<PAGE> 1
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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ARTHROCARE CORPORATION
- --------------------------------------------------------------------------------
(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)(4) 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:
<PAGE> 2
ARTHROCARE CORPORATION
_______________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1997
________________________________
TO THE STOCKHOLDERS:
Notice is hereby given that the 1997 Annual Meeting of Stockholders of
ArthroCare Corporation, a Delaware corporation, (the "Company") will be held on
Thursday, May 22, 1997 at 3:00 p.m., local time, at the Company's principal
executive offices located at 595 North Pastoria Avenue, Sunnyvale, California
94086 for the following purposes:
1. To elect directors of the Company.
2. To confirm the appointment of Coopers & Lybrand LLP as the
Company's independent accountants for the 1997 fiscal year.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
These matters are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on April 4, 1997
are entitled to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in
person. However, to assure your representation at the meeting, you are urged
to sign and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if the stockholder has returned a proxy.
By Order of The Board of Directors
J. Casey McGlynn
Secretary
Sunnyvale, California
April 24, 1997
IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON
EVEN IF YOU RETURNED A PROXY.
<PAGE> 3
ARTHROCARE CORPORATION
_______________________________
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
________________________________
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of ArthroCare Corporation, a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held Thursday, May 22, 1997 at 3:00
p.m., local time, or at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the Company's principal executive offices. The
Company's principal executive offices are located at 595 North Pastoria Avenue,
Sunnyvale, California 94086. The Company's telephone number at that location
is (408) 736-0224.
This Proxy Statement is being mailed on or about April 24, 1997 to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on April 4, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting.
The Company has one series of common shares outstanding, designated Common
Stock. At the Record Date, 8,794,112 shares of the Company's Common Stock,
$0.001 par value (the "Common Stock"), were issued and outstanding and held of
record by 242 stockholders.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
VOTING; QUORUM; ABSTENTIONS AND BROKER NON-VOTES
Each stockholder is entitled to one vote for each share held as of the
Record Date. Stockholders will not be entitled to cumulate their votes in the
election of directors (Proposal One).
The required quorum for the transaction of business at the Annual
Meeting is a majority of the shares of Common Stock issued and outstanding on
the Record Date and entitled to vote at the Annual Meeting, present in person
or represented by proxy. Shares that are voted "FOR," "AGAINST" or "ABSTAIN"
from a matter are treated as being present at the Annual Meeting for purposes
of establishing a quorum and are also treated as votes eligible to be cast by
the Common Stock, present in person or represented by proxy, at the Annual
Meeting and "entitled to vote on the subject matter" (the "Votes Cast") with
respect to such matter. If a quorum is not present or represented, then either
the chairman of the Annual Meeting or the stockholders entitled to vote at the
Annual Meeting, present in person or represented by proxy, will have the power
to adjourn the Annual Meeting from time to time, without notice other than an
announcement at the Annual Meeting, until a quorum is present. At any
adjourned Annual Meeting at which a quorum is present, any business may be
transacted that might have been transacted at the Annual Meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is
-2-
<PAGE> 4
fixed for the adjourned Annual Meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the adjourned Annual
Meeting.
Although there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both the presence or
absence of a quorum for the transaction of business and the total number of
Votes Cast with respect to a particular matter. Therefore, in the absence of
controlling precedent to the contrary, the Company intends to treat abstentions
in this manner.
Broker non-votes, however, shall be treated differently. In a 1988
Delaware case, Berlin v. Emerald Partners, the Delaware Supreme Court held
that, while broker non-votes may be counted for purposes of determining the
presence or absence of a quorum for the transaction of business, broker
non-votes should not be counted for purposes of determining the number of Votes
Cast with respect to the particular proposal on which the broker has expressly
not voted. Consequently, broker non-votes with respect to proposals set forth
in this Proxy Statement will not be considered Votes Cast and, accordingly,
will not affect the determination as to whether the requisite majority of Votes
Cast has been obtained with respect to a particular matter.
Therefore, for purposes of the election of directors (Proposal One),
neither abstentions nor broker non-votes will have any effect on the outcome of
the vote. For purposes of the ratification and appointment of Coopers &
Lybrand LLP as independent auditors of the Company (Proposal Two), abstentions
will have the same effect as votes against these proposals and broker non-votes
will not have any effect on the outcome of the vote.
Proxies in the accompanying form that are properly executed and
returned will be voted at the Annual Meeting in accordance with the
instructions on the Proxy. Any properly executed Proxy on which there are no
instructions indicated about a specified proposal will be voted as follows:
(i) FOR the election of the six persons named in this Proxy Statement as the
Board of Directors' nominees for election to the Board of Directors; and (ii)
FOR the ratification of the appointment of Coopers & Lybrand LLP as independent
auditors of the Company. No business other than that set forth in the
accompanying Notice of Annual Meeting of Stockholders is expected to come
before the Annual Meeting. Should any other matter requiring a vote of
stockholders properly arise, the persons named in the Proxy will vote the
shares they represent as the Board of Directors may recommend. The persons
named in the Proxy may also, at their discretion, vote the Proxy to adjourn the
Annual Meeting from time to time.
SOLICITATION
The cost of soliciting proxies will be borne by the Company. The
Company may retain Norwest Bank Minnesota, N.A., a proxy solicitation firm, to
solicit proxies in connection with the Annual Meeting at an estimated cost of
$500.00. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular
employees, without additional compensation, personally or by telephone,
facsimile or telegram.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's 1998 Annual Meeting must be
received by the Company at its principal executive offices no later than August
22, 1997 in order to be considered for inclusion in the Company's proxy
statement and form of proxy relating to that meeting.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and reports of changes in the ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
-3-
<PAGE> 5
Based solely on its review of the copies of such forms submitted to it
during the year ended December 28, 1996 (the "Last Fiscal Year"), the Company
believes that, during the Last Fiscal Year, its officers, directors and 10%
stockholders were in compliance with all applicable filing requirements, with
the exception of director Annette J. Campbell-White who failed to timely file
one Form 4 disclosing one covered transaction; Robert F. Kibble who is
affiliated with a ten percent stockholder who failed to timely file one Form 4
disclosing one covered transaction; director John S. Lewis who failed to timely
file one Form 4 disclosing one covered transaction; officer A. Larry Tannenbaum
who failed to timely file one Form 4 disclosing one covered transaction; and
officer Allan Weinstein who failed to timely file one Form 4 disclosing one
covered transaction.
