-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AuSo+CSarf1GZzxTDPq7q5T5nsNi40gZ1WJ3ka9muH3j7ljTvieSNKVHhl8nyr4I tvvnzcft8FiMCcpU8ty6DA== 0000950131-02-000655.txt : 20020414 0000950131-02-000655.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950131-02-000655 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20020222 GROUP MEMBERS: ORCHID MERGER CORP. GROUP MEMBERS: SMITH & NEPHEW, INC. FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SMITH & NEPHEW PLC CENTRAL INDEX KEY: 0000845982 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: 2 TEMPLE PL CITY: LONDON ENGLAND WC2R STATE: X0 ZIP: 00000 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ORATEC INTERVENTIONS INC CENTRAL INDEX KEY: 0001037165 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 943180773 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: 1934 Act SEC FILE NUMBER: 005-60941 FILM NUMBER: 02556231 BUSINESS ADDRESS: STREET 1: 3700 HAVEN COURT STREET 2: 415-369-9904 CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 6503699904 MAIL ADDRESS: STREET 1: 3700 HAVEN COURT CITY: MENLO PARK STATE: CA ZIP: 94025 SC TO-T 1 dsctot.txt THIRD PARTY TENDER OFFER ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------- SCHEDULE TO (RULE 14D-100) TENDER OFFER STATEMENT UNDER SECTION 14 (d) (1) OR SECTION 13 (e) (1) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------- ORATEC INTERVENTIONS, INC. (Name of Subject Company (Issuer)) ORCHID MERGER CORP. SMITH & NEPHEW, INC. SMITH & NEPHEW PLC (Names of Filing Persons (Offerors)) ------------------------------- COMMON STOCK, PAR VALUE $.001 PER SHARE (including the associated preferred stock purchase rights) (Title of Class of Securities) ------------------------------- 68554M (CUSIP Number of Class of Securities) ------------------------------- James A. Ralston Senior Vice President and General Counsel Smith & Nephew, Inc. 1450 Brooks Road Memphis, Tennessee 38116 (901) 396-2121 (Name, address and telephone number of person authorized to receive notices and communications on behalf of filing persons) Copy to: Pran Jha Sidley Austin Brown & Wood Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 Telephone: (312) 853-7000 CALCULATION OF FILING FEE Transaction Valuation*: $330,715,063 Amount of Filing Fee: $66,143
*Estimated for purposes of calculating the amount of the filing fee only. This calculation assumes the purchase of all outstanding shares of common stock, par value $.001 per share, of ORATEC Interventions, Inc., including the associated preferred stock purchase rights issued pursuant to the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, between ORATEC and American Stock Transfer and Trust Company, as rights agent (collectively, the "Shares"), at a price of $12.50 per Share in cash. The calculation assumes that all options and warrants to purchase Shares outstanding as of February 8, 2002 have been exercised, and the purchase of Shares issued in connection with such exercise. This calculation also assumes that the maximum number of Shares issuable under ORATEC's employee stock purchase plan prior to the expiration of the offer are issued and the purchase of such Shares. As of February 8, 2002, there were approximately 23,215,109 Shares outstanding. The amount of the filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50/th of one percent of the value of the transaction. / [_]Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount previously paid: Not applicable Filing Party: Not applicable Form or registration No.: Not applicable Date Filed: Not applicable [_]Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X]third-party tender offer subject to Rule 14d-1. [_]issuer tender offer subject to Rule 13e-4. [_]going-private transaction subject to Rule 13e-3. [_]amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [_] ================================================================================ This Tender Offer Statement on Schedule TO relates to the third-party tender offer by Orchid Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Smith & Nephew, Inc., a Delaware corporation ("Smith & Nephew"), and an indirect wholly owned subsidiary of Smith & Nephew plc, a corporation organized under the laws of England and Wales ("Parent"), to purchase all of the issued and outstanding shares of common stock, par value $.001 per share, of ORATEC Interventions, Inc., a Delaware corporation ("ORATEC"), including the associated preferred stock purchase rights issued pursuant to the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, between ORATEC and American Stock Transfer & Trust Company, as rights agent (collectively, the "Shares"), at a purchase price of $12.50 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated February 22, 2002 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1)(A), and in the related Letter of Transmittal (the "Letter of Transmittal"), a copy of which is attached hereto as Exhibit (a)(1)(B) (which, together with the Offer to Purchase, as amended or supplemented from time to time, constitute the "Offer"). The information set forth in the Offer to Purchase, including all schedules and annexes thereto, is hereby expressly incorporated herein by reference in response to all the items of this Schedule TO, except as otherwise set forth below. Item 3. IDENTITY AND BACKGROUND OF FILING PERSON. During the past five years, none of Parent, Smith & Nephew or Purchaser, or any of their respective executive officers or directors listed on Schedule I to the Offer to Purchase, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Item 10. FINANCIAL STATEMENTS. Not applicable. Item 12. EXHIBITS.
EXHIBIT NO. DESCRIPTION - ----------- ----------- (a)(1)(A) Offer to Purchase dated February 22, 2002. (a)(1)(B) Letter of Transmittal. (a)(1)(C) Notice of Guaranteed Delivery. (a)(1)(D) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(1)(E) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(1)(F) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(1)(G) Form of Summary Advertisement as published on February 22, 2002. (a)(1)(H) Text of press release issued by Smith & Nephew dated February 22, 2002. (b)(1) Credit Agreement among Parent, Lloyds TSB Capital Markets as arrangers, Lloyds TSB Bank plc, as facility agent, and certain financial institutions listed on Schedule 1 thereto dated February 14, 2002. (d)(1) Agreement and Plan of Merger dated as of February 13, 2002, by and among Smith & Nephew, Purchaser and ORATEC (incorporated by reference to Exhibit 2.1 to the Form 8-K of ORATEC Interventions, Inc. filed with the Securities and Exchange Commission on February 19, 2002 (File No. 000-26745)).
3
EXHIBIT NO. DESCRIPTION - ----------- ----------- (d)(2) Form of Stockholder Agreement dated as of February 13, 2002 by and among Smith & Nephew, Purchaser and certain stockholders of ORATEC (including a schedule listing each such stockholder and the number of shares owned by such stockholder as set forth in the Stockholder Agreement entered into by such stockholder). (d)(3) Confidentiality Agreement by and between Smith & Nephew and ORATEC dated as of November 13, 2001. (g) None. (h) None.
4 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. SMITH & NEPHEW PLC By: /s/ Peter Hooley --------------------------------- Name: Peter Hooley Title: Finance Director SMITH & NEPHEW, INC. By: /s/ James A. Ralston --------------------------------- Name: James A. Ralston Title: Senior Vice President and General Counsel ORCHID MERGER CORP. By: /s/ James A. Ralston --------------------------------- Name: James A. Ralston Title: Senior Vice President, Secretary and General Counsel Date: February 22, 2002 5 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- (a)(1)(A) Offer to Purchase dated February 22, 2002. (a)(1)(B) Letter of Transmittal. (a)(1)(C) Notice of Guaranteed Delivery. (a)(1)(D) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(1)(E) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(1)(F) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(1)(G) Form of Summary Advertisement as published on February 22, 2002. (a)(1)(H) Text of press release issued by Smith & Nephew dated February 22, 2002. (b)(1) Credit Agreement among Parent, Lloyds TSB Capital Markets as arrangers, Lloyds TSB Bank plc, as facility agent, and certain financial institutions listed on Schedule 1 thereto dated February 14, 2002. (d)(1) Agreement and Plan of Merger dated as of February 13, 2002, by and among Smith & Nephew, Purchaser and ORATEC (incorporated by reference to Exhibit 2.1 to the Form 8-K of ORATEC Interventions, Inc. filed with the Securities and Exchange Commission on February 19, 2002 (File No. 000-26745)). (d)(2) Form of Stockholder Agreement dated as of February 13, 2002 by and among Smith & Nephew, Purchaser and certain stockholders of ORATEC (including a schedule listing each such stockholder and the number of shares owned by such stockholder as set forth in the Stockholder Agreement entered into by such stockholder). (d)(3) Confidentiality Agreement by and between Smith & Nephew and ORATEC dated as of November 13, 2001. (g) None. (h) None.
6 EX-99.(A)(1)(A) 3 dex99a1a.txt OFFER TO PURCHASE DATED 2/22/2002 Exhibit (a)(1)(A) Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of ORATEC Interventions, Inc. at $12.50 Net Per Share by Orchid Merger Corp. a wholly owned subsidiary of Smith & Nephew, Inc. and an indirect wholly owned subsidiary of Smith & Nephew plc THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 21, 2002, UNLESS THE OFFER IS EXTENDED. A summary of the principal terms of the offer appears on pages (ii) through (iv). You should read this entire document carefully before deciding whether to tender your shares. The Dealer Manager for the Offer is: [LOGO] Bancorp Piper Jaffray February 22, 2002 TABLE OF CONTENTS
Page ---- Summary Term Sheet................................................................... ii Introduction......................................................................... 1 1. Terms of the Offer.............................................................. 2 2. Acceptance for Payment and Payment for Shares................................... 4 3. Procedures for Accepting the Offer and Tendering Shares......................... 5 4. Withdrawal Rights............................................................... 7 5. Material Federal Income Tax Consequences........................................ 8 6. Price Range of the Shares; Dividends............................................ 9 7. Possible Effects of the Offer on the Market for the Shares; Nasdaq Quotation; Exchange Act Registration; Margin Regulations................................... 9 8. Certain Information Concerning ORATEC........................................... 10 9. Certain Information Concerning Purchaser, Smith & Nephew and Parent............. 12 10. Background of the Offer; Contacts with ORATEC................................... 14 11. Purpose of the Offer and the Merger; The Merger Agreement; The Confidentiality Agreement; The Stockholder Agreements; Statutory Requirements; Appraisal Rights; Rule 13e-3; Plans for ORATEC After the Offer and the Merger..................... 16 12. Source and Amount of Funds...................................................... 28 13. Dividends and Distributions..................................................... 29 14. Conditions of the Offer......................................................... 29 15. Legal Matters; Required Regulatory Approvals.................................... 31 16. Fees and Expenses............................................................... 33 17. Miscellaneous................................................................... 33 Schedule I--Directors and Executive Officers of Parent, Smith & Nephew and Purchaser. I-1
SUMMARY TERM SHEET This summary term sheet highlights selected information from this Offer to Purchase, and may not contain all of the information that is important to you. To better understand our offer to you and for a complete description of the terms of the offer, you should read the entire Offer to Purchase and the accompanying Letter of Transmittal carefully. Questions or requests for assistance may be directed to the Information Agent at its address and telephone number listed on the last page of this Offer to Purchase. Principal Terms . Smith & Nephew, Inc., through its wholly owned subsidiary, is offering to buy all of the outstanding shares of common stock of ORATEC Interventions, Inc. ("ORATEC"). The offer price for the common stock is $12.50 per share in cash. Tendering stockholders will not have to pay brokerage fees or commissions. . The offer is the first step in our plan to acquire all of the outstanding shares of ORATEC common stock, as provided in our merger agreement with ORATEC. If the offer is successful, we will acquire each remaining share of ORATEC common stock in a later merger for $12.50 per share in cash. ORATEC stockholders will not have appraisal rights in the tender offer; however, they will have appraisal rights in the merger. . The offer will expire at 12:00 midnight, New York City time, on Thursday, March 21, 2002, unless we extend the offer. . If we decide to extend the offer, we will issue a press release giving the new expiration date no later than 9:00 a.m., New York City time, on the first business day after the previously scheduled expiration of the offer. ORATEC Board Recommendation . By unanimous vote of all directors, the ORATEC board of directors has approved the merger agreement, the offer and the merger and determined that the terms of offer and the merger are fair to, and in the best interests of, ORATEC stockholders. The ORATEC board unanimously recommends that stockholders of ORATEC accept the offer and tender their shares in the offer. Conditions We are not required to complete the offer unless: . the number of shares of ORATEC common stock validly tendered and not withdrawn prior to the expiration of the offer equals at least a majority of the outstanding shares of ORATEC common stock, assuming the exercise of all options and warrants to purchase shares of common stock; and . we receive U.S. federal antitrust clearance for the acquisition of shares of ORATEC common stock. Other conditions to the offer are described on pages 29 through 31. Procedures for Tendering If you wish to accept the offer, this is what you must do: . If you are a record holder of ORATEC shares (i.e., a stock certificate has been issued to you), you must complete and sign the enclosed letter of transmittal and send it with your stock certificate to the depositary for the offer or follow the procedures described in the offer for book-entry transfer. These materials must reach the depositary before the offer expires. Detailed instructions are contained in the letter of transmittal and on pages 5 through 7 of this document. . If you are a record holder but your stock certificate is not available or you cannot deliver it to the depositary before the offer expires, you may be able to tender your shares using the enclosed notice of guaranteed delivery. Please call our information agent, Morrow & Co., Inc. at (800) 607-0088 for assistance. See pages 6 and 7 for further details. ii . If you hold your shares through a broker or bank, you should contact your broker or bank and give instructions that your shares be tendered. Withdrawal Rights . If, after tendering your shares in the offer, you decide that you do NOT want to accept the offer, you can withdraw your shares by instructing the depositary in writing before the offer expires. If you tendered by giving instructions to a broker or bank, you must instruct the broker or bank to arrange for the withdrawal of your shares. See pages 7 and 8 for further details. Subsequent Offering Period . We may give stockholders who do not tender in the offer another opportunity to tender at the same price in a subsequent offering period. Although we do not currently intend to include a subsequent offering period, we reserve the right to do so. . Any subsequent offering period will begin on the day we announce that we have purchased shares in the offer and last for at least three business days. We may extend the subsequent offering period, but it will not last more than 20 business days in total. . There would be no withdrawal rights in any subsequent offering period. Stockholder Agreements . We have entered into stockholder agreements with some stockholders of ORATEC, including its directors and executive officers. Pursuant to those agreements, the stockholders have agreed to tender an aggregate of 3,248,426 shares of ORATEC common stock, constituting approximately 13.99% of the aggregate number of shares of ORATEC common stock issued and outstanding as of February 8, 2002. . The stockholders signing stockholder agreements have also agreed that they will not transfer their ORATEC shares prior to the expiration of the stockholder agreements and that they will vote their shares of ORATEC common stock in favor of the merger and against any competing transactions. You can find a more complete description of the stockholder agreements on page 25. Recent ORATEC Trading Prices; Subsequent Trading . The closing price for ORATEC common stock was: $8.90 on February 13, 2002, the last trading day before we announced the execution of the merger agreement with ORATEC, and $12.40 on February 21, 2002, the last trading day before the commencement of the offer. Before deciding whether to tender, you should obtain a current market quotation for the shares. . If the offer is successful, we expect ORATEC common stock to continue to be traded on the Nasdaq National Market until the time of the merger, although we expect trading volume to be below its pre-offer level. iii Further Information If you have questions about the offer, you can call: our Information Agent: Morrow & Co., INC. 445 Park Avenue, 5th Floor New York, New York 10022 E-mail: ORATEC.info@morrowco.com Call Collect: (212) 754-8000 Banks and Brokerage Firms, Please Call Toll Free: (800) 654-2468 Stockholders, Please Call Toll Free: (800) 607-0088 our Dealer Manager: [LOGO] US bancorp Piper Jaffray(R) 800 Nicollet Mall, J1012063 Minneapolis, Minnesota 55402 (800) 333-6000 ext. 8554 iv To: All holders of shares of common stock of ORATEC Interventions, Inc.: INTRODUCTION Orchid Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Smith & Nephew, Inc., a Delaware corporation ("Smith & Nephew"), and an indirect wholly owned subsidiary of Smith & Nephew plc, a corporation organized under the laws of England and Wales ("Parent"), is offering to purchase all of the outstanding shares of common stock, par value $.001 per share ("Common Stock"), of ORATEC Interventions, Inc., a Delaware corporation ("ORATEC"), including the associated rights to purchase shares of Series A Preferred Stock, par value $.001 per share, of ORATEC (the "Rights") issued under the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, (the "Rights Agreement"), between ORATEC and American Stock Transfer & Trust Company, as rights agent (the "Rights Agent") (collectively, the "Shares"), at a purchase price of $12.50 per share, net to the seller in cash, without interest thereon (the "Offer Price"), on the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended or supplemented from time to time, collectively constitute the "Offer"). As used herein, "we" or "us" refers to Smith & Nephew and Purchaser. You will not be required to pay brokerage fees or commissions or, except as described in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares in the Offer. However, if you do not complete and sign the Substitute Form W-9 that is included in the Letter of Transmittal, you may be subject to a required backup federal income tax withholding of 30% of the gross proceeds payable to you. See Section 5. We will pay all charges and expenses of U.S. Bancorp Piper Jaffray Inc., as Dealer Manager, American Stock Transfer & Trust Company, as Depositary, and Morrow & Co., Inc., as Information Agent, incurred in connection with the Offer. See Section 16. The Board of Directors of ORATEC (the "ORATEC Board") has by a unanimous vote approved the Merger Agreement (as defined below), the Offer and the Merger (as defined below), has determined that the terms of the Offer and the Merger are advisable, fair to, and in the best interests of, ORATEC's stockholders, and unanimously recommends that stockholders of ORATEC accept the Offer and tender their Shares pursuant to the Offer. We are not required to purchase any Shares unless there shall have been validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares that would constitute at least a majority of the Shares that in the aggregate are outstanding, determined on a fully diluted basis (assuming the exercise of all options to purchase Shares, and the conversion or exchange of all securities convertible or exchangeable into Shares, outstanding at the expiration date of the Offer) (the ''Minimum Condition''). We reserve the right (subject to the applicable rules and regulations of the Securities and Exchange Commission (the ''SEC'') and to the prior written consent of ORATEC), which we presently have no intention of exercising, to waive or reduce the Minimum Condition and to elect to purchase a smaller number of Shares. The Offer is also subject to certain other terms and conditions. See Sections 1, 14, and 15 below. We are making the Offer under the Agreement and Plan of Merger (the ''Merger Agreement''), dated as of February 13, 2002, among ORATEC, Smith & Nephew and Purchaser. Following the consummation of the Offer and the satisfaction or waiver of certain conditions, Purchaser will merge with and into ORATEC (the ''Merger''), with ORATEC continuing as the surviving corporation (the ''Surviving Corporation''). In the Merger, each Share issued and outstanding immediately prior to the Effective Time (as defined herein) (other than any Shares that are held in the treasury of ORATEC, Shares owned by Smith & Nephew or by any wholly owned subsidiary of Smith & Nephew and Shares held by stockholders who properly exercise appraisal rights under the Delaware General Corporation Law (the "DGCL")) will be converted into the right to receive $12.50 in cash, without interest, or any higher price per Share paid in the Offer (the ''Merger Consideration''). Section 11 below contains a more detailed description of the Merger Agreement. Section 5 below describes the principal federal income tax consequences of the sale or exchange of Shares in the Offer and the Merger. J. P. Morgan Securities, Inc. ("J. P. Morgan"), has delivered to the ORATEC Board a written opinion that, as of the date of the Merger Agreement and based upon and subject to the matters stated in such opinion, the consideration to be received by the holders of Shares pursuant to the Offer and the Merger was fair, from a financial point of view, to such holders. A copy of the J. P. Morgan opinion is included with ORATEC's Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed with this document, and stockholders are urged to read the opinion in its entirety for a description of the assumptions made, matters considered and limitations of the review undertaken by J. P. Morgan. The approval and adoption of the Merger Agreement by ORATEC requires the affirmative vote of holders of a majority of the outstanding Shares. As a result, if the Minimum Condition and the other conditions to the Offer are satisfied and the Offer is completed, Smith & Nephew and its subsidiaries will own a sufficient number of Shares to ensure that the Merger Agreement will be approved by ORATEC's stockholders. ORATEC has informed us that, as of February 8, 2002, there were (a) 23,215,109 Shares issued and outstanding, (b) 3,154,096 Shares subject to issuance under outstanding options issued by ORATEC, (c) 28,000 Shares subject to issuance under outstanding warrants issued by ORATEC and (d) 60,000 Shares subject to issuance, prior to the expiration of the Offer, pursuant to ORATEC's 1999 Employee Stock Purchase Plan. If Purchaser acquires at least 13,228,603 Shares in the Offer, ownership of such Shares will give Purchaser control of a majority of the outstanding Shares (assuming the exercise of all options to purchase Shares, and the conversion or exchange of securities convertible or exchangeable into Shares, outstanding at the expiration date of the Offer). Accordingly, Purchaser would have sufficient voting power to approve the Merger without the affirmative vote of any other stockholder. Stockholders of ORATEC, including its directors and executive officers, owning a total of 3,248,426 Shares, constituting approximately 13.99% of the total number of Shares outstanding as of February 8, 2002, have entered into stockholder agreements pursuant to which they have agreed to tender those Shares pursuant to the Offer. See Section 11 below. ORATEC has advised us that each of its directors and each of its executive officers intends to tender all Shares that such director or executive officer owns in the Offer. The Offer is conditioned upon the fulfillment of the conditions described in Section 14 below. The Offer will expire at 12:00 midnight, New York City time, on Thursday, March 21, 2002, unless we extend it. This Offer to Purchase and the related letter of transmittal contain important information which you should read carefully before you make any decision with respect to the Offer. 1. Terms of the Offer. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), we will purchase all Shares validly tendered and not withdrawn in accordance with the procedures set forth in Section 3 of this Offer to Purchase on or prior to the Expiration Date. The term ''Expiration Date'' means 12:00 midnight, New York City time, on Thursday, March 21, 2002. We may terminate or withdraw the Offer or extend the Offer from time to time, if at the then-scheduled expiration date of the Offer, the conditions to the Offer shall have not been satisfied or earlier waived. We may also extend the Offer for any period required by applicable rules, regulations, interpretations or positions of the SEC or its staff applicable to the Offer or on one or more occasions for an aggregate period of not more than ten business days if there shall not have been tendered a sufficient number of Shares to enable the Merger to be effected without a meeting of ORATEC's stockholders in accordance with Section 253 of the DGCL. If we extend the Offer under any of these circumstances, the term ''Expiration Date'' will mean the time and date at which the Offer, as so extended, will expire. 2 Upon the terms and subject to the conditions of the Offer, we will purchase all Shares validly tendered and not withdrawn prior to the expiration of the Offer. If, at the Expiration Date, the conditions to the Offer described in Section 14 have not been satisfied or earlier waived, then, subject to the provisions of the Merger Agreement, we may extend the Expiration Date for an additional period or periods of time by giving oral or written notice of the extension to the Depositary. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer and subject to your right to withdraw Shares. See Section 4. Subject to the applicable regulations of the SEC and the terms of the Merger Agreement, we also reserve the right, in our sole discretion, at any time or from time to time, to: (a) delay purchase of or, regardless of whether we previously purchased any Shares, payment for any Shares pending receipt of any regulatory or governmental approvals or expiration of the applicable regulatory or governmental waiting period specified in Section 15; (b) terminate the Offer prior to the Expiration Date if any condition referred to in Section 14 has not been satisfied or upon the occurrence of any event specified in Section 14; and (c) except as set forth in the Merger Agreement, waive any condition or otherwise amend the Offer in any respect, in each case, by giving oral or written notice of the delay, termination, waiver or amendment to the Depositary and, other than in the case of any waiver, by making a public announcement thereof. We acknowledge (a) that Rule 14e-1(c) under the Exchange Act of 1934 (the ''Exchange Act'') requires us to pay the consideration offered or return the Shares tendered promptly after the termination or withdrawal of the Offer and (b) that we may not delay purchase of, or payment for (except as provided in clause (a) of the preceding sentence), any Shares upon the occurrence of any event specified in Section 14 without extending the period of time during which the Offer is open. The rights we reserve in this paragraph are in addition to our rights described in Section 14. Any extension, delay, termination or amendment of the Offer will be followed as promptly as practicable by a public announcement. An announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which we may choose to make any public announcement, subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the Exchange Act, which require that material changes be promptly disseminated to holders of Shares), we will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. In the Merger Agreement, we have agreed that, without the prior written consent of ORATEC, we will not (a) reduce the number of Shares subject to the Offer, (b) reduce the Offer Price, (c) add to or modify the conditions to the Offer (other than to waive any condition to the Offer to the extent permitted by the Merger Agreement), (d) except as provided in the Merger Agreement, extend the Offer, (e) change the form of consideration payable in the Offer, or (f) otherwise amend the terms and conditions of the Offer in a manner adverse to the holders of Shares. If we make a material change in the terms of the Offer, or if we waive a material condition to the Offer, we will extend the Offer and disseminate additional tender offer materials to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. The minimum period during which a tender offer must remain open following material changes in the terms of the offer, other than a change in price or a change in percentage of securities sought, depends upon the facts and circumstances, including the materiality of the changes. In the SEC's view, an offer should remain open for a minimum of five business days from the date the material change is first published, sent or given to stockholders, and, if material changes are made with respect to information that approaches the significance of price and the percentage of securities sought, a minimum of 10 business days may be required to allow for adequate dissemination and investor response. With respect to a change in price, a minimum 10 business-day period from the date of the change is generally required to allow for adequate dissemination to stockholders. Accordingly, if prior to the Expiration Date, we decrease the number of Shares being sought, or increase or decrease the consideration offered pursuant to the Offer, and if the Offer is scheduled to expire at any time earlier than the period ending on the 10th business day from the date that notice of the increase or decrease is first published, sent or given to holders of Shares, we will extend the Offer at least until 3 the expiration of such period of 10 business days. For purposes of the Offer, a ''business day'' means any day other than a Saturday, Sunday or a federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. The Offer is conditioned upon, among other things, the satisfaction of the Minimum Condition. Consummation of the Offer is also conditioned upon expiration or termination of all waiting periods imposed by the HSR Act (as defined in Section 14), and the other conditions set forth in Section 14. We reserve the right (but are not obligated), in accordance with applicable rules and regulations of the SEC and with the Merger Agreement, to waive any or all of those conditions. If, by the Expiration Date, any or all of those conditions have not been satisfied, we may, without the consent of ORATEC, elect to (a) extend the Offer and, subject to applicable withdrawal rights, retain all tendered Shares until the expiration of the Offer, as extended, subject to the terms of the Offer and the Merger Agreement; (b) waive all of the unsatisfied conditions (other than the Minimum Condition) and, subject to complying with applicable rules and regulations of the SEC, accept for payment all Shares so tendered; or (c) terminate the Offer and not accept for payment any Shares and return all tendered Shares to tendering stockholders. In the event that we waive any condition set forth in Section 14 and Purchaser purchases Shares pursuant to the Offer, Purchaser may, in Purchaser's sole discretion, provide a "subsequent offering period" in accordance with Rule 14d-11 under the Exchange Act. In the event that we waive any condition set forth in Section 14, the SEC may, if the waiver is deemed to constitute a material change to the information previously provided to the stockholders, require that the Offer remain open for an additional period of time and/or that we disseminate information concerning such waiver. ORATEC has provided us with its stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. We will mail this Offer to Purchase, the related Letter of Transmittal and other relevant materials to record holders of Shares and we will furnish the materials to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the securityholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for forwarding to beneficial owners of Shares. We reserve the right (but are not obligated), in accordance with the Merger Agreement and applicable rules and regulations of the SEC, to provide a subsequent offering period of three business days to 20 business days after the expiration of the initial offering period of the Offer and our purchase of Shares tendered in the Offer. A subsequent offering period would give stockholders who do not tender in the initial offering period of the Offer another opportunity to tender their Shares and receive the same offer price. A subsequent offering period, if one is provided, is not an extension of the Offer, which already will have been completed. If we elect to provide a subsequent offering period, we will disseminate additional tender offer materials. During a subsequent offering period, stockholders will not have withdrawal rights, and we will promptly purchase and pay for any Shares tendered during the subsequent offering period at the same price paid in the Offer. 2. Acceptance for Payment and Payment for Shares. Upon the terms and subject to the conditions of the Offer (including, if we extend or amend the Offer, the terms and conditions of the Offer as so extended or amended), we will purchase, by accepting for payment, and will pay for, all Shares validly tendered and not withdrawn prior to the Expiration Date promptly (as permitted by Section 4) after the Expiration Date. In addition, subject to applicable rules of the SEC, we reserve the right to delay acceptance for payment of, or payment for, Shares pending receipt of any regulatory or governmental approvals specified in Section 15. For information with respect to regulatory approvals that we are required to obtain prior to the completion of the Offer, see Section 15. In all cases, we will pay for Shares purchased in the Offer only after timely receipt by the Depositary of (a) certificates representing the Shares (''Share Certificates'') or timely confirmation (a ''Book-Entry 4 Confirmation'') of the book-entry transfer of the Shares into the Depositary's account at The Depository Trust Company (the ''Book-Entry Transfer Facility'') pursuant to the procedures set forth in Section 3; (b) the appropriate Letter of Transmittal (or a facsimile), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined below) in connection with a book-entry transfer; and (c) any other documents that the Letter of Transmittal requires. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of the Book-Entry Confirmation that the participant has received and agrees to be bound by the terms of the Letter of Transmittal and that we may enforce that agreement against the participant. For purposes of the Offer, we will be deemed to have accepted for payment, and purchased, Shares validly tendered and not withdrawn if, as and when we give oral or written notice to the Depositary of our acceptance of the Shares for payment pursuant to the Offer. In all cases, upon the terms and subject to the conditions of the Offer, payment for Shares purchased pursuant to the Offer will be made by deposit of the purchase price for the Shares with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from us and transmitting payment to validly tendering stockholders. Under no circumstances will we pay interest on the purchase price for Shares, regardless of any extension of the Offer or any delay in making such payment. If we do not purchase any tendered Shares pursuant to the Offer for any reason, or if you submit Share Certificates representing more Shares than you wish to tender, we will return Share Certificates representing unpurchased or untendered Shares, without expense to you (or, in the case of Shares delivered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, the Shares will be credited to an account maintained within the Book-Entry Transfer Facility), as promptly as practicable following the expiration, termination or withdrawal of the Offer. If, prior to the Expiration Date, we increase the price offered to holders of Shares in the Offer, we will pay the increased price to all holders of Shares that we purchase in the Offer, whether or not the Shares were tendered before the increase in price. We reserve the right, subject to the provisions of the Merger Agreement, to transfer or assign, in whole or from time to time in part, to one or more of our wholly owned subsidiaries the right to purchase all or any portion of the Shares tendered in the Offer, but any such transfer or assignment will not relieve us of our obligations under the Offer or prejudice your rights to receive payment for Shares validly tendered and accepted for payment in the Offer. 3. Procedures for Accepting the Offer and Tendering Shares. Valid Tender of Shares. Except as set forth below, in order for you to tender Shares in the Offer, the Depositary must receive the Letter of Transmittal (or a facsimile), properly completed and signed, together with any required signature guarantees or an Agent's Message in connection with a book-entry delivery of Shares and any other documents that the Letter of Transmittal requires at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date and either (a) you must deliver Share Certificates representing tendered Shares to the Depositary or you must cause your Shares to be tendered pursuant to the procedure for book-entry transfer set forth below and the Depositary must receive Book-Entry Confirmation, in each case on or prior to the Expiration Date, or (b) you must comply with the guaranteed delivery procedures set forth below. 5 The method of delivery of Share Certificates, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at your option and sole risk, and delivery will be considered made only when the Depositary actually receives the Share Certificates. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, you should allow sufficient time to ensure timely delivery. Book-Entry Transfer. The Depositary will make a request to establish an account with respect to each of the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer the Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures. However, although Shares may be delivered through book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility, the Depositary must receive the Letter of Transmittal (or facsimile), properly completed and signed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other required documents, at one of its addresses set forth on the back cover of this Offer to Purchase on or before the Expiration Date, or you must comply with the guaranteed delivery procedure set forth below. Delivery of documents to the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. Signature Guarantees. A bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program (an ''Eligible Institution'') must guarantee signatures on all Letters of Transmittal, unless the Shares tendered are tendered (a) by a registered holder of Shares who has not completed either the box labeled ''Special Payment Instructions'' or the box labeled ''Special Delivery Instructions'' on the Letter of Transmittal or (b) for the account of an Eligible Institution. See Instruction 1 of the Letter of Transmittal. If the Share Certificates are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made to, or Share Certificates for unpurchased Shares are to be issued or returned to, a person other than the registered holder, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, signed exactly as the name or names of the registered holder or holders appear on the certificates, with the signatures on the certificates or stock powers guaranteed by an Eligible Institution as provided in the Letter of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal. If the Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or facsimile) must accompany each delivery of Share Certificates. Guaranteed Delivery. If you want to tender Shares in the Offer and your Share Certificates are not immediately available or time will not permit all required documents to reach the Depositary on or before the Expiration Date or the procedures for book-entry transfer cannot be completed on time, your Shares may nevertheless be tendered if you comply with all of the following guaranteed delivery procedures: (a)your tender is made by or through an Eligible Institution; (b)the Depositary receives, as described below, a properly completed and signed Notice of Guaranteed Delivery, substantially in the form made available by us, on or before the Expiration Date; and (c)the Depositary receives the Share Certificates (or a Book-Entry Confirmation) representing all tendered Shares, in proper form for transfer together with a properly completed and duly executed Letter of Transmittal (or facsimile), with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal within three trading days after the date of execution of the Notice of Guaranteed Delivery. A ''trading day'' is any day on which the New York Stock Exchange is open for business. 6 You may deliver the Notice of Guaranteed Delivery by hand, mail or facsimile transmission to the Depositary. The Notice of Guaranteed Delivery must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. Notwithstanding any other provision of the Offer, we will pay for Shares only after timely receipt by the Depositary of Share Certificates for, or of Book-Entry Confirmation with respect to, the Shares, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal. Accordingly, payment might not be made to all tendering stockholders at the same time, and will depend upon when the Depositary receives Share Certificates or Book-Entry Confirmation that the Shares have been transferred into the Depositary's account at the Book-Entry Transfer Facility. Appointment as Proxy. By executing the Letter of Transmittal, you irrevocably appoint our designees, and each of them, as your agents, attorneys-in-fact and proxies, with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of your rights with respect to the Shares that you tender and that we accept for payment and with respect to any and all other Shares and other securities or rights issued or issuable in respect of those Shares on or after the date of this Offer to Purchase. All such powers of attorney and proxies will be considered irrevocable and coupled with an interest in the tendered Shares. This appointment will be effective when we accept your Shares for payment in accordance with the terms of the Offer. Upon such acceptance for payment, all other powers of attorney and proxies given by you with respect to your Shares and such other securities or rights prior to such payment will be revoked, without further action, and no subsequent powers of attorney and proxies may be given by you (and, if given, will not be deemed effective). Our designees will, with respect to the Shares and such other securities and rights for which the appointment is effective, be empowered to exercise all your voting and other rights as they in their sole discretion may deem proper at any annual or special meeting of ORATEC's stockholders, or any adjournment or postponement thereof, or by consent in lieu of any such meeting or otherwise. In order for Shares to be deemed validly tendered, immediately upon the acceptance for payment of such Shares, we or our designee must be able to exercise full voting, consent and other rights with respect to such Shares and other securities, including voting at any meeting of stockholders. Determination of Validity. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by us, in our sole discretion, which determination will be final and binding on all parties. We reserve the absolute right to reject any or all tenders determined by us not to be in proper form or the acceptance of or payment for which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any of the conditions of the Offer (subject, in the case of the Minimum Condition, to the consent of ORATEC) or any defect or irregularity in any tender of Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. Our interpretation of the terms and conditions of the Offer will be final and binding. No tender of Shares will be deemed to have been validly made until all defects and irregularities with respect to the tender have been cured or waived by us. None of Parent, Smith & Nephew, Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person or entity will be under any duty to give any notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Our acceptance for payment of Shares tendered pursuant to any of the procedures described above will constitute a binding agreement between us and you upon the terms and subject to the conditions of the Offer. 4. Withdrawal Rights. Except as described in this Section 4, tenders of Shares made in the Offer are irrevocable. You may withdraw Shares that you have previously tendered in the Offer at any time on or before the Expiration Date and, unless theretofore accepted for payment as provided herein, may also be withdrawn at any time after April 23, 2002. If, for any reason, acceptance for payment of any Shares tendered in the Offer is delayed, or we are unable to accept for payment or pay for Shares tendered in the Offer, then, without prejudice to our rights set forth in 7 this document, the Depositary may, nevertheless, on our behalf, retain Shares that you have tendered, and you may not withdraw your Shares except to the extent that you are entitled to and duly exercise withdrawal rights as described in this Section 4. Any such delay will be by an extension of the Offer to the extent required by law. In order for your withdrawal to be effective, you must deliver a written or facsimile transmission notice of withdrawal to the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify your name, the number of Shares that you want to withdraw, and (if Share Certificates have been tendered) the name of the registered holder of the Shares as shown on the Share Certificate, if different from your name. If Share Certificates have been delivered or otherwise identified to the Depositary, then prior to the physical release of such certificates, you must submit the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn and an Eligible Institution must guarantee the signature on the notice of withdrawal, except in the case of Shares tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer set forth in Section 3, the notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the first sentence of this paragraph. You may not rescind a withdrawal of Shares. Any Shares that you withdraw will be considered not validly tendered for purposes of the Offer, but you may tender your Shares again at any time before the Expiration Date by following any of the procedures described in Section 3. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by us, in our sole discretion, which determination will be final and binding. None of Parent, Smith & Nephew, Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person or entity will be under any duty to give any notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 5. Material Federal Income Tax Consequences. Your receipt of cash for Shares in the Offer or the Merger will be a taxable transaction for federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. For federal income tax purposes, if you sell or exchange your Shares for cash in the Offer or the Merger, you would generally recognize gain or loss equal to the difference between the amount of cash received and your tax basis for the Shares that you sold or exchanged. That gain or loss will be capital gain or loss (assuming you hold your Shares as a capital asset) and any such capital gain or loss will be long term if, as of the date of sale or exchange, you have held the Shares for more than one year. The maximum tax rate for noncorporate taxpayers on adjusted net capital gain is 20%. Under the backup federal income tax withholding laws applicable to certain stockholders (other than certain exempt stockholders, including, among others, all corporations and certain foreign individuals), the Depositary may be required to withhold 30% of the amount of any payments made to those stockholders pursuant to the Offer and the Merger. To prevent backup federal income tax withholding, you generally must provide the Depositary with your correct taxpayer identification number and certify that you are not subject to backup federal income tax withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. See Instruction 8 of the Letter of Transmittal. In general, any cash received by a stockholder who exercises appraisal rights will result in the recognition of capital gain or loss. Any such stockholder should consult his or her own tax advisor. The discussion above may not be applicable to certain types of stockholders, including stockholders who acquired Shares through the exercise of employee stock options or otherwise as compensation, individuals who are not citizens or residents of the United States, foreign corporations, or entities that are otherwise subject to special tax treatment under the Internal Revenue Code (such as insurance companies, tax-exempt entities and regulated investment companies). 8 The federal income tax discussion set forth above is included for general information only. You are urged to consult your tax advisor with respect to the specific tax consequences to you of the Offer and the Merger, including federal, state, local and foreign tax consequences. 6. Price Range of the Shares; Dividends According to ORATEC's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, the Shares are principally traded on the Nasdaq National Market (''Nasdaq'') under the symbol "OTEC." The following table sets forth, for the periods indicated, the reported high and low sale prices for the Shares on Nasdaq. During such period, ORATEC has paid no cash dividends on the Shares.
