10.50 1/24/2010 $132,067 $334,685
20,000(5)(8) 1.24% $4.6875 12/28/2010 $ 58,958 $149,413
Roger H. Lipton......... 20,000(6)(9) 1.24% $ 10.50 1/24/2010 $132,067 $334,685
20,000(5)(9) 1.24% $4.6875 12/28/2010 $ 58,958 $149,413
Calvin K. Lee........... 20,000(6) 1.24% $ 10.50 1/24/2010 $132,067 $334,685
- --------
(1) No stock appreciation rights were granted to the Named Executive Officers
in the last fiscal year. The options have a 10-year term, but are subject
to earlier termination in connection with termination of employment.
(2) The potential realizable value illustrates value that might be realized
upon exercise of the options immediately prior to the expiration of their
terms, assuming the specified compounded rates of appreciation of the
market price per share for the date of grant to the end of the option
term. Actual gains, if any, on stock option exercise are dependent upon a
number of factors, including the future performance of the Common Stock
and the timing of option exercises, as well as the optionees' continued
employment throughout the vesting period. There can be no assurance that
the amounts reflected in this table will be achieved.
(3) The Company granted stock options representing 1,614,065 shares to
employees in the last fiscal year.
(4) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares and the federal
and state income tax liability incurred by the optionee in connection with
such exercise.
(5) Options vest at the rate of 25% on the six month anniversary of the grant
date and 4.1666% each month thereafter.
(6) Options vest at the rate of 2.0833% on each monthly anniversary of the
grant date.
(7) Pursuant to an employment agreement between Mr. Anstey and the Company, if
Mr. Anstey is terminated without cause, including his constructive
termination, 50% of his then unvested options shall vest immediately, and
if he is terminated without cause in connection with a change of control
then 100% of his unvested options will vest immediately.
(8) Pursuant to an employment agreement between Ms. Westcott and the Company,
if Ms. Westcott is terminated without cause, including her constructive
termination, in connection with a change of control then 100% of her
unvested options will vest immediately.
(9) Pursuant to an employment agreement between Mr. Lipton and the Company,
upon a change of control, 100% of his unvested options will vest
immediately.
21
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during the fiscal year ended
December 31, 2000. In addition, the table sets forth the number of shares
covered by stock options as of the fiscal year ended December 31, 2000, and
the value of "in-the-money" stock options, which represents the positive
spread between the exercise price of a stock option and the market price of
the shares subject to such option at the end of the fiscal year ended December
31, 2000.
Number of Unexercised Value of Unexercised In-the-
Shares Options at Fiscal Year Money Options at Fiscal Year
Acquired on End (#) End ($)
Exercise Value ---------------------------- ----------------------------
Name (#) Realized ($) Exercisable/Unexercisable(1) Exercisable/Unexercisable(2)
---- ----------- ------------ ---------------------------- ----------------------------
Kenneth W. Anstey....... 387,082 $4,311,886 153,003/109,915 $552,419/$145,760
Hugh R. Sharkey......... 833 $ 1,250 4,583/15,417 --/--
Nancy V. Westcott....... 28,125 $ 295,318 52,760/49,800 $174,642/$ 60,888
Roger H. Lipton......... -- -- 125,728/36,772 $604,407/$ 13,323
Calvin K. Lee........... 50,000 $ 487,500 61,874/18,126 $243,357/$ 9,143
- --------
(1) No stock appreciation rights (SARs) were outstanding during fiscal 2000.
(2) Based on the $5.125 per share closing price of the Company's Common Stock
on The Nasdaq Stock Market on December 29, 2000, less the exercise price
of the options.
22
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934 that might incorporate future filings, including this Proxy Statement, in
whole or in part, the Compensation Committee Report, the Audit Committee
Report and the Stock Performance Graph shall not be deemed to be incorporated
by reference into any such filings.
The following is a report of the Compensation Committee of the Board of
Directors describing the compensation policies applicable to the Company's
executive officers during the fiscal year that ended December 31, 2000. The
Compensation Committee is responsible for establishing and monitoring our
general compensation policies and compensation plans, as well as the specific
compensation levels for executive officers. It also makes recommendations to
the Board of Directors concerning the granting of options under our 1999 Stock
Plan. Executive officers who are also directors have not participated in
deliberations or decisions involving their own compensation.