SHARE OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of March 1, 1997 by
(i) each person known to the Company who beneficially owned more than 5% of the
outstanding shares of its Common Stock, (ii) each director of the Company,
(iii) each officer of the Company named in the table under "EXECUTIVE
COMPENSATION -- Summary Compensation Table" below and (iv) all directors and
executive officers as a group. The number and percentage of shares
beneficially owned is determined under SEC rules, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within sixty days of March 1, 1997
through the exercise of any stock option or other right. Unless otherwise
indicated, officers and directors can be reached at the Company's principal
executive offices. A total of 8,790,450 shares of the Company's Common Stock
were issued and outstanding as of March 1, 1997.
<TABLE>
<CAPTION>
Shares Beneficially Approximate
Name and Address Owned Percent Owned
---------------- -------------------- -------------
<S> <C> <C>
Entities affiliated with InterWest Partners (1) . . . . . . . . . . 1,227,695 13.97%
(Robert R. Momsen)
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Entities affiliated with Institutional Venture Partners (2) . . . . 1,205,194 13.71%
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Entities affiliated with Paragon Venture Partners (3) . . . . . . . 1,114,463 12.68%
(John S. Lewis)
3000 Sand Hill Road
Building 1, Suite 275
Menlo Park, CA 94025
Hira V. Thapliyal, Ph.D. (4) . . . . . . . . . . . . . . . . . . . 622,750 7.08%
ArthroCare Corporation
595 N. Pastoria Avenue
Sunnyvale, CA 94086
Philip E. Eggers . . . . . . . . . . . . . . . . . . . . . . . . . 473,750 5.39%
ArthroCare Corporation
595 N. Pastoria Avenue
Sunnyvale, CA 94086
Annette J. Campbell-White (5) . . . . . . . . . . . . . . . . . . . 258,967 2.95%
MedVenture Associates
4 Orinda Way
Building D, Suite 150
Orinda, CA 94563
</TABLE>
-4-
<PAGE> 6
<TABLE>
<CAPTION>
Shares Beneficially Approximate
Name and Address Owned Percent Owned
---------------- -------------------- -------------
<S> <C> <C>
Robert T. Hagan (6) . . . . . . . . . . . . . . . . . . . . . . . . 125,191 1.42%
ArthroCare Corporation
595 N. Pastoria Avenue
Sunnyvale, CA 94086
Allan Weinstein (7) . . . . . . . . . . . . . . . . . . . . . . . . 104,969 1.19%
ArthroCare Corporation
595 N. Pastoria Avenue
Sunnyvale, CA 94086
A. Larry Tannenbaum (8) . . . . . . . . . . . . . . . . . . . . . . 42,436 *
ArthroCare Corporation
595 N. Pastoria Avenue
Sunnyvale, CA 94086
C. Raymond Larkin, Jr. (9) . . . . . . . . . . . . . . . . . . . . 3,000 *
Nellcor Puritan Bennett Incorporated
4280 Hacienda Drive
Pleasanton, CA 94588
All directors and executive officers as a group 3,973,221 45.20%
(9 persons)(10) . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
- --------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Consists of 1,025,184 shares held by InterWest Partners V, L.P., 187,511
shares held by InterWest Investors V., L.P. and 15,000 shares held by
Robert R. Momsen. Mr. Momsen is a general partner of InterWest Management
Partners V, L.P., the general partner of IWP, and general partner of IWI
and disclaims beneficial ownership of the shares held by such entity
except to the extent of his proportionate partnership interest therein.
(2) Consists of 1,038,440 shares held by Institutional Venture Partners V.,
L.P., 20,254 shares held by Institutional Venture Management V, L.P., 139,
175 shares held by Institutional Venture Partners VII, L.P., 2,199 shares
held by Institutional Venture Management VII, L.P. and 5,126 shares held
by IVP Founders Fund I, L.P.
(3) Consists of (i) 1,032,188 shares held by Paragon Venture Partners II,
L.P., (ii) an aggregate of 55,025 shares held by John S. Lewis and John S.
Lewis UTA Charles Schwab & Co. Inc. Paragon Venture Management Company
over which Mr. Lewis holds voting and dispositive control, (iii) an
aggregate of 3,000 shares held in trust for Mr. Lewis' minor children over
which Mr. Lewis holds voting and dispositive control and (iv) an aggregate
of 24,250 shares held by Robert F. Kibble and the Robert F. Kibble Living
Trust over which Mr. Kibble holds voting and dispositive control. Mr.
Lewis and Mr. Kibble are both general partners of Paragon Venture Partners
and disclaim beneficial ownership of the shares held by such entity except
to the extent of their proportionate partnership interest therein.
(4) Includes an aggregate of 200,000 shares held in trust for Dr. Thapliyal's
minor children, over which Dr. Thapliyal does not hold voting or
dispositive control.
(5) Includes 200,167 shares held by MedVenture Associates II, L.P. Ms.
Campbell-White is a general partner of MedVenture Associates and disclaims
beneficial ownership of the shares held by such entity except to the
extent of her proportionate partnership interest therein.
(6) Consists of shares held by Robert T. Hagan and Barbara Hagan as joint
tenants over which Mr. Hagan and Ms. Hagan hold voting and dispositive
control. Also includes 624 shares issuable upon exercise of stock options
exercisable within 60 days of March 1, 1997.
(7) Includes an aggregate of 20,000 shares held in trust for Mr. Weinstein's
minor children, over which Mr. Weinstein does not hold voting or
dispositive control. Also includes 3,957 shares issuable upon exercise of
stock options exercisable within 60 days of March 1, 1997.
(8) Includes an aggregate of 1,200 shares held in trust for Mr. Tannenbaum's
minor children over which Mr. Tannenbaum holds voting and dispositive
power. Also includes 22,865 shares issuable upon exercise of stock
options exercisable within 60 days of March 1, 1997.