High Low ------ ------ Fiscal 2000 From April 4, 2000 through June 30, 2000................. $44.25 $19.13 Quarter Ended September 30, 2000......................... $50.00 $ 9.88 Quarter Ended December 31, 2000.......................... $14.13 $ 3.13 Fiscal 2001 Quarter Ended March 31, 2001............................. $11.88 $ 5.13 Quarter Ended June 30, 2001.............................. $ 9.71 $ 5.41 Quarter Ended September 30, 2001......................... $10.00 $ 5.50 Quarter Ended December 31, 2001.......................... $ 6.85 $ 4.30 Fiscal 2002 Quarter Ending March 31, 2002 (through February 21, 2002) $12.44 $ 6.08
Under the terms of the Merger Agreement, ORATEC is not permitted to declare or pay dividends with respect to the Shares without the prior written consent of Purchaser. On February 13, 2002, the last day on which there was a reported trade of Shares prior to the announcement of the execution of the Merger Agreement, the reported closing price per Share on Nasdaq was $8.90. On February 21, 2002, the last full day of trading prior to the commencement of the Offer, the reported closing price per Share on Nasdaq was $12.40. Stockholders are urged to obtain current market quotations for the Shares. 7. Possible Effects of the Offer on the Market for the Shares; Nasdaq Quotation; Exchange Act Registration; Margin Regulations. Possible Effects of the Offer on the Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Shares held by the public. The purchase of Shares pursuant to the Offer can also be expected to reduce the number of holders of Shares. We cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether it would cause future market prices to be greater or less than the Offer Price. Nasdaq Quotation. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the standards for continued inclusion in Nasdaq, which requires, among other things, that an issuer either (i) have at least 750,000 publicly held shares, held by at least 400 round lot stockholders, with a market value of at least $5,000,000, have at least two market makers, and have a minimum bid price of $1 or (ii) have at least 1,100,000 publicly held shares, held by at least 400 round lot stockholders, with a market value of at least $15,000,000, have at least four market makers, have a minimum bid price of $3 and have either (A) a market capitalization of at least $50,000,000 or (B) total assets and revenues each of at least $50,000,000. If these standards are not met, the Shares might nevertheless continue to be included in the Nasdaq Small Cap Market, which requires, among other things, that an issuer have at least 500,000 publicly held shares, held by at least 300 round lot stockholders, with a market value of at least $1,000,000, have a minimum bid price of $1, 9 have at least two market makers and have any of (A) a market capitalization of at least $35,000,000, (B) stockholders' equity of at least $2,500,000, or (C) net income (in the latest fiscal year or two of the last three fiscal years) of at least $500,000, in order to continue to qualify for inclusion. If the Shares are no longer eligible for Nasdaq quotation, quotations might still be available from other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of holders of such Shares remaining at such time, the interest in maintaining a market in such Shares on the part of securities firms, the possible termination of registration of such Shares under the Exchange Act as described below and other factors. We cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer Price. Exchange Act Registration. The Shares are currently registered under the Exchange Act. The purchase of the Shares pursuant to the Offer may result in the Shares becoming eligible for deregistration under the Exchange Act. Registration of the Shares may be terminated upon application by ORATEC to the SEC if the Shares are not listed on a ''national securities exchange'' and there are fewer than 300 record holders of Shares. Termination of registration of the Shares under the Exchange Act would substantially reduce the information that ORATEC would be required to furnish to its stockholders and the SEC and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirements of furnishing a proxy statement in connection with stockholders' meetings pursuant to Section 14(a) or 14(c) and the related requirement of an annual report, no longer applicable to ORATEC. If the Shares are no longer registered under the Exchange Act, the requirements of Rule 13e-3 under the Exchange Act with respect to ''going private'' transactions would no longer be applicable to ORATEC. In addition, the ability of ''affiliates'' of ORATEC and persons holding ''restricted securities'' of ORATEC to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act, may be impaired or, with respect to certain persons, eliminated. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be eligible for stock exchange listing or Nasdaq reporting. We believe that the purchase of the Shares pursuant to the Offer may result in the Shares becoming eligible for deregistration under the Exchange Act, and it would be our intention to cause ORATEC to make an application for termination of registration of the Shares as soon as possible after successful completion of the Offer if the Shares are then eligible for such termination. If registration of the Shares is not terminated prior to the Merger, then the registration of the Shares under the Exchange Act and the listing of the Shares on the Nasdaq will be terminated following the completion of the Merger. Margin Regulations. The Shares are currently ''margin securities'' under the regulations of the Board of Governors of the Federal Reserve System, which have the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares for the purpose of buying, carrying or trading in securities (''Purpose Loans''). Depending upon factors such as the number of record holders of the Shares and the number and market value of publicly held Shares, following the purchase of Shares pursuant to the Offer, the Shares might no longer constitute ''margin securities'' for purposes of the Federal Reserve Board's margin regulations and, therefore, could no longer be used as collateral for Purpose Loans made by brokers. In addition, if registration of the Shares under the Exchange Act were terminated, the Shares would no longer constitute ''margin securities.'' 8. Certain Information Concerning ORATEC. ORATEC's principal executive offices are located at 3700 Haven Court, Menlo Park, California 94025. Its telephone number at such offices is (650) 369-9904. The following description of ORATEC and its business has been taken from ORATEC's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and is qualified in its entirety by reference to ORATEC's Form 10-K. ORATEC develops and markets innovative medical devices that use controlled thermal energy to treat spine and joint disorders. ORATEC currently markets two minimally invasive systems, the SpineCATH IntraDiscal 10 ElectroThermal Therapy, or IDET, system and the ElectroThermal Arthroscopy System. These proprietary systems deliver heat to modify, cut or remove damaged or stretched tissue. ORATEC files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. ORATEC's SEC filings are also available to the public from commercial document retrieval services and at the Internet world wide web site maintained by the SEC at http://www.sec.gov. Although we have no knowledge that any such information is untrue, we take no responsibility for the accuracy or completeness of information contained in this Offer to Purchase with respect to ORATEC or any of its affiliates or for any failure by ORATEC to disclose events which may have occurred or may affect the significance or accuracy of any such information. Set forth below is certain summary consolidated financial data with respect to ORATEC that has been excerpted or derived from financial information contained in ORATEC's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and from the unaudited financial statements contained in ORATEC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. More comprehensive financial information is included in such report and other documents filed by ORATEC with the SEC, and the following summary is qualified in its entirety by reference to such report and such other documents and all the financial information (including any related notes) contained therein. Such report and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth above. ORATEC Interventions, Inc. Selected Consolidated Financial Data (amount in thousands, except per share data)
Nine Months Ended Years Ended ------------------------------ ---------------------------- September 30, September 30, December 31, December 31, Statement of Operations Data: 2001 2000 2000 1999 - ----------------------------- -------------- -------------- ------------- ------------- (unaudited) (unaudited) Sales......................................... $ 36,308 $ 37,754 $ 49,919 $ 31,365 Cost of sales................................. 11,537 11,382 15,556 13,030 -------------- -------------- ------------- ------------- Gross profit.................................. 24,711 26,372 34,363 18,335 Operating expenses: Research and development..................... 4,239 4,293 5,842 4,085 Sales and marketing.......................... 18,409 17,210 23,624 17,541 General and administrative................... 3,326 3,568 4,536 5,043 Stock compensation........................... 251 1,102 1,115 624 -------------- -------------- ------------- ------------- Total operating expenses...................... 26,225 26,173 35,117 27,293 -------------- -------------- ------------- ------------- Income (loss) from operations................. (1,454) 199 (754) (8,958) Interest income (expense), net................ 1,982 994 1,837 (711) -------------- -------------- ------------- ------------- Income (loss) before taxes.................... 528 1,193 1,083 (9,669) Provision for income taxes.................... 26 60 48 -- -------------- -------------- ------------- ------------- Net income (loss)............................. $ 502 $ 1,133 $ 1,035 $ (9,669) ============== ============== ============= ============= Net income (loss) per common share, basic..... $ 0.02 $ 0.07 $ 0.06 $ (2.30) Net income (loss) per common share, diluted... $ 0.02 $ 0.05 $ 0.05 $ (2.30) Shares used in computing net income (loss) per common share, basic......................... 22,909 15,944 17,556 4,201 Shares used in computing net income (loss) per common share, diluted....................... 23,595 22,737 22,954 4,201
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September 30, December 31, December 31, Balance Sheet Data: 2001 2000 1999 ------------------- ------------- ------------ ------------ Total current assets....... 66,474 68,073 19,432 Property and equipment, net 9,064 8,985 4,409 Intangible assets.......... 3,480 -- -- Other long-term assets..... 100 -- -- Total current liabilities.. 6,317 6,721 13,062 Stockholders' Equity....... 72,801 70,337 6,431
Projections. ORATEC does not, as a matter of course, make public forecasts or projections as to future revenues, earnings or other income statement data. However, certain projections (the ''Projections'') were provided to the ORATEC Board, as well as to Parent, Smith & Nephew, Purchaser and their advisers in connection with the negotiation of the Merger Agreement. The Projections were prepared by ORATEC solely for internal use and not for public disclosure. The Projections were not prepared with a view to complying with the published guidelines of the SEC regarding projections or with the American Institute of Certified Public Accountants Guide to Prospective Financial Statements. Neither ORATEC's independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained in the Projections. The Projections do not reflect any of the effects of the Offer, the Merger or other changes that in the future may be deemed appropriate in light of the circumstances then existing. The Projections necessarily are based upon numerous estimates and assumptions that are inherently subject to significant economic, industry and competitive risks, uncertainties and contingencies, including industry performance, general business and economic conditions, and other matters, all of which are difficult to predict and many of which are beyond the control of ORATEC. Accordingly, there can be no assurance that the projected results would be realized or that actual results would not be significantly higher, or lower, than those projected. The inclusion of this forward-looking information should not be regarded as fact or an indication that Parent, Smith & Nephew, Purchaser or ORATEC or anyone who received this information considered it a reliable predictor of future results, and this information should not be relied on as such. None of Parent, Smith & Nephew, Purchaser or ORATEC assumes any responsibility for the validity, reasonableness, accuracy or completeness of the Projections. ORATEC does not intend to update or revise the Projections. The following are the Projections:
Years Ended ---------------------------- (Dollars in Millions) 2002 2003 2004 2005 --------------------- ----- ----- ------ ------ Sales......................... $58.0 $91.4 $126.0 $160.7 Gross Margin.................. $40.9 $68.8 $ 97.9 $127.2 Gross Margin as % of Sales.... 70.6% 75.3% 77.7% 79.1% Expense....................... $40.8 $50.4 $ 62.4 $ 72.1 Expense as % of Sales......... 70.4% 55.2% 49.5% 44.9% Operating Profit.............. $ 0.1 $18.4 $ 35.5 $ 55.1 Operating Profit as % of Sales 0.2% 20.1% 28.2% 34.3%
9. Certain Information Concerning Purchaser, Smith & Nephew and Parent. Purchaser is a newly incorporated Delaware corporation organized in connection with the Offer and the Merger and has not carried on any activities other than in connection with the Offer and the Merger. Purchaser is a wholly owned subsidiary of Smith & Nephew. The principal executive office of Purchaser is located at 1450 Brooks Road, Memphis, Tennessee 38116. Purchaser's telephone number at such offices is (901) 396-2121. 12 Until immediately prior to the time that Purchaser will purchase Shares pursuant to the Offer, it is not anticipated that Purchaser will have any significant assets or liabilities or engage in activities other than those incident to its formation and capitalization and the transactions contemplated by the Offer and the Merger. Because Purchaser is newly formed and has minimal assets and capitalization and no operating history, no meaningful financial information regarding Purchaser is available. Smith & Nephew, a Delaware corporation, has its principal executive office at 1450 Brooks Road, Memphis, Tennessee 38116. Smith & Nephew's telephone number at such offices is (901) 396-2121. Smith & Nephew is an indirect wholly owned subsidiary of Parent. Smith & Nephew consists of the following United States operations: Orthopaedics, Memphis, Tennessee; Endoscopy, Andover and Mansfield, Massachusetts and Oklahoma City, Oklahoma; Wound Management, Largo, Florida; and Rehabilitation, Germantown, Wisconsin. These divisions employ approximately 3,000 people in the United States. Parent, a public limited company incorporated in Great Britain and registered in and operating under the laws of England and Wales, has its principal executive office at 15 Adam Street, London WC2N 6LA. Parent's telephone number at such offices is 011-44-207-401-7646. Parent is a global healthcare company, which, together with its subsidiaries, has operations in 34 countries and established sales in more than 90 countries. Parent employs almost 7,500 people worldwide, including approximately 3,078 in the United States and approximately 1,739 in the United Kingdom. Parent focuses on the development and marketing of medical devices in the growth sectors of orthopaedics, endoscopy and advanced wound management. Parent files Forms 20-F, Forms 6-K and other documents with the SEC relating to its business, financial condition and other matters. You may inspect or copy these reports and other information at the SEC's public reference facilities, and they should be available for inspection in the same manner as set forth with respect to ORATEC in Section 8 (except that they are not available for inspection on the SEC's Internet world wide web site). The name, citizenship, business address, present principal occupation and material positions held during the past five years of each of the directors and executive officers of Parent, Smith & Nephew and the Purchaser are set forth in Schedule I to this Offer to Purchase. Except as expressly noted in Schedule I to this Offer to Purchase, each such executive officer and director is a citizen of the United States of America. During the past five years, none of the executive officers or directors has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Except as described in this Offer to Purchase, none of Purchaser, Smith & Nephew, Parent, or to the best knowledge of Purchaser, Smith & Nephew or Parent, any of the persons listed in Schedule I hereto, owns or has any right to acquire any Shares and none of them has effected any transaction in the Shares during the past 60 days. Except as set forth in this Offer to Purchase, none of Purchaser, Smith & Nephew, Parent or, to the best knowledge of Purchaser, Smith & Nephew or Parent, any of the persons listed in Schedule I hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of ORATEC, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, there have been no contacts, negotiations or transactions between Purchaser, Smith & Nephew or Parent, or, to the best knowledge of Purchaser, Smith & Nephew or Parent, any of the persons listed in Schedule I hereto, on the one hand, and ORATEC or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a 13 material amount of assets. Except as described in this Offer to Purchase, none of Purchaser, Smith & Nephew, Parent or, to the best knowledge of Purchaser, Smith & Nephew or Parent, any of the persons listed in Schedule I hereto, has had any transaction with ORATEC or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the SEC applicable to the Offer. 10. Background of the Offer; Contacts with ORATEC. As part of its long term plan to review strategic business opportunities, in May 2000 ORATEC engaged J.P. Morgan to act as its financial advisor. As part of its customary review of its strategic business development plans for 2001, in early 2001 Parent determined to pursue acquisition opportunities in the area of radio frequency technology and related products that would complement and expand the product offerings of Parent's Endoscopy Division. In February 2001, representatives of U.S. Bancorp Piper Jaffray Inc. ("Piper Jaffray") met with senior management of Parent to discuss potential acquisition candidates in the United States, including ORATEC. Representatives of Piper Jaffray subsequently requested a meeting with Mr. Ken Anstey, President and Chief Executive Officer of ORATEC. On April 19, 2001, representatives of Piper Jaffray met with Mr. Anstey in Menlo Park, California to discuss the possibility of a strategic acquisition of ORATEC by Smith & Nephew. At the meeting, Mr. Anstey indicated that ORATEC was in the midst of implementing its operating strategy and was not at that time interested in pursuing discussions relating to such a transaction. On July 19, 2001, members of senior management of Smith & Nephew, including Mr. Ron Sparks, President, Endoscopy Division of Smith & Nephew, members of senior management of Parent and representatives of Piper Jaffray met with Mr. Anstey in Menlo Park, California. At the meeting, Mr. Anstey gave an overview presentation of ORATEC and Mr. Sparks gave an overview presentation of Parent and Smith & Nephew. At the meeting, the parties discussed Smith & Nephew's continued desire to commence discussions relating to the possible acquisition of ORATEC by Smith & Nephew. On July 31, 2001, the ORATEC Board met at a special meeting to discuss ORATEC's recent meeting with Smith & Nephew. J.P. Morgan gave the ORATEC Board a presentation related to potential acquisition scenarios. The ORATEC Board engaged in a lengthy discussion relating to potential transactions, including a potential transaction with Smith & Nephew. The ORATEC Board determined that it would not pursue further discussions with Smith & Nephew at that time. In September 2001, representatives of Piper Jaffray had several conversations with Mr. Anstey and with Mr. Richard Ferrari, Chairman of ORATEC, regarding a possible acquisition of ORATEC by Smith & Nephew. In September 2001, Mr. Anstey was contacted by senior management of another company ("Company A") to discuss potential strategic business opportunities. Mr. Anstey had several meetings and discussions with a representative of Company A to discuss a potential strategic relationship between ORATEC and Company A. Following these initial discussions, ORATEC and Company A decided not to pursue a strategic transaction in the near term. On September 21, 2001, Smith & Nephew formally engaged Piper Jaffray to act as Smith & Nephew's financial advisor in connection with possible strategic transactions in the United States in the area of endoscopy. On October 9, 2001, representatives of Piper Jaffray gave a presentation to senior management of Parent regarding a possible acquisition of ORATEC by Smith & Nephew. At a regular meeting on November 1, 2001, senior management of Parent briefed the board of directors of Parent on discussions with ORATEC. On November 8, 2001, Mr. Peter Huntley, Group Director, Business Development of Parent, Mr. Sparks and representatives of Piper Jaffray met with Mr. Anstey, Ms. Nancy V. Westcott, Chief Financial Officer and Vice President of Administration of ORATEC, and representatives of J.P. Morgan in New York City. Smith & 14 Nephew indicated its interest in the acquisition of ORATEC at a price of $11.25 per Share in cash, based on the information with respect to ORATEC that it had reviewed to date. Mr. Anstey and representatives of J.P. Morgan indicated that ORATEC would not be interested in discussing an acquisition by Smith & Nephew at that price. After the meeting, representatives of Piper Jaffray and representatives of J.P. Morgan had discussions relating to Smith & Nephew's valuation of ORATEC. On November 27, 2001, members of senior management of Parent and Smith & Nephew and representatives of Piper Jaffray met with members of senior management of ORATEC and representatives of J.P. Morgan in New York City. Senior management of ORATEC gave a presentation of the business, operations and financial condition of ORATEC. At the meeting, senior management of Smith & Nephew and representatives of Piper Jaffray indicated that they would use the information provided by ORATEC to determine whether Smith & Nephew would be willing to increase its proposed purchase price. Also on November 27, Smith & Nephew and ORATEC entered into a mutual confidentiality agreement. On November 27, 2001, Mr. Anstey requested that J.P. Morgan renew discussions with another company ("Company B") with whom ORATEC had had prior discussions in 2000 and 2001 relating to a possible acquisition of ORATEC by Company B. On December 5, 2001, ORATEC entered into a mutual confidentiality agreement with Company B. On December 6, 2001, ORATEC met with Company B to discuss a potential transaction and gave Company B a presentation relating to ORATEC's business. On December 7, 2001, Mr. Sparks delivered a letter to Mr. Anstey containing Smith & Nephew's indication of interest in acquiring ORATEC through a tender offer for all outstanding Shares at $12.50 per Share in cash followed by a back-end merger at the same price, subject to completion of satisfactory due diligence, negotiation and execution of a definitive merger agreement and of agreements providing for directors and executive officers of ORATEC to support the transaction and approval of the board of directors of Parent. This letter also requested that ORATEC enter into an exclusivity agreement with Smith & Nephew so that Smith & Nephew could complete its due diligence investigation of ORATEC. On December 10, 2001, at a regularly scheduled meeting of the ORATEC Board, representatives of J.P. Morgan presented Smith & Nephew's indication of interest to the ORATEC Board along with a detailed analysis of alternative scenarios. The ORATEC Board directed senior management to continue discussions with Smith & Nephew. On December 14, 2001, the ORATEC Board held a telephonic meeting to continue its deliberations regarding the options then available to ORATEC. Following a report by representatives of J.P. Morgan on discussions they had engaged in with Company B, the ORATEC Board concluded that Company B would not be able to present ORATEC with the terms of a proposed offer in a timely manner, and that any delay in responding to Smith & Nephew's indication of interest could jeopardize a possible transaction with Smith & Nephew. The ORATEC Board then authorized senior management of ORATEC to pursue a possible transaction with Smith & Nephew at a price of $12.50 per Share and to enter into an exclusivity agreement with Smith & Nephew. On December 19, 2001, Smith & Nephew and ORATEC entered into an exclusivity agreement pursuant to which ORATEC agreed, for a period extending until January 23, 2002, not to solicit, initiate or encourage the submission of proposals by third parties relating to an acquisition of ORATEC. From December 19, 2001 through December 21, 2001, senior management of Smith & Nephew, representatives of Piper Jaffray, Smith & Nephew's legal counsel and Smith & Nephew's accounting advisors met with ORATEC's senior management, representatives of J.P. Morgan and ORATEC's legal counsel in Menlo Park, California to perform financial, operational and legal due diligence. During the last two weeks of 2001 and the first two weeks of January 2002, Smith & Nephew and its legal and financial advisors continued their due diligence investigation of ORATEC with the cooperation of senior management of ORATEC and ORATEC's legal and financial advisors. On January 8, 2002, Smith & Nephew's legal counsel delivered a draft merger agreement and a draft stockholder agreement to ORATEC's legal counsel. Between January 8, 2002 and February 13, 2002, 15 representatives of Smith & Nephew and ORATEC and their respective legal counsel and financial advisors held numerous meetings and conferences during which the draft agreements were discussed and negotiated. On January 16, 2002, members of senior management of Smith & Nephew and its legal counsel and representatives of Piper Jaffray met with senior management of ORATEC, representatives of J.P. Morgan and ORATEC's legal counsel to conduct additional due diligence. On January 21, 2002, at a regularly scheduled board meeting, senior management of ORATEC updated the ORATEC Board on Smith & Nephew's due diligence effort and negotiations with Smith & Nephew relating to the merger agreement and stockholder agreement. On February 5, 2002, ORATEC and Smith & Nephew executed an amendment extending the exclusivity agreement from January 23, 2002 to February 13, 2002. On February 6, 2002 at a regularly scheduled board meeting, senior management of Parent updated Parent's board of directors on negotiations between Smith & Nephew and ORATEC. Between February 7, 2002 and February 13, 2002, the parties and their respective legal counsel continued to negotiate the terms of the proposed merger agreement and stockholder agreement. On February 13, 2002, the board of directors of Parent approved the proposed transaction after receiving a presentation of the material terms of the proposed transaction from senior management. On the same date, the Offer, the Merger, the Merger Agreement and the related transactions were approved by the board of directors of each of Smith & Nephew and Purchaser. On the morning of February 13, 2002, the ORATEC Board had a telephonic meeting with senior management of ORATEC, ORATEC's legal counsel and representatives of J.P. Morgan to discuss the status of negotiations with Smith & Nephew and the directors' comments on the Merger Agreement and Stockholder Agreement. Representatives of ORATEC's legal counsel then presented a detailed review of the terms of the Merger Agreement and the Stockholder Agreement and reviewed for the ORATEC Board the ORATEC Board's fiduciary duties with respect to the transaction. Representatives of J.P. Morgan presented J.P. Morgan's analysis of information to serve as the basis for evaluating the proposed price to be paid pursuant to the Offer and the Merger and rendered to the ORATEC Board its oral opinion (which opinion was subsequently confirmed by delivery of a written opinion dated February 13, 2002) that, as of such date and based on and subject to the matters described in the opinion, the $12.50 per Share cash consideration to be received by the holders of the Shares pursuant to the Offer and the Merger was fair, from a financial point of view, to such holders. Representatives of J.P. Morgan then responded to questions raised by the ORATEC Board regarding its analysis and opinion. The ORATEC Board then engaged in a full discussion of the terms of the proposed Merger Agreement and Stockholder Agreement, the various factors considered by the ORATEC Board in approving the Merger Agreement and recommending the Offer and the analysis and opinion of J.P. Morgan. Thereafter, the ORATEC Board unanimously approved the Merger Agreement, the Offer and the Merger, determined that the terms of the Offer and the Merger are fair to, and in the best interests of, stockholders of ORATEC and recommended that the stockholders of ORATEC accept the Offer and tender their Shares pursuant to the Offer. In the evening of February 13, ORATEC, Smith & Nephew and Purchaser executed the Merger Agreement and Smith & Nephew, Purchaser and the Tendering Stockholders (as defined herein) executed the Stockholder Agreements. Public disclosure of the execution of the Merger Agreement was made by joint press release on February 14, 2002, prior to the opening of trading of the Shares on Nasdaq. On February 22, 2002, in accordance with the Merger Agreement, Purchaser commenced the Offer. 11. Purpose of the Offer and the Merger; The Merger Agreement; The Confidentiality Agreement; The Stockholder Agreements; Statutory Requirements; Appraisal Rights; Rule 13e-3; Plans for ORATEC After the Offer and the Merger. Purpose of the Offer and the Merger. The purpose of the Offer and the Merger is for Smith & Nephew to acquire all of the outstanding Shares. Upon the consummation of the Merger, ORATEC will become a wholly 16 owned subsidiary of Smith & Nephew. The acquisition of Shares has been structured as a cash tender offer followed by a cash merger in order to effect a prompt and orderly transfer of ownership of ORATEC from the public stockholders to Smith & Nephew and provide stockholders with cash for all of their Shares. Stockholders of ORATEC who sell their Shares pursuant to the Offer will cease to have any equity interest in ORATEC or the right to participate in its earnings and future growth. If the Merger is consummated, non-tendering stockholders will no longer have an equity interest in ORATEC. Similarly, after selling their Shares pursuant to the Offer or the subsequent Merger, stockholders of ORATEC will no longer bear the risk of any decrease in the value of ORATEC. The Merger Agreement. The following summary description of the Merger Agreement is qualified in its entirety by reference to the agreement itself, which is filed as an exhibit to the Schedule TO that we filed with the SEC, which you may examine and copy as set forth in Section 8 above. The Offer. The Merger Agreement provides for the commencement of the Offer by Purchaser. The obligation of Purchaser to accept for payment and pay for Shares validly tendered pursuant to the Offer is subject to the prior satisfaction or waiver by Purchaser of the conditions to the Offer set forth in Section 14 hereof. The Merger Agreement provides that, without the prior written consent of ORATEC, Purchaser will not (a) reduce the number of Shares subject to the Offer, (b) reduce the Offer Price, (c) impose additional conditions to the Offer other than the conditions set forth in Section 14 or modify the conditions to the Offer (other than to waive any condition of the Offer to the extent permitted by the Merger Agreement), (d) except as described in the following paragraph, extend the Offer, (e) change the form of consideration payable in the Offer or (f) otherwise amend the terms and conditions of the Offer in a manner adverse to the holders of Shares. We have agreed with ORATEC that we will not extend the Offer, without the consent of ORATEC; provided, however, that without the consent of ORATEC, we may extend the Offer (a) if, at the scheduled or extended expiration date of the Offer any of the conditions to Purchaser's obligation to accept Shares for payment are not satisfied or waived, until such time as such conditions are satisfied or waived, (b) for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer and (c) on one or more occasions for an aggregate period of not more than ten business days beyond the latest expiration date that would otherwise be permitted under the terms of the Merger Agreement if there shall not have been tendered a sufficient number of Shares to enable the Merger to be effected in accordance with Section 253 of the DGCL, in each case subject to the right of Smith & Nephew, Purchaser or ORATEC to terminate the Merger Agreement pursuant to its terms. We have also agreed with ORATEC that if at any scheduled expiration date of the Offer, the Minimum Condition or the HSR Condition (as defined in Section 14) or the conditions to the Offer described in paragraph (e) or (f) of Section 14 shall not have been satisfied but all of the conditions to the Offer described in paragraphs (a), (b), (c), (d) and (g) of Section 14 shall then be satisfied, at the request of ORATEC, we will extend the Offer from time to time subject to any right of Smith & Nephew, Purchaser or ORATEC to terminate the Merger Agreement pursuant to its terms; provided, however, that Purchaser will not be required to extend the Offer if any person or "group" (as defined in Section 13(d)(3) of the Exchange Act), other than Smith & Nephew, Purchaser or their affiliates or any group of which any of them is a member, has acquired, or announced and not withdrawn its intention to acquire, beneficial ownership (as determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of 15% or more of the Shares. The Merger. The Merger Agreement provides that Purchaser will be merged with and into ORATEC following the satisfaction or waiver of the conditions to the Merger contained in the Merger Agreement. As a result of the Merger, the separate corporate existence of Purchaser will cease and ORATEC will continue as the Surviving Corporation. At the effective time of the Merger (the ''Effective Time''), the Certificate of Incorporation and Bylaws of ORATEC shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation; the directors of 17 Purchaser shall become the directors of the Surviving Corporation and the officers of ORATEC shall become the officers of the Surviving Corporation. ORATEC has agreed in the Merger Agreement that it will, if required by applicable law and at Smith & Nephew's request, as soon as practicable following the purchase of Shares pursuant to the Offer, (a) prepare and file with the SEC a preliminary proxy statement relating to the Merger Agreement and use its reasonable best efforts to respond to any comments of the SEC and its staff and to cause the proxy statement to be mailed to its stockholders as promptly as practicable after responding to all such comments to the satisfaction of the staff and (b) convene a special meeting of its stockholders for the purpose of considering the adoption of the Merger Agreement. The Merger Agreement provides that if Purchaser or any other direct or indirect subsidiary of Smith & Nephew owns at least 90% of the outstanding Shares, Smith & Nephew, Purchaser and ORATEC shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after expiration of the Offer without a meeting of the stockholders of ORATEC, in accordance with Section 253 of the DGCL. Conversion of Securities. As of the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, ORATEC or the holders of any securities of Purchaser or ORATEC, each Share (other than Shares held in the treasury of ORATEC, Shares owned by Smith & Nephew or any wholly owned subsidiary of Smith & Nephew and Shares owned by stockholders, if any, who properly exercise appraisal rights under the DGCL) shall be converted into the right to receive from the Surviving Corporation, in cash, without interest, the Merger Consideration. Each share of stock of Purchaser issued and outstanding immediately prior to the Effective Time shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of stock of Purchaser, be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. The Merger Agreement provides that Smith & Nephew or the designated paying agent will be entitled to deduct and withhold from the consideration otherwise payable pursuant to the Merger Agreement to any holder of Shares such amounts as Smith & Nephew or such paying agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code or the rules and regulations promulgated thereunder or any provision of state, local or foreign tax law. Representations and Warranties. In the Merger Agreement, ORATEC has made customary representations and warranties to Smith & Nephew and Purchaser. The representations and warranties of ORATEC relate, among other things, to its organization, good standing and corporate power; capital structure; authority to enter into the Merger Agreement and to consummate the transactions contemplated thereby; required consents and approvals and no violations; filings made by ORATEC with the SEC under the Securities Act of 1933, as amended (the ''Securities Act''), and the Exchange Act (including financial statements included in the documents filed by ORATEC under these acts); information supplied by ORATEC; the absence of certain events since December 31, 2000; permits and compliance with laws; tax matters; actions and proceedings; compensation agreements; benefit plans and employees and employment practices; liabilities; certain labor matters; intellectual property matters; title to assets; inventories; environmental matters; state takeover statutes; the Rights Agreement; required votes; transactions with affiliates; suppliers and sales representatives; insurance; accounts receivable; products; and brokers. Purchaser and Smith & Nephew have also made customary representations and warranties to ORATEC. Representations and warranties of Purchaser and Smith & Nephew relate, among other things, to: their organization and good standing; authority to enter into the Merger Agreement and to consummate the transactions contemplated thereby; required consents and approvals and no violations; information supplied by Purchaser and Smith & Nephew; interim operations of Purchaser; ownership of Shares; brokers; and financing. Covenants Relating to the Conduct of Business. During the period from the date of the Merger Agreement through the Effective Time, ORATEC has agreed that, except to the extent Smith & Nephew shall otherwise consent in writing: (a) ORATECshall in all material respects carry on its business in the ordinary course of its business as currently conducted and, to the extent consistent therewith, use reasonable best efforts to preserve 18 intact its current business organizations, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time; (b)ORATEC shall not (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of ORATEC or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (c)ORATEC shall not issue, deliver, sell, pledge, grant, dispose of or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options to acquire any such shares, voting securities, equity equivalent or convertible securities, other than (i) the issuance of shares of Common Stock upon the exercise of options or warrants to purchase Shares that was outstanding on the date of the Merger Agreement in accordance with their current terms, and (ii) the issuance of shares of Common Stock pursuant to the Stock Purchase Plan in accordance with the Merger Agreement; (d)ORATEC shall not amend its charter or by-laws or equivalent organizational documents; (e)ORATEC shall not acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, limited liability company, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets; (f)ORATEC shall not sell, lease, pledge or otherwise dispose of or encumber, or agree to sell, lease, pledge or otherwise dispose of or encumber, any of its assets with a fair market value in excess of $100,000, other than sales of inventory that are in the ordinary course of business consistent with past practice; (g)ORATEC shall not (i) incur any indebtedness for borrowed money, guarantee any such indebtedness or make any loans, advances or capital contributions to, or other investments in, any other person or entity, other than in the ordinary course of business consistent with past practices and, in the case of indebtedness and guarantees, in an amount not to exceed $250,000 or (ii) invest its cash or reinvest its maturing investments in investments other than certificates of deposit, direct obligations of the United States government, money market instruments and obligations of any corporation which at the time of purchase are rated AA or better by Standard & Poor's Corporation, Inc., in each case, having maturity of no more than 30 days; (h)ORATEC shall not alter (through merger, liquidation, reorganization, restructuring or in any other fashion) the corporate structure or ownership of ORATEC or form any subsidiaries; (i)except as provided in the Merger Agreement, ORATEC shall not enter into or adopt any, or amend any existing, severance plan, agreement or arrangement or enter into or amend any Company Plan (as defined in the Merger Agreement) or Compensation Agreement (as defined in the Merger Agreement); (j)ORATEC shall not increase the compensation payable or to become payable to its directors, officers, employees, consultants or other service providers (except for increases in the ordinary course of business consistent with past practice in salaries or wages of employees of ORATEC who are not officers of ORATEC) or grant any severance or termination pay to, or enter into any employment or other agreement with, any director, officer, employee, consultant or other service provider of ORATEC, or establish, adopt, enter into, or, except as may be required to comply with applicable law, amend or take action to enhance or accelerate any rights or benefits under, any labor, collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, 19 retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer, employee, consultant or other service provider; (k)ORATEC shall not knowingly violate or knowingly fail to perform any obligation or duty imposed upon it by any applicable material federal, state, local or foreign law, rule, regulation, guideline or ordinance; (l)ORATEC shall not make any change to accounting policies or procedures (other than actions required to be taken by generally accepted accounting principles); (m)ORATEC shall not prepare or file any tax return inconsistent with past practice or, on any such tax return, take any position, make any election, or adopt any method that is inconsistent with positions taken, elections made or methods used in preparing or filing similar tax returns in prior periods; (n)ORATEC shall not settle or compromise any tax liability or any claims or litigation in excess of $50,000 or commence any litigation or proceedings; (o)ORATEC shall not enter into or amend any agreement or contract (i) having a term in excess of 12 months and which is not terminable by ORATEC without penalty or premium by notice of 60 days or less or (ii) which involves or is expected to involve payments of $25,000 or more during the term thereof; (iii) enter into, amend or terminate any other agreement or contract material to ORATEC; or (iv) purchase any real property, or make or agree to make any new capital expenditure or expenditures (other than the purchase of real property) which in the aggregate are in excess of $50,000; (p)ORATEC shall not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of any such claims, liabilities or obligations, in the ordinary course of business consistent with past practice or in accordance with their terms; (q)ORATEC shall not file any application for national coverage under Medicare of ORATEC's spine products; and (r)ORATEC shall not authorize, recommend, propose or announce an intention to do any of the foregoing, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing. No Solicitation. ORATEC shall not, nor shall it authorize or permit any officer, director or employee of or any financial advisor, attorney or other advisor or representative of ORATEC to, directly or indirectly, (i) solicit, initiate or encourage the submission of, any Takeover Proposal (as defined below), (ii) enter into any agreement with respect to or approve or recommend any Takeover Proposal or (iii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to ORATEC in connection with, or take any other action to cooperate in any way with respect to, or assist in or facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal; provided, however, that neither ORATEC nor its directors shall be prohibited from (x) complying with Rule 14e-2 promulgated under the Exchange Act with regard to a tender or exchange offer or (y) referring a third party to the section of the Merger Agreement described in this paragraph or making a copy of such section available to any third party; and provider, further, that prior to the acceptance for payment of Shares pursuant to the Offer, if the ORATEC Board reasonably determines that a Takeover Proposal constitutes a Superior Proposal (as defined below), then, to the extent required by the fiduciary obligations of the ORATEC Board, as determined in good faith by a majority thereof after consultation with independent counsel (who may be ORATEC's regularly engaged independent counsel), ORATEC may, in response to an unsolicited request therefor, furnish information with respect to ORATEC to any person pursuant to a confidentiality agreement, in customary form and in any event containing terms, taken as a whole, at least as stringent as those contained in the confidentiality agreement entered into between ORATEC and Smith & Nephew, and participate in discussions or negotiations with such person. For purposes of the Merger Agreement, ''Takeover Proposal'' means (i) any proposal for a merger or 20 other business combination involving ORATEC, (ii) any proposal or offer to acquire in any manner, directly or indirectly, an equity interest in or any voting securities of ORATEC representing 15% or more of the Shares or of the total voting securities of ORATEC outstanding, or (iii) an offer to acquire in any manner, directly or indirectly, a substantial portion of the assets of ORATEC, other than the transactions contemplated by the Merger Agreement, and ''Superior Proposal'' means a bona fide written proposal made by a third party to acquire ORATEC pursuant to a tender or exchange offer, a merger, a sale of all or substantially all of the assets of ORATEC or otherwise on terms which a majority of the disinterested members of the ORATEC Board determines in its reasonable good faith judgment to be more favorable to ORATEC's stockholders than the Merger (based on the advice from ORATEC's independent financial advisor that the value of the consideration provided for in such proposal exceeds the value of the consideration provided for in the Merger) and for which financing, to the extent required, is then committed or which, in the reasonable good faith judgment of a majority of such disinterested directors, as expressed in a resolution adopted at a duly constituted meeting of such members (based on the advice of ORATEC's independent financial advisor), is reasonably capable of being obtained by such third party. The Merger Agreement provides further that, ORATEC must advise Smith & Nephew orally and in writing of (i) any Takeover Proposal or any request for information with respect to any Takeover Proposal received by any officer or director of ORATEC or, to the knowledge of ORATEC, any financial advisor, attorney or other advisor or representative of ORATEC, (ii) the material terms of such Takeover Proposal (including a copy of any written proposal), and (iii) the identity of the person making any such Takeover Proposal or inquiry. ORATEC shall so advise Smith & Nephew no later than 24 hours following receipt of such Takeover Proposal or inquiry. If ORATEC intends to furnish any person with any information with respect to any Takeover Proposal, ORATEC is required to advise Smith & Nephew orally and in writing of such intention not less than 48 hours in advance of providing such information. ORATEC is further required to keep Smith & Nephew fully informed of any material changes to the status or material terms of any such Takeover Proposal or inquiry. Third Party Standstill Agreements. During the period from the date of the Merger Agreement through the Effective Time, ORATEC has agreed not to terminate, amend, modify or waive any provision of any confidentiality or standstill agreement to which ORATEC is a party (other than any confidentiality or standstill agreement involving Smith & Nephew) and to enforce, to the fullest extent permitted under applicable law, the provisions of any such agreements, including obtaining injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof in any court of the United States or any state thereof having jurisdiction. Rights Agreement. Pursuant to the Merger Agreement, ORATEC and the Rights Agent executed an amendment to the Rights Agreement on February 13, 2002, rendering the Rights Agreement inapplicable to the Offer, the Merger, the Stockholder Agreements and the transactions contemplated thereby. Indemnification. Pursuant to the Merger Agreement, from and after the Effective Time, Smith & Nephew will cause the Surviving Corporation to indemnify and hold harmless all past and present officers and directors of ORATEC to the same extent and in the same manner such persons are indemnified as of the date of the Merger Agreement by ORATEC pursuant to the indemnification agreements between ORATEC and certain officers and directors, the DGCL, ORATEC's Certificate of Incorporation or ORATEC's Bylaws for acts or omissions occurring at or prior to the Effective Time. Smith & Nephew has also agreed to cause the Surviving Corporation to provide, for an aggregate period of not less than six years from the Effective Time, ORATEC's current directors and officers an insurance and indemnification policy that provides coverage for events occurring prior to the Effective Time that is substantially equivalent to ORATEC's existing policy or, if substantially equivalent insurance coverage is unavailable, the best available coverage; provided, however, that the Surviving Corporation will not be required to pay aggregate premiums over the six-year period for the director's and officer's insurance in excess of $1,300,000. 