General Compensation Policy
Under the supervision of the Board of Directors, our compensation policy is
designed to attract and retain qualified key executives critical to our growth
and long term success. It is the objective of the Board of Directors to have a
portion of each executive's compensation contingent upon our performance as
well as upon the individual's personal performance. Accordingly, each
executive officer's compensation package is comprised of three elements: (i)
base salary which reflects individual performance and expertise, (ii) variable
bonus awards payable in cash and tied to the achievement of certain
performance goals that the Board of Directors establishes from time to time
for the Company and (iii) long term stock-based incentive awards which are
designed to strengthen the mutuality of interests between the executive
officers and our stockholders.
The summary below describes in more detail the factors which the Board of
Directors considers in establishing each of the three primary components of
the compensation package provided to the executive officers.
Base Salary
The level of base salary is established primarily on the basis of the
individual's qualifications and relevant experience, the strategic goals for
which he or she has responsibility, the compensation levels at similar
companies and the incentives necessary to attract and retain qualified
management. Base salary is adjusted each year to take into account the
individual's performance and to maintain a competitive salary structure.
Company performance does not play a significant role in the determination of
base salary.
Cash-Based Incentive Compensation
Cash bonuses are awarded on a discretionary basis to executive officers on
the basis of their success in achieving designated individual goals and our
success in achieving specific company-wide goals, such as revenue growth and
earnings.
Long Term Incentive Compensation
We have utilized our stock option plans to provide executives and other key
employees with incentives to maximize long term stockholder values. Awards
under this plan by the Board of Directors take the form of stock options
designed to give the recipient a significant equity stake and thereby closely
align his or her interests with those of our stockholders. Factors considered
in making such awards include the individual's position, his or her
performance and responsibilities, and internal comparability considerations.
In addition, the Board of Directors has established certain general guidelines
in making option grants to the executive officers in an attempt to target a
fixed number of unvested option shares based upon each individual's position
and his or her existing holdings of unvested options. However, the Board of
Directors is not required to adhere strictly to these guidelines and may vary
the size of the option grant made to each executive officer as it determines
the circumstances warrant.
23
Each option grant allows the executive officer to acquire shares of common
stock at a fixed price per share (the fair market value on the date of grant)
over a specified period of time (up to 10 years). The options typically vest
in periodic installments over a four year period, contingent upon the
executive officer's continued employment with us. Accordingly, the option will
provide a return to the executive officer only if he or she remains in our
service, and then only if the market price of the Common Stock appreciates
over the option term.
Compensation of the Chief Executive Officer
Kenneth W. Anstey has served as the Company's President and Chief Executive
Officer since July 1997. His base salary for the fiscal year ended December
31, 2000 was $239,231.
The factors discussed above in "Base Salaries," "Cash-Based Incentive
Compensation" and "Long Term Incentive Compensation" were also applied in
establishing the amount of Mr. Anstey's salary and stock option grant.
Significant factors in establishing Mr. Anstey's compensation were the
achievement of revenue targets, operating income targets and the closing of
our initial public offering.
Deductibility of Executive Compensation
The Compensation Committee has considered the impact of Section 162(m) of
the Internal Revenue Code adopted under the Omnibus Budget Reconciliation Act
of 1993, which section disallows a deduction for any publicly held corporation
for individual compensation exceeding $1 million in any taxable year for the
CEO and four other most highly compensated executive officers, respectively,
unless such compensation meets the requirements for the "performance-based"
exception to Section 162(m). As the cash compensation paid by the Company to
each of its executive officers is expected to be below $1 million and the
committee believes that options granted under the 1999 Stock Plan to such
officers will meet the requirements for qualifying as performance-based, the
committee believes that Section 162(m) will not affect the tax deductions
available to the Company with respect to the compensation of its executive
officers. It is the Compensation Committee's policy to qualify, to the extent
reasonable, its executive officers' compensation for deductibility under
applicable tax law. However, the Company may from time to time pay
compensation to its executive officers that may not be deductible.