(9) Consists of 3,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 1, 1997.
(10) See footnotes (1) through (9) above.
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<PAGE> 7
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
A Board of six directors will be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received
by them for the six nominees named below, all of whom are presently directors
of the Company. If any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. It
is not expected that any nominee will be unable to or will decline to serve as
a director. If stockholders nominate additional persons for election as
directors, the proxy holder will vote all proxies received by him to assure the
election of as many of the Board of Directors' nominees as possible, with the
proxy holder making any required selection of specific nominees to be voted
for. The term of office of each person elected as a director will continue
until the next Annual Meeting of Stockholders or until that person's successor
has been elected.
VOTE REQUIRED
The six nominees receiving the highest number of affirmative votes of
the Votes Cast shall be elected as directors.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE NOMINEES LISTED BELOW.
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
- ------------------------ --- ---------------------------------------------------------------- --------------
<S> <C> <C> <C>
Hira V. Thapliyal, Ph.D. 48 President and Chief Executive Officer of the Company 1993
Philip E. Eggers 56 President, Eggers & Associates 1993
Annette J. Campbell-White 50 Managing General Partner, MedVenture Associates 1993
C. Raymond Larkin, Jr 48 President and Chief Executive Officer, Nellcor Puritan Bennett 1996
Incorporated
John S. Lewis 50 Managing Partner of Pacific Venture Group, General Partner of 1993
Paragon Venture Partners
Robert R. Momsen 49 General Partner, InterWest Partners 1994
</TABLE>
Hira V. Thapliyal, Ph.D., a founder of the Company, has served as
President, Chief Executive Officer and a Director of the Company since its
inception. From 1989 to 1993, Dr. Thapliyal was President and Chief Executive
Officer of MicroBionics, Inc., a privately-held company developing an in-vivo
continuous blood gas monitor. In 1986, Dr. Thapliyal co-founded Cardiovascular
Imaging Systems, Inc. ("CVIS") and served as its President until 1988. CVIS
develops and markets catheters for ultrasonic intraluminal imaging of human
arteries. From 1984 to 1986, Dr. Thapliyal was Vice President, Engineering of
Devices for Vascular Interventions, Inc., a leader in marketing arthrectomy
systems for treatment of atherosclerotic disease. Dr. Thapliyal holds an M.S.
degree in Electrical Engineering from the University of Idaho and a Ph.D. in
Materials Science & Engineering from Cornell University.
Philip E. Eggers, a founder of the Company, has served as a
consultant and a Director of the Company since its inception. Since 1984, Mr.
Eggers has run Eggers & Associates, a consulting firm to medical device
companies. Mr. Eggers is the principal inventor on numerous patents and has
directed research and development programs for a wide range of surgical
instruments and patient monitoring devices, such as hemostatic surgical
scalpels, bipolar scissors, bipolar endoscopic scissors, and continuous cardiac
output monitoring systems. Mr. Eggers holds an M.Sc. degree in Physics and an
M.B.A. degree from Ohio State University.
-6-
<PAGE> 8
Annette J. Campbell-White joined the Company in May 1993 as a
Director. In May 1995, she co-founded MedVenture Associates II, a venture
capital firm which invests primarily in medical device companies, and serves as
the Managing Director. MedVenture Associates II is a continuation of
MedVenture Associates, a venture capital firm organized in 1986. Since the
inception of MedVenture Associates in 1986, Ms. Campbell-White has served as
its Managing General Partner. From July 1992 to July 1994, Ms. Campbell-White
was a general partner of Paragon Venture Partners II, a venture capital
partnership. Ms. Campbell-White is also a director of Physiometrix, Inc. and
Cardiac Pathways Corporation. Ms. Campbell-White has an M.Sc. degree in
Physical Chemistry from the University of Capetown, South Africa.
C. Raymond Larkin, Jr. became a Director of the Company in April 1996.
Since 1983, he has held various executive positions with Nellcor Incorporated,
a medical products company, for which he served as President from 1989 until
August 1995 when he became President and Chief Executive Officer of Nellcor
Puritan-Bennett Incorporated upon the merger of Nellcor Incorporated with
Puritan-Bennett Corporation. Mr. Larkin is also a director of Nellcor Puritan
Bennett Incorporated and Neuromedical Systems, Inc. He holds a B.S. degree
from LaSalle University.
John S. Lewis joined the Company in May 1993 as a Director. Mr. Lewis
has been the Managing Partner of Pacific Venture Group since September 1995,
and General Partner of Paragon Venture Management Company, II, L.P. since July
1988, both venture capital partnerships. From June 1983 to September 1994, he
was General Partner of Paragon Venture Management Company, a venture capital
partnership. Mr. Lewis currently serves on the Board of Directors of Bay
Networks, Inc. He holds an M.B.A. degree from Harvard University.
Robert R. Momsen joined the Company in January 1994 as a Director.
Since 1981, he has been General Partner of InterWest Partners, a venture
capital firm which invests primarily in life sciences companies. Prior to
1981, Mr. Momsen served as General Manager and Chief Financial Officer for Life
Instruments Corporation ("Life Instruments"), a medical diagnostic imaging
company which he co-founded. Mr. Momsen holds an M.B.A. degree from Stanford
University.
There are no family relationships among directors or executive officers
of the Company.
BOARD MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors of the Company held six meetings during the
Last Fiscal Year. C. Raymond Larkin, who was elected to the Board of Directors
in April 1996, Annette J. Campbell-White and Robert R. Momsen attended less
than 75% of the aggregate of all meetings of the Board of Directors and any
committees of the Board of Directors on which he or she served, if any, during
his or her tenure as a director.
The Board of Directors has an Audit Committee and a Compensation
Committee. It does not have a nominating committee or a committee performing
the functions of a nominating committee. From time to time, the Board has
created various ad hoc committees for special purposes. No such committee is
currently functioning.