21 Board Representation. The Merger Agreement provides that promptly after such time as Purchaser acquires Shares pursuant to the Offer, Purchaser will be entitled to designate at its option up to that number of directors, rounded to the nearest whole number, of the ORATEC Board, subject to compliance with Section 14(f) of the Exchange Act, as will make the percentage of ORATEC's directors designated by Purchaser equal to the percentage of the aggregate voting power of the Shares held by Smith & Nephew or any of its subsidiaries; provided, however, that in the event that Purchaser's designees are elected to the ORATEC Board, until the Effective Time, the ORATEC Board shall have at least two directors who were directors of ORATEC on the date of the Merger Agreement and who are not officers of ORATEC (the ''Independent Directors''). If the number of Independent Directors shall be reduced below two for any reason whatsoever, the Independent Director shall designate an Independent Director for purposes of the Merger Agreement or, if no Independent Directors then remain, the other directors of ORATEC shall designate two persons to fill such vacancies who shall not be officers or affiliates of ORATEC, or officers or affiliates of Smith & Nephew or any of its subsidiaries, and such persons shall be deemed to be Independent Directors for purposes of the Merger Agreement. Following the election or appointment of Purchaser's designees to the ORATEC Board and prior to the Effective Time, any amendment, or waiver of any term or condition, of the Merger Agreement or ORATEC's Certificate of Incorporation or Bylaws, any termination of the Merger Agreement by ORATEC, any extension by ORATEC of the time for the performance of any of the obligations or other acts of Purchaser or waiver or assertion of any of ORATEC's rights under the Merger Agreement, and any other consent or action by the ORATEC Board with respect to the Merger Agreement, will require the concurrence of a majority of the Independent Directors and no other action by ORATEC, including any action by any other director of ORATEC, shall be required for purposes of the Merger Agreement. In connection with the foregoing, ORATEC will promptly, at the option of Smith & Nephew, either increase the size of the ORATEC Board and/or obtain the resignation of such number of its current directors as is necessary to enable Purchaser's designees to be elected or appointed to the ORATEC Board as provided above to the fullest extent permitted by law. Conditions Precedent to the Merger. The respective obligations of each party to effect the Merger are subject to the fulfillment at or prior to the Effective Time of the following conditions: (i) the Merger Agreement shall have been approved and adopted by the affirmative vote of the stockholders of ORATEC (unless the vote of stockholders is not required under the DGCL) as required by the DGCL and ORATEC's Certificate of Incorporation; (ii) any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated; (iii) Purchaser shall have previously accepted for payment and paid for Shares validly tendered pursuant to the Offer, except that this condition shall not apply if Purchaser shall have failed to purchase Shares pursuant to the Offer in breach of its obligations (or the obligations of Smith & Nephew) under the Merger Agreement; and (iv) no court or other Governmental Entity (as defined in the Merger Agreement) having jurisdiction over ORATEC or Smith & Nephew or any of its subsidiaries shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the Merger illegal. Termination. The Merger Agreement provides that it may be terminated at any time prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ORATEC: (a)by mutual written consent of Smith & Nephew and ORATEC; (b)by either Smith & Nephew or ORATEC: (i) if (x) as a result of the failure of any of the conditions to the Offer as set forth in Section 14 of this Offer to Purchase shall have terminated or expired in accordance with its terms without Purchaser having accepted for payment any Shares pursuant to the Offer or (y) Purchaser shall not have accepted for payment any Shares pursuant to the Offer prior to June 30, 2002 (provided that the right to terminate the Merger Agreement pursuant to this clause (b)(i) shall not be available to any party whose failure to perform any of its obligations under the Merger Agreement results in the failure of any such condition or if the failure of such condition results from facts or circumstances that constitute a breach of any representation or warranty under the Merger Agreement by such party), or (ii) if any Governmental Entity shall have issued an order, decree or 22 ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for, Shares pursuant to the Offer and such order, decree or ruling or other action shall have become final and nonappealable; (c)by Smith & Nephew or Purchaser prior to the purchase of Shares pursuant to the Offer in the event of a breach by ORATEC of any representation, warranty, covenant or other agreement contained in the Merger Agreement which (i) would give rise to the failure of the Offer conditions described in paragraph (e) or (f) of Section 14 and (ii) cannot be or has not been cured within 30 days after the giving of written notice to ORATEC; (d)by Smith & Nephew or Purchaser if either Smith & Nephew or Purchaser is entitled to terminate the Offer as a result of the occurrence of any event set forth in paragraph (d) of Section 14; (e)by ORATEC if the ORATEC Board reasonably determines that a Takeover Proposal constitutes a Superior Proposal and a majority of the ORATEC Board determines in its reasonable good faith judgment, after consultation with independent counsel, that failing to terminate the Merger Agreement would constitute a breach of its fiduciary duties under applicable law; provided, that it has complied with the notice and other provisions of the Merger Agreement relating to no solicitation of Takeover Proposals and it complies to the extent applicable with requirements of the Merger Agreement relating to payment of Expenses and the Termination Fee (each as defined below under ''--Fees and Expenses''); and provided further that ORATEC may not terminate the Merger Agreement pursuant to this clause (e) unless and until 72 hours have elapsed following the delivery to Smith & Nephew of a written notice of such determination by the ORATEC Board; (f)by ORATEC, in the event of a material breach by Smith & Nephew or Purchaser of any representation or warranty, covenant or other agreement contained in the Merger Agreement which cannot be or has not been cured within 30 days after the giving of written notice to Smith & Nephew or Purchaser, as applicable; or (g)by ORATEC, if the Offer has not been timely commenced in accordance with the Merger Agreement. In the event of a termination of the Merger Agreement by either ORATEC or Smith & Nephew, the Merger Agreement shall become void (except for certain provisions pertaining to the payment of certain expenses and fees and except for certain confidentiality obligations of the parties) and there shall be no liability or obligation on the part of Smith & Nephew, Purchaser or ORATEC or their respective officers or directors other than for liability for any willful or intentional breach of a representation or warranty contained in the Merger Agreement, the willful or intentional breach of any covenant contained in the Merger Agreement or for fraud. Treatment of Stock Based Compensation, Employee Stock Purchase Plan and Warrants. Prior to the consummation of the Offer, the ORATEC Board (or, if appropriate, any committee thereof) shall adopt appropriate resolutions and take all other actions necessary or appropriate to cause each option to purchase Shares that is outstanding as of the consummation of the Offer to vest in full and to become exercisable immediately prior to the consummation of the Offer with respect to all of the Shares at the time subject to such option. Each option to purchase Shares that is outstanding upon the consummation of the Offer shall be cancelled as of the consummation of the Offer, in consideration for which each holder of an option to purchase Shares will be entitled to receive from ORATEC an amount equal to (A) the product of (1) the number of Shares subject to such option and (2) the excess, if any, of the Offer Price over the exercise price per share for the purchase of Shares subject to such option, minus (B) all applicable federal, state and local taxes required to be withheld in respect of such payment. The amounts payable pursuant to the Merger Agreement (as described in the second sentence of this paragraph) will be paid as soon as reasonably practicable following the acceptance for payment of Shares by Purchaser pursuant to the Offer. The surrender of an option in exchange for the consideration contemplated in the Merger Agreement (as described in the second sentence of this paragraph) shall be deemed a release of any and all rights the holder of the option had or may have had in respect thereof. Pursuant to the Merger Agreement, ORATEC will take all actions necessary to ensure that (i) the offering period applicable to the options outstanding under its 1999 Employee Stock Purchase Plan is shortened so as to 23 have a Purchase Date (as defined in such plan) that occurs not later than 10 business days after the commencement of the Offer; (ii) no current holder of an option outstanding under such plan is permitted to increase his or her rate of payroll deduction under such plan effective from and after the date of the Merger Agreement; and (iii) no new offering period commences on or after the date of the Merger Agreement. Pursuant to the Merger Agreement, ORATEC will take all actions necessary to provide that, effective on or before acceptance for payment by Purchaser of Shares pursuant to the Offer, (i) ORATEC's 1999 Employee Stock Purchase Plan, ORATEC's 1995 Stock Plan, ORATEC's 1999 Stock Plan, as amended, ORATEC's 1999 Directors' Stock Option Plan, as amended, and any similar plan or agreement will be terminated, (ii) any rights under any other plan, program, agreement or arrangement relating to the issuance or grant of any other interest in respect of the capital stock of ORATEC shall be terminated, and (iii) no person will have any right to receive any shares of capital stock of ORATEC or, if applicable, the Surviving Corporation, upon exercise of any option outstanding under the existing plans. Pursuant to the Merger Agreement, the outstanding warrant to purchase Shares will, by virtue of the Merger, no longer be exercisable into the right to receive Shares but will after the Effective Time represent the right to receive an amount equal to (A) the product of (1) the number of Shares subject to such warrant and (2) the excess, if any, of the Merger Consideration over the exercise price per Share applicable to such warrant minus (B) all applicable federal and local taxes required to be withheld in respect of such payment, without interest. Fees and Expenses. Except as provided in the Merger Agreement, whether or not the Merger is consummated, all costs and expenses incurred in connection with the Offer, the Merger and the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring such costs and expenses. The Merger Agreement provides that ORATEC will pay, or cause to be paid, in same day funds to Smith & Nephew the following amounts under the circumstances and at the times set forth as follows: (i)if Smith & Nephew or the Purchaser terminates the Merger Agreement in accordance with the provisions described in clause (d) under ''Termination'' above, ORATEC shall pay a $12,000,000 termination fee (the ''Termination Fee'') upon demand; (ii)if ORATEC terminates the Merger Agreement in accordance with the provision described in clause (e) under ''Termination'' above, ORATEC shall pay the Termination Fee prior to or simultaneously with such termination; or (iii)if any termination of the Merger Agreement occurs under the provisions described in clause (b) (i) or (c) under ''Termination'' above, and at the time of any such termination, a Designated Takeover Proposal (as defined below) shall have been made (other than a Designated Takeover Proposal made prior to the date of the Merger Agreement), then if concurrently therewith or within 12 months thereafter, (A) ORATEC enters into a merger agreement, acquisition agreement or similar agreement (including a letter of intent) with respect to a Company Acquisition (as defined below), or a Company Acquisition is consummated, involving any party (1) with whom ORATEC had any discussions with respect to a Designated Takeover Proposal, (2) to whom ORATEC furnished information with respect to or with a view to a Designated Takeover Proposal or (3) who had submitted a proposal or expressed any interest publicly in a Designated Takeover Proposal, in the case of each of clauses (1), (2) and (3), prior to such termination, or (B) ORATEC enters into a merger agreement, acquisition agreement or similar agreement (including a letter of intent) with respect to a Superior Proposal, or a Superior Proposal is consummated, then, in the case of either (A) or (B) above, ORATEC shall pay the Termination Fee of Smith & Nephew upon the earlier of the execution of such agreement or upon consummation of such Company Acquisition or Superior Proposal, as the case may be. "Designated Takeover Proposal" means (i) any proposal for a merger or other business combination involving ORATEC pursuant to which the stockholders of ORATEC immediately preceding such transaction 24 will hold less than 85% of the total voting power of the outstanding shares of capital stock of the entity surviving or resulting from such transaction, (ii) any proposal or offer to acquire in any manner, directly or indirectly, an equity interest in or any voting securities of ORATEC representing 15% or more of the Shares or of the total voting securities of ORATEC outstanding, or (iii) an offer to acquire in any manner, directly or indirectly, a substantial portion of the assets of ORATEC, other than the transactions contemplated by the Merger Agreement. "Company Acquisition" means (i) a merger, consolidation or other business combination pursuant to which stockholders of ORATEC immediately preceding such transaction hold less than a majority of the equity interest in the surviving or resulting entity of such transaction, (ii) a sale or other disposition by ORATEC of all or substantially all of its assets or (iii) the acquisition by any person or group (including by way of tender offer, exchange offer or issuance of securities by ORATEC), directly or indirectly, of beneficial ownership (as determined pursuant to Rule 13d-3 promulgated under the Exchange Act) or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of ORATEC. The Confidentiality Agreement. The following summary description of the confidentiality agreement entered into between Smith & Nephew and ORATEC (the ''Confidentiality Agreement'') is qualified in its entirety by reference to the agreement itself, which is an exhibit to the Schedule TO that we filed with the SEC, which you may examine and copy as set forth in Section 8. On November 27, 2001, ORATEC and Smith & Nephew entered into a Confidentiality Agreement pursuant to which each party agreed, in return for the other party making available certain non-public information, to use such information solely for the purpose of evaluating the transaction between the parties and to not use such information in any way directly or indirectly detrimental to the other party. Each party also agreed that it and its representatives will not disclose any of the evaluation information unless the disclosure is made to a representative of such party who needs to have such material for the sole purpose of evaluating the transaction between the parties. Without the prior consent of the other party, each party agreed that it and its representatives will not disclose to any other person the fact that the materials have been provided to it or that discussions or negotiations were taking place. Each party also agreed, for a period of two years following the date of the Confidentiality Agreement, that it will not, directly or indirectly, solicit for employment or hire any officer, director or employee of the other party with whom such party has had contact or who became known to such party in connection with its consideration of the Offer and the Merger, except for any such employee who initiates discussions regarding such employment without any direct or indirect solicitation by such party, who responds to any public advertisement placed by such party, or who has been terminated by the other party prior to the commencement of employment discussions between such party and such officer, director or employee. The Stockholder Agreements. The following summary description of the Stockholder Agreements is qualified in its entirety by reference to the agreements themselves, a form of which we have filed as an exhibit to the Schedule TO that we filed with the SEC, which you may examine and copy as set forth in Section 8. Smith & Nephew and Purchaser entered into Stockholder Agreements dated as of February 13, 2002 (the ''Stockholder Agreements'') with each of the following stockholders of ORATEC: Kenneth W. Anstey, President, Chief Executive Officer and Director of ORATEC, Hugh R. Sharkey, Executive Vice President, Chief Technical Officer and Director of ORATEC, Nancy V. Westcott, Chief Financial Officer and Vice President, Administration of ORATEC, Roger H. Lipton, Vice President, Sales and Marketing of ORATEC, Michael D. Hassman, Vice President, Manufacturing of ORATEC, Theresa M. Mitchell, Vice President, Regulatory and Clinical Affairs and Quality Assurance of ORATEC, Richard M. Ferrari, Patrick F. Latterell, Jeffrey A. Saal, M.D. and Wayne R. Moon, Directors of ORATEC, Venrock Associates, L.P. and Venrock Associates II, L.P. 25 (the ''Tendering Stockholders''). Pursuant to the Stockholder Agreements, each Tendering Stockholder has agreed that, (a) such Tendering Stockholder will vote the Shares held by such Tendering Stockholder in favor of the Merger and the Merger Agreement; (b) such Tendering Stockholder will vote the Shares held by such Tendering Stockholder against (i) any other merger agreement or merger, consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by ORATEC or any other Takeover Proposal or (ii) any amendment of ORATEC's Certificate of Incorporation or Bylaws or other proposal or transaction involving ORATEC, which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement; (c) such Tendering Stockholder will not (i) sell, transfer, pledge, assign or otherwise dispose of, or enter into any contract, option or other arrangement (including any profit sharing arrangement) with respect to the sale, transfer, pledge, assignment or other disposition of, the Shares held by such Tendering Stockholder to any person other than Purchaser or Purchaser's designee or (ii) enter into any voting arrangement, whether by proxy, voting agreement or otherwise, in connection, directly or indirectly, with any Takeover Proposal; (d) such Tendering Stockholder will not, and will not permit any investment banker, attorney or other adviser or representative of such Tendering Stockholder to, (i) directly or indirectly solicit, initiate or encourage the submission of, any Takeover Proposal or (ii) directly or indirectly participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal; and (e) such Tendering Stockholder will tender pursuant to the Offer and not withdraw the Shares held by such Tendering Stockholder. In addition, pursuant to the Stockholder Agreements, each Tendering Stockholder granted to, and appointed, Smith & Nephew and each of its designees, and each of them individually, as the Tendering Stockholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of the Tendering Stockholder, to vote the Shares held by such Tendering Stockholder, or execute one or more written consents in respect of the Subject Shares, (i) in favor of the Merger, the approval of the Merger Agreement and the approval of the terms thereof and each of the transactions contemplated by the Merger Agreement, (ii) against any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by ORATEC or any other Takeover Proposal, and (iii) against any amendment of ORATEC's Certificate of Incorporation or Bylaws or other proposal, transaction or agreement involving ORATEC or any of its subsidiaries, which amendment or other proposal, transaction or agreement would in any manner impede, frustrate, prevent or nullify the Merger, the Merger Agreement or any other transactions contemplated by the Merger Agreement. The Stockholder Agreements terminate upon the earlier of (i) the Effective Time and (ii) the valid termination of the Merger Agreement, as set forth in the Stockholder Agreements. Statutory Requirements. In general, under the DGCL a merger of two Delaware corporations requires the adoption of a resolution by the board of directors of each of the corporations desiring to merge approving an agreement of merger containing provisions with respect to certain statutorily specified matters and the adoption of such agreement of merger by the stockholders of each corporation by the affirmative vote of the holders of a majority of all the outstanding shares of stock entitled to vote on such merger. According to ORATEC's Certificate of Incorporation, the Shares are the only securities of ORATEC which entitle the holders thereof to voting rights. The DGCL also provides that if a parent company owns at least 90% of each class of stock of a subsidiary that is outstanding and would be entitled to vote on a merger, the parent company can effect a short-form merger (a ''Short-Form Merger'') with that subsidiary without the action of the other stockholders of the subsidiary. Accordingly, if as a result of the Offer or otherwise Purchaser acquires or controls the voting power of at least 90% of the Shares, Purchaser could, and intends (subject to the conditions to its obligations to effect the Merger contained in the Merger Agreement) to, effect the Merger without prior notice to, or any action by, any other stockholder of ORATEC. Pursuant to the Merger Agreement, under certain circumstances we could extend the Offer for a limited period of time in order to receive tenders of at least 90% of the issued and outstanding Shares to enable us to effect a Short-Form Merger. See ''--The Merger Agreement--The Offer.'' 26 Appraisal Rights. No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, any holder of Shares at the Effective Time will have certain rights under the DGCL to dissent and demand appraisal of, and payment in cash of the fair value of, their Shares. Such rights, if the statutory procedures were complied with, could lead to a judicial determination of the fair value (excluding any element of value arising from the accomplishment or expectation of the Merger) required to be paid in cash to such dissenting holders for their Shares. Any such judicial determination of fair value of Shares could be based upon considerations other than, or in addition to, the price paid in the Offer and the market value of the Shares, including asset values and the investment value of the Shares. The value so determined could be more or less than the purchase price per Share pursuant to the Offer or the consideration per Share to be paid in the Merger. In addition, several decisions by Delaware courts have held that, in certain instances, a controlling stockholder of a corporation involved in a Merger has a fiduciary duty to the other stockholders that requires the Merger to be fair to such other stockholders. In determining whether a Merger is fair to minority stockholders, the Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there were fair dealings among the parties. Although the remedies of rescission or other damages are possible in an action challenging a Merger as a breach of fiduciary duty, decisions of the Delaware courts have indicated that in most cases the remedy available in a Merger that is found not to be ''fair'' to minority stockholders is a damages remedy based on essentially the same principles as an appraisal. APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. STOCKHOLDERS WHO WILL BE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER WILL RECEIVE ADDITIONAL INFORMATION CONCERNING APPRAISAL RIGHTS AND THE PROCEDURES TO BE FOLLOWED IN CONNECTION THEREWITH BEFORE SUCH STOCKHOLDERS HAVE TO TAKE ANY ACTION RELATING THERETO. STOCKHOLDERS WHO TENDER SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE PRICE PAID IN THE OFFER THEREFOR. Rule 13e-3. The SEC has adopted Rule 13e-3 under the Exchange Act which is applicable to certain ''going private'' transactions and which may, under certain circumstances, be applicable to the Merger or another business combination in which Purchaser seeks to acquire the remaining Shares not held by it following the purchase of Shares pursuant to the Offer. Purchaser believes, however, that Rule 13e-3 will not be applicable to the Merger if the Merger is consummated within one year after the termination of the Offer at the Offer Price. If applicable, Rule 13e-3 requires, among other things, that certain financial information concerning ORATEC and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such transaction be filed with the SEC and disclosed to stockholders prior to consummation of the transaction. Plans for ORATEC After the Offer and the Merger. Upon completion of the Offer, Smith & Nephew and Purchaser intend to effect the Merger in accordance with the Merger Agreement. See "- Merger Agreement." Following the Merger, ORATEC's business will be operated as part of Smith & Nephew's Endoscopy Division, headquartered in Andover, Massachusetts. Smith & Nephew will continue to evaluate the business and operations of ORATEC during the pendency of the Offer and intends to seek additional information about ORATEC during this period. Smith & Nephew expects to undertake a review of ORATEC and its assets, operations, business, properties, management and personnel to determine what changes will be desirable following the Merger in integrating ORATEC into Smith & Nephew's Endoscopy 27 Division. Possible changes in ORATEC or its business or operations will be assessed by Smith & Nephew with a view to optimizing ORATEC's potential contribution to Smith & Nephew's business and reducing any redundancies in the operations and management of ORATEC and Smith & Nephew. Except as otherwise described in this Offer to Purchase, Smith & Nephew currently has no definitive plans or proposals or negotiations which relate to or would result in: (i) other than the Merger, an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving ORATEC; (ii) any purchase, sale or transfer of a material amount of assets of ORATEC; (iii) any change in the management of ORATEC or any change in any material term of the employment contract of any executive officer of ORATEC; or (iv) any other material change in ORATEC's corporate structure or business. 12. Source and Amount of Funds. Purchaser estimates that the total amount of funds required to purchase pursuant to the Offer the Shares that are outstanding on a fully diluted basis and to pay fees and expenses related to the Offer and the Merger will be approximately $315 million. Parent intends to obtain $300 million of the funds necessary to consummate the Offer and the Merger from borrowings pursuant to the Facilities (as defined below) and to obtain the balance of the required funds from Parent's available cash resources. The funds necessary to purchase Shares pursuant to the Offer will be provided to Purchaser and Smith & Nephew by Parent as a capital contribution, loan or combination thereof. Parent entered into a credit agreement on February 14, 2002 with Lloyds TSB Bank plc ("Lloyds") for facilities in the aggregate principal amount of $300 million (the "Credit Agreement"). Although Lloyds has agreed to lend the entire amount provided for in the Credit Agreement, Lloyds expects to assemble a syndicate of financial institutions (the "Lenders") prior to or after the initial funding under the Credit Agreement. The following summary of the principal terms of the Credit Agreement is qualified in its entirety by reference to the agreement itself which is filed as an exhibit to the Schedule TO that we filed with the SEC, which you may examine and copy as set forth in Section 8. The facilities in the Credit Agreement consist of a revolving loan facility of up to $100 million ("Facility A"), and a revolving loan facility of up to $200 million ("Facility B" and together with Facility A, the "Facilities"), both of which provide for amounts to be borrowed, repaid and reborrowed by Parent from time to time for the purpose, among other things, of providing funds to consummate the Offer and the Merger, to pay certain fees and expenses incurred in connection with the Offer and the Merger and to provide working capital and for other general corporate purposes. Facility A will expire in one year. Facility B will expire in five years. The Facilities will have no scheduled amortization and are unsecured. Borrowings under Facility A will bear interest at a floating rate based upon the London Interbank Offered Rate ("LIBOR") plus 0.25% per annum plus certain mandatory costs. Borrowings under Facility B will bear interest at LIBOR plus 0.40% per annum plus certain mandatory costs. In addition, Parent is obliged to pay a commitment fee on the undrawn, uncancelled amount of Facility A of 0.075% per annum and a commitment fee on the undrawn, uncancelled amount of Facility B of 0.175% per annum. Parent will also pay Lloyds underwriting and administration fees, reimburse certain expenses and provide certain indemnities, all of which Parent believes to be customary for facilities of this type. The Credit Agreement contains conditions precedent, representations and warranties, covenants (including the financial covenants referred to below), events of default and other provisions customary for such facilities. The Credit Agreement contains financial covenants requiring that Parent ensure that consolidated net borrowings are not more than 2.5 times group consolidated net pre-taxation profits (after adding back depreciation, amortization, exceptional items and interest payable) and that group consolidated net pre-taxation profits (after adding back amortization, exceptional items and interest payable) are not less than 3.5 times consolidated net interest payable. 28 Drawings under the Credit Agreement to finance the Offer are conditioned on, among other things, evidence satisfactory to Lloyds that requisite legal and regulatory approvals for the Offer and the Merger have been obtained; the absence of certain events of default under the Credit Agreement and the accuracy of representations and warranties of Parent contained in the Credit Agreement. It is anticipated that the indebtedness incurred through borrowings under the Credit Agreement will be repaid from funds generated internally by Parent and its subsidiaries, including Smith & Nephew and its subsidiaries (including, after the Merger, ORATEC), and from other sources that may include the proceeds of the private or public sale of debt or equity securities. No final decisions have been made concerning the method which Parent will employ to repay such indebtedness. Such decisions when made will be based on Parent's review from time to time of the advisability of particular actions, as well as on prevailing interest rates and financial and other economic conditions. Neither Parent nor Smith & Nephew has established any alternative financing arrangements or plans if financing pursuant to the Credit Agreement cannot be obtained. The Offer is not conditioned on obtaining financing. 13. Dividends and Distributions. The Merger Agreement provides that ORATEC shall not, without the prior written consent of Smith & Nephew, (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire any Shares or any other securities thereof or any rights, warrants or options to acquire any such Shares or other securities. 14. Conditions of the Offer. Conditions to the Offer. Notwithstanding any other term of the Offer or the Merger Agreement, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer unless (i) the Minimum Condition shall have been satisfied and (ii) any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") applicable to the purchase of Shares pursuant to the Offer shall have expired or been terminated prior to the expiration date of the Offer (the "HSR Condition"). Furthermore, notwithstanding any other term of the Offer or the Merger Agreement, Purchaser shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate the Offer if, at any time on or after the date of the Merger Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists: (a)there shall be threatened in writing or pending by any Governmental Entity (as defined in the Merger Agreement) any suit, action or proceeding (i) challenging the acquisition by Smith & Nephew or Purchaser of any Shares under the Offer, seeking to restrain or prohibit the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by the Merger Agreement or the Stockholder Agreements (including the voting provisions thereunder), or seeking to obtain from ORATEC, Smith & Nephew or Purchaser any damages that are material in relation to ORATEC taken as a whole, (ii) seeking to prohibit or materially limit the ownership or operation by ORATEC, Smith & Nephew or any of its subsidiaries of a material portion of the business or assets of ORATEC, or Smith & Nephew and its subsidiaries, taken as a whole, or to compel ORATEC or Smith & Nephew to dispose of or hold separate any material portion of the business or assets of ORATEC, or Smith & Nephew and its subsidiaries, taken as a whole, as a result of the Offer or any of the other 29 transactions contemplated by the Merger Agreement or the Stockholder Agreements, (iii) seeking to impose material limitations on the ability of Smith & Nephew or Purchaser to acquire or hold, or exercise full rights of ownership of, any Shares to be accepted for payment pursuant to the Offer, including the right to vote such Shares on all matters properly presented to the stockholders of ORATEC, (iv) seeking to prohibit Smith & Nephew or any of its subsidiaries from effectively controlling in any material respect any material portion of the business or operations of ORATEC, or (v) which otherwise is reasonably likely to have a Material Adverse Effect (as defined below) on ORATEC, or there shall be pending by any other person any suit, action or proceeding which would have a Material Adverse Effect on ORATEC; (b)there shall be enacted, entered, enforced, promulgated or deemed applicable to the Offer or the Merger by any Governmental Entity any statute, rule, regulation, judgment, order or injunction, other than the application to the Offer or the Merger of applicable waiting periods under the HSR Act, that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c)there shall have occurred any Material Adverse Change with respect to ORATEC; (d)(i) the ORATEC Board or any committee thereof shall have withdrawn or modified in a manner adverse to Smith & Nephew or Purchaser its approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any Takeover Proposal (or the ORATEC Board or any committee thereof shall have resolved to take any of the foregoing actions), or (ii) the ORATEC Board or any committee thereof shall have failed to reaffirm publicly and unconditionally its recommendation to ORATEC's stockholders that they tender their Shares in the Offer within five business days after Smith & Nephew's written request to do so (which request may be made at any time after a Takeover Proposal shall have been publicly communicated to the ORATEC Board or to the stockholders of ORATEC and for so long as such Takeover Proposal shall be pending and not withdrawn) and must also include the unconditional rejection of such Takeover Proposal; (e)the representations and warranties of ORATEC set forth in the Merger Agreement shall not be true and correct in each case at the date of the Merger Agreement and at the scheduled or extended expiration of the Offer unless the inaccuracies (without giving effect to any materiality or Material Adverse Effect qualifications or exceptions contained therein) under such representations and warranties, taking all the inaccuracies under such representations and warranties together in their entirety, do not, individually or in the aggregate, result in a Material Adverse Effect on ORATEC; (f)ORATEC shall have failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of ORATEC to be performed or complied with by it under the Merger Agreement; (g)there shall have occurred and be continuing (i) any general suspension of trading in, or limitation on prices for, securities on a national securities exchange in the United States (excluding any coordinated trading halt triggered solely as a result of a specified decrease in a market index), (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) any limitation (whether or not mandatory) by any Governmental Entity on, or other event that materially adversely affects, the extension of credit by banks or other lending institutions, (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States (or, in the case of any of the foregoing occurrences existing at the time of the commencement of the Offer, an acceleration or escalation thereof) which in any case is reasonably expected to have a Material Adverse Effect on ORATEC or to materially adversely affect Smith & Nephew's or Purchaser's ability to complete the Offer and/or the Merger or materially delay the consummation of the Offer and/or the Merger, or (v) from the date of the Merger Agreement through the date of termination or expiration, a decline of at least 25% in any of the Dow Jones Industrial Average, the Standard & Poor's 500 Index or the Nasdaq Composite Index; or (h)the Merger Agreement shall have been terminated in accordance with its terms. 30 "Material Adverse Change" or "Material Adverse Effect" means, when used with respect to ORATEC or Smith & Nephew, any change or effect that is or could reasonably be expected (as far as can be foreseen at the time) to be materially adverse to the business, operations, properties or results of operations, financial projections or forecasts, or the business prospects and condition (financial or otherwise), with all such matters being considered in the aggregate, of ORATEC, taken as a whole, or Smith & Nephew and its subsidiaries, taken as a whole, as the case may be; provided, however, that, in the case of ORATEC only, any adverse change or affect arising from or relating to the loss of existing customers, suppliers or employees of ORATEC that results directly and exclusively from the public announcement, pendency or consummation of the transactions contemplated by the Merger Agreement shall not be deemed alone, or in combination, to constitute a Material Adverse Effect. The foregoing conditions are for the sole benefit of Smith & Nephew and Purchaser and may, subject to the terms of the Merger Agreement, be waived by Smith & Nephew and Purchaser in whole or in part at any time and from time to time in their sole discretion. The failure by Smith & Nephew or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 15. Legal Matters; Required Regulatory Approvals. Except as set forth in this Offer to Purchase, based on our review of publicly available filings by ORATEC with the SEC and other information regarding ORATEC, we are not aware of any licenses or regulatory permits that appear to be material to the business of ORATEC and that might be adversely affected by our acquisition of Shares in the Offer. In addition, except as described in this Offer to Purchase, we are not aware of any filings, approvals or other actions by or with any governmental authority or administrative or regulatory agency that would be required for our acquisition or ownership of the Shares. Should any such approval or other action be required, we expect to seek such approval or action, except as described below under ''State Takeover Laws.'' Should any such approval or other action be required, we cannot be certain that we would be able to obtain any such approval or action without substantial conditions or that adverse consequences might not result to ORATEC's business, or that certain parts of ORATEC's, Smith & Nephew's, or any of their respective subsidiaries' businesses might not have to be disposed of or held separate in order to obtain such approval or action. In that event, we may not be required to purchase any Shares in the Offer. See Introduction and Section 14 for a description of the conditions to the Offer. State Takeover Laws. ORATEC is incorporated under the laws of the State of Delaware. In general, Section 203 of the DGCL (''Section 203'') prevents an ''interested stockholder'' (including a person who owns or has the right to acquire 15% or more of a corporation's outstanding voting stock) from engaging in a ''business combination'' (defined to include mergers and certain other actions) with a Delaware corporation for a period of three years following the date such person became an interested stockholder unless, among other things, the ''business combination'' is approved by the Board of Directors of such corporation prior to such date. The ORATEC Board has approved the Offer and the Merger. Accordingly, Section 203 is inapplicable to the Offer and the Merger. A number of other states have adopted laws and regulations applicable to attempts to acquire securities of corporations which are incorporated, or have substantial assets, stockholders, principal executive offices or principal places of business or whose business operations otherwise have substantial economic effects in such states. In 1982, the Supreme Court of the United States, in Edgar v. Mite Corp., invalidated on constitutional grounds the Illinois Business Takeovers Statute, which as a matter of state securities law made takeovers of corporations meeting certain requirements more difficult. The reasoning in that decision is likely to apply to certain other state takeover statutes. In 1987, however, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court of the United States held that the State of Indiana could as a matter of corporate law and, in particular, those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquirer from voting on the affairs of a target corporation without the prior approval of the remaining stockholders, as long as those laws were applicable only under certain conditions. Subsequently, in TLX Acquisition Corp. v. Telex Corp., a federal district court in Oklahoma ruled that the Oklahoma statutes were 31 unconstitutional insofar as they apply to corporations incorporated outside Oklahoma, because they would subject those corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a federal district court in Tennessee ruled that four Tennessee takeover statutes were unconstitutional as applied to corporations incorporated outside Tennessee. This decision was affirmed by the United States Court of Appeals for the Sixth Circuit. In December 1988, a federal district court in Florida held, in Grand Metropolitan PLC v. Butterworth, that the provisions of the Florida Affiliated Transactions Act and Florida Control Share Acquisition Act were unconstitutional as applied to corporations incorporated outside of Florida. We have not attempted to comply with any state takeover statutes in connection with the Offer or the Merger. We reserve the right to challenge the validity or applicability of any state law allegedly applicable to the Offer or the Merger, and nothing in this Offer to Purchase nor any action that we take in connection with the Offer is intended as a waiver of that right. In the event that it is asserted that one or more takeover statutes apply to the Offer or the Merger, and it is not determined by an appropriate court that the statutes in question do not apply or are invalid as applied to the Offer or the Merger, as applicable, we may be required to file certain documents with, or receive approvals from, the relevant state authorities, and we might be unable to accept for payment or purchase Shares tendered in the Offer or be delayed in continuing or consummating the Offer. In that case, we may not be obligated to accept for purchase, or pay for, any Shares tendered. See Section 14. Antitrust. Under the HSR Act, and the related rules and regulations that have been issued by the Federal Trade Commission (the ''FTC''), certain acquisition transactions may not be consummated until certain information and documentary material have been furnished for review by the FTC and the Antitrust Division of the Department of Justice and certain waiting period requirements have been satisfied. These requirements apply to our acquisition of Shares in the Offer and the Merger. Under the HSR Act, the purchase of Shares in the Offer may not be completed until the expiration of a 15-calendar-day waiting period following the filing of certain required information and documentary material concerning the Offer with the FTC and the Antitrust Division, unless the waiting period is earlier terminated by the FTC and the Antitrust Division. We expect to file a Premerger Notification and Report Form under the HSR Act with the FTC and the Antitrust Division in connection with the purchase of Shares in the Offer and the Merger on or prior to February 25, 2002, and, in that event, the required waiting period with respect to the Offer and the Merger will expire at 11:59 p.m., New York City time, on or about March 12, 2002, unless earlier terminated by the FTC or the Antitrust Division or we receive a request for additional information or documentary material prior to that time. If within the 15-calendar-day waiting period either the FTC or the Antitrust Division requests additional information or documentary material from us, the waiting period with respect to the Offer and the Merger would be extended for an additional period of 10 calendar days following the date of our substantial compliance with that request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act rules. After that time, the waiting period could be extended only by court order or with our consent. The FTC or the Antitrust Division may terminate the additional 10-calender-day waiting period before its expiration. In practice, complying with a request for additional information or documentary material can take a significant period of time. Although ORATEC is required to file certain information and documentary material with the FTC and the Antitrust Division in connection with the offer, neither ORATEC's failure to make those filings nor a request made to ORATEC from the FTC or the Antitrust Division for additional information or documentary material will extend the waiting period with respect to the purchase of Shares in the Offer and the Merger. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as our acquisition of Shares in the Offer and Merger. At any time before or after our purchase of Shares, the FTC or the Antitrust Division could take any action under the antitrust laws that either considers necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares in the Offer and the Merger, the divestiture of Shares purchased in the Offer or the divestiture of substantial assets of Parent, Smith & Nephew or ORATEC or any of their respective subsidiaries or affiliates. Private parties as well as state attorneys general may also bring legal actions under the antitrust laws under certain circumstances. See Section 13. 32 Based upon an examination of publicly available information relating to the businesses in which ORATEC is engaged, we believe that the acquisition of Shares in the Offer and the Merger should not violate the applicable antitrust laws. Nevertheless, we cannot be certain that a challenge to the Offer and the Merger on antitrust grounds will not be made, or, if such challenge is made, what the result will be. See Section 14. Certain Foreign Laws. ORATEC derives revenues from certain foreign countries where regulatory filings or approvals may be required or desirable in connection with the consummation of the Offer. Certain of such filings or approvals, if required or desirable, may not be made or obtained prior to the expiration of the Offer. Purchaser is seeking further information regarding the applicability of any such laws and currently intends to take such action as may be required or desirable. 16. Fees and Expenses. We have retained Piper Jaffray to render financial advisory services to Smith & Nephew concerning the acquisition of ORATEC and to act as Dealer Manager in connection with the Offer, pursuant to which Piper Jaffray will receive customary fees upon consummation of the Offer. We have also agreed to indemnify Piper Jaffray against certain liabilities and expenses in connection with its engagement, including liabilities under the federal securities laws. Piper Jaffray has rendered various investment banking services and other advisory services to Parent and its affiliates in the past and may continue to render such services, for which they have received and may continue to receive customary compensation from Parent and its affiliates. Piper Jaffray has also rendered investment banking services and other advisory services to ORATEC in the past for which they have received customary compensation from ORATEC. In the ordinary course of business, Piper Jaffray and its affiliates are engaged in securities trading and brokerage activities as well as investment banking and financial advisory services. In the ordinary course of their trading and brokerage activities, Piper Jaffray and its affiliates may hold positions, for their own account and for the accounts of customers, in equity, debt or other securities of Parent or ORATEC. We have retained Morrow & Co., Inc. as Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominee stockholders to forward material relating to the Offer to beneficial owners of Shares. We will pay the Information Agent reasonable and customary compensation for these services in addition to reimbursing the Information Agent for its reasonable out-of-pocket expenses. We have agreed to indemnify the Information Agent against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. In addition, we have retained American Stock Transfer & Trust Company as the Depositary. We will pay the Depositary reasonable and customary compensation for its services in connection with the Offer, will reimburse the Depositary for its reasonable out-of-pocket expenses and will indemnify the Depositary against certain liabilities and expenses, including certain liabilities under the federal securities laws. Except as set forth above, we will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer. We will reimburse brokers, dealers, commercial banks and trust companies and other nominees, upon request, for customary clerical and mailing expenses incurred by them in forwarding offering materials to their customers. 17. Miscellaneous. We are not aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If we become aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares, we will make a good faith effort to comply with that state statute. If, after a good faith effort, we cannot comply with the state statute, we will not make the Offer to, nor 33 will we accept tenders from or on behalf of, the holders of Shares in that state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by Piper Jaffray or one or more registered brokers or dealers licensed under the laws of such jurisdiction. We have filed with the SEC a Tender Offer Statement on Schedule TO, together with exhibits, furnishing certain additional information with respect to the Offer, and may file amendments to our Schedule TO. Our Schedule TO and any exhibits or amendments may be examined and copies may be obtained from the SEC in the same manner as described in Section 8. We have not authorized any person to give any information or to make any representation on our behalf not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, you should not rely on any such information or representation as having been authorized. Neither the delivery of the Offer to Purchase nor any purchase pursuant to the Offer will under any circumstances create any implication that there has been no change in the affairs of Smith & Nephew, Purchaser, ORATEC or any of their respective subsidiaries since the date as of which information is furnished or the date of this Offer to Purchase. ORCHID MERGER CORP. February 22, 2002 34 SCHEDULE I CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PARENT, SMITH & NEPHEW AND PURCHASER Directors and Executive Officers of Parent. Set forth below are the name, current business address, citizenship and present principal occupation and employment history (covering a period of not less than five years) of each executive officer and director of Parent. Unless otherwise indicated, each person's business address is 15 Adam Street, London, England WC2N 6LA. Each person is a citizen of England, except for Dr. Stomberg, who is a citizen of Germany and Messrs. De Schutter, Knowlton, Papasan, Sparks and Ralston, who are citizens of the United States.