The Compensation Committee of the
Board of Directors of ORATEC
Interventions, Inc.:
Richard M. Ferrari
Jeffrey A. Saal, M.D.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors currently consists of
Richard M. Ferrari and Jeffrey A. Saal, M.D. No member of the committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
24
AUDIT COMMITTEE REPORT
The Audit Committee of the ORATEC Board of Directors is composed of two
independent directors and one outside director and operates under a written
charter adopted by the Board of Directors in July 1999, which is included in
this proxy statement as Appendix A. The members of the Audit Committee are
Richard Ferrari, Patrick Latterell and Wayne Moon. Richard Ferrari and Wayne
Moon are independent as defined by the Nasdaq Marketplace Rules. Patrick
Latterell is a general partner of Venrock Associates, which owned
approximately 7.35% of our outstanding stock as of December 31, 2000, and is
therefore deemed not to be independent under Nasdaq rules. Mr. Latterell has
been a director of the Company since 1997 and a member of its Audit Committee
since January 2000. Given Mr. Latterell's familiarity with the Company, the
Board of Directors has determined that it is in the best interests of the
Company to continue Mr. Latterell's service on the Audit Committee.
The Audit Committee recommends to the Board of Directors, subject to
stockholder ratification, the selection of an accounting firm to be engaged as
the Company's independent accountants. The independent auditors are
responsible for performing an independent audit of the Company's financial
statements in accordance with generally accepted auditing standards and to
issue a report thereon. Management is responsible for our internal controls
and the financial reporting process. The Audit Committee is responsible for
monitoring and overseeing these processes.
The Audit Committee held four meetings during the fiscal year 2000. The
meetings were designed to facilitate and encourage communication between the
Audit Committee, management and our independent auditors, Ernst & Young LLP.
Management represented to the Audit Committee that our financial statements
were prepared in accordance with generally accepted accounting principles. The
Audit Committee reviewed and discussed the audited financial statements for
fiscal year 2000 with management and the independent auditors.
The Audit Committee discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees.
The Audit Committee has received and reviewed the written disclosures and
the letter from the independent auditors, Ernst & Young LLP as required by
Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees. Additionally, the Audit Committee has discussed with Ernst &
Young LLP the issue of its independence from ORATEC.
Based on its review of the audited financial statements and the various
discussions noted above, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.
The Audit Committee of the Board of
Directors of ORATEC Interventions,
Inc.:
Richard M. Ferrari, Chair
Patrick F. Latterell
Wayne R. Moon
FEES BILLED FOR SERVICES RENDERED BY PRINCIPAL ACCOUNTANT
During the fiscal year ended December 31, 2000, Ernst & Young LLP, our
independent auditor and principal accountant, billed the fees set forth below.
Audit Fees......................................................... $196,000
Financial Information Systems Design and Implementation Fees....... $ --
All Other Fees..................................................... $245,180
25
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return data
for the Company's stock since April 4, 2000 (the date on which the Company's
stock was first registered under Section 12 of the Securities Exchange Act of
1934, as amended) to the cumulative return over such period of (i) the Nasdaq
National Market Composite Index and (ii) the JP Morgan H&Q Healthcare-
Excluding Biotechnology Index. The graph assumes that $100 was invested on
April 4, 2000, the date on which the Company completed the initial public
offering of its Common Stock, in the Common Stock of the Company and in each
of the comparative indexes. The graph further assumes that such amount was
initially invested in the Common Stock of the Company at a per share price of
$14.00, the price to which such stock was first offered to the public by the
Company on the date of its initial public offering, and reinvestment of any
dividends. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
COMPARISON OF 9 MONTH CUMULATIVE TOTAL RETURN*
AMONG ORATEC INTERVENTIONS, INC.,
THE NASDAQ NATIONAL MARKET COMPOSITE AND THE JP MORGAN H&Q HEALTHCARE-
EXCLUDING BIOTECHNOLOGY INDEX
[PERFORMANCE GRAPH APPEARS HERE]
- --------
* Assumes $100 invested on April 4, 2000 in stock or index, including
reinvestment of dividends. Fiscal year ending December 31, 2000.