During the Last Fiscal Year, the Audit Committee consisted of directors
Lewis and Momsen. The Audit Committee is responsible for reviewing the results
and scope of the audit and other services provided by the Company's independent
auditors. The responsibilities of the Audit Committee were executed by the
Board of Directors during the Last Fiscal Year. During each meeting of the
Board of Directors in the Last Fiscal Year, the Board of Directors reviewed and
discussed financial presentations and related matters. The Board of Directors
also met with the Company's independent auditors to discuss the audit for the
Last Fiscal Year. The Audit Committee did not hold any meetings during the Last
Fiscal Year.
During the Last Fiscal Year, the Compensation Committee consisted of
directors Campbell-White and Momsen. The Compensation Committee reviews and
makes decisions concerning salaries and incentive compensation for officers of
the Company. The responsibilities of the Compensation Committee were executed
by the Board of Directors during the Last Fiscal year. During each meeting of
the Board of Directors in the Last Fiscal Year, the Board of Directors reviewed
and discussed compensation matters. The Compensation Committee did not
hold any meetings during the Last Fiscal Year.
-7-
<PAGE> 9
Directors currently receive no cash fees for services provided in that
capacity but are reimbursed for out-of-pocket expenses they incur in connection
with their attendance at meetings of the Board of Directors and committees of
the Board of Directors. On April 17, 1996, pursuant to the Company's 1995
Director Option Plan, director Larkin was granted an option to purchase 12,000
shares of the Company's Common Stock at an exercise price of $19.75 per share,
the closing of one share of the Company's Common Stock on the day before the
date of grant, and on May 22, 1997, each Outside Director who is re-elected at
the Annual Meeting will be granted an option to purchase 3,000 shares of the
Company's Common Stock at an exercise price per share equal to the closing
price of one share of the Company's Common Stock on the day before the date of
grant.
-8-
<PAGE> 10
EXECUTIVE OFFICER COMPENSATION
COMPENSATION TABLES
Summary Compensation Table. The following table sets forth the
compensation paid by the Company during each of the three fiscal years ended
December 31, 1994 and 1995 and December 28, 1996 to (i) the Chief Executive
Officer, and (ii) each of the other most highly compensated executive officers
of the Company whose total annual salary and bonus for such years exceeded
$100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation Awards
-------------------------------------------
Securities
Annual Compensation Restricted Underlying All Other
Fiscal ------------------- Stock Options Compensation
Name and Principal Position Year Salary ($) Bonus($) Awards($) (# of shares) ($)
- ---------------------------------------- ---- ----------- ------------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Hira V. Thapliyal . . . . . . . . . . . 1996 $ 194,412 $ 41,000(1) -- -- --
President and Chief Executive 1995 163,542 -- -- 373(2)
Officer 1994 144,500 7,500 -- -- --
Robert T. Hagan . . . . . . . . . . . . 1996 $ 139,744 $ 30,000(4) -- --(5) --
Vice President, Manufacturing(3) 1995 48,750 20,000(6) $0(7) -- 135,639(8)
1994 -- -- --
A. Larry Tannenbaum . . . . . . . . . . 1996 $ 131,659 $ 29,000(10) -- --(5) --
Chief Financial Officer(9) 1995 26,042 -- -- 72,500(11) --
1994 -- -- -- --
Allan Weinstein . . . . . . . . . . . . 1996 $ 121,791 $ 24,000(13) -- --(5) --
Vice President, Sales and 1995 104,994 30,000(14) $ 0(15) 10,000(16) 66,380(17)
Marketing(12) 1994 -- -- -- --
</TABLE>
- -----------------
(1) Consists of bonus awarded in 1996 and paid in 1997.
(2) Consists of disability premium reimbursements paid by the Company to
Dr. Thapliyal.
(3) Mr. Hagan joined the Company as Vice President, Manufacturing in
August 1995.
(4) Consists of bonus awarded in 1996 and paid in 1997.
(5) On January 10, 1997, the Company granted to each of Robert T. Hagan,
A. Larry Tannenbaum and Allan Weinstein an option to purchase 10,000
shares of the Company's Common Stock at an exercise price of $7.375
per share, the closing price of one share of the Company's Common
Stock on the day before the date of grant. One forty-eighth (1/48) of
the total number of shares subject to these options became exercisable
on January 31, 1997 and an additional one forty-eighth (1/48) of the
total number of shares subject to these options are exercisable at the
end of each full month thereafter until all such shares are
exercisable, based upon such individuals continued employment by the
corporation.
(6) Consists of bonus awarded in 1995 and paid in 1996.
(7) As of December 28, 1996, Mr. Hagan held 90,000 shares of Common Stock,
which are subject to repurchase as described below, having a value of
$663,750 based upon the closing sales price of the Company's Common
Stock on the Nasdaq Stock Market of $7.375 per share. 75,000 of such
shares were subject to repurchase by the Company at $0.80 per share
(the original purchase price), in the event of a termination of Mr.
Hagan's employment with the Company. Twelve forty-eighths (12/48)
of the 75,000 shares were released from the repurchase option on July
31, 1996, and an additional one forty-eighth (1/48) of the 75,000
shares subject to repurchase are released from the repurchase option
at the end of each month thereafter, based upon Mr. Hagan's continued
employment with the Company. As of April 4, 1997, 31,250 shares have
been released from the Company's repurchase option, and none of the
shares will be subject to the repurchase option after July 31, 1999.
(8) Consists of $113,058 in relocation expenses and $2,581 in housing
offset allowance paid by the Company to Mr. Hagan.
(9) Mr. Tannenbaum joined the Company as Chief Financial Officer in
September 1995.
(10) Consists of bonus awarded in 1996 and paid in 1997.
-9-
<PAGE> 11
(11) Consists of one option exercisable for up to 65,000 shares of the
Company's Common Stock and a second option exercisable for up to 7,500
shares of the Company's Common Stock. Of the shares subject to the
option exercisable for 65,000 shares, 15,000 shares became exercisable
on September 12, 1995 (the date of grant). Twelve forty-eighths
(12/48)of the remaining 50,000 shares became exercisable on
September 30, 1996 and an additional 1/48 of the remaining 50,000
shares are exercisable at the end of each full month thereafter. Of
the shares subject to the option exercisable for 7,500 shares,
12/48 of the total number of shares subject to the option became
exercisable on December 12, 1996 and an additional 1/48 of the total
number of shares subject to the option are exercisable at the end of
each full month thereafter. All vesting is contingent upon Mr.