Principal Occupation or Employment and Name Business Address Five-Year Employment History - ---- ---------------- ------------------------------------------ Dudley Eustace Director since 1999. Chairman of the Board since 2000. Non-Executive Chairman of Sendo Holdings plc and Non-Executive Director of Royal KPN NV and Sonae.com SGPS since 2001. Member of Supervisory Board of KLM Royal Dutch Airlines NV, Charterhouse Vermogonsbemeer BV and Hagemeyer NV since 1999. Member of Supervisory Board of Aegon NV since 1998. Vice-Chairman of Philips Board of Management and Group Management Committee from 1997 to 1999. Dr. Rolf Stomberg Director since 1998. Chairman of the Board of Management Consulting Group plc since January of 2002. Non-Executive Director of Hoyer GmbH since 2001. Non-Executive Director of Aral AG since 2000. Non- Executive Director of Reed Elsevier plc since 1999. Non-Executive Director of Cordiant Communications plc, Scania AB, Stinnes AG and TPG Group since 1998. Various executive positions with The British Petroleum Company plc until 1997. Richard De Schutter Director since 2001. Chairman and Chief Executive Officer of Dupont Pharmaceuticals Company from 2000 to 2001. Senior Vice President and Chief Administration Officer of Pharmacia Corporation in 2000. Chief Administration Officer of Monsanto Company from 1999 to 2000. Chairman and Chief Executive Officer of G.D. Searle & Co. from 1995 to 1999. Non-Executive Director of Varian, Inc since 2001. Non-Executive Director of ING Americas since 2000. Non-Executive Director of General Binding Corporation since 1997. Non-Executive Director of Incyte Genomics Inc. as of 2002.
I-1
Principal Occupation or Employment and Name Business Address Five-Year Employment History - ---- ------------------ --------------------------------------------- Warren Knowlton Director since 2000. President--Automative Products Worldwide and President--North America of Pilkington Inc. since 1998. President--Building Products Worldwide of Pilkington plc from 1997 to 1998. Sir Timothy Lankester Director since 1996. President of Corpus Christi College since 2001. Non-Executive Director of London Metal Exchange since 1997. Deputy Chairman of British Council since 1999. Sir Anthony Cleaver Director since 1993. Chairman of the Board of UK eUniversities Worldwide Limited since 2001. Chairman of the Board of SThree Limited, IX Holdings Limited and Baxi UK Limited since 1999. Chairman of the Board of Medical Research Council since 1998. Non- Executive Director of Lockheed Martin UK Limited since 1995. Sir Brian Pearse Director since 1993. Chairman of the Board of Plymouth University since 2001. Deputy Chairman of Plymouth University from 1998 to 2001. Chairman of the Board of the Centre for the Study of Financial Innovation since 1998. Deputy Chairman of Britannic plc since 1997. Christopher O'Donnell Executive Director since 1992. Chief Executive Officer since 1997. Non-Executive Director of BOC Group plc since 2001. Michael Parson Group Legal Advisor and Secretary since 1991. Peter Hooley Executive Director (responsible for Finance and Information Technology) since 1991. Alan Suggett Smith & Nephew plc Group Director, Technology since 1986. York Science Park Heslington, York YO1 5DF Peter Huntley Group Director, Strategy and Business Development since 1998. Business Development Manager of Matthew Clark plc from 1990 to 1998. Margaret Stewart Group Director, Corporate Affairs since 2001. Director of Corporate Affairs of Yorkshire Water plc from 1995 to 1998. James Taylor Group Director, Indirect Markets since 2000. Plant Director of Pilkington Glass in 1999. President of DePuy International from 1996 to 1998.
I-2
Principal Occupation or Employment and Name Business Address Five-Year Employment History - ---- -------------------- ---------------------------------------------- Larry Papasan Smith & Nephew, Inc. President, Orthopaedics since 1999. President, 1450 Brooks Road Orthopaedics of Smith & Nephew since 1991. Memphis, Tennessee 38116 Ron Sparks Smith & Nephew, Inc. President, Endoscopy since 1999. President, 160 Dascomb Road Endoscopy of Smith & Nephew since 1999. Andover, Executive Officer of Smith & Nephew since Massachusetts 01810 1995. Member of Holy Family Hospital and Medical Center, Valley Regional Ventures, Inc. and Valley Regional Support Services, Inc. Board of Trustees since 2000. Member of Holy Family Hospital Foundation Board of Trustees since 2001. Jim Dick Smith & Nephew plc President, Wound Management since 1999. P.O. Box 81 Various executive positions with Parent from 101 Hessle Road Hull prior to 1997 to 1999. HU3 2BN Paul Williams Group Director, Human Resources since 1998. Personnel Director of Rolls-Royce Industrial Power Group from 1996 to 1998. James Ralston Smith & Nephew, Inc. Executive Officer of Parent as of 2002. Senior 1450 Brooks Road Vice President and General Counsel of Smith Memphis, Tennessee & Nephew since 1999. Vice President, 38119 General Counsel and Secretary of Eagle- Picher Industries, Inc. from 1997 to 1998.
Directors and Executive Officers of Smith & Nephew. Set forth below are the name, current business address, citizenship and present principal occupation and employment history (covering a period of not less than five years) of each executive officer and Director of Smith & Nephew. Unless otherwise indicated, each person's business address is 1450 Brooks Road, Memphis, Tennessee 38116. All persons listed below are citizens of the United States of America.
Principal Occupation or Employment and Name Business Address Five-Year Employment History - ---- -------------------- --------------------------------------------- Larry Papasan Director since 1998. President, Orthopaedics since 1991. President, Orthopaedics of Parent since 1999. Ron Sparks Smith & Nephew, Inc. Director and President, Endoscopy since 1999. 160 Dascomb Road Executive Officer since 1995. President, Andover, Endoscopy of Parent since 1999. Member of Massachusetts 01810 Holy Family Hospital and Medical Center, Valley Regional Ventures, Inc. and Valley Regional Support Services, Inc. Board of Trustees since 2000. Member of Holy Family Hospital Foundation Board of Trustees since 2001. James Ralston Director, Senior Vice President and General Counsel since 1999. Executive Officer of Parent as of 2002. Vice President, General Counsel and Secretary of Eagle-Picher Industries, Inc. from 1997 to 1998.
I-3 Directors and Executive Officers of Purchaser. Set forth below are the name, current business address, citizenship and present principal occupation and employment history (covering a period of not less than five years) of each executive officer and Director of Purchaser. Unless otherwise indicated, each person's business address is 160 Dascomb Road, Andover, Massachusetts 01810. All persons listed below are citizens of the United States of America.
Principal Occupation or Employment and Name Business Address Five-Year Employment History - ---- -------------------- --------------------------------------------- Ron Sparks Director and President as of 2002. President, Endoscopy of Parent since 1999. Director and President, Endoscopy of Smith & Nephew since 1999. Executive Officer of Smith & Nephew since 1995. Member of Holy Family Hospital and Medical Center, Valley Regional Ventures, Inc. and Valley Regional Support Services, Inc. Board of Trustees since 2000. Member of Holy Family Hospital Foundation Board of Trustees since 2001. Mark Frost Director and Vice President--Finance as of 2002. Vice President--Finance, Endoscopy of Smith & Nephew since 1999. Chief Financial Officer of General Electric-- Sovac Auto Financial Services Division from 1997 to 1999. Director of Financial Planning and Analysis for General Electric Groupe Sovac from 1996 to 1997. John Konsin Vice President--Marketing as of 2002. Vice President--Marketing, Endoscopy of Smith & Nephew since 1999. Vice President-- Marketing of Chiron Corporation from 1996 to 1999. James Ralston Smith & Nephew, Inc. Senior Vice President, Secretary and General 1450 Brooks Road Counsel as of 2002. Executive Officer of Memphis, Tennessee Parent as of 2002. Director, Senior Vice 38116 President and General Counsel of Smith & Nephew since 1999. Vice President, General Counsel and Secretary of Eagle-Picher Industries, Inc. from 1997 to 1998.
I-4 Facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of ORATEC or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below: The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Registered or Certified Mail, Hand or Overnight Courier: By Facsimile Transmission: American Stock Transfer & (For Eligible Institutions Only) Trust Company (718) 234-5001 59 Maiden Lane New York, New York 10038 For Confirmation call: (718) 921-8200
You may direct questions and requests for assistance to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses set forth below. You may obtain additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials from the Information Agent as set forth below and they will be furnished promptly at our expense. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: Morrow & Co., INC. 445 Park Avenue, 5th Floor New York, New York 10022 E-mail: ORATEC.info@morrowco.com Call Collect: (212) 754-8000 Banks and Brokerage Firms, Please Call Toll Free: (800) 654-2468 Stockholders, Please Call Toll Free: (800) 607-0088 The Dealer Manager for the Offer is: [LOGO] US bancorp Piper Jaffray(R) 800 Nicollet Mall, J1012063 Minneapolis, Minnesota 54402 (800) 333-6000 ext. 8554 EX-99.(A)(1)(B) 4 dex99a1b.txt LETTER OF TRANSMITTAL Exhibit (a)(1)(B) Letter of Transmittal To Tender Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of ORATEC Interventions, Inc. Pursuant to the Offer to Purchase Dated February 22, 2002 by Orchid Merger Corp. a wholly owned subsidiary of Smith & Nephew, Inc. and an indirect wholly owned subsidiary of Smith & Nephew plc THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 21, 2002, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: American Stock Transfer & Trust Company By Registered or Certified Mail, Hand or Overnight Courier: By Facsimile Transmission: American Stock Transfer (For Eligible Institutions Only) & Trust Company (718) 234-5001 59 Maiden Lane New York, New York 10038
For Confirmation Telephone: (718) 921-8200 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
- --------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - --------------------------------------------------------------------------------------------------------------- Name(s) and Address(es) of Registered Shares Tendered Holder(s)(Please fill in, if blank) (Attach additional list if necessary) - --------------------------------------------------------------------------------------------------- Number of Shares Share Represented Number of Certificate by Shares Number(s)* Certificate(s)* Tendered** ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Total Shares - -------------------------------------------------------------------------------------------------- * Need not be completed by stockholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates delivered to the Depositary are being tendered. See Instruction 4. - -------------------------------------------------------------------------------------------------------------
This Letter of Transmittal is to be completed by stockholders of ORATEC Interventions, Inc., a Delaware corporation, if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company (hereinafter referred to as the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. Stockholders whose certificates for Shares are not immediately available or who cannot deliver their Shares and all other documents required hereby to the Depositary by the Expiration Date (as defined in the Offer to Purchase), or who cannot comply with the book-entry transfer procedures on a timely basis, may nevertheless tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. See Instruction 2. [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ___________________________________________ Account No. at The Depository Trust Company: _____________________________ Transaction Code No.: ____________________________________________________ [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Tendering Stockholder(s): _____________________________________ Date of Execution of Notice of Guaranteed Delivery: ______________________ Name of Institution which Guaranteed Delivery: ___________________________ If delivery is by book-entry transfer please check this box: [_] Name of Tendering Institution: _______________________________________ Account No. at The Depository Trust Company: _________________________ Transaction Code No.: ____________________________________________________ NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 2 Ladies and Gentlemen: The undersigned hereby tenders to Orchid Merger Corp. ("Purchaser"), a Delaware corporation and a wholly owned subsidiary of Smith & Nephew, Inc., a Delaware corporation ("Smith & Nephew"), and an indirect wholly owned subsidiary of Smith & Nephew plc, a corporation organized under the laws of England and Wales, the above-described shares of common stock, $.001 par value per share, of ORATEC Interventions, Inc., a Delaware corporation ("ORATEC"), including the associated preferred stock purchase rights issued pursuant to the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, between ORATEC and American Stock Transfer & Trust Company, as rights agent (collectively, the "Shares"), pursuant to Purchaser's offer to purchase all of the outstanding Shares at a purchase price of $12.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 22, 2002 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Offer to Purchase, and any amendments or supplements hereto or thereto, collectively constitute the "Offer"). The Offer is being made in connection with the Agreement and Plan of Merger, dated as of February 13, 2002 (the "Merger Agreement"), among Smith & Nephew, Purchaser and ORATEC. Subject to and effective upon acceptance for payment of and payment for the Shares tendered herewith, the undersigned hereby sells, assigns and transfers to or upon the order of Purchaser all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof) and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all such other Shares or securities), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and all such other Shares or securities), or transfer ownership of such Shares (and all such other Shares or securities) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (b) present such Shares (and all such other Shares or securities) for transfer on the books of ORATEC, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and all such other Shares or securities), all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints each designee of Purchaser as the attorney-in-fact and proxy of the undersigned, each with full power of substitution, to exercise all voting and other rights of the undersigned in such manner as each such attorney and proxy or his substitute shall in his sole judgment deem proper, with respect to all of the Shares tendered hereby which have been accepted for payment by Purchaser prior to the time of any vote or other action (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares) at any meeting of stockholders of ORATEC (whether annual or special and whether or not an adjourned meeting), any actions by written consent in lieu of any such meeting or otherwise. This proxy is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall revoke any other proxy or written consent granted by the undersigned at any time with respect to such Shares (and all such other Shares or other securities or rights), and no subsequent proxies will be given or written consents will be executed by the undersigned (and if given or executed, will not be deemed effective). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares) and that when the same are accepted for payment by Purchaser, Purchaser will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and all such other Shares or other securities or rights). All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. 3 The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute an agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of any Shares purchased, and return any Shares not tendered or not purchased, in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of any Shares purchased and return any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Shares purchased and return any Shares not tendered or not purchased in the name(s) of, and mail said check and any certificates to, the person(s) so indicated. The undersigned recognizes that Purchaser has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if Purchaser does not accept for payment any of the Shares so tendered. 4 - --------------------------------------------------------- --------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7) To be completed ONLY if the check for the pur- To be completed ONLY if the check for the chase price of Shares purchased or certificates for purchase price of Shares purchased or certificates for Shares not tendered or not purchased are to be issued Shares not tendered or not purchased are to be mailed in the name of someone other than the undersigned or to someone other than the undersigned or to the if Shares tendered hereby and delivered by book-entry undersigned at an address other than that shown below transfer which are not accepted for payment are to be the undersigned's signature(s). returned by credit to an account at the Book-Entry Transfer Facility other than designated above. Mail Check and/or Certificates to: Issue[_] Check [_] Certificates to: Name: _____________________________________________ (Please Print) Name: ____________________________________________ (Please Print) Address: __________________________________________ Address: _________________________________________ ___________________________________________________ (Zip Code) __________________________________________________ (Zip Code) ___________________________________________________ (Taxpayer Identification or Social Security No.) __________________________________________________ (See Substitute Form W-9) (Taxpayer Identification or Social Security No.) (See Substitute Form W-9) [_] Credit Shares delivered by book-entry transfer and not purchased to The Depository Trust Company - --------------------------------------------------------- ---------------------------------------------------------
5 INSTRUCTIONS Forming Part of the Terms and Conditions of the Offer 1. Guarantee of Signatures. Except as otherwise provided below, signatures on this Letter of Transmittal must be guaranteed by a firm that is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program (an "Eligible Institution"), unless the Shares tendered thereby are tendered (i) by a registered holder (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) of Shares who has not completed either the box labeled "Special Payment Instructions" or the box labeled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instruction 5. If the certificates are registered in the name of a person or persons other than the signer of this Letter of Transmittal, or if payment is to be made or delivered to, or certificates evidencing unpurchased Shares are to be issued or returned to, a person other than the registered owner or owners, then the tendered certificates must be endorsed or accompanied by duly executed stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates or stock powers, with the signatures on the certificates or stock powers guaranteed by an Eligible Institution as provided herein. See Instruction 5. 2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if the delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account of the Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other documents required by this Letter of Transmittal, or an Agent's Message in the case of a book-entry delivery, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date. Stockholders who cannot deliver their Shares and all other required documents to the Depositary by the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Pursuant to such procedures: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser, must be received by the Depositary prior to the Expiration Date; and (c) the certificates for all tendered Shares, in proper form for tender, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), and any other documents required by this Letter of Transmittal must be received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. The term "trading day" is any day on which the New York Stock Exchange is open for business. The method of delivery of Shares, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the option and risk of the tendering stockholder. Shares will be deemed delivered only when actually received by the Depositary (including, in the case of a book-entry transfer, by a confirmation of a book-entry transfer). If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. By executing this Letter of Transmittal (or a manually signed facsimile thereof), the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. Partial Tenders (not applicable to stockholders who tender by book-entry transfer). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal unless otherwise provided in 6 the appropriate box on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made, or Shares not tendered or not purchased are to be returned, in the name of any person other than the registered holder(s), in which case the certificate(s) for such Shares tendered hereby must be endorsed, or accompanied by, appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the certificate for such Shares. Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, the certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of the authority of such person so to act must be submitted. 6. Stock Transfer Taxes. Purchaser will pay any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be returned in the name of, any person other than the registered holder(s), then the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter of Transmittal. 7. Special Payment and Delivery Instruction. If the check for the purchase price of any Shares purchased is to be issued, or any Shares not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer may request that Shares not purchased be credited to such account at the Book-Entry Transfer Facility as such stockholder may designate under "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above. 8. Substitute Form W-9. The tendering stockholder is required to provide the Depositary with such stockholder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided below, unless an exemption 7 applies. Failure to provide the information on the Substitute Form W-9 may subject the tendering stockholder to a $50 penalty and to 30% federal income tax backup withholding on the payment of the purchase price for the Shares. 9. Foreign Holders. In lieu of completing the Substitute Form W-9, foreign holders must submit a completed IRS Form W-8BEN to avoid 30% backup withholding. IRS Form W-8BEN may be obtained by contacting the Depositary at one of the addresses on the face of this Letter of Transmittal. 10. Requests for Assistance or Additional Copies. Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from the Information Agent or the Dealer Manager at their respective addresses or telephone numbers set forth below. 11. Waiver of Conditions. The conditions of the Offer may be waived by Purchaser (subject to certain limitations in the Merger Agreement), in whole or in part, at any time or from time to time, in Purchaser's sole discretion. 12. Lost, Destroyed or Stolen Certificates. If any certificates for Shares have been lost, destroyed or stolen, the stockholder should promptly notify the Depositary, for instructions as to the procedures for replacing the certificates for such Shares. This Letter of Transmittal and related documents cannot be processed until the lost, destroyed or stolen certificates have been replaced and the replacement certificates for such Shares have been delivered to the Depositary in accordance with the procedures set forth in Section 3 of the Offer to Purchase and the instructions contained in this Letter of Transmittal. Important: This Letter of Transmittal or a manually signed facsimile copy hereof (together with certificates or confirmation of book-entry transfer and all other required documents) or a Notice of Guaranteed Delivery must be received by the Depositary on or prior to the Expiration Date. IMPORTANT TAX INFORMATION Under United States federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct TIN on the Substitute Form W-9. If such stockholder is an individual, the TIN is such stockholder's Social Security Number. If the Depositary is not provided with the correct TIN, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to 30% backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a completed Form W-8BEN signed under penalties of perjury, attesting to that individual's exempt status. IRS Form W-8BEN may be obtained from the Depositary. Exempt recipients should see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 30% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained. Purpose of Substitute Form W-9 or W-8BEN To prevent backup federal income tax withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required either to notify the Depositary of such stockholder's correct TIN by completing the form certifying that the TIN provided on the Substitute Form W-9 is correct or, in the case of a foreign stockholder, to certify its foreign status. What Number to Give the Depositary The stockholder is required to give the Depositary the Social Security Number or Employer Identification Number of the record owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidelines on which number to report. 8 SIGN HERE (Complete Substitute Form W-9 below) _______________________________________________________________________________ _______________________________________________________________________________ (Signature(s) of Owner(s)) _______________________________________________________________________________ Name(s) _____________________________________________________________________ _______________________________________________________________________________ Capacity (full title) _______________________________________________________ Address _____________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Include Zip Code) _______________________________________________________________________________ Area Code and Telephone Number ______________________________________________ Taxpayer Identification or Social Security Number _____________________________ (See Substitute Form W-9) Dated: _______________________________________________________ , 2002 (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by the person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5). GUARANTEE OF SIGNATURE(S) (See Instructions 1 and 5) FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW. Authorized signature(s) _____________________________________________________ Name ________________________________________________________________________ Name of Firm ________________________________________________________________ Address _____________________________________________________________________ _______________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number ______________________________________________ Dated: ___________________________________________________________ , 2002 9 PAYOR'S NAME: American Stock Transfer & Trust Company - ----------------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Part I--PLEASE PROVIDE YOUR TIN: TIN IN THE BOX AT RIGHT AND -------------------------- Form W-9 CERTIFY BY SIGNING AND DATING Social Security Number BELOW. or Employer Identification Number Department of the Treasury, ---------------------------------------------------------------------------------------------------- Internal Revenue Service Part II--For Payees exempt from backup withholding, see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Payer's Request for Taxpayer Form W-9 and complete as instructed therein. Identification Number ("TIN") and Certification ---------------------------------------------------------------------------------------------------- Certification--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct TIN (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividend, or (c) the IRS has notified me that I am no longer subject to backup withholding, and (3) I am a U.S. person (including a U.S. resident alien). ---------------------------------------------------------------------------------------------------- Certification Instructions--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of under reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). (Also see the instructions in the enclosed Guidelines.) ---------------------------------------------------------------------------------------------------- Signature: _____________________________________________ Date: ____________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 30% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a TIN has not been issued to me, and either (1) I have mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Officer or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a TIN by the time of payment, 30% of all payments pursuant to the Offer made to me thereafter will be withheld until I provide a number. Signature: ____________________________________________ Date: ___________ 10 You may direct questions and requests for assistance to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses set forth below. You may obtain additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials from the Information Agent as set forth below and they will be furnished promptly at our expense. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: Morrow & Co., INC. 445 Park Avenue, 5/th/ Floor New York, New York 10022 Banks and Brokerage Firms Call Toll Free: (800) 654-2648 Stockholders Call Toll Free: (800) 607-0088 All Others Call Collect: (212) 754-8000 The Dealer Manager for the Offer is: [LOGO] US bancorp Piper Jaffray (R) 800 Nicollet Mall, J1012063 Minneapolis, Minnesota 55402 (800) 333-6000 ext. 8554 EX-99.(A)(1)(C) 5 dex99a1c.txt NOTICE OF GUARANTEED DELIVERY Exhibit (a)(1)(C) Notice of Guaranteed Delivery for Tender of Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of ORATEC INTERVENTIONS, INC. ------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 21, 2002, UNLESS THE OFFER IS EXTENDED ------------------------------------------------------------------- This form, or one substantially equivalent hereto, must be used to accept the Offer (as defined below) if certificates for shares of common stock, $.001 par value per share, of ORATEC Interventions, Inc., a Delaware corporation ("ORATEC"), including the associated preferred stock purchase rights issued pursuant to the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, between ORATEC and American Stock Transfer & Trust Company, as rights agent (collectively, the "Shares"), are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary on or prior to the Expiration Date (as defined in the Offer to Purchase). Such form may be delivered by hand, facsimile transmission, or mail to the Depositary. See Section 3 of the Offer to Purchase, dated February 22, 2002 (the "Offer to Purchase"). The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Registered or Certified Mail, By Facsimile Transmission: Hand or Overnight Courier: (For Eligible Institutions Only) American Stock Transfer (718) 234-5001 & Trust Company 59 Maiden Lane New York, New York 10038 For Confirmation Telephone: (718) 921-8200 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION OF INSTRUMENTS VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" (as defined in the Offer to Purchase) under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal or an Agent's Message and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. Ladies and Gentlemen: The undersigned hereby tenders to Orchid Merger Corp., a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, and the related Letter of Transmittal, receipt of which are hereby acknowledged, Shares of ORATEC, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Number of Shares: - -------------------------------------- Certificate No.(s) (if available): Name(s) of Record Holder(s): - -------------------------------------- ------------------------------- - -------------------------------------- ------------------------------- (Please Print) If Securities will be tendered by book-entry transfer at Address(es): ------------------------------- The Depository Trust Company, please provide Account No.: ------------------------------- - -------------------------------------- (Zip Code) Dated: - -------------------------------------- Area Code and Telephone No.(s): ------------------------------- Signature(s): ------------------------------- -------------------------------
GUARANTEE (Not to be used for signature guarantee) The undersigned, a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program, guarantees the delivery to the Depositary of the Shares tendered hereby, together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile(s) thereof) and any other required documents, or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery of Shares, all within three trading days of the date hereof. A "trading day" is any day on which the New York Stock Exchange is open for business. ------------------------- -------------------------------- (Name of Firm) (Title) ------------------------- -------------------------------- (Authorized Signature) (Please Print or Type Name) ------------------------- -------------------------------- (Address) (Area Code and Telephone No.) ------------------------- -------------------------------- (Zip Code) (Date) DO NOT SEND CERTIFICATES FOR SHARES WITH THIS FORM - CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL 2 EX-99.(A)(1)(D) 6 dex99a1d.txt LETTERS TO BROKERS, DEALERS Exhibit (a)(1)(D) Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of ORATEC Interventions, Inc. at $12.50 Net Per Share by Orchid Merger Corp. a wholly owned subsidiary of Smith & Nephew, Inc. and an indirect wholly owned subsidiary of Smith & Nephew plc THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 21, 2002, UNLESS THE OFFER IS EXTENDED. February 22, 2002 ToBrokers, Dealers, Commercial Banks, TrustCompanies and Other Nominees: We have been appointed by Orchid Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Smith & Nephew, Inc., a Delaware Corporation ("Smith & Nephew"), and an indirect wholly owned subsidiary of Smith & Nephew plc, a corporation organized under the laws of England and Wales ("Parent"), to act as Dealer Manager in connection with Purchaser's offer to purchase all outstanding shares of common stock, $.001 par value per share, of ORATEC Interventions, Inc., a Delaware corporation ("ORATEC"), including the associated preferred stock purchase rights issued pursuant to the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, between ORATEC and American Stock Transfer & Trust Company, as rights agent (collectively, the "Shares"), at a purchase price of $12.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 22, 2002 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") enclosed herewith. The Offer is being made in connection with the Agreement and Plan of Merger, dated as of February 13, 2002, among Smith & Nephew, Purchaser and ORATEC (the "Merger Agreement"). Holders of Shares whose certificates for such Shares (the "Certificates") are not immediately available or who cannot deliver their Certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase, dated February 22, 2002. 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal (with manual signatures) may be used to tender Shares. 3. A letter to stockholders of ORATEC from Kenneth W. Antsey, the President and Chief Executive Officer of ORATEC, and Nancy V. Westcott, Chief Financial Officer and Vice President, Administration of ORATEC, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by ORATEC and mailed to the stockholders of ORATEC. 4. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if neither of the two procedures for tendering Shares set forth in the Offer to Purchase can be completed on a timely basis. 5. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name, with space provided for obtaining such clients' instructions with regard to the Offer. 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. 7. A return envelope addressed to American Stock Transfer & Trust Company, the Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 21, 2002, UNLESS THE OFFER IS EXTENDED. Please note the following: 1. The tender price is $12.50 per Share, net to the seller in cash without interest. 2. The Offer is being made for all of the outstanding Shares. 3. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Thursday, March 21, 2002, unless the Offer is extended. 4. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares that would constitute at least a majority of the Shares that in the aggregate are outstanding determined on a fully diluted basis and any waiting period under the HSR Act (as defined in the Offer to Purchase) having expired or having been terminated prior to the expiration of the Offer. The Offer is also subject to the other terms and conditions contained in the Offer to Purchase. 5. Tendering stockholders will not be obligated to pay brokerage fees or commissions imposed by Smith & Nephew or Purchaser or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer of Shares pursuant to the Offer. In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal (or a manually signed facsimile thereof) and any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) or other required documents should be sent to the Depositary and (ii) certificates representing the tendered Shares on a timely Book-Entry Confirmation (as defined in the Offer to Purchase) should be delivered to the Depositary in accordance with the instructions set forth in the Offer. If holders of Shares wish to tender, but it is impracticable for them to forward their Certificates or other required documents or complete the procedures for book-entry transfer prior to the Expiration Date, a tender must be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. Neither Purchaser, Smith & Nephew, Parent nor any officer, director, stockholder, agent or other representative of Purchaser, Smith & Nephew or Parent will pay any fees or commissions to any broker, dealer or other person (other than the Depositary, the Information Agent and the Dealer Manager as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Purchaser will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in 2 forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to Morrow & Co., Inc., the Information Agent for the Offer, or U.S. Bancorp Piper Jaffray Inc., the Dealer Manager for the Offer, at their respective addresses and telephone numbers set forth in the Offer to Purchase. Requests for additional copies of the enclosed materials may be directed to the Information Agent at the address and telephone numbers set forth on the back cover of the Offer to Purchase. Very truly yours, U.S. BANCORP PIPER JAFFRAY INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF PARENT, SMITH & NEPHEW, PURCHASER, THE DEPOSITARY, THE INFORMATION AGENT, THE DEALER MANAGER, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.(A)(1)(E) 7 dex99a1e.txt LETTER TO CLIENTS Exhibit (a)(1)(E) Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of ORATEC Interventions, Inc. at $12.50 Net Per Share by Orchid Merger Corp. a wholly owned subsidiary of Smith & Nephew, Inc. and an indirect wholly owned subsidiary of Smith & Nephew plc ---------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 21, 2002, UNLESS THE OFFER IS EXTENDED. ---------------------------------------------------------------- February 22, 2002 To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated February 22, 2002 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to an offer by Orchid Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Smith & Nephew, Inc., a Delaware Corporation ("Smith & Nephew"), and an indirect wholly owned subsidiary of Smith & Nephew plc, a corporation organized under the laws of England and Wales, to purchase all outstanding shares of common stock, par value $.001 per share, of ORATEC Interventions, Inc., a Delaware corporation ("ORATEC"), including the associated preferred stock purchase rights issued pursuant to the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, between ORATEC and American Stock Transfer & Trust Company, as rights agent (collectively, the "Shares"), at a purchase price of $12.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. The Offer is being made in connection with the Agreement and Plan of Merger, dated as of February 13, 2002, among Smith & Nephew, Purchaser and ORATEC (the "Merger Agreement"). This material is being forwarded to you as the beneficial owner of Shares carried by us in your account but not registered in your name. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. Accordingly, we request instructions as to whether you wish to tender any or all of the Shares held by us for your account, upon the terms and conditions set forth in the Offer. Please note the following: 1. The tender price is $12.50 per Share, net to you in cash without interest. 2. The Offer is being made for all of the outstanding Shares. 3. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Thursday, March 21, 2002, unless the Offer is extended. 4. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares that would constitute at least a majority of the Shares that in the aggregate are outstanding determined on a fully diluted basis and any waiting period under the HSR Act (as defined in the Offer to Purchase) having expired or having been terminated prior to the expiration of the Offer. The Offer is also subject to the other terms and conditions contained in the Offer to Purchase. 5. Tendering stockholders will not be obligated to pay brokerage fees or commissions imposed by Smith & Nephew or Purchaser or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer of Shares pursuant to the Offer. If you wish to have us tender any or all of the Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form contained in this letter. An envelope to return your instruction to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. Please forward your instructions to us as soon as possible to allow us ample time to tender your Shares on your behalf prior to the expiration of the Offer. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal and any supplements or amendments thereto. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares residing in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the securities laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Purchaser by U.S. Bancorp Piper Jaffray Inc. or by one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF ORATEC INTERVENTIONS, INC. AT $12.50 NET PER SHARE BY ORCHID MERGER CORP. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated February 22, 2002, and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Orchid Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Smith & Nephew, Inc., a Delaware corporation, and an indirect wholly owned subsidiary of Smith & Nephew plc, a corporation organized under the laws of England and Wales, to purchase all outstanding shares of common stock, par value $.001 per share, of ORATEC Interventions, Inc., a Delaware corporation ("ORATEC"), including the associated preferred stock purchase rights issued pursuant to the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, between ORATEC and American Stock Transfer & Trust Company, as rights agent (collectively, the "Shares"). This will instruct you to tender to Purchaser the number of Shares indicated below (or if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered:*______________________ SIGN HERE Account Number: ___________________________________ Date: ___ , 2002 ___________________________________ (Signature(s)) ___________________________________ ___________________________________ (Print Name(s)) ___________________________________ ___________________________________ (Print Address(es)) ___________________________________ (Area Code and Telephone Number(s)) ___________________________________ (Taxpayer Identification or Social Security Number(s))
- ---------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.(A)(1)(F) 8 dex99a1f.txt GUIDELINES FOR CERTIFICATION OF TAXPAYER ID NO. Exhibit (a)(1)(F) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer--Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the Payer.