4/4/00 6/00 9/00 12/00
------ ------- ------- -------
ORATEC Interventions, Inc. ............... $100 $238.39 $ 87.50 $ 36.61
The Nasdaq National Market Composite...... $100 $ 95.86 $ 88.21 $ 59.11
JP Morgan Healthcare-Excluding
Biotechnology............................ $100 $119.18 $132.39 $144.66
26
Section 16 Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, our executive
officers and persons who own more than 10% of the common stock (collectively,
"Reporting Persons") to file initial reports of ownership and changes in
ownership of our common stock. Reporting Persons are required by SEC
regulations to furnish us with copies of all Section 16(a) reports they file.
To our knowledge, based solely on our review of the copies of such reports
received or written representations from certain Reporting Persons that no
other reports were required, we believe that during its fiscal year ended
December 31, 2000, all Reporting Persons complied with all applicable filing
requirements.
Other Matters
The Board of Directors knows of no other business that will be presented to
the Annual Meeting. If any other business is properly brought before the
Annual Meeting, proxies in the enclosed form will be voted in respect thereof
as the proxy holders deem advisable.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ Nancy V. Westcott
Nancy V. Westcott
Chief Financial Officer, Vice
President, Administration and
Secretary
March 29, 2001
Menlo Park, California
27
APPENDIX A
ORATEC INTERVENTIONS, INC.
CHARTER FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Purpose
The purpose of the Audit Committee established by this charter will be to
make such examinations as are necessary to monitor the corporate financial
reporting and external audits of ORATEC Interventions, Inc. (the "Company"),
to provide to the Board of Directors (the "Board") the results of its
examinations and recommendations derived therefrom, to outline to the Board
improvements made, or to be made, in internal accounting controls, to nominate
independent auditors, to supervise the finance function of the Company (which
will include, among other matters, the Company's investment activities) and to
provide the Board such additional information and materials as it may deem
necessary to make the Board aware of significant financial matters which
require Board attention.
The Audit Committee will undertake those specific duties and
responsibilities listed below, and such other duties as the Board from time to
time may prescribe. In discharging its oversight role, the Audit Committee is
empowered to investigate any matter brought to its attention with full access
to all books, records, facilities, and personnel of the Company and the power
to retain outside counsel, or other experts for this purpose.
Charter Review
The Audit Committee will review and reassess the adequacy of this charter at
least once per year. This review is initially intended to be conducted at the
first Audit Committee meeting following the Company's Annual Meeting of
Stockholders, but may be conducted at any time the Audit Committee desires to
do so. Additionally, to the extent and in the manner that the Company is
legally required to do by the rules of the Securities and Exchange Commission
(the "SEC"), this charter (as then constituted) shall be publicly filed.
Membership
The Audit Committee must be comprised of at least three members of the
Board. Such members will be elected and serve at the pleasure of the Board.
The members of the Audit Committee will not be employees of the Company. Each
member of the Audit Committee shall be an "independent director," as defined
by and to the extent required by the Rules of the National Association of
Securities Dealers, Inc. ("NASD").
Further, each member of the Audit Committee must be able to read and
understand fundamental financial statements, including the Company's balance
sheet, income statement, and cash flow statement, or must become able to do so
within a reasonable period of time after his or her appointment to the Audit
Committee. Additionally, at least one member of the Audit Committee must have
past employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. Notwithstanding the
foregoing, one director who is not independent, as defined in the NASD Rules,
and who is not a current employee or an immediate family member of such
employee, may be appointed to the Audit Committee, if the board, under
exceptional and limited circumstances, determines that membership on the Audit
Committee by the individual is required by the best interests of the Company
and its stockholders, and the Board discloses, in the next annual proxy
statement subsequent to such determination, the nature of the relationship and
the reasons for that determination.
Meetings
The Audit Committee will meet with the Chief Executive Officer and the Chief
Financial Officer of the Company, and with each individual separately, at such
times as the Audit Committee deems appropriate, to discuss the financial
affairs of the Company. The Audit Committee will meet with the independent
auditors of
28
the Company upon the completion of the annual audit, with and without
management present, and at such other times as it deems appropriate, to review
the independent auditors' examination and management report.