Tannenbaum's continued employment with the Company.
(12) Mr. Weinstein joined the Company as Vice President, Sales and
Marketing in January 1995.
(13) Consists of bonus awarded in 1996 and paid as follows (i) $8,800 paid
in 1996 and (ii) $15,200 paid in 1997.
(14) Consists of bonus awarded in 1995 and paid as follows (i) $15,000 paid
in 1995 and (ii) $15,000 paid in 1996.
(15) As of December 28, 1996, Mr. Weinstein held 100,000 shares of Common
Stock, which are subject to repurchase as described below, having a
value of $737,500 based upon the closing sales price of the Company's
Common Stock on the Nasdaq Stock Market of $7.375 per share. All of
such shares were subject to repurchase by the Company at $0.32 per
share (the original purchase price), in the event of a termination of
Mr. Weinstein's employment with the Company. Of these shares, 20,000
were released from the Company's repurchase option when Mr. Weinstein
moved to California. Twelve forty-eighths (12/48) of the remaining
80,000 shares were released from the repurchase option on January 6,
1996, and an additional one forty-eighth (1/48) of the remaining
80,000 shares subject to repurchase are released from the repurchase
option at the end of each full month thereafter, based upon Mr.
Weinstein's continued employment with the Company. As of April 4,
1997, 61,667 shares have been released from the Company's repurchase
option, and none of the shares will be subject to the repurchase
option after January 3, 1999.
(16) Of the shares subject to the option, 12/48 of the total number of
shares subject to the option became exercisable on December 12, 1996
and an additional 1/48 of the total number of shares subject to the
option are exercisable at the end of each full month thereafter,
contingent upon Mr. Weinstein's continued employment with the Company.
(17) Consists of $62,575 in relocation expenses, $2,880 in housing offset
allowances and $925 in health insurance premium reimbursements paid by
the Company to Mr. Weinstein.
STOCK OPTION INFORMATION
Option/SAR Grants in Last Fiscal Year. In the year ended December 28,
1996, no options were granted to the individuals named in the Summary
Compensation Table.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
Values. In the year ended December 28, 1996, no options were exercised by the
individuals named in the Summary Compensation Table. The following table sets
forth, for each of the executive officers named in the Summary Compensation
Table above, the fiscal year end number and value of exercisable and
unexercisable options:
AGGREGATE OPTION/SAR EXERCISES IN 1996
AND 1996 YEAR-END VALUES
<TABLE>
<CAPTION>
Value of Unexercised In-
Number of Unexercised the-Money Options at
Options at 12/28/96 (#) 12/28/96 ($)(1)
------------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Hira V. Thapliyal . . . -- -- -- --
Robert T. Hagan . . . . -- -- -- --
A. Larry Tannenbaum . . 17,500 40,000 $90,234 $198,516
Allan Weinstein . . . . 2,500 7,500 -- --
</TABLE>
- -----------------------
(1) Based upon a fair market value of $7.375 per share as of December 28, 1996
minus the exercise price per share.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company and Philip E. Eggers entered into a consulting agreement
related to strategic planning and market assessment. In addition, the Company
and Eggers & Associates, Inc. ("E&A"), a corporation wholly owned by Mr.
Eggers,
-10-
<PAGE> 12
entered into a consulting agreement whereby E&A has agreed to perform research
related to the development of a control system, a hand-held instrument and a
method for the ablation, cutting and reshaping of selected tissues during a
broad range of medical procedures.
Under the terms of a letter, dated October 21, 1994, amended November
28, 1994, offering employment to Allan Weinstein, the Company has agreed to
provide Mr. Weinstein with: (i) salary for up to 12 months following an
unjustifiable termination of his employment within the first year of his
employment; or (ii) salary up to six months following an unjustifiable
termination of his employment during the second year of his employment. Mr.
Weinstein agreed to join the Company on October 21, 1994. The Company has
similar agreements with other employees, but none of the Company's executive
officers is a party to such agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the Last Fiscal Year, directors Campbell-White and Momsen served
as members of the Compensation Committee of the Board of Directors. No member
of the Compensation Committee was or is an officer or employee of the Company
or any of its subsidiaries. In addition, during the Last Fiscal Year, no
officer of the Company had an "interlock" relationship, as that term is defined
by the SEC, to report.
-11-
<PAGE> 13
CERTAIN TRANSACTIONS
Since its inception in April 1993, the Company has issued and sold to
Robert S. Garvie and Anthony J. Manlove, co-founders of the Company, 117,650
and 58,825 shares of its Common Stock, respectively, at the purchase price of
$0.002 per share.
Since its inception, the Company has issued and sold shares of Series
A, Series B, Series C and Series D Preferred Stock which, upon the closing of
the Company's initial public offering, converted into Common Stock at prices of
$1.90, $3.20, $4.00 and $6.00 per share, respectively, to the following
directors, entities affiliated with directors, executive officers and
individuals known to the Company to beneficially own 5% or more of the
Company's outstanding shares of Common Stock. All numbers in the table below
are shown on an as converted to Common Stock basis.
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------
Series A Series B Series C Series D
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Directors
Annette J. Campbell-White . . . . . . . . . . . . . . . 26,300 -- -- --
John S. Lewis . . . . . . . . . . . . . . . . . . . . . 13,150(1) -- 22,500(2) --
Robert R. Momsen . . . . . . . . . . . . . . . . . . . . 15,000 -- -- --
Entities Affiliated with Directors
InterWest Partners entities (Robert R. Momsen)(3) . . . -- 531,250 500,000 181,444
MedVenture Associates II, L.P. (Annette J. Campbell-White) -- -- 125,000 66,667
Paragon Venture Partners II, L.P. (John S. Lewis) . . . 525,000 179,688 250,000 77,500
Executive Officers
Robert T. Hagan(4) . . . . . . . . . . . . . . . . . . . -- -- -- 33,334
Other 5% Stockholders
Institutional Venture entities(5) . . . . . . . . . . . -- 531,250 500,000 181,444
</TABLE>
- ----------------
(1) Consists of 11,650 shares held by Mr. Lewis and 500 shares held in
each of three separate trusts for the benefit of Mr. Lewis' children:
Caroline Lewis, Anne Lewis, and Charles Lewis.