------------------------------------------------------------------------------ Give the name and SOCIAL SECURITY For this type of account: number of-- ------------------------------------------------------------------------------ 1.Individual The individual 2.Two or more individuals (joint account) The actual owner of the account or, if combined funds, the first individual on the account(1) 3.Custodian account of a minor (Uniform The minor(2) Gift to Minors Act) 4. a. The usual revocable savings trust The grantor-trustee(1) (grantor is also trustee) b. So-called trust account that is not a The actual owner(1) legal or valid trust under State law 5.Sole proprietorship The owner(3)
- --------------------------------------------------------------------------------------- Give the name and EMPLOYER IDENTIFICATION For this type of account: number of-- - --------------------------------------------------------------------------------------- 6.Sole proprietorship account The owner(3) 7.A valid trust, estate or pension trust The legal entity (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title)(4) 8.Corporate The corporation 9.Association, club, religious, charitable, The organization educational, or other tax-exempt organization 10.Partnership The partnership 11.A broker or registered nominee The broker or nominee 12.Account with the Department of Agriculture in The public entity the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a SSN, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or employment identification number (if you have one). (4) List first and circle the name of the legal trust, estate or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Page 2 Obtaining a Number If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), or Form W-7 for Individual Taxpayer Identification Number (for alien individuals required to file U.S. tax returns), at an office of the Social Security Administration or the Internal Revenue Service. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on all payments include the following: . An organization exempt from tax under section 501(a), or an individual retirement plan, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2). . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any political subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency or instrumentality thereof. Payees that may be exempt from backup withholding, including, among others: . A corporation. . A dealer in securities or commodities required to be registered in the U.S., the District of Columbia, or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a). . A financial institution. . An entity registered at all times during the tax year under the Investment Company Act of 1940. . A foreign central bank of issue. . A futures commission merchant registered with the Commodity Futures Trading Commission. . A middleman known in the investment community as a nominee or custodian. . A trust exempt from tax under section 664 or described in section 4947. Exempt payees described above should file a Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE ''EXEMPT'' ON THE FACE OF THE FORM, SIGN AND DATE THE FORM, AND RETURN IT TO THE PAYER. Payments Exempt From Backup Withholding Payments that are not subject to information reporting also are not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and their regulations. The following payments are generally exempt from backup withholding. Dividends and patronage dividends . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and that have at least one nonresident alien partner. . Payments of patronage dividends not paid in money. . Payments made by certain foreign organizations. . Section 404(k) distributions made by an ESOP. Interest Payments . Payments of interest on obligations issued by individuals. However, if you pay $600 or more of interest in the course of your trade or business to a payee, you must report the payment. Backup withholding applies to the reportable payment if the payee has not provided a TIN or has provided an incorrect TIN. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations.` . Mortgage or student loan interest paid to you. Privacy Act Notice.--Section 6109 requires most recipients of dividend, interest or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 30% of taxable interest, dividend and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(1)(G) 9 dex99a1g.txt FORM OF SUMMARY ADVERTISEMENT Exhibit (a)(1)(G) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase, dated February 22, 2002, and the related Letter of Transmittal (and any amendments or supplements thereto), and is being made to all holders of Shares. Purchaser (as defined below) is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, Purchaser will make a good faith effort to comply with such statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) holders of Shares in such state. In any jurisdiction where the securities, "blue sky" or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Purchaser by U.S. Bancorp Piper Jaffray Inc. (the "Dealer Manager"), or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of ORATEC Interventions, Inc. at $12.50 per share by Orchid Merger Corp. a wholly owned subsidiary of Smith & Nephew, Inc. and an indirect wholly owned subsidiary of Smith & Nephew plc Orchid Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Smith & Nephew, Inc., a Delaware corporation ("Smith & Nephew"), and an indirect wholly owned subsidiary of Smith & Nephew plc, a corporation organized under the laws of England and Wales, is offering to purchase all of the outstanding shares of common stock, par value $.001 per share, of ORATEC Interventions, Inc., a Delaware corporation ("ORATEC"), including the associated preferred stock purchase rights issued pursuant to the Preferred Shares Rights Agreement dated as of November 28, 2000, as amended, between ORATEC and American Stock Transfer & Trust Company, as rights agent (collectively, the "Shares"), for $12.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 22, 2002 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 21, 2002, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares that would constitute at least a majority of the Shares that in the aggregate are outstanding determined on a fully diluted basis (assuming the exercise of all options to purchase Shares, and the conversion or exchange of all securities convertible or exchangeable into Shares, outstanding at the expiration date of the Offer), (ii) any waiting period under the HSR Act (as defined in the Offer to Purchase) applicable to the purchase of Shares pursuant to the Offer having expired or having been terminated prior to the expiration of the Offer, and (iii) the satisfaction of certain other terms and conditions. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of February 13, 2002 (the "Merger Agreement") among Smith & Nephew, Purchaser and ORATEC. The Merger Agreement provides that following satisfaction or waiver of the conditions set forth in the Merger Agreement and in accordance with relevant provisions of the General Corporation Law of the State of Delaware, as amended (the "DGCL"), Purchaser will be merged with and into ORATEC (the "Merger"). At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of ORATEC, Shares owned by Smith & Nephew or any wholly owned subsidiary of Smith & Nephew, and Shares held by stockholders, if any, who are entitled to and properly exercise appraisal rights under the DGCL) will be converted into the right to receive $12.50 in cash, without interest. In connection with the Merger Agreement, Smith & Nephew and Purchaser entered into Stockholder Agreements, each dated as of February 13, 2002 (the "Stockholder Agreements"), with certain stockholders of ORATEC (including directors and officers of ORATEC) who together beneficially own approximately 13.99% of the Shares outstanding as of February 8, 2002. Pursuant to the Stockholder Agreements, such directors and officers have agreed, among other things, to tender all of their Shares pursuant to the Offer. THE BOARD OF DIRECTORS OF ORATEC HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER, HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, ORATEC'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT ORATEC'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER ALL THEIR SHARES PURSUANT TO THE OFFER. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not withdrawn, if and when Purchaser gives oral or written notice to American Stock Transfer & Trust Company (the "Depositary") of Purchaser's acceptance of such Shares for payment. In all cases, payment for Shares purchased pursuant to the Offer will be made by deposit of the purchase price with the Depositary, which shall act as agent for tendering stockholders for the purpose of receiving payment from Purchaser and transmitting payment to the tendering stockholders. Payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase) pursuant to the procedures set forth in the Offer to Purchase, (ii) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) and (iii) any other documents required by the Letter of Transmittal. Purchaser expressly reserves the right, in its sole discretion (subject to the terms and conditions of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission ("SEC")), at any time and from time to time, to extend the period of time during which the Offer is open for any reason, including the failure of any of the conditions specified in Section 14 of the Offer to Purchase to be satisfied, and thereby delay acceptance for payment of and payment for any Shares. The term "Expiration Date" shall mean 12:00 midnight, New York City time, on Thursday, March 21, 2002 unless Purchaser shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, shall expire. 2 Subject to the limitations set forth in the Offer and the Merger Agreement and the applicable rules and regulations of the SEC, Purchaser reserves the right (but will not be obligated), at any time or from time to time in its sole discretion, to extend the period during which the Offer is open by giving oral or written notice of such extension to the Depositary and by making a public announcement of such extension. There can be no assurance that Purchaser will exercise its right to extend the Offer. In addition, in accordance with the Offer and the Merger Agreement and the applicable rules and regulations of the SEC, Purchaser reserves the right (but will not be obligated) to provide a subsequent offering period of three business days to 20 business days after the expiration of the initial offering period of the Offer and Purchaser's purchase of Shares tendered in the Offer. Any extension of the period during which the Offer is open or extension of a subsequent offering period will be followed, as promptly as practicable, by public announcement thereof, such announcement to be issued not later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw such stockholder's Shares. During a subsequent offering period, stockholders would not be able to withdraw Shares previously tendered in the Offer and stockholders would not be able to withdraw Shares tendered during the subsequent offering period. Except as otherwise provided in Section 4 of the Offer to Purchase, tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date, and, unless theretofore accepted for payment, may also be withdrawn at any time after April 23, 2002. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder if different from the name of the person who tendered the Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered for the account of an Eligible Institution (as defined in the Offer to Purchase), the signature on the notice of withdrawal must be guaranteed by an Eligible Institution. All questions as to the form and validity (including time of receipt) of a notice of withdrawal will be determined by Purchaser, in its sole discretion, and its determination shall be final and binding on all parties. The information required to be disclosed pursuant to Rule 14d-6(d)(1) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. ORATEC has provided to Purchaser its lists of stockholders and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other related materials are being mailed to record holders of Shares and will be mailed to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 3 The Offer to Purchase and the related Letter of Transmittal contain important information that should be read before any decision is made with respect to the Offer. Any questions or requests for assistance or for copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Information Agent or the Dealer Manager as set forth below, and copies will be furnished promptly at Purchaser's expense. No fees or commissions will be payable to brokers, dealers or other persons, other than the Information Agent, the Dealer Manager and the Depositary, for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: MORROW & CO., INC. 445 Park Avenue, 5/th Floor / New York, NY 10022 E-Mail: ORATEC.info@morrowco.com Call Collect: (212) 754-8000 Banks and Brokerage Firms, Please Call: (800) 654-2468 Stockholders, Please Call: (800) 607-0088 The Dealer Manager for the Offer is: [LOGO] US bancorp Piper Jaffray (R) 800 Nicollet Mall, J1012063 Minneapolis, MN 55402 (800) 333-6000 ext. 8554 February 22, 2002 4 EX-99.(A)(1)(H) 10 dex99a1h.txt TEXT OF PRESS RELEASE DATED 2/22/2002 EXHIBIT (a)(1)(H) SMITH & NEPHEW COMMENCES TENDER OFFER FOR ORATEC LONDON, February 22, 2002 -- Smith & Nephew through a wholly-owned subsidiary today commenced its previously announced tender offer for all of the common stock of ORATEC Interventions, Inc. (NASDAQ: OTEC) at a purchase price of $12.50 per share in cash. Smith & Nephew is making the tender offer pursuant to an agreement and plan of merger dated February 13, 2002. The tender offer will expire at midnight, New York City time, on Thursday, March 21, 2002, unless the offer is extended. U.S. Bancorp Piper Jaffray is the dealer manager for the tender offer, American Stock Transfer & Trust Company is the depositary and Morrow & Co., is the information agent. Enquiries: . Morrow & Co., Inc. Information Agents . Banks and Brokers: In US--(800) 654-2468 Outside US--(212) 754-8000 . Stockholders: In US--(800) 607-0088 Outside US--(212) 754-8000 . e-mail: ORATEC.info@morrowco.com About Smith & Nephew Smith & Nephew plc, (London Stock Exchange: SN), (NYSE: SNN), is a global advanced medical devices company with a highly successful track record in developing, manufacturing and marketing a wide variety of innovative and technologically advanced tissue repair products. These products are primarily in the areas of bone, joints, skin and other soft tissue. Smith & Nephew has extensive marketing and distribution capabilities, with established sales in more than 90 countries. For further information, visit Smith & Nephew's Web site at www.smith-nephew.com. -------------------- Smith & Nephew Endoscopy (www.endoscopy1.com) is one of its major businesses, and is a world leader in the development and commercialization of endoscopic techniques. Within endoscopy, Smith & Nephew is the recognized world leader in arthroscopy (endoscopic procedures performed on articulating joints). This news release does not constitute an offer to purchase or a solicitation of an offer to sell any securities. The complete terms and conditions of the tender offer are set forth in an offer to purchase and a related letter of transmittal, which are included in a Tender Offer Statement that is being filed today with the Securities and Exchange Commission. The offer to purchase and related letter of transmittal will be mailed to ORATEC's stockholders. The Tender Offer Statement (including the offer to purchase, letter of transmittal and related documents) will also be available for free on the Commissions's Web site at www.sec.gov. - ----------- EX-99.(B)(1) 11 dex99b1.txt CREDIT AGREEMENT DATED 2/14/2002 Exhibit (b)(1) CONFORMED COPY AGREEMENT DATED 14th February, 2002 U.S.$300,000,000 CREDIT FACILITY FOR SMITH & NEPHEW PLC ARRANGED BY LLOYDS TSB CAPITAL MARKETS WITH LLOYDS TSB BANK plc as Facility Agent ALLEN & OVERY London INDEX
Clause Page 1. Interpretation........................................................ 1 2. Facilities............................................................ 14 3. Purpose............................................................... 14 4. The Offer............................................................. 15 5. Conditions Precedent.................................................. 19 6. Utilisation - Loans................................................... 19 7. Utilisation - Bills................................................... 20 8. Bills................................................................. 23 9. Optional Currencies................................................... 24 10. Repayment............................................................. 26 11. Prepayment and Cancellation........................................... 26 12. Interest.............................................................. 28 13. Terms................................................................. 29 14. Market Disruption..................................................... 30 15. Taxes................................................................. 30 16. Increased Costs....................................................... 33 17. Mitigation............................................................ 34 18. Payments.............................................................. 34 19. Representations....................................................... 36 20. Information Covenants................................................. 39 21. Financial Covenants................................................... 40 22. General Covenants..................................................... 43 23. Default............................................................... 47 24. The Administrative Parties............................................ 50 25. Evidence and calculations............................................. 55 26. Fees.................................................................. 55 27. Indemnities and Break Costs........................................... 56 28. Expenses.............................................................. 57 29. Amendments and Waivers................................................ 57 30. Changes to the Parties................................................ 59 31. Disclosure of Information............................................. 61 32. Set-off............................................................... 62 33. Pro rata Sharing...................................................... 62 34. Severability.......................................................... 63 35. Counterparts.......................................................... 63 36. Notices............................................................... 64 37. Language.............................................................. 65 38. Governing Law......................................................... 65 39. Enforcement........................................................... 65
Schedules 1. Original Parties.................................................. 67 2. Conditions Precedent Documents.................................... 68 3. Form of Request................................................... 69 4. Calculation of the Mandatory Cost................................. 70 5. Form of Transfer Certificate...................................... 72 6. Form of Compliance Certificate.................................... 73 7. Form of Bill...................................................... 74 8. Form of Syndication Agreement..................................... 75 9. Form of Power of Attorney for Bills............................... 88 10. Form of legal opinion of Allen & Overy............................ 87 Signatories................................................................ 90
THIS AGREEMENT is dated 14th February, 2002 BETWEEN: (1) SMITH & NEPHEW PLC (registered number 324357) (the "Company"); (2) LLOYDS TSB CAPITAL MARKETS as arranger (in this capacity the "Arranger"); (3) THE FINANCIAL INSTITUTION listed in Schedule 1 (Original Parties) as original lender (the "Original Lender"); and (4) LLOYDS TSB BANK plc as facility agent (in this capacity the "Facility Agent"). IT IS AGREED as follows: 1. Interpretation 1.1 Definitions In this Agreement: "Administrative Party" means the Arranger or the Facility Agent. "Affiliate" means a Subsidiary or a Holding Company of a person or any other Subsidiary of that Holding Company. "Availability Period" means: (a) in the case of any Offer Loan, the period from and including the date of this Agreement to and including the date falling six months after the date of this Agreement; and (b) in the case of any Loan other than an Offer Loan, the period from and including the date of this Agreement to and including: (i) in the case of Facility A, the date falling 364 days after the date of this Agreement; and (ii) in the case of Facility B, the Final Maturity Date. "Bidco" means the wholly owned subsidiary of the Company that makes the Offer. 2 "Bill" means a Sterling bill of exchange substantially in the form of Schedule 7 (Form of Bill). "Break Costs" means the amount (if any) which a Lender is entitled to receive under this Agreement as compensation if any part of a Loan or overdue amount is prepaid. "Business Day" means a day (other than a Saturday or a Sunday) on which banks are open for general business in London and: (a) if on that day a payment in or a purchase of a currency (other than euro) is to be made, the principal financial centre of the country of that currency; or (b) if on that day a payment in or a purchase of euro is to be made, which is also a TARGET Day. "Commitment" means a Commitment, as so designated, of a Lender under a particular Facility. "Compliance Certificate" has the meaning given to it in Clause 20.2 (Compliance Certificate). "Credit" means a Loan or a Bill. "Default" means: (a) an Event of Default; or (b) an event which would be (with the expiry of a grace period or the giving of notice under the Finance Documents or any combination of them) an Event of Default. "euro" means the single currency of the Participating Member States. "EURIBOR" means for a Term of any Loan or overdue amount in euro: (a) the applicable Screen Rate; or (b) if no Screen Rate is available for that Term of that Loan or overdue amount, the arithmetic mean (rounded upward to four decimal places) of the rates as supplied to 3 the Facility Agent at its request quoted by the Reference Banks to leading banks in the European Interbank market, as of 11.00 a.m. (Brussels time) on the Rate Fixing Day for the offering of deposits in euro for a period comparable to that Term. "Event of Default" means an event specified as such in this Agreement. "Facilities" means Facility A and Facility B. "Facility A" means the multi-currency revolving credit and Sterling acceptance facility referred to in Clause 2.1 (Facility A). "Facility A Commitment" means: (a) for the Original Lender, the amount set opposite its name in Schedule 1 (Original Parties) under the heading "Facility A Commitment" and the amount of any other Facility A Commitment it acquires; and (b) for any other Lender, the amount of any other Facility A Commitment it acquires, to the extent not cancelled, transferred or reduced under this Agreement. "Facility A Margin" means the rate set out as the Facility A Margin in the Fee Letter between the Arranger and the Company. "Facility B" means the multi-currency revolving credit and Sterling acceptance facility referred to in Clause 2.2 (Facility B). "Facility B Commitment" means: (a) for the Original Lender, the amount set opposite its name in Schedule 1 (Original Parties) under the heading "Facility B Commitment" and the amount of any other Facility B Commitment it acquires; and (b) for any other Lender, the amount of any other Facility B Commitment it acquires, to the extent not cancelled, transferred or reduced under this Agreement. 4 "Facility B Margin" means 0.40 per cent. per annum. "Facility Office" means the office(s) notified by a Lender to the Facility Agent: (a) on or before the date it becomes a Lender; or (b) by not less than five Business Days' notice, as the office(s) through which it will perform its obligations under this Agreement. "Fee Letter" means any letter entered into by reference to this Agreement between one or more Administrative Parties and the Company setting out the amount of certain fees referred to in this Agreement. "Final Maturity Date" means the fifth anniversary of the date of this Agreement. "Finance Document" means: (a) this Agreement; (b) a Fee Letter; (c) a Bill; (d) a Transfer Certificate; (e) the Syndication Agreement; (f) the Syndication Letter; and (g) any other document designated as such by the Facility Agent and the Company. "Finance Party" means a Lender or an Administrative Party. "Financial Indebtedness" means any indebtedness (without double counting) for or in respect of: (a) moneys borrowed; (b) any acceptance credit; 5 (c) any bond, note, debenture, loan stock or other similar instrument; (d) any finance or capital lease as defined in accordance with the accounting principles applied in connection with the Original Financial Statements; (e) receivables sold or discounted (otherwise than on a non-recourse basis); (f) the acquisition cost of any asset to the extent payable after its acquisition or possession by the party liable where the deferred payment is arranged primarily as a method of raising finance or financing the acquisition of that asset; (g) any derivative transaction protecting against or benefiting from fluctuations in any rate or price (and at any time the then marked to market value of the derivative transaction will be used to calculate its amount, such marked to market value being determined by reference to the documentation of that transaction or, if there is no such provision in the documentation, determined by the Company acting reasonably and on the basis of quotations from the relevant counterparty); (h) any other transaction (including any forward sale or purchase agreement) which has the commercial effect of a borrowing; (i) any counter-indemnity obligation in respect of any guarantee, indemnity, bond, letter of credit or any other instrument issued by a bank or financial institution; or (j) any guarantee, indemnity or similar assurance against financial loss of any person in respect of any item referred to in paragraphs (a) to (i) above. "Group" means the Company and its Subsidiaries. "Holding Company" means a holding company within the meaning of section 736 of the Companies Act 1985. "IBOR" means LIBOR or EURIBOR. "Increased Cost" means: (a) an additional or increased cost; (b) a reduction in the rate of return under a Finance Document or on the overall capital of a Finance Party or any of its Affiliates; or (c) a reduction of an amount due and payable under any Finance Document, which is incurred or suffered by a Finance Party or any of its Affiliates but only to the extent attributable to that Finance Party having entered into any Finance Document or funding or performing its obligations under any Finance Document. 6 "Lender" means: (a) an Original Lender; or (b) any person which becomes a Lender after the date of this Agreement. "LIBOR" means for any Loan or overdue amount: (a) the applicable Screen Rate; or (b) if no Screen Rate is available for the relevant currency or Term of that Loan or overdue amount, the arithmetic mean (rounded upward to four decimal places) of the rates, as supplied to the Facility Agent at its request, quoted by the Reference Banks to leading banks in the London interbank market, as of 11.00 a.m. on the Rate Fixing Day for the offering of deposits in the currency of that Loan or overdue amount for a period comparable to its Term. "Loan" means, unless otherwise stated in this Agreement, the principal amount of each borrowing under this Agreement or the principal amount outstanding of that borrowing. "Majority Lenders" means, at any time, at least three Lenders: (a) whose share in the outstanding Credits and whose undrawn Commitments then aggregate 66 2/3 per cent. or more of the aggregate of all the Credits and the undrawn Commitments of all the Lenders; (b) if there is no Credit then outstanding, whose undrawn Commitments then aggregate 66 2/3 per cent. or more of the Total Commitments; or (c) if there is no Credit then outstanding and the Total Commitments have been reduced to zero, whose Commitments aggregated 66 2/3 per cent. or more of the Total Commitments immediately before the reduction. "Mandatory Cost" means the cost of complying with certain regulatory requirements, expressed as a percentage rate per annum and calculated by the Facility Agent under Schedule 4 (Calculation of the Mandatory Cost). "Margin" means the Facility A Margin or the Facility B Margin, as the case may be. 7 "Material Adverse Effect" means a material adverse effect on the ability of the Company to comply with its payment obligations under this Agreement and its obligations under Clause 21.3 (Gearing) and Clause 21.4 (Interest cover/Cashflow). "Material Subsidiary" means, at any time, a Subsidiary of the Company: (a) whose gross assets (excluding intra-Group items) then equal or exceed 15 per cent. of the gross assets of the Group; or (b) whose earnings before interest and tax (excluding intra-Group items) then equal or exceed 15 per cent. of the earnings before interest and tax of the Group. For this purpose: (i) the gross assets or earnings before interest and tax of a Subsidiary of the Company will be determined from its financial statements (consolidated if it has Subsidiaries) upon which the latest audited financial statements of the Group have been based; (ii) if a Subsidiary of the Company becomes a member of the Group after the date on which the latest audited financial statements of the Group have been prepared, the gross assets or earnings before interest and tax of that Subsidiary will be determined from its latest financial statements; (iii) the gross assets or earnings before interest and tax of the Group will be determined from its latest audited financial statements, adjusted (where appropriate) to reflect the gross assets or earnings before interest and tax of any company or business subsequently acquired or disposed of; and (iv) if a Material Subsidiary disposes of all or substantially all of its assets to another Subsidiary of the Company, it will immediately cease to be a Material Subsidiary and the other Subsidiary (if it is not already) will immediately become a Material Subsidiary; the subsequent financial statements of those Subsidiaries and the Group will be used to determine whether those Subsidiaries are Material Subsidiaries or not. If there is a dispute as to whether or not a company is a Material Subsidiary, a certificate of the auditors of the Company will be, in the absence of manifest error, conclusive. "Maturity Date" means, for a Credit, the last day of its Term. "Merger" means the merger of Bidco with and into the Target on the terms set out in the Merger Agreement. 8 "Merger Agreement" means the Agreement and Plan of Merger dated on or about the date of this Agreement between Bidco, Target and Smith & Nephew Inc., as the same may be amended or revised from time to time (with the consent of the Majority Lenders if required under this Agreement). "Offer" means the tender offer for the Shares made by Bidco on the terms and conditions referred to in the Merger Agreement and set out in the Offer Documents. "Offer Documents" means the offer to purchase, related materials, including the letter of transmittal to be used for tendering shares, the solicitation/recommendation statement on Schedule 14D-9, and the exhibits thereto, to be filed with the SEC with respect to the Offer. "Offer Expiry Date" means the date upon which the Offer lapses, terminates or is withdrawn. "Offer Loan" means any Loan the purpose of which is to finance directly or indirectly the acquisition of Shares tendered into the Offer. "Original Financial Statements" means the audited consolidated financial statements of the Company for the year ended 31st December, 2000. "Participating Member State" means a member state of the European Communities that adopts the euro as its lawful currency under the legislation of the European Union for European Monetary Union. "Party" means a party to this Agreement. "Power of Attorney" means a power of attorney, substantially in the form of Schedule 9 (Form of Power of Attorney) or in any other form agreed by the Company and the Facility Agent. "Pro Rata Share" means on a particular date: (a) the proportion which a Lender's share of the Credits (if any) bears to all the Credits; 9 (b) if there is no Credit outstanding on that date, the proportion which its Commitment bears to the Total Commitments on that date; (c) if the Total Commitments have been cancelled, the proportion which its Commitments bore to the Total Commitments immediately before being cancelled; or (d) when the term is used in relation to a Facility, the above proportions but applied only to the Credits and Commitments for that Facility. For the purpose of paragraph (d) above, the Facility Agent will determine whether the term in any case relates to a particular Facility. "Rate Fixing Day" means: (a) the first day of a Term for a Loan denominated in Sterling; (b) the second Business Day before the first day of a Term for a Loan denominated in any other currency (other than euros); or (c) the second TARGET Day before the first day of a Term for a Loan denominated in euros, or such other day as the Facility Agent determines is generally treated as the rate fixing day by market practice in the relevant interbank market. "Reference Banks" means Lloyds TSB Bank plc and any other bank or financial institution agreed by the Facility Agent and the Company under this Agreement. "Repeating Representations" means the representations which are deemed to be repeated under this Agreement. "Request" means a request for a Credit, substantially in the form of Schedule 3 (Form of Request). "Rollover Loan" means one or more Loans: (a) to be made on the same day that a maturing Loan is due to be repaid; (b) the aggregate amount of which is equal to or less than the maturing Loan; (c) in the same currency as the maturing Loan; and (d) to be made for the purpose of refinancing a maturing Loan. 10 "Screen Rate" means; (a) for LIBOR, the British Bankers Association Interest Settlement Rate (if any); and (b) for EURIBOR, the percentage rate per annum determined by the Banking Federation of the European Union, for the relevant currency and Term displayed on the appropriate page of the Telerate screen selected by the Facility Agent. If the relevant page is replaced or the service ceases to be available, the Facility Agent (after consultation with the Company and the Lenders) may specify another page or service displaying the appropriate rate. "SEC" means the United States Securities and Exchange Commission. "Shares" means all the outstanding common stock of the Target (including any stock of the Target issued or to be issued whilst the Offer remains open for acceptance). "Sterling" or "(pound)" means the lawful currency for the time being of the United Kingdom. "Subsidiary" means: (a) a subsidiary within the meaning of section 736 of the Companies Act 1985; and (b) for the purposes of Clause 20 (Financial covenants), unless the context otherwise requires, a subsidiary undertaking within the meaning of section 258 of the Companies Act 1985. "Syndication" means the primary syndication by the Arranger of the Facilities. "Syndication Agreement" means an agreement between the Company and the Finance Parties for the purpose of incorporating New Lenders (as defined in Clause 29.3 (Assignments and transfers by Lenders)) in Syndication substantially in the form set out in Schedule 8. "Syndication Letter" means a letter dated the date of this Agreement from the Arranger to the Company in respect of the primary syndication of the Facilities and other related matters. 11 "Target" means Oratec Interventions, Inc., a company incorporated under the laws of the State of Delaware. "TARGET Day" means a day on which the Trans-European Automated Real-time Gross Settlement Express Transfer payment system is open for the settlement of payments in euro. "Tax" means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any related penalty or interest). "Tax Deduction" means a deduction or withholding for or on account of Tax from a payment under a Finance Document. "Tax Payment" means a payment made by the Company to a Finance Party in any way relating to a Tax Deduction. "Term" means each period determined under this Agreement: (a) by reference to which interest on a Loan or an overdue amount is calculated; or (b) for which a Bill is to be outstanding. "Total A Commitments" means the aggregate of the Facility A Commitments of all the Lenders, being the total amount specified as such in Schedule 1 (Original Parties) at the date of this Agreement. "Total B Commitments" means the aggregate of the Facility B Commitments of all the Lenders, being the total amount specified as such in Schedule 1 (Original Parties) at the date of this Agreement. "Total Commitments" means the aggregate of the Commitments of all the Lenders. "Transaction Documents" means the Finance Documents, the Offer Documents and the Merger Agreement. 12 "Transfer Certificate" means a certificate in the form of Schedule 5 (Form of Transfer Certificate) with such amendments as the Facility Agent may approve or reasonably require or any other form agreed between the Facility Agent and the Company. "U.K." means the United Kingdom. "U.S. Dollars" or "U.S.$" means the lawful currency for the time being of the United States of America. "Utilisation Date" means the date on which any Facility is utilised. 1.2 Construction (a) In this Agreement, unless the contrary intention appears, a reference to: (i) an "amendment" includes a supplement, novation, restatement or re-enactment and "amended" is to be construed accordingly; "assets" includes present and future properties, revenues and rights of every description; an "authorisation" includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration or notarisation; "indebtedness" includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money; a "person" includes any individual, company, corporation, unincorporated association or body (including a partnership, trust, joint venture or consortium), government, state, agency, organisation or other entity whether or not having separate legal personality; a "regulation" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law but, if not having the force of law, being of a type with which any person to which it applies is accustomed to comply) of any governmental, inter-governmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation; (ii) a currency is a reference to the lawful currency for the time being of the relevant country; (iii) a Default being "outstanding" means that it has not been remedied or waived; (iv) a provision of law is a reference to that provision as extended, applied, amended or re-enacted and includes any subordinate legislation; 13 (v) a Clause, a Subclause or a Schedule is a reference to a clause or subclause of, or a schedule to, this Agreement; (vi) a person includes its successors in title, permitted assigns and permitted transferees; (vii) a Finance Document or another document is a reference to that Finance Document or other document as amended; and (viii) a time of day is a reference to London time. (b) Unless the contrary intention appears, a reference to a "month" or "months" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month or the calendar month in which it is to end, except that: (i) if the numerically corresponding day is not a Business Day, the period will end on the next Business Day in that month (if there is one) or the preceding Business Day (if there is not); (ii) if there is no numerically corresponding day in that month, that period will end on the last Business Day in that month; and (iii) notwithstanding sub-paragraph (i) above, a period which commences on the last Business Day of a month will end on the last Business Day in the calendar month in which it is to end. (c) (i) Unless expressly provided to the contrary in a Finance Document, a person who is not a party to a Finance Document may not enforce any of its terms under the Contracts (Rights of Third Parties) Act 1999. (ii) Notwithstanding any term of any Finance Document, the consent of any third party is not required for any variation (including any release or compromise of any liability under) or termination of that Finance Document. (d) A reference to a Party will not include that Party if it has ceased to be a Party under this Agreement. (e) Unless the contrary intention appears: (i) a term used in any other Finance Document or in any notice given in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement; (ii) any non-payment obligation of the Company under the Finance Documents remains in force for so long as any payment obligation is or may be outstanding under the Finance Documents; (iii) the headings in this Agreement do not affect its interpretation; and (iv) if there is an inconsistency between this Agreement and any other Finance Document, the other Finance Document will prevail. 14 2. FACILITIES 2.1 Facility A (a) Subject to the terms of this Agreement, the Lenders make available to the Company a multi-currency revolving credit facility in an aggregate amount equal to the Total A Commitments. (b) Facility A may also be utilised by way of Bills. 2.2 Facility B (a) Subject to the terms of this Agreement, the Lenders make available to the Company a multi-currency revolving credit facility in an aggregate amount equal to the Total B Commitments. (b) Facility B may also be utilised by way of Bills. 2.3 Nature of a Finance Party's rights and obligations Unless otherwise agreed by all the Finance Parties: (a) the obligations of a Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations does not affect the obligations of any other Party under the Finance Documents; nNo Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents; and (b) the rights of a Finance Party under the Finance Documents are separate and independent rights, and a debt arising under the Finance Documents to a Finance Party is a separate and independent debt; a Finance Party may, except as otherwise stated in the Finance Documents, separately enforce those rights. 3. PURPOSE 3.1 Credits Each Credit may only be used in or towards the financing or refinancing of: (a) the acquisition by Bidco of the Shares pursuant to the Offer; (b) the purchase of any share options over the Shares purchased in connection with the Offer; (c) the fees, costs and expenses associated with the Offer, and for the general corporate purposes of the Group, including (without limitation) financing the acquisition of assets or businesses, share buy-backs or special dividend payments. 3.2 No obligation to monitor No Finance Party is bound to monitor or verify the utilisation of any Facility. 15 4. THE OFFER 4.1 Defined terms In this Subclause: "Certain Funds Period" means the period beginning on the date of this Agreement and ending on the earliest of: (a) the date on which Bidco has paid the consideration monies for all the Shares subject to the Offer to the entity acting as depositary; (b) the date on which the Merger has been completed in accordance with the terms of the Merger Agreement; (c) the date falling 6 months after the date of this Agreement; and (d) the date falling 7 days after the date of this Agreement unless the Company has issued the Press Release. "Clean-Up Period" means the period commencing on the earlier of: (a) the date on which Target becomes a Subsidiary of the Company; and (b) the date on which the Merger completes in accordance with the Merger Agreement, and ending on the date which is 120 days after that date. "Closing Date" means the date on which the Offer expires (being either its scheduled expiration date or any extended expiration date) and on which there have been validly tendered in accordance with the terms of the Offer and not withdrawn, a number of shares of the common stock of the Target that, together with the shares then beneficially owned by the Company, represent at least a majority of the shares of the common stock of the Target on a fully diluted basis. "Major Breach" means a breach of: (a) Clause 22.4 (Pari passu ranking); (b) Clause 22.5 (Negative pledge); (c) Clause 22.6 (Disposals); (d) Clause 22.7 (Financial Indebtedness); (e) Clause 22.9 (Mergers); or 16 (f) Clause 4 (The Offer). "Major Default" means any of the following Events of Default: (a) Clause 23.2 (Non-payment); (b) Clause 23.3 (Breach of other obligations) but only insofar as it relates to a Major Breach; (c) Clause 23.4 (Misrepresentation) but only insofar as it relates to a Major Representation; (d) Clauses 23.6 (Insolvency) and 23.7 (Insolvency proceedings); or (e) Clause 23.10 (Effectiveness of Finance Documents). "Major Representation" means any of the following representations contained in this Agreement: (a) 19.2 (Status); (b) 19.3 (Powers and authority); (c) 19.4 (Legal validity); or (d) 19.5 (Non conflict). "Press Release" means the press release to be made by or on behalf of the Company announcing the Offer. "Target Group" means the Target and its Subsidiaries. 4.2 Press releases Unless required by any law or regulation or to give effect to the Offer, the Company must not make any statement or announcement (other than the Press Release) containing any information or statement concerning the Finance Documents or the Finance Parties without the prior approval of the Arranger. The approval of the Arranger must not be unreasonably withheld or delayed. 4.3 Additional conditions precedent (a) A Request for an Offer Loan may not be given until the Facility Agent has notified the Company and the Lenders that it has received all of the documents and evidence set out in paragraph (b) below. The Facility Agent must give this notification as soon as reasonably practicable. 17 (b) The documents and evidence referred to in paragraph (a) above are as follows: (i) the Press Release, substantially in the form agreed by the Facility Agent on or prior to the date of this Agreement; (ii) the Merger Agreement, in a form which substantially reflects the Press Release; (iii) a copy of any subsequent amendment to the Merger Agreement; (iv) a certificate from the Company confirming that: (A) the Closing Date has occurred; (B) no material term or condition of the Offer has been waived or amended in any respect other than as may be permitted in accordance with this Agreement; (C) all conditions of the Offer have been satisfied, except to the extent waived in accordance with sub-paragraph (B) above; and (D) the Merger Agreement is in full force and effect and has not been terminated; (v) evidence that all necessary filings have been made, clearances have been obtained, or relevant waiting or other time periods under any applicable law or regulation of any jurisdiction (including the U.S. Hart-Scott Rodino Anti-Trust Improvement Act of 1976) have expired, lapsed or terminated; and (vi) evidence that all other necessary authorisations or requirements of the SEC in connection with the Offer have been obtained. 