Responsibilities
The responsibilities of the Audit Committee shall include:
1. Nominating the independent auditors for annual approval by the Board
and ratification by the stockholders;
2. Reviewing the plan for the audit and related services at least
annually;
3. Reviewing annual and interim financial statements and audit results;
4. Ensuring the receipt of, and reviewing, a written statement from the
Company's auditors delineating all relationships between the auditor
and the Company, consistent with Independence Standards Board Standard
No. 1;
5. Reviewing and actively discussing with the Company's auditors any
disclosed relationship or service that may impact the objectivity and
independence of the auditor;
6. Taking, or recommending that the Board take, appropriate action to
oversee the independence of the outside auditor;
7. Overseeing the adequacy of the Company's system of internal accounting
controls, including obtaining from the independent auditors management
letters or summaries on such internal accounting controls;
8. Overseeing the Company's compliance with the Foreign Corrupt Practices
Act;
9. Overseeing the Company's compliance with SEC requirements for
disclosure of auditor's services and Audit Committee members and
activities; and
10. Overseeing the Company's finance function, which may include the
adoption from time to time of a policy with regard to the investment of
the Company's assets.
In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board delegates to it.
Finally, the Audit Committee shall ensure that the Company's auditors
understand both (i) their ultimate accountability to the Board and the Audit
Committee, as representatives of the Company's stockholders; and (ii) the
Board's and the Audit Committee's ultimate authority and responsibility to
select, evaluate and, where appropriate, replace the Company's independent
auditors (or to nominate the outside auditor to be proposed for stockholder
approval in any proxy statement).
Reports
The Audit Committee will to the extent deemed appropriate record its
summaries of recommendations to the Board in written form that will be
incorporated as a part of the minutes of the Board. To the extent required,
the Audit Committee will also prepare and sign a Report of the Audit Committee
for inclusion in the Company's proxy statement for its Annual Meeting of
Stockholders.
29
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
ORATEC INTERVENTIONS, INC.
Kenneth W. Anstey and Nancy V. Westcott are hereby appointed by the
undersigned as proxies, each with power of substitution, to represent and vote
the shares of stock of ORATEC Interventions, Inc. (the "Company") which the
undersigned would be entitled to vote at the Annual Meeting of Stockholders of
the Company to be held on April 23, 2001 at 2:00 p.m., Pacific Standard Time, at
the offices of Venture Law Group, A Professional Corporation, located at 2775
Sand Hill Road, Menlo Park, California 94025 and at any postponements or
adjournments thereof (the "Meeting") as if the undersigned were present and
voting at the Meeting.
(Continued and to be signed on the Reverse Side)
Please date, sign and mail your
Proxy card back as soon as possible!
Annual Meeting of Stockholders
ORATEC INTERVENTIONS, INC.
April 23, 2001
*Please Detach and Mail in the Envelope Provided*
- --------------------------------------------------------------------------------
[X] Please mark your
Votes as in this
Example
Note: Unless otherwise indicated, the shares represented by this
proxy will be voted FOR election of each individual named below:
WITHHOLD
FOR all nominees AUTHORITY TO
Listed at right VOTE
(except as written on For all nominees
the line below) Listed at right For Against Abstain
1. Election [_] [_] NOMINEES: 2. Approval of amendment to [_] [_] [_]
of Richard M. Ferrari 1999 Stock Plan
Directors Wayne R. Moon
3. Approval of amendment to [_] [_] [_]
INSTRUCTIONS: To withhold authority to vote for any 1999 Directors' Stock
nominee write the nominees' names on the line below. Option Plan
____________________________________________________ 4. Ratification of Ernst & [_] [_] [_]
Young LLP as Independent
Auditors of the Company
For the year ending
December 31, 2001
5. In their discretion, on any other business that may
properly come before the Meeting.
THE SHARES REPRESENTED HEREBY WILL BE VOTED IN
ACCORDANCE WITH THE DIRECTIONS SET FORTH ABOVE AND,
WHERE NO DIRECTIONS ARE GIVEN, SUCH SHARES WILL BE
VOTED FOR EACH PROPOSAL REFERRED TO ABOVE.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature _______________________ Signature ____________________ Dated ___________________, 2001
NOTE: Please sign, date and return this proxy in the enclosed envelope. Joint Owners should each sign this proxy. Attorney-in-fact,
executors, administrators, trustees, guardians or corporation officers should give their full title.