(2) Consists of 15,375 shares held by Mr. Lewis, 5,625 shares held in
trust for the benefit of Mr. Lewis and 500 shares held in each of
three separate trusts for the benefit of Mr. Lewis' children.
(3) InterWest Partners entities are InterWest Partners V, L.P. and
InterWest Investors V.
(4) Shares held by Robert T. Hagan and Barbara Hagan as Joint Tenants.
(5) Institutional Venture entities are Institutional Venture Partners V,
L.P. and Institutional Venture Management V, L.P.
On May 10, 1993, the Company entered into a license agreement (the
"License Agreement") with Thapliyal & Eggers Partners ("T&E"), a partnership
owned by Philip E. Eggers, a consultant to and director of the Company, Mr.
Garvie, a founder of the Company, Mr. Manlove, a founder of the Company, and
Hira V. Thapliyal, the Chief Executive Officer of the Company (collectively,
the "Partners"). The purpose of the License Agreement was to facilitate the
transfer of certain patents and patent applications (the "Patent Rights") from
T&E to the Company. Under the terms of the License Agreement, the following
payments and property transfers were made: (i) in exchange for the transfer of
certain technology by Messrs. Thapliyal and Eggers to T&E and a license to use
the Patent Rights granted by T&E to the Company, the Company issued to Messrs.
Thapliyal and Eggers 500,000 shares of its Common Stock with a fair market
value at the time of issuance of $0.002 per share; and (ii) the Company paid
T&E $25,000 for patent and other related expenses incurred by T&E prior to
entering into the License Agreement. No royalty payments were made by the
Company in connection with their licenses from T&E.
On March 31, 1995, the License Agreement was terminated, and the
Company entered into a contribution agreement (the "Contribution Agreement")
with the partners. Under the terms of the Contribution Agreement, the Partners
received an aggregate of 400,000 shares of the Company's Common Stock with a
fair market value at the time of issuance of $0.40 per share and an aggregate
of $100,000 in cash in exchange for the contribution of their interest in T&E,
including the Patent Rights. The 400,000 shares of Common Stock and $100,000
in cash were distributed to the Partners as follows:
-12-
<PAGE> 14
<TABLE>
<CAPTION>
Name Shares Cash
---- -------- --------
<S> <C> <C>
Philip E. Eggers . . . . . . . . . . . . . . . . . . . . . . . . 160,000 $ 40,000
Robert S. Garvie . . . . . . . . . . . . . . . . . . . . . . . . 40,000 10,000
Anthony J. Manlove . . . . . . . . . . . . . . . . . . . . . . . 40,000 10,000
Hira V. Thapliyal . . . . . . . . . . . . . . . . . . . . . . . . 160,000 40,000
</TABLE>
In May 1993, the Company and Mr. Garvie entered into a consulting
agreement whereby Mr. Garvie was to participate in the pre-clinical trials and
the preparation of the 510(k) premarket notification for the arthroscopy
products, and participate in the search for a suitable buyer for the Company.
During the period from April 29, 1993 (date of inception) to December 31, 1993,
no money was paid to Mr. Garvie. During the years ended December 31, 1994 and
1995, the Company paid Mr. Garvie $26,200 and $75,750, respectively. In
January 1996, the Company and Mr. Garvie entered into a new consulting
agreement whereby Mr. Garvie provides the same services as he did under the
previous consulting agreement. During the year ended December 28, 1996, the
Company paid Mr. Garvie $46,505. This consulting agreement will expire on
December 31, 1997.
In May 1993, the Company and Mr. Manlove entered into a consulting
agreement whereby Mr. Manlove was to act as the business advisor to the
Company. During the period from April 29, 1993 (date of inception) to December
31, 1993, no money was paid to Mr. Manlove. During the years ended December
31, 1994 and 1995, the Company paid Mr. Manlove $24,375 and $12,000,
respectively. In January 1996, the Company and Mr. Manlove entered into a new
consulting agreement whereby Mr. Manlove provides the same services as he did
under the previous consulting agreement. During the year ended December 28,
1996, the Company paid Mr. Manlove $48,000. This consulting agreement will
expire on December 31, 1997.
On May 10, 1993, the Company and Mr. Eggers entered into a consulting
agreement, which was amended on March 31, 1995, related to strategic planning
and market assessment. Mr. Eggers has not been paid any money by the Company
under the terms of this agreement.
On May 20, 1993, the Company and Eggers & Associates, Inc., ("E&A") a
corporation wholly owned by Mr. Eggers, entered into a consulting agreement,
which was amended on March 31, 1995, whereby E&A was to perform research
related to the development of a control system, a hand-held instrument and a
method for the ablation, cutting and reshaping of selected tissues during a
broad range of medical procedures. During the period from April 29, 1993 (date
of inception) to December 31, 1993, the year ended December 31, 1994, the year
ended December 31, 1995 and the year ended December 28, 1996, the Company paid
E&A approximately $116,349, $136,251, $221,312 and $234,271, respectively, for
Mr. Eggers' consulting services and $129,651, $159,749, $260,162 and $254,334,
respectively, for other labor and expenses.
In December 1994, the Company and Medlink Europe D.V. ("Medlink")
entered into an agreement whereby Medlink performed a marketing study for the
Company in Europe. Mr. Garvie is one of the founders of Medlink and owns
approximately 15% of Medlink's outstanding capital stock. In May 1995,
Medlink's marketing study was completed. During the year ended December 31,
1995, the Company made payments of $21,000 to Medlink.