4.4 Certain Funds (a) Notwithstanding any term of this Agreement, during the Certain Funds Period no Lender is entitled to: (i) refuse to participate in or make available any Offer Loan; (ii) cancel its Commitment; (iii) exercise any right of rescission or similar right or remedy which it may have in relation to any Offer Loan; or (iv) accelerate or cause repayment of any Offer Loan, except as provided below in this Subclause. (b) Paragraph (a) does not apply if the entitlement arises because: (i) the Company has not delivered all of the documents required under this Clause or Schedule 2 (Conditions precedent documents); (ii) a Major Representation is not correct or will not be correct immediately after the Offer Loan is made; 18 (iii) a Major Default is outstanding or will result from the making of the Offer Loan; or (iv) it is unlawful for the Lender to perform any of its obligations under the Finance Documents. (c) Nothing in this Subclause will affect the rights of any Finance Party in respect of any outstanding Default upon expiry of the Certain Funds Period irrespective of whether that Default occurred during the Certain Funds Period or not. 4.5 Clean-Up Period Notwithstanding any term of this Agreement, during the Clean-Up Period references to the Group or any member of the Group in the following Subclauses will not include any company which is a member of the Target Group as at the Closing Date: (a) Clause 4 (The Offer); (b) Clause 22.5 (Negative pledge); (c) Clause 22.6 (Disposals); (d) Clause 22.7 (Financial Indebtedness); (e) Clause 22.10 (Environmental matters); (f) Clause 22.11 (Insurance); and (g) Clause 23.5 (Cross-default). 4.6 Compliance The Company must ensure that Bidco complies, in all material respects with all rules and regulations of the SEC applicable to the Offer and the Merger and all other laws and regulations applicable to the Offer and the Merger. 4.7 Information The Company must promptly supply to the Facility Agent: (a) copies of all material documents, notices or announcements received or issued by it in relation to the Offer after the date of this Agreement; and (b) any other information regarding the Offer as the Facility Agent may reasonably request. 4.8 Increase in Offer (a) Except as provided below, except with the prior consent of the Arranger the Company must not increase the purchase price for the Shares specified in the Press Release for the Shares. (b) Paragraph (a) above does not apply to any increase in the purchase price for the Shares equal to 15 per cent. or less of the purchase price for the Shares specified in the Press Release. 19 4.9 Amendments and waivers of the Offer (a) Except as provided below, the Company must not waive or amend any condition of the Offer in any material respect without the consent of the Majority Lenders. (b) Paragraph (a) above does not apply to: (i) any amendment to the purchase price for the Shares permitted under Clause 4.8 (Increase in Offer); or (ii) any extension of the time period within which the Offer may be accepted provided that such time period does not extend beyond the date falling six months after the date of this Agreement. 5. CONDITIONS PRECEDENT 5.1 Conditions precedent documents A Request may not be given until the Facility Agent has notified the Company and the Lenders that it has received all of the documents and evidence set out in Schedule 2 (Conditions precedent documents) in form and substance satisfactory to the Facility Agent. The Facility Agent must give this notification as soon as reasonably practicable. 5.2 Further conditions precedent The obligations of each Lender to participate in any Credit are subject to the further conditions precedent that on both the date of the Request and the Utilisation Date for that Credit: (a) the Repeating Representations are correct in all material respects; and (b) no Event of Default and, in the case of a Loan other than a Rollover Loan, no Default, is outstanding or would result from the Credit. 5.3 Maximum number Unless the Facility Agent agrees, a Request may not be given if, as a result, there would be more than 30 Credits outstanding. 6. UTILISATION - LOANS 6.1 Giving of Requests (a) The Company may borrow a Loan by giving to the Facility Agent a duly completed Request. (b) Unless the Facility Agent otherwise agrees and subject to Clause 7.6(a) (Revocation), the latest time for receipt by the Facility Agent of a duly completed Request is 11.00 a.m. one Business Day before the Rate Fixing Day for the proposed borrowing. (c) Each Request is irrevocable. 20 6.2 Completion of Requests A Request will not be regarded as having been duly completed unless: (a) it identifies the Facility the Loan applies to; (b) the Utilisation Date is a Business Day falling within the relevant Availability Period for that Loan; and (c) the proposed currency, amount and Term comply with this Agreement. Only one Loan may be requested in a Request. 6.3 Amount of Loan (a) Except as provided below, the amount of the Loan must be a minimum of U.S.$5,000,000 and an integral multiple of U.S.$1,000,000, or their equivalents in accordance with Clause 9 (Optional Currencies). (b) The amount of the Loan may also be the balance of the relevant undrawn Total Facility Commitments or such other amount as the Facility Agent or the Lenders may agree. (c) For this purpose, "Total Facility Commitments" means the aggregate of the Commitments of all the Lenders under a Facility. (d) The amount of each Lender's share of the Loan will be its Pro Rata share Share on the proposed Utilisation Date. 6.4 Advance of Loan (a) The Facility Agent must promptly notify each Lender of the details of the requested Loan and the amount of its share in that Loan. (b) No Lender is obliged to participate in a Loan if as a result: (i) its share in the Credits under a Facility would exceed its Commitment for that Facility; or (ii) the Credits would exceed the Total Commitments. (c) If the conditions set out in this Agreement have been met, each Lender must make its share in the Loan available to the Facility Agent for the Company on the Utilisation Date. 7. UTILISATION - BILLS 7.1 Giving of Requests (a) The Company may draw Bills by giving to the Facility Agent a duly completed Request. (b) Unless the Facility Agent otherwise agrees, the latest time for receipt by the Facility Agent of a duly completed Request is 11.00 a.m. one Business Day before the proposed Utilisation Date. 21 (c) Each Request is irrevocable. 7.2 Completion of Requests A Request for Bills will not be regarded as being duly completed unless: (a) it specifies that it is for Bills; (b) the Utilisation Date is a Business Day falling within the Availability Period; (c) the amount requested is: (i) a minimum of(pound)3,000,000; (ii) in respect of Facility A, the balance of the undrawn Total A Commitments; (iii) in respect of Facility B, the balance of the undrawn Total B Commitments; or (iv) such other amount as the Facility Agent or the Lenders may agree; and (d) only one Term is specified which: (i) does not overrun the last day of the applicable Availability Period; and (ii) is a period of between 14 and 187 days. 7.3 Amount of Bills The aggregate principal amount of the Bills to be accepted by a Lender will be its Pro Rata Share of those Bills on the proposed Utilisation Date. 7.4 Acceptance of Bills (a) The Facility Agent must promptly: (i) notify each Lender of the details of the requested Bills and the aggregate principal amount of the Bills to be accepted by t; and (ii) send to each Lender Bills completed in accordance with this Agreement. (b) No Lender is obliged to accept any Bill if, as a result: (i) its share in the Credits under a Facility would exceed its Commitment for that Facility; or (ii) the Credits would exceed the Total Commitments. (c) Subject to Clause 7.7 (Loans as an alternative), if the conditions set out in this Agreement have been met, each Lender must accept the Bills sent to it under paragraph (a) above. 22 7.5 Payment of proceeds (a) The Facility Agent must, not later than 11.30 a.m. on the applicable Utilisation Date, notify the Company and each Lender of the applicable EBDR. (b) "EBDR" means the arithmetic mean (rounded upwards to four decimal places) of the rates supplied by the Reference Banks to the Facility Agent as its request at or about 10.30 a.m. on the applicable Utilisation Date) at which Sterling bills eligible for rediscounting at the Bank of England of an equivalent tenor can be discounted in the London discount market at or about that time. (c) Subject to the terms of this Agreement, each Lender must pay to the Facility Agent for the Company an amount equal to: (i) the amount which the Lender would have received as the proceeds of discounting if it had discounted the Bills accepted by it at the applicable EBDR; less (ii) acceptance commission calculated, at any time, at a rate equal to the then applicable Margin and on the aggregate principal amount of those Bills. (d) Acceptance commission is calculated on the basis of the number of days in the relevant Term and a year of 365 days. 7.6 Revocation (a) If no or only one Reference Bank supplies a rate in accordance with Clause 7.5 (Payment of proceeds) by 11.30 a.m. on the Utilisation Date; or (b) if the Facility Agent determines that any Bills do not comply with the then current Bank of England regulations for Sterling bankers' acceptances, then: (i) the Facility Agent must promptly notify the Company; and (ii) the relevant Bills will not be accepted. (c) If either of the events referred to in paragraph (a) or (b) occurs, the Company shall be entitled to deliver a Request for a Loan in Sterling in a principal amount equal to the aggregate principal amount of the Bills which it would otherwise have been obliged to accept under this Clause and for a Term equal to the Term of those Bills. Such Request shall be delivered by no later than 5.00 p.m. on the day on which the Facility Agent has given the notification to the Company under sub-paragraph (i) above and shall specify a Utilisation Date for that Loan which is no earlier than the Business Day following the date on which that Request is delivered (or if such notification is received by the Company after 4.30 p.m. on that day, the Request may be delivered by no later 9.15 a.m. on the next succeeding Business Day and the Utilisation Date can be the same date as that Request). 7.7 Loans as an alternative (a) If as a result of any law or regulation, a Lender (acting reasonably) determines that it may not be able to accept any Bills or to discount Bills at EBDR, then it may notify the Facility Agent by no later than 4.00 p.m. on the Business Day before the proposed Utilisation Date that, subject to paragraph (b) below, it elects not to accept any Bills. 23 (b) If a Lender notifies the Facility Agent under paragraph (a) above, then, subject to the terms of this Agreement, the Lender must instead make a Loan in Sterling on the relevant Utilisation Date in a principal amount equal to the aggregate principal amount of the Bills which it would otherwise have been obliged to accept under this Clause and for a Term equal to the Term of those Bills. 8. BILLS 8.1 Repayment/prepayment (a) The Company repays or prepays a Bill drawn by it by paying an amount equal to the principal amount of that Bill to the Facility Agent for the Lender that accepted that Bill. (b) A reference in this Agreement to: (i) a principal amount of a Bill will be construed as a reference to its face amount; (ii) to a Lender's share in the Credits includes all outstanding Bills accepted by that Lender; and (iii) amounts outstanding under this Agreement includes the face amount of any outstanding Bill. 8.2 Holding and completion of Bills (a) The Company must ensure that the Facility Agent has a Power of Attorney which is in full force and effect, before delivering a Request for Bills. (b) If the Power of Attorney is then still in force, the Facility Agent must, subject to the terms of this Agreement: (i) on behalf of the Company, draw and endorse sufficient Bills to fulfil each Request for Bills; (ii) date each such Bill with its Utilisation Date; (iii) insert in each such Bill the name of the Lender on which it is drawn, its face amount and its Maturity Date; and (iv) send the requisite number of completed Bills to the Lenders for acceptance under this Agreement. 8.3 Rounding The Facility Agent may round the principal amount of the Bills to be accepted by each Lender to ensure that each Bill has a principal amount of an integral multiple of (pound)10,000, being not less than (pound)250,000 nor more than (pound)5,000,000. 8.4 Discounting Each Lender may arrange for a Bill accepted by it to be discounted on its behalf in the London discount market or elsewhere or discount the Bill itself. 24 8.5 Eligible Bills The Company must ensure that each Bill drawn by it and accepted by a Lender is, assuming that the accepting Lender is a bank whose acceptances are then being treated as eligible acceptances by the Bank of England, eligible for rediscounting at the Bank of England. 9. OPTIONAL CURRENCIES 9.1 General In this Clause: (a) "Agent's Dollar Rate of Exchange" means the Facility Agent's spot rate of exchange for the purchase of the relevant currency in the London foreign exchange market with U.S. Dollars at or about 11.00 a.m. on a particular day. (b) "Committed Currency" means Sterling, euro, Yen and Swiss Francs. (c) "Optional Currency" means any currency (other than U.S. Dollars) in which a Loan may be denominated under this Agreement. 9.2 Selection (a) The Company may select the currency of a Loan in its Request. (b) Unless the Facility Agent otherwise agrees, the Loans may not be denominated at any one time in more than 10 currencies. 9.3 Conditions relating to Optional Currencies (a) A Loan may be denominated in an Optional Currency for a Term if: (i) that Optional Currency is readily available in the amount required and freely convertible into U.S. Dollars in the relevant interbank market on the Rate Fixing Day and the first day of that Term; and (ii) that Optional Currency is euro, Sterling, Yen, Swiss Francs or has been previously approved by the Facility Agent (acting on the instructions of all the Lenders). (b) If the Facility Agent has received a request from the Company for a currency to be approved as an Optional Currency, the Facility Agent must, within five Business Days, confirm to the Company: (i) whether or not the Lenders have given their approval; and (ii) if approval has been given, the minimum amount (and, if required, integral multiples) for any Loan in that currency. 25 (c) If the euro is an Optional Currency at any time, a Loan in that Optional Currency will only be made available in the euro unit. 9.4 Revocation of currency (a) Notwithstanding any other term of this Agreement, if before 9.30 a.m. on any Rate Fixing Day the Facility Agent receives notice from a Lender that: (i) the Optional Currency (other than a Committed Currency) requested is not readily available to it in the relevant interbank market in the amount and for the period required; or (ii) participating in a Loan in the proposed Optional Currency might contravene any law or regulation applicable to it, the Facility Agent must give notice to the Company to that effect promptly and in any event before 11.00 a.m. on that day. (b) In this event: (i) that Lender must participate in a Loan in U.S. Dollars; and (ii) the share of that Lender in the Loan and any other similarly affected Lender(s) will be treated as a separate Loan denominated in U.S. Dollars during that Term. (c) Any part of a Loan treated as a separate Loan under this Subclause will not be taken into account for the purposes of any limit on the number of Loans or currencies outstanding at any one time. (d) A Loan will still be treated as a Rollover Loan if it is not denominated in the same currency as the maturing Loan by reason only of the operation of this Subclause. 9.5 Optional Currency equivalents (a) The equivalent in U.S. Dollars of a Loan or part of a Loan in an Optional Currency for the purposes of calculating: (i) whether any limit under this Agreement has been exceeded; (ii) the amount of a Loan; (iii) the share of a Lender in a Loan; (iv) the amount of any repayment of a Loan; or (v) the undrawn amount of a Lender's Commitment, is its Dollar Amount. (b) The "Dollar Amount" of a Loan or part of a Loan means: (i) if the Loan is denominated in U.S. Dollars, its amount; or 26 (ii) if the Loan is denominated in an Optional Currency for a Term, its equivalent in U.S. Dollars calculated on the basis of the Agent's Dollar Rate of Exchange one Business Day before the Rate Fixing Day for that Term. 9.6 Notification The Facility Agent must notify the Lenders and the Company of the relevant Dollar Amount (and the applicable Agent's Dollar Rate of Exchange) promptly after they are ascertained. 10. REPAYMENT 10.1 Repayment of Loans (a) The Company must repay each Loan in full on its Maturity Date. (b) Subject to the other terms of this Agreement, any amounts repaid under paragraph (a) above may be re-borrowed or redrawn (whether as a Loan or a Bill or both). 10.2 Payment of Bills (a) The Company must pay an amount equal to the principal amount of each Bill on its Maturity Date. (b) Subject to the other terms of this Agreement, any amounts repaid under paragraph (a) above may be re-borrowed or redrawn (whether as a Loan or a Bill or both). 11. PREPAYMENT AND CANCELLATION 11.1 Mandatory prepayment - illegality (a) A Lender must notify the Company promptly if it becomes aware that it is unlawful in any jurisdiction for that Lender to perform any of its obligations under a Finance Document or to fund or maintain its share in any Credit. (b) After notification under paragraph (a) above: (i) the Company must repay or prepay the share of that Lender in each Credit on the date specified in paragraph (c) below; and (ii) the Commitments of that Lender will be immediately cancelled. (c) The date for repayment or prepayment of a Lender's share in a Credit will be: (i) within three Business Days following receipt by the Company of notice from the Facility Agent; or (ii) if allowed by the relevant law, the last day of the current Term of that Credit. 11.2 Mandatory prepayment - change of control (a) The Company must promptly notify the Facility Agent if it becomes aware of any person or group of persons acting in concert which acquires control of the Company. 27 (b) After notification under paragraph (a) above, each Lender may by notice to the Company: (i) cancel its Commitments; and (ii) demand that its participation in all outstanding Credits, together with accrued interest and all other amounts accrued under the Finance Documents be immediately due and payable. Any such notice will take effect in accordance with its terms. (c) In paragraph (a) above: "control" has the meaning given to it in section 416 of the Income and Corporation Taxes Act 1988; and "acting in concert" has the meaning given to it in the City Code on Takeovers and Mergers. 11.3 Voluntary prepayment (a) The Company may, by giving not less than 5 Business Days' prior notice to the Facility Agent, prepay any Credit at any time in whole or in part. (b) A prepayment of part of a Credit must be in a minimum amount of U.S.$5,000,000 (or its equivalent) and an integral multiple of U.S.$1,000,000 (or its equivalent). 11.4 Automatic cancellation The Commitment of each Lender will be automatically cancelled at the close of business on the last day of the relevant Availability Period. 11.5 Voluntary cancellation (a) The Company may, by giving not less than 5 Business Days' prior notice to the Facility Agent, cancel the unutilised amount of the Commitments in respect of a specified Facility in whole or in part. (b) Partial cancellation of the Commitments under a specified Facility must be in a minimum amount of U.S.$5,000,000 and an integral multiple of U.S.$1,000,000. (c) Any cancellation in part will be applied against the Commitment of each Lender pro rata. 11.6 Involuntary prepayment and cancellation (a) If the Company is, or will be, required to pay to a Lender a Tax Payment or an Increased Cost, the Company may, while the requirement continues, give notice to the Facility Agent requesting prepayment and cancellation in respect of that Lender. (b) After notification under paragraph (a) above: (i) the Company must repay or prepay that Lender's share in each Credit made to it on the date specified in paragraph (c) below; and (ii) the Commitments of that Lender will be immediately cancelled. 28 (c) The date for repayment or prepayment of a Lender's share in a Credit will be the last day of the current Term for that Credit or, if earlier, the date specified by the Company in its notification. 11.7 Re-borrowing of Loans and Bills Any voluntary prepayment of a Loan or Bill may be re-borrowed on the terms of this Agreement. Any mandatory or involuntary prepayment of a Loan or Bill may not be re-borrowed. 11.8 Miscellaneous provisions (a) Any notice of prepayment and/or cancellation under this Agreement is irrevocable and must specify the relevant date(s) and the affected Credits and Commitments. The Facility Agent must notify the Lenders promptly of receipt of any such notice. (b) All prepayments under this Agreement must be made with accrued interest on the amount prepaid. No premium or penalty is payable in respect of any prepayment except for Break Costs. (c) The Majority Lenders may agree a shorter notice period for a voluntary prepayment or a voluntary cancellation. (d) No prepayment or cancellation is permitted except in accordance with the express terms of this Agreement. (e) No amount of the Total Commitments cancelled under this Agreement may subsequently be reinstated. 12. INTEREST 12.1 Calculation of interest The rate of interest on each Loan for each Term is the percentage rate per annum equal to the aggregate of the applicable: (a) Margin; (b) LIBOR or (in the case of a Loan denominated in euro) EURIBOR; and (c) Mandatory Cost. 12.2 Payment of interest Except where it is provided to the contrary in this Agreement, the Company must pay accrued interest on each Loan made to it on the last day of each Term and also, if the Term is longer than six months, on the dates falling at six-monthly intervals after the first day of that Term. 12.3 Interest on overdue amounts (a) If the Company fails to pay any amount payable by it under the Finance Documents, it must immediately on demand by the Facility Agent pay interest on the overdue amount from its due date up to the date of actual payment, both before, and after judgment. 29 (b) Interest on an overdue amount is payable at a rate determined by the Facility Agent to be one per cent. per annum above the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted a Loan in the currency of the overdue amount. For this purpose, the Facility Agent may (acting reasonably): (i) select successive Terms of any duration of up to three months; and (ii) determine the appropriate Rate Fixing Day for that Term. (c) Notwithstanding paragraph (b) above, if the overdue amount is a principal amount of a Loan and becomes due and payable prior to the last day of its current Term, then: (i) the first Term for that overdue amount will be the unexpired portion of that Term; and (ii) the rate of interest on the overdue amount for that first Term will be 1 per cent. per annum above the rate then payable on that Loan. After the expiry of the first Term for that overdue amount, the rate on the overdue amount will be calculated in accordance with paragraph (b) above. (d) Interest (if unpaid) on an overdue amount will be compounded with that overdue amount at the end of each of its Terms but will remain immediately due and payable. 12.4 Notification of rates of interest The Facility Agent must promptly notify each relevant Party of the determination of a rate of interest under this Agreement. 13. TERMS 13.1 Selection (a) Each Loan has one Term only. (b) The Company will select the Term for a Loan in the relevant Request. (c) Subject to the following provisions of this Clause, each Term for a Loan will be one, two, three or six months or any other period agreed by the Company and the Lenders. 13.2 No overrunning the Final Maturity Date If a Term would otherwise overrun the Final Maturity Date, it will be shortened so that it ends on the Final Maturity Date. 13.3 Other adjustments The Facility Agent and the Company may enter into such other arrangements as they may agree for the adjustment of Terms and the consolidation and/or splitting of Loans. 13.4 Notification The Facility Agent must notify the Company and the Lenders of the duration of each Term promptly after ascertaining its duration. 30 14. MARKET DISRUPTION 14.1 Failure of a Reference Bank to supply a rate If IBOR is to be calculated by reference to the Reference Banks but a Reference Bank does not supply a rate by 12.00 noon (local time) on a Rate Fixing Day, the applicable IBOR will, subject as provided below, be calculated on the basis of the rates of the remaining Reference Banks. 14.2 Market disruption (a) In this Clause, each of the following events is a "market disruption event": (i) IBOR is to be calculated by reference to the Reference Banks but no, or only one, Reference Bank supplies a rate by 12.00 noon (local time) on the Rate Fixing Day; or (ii) the Facility Agent receives by close of business on the Rate Fixing Day notification from Lenders whose shares in the relevant Loan exceed 50 per cent. of that Loan that the cost to them of obtaining matching deposits in the relevant interbank market is in excess of IBOR for the relevant Term. (b) The Facility Agent must promptly notify the Company and the Lenders of a market disruption event. (c) After notification under paragraph (b) above, the rate of interest on each Lender's share in the affected Loan for the relevant Term will be the aggregate of the applicable: (i) Margin; (ii) rate notified to the Facility Agent by that Lender as soon as practicable to be that which expresses as a percentage rate per annum the cost to that Lender of funding its share in that Loan from whatever source it may reasonably select; and (iii) Mandatory Cost. 14.3 Alternative basis of interest or funding (a) If a market disruption event occurs and the Facility Agent or the Company so requires, the Company and the Facility Agent must enter into negotiations for a period of not more than thirty (30) days with a view to agreeing an alternative basis for determining the rate of interest and/or funding for the affected Loan and any future Loan. (b) Any alternative basis agreed will be, with the prior consent of all the Lenders, binding on all the Parties. 15. TAXES 15.1 General In this Clause: 31 "Qualifying Lender" means a Lender which is: (a) a U.K. Lender; or (b) a Treaty Lender. "Tax Credit" means a credit against any Tax or any relief or remission for Tax (or its repayment). "Tax Deduction" means a deduction or withholding for or on account of Tax from a payment under a Finance Document. "Treaty Lender" means a Lender which, on the date a payment of interest falls due under this Agreement: (a) is resident (as defined in the appropriate double taxation agreement) in a country with which the U.K. has a double taxation agreement giving residents of that country exemption from U.K. taxation on interest; and (b) does not carry on a business in the U.K. through a permanent establishment with which the payment is effectively connected. "U.K. Lender" means a Lender which is within the charge to U.K. corporation tax in respect of, and beneficially entitled to, a payment of interest on a Loan made by a person that was a bank for the purpose of section 349 of the Income and Corporation Taxes Act 1988 (as currently defined in section 840A of the Income and Corporation Taxes Act) at the time the Loan was made. 15.2 Tax gross-up (a) The Company must make all payments to be made by it under the Finance Documents without any Tax Deduction, unless a Tax Deduction is required by law. (b) If: (i) a Lender is not, or ceases to be, a Qualifying Lender; or (ii) the Company or a Lender is aware that the Company must make a Tax Deduction (or that there is a change in the rate or the basis of a Tax Deduction), it must promptly notify the Facility Agent. The Facility Agent must then promptly notify the affected Parties. (c) Except as provided below, if a Tax Deduction is required by law to be made by the Company or the Facility Agent, the amount of the payment due from the Company will be increased to 32 an amount which (after making the Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required. (d) The Company is not required to make an increased payment under paragraph (c) above to a Lender for a Tax Deduction from a payment of interest, if: (i) that Lender is not or has ceased to be a Qualifying Lender in respect of that payment, unless the altered status results from any change after the date of this Agreement in (or in the interpretation, administration, or application of) any law or double taxation agreement or any published practice or concession of any relevant taxing authority; or (ii) that Lender is a Treaty Lender and the Company is able to demonstrate that the Tax Deduction would not have been made if the Lender had complied with its obligations under paragraph (g) below. (e) If the Company is required to make a Tax Deduction, it must make the minimum Tax Deduction and must make any payment required in connection with that Tax Deduction within the time allowed by law. (f) Within thirty (30) days of making either a Tax Deduction or a payment required in connection with a Tax Deduction, the Company must deliver to the Facility Agent for the relevant Finance Party evidence satisfactory to that Finance Party (acting reasonably) that the Tax Deduction has been made or (as applicable) the appropriate payment has been paid to the relevant taxing authority. (g) A Treaty Lender must co-operate with the Company in completing any procedural formalities necessary for the Company to obtain authorisation to make that payment without a Tax Deduction. 15.3 Tax indemnity (a) Except as provided below, the Company must indemnify a Finance Party against any loss or liability which that Finance Party (in its absolute discretion) determines will be or has been suffered (directly or indirectly) by that Finance Party for or on account of Tax in relation to a payment received or receivable (or any payment deemed to be received or receivable) under a Finance Document. (b) Paragraph (a) above does not apply to any Tax assessed on a Finance Party under the laws of the jurisdiction in which: (i) that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or (ii) that Finance Party's Facility Office is located in respect of amounts received or receivable in that jurisdiction, if that Tax is imposed on or calculated by reference to the net income received or receivable by that Finance Party. However, any payment deemed to be received or receivable, including any amount treated as income but not actually received by the Finance Party, such as a Tax Deduction, will not be treated as net income received or receivable for this purpose. (c) A Finance Party making, or intending to make, a claim under paragraph (b) above must promptly notify the Company of the event which will give, or has given, rise to the claim. 33 15.4 Tax Credit If the Company makes a Tax Payment and the relevant Finance Party (in its absolute discretion) determines that: (a) a Tax Credit is attributable to that Tax Payment; and (b) it has used that Tax Credit, the Finance Party must pay an amount to the Company which that Finance Party determines (in its absolute discretion) will leave it (after that payment) in the same after-tax position as it would have been in if the Tax Payment had not been made by the Company. 15.5 Stamp taxes The Company must pay and indemnify each Finance Party against any stamp duty, registration or other similar Tax payable in connection with the entry into, performance or enforcement of any Finance Document, except for any such Tax payable in connection with the entry into of a Transfer Certificate. 15.6 Value added taxes (a) Any amount (including costs and expenses) payable under a Finance Document by the Company is exclusive of any Tax (including value added tax) which might be chargeable in connection with that amount. If any such Tax is chargeable, the Company must pay to the Finance Party (in addition to and at the same time as paying that amount) an amount equal to the amount of that Tax. (b) The obligation of the Company under paragraph (a) above will be reduced to the extent that the Finance Party is entitled to repayment or a credit in respect of the relevant Tax. 16. INCREASED COSTS 16.1 Increased Costs Except as provided below in this Clause, the Company must pay to a Finance Party the amount of any Increased Cost incurred by that Finance Party or any of its Affiliates as a result of: (a) the introduction of, or any change in, or any change in the interpretation or application of, any law or regulation; or (b) compliance with any law or regulation made after the date of this Agreement. 16.2 Exceptions The Company need not make any payment for an Increased Cost to the extent that the Increased Cost is: (a) compensated for under another Clause, or would have been but for an exception to that Clause; (b) a tax on the overall net income of a Finance Party or any of its Affiliates; or 34 (c) attributable to a Finance Party or its Affiliate wilfully or grossly negligently failing to comply with any law or regulation. 16.3 Claims A Finance Party intending to make a claim for an Increased Cost must notify the Company promptly of the circumstances giving rise to, and the amount of, the claim. 17. MITIGATION 17.1 Mitigation (a) Each Finance Party must, in agreement with the Company, take all reasonable steps to mitigate any circumstances which arise and which result or would result in: (i) any Tax Payment, any claim under Clause 15.3 (Tax indemnity) or Increased Cost being payable to that Finance Party; or (ii) that Finance Party being able to exercise any right of prepayment and/or cancellation under this Agreement by reason of any illegality, including transferring its rights and obligations under the Finance Documents to an Affiliate or changing its Facility Office. (b) The Company must indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of any step taken by it under this Subclause. (c) A Finance Party is not obliged to take any step under this Subclause if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it. 17.2 Conduct of business by a Finance Party No term of this Agreement will: (a) interfere with the right of any Finance Party to arrange its affairs (Tax or otherwise) in whatever manner it thinks fit; (b) oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it in respect of Tax or the extent, order and manner of any claim; or (c) oblige any Finance Party to disclose any information relating to its affairs (Tax or otherwise) or any computation in respect of Tax. 18. PAYMENTS 18.1 Place Unless a Finance Document specifies that payments under it are to be made in another manner, all payments by a Party (other than the Facility Agent) under the Finance Documents must be made to the Facility Agent to its account at such office or bank: (a) in the principal financial centre of the country of the relevant currency; or 35 (b) in the case of euro, in the principal financial centre of a Participating Member State or London, as it may notify to that Party for this purpose by not less than five Business Days' prior notice. 18.2 Funds Payments under the Finance Documents to the Facility Agent must be made for value on the due date at such times and in such funds as the Facility Agent may specify to the Party concerned as being customary at the time for the settlement of transactions in the relevant currency in the place for payment. 18.3 Currency (a) Unless a Finance Document specifies that payments under it are to be made in a different manner, the currency of each amount payable under the Finance Documents is determined under this Clause. (b) Interest is payable in the currency in which the relevant amount in respect of which it is payable is denominated. (c) A repayment or prepayment of any principal amount is payable in the currency in which that principal amount is denominated on its due date. (d) Amounts payable in respect of costs and expenses are payable in the currency in which they are incurred. (e) Each other amount payable under the Finance Documents is payable in Sterling. 18.4 Distribution (a) Each payment received by the Facility Agent under the Finance Documents for another Party must, except as provided below, be made available by the Facility Agent to that Party by payment (as soon as practicable after receipt) to its account with such office or bank: (i) in the principal financial centre of the country of the relevant currency; or (ii) in the case of euro, in the principal financial centre of a Participating Member State or London, as it may notify to the Facility Agent for this purpose by not less than five Business Days' prior notice. (b) The Facility Agent may (with the consent and at the expense of the Company) apply any amount received by it for the Company in or towards payment (as soon as practicable after receipt) of any amount due from the Company under the Finance Documents or in or towards the purchase of any amount of any currency to be so applied. (c) Where a sum is paid to the Facility Agent under this Agreement for another Party, the Facility Agent is not obliged to pay that sum to that Party until it has established that it has actually received it. However, the Facility Agent may assume that the sum has been paid to it, and, in reliance on that assumption, make available to that Party a corresponding amount. If it transpires that the sum had not been made available, that Party must immediately on demand 36 by the Facility Agent refund any corresponding amount made available to it together with interest on that amount from the date of payment to the date of receipt by the Facility Agent at a rate calculated by the Facility Agent to reflect its cost of funds. 18.5 No set-off or counterclaim All payments made by the Company under the Finance Documents must be made without set-off or counterclaim. 18.6 Business Days (a) If a payment under the Finance Documents is due on a day which is not a Business Day, the due date for that payment will instead be the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not). (b) During any extension of the due date for payment of any principal under this Agreement interest is payable on that principal at the rate payable on the original due date. 18.7 Partial payments (a) If the Facility Agent receives a payment insufficient to discharge all the amounts then due and payable by the Company under the Finance Documents, the Facility Agent must apply that payment towards the obligations of the Company under the Finance Documents in the following order: (i) first, in or towards payment pro rata of any unpaid fees, costs and expenses of the Facility Agent under the Finance Documents; (ii) secondly, in or towards payment pro rata of any accrued interest or fee due but unpaid under this Agreement; (iii) thirdly, in or towards payment pro rata of any principal amount due but unpaid under this Agreement; and (iv) fourthly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents. (b) The Facility Agent must, if so directed by all the Lenders, vary the order set out in sub-paragraphs (a)(ii) to (iv) above. (c) This Subclause will override any appropriation made by the Company. 18.8 Timing of payments If a Finance Document does not provide for when a particular payment is due, that payment will be due within three Business Days of demand by the relevant Finance Party. 19. REPRESENTATIONS 19.1 Representations (a) The representations set out in this Clause are made by the Company to each Finance Party. 37 (b) The representations set out in this Clause which relate to Bidco shall not apply to Bidco after completion of the Merger. 19.2 Status (a) It is a limited liability company, duly incorporated and validly existing under the laws of its jurisdiction of incorporation. (b) It and each of its Subsidiaries has the power to own its assets and carry on its business as it is being conducted. 19.3 Powers and authority It has the power to enter into and perform, and has taken all necessary corporate action to authorise the entry into and performance of, the Transaction Documents to which it is or will be a party and the transactions contemplated by those Transaction Documents. 19.4 Legal validity Subject to any general principles of law limiting its obligations and referred to in any legal opinion required under this Agreement, each Finance Document to which it is a party is its legally binding, valid and enforceable obligation. 19.5 Non-conflict The entry into and performance by it and Bidco of, and the transactions contemplated by, the Transaction Documents do not conflict with: (a) any law or regulation applicable to it; or (b) its constitutional documents; or (c) at the date of this Agreement, any document which is binding upon it or any of its Material Subsidiaries or any of its or its Material Subsidiaries' assets. 19.6 No default (a) No Default is outstanding or will result from the execution of, or the performance of any transaction contemplated by, any Finance Document; and (b) no other event is outstanding which constitutes a default under any document which is binding on it or any of its Subsidiaries or any of its or its Subsidiaries' assets to an extent or in a manner which is reasonably likely to have a Material Adverse Effect. 19.7 Authorisations All authorisations required by it in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Finance Documents have been, or in the case of the other Transaction Documents will have been by the Closing Date, obtained or effected (as appropriate) and are, or will be by the Closing Date in the case of the other Transaction Documents, in full force and effect. 38 19.8 Financial statements Its audited consolidated financial statements most recently delivered to the Facility Agent (which, at the date of this Agreement, are the Original Financial Statements): (a) have been prepared in accordance with accounting principles and practices generally accepted in its jurisdiction of incorporation, consistently applied; and (b) give a true and fair view of its consolidated financial condition as at the date to which they were drawn up, except, in each case, as disclosed to the contrary in those financial statements. 19.9 No material adverse change There has been no material adverse change in its consolidated financial condition since the date to which the audited consolidated financial statements most recently delivered to the Facility Agent were drawn up. 19.10 Litigation No litigation, arbitration or administrative proceedings are current or, to its knowledge, pending or threatened in writing, which, if adversely determined, are reasonably likely to have a Material Adverse Effect. 19.11 Information (a) All material factual information supplied by the Company to any Finance Party in writing was accurate in all material respects as at the date to which it was prepared; (b) as at its date and to the best of its knowledge, the opinions, projections and forecasts supplied by the Company to any Finance Party and the assumptions on which they were based were arrived at after due and careful consideration and genuinely represented its views; and (c) to the best of its knowledge there are no material facts or circumstances which have not been disclosed to the parties to this Agreement by the Company prior to the date of this Agreement and which would make any of the information, opinions, projections, forecasts or assumptions supplied by the Company inaccurate or misleading in any material respect. 19.12 Times for making representations (a) The representations set out in this Clause are made by the Company on the date of this Agreement. (b) Unless a representation is expressed to be given at a specific date, each representation is deemed to be repeated by the Company on the date of each Request and the first day of each Term. (c) When a representation is repeated, it is applied to the circumstances existing at the time of repetition. 39 20. INFORMATION COVENANTS 20.1 Financial statements (a) The Company must supply to the Facility Agent in sufficient copies for all the Lenders: (i) its audited consolidated financial statements for each of its financial years; and (ii) its interim financial statements for the first half-year of each of its financial years. (b) All financial statements must be supplied as soon as they are available and: (i) in the case of the Company's audited consolidated financial statements, within 180 days; and (ii) in the case of the Company's interim financial statements, within 120 days, of the end of the relevant financial period. 20.2 Compliance Certificate (a) The Company must supply to the Facility Agent a Compliance Certificate with each set of its financial statements, sent to the Facility Agent under this Agreement. (b) A "Compliance Certificate" is a certificate substantially in the form of Schedule 6 setting out, among other things, calculations of the financial covenants. (c) A Compliance Certificate must be signed by two authorised signatories of the Company. 20.3 Form of financial statements (a) The Company must ensure that each set of financial statements supplied under this Agreement fairly represents its financial condition (consolidated or otherwise) as at the date to which those financial statements were drawn up. (b) The Company must notify the Facility Agent of any change to the basis on which its audited consolidated financial statements are prepared. (c) If requested by the Facility Agent, the Company must supply to the Facility Agent: (i) a full description of any change notified under paragraph (b) above; and (ii) sufficient information to enable the Finance Parties to make a proper comparison between the financial position shown by the set of financial statements prepared on the changed basis and its most recent audited consolidated financial statements delivered to the Facility Agent under this Agreement. (d) If requested by the Facility Agent, the Company must enter into discussions for a period of not more than 30 days with a view to agreeing any amendments required to be made to this Agreement to place the Company and the Lenders in the same position as they would have been in if the change had not happened. Any agreement between the Company and the Facility Agent will be, with the prior consent of the Majority Lenders, binding on all the Parties. 40 (e) If no agreement is reached under paragraph (d) above on the required amendments to this Agreement, the Company must supply with each set of its financial statements another set of its financial statements prepared on the same basis as the Original Financial Statements. 20.4 Information - miscellaneous The Company must supply to the Facility Agent: (a) copies of all documents despatched by the Company to its shareholders (or any class of them) or its creditors generally at the same time as they are despatched; (b) promptly upon becoming aware of them, details of any litigation, arbitration or administrative proceedings which: (i) are current, threatened in writing or pending; (ii) are reasonably likely to be adversely determined; and (iii) would, if adversely determined, have a Material Adverse Effect; (c) promptly on request, a list of the then current Material Subsidiaries; and (d) promptly on request, such further information regarding the financial condition and operations of the Group as any Finance Party through the Facility Agent may reasonably request. 20.5 Notification of Default (a) The Company must notify the Facility Agent of any Event of Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence. (b) Promptly on request by the Facility Agent, the Company must supply to the Facility Agent a certificate, signed by two of its authorised signatories on its behalf, certifying that no Default is outstanding or, if a Default is outstanding, specifying the Default and the steps, if any, being taken to remedy it. 20.6 Year end The Company must not change its financial year end without the prior written consent of the Majority Lenders such consent not to be unreasonably withheld or delayed. 21. FINANCIAL COVENANTS 21.1 Definitions In this Clause: "Consolidated Cash and Cash Equivalents" means, at any time: (a) cash in hand or on deposit with any acceptable bank, which, in either case, is not subject to any security interest and is readily remittable to the U.K; 41 (b) certificates of deposit, maturing within one year after the relevant date of calculation, issued by an acceptable bank; (c) any investment in marketable obligations issued or guaranteed by the government of the United States of America or the U.K. or by an instrumentality or agency of the government of the United States of America or the U.K. having an equivalent credit rating; (d) any investment in debt instruments permitting cash withdrawals on not more than one month's notice and which have a rating of AA or higher by Standard and Poor's or Aa2 or higher by Moody's; (e) open market commercial paper: (i) for which a recognised trading market exists; (ii) issued in the United States of America or the U.K.; (iii) which matures within one year after the relevant date of calculation; and (iv) which has a credit rating of either A-1 by Standard & Poor's or IBCA or P-1 by Moody's, or, if no rating is available in respect of the commercial paper or indebtedness, the issuer of which has, in respect of its long-term debt obligations, an equivalent rating; (f) sterling bills of exchange eligible for rediscount at the Bank of England and accepted by an acceptable bank; or (g) any other instrument, security or investment approved by the Majority Lenders, in each case, to which any member of the Group is beneficially entitled at that time and which is capable of being applied against Consolidated Total Borrowings. An "acceptable bank" for this purpose is a commercial bank or trust company which has a rating of A or higher by Standard & Poor's or IBCA or A-2 or higher by Moody's or a comparable rating from a nationally recognised credit rating agency for its long-term debt obligations. "Consolidated EBITA" means Consolidated EBITDA for a Measurement Period adjusted by deducting depreciation. "Consolidated EBITDA" means the consolidated net pre-taxation profits of the Group for a Measurement Period, adjusted by: (a) adding back Consolidated Interest Payable; (b) taking no account of any exceptional or extraordinary item; (c) excluding any amount attributable to minority interests; (d) adding back depreciation and amortisation; 42 (e) including the net pre-taxation profits of a member of the Group acquired during that Measurement Period for the part of that Measurement Period when it was not a member of the Group; and (f) excluding the net pre-taxation profit attributable to any business sold during that Measurement Period. "Consolidated Interest Payable" means all interest and periodic financing charges including acceptance commission, commitment fee and the interest element of rental payments or finance or capital leases (whether, in each case, paid, payable or capitalised), incurred by the Group in effecting, servicing or maintaining Total Consolidated Borrowings during a Measurement Period. "Consolidated Net Interest Payable" means Consolidated Interest Payable less all financing charges received or receivable by the Group during the relevant Measurement Period. "Consolidated Total Borrowings" means, in respect of the Group, at any time the aggregate of the following: (a) the outstanding principal amount of any moneys borrowed; (b) the outstanding principal amount of any acceptance under any acceptance credit; (c) the outstanding principal amount of any bond, note, debenture, loan stock or other similar instrument; (d) the capitalised element of indebtedness under a finance or capital lease; (e) the outstanding principal amount of all moneys owing in connection with the sale or discounting of receivables (otherwise than on a non-recourse basis); (f) the outstanding principal amount of any indebtedness arising from any deferred payment agreements arranged primarily as a method of raising finance or financing the acquisition of an asset; (g) any fixed or minimum premium payable on the repayment or redemption of any instrument referred to in paragraph (c) above; (h) the outstanding principal amount of any indebtedness arising in connection with any other transaction (including any forward sale or purchase agreement) which has the commercial effect of a borrowing; and (i) the outstanding principal amount of any indebtedness of any person of a type referred to in paragraphs (a) - (h) above which is the subject of a guarantee, indemnity or similar assurances against financial loss. Any amount outstanding in a currency other than Sterling is to be taken into account at its Sterling equivalent calculated on the basis of: 43 (i) the Facility Agent's spot rate of exchange for the purchase of the relevant currency in the London foreign exchange market with Sterling at or about 11.00 a.m. on the day the relevant amount falls to be calculated; or (ii) if the amount is to be calculated on the last day of a financial period of the Company, the rate of exchange used by the Company in its financial statements for that period. "Consolidated Total Net Borrowings" means at any time Consolidated Total Borrowings less Consolidated Cash and Cash Equivalents. "Measurement Period" means a period of 12 months ending on the last day of a financial year or financial half-year of the Company. 21.2 Interpretation (a) Except as provided to the contrary in this Agreement, an accounting term used in this Clause is to be construed in accordance with the principles applied in connection with the Original Financial Statements. (b) No item must be credited or deducted more than once in any calculation under this Clause. 21.3 Gearing The Company must ensure that Consolidated Total Net Borrowings are not, at the end of each Measurement Period ending after 31st December, 2001, more than 2.5 times Consolidated EBITDA. 21.4 Interest cover/Cashflow The Company must ensure that the ratio of Consolidated EBITA to Consolidated Net Interest Payable is not, at the end of each Measurement Period ending after 31st December, 2001, less than 3.5 to 1. 22. GENERAL COVENANTS 22.1 General The Company agrees to be bound by the covenants set out in this Clause relating to it and, where the covenant is expressed to apply to each member or to specified members of the Group, the Company must ensure that each of its Subsidiaries to which the covenant relates performs that covenant. 22.2 Authorisations The Company must promptly obtain, maintain and comply with the terms of any authorisation required under any law or regulation to enable it to perform its obligations under, or for the validity or (subject to any general principles of law limiting its obligations and referred to in any legal opinion required under this Agreement) enforceability of, any Finance Document. 22.3 Compliance with laws Each member of the Group must comply in all respects with all regulations to which it is subject where failure to do so is reasonably likely to have a Material Adverse Effect. 22.4 Pari passu ranking The Company must ensure that its payment obligations under the Finance Documents rank at least pari passu with all its other present and future unsecured payment obligations, except for obligations mandatorily preferred by law applying to companies generally. 22.5 Negative pledge (a) In this Subclause, "Security Interest" means any mortgage, pledge, lien, charge, assignment, hypothecation or security interest. (b) Except as provided below, no member of the Group may create or allow to exist any Security Interest on any of its assets. (c) Paragraph (b) does not apply to: (i) any Security Interest comprising a netting, set-off or lien arrangement entered into by a member of the Group in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances; (ii) any lien arising by operation of law and in the ordinary course of business; (iii) any Security Interest on an asset, or an asset of any person, acquired by a member of the Group after the date of this Agreement to the extent that the principal amount secured by that Security Interest has not been incurred or increased in contemplation of, or since, the acquisition; (iv) any Security Interest arising under any contract for the purchase of goods entered into in the normal course of trading pursuant to a supplier's normal terms and conditions; and (v) any Security Interest securing indebtedness the amount of which (when aggregated with the amount of assets or receivables sold, transferred or disposed of under paragraph (d) below) does not exceed 10 per cent. of the consolidated gross assets of the Group as shown in the most recent audited consolidated financial statements of the Company delivered to the Facility Agent pursuant to Clause 20.1 (Financial statements) (being as at the date of this Agreement the Original Financial Statements). (d) No member of the Group may: (i) sell, transfer or otherwise dispose of any of its assets on terms where it is or may be leased to or re-acquired or acquired by a member of the Group or any of its related entities; or (ii) sell, transfer or otherwise dispose of any of its receivables on recourse terms, 45 in circumstances where the transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset unless the amount of assets or receivables sold, transferred or disposed of under this paragraph (including any assets the subject of any such arrangement on the date of this Agreement) (when aggregated with the amount of indebtedness secured under Subclause 22.5(c)(vi) above) does not exceed 10 per cent. of the consolidated gross assets of the Group as shown in the most recent audited consolidated financial statements of the Company delivered to the Facility Agent pursuant to Clause 20.1 (Financial statements) (being as at the date of this Agreement the Original Financial Statements). 22.6 Disposals (a) In this Subclause, "disposal" means a sale, transfer, grant, lease or other disposal, whether voluntary or involuntary, and "dispose" will be construed accordingly. (b) Except as provided below, the Company will not, and will procure that no Subsidiary will, either in a single transaction or in a series of transactions and whether related or not, dispose of all or any part of its assets. (c) Paragraph (b) does not apply to any disposal: (i) made in the ordinary course of trading of the disposing entity; (ii) of assets which are exchanged within 180 days for other assets comparable or superior as to type, value and quality; (iii) by one company in the Group (other than the Company) to another company in the Group; or (iv) of machinery of plant at or nearly at the end of their useful life or period of depreciation; (v) of obsolete equipment owned by a member of the Group no longer required for the purposes of the business carried on by that member of the Group; or (vi) which would not be deemed to be a class 1 transaction under the Listing Rules of the Financial Services Authority or which would not require the approval of the shareholders of the Company in general meeting. 22.7 Financial Indebtedness (a) Except as provided below no member of the Group (other than the Company) may incur any Financial Indebtedness. (b) Paragraph (a) does not apply to: (i) any Financial Indebtedness of any person acquired by a member of the Group which is incurred under arrangements in existence at the date of acquisition, but only for a period of 6 months from the date of acquisition; (ii) any derivative transaction protecting against or benefiting from fluctuations in any rate or price entered into in the ordinary course of business; 46 (iii) the capital element of any liability under finance or capital leases up to a maximum amount not exceeding (pound)10,000,000 (or the equivalent in any other currency) or any higher amount which is approved in writing by the Facility Agent acting on the instructions of the Majority Lenders; or (iv) foreign exchange, interest rate or similar hedging arrangements entered into only for the purposes of managing the interest rate and foreign exchange rates of the Group and not for any speculative purpose or pursuant to any financial trading; or (v) any other Financial Indebtedness which in aggregate does not exceed(pound)125,000,000 or its equivalent at any time. 22.8 Change of business The Company must ensure that no material change is made to the general nature of the business of the Company or the Group from that carried on at the date of this Agreement. 22.9 Mergers The Company must not enter into any amalgamation, demerger, merger or reconstruction otherwise than under an intra-Group re-organisation on a solvent basis or other transaction agreed by the Majority Lenders. 22.10 Environmental matters (a) In this Subclause: "Environmental Approval" means any authorisation required by an Environmental Law. "Environmental Claim" means any claim by any person in connection with: (i) a breach, or alleged breach, of an Environmental Law; (ii) any accident, fire, explosion or other event of any type involving an emission or substance which is capable of causing harm to any living organism or the environment; or (iii) any other environmental contamination, which might result in any liability on any Party. "Environmental Law" means any law or regulation concerning: (i) the protection of health and safety; (ii) the environment; or 47 (iii) any emission or substance which is capable of causing harm to any living organism or the environment. (b) Each member of the Group must comply with all Environmental Law and Environmental Approvals applicable to it if failure to do so is reasonably likely to have a Material Adverse Effect. (c) The Company must promptly upon becoming aware notify the Facility Agent of: (i) any Environmental Claim current or to its knowledge, pending or threatened in writing; or (ii) any circumstances reasonably likely to result in an Environmental Claim, which, if substantiated, is reasonably likely either to have a Material Adverse Effect or result in any liability for a Finance Party. 22.11 Insurance Each member of the Group must (subject to market availability on reasonably commercial terms) insure its business and assets with insurance companies to such an extent and against such risks as companies engaged in a similar business normally insure. 23. DEFAULT 23.1 Events of Default (a) Each of the events set out in this Clause is an Event of Default. (b) In this Clause: "Material Group Member" means the Company or a Material Subsidiary; and "Permitted Transaction" means: (i) an intra-Group re-organisation of a Material Subsidiary on a solvent basis; or (ii) any other transaction agreed by the Majority Lenders. 23.2 Non-payment The Company does not pay on the due date any amount payable by it under the Finance Documents in the manner required under the Finance Documents, unless the non-payment: (a) is caused by administrative or technical error; and (b) is remedied within three Business Days (in the case of principal amounts due under this Agreement) and within five Business Days (in the case of any other amount due under this Agreement) of its due date. 48 23.3 Breach of other obligations (a) The Company does not comply with any term of Clause 21 (Financial covenants); or (b) the Company does not comply with any other term of the Finance Documents not already referred to in this Clause, unless the non-compliance: (i) is capable of remedy; and (ii) is remedied within twenty Business Days of the earlier of the Facility Agent giving notice and the Company becoming aware of the non-compliance. 23.4 Misrepresentation A representation made or repeated by the Company in any Finance Document or in any document delivered by or on behalf of the Company under any Finance Document is incorrect in any material respect when made or deemed to be repeated unless the circumstances giving rise to the misrepresentation: (a) are capable of remedy; and (b) are remedied within twenty Business Days or the earlier of the Facility Agent giving notice and the Company becoming aware of the misrepresentation. 23.5 Cross-default Any of the following occurs in respect of a member of the Group: (a) any of its Financial Indebtedness is not paid when due (after the expiry of any originally applicable grace period); (b) any of its Financial Indebtedness: (i) becomes prematurely due and payable; or (ii) is placed on demand, in each case, as a result of an event of default (howsoever described); or (c) any commitment for its Financial Indebtedness is cancelled or suspended as a result of an event of default (howsoever described), unless the aggregate amount of Financial Indebtedness falling within paragraphs (a)-(c) above is less than (pound)10,000,000 or its equivalent. 23.6 Insolvency Any of the following occurs in respect of a Material Group Member: (a) it is or is deemed for the purposes of Section 123 of the Insolvency Act 1986 (but as if the figure of (pound)750 in paragraph (a) was replaced with the figure of (pound)1,000,000) to be unable to pay its debts as they fall due; 49 (b) it admits its inability to pay its debts as they fall due; (c) it suspends making payments on its debts generally or announces an intention to do so; (d) by reason of actual or anticipated financial difficulties, it begins negotiations with creditors generally or any class of them for the rescheduling of any of its indebtedness; or (e) a moratorium is declared in respect of its indebtedness generally. 23.7 Insolvency proceedings (a) Except as provided below, any of the following occurs in respect of a Material Group Member: (i) any step is taken with a view to a composition, assignment or similar arrangement with its creditors generally; (ii) a meeting of it is convened for the purpose of considering any resolution for (or to petition for) its winding-up, administration or dissolution or any such resolution is passed; (iii) any person presents a petition for its winding-up, administration or dissolution; (iv) an order for its winding-up, administration or dissolution is made; (v) any liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or similar officer is appointed in respect of it; (vi) its directors or other officers request the appointment of a liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or similar officer; or (vii) any other analogous step or procedure is taken in any jurisdiction. (b) Paragraph (a) does not apply to: (i) any step or procedure which is part of a Permitted Transaction; or (ii) a petition for winding-up presented by a creditor which is being contested in good faith and with due diligence and is discharged or struck out within fourteen days. 23.8 Creditors' process Any attachment, sequestration, distress, execution or analogous event affects any asset(s) of a Material Group Member, having an aggregate value of (pound)5,000,000, and is not discharged within fourteen days or is being contested in good faith to the satisfaction of the Facility Agent acting reasonably. 50 23.9 Cessation of business A Material Group Member ceases, or threatens to cease, to carry on business except: (a) as part of a Permitted Transaction; or (b) as a result of any disposal allowed under this Agreement. 23.10 Effectiveness of Finance Documents (a) It is or becomes unlawful for the Company to perform any of its obligations under the Finance Documents. (b) The Company repudiates a Finance Document or purports to repudiate a Finance Document. 23.11 Material adverse change Any event or series of events occurs which will have a Material Adverse Effect. 23.12 Acceleration If an Event of Default is outstanding, the Facility Agent may, and must if so directed by the Majority Lenders, by notice to the Company: (a) cancel the Total Commitments; and/or (b) declare that all or part of any amounts outstanding under the Finance Documents are: (i) immediately due and payable; and/or (ii) payable on demand by the Facility Agent acting on the instructions of the Majority Lenders. Any notice given under this Subclause will take effect in accordance with its terms. 24. THE ADMINISTRATIVE PARTIES 24.1 Appointment and duties of the Facility Agent (a) Each Finance Party (other than the Facility Agent) irrevocably appoints the Facility Agent to act as its agent under the Finance Documents. (b) Each Finance Party irrevocably authorises the Facility Agent to: (i) perform the duties and to exercise the rights, powers and discretions that are specifically given to it under the Finance Documents, together with any other incidental rights, powers and discretions; and (ii) execute each Finance Document expressed to be executed by the Facility Agent. (c) The Facility Agent has only those duties which are expressly specified in the Finance Documents. Those duties are solely of a mechanical and administrative nature. 51 24.2 Role of the Arranger Except as specifically provided in the Finance Documents, the Arranger has no obligations of any kind to any other Party in connection with any Finance Document. 24.3 No fiduciary duties Except as specifically provided in a Finance Document, nothing in the Finance Documents makes an Administrative Party a trustee or fiduciary for any other Party or any other person. No Administrative Party need hold in trust any moneys paid to it for a Party or be liable to account for interest on those moneys. 24.4 Individual position of an Administrative Party (a) If it is also a Lender, each Administrative Party has the same rights and powers under the Finance Documents as any other Lender and may exercise those rights and powers as though it were not an Administrative Party. (b) Each Administrative Party may: (i) carry on any business with the Company or its related entities (including acting as an agent or a trustee for any other financing); and (ii) retain any profits or remuneration it receives under the Finance Documents or in relation to any other business it carries on with the Company or its related entities. 24.5 Reliance The Facility Agent may: (a) rely on any notice or document believed by it to be genuine and correct and to have been signed by, or with the authority of, the proper person; (b) rely on any statement made by any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify; (c) engage, pay for and rely on professional advisers selected by it (including those representing a Party other than the Facility Agent); and (d) act under the Finance Documents through its personnel and agents. 24.6 Majority Lenders' instructions (a) The Facility Agent is fully protected if it acts on the instructions of the Majority Lenders in the exercise of any right, power or discretion or any matter not expressly provided for in the Finance Documents. Any such instructions given by the Majority Lenders will be binding on all the Lenders. In the absence of instructions, the Facility Agent may act as it considers to be in the best interests of all the Lenders. (b) The Facility Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender's consent) in any legal or arbitration proceedings in connection with any Finance Document. 52 (c) The Facility Agent may require the receipt of security satisfactory to it, whether by way of payment in advance or otherwise, against any liability or loss which it may incur in complying with the instructions of the Majority Lenders. 24.7 Responsibility (a) No Administrative Party is responsible to any other Finance Party for the adequacy, accuracy or completeness of: (i) any Finance Document or any other document; or (ii) any statement or information (whether written or oral) made in or supplied in connection with any Finance Document. (b) Without affecting the responsibility of the Company for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms that it: (i) has made, and will continue to make, its own independent appraisal of all risks arising under or in connection with the Finance Documents (including the financial condition and affairs of the Company and its related entities and the nature and extent of any recourse against any Party or its assets); and (ii) has not relied exclusively on any information provided to it by any Administrative Party in connection with any Finance Document. 24.8 Exclusion of liability (a) The Facility Agent is not liable to any other Finance Party for any action taken or not taken by it in connection with any Finance Document, unless directly caused by its gross negligence or wilful misconduct. (b) No Party may take any proceedings against any officer, employee or agent of the Facility Agent in respect of any claim it might have against the Facility Agent or in respect of any act or omission of any kind by that officer, employee or agent in connection with any Finance Document. Any officer, employee or agent of the Facility Agent may rely on this Subclause and enforce its terms under the Contracts (Rights of Third Parties) Act 1999. 24.9 Default (a) The Facility Agent is not obliged to monitor or enquire whether a Default has occurred. The Facility Agent is not deemed to have knowledge of the occurrence of a Default. (b) If the Facility Agent: (i) receives notice from a Party referring to this Agreement, describing a Default and stating that the event is a Default; or (ii) is aware of the non-payment of any principal or interest or any fee payable to a Lender under this Agreement, it must promptly notify the Lenders. 53 24.10 Information (a) The Facility Agent must promptly forward to the person concerned the original or a copy of any document which is delivered to the Facility Agent by a Party for that person. (b) Except where a Finance Document specifically provides otherwise, the Facility Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party. (c) Except as provided above, the Facility Agent has no duty: (i) either initially or on a continuing basis to provide any Lender with any credit or other information concerning the risks arising under or in connection with the Finance Documents (including any information relating to the financial condition or affairs of the Company or its related entities or the nature or extent of recourse against any Party or its assets) whether coming into its possession before, on or after the date of this Agreement; or (ii) unless specifically requested to do so by a Lender in accordance with a Finance Document, to request any certificate or other document from the Company. (d) In acting as the Facility Agent, the agency division of the Facility Agent is treated as a separate entity from its other divisions and departments. Any information acquired by the Facility Agent which, in its opinion, is acquired by it otherwise than in its capacity as the Facility Agent may be treated as confidential by the Facility Agent and will not be treated as information possessed by the Facility Agent in its capacity as such. (e) The Company irrevocably authorises the Facility Agent to disclose to the other Finance Parties any information which, in its opinion, is received by it in its capacity as the Facility Agent. 24.11 Indemnities (a) Without limiting the liability of the Company under the Finance Documents, each Lender must indemnify the Facility Agent for that Lender's Pro Rata Share of any loss or liability incurred by the Facility Agent in acting as the Facility Agent, except to the extent that the loss or liability is caused by the Facility Agent's gross negligence or wilful misconduct. (b) The Facility Agent may deduct from any amount received by it for a Lender any amount due to the Facility Agent from that Lender under a Finance Document but unpaid. 24.12 Compliance The Facility Agent may refrain from doing anything (including the disclosure of any information) which might, in its opinion, constitute a breach of any law or regulation or be otherwise actionable at the suit of any person, and may do anything which, in its opinion, is necessary or desirable to comply with any law or regulation. 24.13 Resignation of the Facility Agent (a) The Facility Agent may resign and appoint any of its Affiliates as successor Facility Agent by giving notice to the Lenders and the Company. 54 (b) Alternatively, the Facility Agent may resign by giving notice to the Lenders and the Company, in which case the Majority Lenders may appoint a successor Facility Agent. (c) If no successor Facility Agent has been appointed under paragraph (b) above within 30 days after notice of resignation was given, the Facility Agent may appoint a successor Facility Agent. (d) The person(s) appointing a successor Facility Agent must, if practicable, consult with the Company prior to the appointment for a period of not less than 30 days. Any successor Facility Agent must have an office in the U.K. (e) The resignation of the Facility Agent and the appointment of any successor Facility Agent will both become effective only when the successor Facility Agent notifies all the Parties that it accepts its appointment. On giving the notification, the successor Facility Agent will succeed to the position of the Facility Agent and the term "Facility Agent" will mean the successor Facility Agent. (f) The retiring Facility Agent must, at its own cost, make available to the successor Facility Agent such documents and records and provide such assistance as the successor Facility Agent may reasonably request for the purposes of performing its functions as the Facility Agent under the Finance Documents. (g) Upon its resignation becoming effective, this Clause will continue to benefit the retiring Facility Agent in respect of any action taken or not taken by it in connection with the Finance Documents while it was the Facility Agent, and, subject to paragraph (f) above, it will have no further obligations under any Finance Document. (h) The Majority Lenders may, by notice to the Facility Agent, require it to resign under paragraph (b) above. 24.14 Relationship with Lenders (a) The Facility Agent may treat each Lender as a Lender, entitled to payments under this Agreement and as acting through its Facility Office(s) until it has received not less than five Business Days' prior notice from that Lender to the contrary. (b) The Facility Agent may at any time, and must if requested to do so by the Majority Lenders, convene a meeting of the Lenders. (c) The Facility Agent must keep a register of all the Parties and supply any other Party with a copy of the register on request. The register will include each Lender's Facility Office(s) and contact details for the purposes of this Agreement. 24.15 Notice period Where this Agreement specifies a minimum period of notice to be given to the Facility Agent, the Facility Agent may, at its discretion, accept a shorter notice period. 55 25. EVIDENCE AND CALCULATIONS 25.1 Accounts Accounts maintained by a Finance Party in connection with this Agreement are prima facie evidence of the matters to which they relate for the purpose of any litigation or arbitration proceedings. 25.2 Certificates and determinations Any certification or determination by a Finance Party of a rate or amount under the Finance Documents will be, in the absence of manifest error, conclusive evidence of the matters to which it relates. 25.3 Calculations Any interest or fee accruing under this Agreement accrues from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 or 365 days or otherwise, depending on what the Facility Agent determines is market practice. 26. FEES 26.1 Facility Agent's fee The Company must pay to the Facility Agent for its own account an agency fee in the manner agreed in the Fee Letter between the Facility Agent and the Company. 26.2 Arrangement fee The Company must pay to the Arranger for its own account an arrangement fee in the manner agreed in the Fee Letter between the Arranger and the Company. 26.3 Facility A Commitment fee (a) The Company must pay a commitment fee computed at the rate set out in the Fee Letter between the Arranger and the Company on the undrawn, uncancelled amount of each Lender's Facility A Commitment. (b) Accrued commitment fee is payable quarterly in arrear. Accrued commitment fee is also payable to the Facility Agent for a Lender on the date its Facility A Commitment is cancelled in full. 26.4 Facility B Commitment fee (a) The Company must pay a commitment fee computed at the rate of 0.175 per cent. per annum on the undrawn, uncancelled amount of each Lender's Facility B Commitment. (b) Accrued commitment fee is payable quarterly in arrear. Accrued commitment fee is also payable to the Facility Agent for a Lender on the date its Facility B Commitment is cancelled in full. 56 27. INDEMNITIES AND BREAK COSTS 27.1 Currency indemnity (a) The Company must, as an independent obligation, indemnify each Finance Party against any loss or liability which that Finance Party incurs as a consequence of: (i) that Finance Party receiving an amount in respect of the Company's liability under the Finance Documents; or (ii) that liability being converted into a claim, proof, judgment or order, in a currency other than the currency in which the amount is expressed to be payable under the relevant Finance Document. (b) Unless otherwise required by law, the Company waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency other than that in which it is expressed to be payable. 27.2 Other indemnities (a) The Company must indemnify each Finance Party against any loss or liability which that Finance Party incurs as a consequence of: (i) the occurrence of any Event of Default; (ii) any failure by the Company to pay any amount due under a Finance Document on its due date, including any resulting from any distribution or redistribution of any amount among the Lenders under this Agreement; (iii) (other than by reason of negligence or default by that Finance Party) a Loan not being made after a Request has been delivered for that Loan; or (iv) a Loan (or part of a Loan) not being prepaid in accordance with a notice of prepayment. The Company's liability in each case includes any loss or expense on account of funds borrowed, contracted for or utilised to fund any amount payable under any Finance Document, any amount repaid or prepaid or any Loan. (b) The Company must indemnify the Facility Agent against any loss or liability incurred by the Facility Agent as a result of: (i) investigating any event which the Facility Agent reasonably believes to be a Default; or (ii) acting or relying on any notice which it reasonably believes to be genuine, correct and appropriately authorised. 27.3 Break Costs (a) The Company must pay to each Lender its Break Costs. 57 (b) Break Costs are the amount (if any) determined by the relevant Lender by which: (i) the interest which that Lender would have received for the period from the date of receipt of any part of its share in a Loan or an overdue amount to the last day of the applicable Term for that Loan or overdue amount if the principal or overdue amount received had been paid on the last day of that Term; exceeds (ii) the amount which that Lender would be able to obtain by placing an amount equal to the amount received by it on deposit with a leading bank in the appropriate interbank market for a period starting on the Business Day following receipt and ending on the last day of the applicable Term. (c) Each Lender must supply to the Facility Agent for the Company details of the amount of any Break Costs claimed by it under this Subclause. 28. EXPENSES 28.1 Initial costs The Company must pay to each Administrative Party the amount of all costs and expenses (including reasonable legal fees) reasonably incurred by it in connection with the negotiation, preparation, printing, execution and syndication of the Finance Documents. 28.2 Subsequent costs The Company must pay to the Facility Agent the amount of all costs and expenses (including legal fees) reasonably incurred by it in connection with: (a) the negotiation, preparation, printing and execution of any Finance Document (other than a Transfer Certificate) executed after the date of this Agreement; and (b) any amendment, waiver or consent requested by or on behalf of the Company or specifically allowed by this Agreement. 28.3 Enforcement costs The Company must pay to each Finance Party the amount of all costs and expenses (including legal fees) incurred by it in connection with the enforcement of, or the preservation of any rights under, any Finance Document. 29. AMENDMENTS AND WAIVERS 29.1 Procedure (a) Except as provided in this Clause, any term of the Finance Documents may be amended or waived with the agreement of the Company and the Majority Lenders. The Facility Agent may effect, on behalf of any Finance Party, an amendment or waiver allowed under this Clause. 58 (b) The Facility Agent must promptly notify the other Parties of any amendment or waiver effected by it under paragraph (a) above. Any such amendment or waiver is binding on all the Parties. 29.2 Exceptions (a) An amendment or waiver which relates to: (i) the definition of "Majority Lenders" in Clause 1.1 (Definitions); (ii) an extension of the date of payment of any amount to a Lender under the Finance Documents; (iii) a reduction in the Margin or a reduction in the amount of any payment of principal, interest, fee or other amount payable to a Lender under the Finance Documents; (iv) an increase in, or an extension of, a Commitment; (v) a release of the Company; (vi) a term of a Finance Document which expressly requires the consent of each Lender; (vii) the right of a Lender to assign or transfer its rights or obligations under the Finance Documents; or (viii) this Clause, may only be made with the consent of all the Lenders. (b) An amendment or waiver which relates to the rights or obligations of an Administrative Party may only be made with the consent of that Administrative Party. 29.3 Change of currency If a change in any currency of a country occurs (including where there is more than one currency or currency unit recognised at the same time as the lawful currency of a country), this Agreement will be amended to the extent the Facility Agent (acting reasonably and after consultation with the Company) determines is necessary to reflect the change. 29.4 Waivers and remedies cumulative The rights of each Finance Party under the Finance Documents: (a) may be exercised as often as necessary; (b) are cumulative and not exclusive of its rights under the general law; and (c) may be waived only in writing and specifically. Delay in exercising or non-exercise of any right is not a waiver of that right. 59 30. CHANGES TO THE PARTIES 30.1 General In this Clause: "Transfer Certificate" means a transfer certificate in the form of Schedule 5 (Form of Transfer Certificate), in each case with such amendments as the Facility Agent may approve or reasonably require or, in the case of a Transfer Certificate, any other form agreed between and the Company; and "Transfer Date" means: (a) for a Transfer Certificate, the later of: (i) the proposed Transfer Date specified in that Transfer Certificate; and (ii) the date on which the Facility Agent executes that Transfer Certificate; and (b) for a Syndication Agreement, the Effective Date specified in that Syndication Agreement. 30.2 Assignments and transfers by the Company The Company may not assign or transfer any of its rights and obligations under the Finance Documents without the prior consent of all the Lenders. 30.3 Assignments and transfers by Lenders (a) A Lender (the "Existing Lender") may, subject to the following provisions of this Subclause, at any time assign or transfer (including by way of novation) any of its rights and obligations under this Agreement to another bank or financial institution which is a Qualifying Lender, as defined in Clause 15.1 (General) (the "New Lender"). (b) A transfer of part of a Commitment must be in a minimum amount of at least U.S.$10,000,000 and an integral multiple of U.S.$5,000,000. (c) The consent of the Company is required for any assignment or transfer unless the New Lender is another Lender or an Affiliate of a Lender. The consent of the Company must not be unreasonably withheld or delayed. The Company will be deemed to have given its consent ten Business Days after the Company is given notice of the request unless it is expressly refused by the Company within that time. (d) A transfer of obligations will be effective only if either: (i) the obligations are novated in accordance with the following provisions of this Clause; or (ii) the New Lender confirms to the Facility Agent and the Company in form and substance satisfactory to the Facility Agent that it is bound by the terms of this 60 Agreement as a Lender. On the transfer becoming effective in this manner the Existing Lender will be released from its obligations under this Agreement to the extent that they are transferred to the New Lender. (e) Unless the Facility Agent otherwise agrees, the New Lender must pay to the Facility Agent for its own account, on or before the date any assignment or transfer occurs, a fee of(pound)1,000. (f) Any reference in this Agreement to a Lender includes a New Lender but excludes a Lender if no amount is or may be owed to or by it under this Agreement. 30.4 Procedure for transfer by way of novations (a) A novation is effected if: (i) the Existing Lender and the New Lender deliver to the Facility Agent a duly completed Transfer Certificate and the Facility Agent executes it; and (ii) a Syndication Agreement is executed by all the Administrative Parties, the Lenders and the Company. The Facility Agent must execute as soon as reasonably practicable a Transfer Certificate delivered to it and which appears on its face to be in order. (b) Each Party (other than the Existing Lender and the New Lender) irrevocably authorises the Facility Agent to execute any duly completed Transfer Certificate on its behalf. (c) On the Transfer Date: (i) the New Lender will assume the rights and obligations of the Existing Lender expressed to be the subject of the novation in the Transfer Certificate in substitution for the Existing Lender; and (ii) the Existing Lender will be released from those obligations and cease to have those rights. 30.5 Limitation of responsibility of Existing Lender (a) Unless expressly agreed to the contrary, an Existing Lender is not responsible to a New Lender for the legality, validity, adequacy, accuracy, completeness or performance of: (i) any Finance Document or any other document; or (ii) any statement or information (whether written or oral) made in or supplied in connection with any Finance Document, and any representations or warranties implied by law are excluded. (b) Each New Lender confirms to the Existing Lender and the other Finance Parties that it: (i) has made, and will continue to make, its own independent appraisal of the financial condition and affairs of the Company and its related entities in connection with its participation in this Agreement; and 61 (ii) has not relied exclusively on any information supplied to it by the Existing Lender in connection with any Finance Document. (c) Nothing in any Finance Document requires an Existing Lender to: (i) accept a re-transfer from a New Lender of any of the rights and obligations assigned or transferred under this Clause; or (ii) support any losses incurred by the New Lender by reason of the non-performance by the Company of its obligations under any Finance Document or otherwise. 30.6 Costs resulting from change of Lender or Facility Office If: (a) a Lender assigns or transfers any of its rights and obligations under the Finance Documents or changes its Facility Office; and (b) as a result of circumstances existing at the date the assignment, transfer or change occurs, the Company would be obliged to pay a Tax Payment or an Increased Cost, then, unless the assignment, transfer or change is made by a Lender to mitigate any circumstances giving rise to the Tax Payment, Increased Cost or right to be prepaid and/or cancelled by reason of illegality, the Company need only pay that Tax Payment or Increased Cost to the same extent that it would have been obliged to if no assignment, transfer or change had occurred. 30.7 Changes to the Reference Banks If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender of which it is an Affiliate) ceases to be a Lender, the Facility Agent must (with the agreement of the Company) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank. 31. DISCLOSURE OF INFORMATION (a) Each Finance Party must keep confidential any information supplied to it by or on behalf of the Company in connection with the Finance Documents. However, a Finance Party is entitled to disclose information: (i) which is publicly available, other than as a result of a breach by that Finance Party of this Clause; (ii) in connection with any legal or arbitration proceedings; (iii) if required to do so under any law or regulation; (iv) to a governmental, banking, taxation or other regulatory authority; (v) to its professional advisers provided that its professional advisers are made aware that that information must be kept confidential in accordance with the terms of this Clause; (vi) to the extent allowed under paragraph (b) below; or 62 (vii) with the agreement of the Company. (b) A Finance Party may disclose to an Affiliate or any person with whom it may enter, or has entered into, any kind of transfer, participation or other agreement in relation to this Agreement (a "participant"): (i) a copy of any Finance Document; and (ii) any information which that Finance Party has acquired under any Finance Document. However, before a participant may receive any confidential information, it must agree with the relevant Finance Party to keep that information confidential on the terms of paragraph (a) above. (c) This Clause supersedes any previous confidentiality undertaking given by a Finance Party in connection with this Agreement prior to it becoming a Party. 32. SET-OFF A Finance Party may set off any matured obligation owed to it by the Company under the Finance Documents (to the extent beneficially owned by that Finance Party) against any obligation (whether or not matured) owed by that Finance Party to the Company, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. 33. PRO RATA SHARING 33.1 Redistribution If any amount owing by the Company under this Agreement to a Lender (the "recovering Lender") is discharged by payment, set-off or any other manner other than through the Facility Agent under this Agreement (a "recovery"), then: (a) the recovering Lender must, within three Business Days, supply details of the recovery to the Facility Agent; (b) the Facility Agent must calculate whether the recovery is in excess of the amount which the recovering Lender would have received if the recovery had been received by the Facility Agent under this Agreement; and (c) the recovering Lender must pay to the Facility Agent an amount equal to the excess (the "redistribution"). 