On October 21, 1994, the Company and Allan Weinstein, the Company's
Vice President, Sales and Marketing, entered into an employment agreement,
which was amended on November 28, 1994, which, in addition to his annual salary
of $110,000, provided for: (i) Mr. Weinstein's purchase of 100,000 shares of
the Company's Common Stock at a purchase price of $0.32 per share with payment
in the form of a promissory note due on January 3, 1999 or upon termination of
employment pursuant to a restricted stock purchase and security agreement (the
"Weinstein Stock Purchase Agreement"); (ii) payment by the Company of $58,470
for relocation expenses incurred in connection with Mr. Weinstein's move from
Massachusetts to California; (iii) payment by the Company of $2,880 housing
allowance; and (iv) mortgage and purchase assistance provided by the Company in
connection with his purchase of a home in California.
On January 19, 1995, the Company and Mr. Weinstein entered into a
promissory note for the principal sum of $120,000 pursuant to the purchase
assistance provisions in Mr. Weinstein's employment agreement. Mr. Weinstein
promised to repay the Company the principal with simple interest at the rate of
6% per annum until the earlier of January 31, 1999, sale of the property, or
termination of Mr. Weinstein's employment, at which time the entire principal
and interest would become due and payable. This note is secured by a deed of
trust on Mr. Weinstein's personal residence.
-13-
<PAGE> 15
On February 5, 1995, the Company and Mr. Weinstein entered into a
promissory note for the principal sum of $144,000 pursuant to the mortgage
assistance provision in Mr. Weinstein's employment agreement. The Company
promised to loan Mr. Weinstein $3,000 per month, and Mr. Weinstein promised to
repay the principal amount with simple interest at a rate of 6% per annum until
the earlier of October 21, 1999 or termination of Mr. Weinstein's employment,
at which time the entire principal and interest become due and payable. This
note is secured by the Common Stock of the Company purchased by Mr. Weinstein
pursuant to the Weinstein Stock Purchase Agreement.
On July 18, 1995, the Company and Robert T. Hagan, the Company's Vice
President, Manufacturing, entered into an employment agreement which, in
addition to his annual salary of $130,000, provided for: (i) Mr. Hagan's
purchase of 90,000 shares of the Company's Common Stock at a purchase price of
$0.80 per share, with payment in the form of a promissory note due on August 1,
1999 or upon termination of employment pursuant to a restricted stock purchase
and security agreement, (ii) payment by the Company of $11,427 in relocation
expenses incurred in connection with his move to California, and (iii) payment
by the Company of $2,581 as a housing allowance for a period not to exceed six
months.
On September 8, 1995, the Company and A. Larry Tannenbaum, the
Company's Chief Financial Officer, entered into an employment agreement
whereby, in addition to his salary, Mr. Tannenbaum was granted an option to
purchase 65,000 shares of the Company's Common Stock at a purchase price of
$1.60 per share, the fair market value of one share of the Company's Common
Stock on the date of grant.
On December 12, 1995, the Company granted Mr. Tannenbaum and Mr.
Weinstein stock options exercisable for 7,500 and 10,000 shares of Common
Stock, respectively, at a purchase price of $9.00 per share, the fair market
value of one share of the Company's Common Stock on the date of grant.
On April 17, 1996, pursuant to the Company's 1995 Director Option
Plan, C. Raymond Larkin, Jr., a director of the Company was granted an option
to purchase 12,000 shares of the Company's Common Stock at an exercise price of
$19.75 per share, the closing price of one share of the Company's Common Stock
on the day before the date of grant, and on May 22, 1997, each nonemployee
director who is re-elected at the Annual Meeting (except for director Larkin)
will be granted an option to purchase 3,000 shares of the Company's Common
Stock at an exercise price per share equal to the fair market value of one
share of the Company's Common Stock on the date of grant. The nonemployee
directors who may be granted such an option are Annette Campbell-White, Philip
E. Eggers, John S. Lewis and Robert R. Momsen.
On January 10, 1997, the Company granted to each of Robert T. Hagan,
A. Larry Tannenbaum and Allan Weinstein an option to purchase 10,000 shares of
the Company's Common Stock at an exercise price of $7.375 per share, the
closing price of one share of the Company's Common Stock on the day before the
date of grant. One forty-eighth (1/48) at the total number of shares subject
to these options became exercisable on January 31, 1997 and an additional one
forty-eighth (1/48) of the total number of shares subject to these options are
exercisable at the end of each full month thereafter until all such shares are
exercisable, based upon such individual's continued employment by the
corporation.
-14-
<PAGE> 16
REPORT OF THE COMPENSATION COMMITTEE
The following report is provided to stockholders by the members of the
Compensation Committee of the Board of Directors.
The Compensation Committee is responsible for making recommendations
to the Board of Directors concerning sales and incentive compensation for
employees of and consultants to the Company. The Compensation Committee also
has the authority and power to grant stock options to the Company's employees
and consultants.
The goal of the Company's compensation policies is to align executive
compensation with business objectives, corporate performance, and to attract
and retain executives who contribute to the long-term success and value of the
Company. The Company endeavors to achieve its compensation goals through the
implementation of policies that are based on the following principles:
o The Company pays competitively for experienced, highly-skilled
executives:
The Company operates in a competitive and rapidly changing medical
device industry. Executive base compensation is targeted to the
median salary paid to comparable executives in companies of
similar size, location, and with comparable responsibilities. The
individual executive's salary is adjusted annually based on
individual performance, corporate performance, and the relative
compensation of the individual compared to the comparable medians.
o The Company rewards executives for superior performance:
The Committee believes that a substantial portion of each
executive's compensation should be in the form of bonuses.
Executive bonuses are based on a combination of individual
performance and the attainment of corporate goals. Individual
performance goals are based on specific objectives which must be
met in order for the Company to achieve its corporate goals. In
order to attract and retain executives who are qualified to excel
in the medical device industry, performance in excess of the
corporate goals results in higher bonuses.
o The Company strives to align long-term stockholder and executive
interests:
In order to align the long-term interests of executives with those
of stockholders, the Company grants all employees, and
particularly executives, options to purchase stock. Options are
granted at the closing price of one share of the Company's Common
Stock on the day before the date of grant and will provide value
only when the price of the Common Stock increases above the
exercise price. Options are subject to vesting provisions
designed to encourage executives to remain employed by the
Company. Additional options are granted from time to time based
on individual performance and the prior level of grants.
COMPENSATION OF HIRA V. THAPLIYAL, PRESIDENT AND CHIEF EXECUTIVE OFFICER
During 1996, the compensation of Dr. Thapliyal was determined by
applying the same criteria discussed at the beginning of this report used to
determine compensation and bonuses for all executive officers. Dr. Thapliyal's
compensation for 1996 is set forth in the Summary Compensation Table appearing
on page 8.
-15-
<PAGE> 17
SUMMARY
The Committee believes that the Company's compensation policy as
practiced to date by the Committee and the Board has been successful in
attracting and retaining qualified employees and in tying compensation directly
to corporate performance relative to corporate goals. The Company's
compensation policy will evolve over time as the Company attempts to achieve
the many short-term goals it faces while maintaining its focus on building
long-term stockholder value through technological leadership and development
and expansion of the market for the Company's products.
Respectfully submitted,
Annette J. Campbell-White
Robert R. Momsen
The foregoing Compensation Committee Report shall not be deemed to be
"soliciting material" or to be "filed" with the SEC, nor shall such information
be incorporated by reference into any future filing under the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, except to the
extent the Company specifically incorporates it by reference into such filing.
-16-
<PAGE> 18
PERFORMANCE GRAPH
The following graph shows a comparison of total stockholder return for
holders of the Company's Common Stock from February 5, 1996, the date of the
Company's initial public offering, through December 28, 1996 compared with the
Nasdaq Stock Market, U.S. Index, the Hambrecht & Quist Healthcare Index
(excluding Biotechnology) and the Nasdaq Health Services Index. This graph is
presented pursuant to SEC rules. The Company believes that while total
stockholder return can be an important indicator of corporate performance, the
stock prices of medical device stocks like ArthroCare are subject to a number
of market-related factors other than company performance, such as competitive
announcements, mergers and acquisitions in the industry, the general state of
the economy, and the performance of other medical device stocks.
[INSERT GRAPH HERE]
The information contained in the Stock Performance Graph shall not be
deemed to be "soliciting material" or to be "filed" with the SEC, nor shall
such information be incorporated by reference into any future filing under the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
except to the extent the Company specifically incorporates it by reference into
such filing.
-17-
<PAGE> 19
[GRAPH]
<TABLE>
<CAPTION>
2/05/96 2/96 3/96 4/96 5/96 6/96 7/96 8/96 9/96 10/96 11/96 12/96
------- ---- ---- ---- ---- ---- ---- ----- ---- ----- ----- -----
D O L L A R S
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ARTHROCARE CORPORATION 100 161 157 180 164 129 114 80 70 66 71 52
HAMBRECHT & QUIST HEALTHCARE-- 100 100 100 98 98 94 86 92 103 98 101 104
EXCLUDING BIOTECHNOLOGY
NASDAQ STOCK MARKET--US 100 104 104 113 118 113 103 108 117 115 123 122
NASDAQ HEALTH SERVICES 100 102 100 110 115 109 96 103 109 94 95 96
</TABLE>
- -----------------
* $100 INVESTED ON 2/05/96 IN STOCK OR ON 1/31/96 IN INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 28, 1996
<PAGE> 20
PROPOSAL NO. 2:
CONFIRMATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand LLP, independent
accountants, to audit the financial statements of the Company for the 1997
fiscal year ending January 3, 1998 and recommends that the stockholders confirm
such selection. This firm has audited the Company's financial statements since
the Company's inception. In the event of a negative vote, the Board of
Directors will reconsider its selection. Representatives of Coopers & Lybrand
LLP are expected to be present at the Annual Meeting with the opportunity to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
VOTE REQUIRED
The affirmative vote of the majority of the Votes Cast will be
required to ratify the appointment of Coopers & Lybrand LLP as the Company's
independent auditors for the 1997 fiscal year ending January 3, 1998.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE 1997 FISCAL YEAR ENDING JANUARY 3, 1998.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, the persons named in the
accompanying form of proxy will vote the shares represented by proxy as the
Board may recommend or as the proxy holders, acting in their sole discretion,
may determine.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN
REQUEST A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 28, 1996, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF
EXHIBITS. REQUESTS SHOULD BE SENT TO STOCKHOLDER RELATIONS, ARTHROCARE
CORPORATION, 595 NORTH PASTORIA AVENUE, SUNNYVALE, CALIFORNIA 94086.
THE BOARD OF DIRECTORS
Dated: April _______, 1997
-18-
<PAGE> 21
PROXY
ARTHROCARE CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1997
The undersigned, revoking all prior proxies, hereby appoints A. Larry
Tannenbaum and Hira V. Thapliyal, and either of them, as proxy or proxies, with
full power of substitution and revocation, to vote all shares of common stock
of ArthroCare Corporation (the "Company") of record in the name of the
undersigned at the close of business on April 4, 1997, at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Thursday, May 22, 1997, or at
any adjournment thereof, upon the following matters:
1. Election of the following directors: Hira V. Thapliyal, Ph.D., Philip
E. Eggers, Annette J. Campbell-White, C. Raymond Larkin, Jr., John S.
Lewis, Robert R. Momsen
/ / FOR ALL NOMINEES / / WITHHOLD FOR ALL NOMINEES
FOR ALL NOMINEES EXCEPT THE FOLLOWING:
(Mark no box and write the name(s) of the nominee(s) withheld in the
space provided below.)
----------------------------------------------------------------------
(CONTINUED ON REVERSE SIDE)
<PAGE> 22
2. Ratification of appointment of Coopers & Lybrand, L.L.P. as independent
accountants for the 1997 fiscal year.
/ / For / / Against / / Abstain
3. In their discretion, the Proxies are authorized to vote upon such
matters as may properly come before the Annual Meeting, or any
adjournments thereof.
Please mark, date, sign and mail this proxy promptly in the enclosed
envelope.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR Proposals 1 and 2. The Board of Directors recommends a vote FOR
Proposals 1 and 2.
Please sign your name exactly as it appears below. In the case of
shares owned in joint tenancy or as tenants in common, all should sign.
Fiduciaries should indicate their title and authority.
Dated: , 1997.
------------------
-------------------------------
-------------------------------
-------------------------------
Signature(s)