33.2 Effect of redistribution (a) The Facility Agent must treat a redistribution as if it were a payment by the Company under this Agreement and distribute it among the Lenders accordingly. (b) When the Facility Agent makes a distribution under paragraph (a) above, the recovering Lender will be subrogated to the rights of the Finance Parties which have shared in that redistribution. 63 (c) If and to the extent that the recovering Lender is not able to rely on any rights of subrogation under paragraph (b) above, the Company will owe the recovering Lender a debt which is equal to the redistribution, immediately payable and of the type originally discharged. (d) If: (i) a recovering Lender must subsequently return a recovery, or an amount measured by reference to a recovery, to the Company; and (ii) the recovering Lender has paid a redistribution in relation to that recovery, each Finance Party must reimburse the recovering Lender all or the appropriate portion of the redistribution paid to that Finance Party, together with interest for the period while it held the re-distribution. In this event, the subrogation in paragraph (b) above will operate in reverse to the extent of the reimbursement. 33.3 Exceptions Notwithstanding any other term of this Clause, a recovering Lender need not pay a redistribution to the extent that: (a) it would not, after the payment, have a valid claim against the Company in the amount of the redistribution; or (b) it would be sharing with another Finance Party any amount which the recovering Lender has received or recovered as a result of legal or arbitration proceedings, where: (i) the recovering Lender notified the Facility Agent of those proceedings; and (ii) the other Finance Party had an opportunity to participate in those proceedings but did not do so or did not take separate legal or arbitration proceedings as soon as reasonably practicable after receiving notice of them. 34. SEVERABILITY If a term of a Finance Document is or becomes illegal, invalid or unenforceable in any jurisdiction, that shall not affect: (a) the validity or enforceability in that jurisdiction of any other term of the Finance Documents; or (b) the validity or enforceability in other jurisdictions of that or any other term of the Finance Documents. 35. COUNTERPARTS Each Finance Document may be executed in any number of counterparts. This has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document. 64 36. NOTICES 36.1 In writing (a) Any formal communication in connection with a Finance Document must be in writing and, unless otherwise stated, may be given in person, by post, telex or fax approved by the Facility Agent. (b) Unless it is agreed to the contrary, any consent or agreement required under a Finance Document must be given in writing. 36.2 Contact details (a) Except as provided below, the contact details of each Party for all communications in connection with the Finance Documents are those notified by that Party for this purpose to the Facility Agent on or before the date it becomes a Party. (b) The contact details of the Company for this purpose are: Smith & Nephew plc 15 Adam Street London WC2N 6LA Fax: 0207 930 3353 For the attention of: The Company Secretary (c) The contact details of the Facility Agent for this purpose are: Lloyds TSB Bank Plc Bank House Wine Street Bristol BS1 2AN Telex: 88301 LOYDLN Fax: 0117 923 3367 For the attention of: Loans Administration Department (d) Any Party may change its contact details by giving five Business Days' notice to the Facility Agent or (in the case of the Facility Agent) to the other Parties. (e) Where a Party nominates a particular department or officer to receive a communication, a communication will not be effective if it fails to specify that department or officer. 36.3 Effectiveness (a) Except as provided below, any communication in connection with a Finance Document will be deemed to be given as follows: (i) if delivered in person, at the time of delivery; (ii) if posted, five days after being deposited in the post, postage prepaid, in a correctly addressed envelope; (iii) if by telex, when despatched, but only if, at the time of transmission, the correct answerback appears at the start and at the end of the sender's copy of the notice; 65 (iv) if by fax, when received in legible form. (b) A communication given under paragraph (a) above but received on a non-working day or after business hours in the place of receipt will only be deemed to be given on the next working day in that place. (c) A communication to the Facility Agent will only be effective on actual receipt by it. 36.4 The Company All formal communication under the Finance Documents to or from the Company must be sent through the Facility Agent. 37. LANGUAGE (a) Any notice given in connection with a Finance Document must be in English. (b) Any other document provided in connection with a Finance Document must be: (i) in English; or (ii) (unless the Facility Agent otherwise agrees) accompanied by a certified English translation. In this case, the English translation prevails unless the document is a statutory or other official document. 38. GOVERNING LAW This Agreement is governed by English law. 39. ENFORCEMENT 39.1 Jurisdiction (a) The English courts have exclusive jurisdiction to settle any dispute in connection with any Finance Document. (b) The English courts are the most appropriate and convenient courts to settle any such dispute. (c) This Clause is for the benefit of the Finance Parties only. To the extent allowed by law, a Finance Party may take: (i) proceedings in any other court; and (ii) concurrent proceedings in any number of jurisdictions. 39.2 Waiver of trial by jury EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO A JURY TRIAL OF ANY CLAIM OR CAUSE OR ACTION IN CONNECTION WITH ANY FINANCE DOCUMENT OR ANY TRANSACTION CONTEMPLATED BY ANY FINANCE DOCUMENT. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY COURT. 66 This Agreement has been entered into on the date stated at the beginning of this Agreement. 67 SCHEDULE 1 ORIGINAL PARTIES Name of Original Lender Facility A Commitments Lloyds TSB Bank plc U.S.$100,000,000 ------------------ Total A Commitments U.S.$100,000,000 ------------------ Name of Original Lender Facility B Commitments Lloyds TSB Bank plc U.S.$200,000,000 ------------------ Total B Commitments U.S.$200,000,000 ------------------ 68 SCHEDULE 2 CONDITIONS PRECEDENT DOCUMENTS Company 1. A copy of the constitutional documents of the Company. 2. A copy of a resolution of the board of directors or a committee of the board of directors of the Company approving the terms of, and the transactions contemplated by, this Agreement. 3. If applicable, a copy of a resolution of the board of directors of the Company establishing the committee referred to in paragraph 2 above. 4. A specimen of the signature of each person authorised on behalf of the Company to execute or witness the execution of any Finance Document or to sign or send any document or notice in connection with any Finance Document. 5. A certificate of an authorised signatory of the Company: (a) confirming that utilising the Total Commitments in full would not breach any limit binding on it; and (b) certifying that each copy document specified in this Schedule is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement. Legal opinions A legal opinion of Allen & Overy, legal advisers to the Arranger and the Facility Agent, substantially in the form of Schedule 10, addressed to the Finance Parties. 69 SCHEDULE 3 FORM OF REQUEST To: LLOYDS TSB PLC as Facility Agent From: SMITH & NEPHEW PLC Date: [ ], 2002 SMITH & NEPHEW PLC-U.S $300,000,000 Credit Agreement dated [ ] February, 2002 (the "Agreement") 1. We refer to the Agreement. This is a Request. 2. We wish to [borrow a/an [Offer] Loan/draw Bills]* [under Facility A/Facility B]* on the following terms: (a) Utilisation Date: [ ] (b) Amount/currency: [ ] (c) Term: [ ]. 3. Our payment instructions are: [ ]. 4. We confirm that each condition precedent under the Agreement which must be satisfied on the date of this Request is so satisfied. 5. This Request is irrevocable. By: SMITH & NEPHEW PLC __________________________________ * Delete as appropriate 70 SCHEDULE 4 CALCULATION OF THE MANDATORY COST 1. General The Mandatory Cost is the weighted average of the rates calculated below by the Facility Agent on the first day of a Term. The Facility Agent must distribute each amount of Mandatory Cost among the Lenders on the basis of the rate for each Lender. 2. For a Lender lending from a Facility Office in the U.K. (a) The relevant rate for a Lender lending from a Facility Office in the U.K. is the arithmetic mean of the rates notified by each of the Reference Banks to the Facility Agent and calculated in accordance with the following formulae: for a Loan in Sterling: AB + C(B-D)+ E x 0.01 ---------------------- per cent. per annum 100-(A+C) for any other Loan: E x 0.01 -------- per cent. per annum 300 where on the day of application of the formula: A is the percentage of the Reference Bank's eligible liabilities (in excess of any stated minimum) which the Bank of England requires it to hold on a non-interest-bearing deposit account in accordance with its cash ratio requirements; B is LIBOR for that Term; C is the percentage of the Reference Bank's eligible liabilities which the Bank of England requires it to place as a special deposit; D is the interest rate per annum allowed by the Bank of England on a special deposit; and E is the charge payable by the Reference Bank to the Financial Services Authority under the fees rules (but, for this purpose, calculated by the Facility Agent on a notional basis as being the average of the fee tariffs within fee-block Category A1 (Deposit acceptors) of the fee rules, applying any applicable discount and ignoring any minimum fee required under the fees rules) and expressed in pounds per (pound)1 million of the tariff base of that Reference Bank. (b) For the purposes of this paragraph 2: 71 (i) "eligible liabilities" and "special deposit" have the meanings given to them at the time of application of the formula by the Bank of England; (ii) "fees rules" means the then current rules on periodic fees in the Supervision Manual of the FSA Handbook; and (iii) "tariff base" has the meaning given to it in the fees rules. (c) (i) In the application of the formulae, A, B, C and D are included as figures and not as percentages, e.g. if A = 0.5% and B = 15%, AB is calculated as 0.5 x 15. A negative result obtained by subtracting D from B is taken as zero. (ii) Each rate calculated in accordance with a formula is, if necessary, rounded upward to four decimal places. (d) (i) Each Reference Bank must supply to the Facility Agent the information required by it to make a calculation of the rate for that Reference Bank. The Facility Agent may assume that this information is correct in all respects. (ii) If a Reference Bank fails to do so, the Facility Agent may assume that the Reference Bank's obligations in respect of cash ratio deposits, special deposits and the fees rules are the same as those of a typical bank from its jurisdiction of incorporation with a Facility Office in the same jurisdiction as its Facility Office. (iii) The Facility Agent has no liability to any Party if its calculation over or under compensates any Lender. 3. For a Lender lending from a Facility Office in a Participating Member State (a) The relevant rate for a Lender lending from a Facility Office in a Participating Member State is the percentage rate per annum notified by that Lender to the Facility Agent as its cost of complying with the minimum reserve requirements of the European Central Bank. (b) If a Lender fails to specify a rate under paragraph (a) above, the Facility Agent will assume that the Lender has not incurred any such cost. 4. Changes The Facility Agent may, after consultation with the Company and the Lenders, notify all the Parties of any amendment to this Schedule which is required to reflect: (a) any change in law or regulation; or (b) any requirement imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any successor authority). Any notification will be, in the absence of manifest error, conclusive and binding on all the Parties. 72 SCHEDULE 5 FORM OF TRANSFER CERTIFICATE To: LLOYDS TSB BANK plc as Facility Agent From: [THE EXISTING LENDER] (the "Existing Lender") and [THE NEW LENDER] (the "New Lender") Date: [ ] SMITH & NEPHEW PLC - US$300,000,000 Credit Agreement dated [ ] February, 2002 (the "Agreement") We refer to the Agreement. This is a Transfer Certificate. 1. The Existing Lender transfers by novation to the New Lender the Existing Lender's rights and obligations referred to in the Schedule below in accordance with the terms of the Agreement. 2. The proposed Transfer Date is [ ]. 3. The administrative details of the New Lender for the purposes of the Agreement are set out in the Schedule. 4. This Transfer Certificate is governed by English law. THE SCHEDULE Rights and obligations to be transferred by novation [insert relevant details, including applicable Commitment (or part)] Administrative details of the New Lender [insert details of Facility Office, address for notices and payment details etc.] [EXISTING LENDER] [NEW LENDER] By: By: The Transfer Date is confirmed by the Facility Agent as [ ]. LLOYDS TSB BANK plc By 73 SCHEDULE 6 FORM OF COMPLIANCE CERTIFICATE To: LLOYDS TSB BANK plc as Facility Agent From: SMITH & NEPHEW PLC Date: [ ] SMITH & NEPHEW PLC - US$300,000,000 Credit Agreement dated [ ] February, 2002 (the "Agreement") 1. We refer to the Agreement. This is a Compliance Certificate. 2. We confirm that as at [relevant testing date]: (a) Consolidated EBITDA was [ ]; and Consolidated Total Net Borrowings are [ ]; therefore, Consolidated Total [Net] Borrowings are [ ] x Consolidated EBITDA; and (b) Consolidated EBITA was [ ] and Consolidated Net Interest Payable was [ ]; therefore, the ratio of Consolidated EBITA to Consolidated Net Interest Payable was [ ] to 1. 3. We set out below calculations establishing the figures in paragraph 2 above: [ ]. 4. [We confirm that no Default is outstanding as at [relevant testing date].** SMITH & NEPHEW PLC By: [insert applicable certification language] - ---------- ** If this statement cannot be made, the certificate should identify any Default that is outstanding and the steps, if any, being taken to remedy it. 74 SCHEDULE 7 FORM OF BILL Face of Bill No. for(pound)............ ................ 20... To On ..............20.. pay against this Bill of Exchange to our order the sum of .............. for value received against [ ]. Accepted by: For [ACCEPTING LENDER] [COMPANY] .................... .................... Authorised Signatory Authorised Signatory Reverse of Bill For [COMPANY] .................... Authorised Signatory 75 SCHEDULE 8 FORM OF SYNDICATION AGREEMENT SYNDICATION AGREEMENT DATED [ ], 2002 relating to a US$300,000,000 Credit Facility dated [ ] February, 2002 for SMITH & NEPHEWPLC arranged by LLOYDS TSB CAPITAL MARKETS ALLEN & OVERY London 76 THIS AGREEMENT is dated [ ], 2002 BETWEEN: (1) SMITH & NEPHEW PLC (registered number 324357) (the "Company"); (2) LLOYDS TSB CAPITAL MARKETS as arranger (in this capacity the "Arranger"); (3) THE FINANCIAL INSTITUTIONS listed in Part I of Schedule 1 (Lenders) as the lender party to the Credit Agreement (as defined below) as at the date of this Agreement (the "Existing Lender"); (4) THE FINANCIAL INSTITUTIONS listed in Part II Schedule 1 (Lenders) as the lenders who wish to accede to the Credit Agreement as Lenders (the "New Lenders"); and (5) LLOYDS TSB BANK plc as Facility Agent (the "Facility Agent"). IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions In this Agreement: "Credit Agreement" means the credit agreement dated [ ] February, 2002 between, among others, the Company, the Arranger and the Facility Agent. "Effective Date" means [ ]. 1.2 Construction (a) Capitalised terms defined in the Credit Agreement have, unless expressly defined in this Agreement, the same meaning in this Agreement. (b) The provisions of Clause 1.2 (Construction) of the Credit Agreement apply to this Agreement as though they were set out in full in this Agreement except that if references to the Credit Agreement are to be construed as references to this Agreement. 2. CONSENT AND CONFIRMATION The Company, the Arranger, the Existing Lender and the Facility Agent consent to the New Lenders becoming Lenders and confirm that, except as provided in this Agreement, the Finance Documents will continue in full force and effect. 3. REPRESENTATIONS (a) In this Clause "Information Memorandum" means [ ]. 77 (b) The Company represents and warrants to each other party to this Agreement that: (i) as at its date the material factual information relating to the Group contained in the Information Memorandum was accurate in all material respects; (ii) as at its date and to the best of its knowledge, the opinions, projections and forecasts contained in the Information Memorandum and the assumptions on which they are based were arrived at after due and careful consideration and genuinely represented its views; and (iii) to the best of its knowledge there are no material facts or circumstances which have not been disclosed to the parties to this Agreement by the Information Memorandum or otherwise prior to the date of this Agreement and which would make any of the information, opinions, projections, forecasts or assumptions contained in the Information Memorandum incomplete, inaccurate or misleading in any material respect. 4. TRANSFER OF COMMITMENTS On the Effective Date (regardless of whether a Default is outstanding): (a) each New Lender will become a Lender under the Credit Agreement with a Facility B Commitment set opposite its name in Schedule 2 (Lenders and Facility B Commitments); (b) the Facility B Commitments of the Existing Lender will be reduced to the amount set opposite its name in Schedule 2 (Lenders and Facility B Commitments); and (c) each New Lender obtains and undertakes to perform all of the rights and obligations of a Lender in connection with the Finance Documents in respect of the rights and obligations transferred to it under this Clause. 5. [TRANSFER OF PARTICIPATIONS 5.1 Definitions "Participation" means, for a Lender, the amount of its share in the Credits under Facility B, being the amount set out opposite its name in Schedule 3 (Lenders and Participations). 5.2 Participation On the Effective Date (regardless of whether a Default is outstanding): (a) each New Lender will become a Lender under the Credit Agreement with a Participation set opposite its name in Schedule 3 (Lenders and Participations); (b) the Participation of the Existing Lender will be reduced to the amount set opposite its name in Schedule 3 (Lenders and Participations); 78 (c) each New Lender obtains and undertakes to perform all of the rights and obligations of a Lender in connection with the Finance Documents in respect of the rights and obligations transferred to it under this Clause; (d) the Existing Lender will pay to each New Lender the amount notified to it by the Facility Agent, being the amount necessary to ensure that after the payment the amount of each Lender's Participation is equal to the amount set opposite its name in Schedule 3 (Lenders and Participations); (e) each New Lender will pay to the Facility Agent, an amount equal to its Participation in the currency specified by the Facility Agent and in immediately available and freely transferable funds, to be received for value on the Effective Date; and (f) the Facility Agent will pay to the Existing Lender an amount equal to the amount it received from the New Lenders under paragraph (e) above up to a maximum amount equal to the difference between the Existing Lender's Participation immediately prior to the date of this Agreement and the amount of its Participation set opposite its name in Schedule 3 (Lenders and Participations).]/1/ 6. EFFECTIVE DATE 6.1 Amounts due on or before the Effective Date Any amounts payable to the Existing Lender by the Company on or prior to the Effective Date in respect of any period ending prior to the Effective Date will be for the account of the Existing Lender, and none of the New Lenders will have any interest in, or any rights in respect of, those amounts. 6.2 [Credit on the Effective Date If any Credit falls to be utilised on the Effective Date: (a) the Facility Agent will promptly notify each New Lender of the amount of its participation in that Credit; (b) the Existing Lender and each New Lender must participate in that Credit (subject to the terms of the Credit Agreement) as if the transfer of the Facility B Commitments under this Agreement had taken effect prior to opening of business on the Business Day before the Effective Date; and (c) the Company acknowledges that the Existing Lender will not be obliged to participate in that Credit to any greater extent.] 7. NATURE OF THIS AGREEMENT The transfer of Commitments and rights and obligations contemplated by this Agreement will take effect as a novation and clause 30.4 (Procedure for transfer by way of novations) of the Credit Agreement will apply to the Commitments, rights and obligations transferred, as if this Agreement were a Transfer Certificate. __________________________ /1/ Required if transfer during a Term of any Credit. 79 8. PAYMENTS 8.1 Claw-back The Facility Agent is not obliged to pay any amount to the Existing Lender under this Agreement until it has established that it has actually received a related amount from a New Lender. However, the Facility Agent may assume the sum has been paid to it and, in reliance on that assumption, make available to the Existing Lender a corresponding amount. If it transpires that the sum had not been made available, the Existing Lender will within five Business Days of demand by the Facility Agent refund the relevant amount together with interest on that amount from the date of payment to the date of receipt by the Facility Agent, at a rate calculated by the Facility Agent to reflect its cost of funds. 8.2 Administrative details Each New Lender confirms that it has delivered to the Facility Agent its initial details for the purposes of clause 36 (Notices) of the Credit Agreement. 8.3 Administrative details The Reference Banks are, subject to Clause 30.7 (Changes to the Reference Banks) of the Credit Agreement, [ ], [ ] and [ ]. 9. GOVERNING LAW This Agreement is governed by English law. This Agreement has been entered into on the date stated at the beginning of this Agreement. 80 SCHEDULE 1 LENDERS PART I THE EXISTING LENDER Lloyds TSB Bank plc 81 PART II THE NEW LENDERS [ ] 82 SCHEDULE 2 LENDERS AND FACILITY B COMMITMENTS Name of Lender Facility B Commitment ----------- Total Facility B Commitments [ ] 83 SCHEDULE 3 LENDERS AND PARTICIPATIONS Name of Lender Facility B Participation 84 SIGNATORIES Company SMITH & NEPHEW PLC By: Arranger LLOYDS TSB CAPITAL MARKETS By: Existing Lender LLOYDS TSB BANK plc By: New Lenders [ ] By: Facility Agent LLOYDS TSB BANK plc By: 85 SCHEDULE 9 FORM OF POWER OF ATTORNEY FOR BILLS To: LLOYDS TSB BANK PLC as Facility Agent From: SMITH & NEPHEW PLC Date: [ ] SMITH & NEPHEW PLC - U.S.$300,000,000 Credit Agreement dated [ ] February, 2002 (the Agreement) 1. We refer to the Agreement. This is a Power of Attorney. 2. Terms defined in the Agreement have the same meaning when used in this Power of Attorney. 3. We appoint you as our attorney to draw, complete, clause, endorse and deliver Bills in our name and on our behalf in accordance with the Agreement. 4. The powers conferred on you under this Power of Attorney are exercisable jointly by any two of your authorised signatories. 5. In exercising those powers, your authorised signatories will: (a) act as your agents in your capacity as our attorney under this Power of Attorney; (b) sign as follows: "For [Name of Company] by [Name of Facility Agent] as Attorney. ___________________________________ ___________________________________ Authorised Signatories"; and (c) take any other steps they in good faith consider necessary to enable the Company to fulfil its obligations in respect of a Request for Bills and for the Agent to fulfil its obligations under Clause 8.2 (Holding and completion of Bills) of the Agreement. 6. Any Bill drawn and delivered in accordance with this Power of Attorney will be binding upon us. We: (a) indemnify you against any loss or liability incurred by you in acting as our attorney; and (b) agree to ratify anything done by you on our behalf under this Power of Attorney. 86 7. Except as provided below, this Power of Attorney remains in force until you receive a notice in writing signed by us, addressed to [ ] and delivered to your offices at [ ] expressly revoking it (a revocation notice). 8. A revocation notice will not be effective for any Bills drawn pursuant to a Request made before your receipt of that revocation notice. 9. This Power of Attorney is governed by English law. This Power of attorney has been entered into as a deed on the date stated at the beginning of this Power of Attorney. Executed as a deed ) On behalf of ) SMITH & NEPHEW PLC ) By: __________________________ Director __________________________ Director/Secretary 87 SCHEDULE 10 FORM OF LEGAL OPINION OF ALLEN & OVERY To: The Finance Parties named as original parties to the Agreement (as defined below) [ ], 2002 Dear Sirs, SMITH & NEPHEW PLC - US$300,000,000 Agreement dated [ ] February, 2002 (the "Agreement") We have received instructions from the Facility Agent in connection with the Agreement. Defined Terms Terms defined in the Agreement have the same meaning in this opinion. Documents and searches For the purposes of this opinion we have examined the following documents: (a) a signed copy of the Agreement; (b) a certified copy of the memorandum and articles of association and certificate of incorporation of the Company; (c) a certified copy of the minutes of a meeting of a committee of the board of directors of the Company held on[ ]; (d) a certified copy of the minutes of a meeting of the board of directors of the Company held on[ ]; and (e) a certificate of the Company confirming, amongst other things, that the entry into and performance of the Agreement will not contravene any borrowing limit contained in the articles of association of the Company. On [ ] we carried out a search of the Company at the Companies Registry. On [ ] we made a telephone search of the Company at the winding-up petitions at the Companies court. The above are the only documents or records we have examined and the only searches and enquiries we have carried out for the purposes of this opinion. 88 Assumptions We assume that: (a) the Company is not unable to pay its debts within the meaning of section 123 of the Insolvency Act, 1986 at the time it enters into the Agreement and will not as a result of the Agreement be unable to pay its debts within the meaning of that section; (b) no step has been taken to wind up the Company or appoint a receiver in respect of it or any of its assets although the searches of the Companies Registry referred to above gave no indication that any winding-up order or appointment of a receiver has been made; (c) all signatures and documents are genuine; (d) all documents are and remain up-to-date; (e) the correct procedure was carried out at all the board meetings referred to above; for example, there was a valid quorum, all relevant interests of directors were declared and the resolutions were duly passed at each meeting; (f) any restrictions on the ability of the Company to borrow contained in its Articles of Association would not be contravened by the entry into and performance by it of the Agreement; (g) the Agreement has been duly executed on behalf of the Company by the person(s) authorised by the resolutions passed at the relevant meeting referred to above; (h) the Agreement is a legally binding, valid and enforceable obligation of each Finance Party; and (i) no foreign law affects the conclusions stated below. Opinion Subject to the qualifications set out below and to any matters not disclosed to us, it is our opinion that, so far as the present laws of England are concerned: 1. Status: The Company is a company incorporated with limited liability under the laws of England and is not in liquidation. 2. Powers and authority: The Company has the corporate power to enter into and perform the Agreement and has taken all necessary corporate action to authorise the execution, delivery and performance of the Agreement. 3. Legal validity: The Agreement constitutes a legally binding, valid and enforceable obligation of the Company. 4. Non-conflict: The entry into and performance by the Company of the Agreement will not violate any provision of (i) any existing English law applicable to companies generally, or (ii) its memorandum or articles of association. 89 5. Consents: No authorisations of governmental, judicial or public bodies or authorities in England are required by the Company in connection with the performance, validity or enforceability of its payment obligations under the Agreement. 6. Taxes: All payments due from the Company under the Agreement may be made without deduction of any U.K. Taxes, if, in the case of interest: (a) (i) the person that advanced the participation in the Loan to which the interest relates was a bank for the purpose of Section 349 of the Income and Corporation Taxes Act 1988 (as currently defined in section 840A of the Income Corporation Taxes Act 1988) at the time the Loan was made; and (ii) the person beneficially entitled to that interest is within the charge to U.K. corporation tax as regards that interest at the time the interest is paid; or (b) the interest is payable to a Treaty Lender and the Financial Intermediaries and Claims Office has given the necessary exemption authorisation. 7. Registration requirements: It is not necessary or advisable to file, register or record the Agreement in any public place or elsewhere in England. 8. Stamp duties: No stamp, registration or similar tax or charge is payable in England in respect of the Agreement. Qualifications This opinion is subject to the following qualifications: (a) This opinion is subject to all insolvency and other laws affecting the rights of creditors generally. (b) No opinion is expressed on matters of fact. (c) The term "enforceable" means that a document is of a type and form enforced by the English courts. It does not mean that each obligation will be enforced in accordance with its terms. Certain rights and obligations may be qualified by the non-conclusivity of certificates, doctrines of good faith and fair conduct, the availability of equitable remedies and other matters, but in our view these qualifications would not defeat your legitimate expectations in any material respect. This opinion is given for your sole benefit and may not be relied upon by or disclosed to any other person. Yours faithfully 90 SIGNATORIES Company SMITH & NEPHEW PLC By: P.HOOLEY C.J. O'DONNELL Arranger LLOYDS TSB CAPITAL MARKETS By: ROBERT GREENE Original Lender LLOYDS TSB BANK plc By: DAVID BORAN Facility Agent LLOYDS TSB BANK plc By: DAVID BORAN EX-99.(D)(2) 12 dex99d2.txt FORM OF STOCKHOLDER AGREEMENT DATED AS OF 2/13/02 EXHIBIT (d)(2) STOCKHOLDER AGREEMENT STOCKHOLDER AGREEMENT (this "Agreement"), dated as of February 13, 2002, among Smith & Nephew, Inc., a Delaware corporation ("Parent"), Orchid Merger Corp, a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and the undersigned stockholder (the "Stockholder") of ORATEC Interventions, Inc., a Delaware corporation (the "Company"). WHEREAS, Parent, Sub and the Company are contemporaneously with the execution hereof entering into an Agreement and Plan of Merger dated as of even date herewith (as the same may be amended or supplemented, the "Merger Agreement") to provide for the making of a cash tender offer (as such offer may be amended from time to time, the "Offer") by Sub for any and all shares of common stock, par value $.001 per share, of the Company (the "Common Stock") at the Offer Price (as defined in the Merger Agreement) and the merger of the Company and Sub (the "Merger"); WHEREAS, the Stockholder legally and/or beneficially owns that number of shares of Common Stock appearing on the signature page hereof (such shares, as they may be adjusted by any stock dividend, stock split, recapitalization, combination or exchange of shares, merger, consolidation, reorganization or other change or transaction of or by the Company (each, an "Adjustment Event"), and any additional shares of Common Stock that become legally and/or beneficially owned by the Stockholder as the result of the exercise of any stock option, warrant or other security after the date hereof, being referred to herein as the "Subject Shares"); and WHEREAS, as a condition to their willingness to enter into the Merger Agreement, Parent and Sub have requested that the Stockholder enter into this Agreement; NOW, THEREFORE, to induce Parent and Sub to enter into, and in consideration of their entering into, the Merger Agreement, and in consideration of the premises and the representations, warranties and agreements contained herein, the parties agree as follows: 1. Representations and Warranties of the Stockholder. The Stockholder hereby represents and warrants to Parent and Sub as follows: (a) Authority. The Stockholder has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Stockholder and constitutes a valid and binding obligation of the Stockholder enforceable in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not, conflict with, result in any violation of or default (with or without notice or lapse of time or both) under, any provision of any trust agreement, loan or credit agreement, note, bond, security agreement, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license, judgment, order, notice, decree, statute, law, ordinance, rule or regulation applicable to the Stockholder or to the Stockholder's property or assets. Except for informational filings with the SEC, no consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic, foreign or supranational, is required by or with respect to the Stockholder in connection with the execution and delivery of this Agreement or the consummation by the Stockholder of the transactions contemplated hereby. 1 (b) The Shares. The Stockholder has good and marketable title to the Subject Shares, free and clear of any claims, liens, encumbrances, security interests, proxies, voting trusts, agreements, options, rights or any other encumbrances whatsoever on title, transfer, or exercise of any rights of a stockholder in respect of such Subject Shares except for any encumbrances arising hereunder. The Stockholder owns legally and/or beneficially no shares of Common Stock other than the Subject Shares. 2. Representations and Warranties of Parent and Sub. Parent and Sub hereby represent and warrant to the Stockholder that each of Parent and Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Sub, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of Parent and Sub. This Agreement has been duly executed and delivered by Parent and Sub and constitutes a valid and binding obligation of Parent and Sub enforceable in accordance with its terms, except to the extent enforceability is limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general applicability relating to or affecting the enforcement or creditors' rights and by the affect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). 3. Covenants of the Stockholder. From and after the date hereof through and including the Termination Date, the Stockholder agrees as follows: (a) At any meeting of stockholders of the Company called to vote upon the Merger and the Merger Agreement or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval with respect to the Merger and the Merger Agreement is sought, the Stockholder shall vote (or cause to be voted) the Subject Shares in favor of the Merger, the adoption of the Merger Agreement and the approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement, provided that the terms of the Merger Agreement shall not have been amended to adversely affect the Stockholder. (b) At any meeting of stockholders of the Company or at any adjournment thereof or in any other circumstances upon which the Stockholder's vote, consent or other approval is sought, the Stockholder shall vote (or cause to be voted) the Subject Shares against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company or any other Takeover Proposal, or (ii) any amendment of the Company's certificate of incorporation or by-laws or other proposal, transaction or agreement involving the Company or any of its subsidiaries, which amendment or other proposal, transaction or agreement would in any manner impede, frustrate, prevent, delay or nullify the Offer, the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement. (c) The Stockholder agrees not to, directly or indirectly (i) sell, transfer, pledge, assign or otherwise dispose of (including by gift), or enter into any contract, option or other arrangement (including any profit sharing arrangement) with respect to the sale, transfer, pledge, assignment or other disposition ("Transfer") of, the Subject Shares to any person other than Sub or Sub's designee; provided, that nothing contained herein will be deemed to restrict (A) the exercise or conversion of any stock option, (B) the entry by the Stockholder into "hedging" or similar economic transactions with respect to the Subject Shares so long as such "hedging" or similar economic transactions do not restrict or otherwise inhibit the Stockholder's ability to vote the Subject Shares in accordance with the requirements of this Agreement and to otherwise comply with the covenants and agreements of the Stockholder contained herein, or (C) the Transfer of any Subject Shares to any person who agrees to be bound by the terms and conditions of this Agreement pursuant to a written agreement in a form reasonably satisfactory to Parent, or (ii) enter into any voting arrangement, whether by proxy, voting agreement or otherwise, in connection, directly or indirectly, with any Takeover Proposal. 2 (d) Subject to Section 10, the Stockholder shall not, nor shall the Stockholder permit any investment banker, attorney or other adviser or representative of the Stockholder to, (i) directly or indirectly solicit, initiate or encourage the submission of any Takeover Proposal or proposal to acquire the Subject Shares or (ii) directly or indirectly participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal or proposal to acquire the Subject Shares. (e) The Stockholder agrees to validly tender all of the Subject Shares within 10 business days following commencement of the Offer pursuant to and in accordance with the terms of the Offer and, provided that this Agreement has not been terminated, the Stockholder agrees not to withdraw any Subject Shares so tendered prior to the termination of the Offer. 4. Grant of Proxy. (a) The Stockholder hereby irrevocably grants to, and appoints, Parent and each of its designees, and each of them individually, as the Stockholder's proxy and attorney-in-fact (with full power of substitution and resubstitution), for and in the name, place and stead of the Stockholder, to vote the Subject Shares, or execute one or more written consents in respect of the Subject Shares, (i) in favor of the Merger, the approval of the Merger Agreement and the approval of the terms thereof and each of the transactions contemplated by the Merger Agreement, (ii) against any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company or any other Takeover Proposal, and (iii) against any amendment of the Company's certificate of incorporation or by-laws or other proposal, transaction or agreement involving the Company or any of its subsidiaries, which amendment or other proposal, transaction or agreement would in any manner impede, frustrate, prevent, delay or nullify the Offer, the Merger, the Merger Agreement or any other transactions contemplated by the Merger Agreement. Notwithstanding anything contained herein to the contrary, such irrevocable proxy will not be exercised by Parent or any of its designees unless the Stockholder breaches its obligations under Section 4 of this Agreement. No proxy is given hereby with respect to any matters other than those enumerated above. (b) The Stockholder represents and warrants that any proxies heretofore given in respect of the Subject Shares are revocable, and that any such proxies have been or are hereby revoked. (c) The Stockholder hereby affirms that the irrevocable proxy set forth in this Section 4 is given in connection with the execution of the Merger Agreement and that such irrevocable proxy is given to secure the performance of the duties of the Stockholder under this Agreement. The Stockholder hereby affirms that the irrevocable proxy set forth in this Section 4 is coupled with an interest and is intended to be irrevocable in accordance with the provisions of Section 212 of the General Corporation Law of the State of Delaware, as amended, prior to the termination of this Agreement. Notwithstanding anything contained herein to the contrary, this irrevocable proxy shall automatically terminate upon termination of this Agreement. 5. Further Assurances. The Stockholder will, from time to time, take such actions and execute and deliver, or cause to be executed and delivered, such additional or further transfers, assignments, endorsements, consents and other instruments as Parent or Sub may reasonably request for the purpose of effectively carrying out the transactions contemplated by this Agreement. 6. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to Parent or to any direct or indirect wholly owned subsidiary of Parent. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns and, in the case of the Stockholder, the heirs, executors and administrators of the Stockholder. 3 7. Termination. Except as otherwise provided herein, this Agreement shall terminate upon the earlier of (i) the Effective Time and (ii) a valid termination of the Merger Agreement in accordance with its terms (the "Termination Date"). 8. General Provisions. (a) Expenses. Except as otherwise expressly provided in the Merger Agreement, each party hereto shall pay its own expenses incurred in connection with this Agreement. (b) Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. Each party hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the District of Delaware in any action, suit or proceeding arising in connection with this Agreement and agrees that any such action, suit or proceeding shall be brought only in such courts (and waives any objection based on forum non conveniens or any other objection to venue therein). Each party hereto waives any right to a trial by jury in connection with any such action, suit or proceeding. (c) Notice. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally, one day after being delivered to an overnight courier or when telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Sub, to: Smith & Nephew, Inc. 160 Dascomb Road Andover, Massachusetts 01810 Attention: Ron Sparks, President Endoscopy Division Facsimile No.: 978-749-1005 with a copy to: Smith & Nephew, Inc. 1450 Brooks Road Memphis, Tennessee 38116 Attention: General Counsel Facsimile No.: 901-396-7824 and Sidley Austin Brown & Wood Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 Attention: Pran Jha Facsimile No.: 312-853-7036 4 (ii) if to the Stockholder, to: with a copy to: (d) Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties named herein and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer upon any Person other than Parent, Sub or the Stockholder, or their permitted successors or assigns, any rights or remedies under or by reason of this Agreement. (e) Entire Agreement; Amendments. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, oral or written, with respect to such transactions. This Agreement may not be changed, amended or modified orally, but only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification or discharge may be sought. (f) Headings. The section headings herein are for convenience only and shall not affect the construction of this Agreement. (g) Counterparts. This Agreement may be executed manually or by facsimile, in one or more counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document. (h) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. (i) Capitalized Terms. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in the Merger Agreement. (j) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible. 9. No Limitations on Actions of the Stockholder as a Director. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement is intended or shall be construed to limit or affect, or give rise to any liability to, any Stockholder who is or becomes (prior to the Termination Date) a director or officer of the Company by virtue of any actions taken by Stockholder in his or her capacity as an officer or director of the Company in exercising his or her rights or obligations under the Merger Agreement or applicable law. 5 IN WITNESS WHEREOF, each of Parent and Sub has caused this Agreement to be signed by its officer thereunto duly authorized and the Stockholder has duly signed this Agreement, all as of the date first written above. SMITH & NEPHEW, INC. By: _______________________________ Name: Title: ORCHID MERGER CORP. By: _______________________________ Name: Title: STOCKHOLDER: [Name] By: _______________________________ Number of shares of Common Stock owned by the Stockholder on the date hereof: [Number of Shares] 6 Schedule of Signatory Stockholders to Stockholder Agreement
Signatory Stockholder Shares of Common Stock --------------------- ---------------------- Venrock Associates............ 686,409 Venrock Associates II, L.P.... 621,348 Patrick F. Latterell.......... 20,726 Jefferey A. Saal.............. 620,277 Kenneth W. Anstey............. 522,893 Hugh R. Sharkey............... 472,632 Nancy Wescott................. 141,631 Terry Mitchell................ 0 Richard M. Ferrari............ 77,016 Roger H. Lipton............... 63,364 Michael Hassman............... 22,130 Wayne R. Moon................. 0 --------- Total Shares............... 3,248,426 =========
7 EX-99.(D)(3) 13 dex99d3.txt CONFIDENTIALITY AGREEMENT DATED AS OF 11/13/2001 EXHIBIT (d)(3) ========================================== Endoscopy Division ------------------------------------------ Smith & Nephew, Inc. 160 Dascomb Road, Andover, MA 01810 U.S.A. Telephone: 978-749-1000 Telefax: 978-749-1599 Smith & Nephew ========================================== November 13, 2001 ORATEC Interventions, Inc. 3700 Haven Court Menlo Park, CA 94025 Gentlemen: In order to evaluate a possible acquisition of ORATEC Interventions, Inc. ("Orchid") by Smith & Nephew, Inc ("S&N"), or any related transactions as may be mutually agreed-upon by the parties hereto, (the "Proposed Transaction"), -------------------- each of Orchid and S&N may disclose and deliver to the other party, upon execution and delivery by Orchid and S&N of this letter agreement, certain information about its properties, employees, finances, businesses and operations (such party when disclosing such information being the "Disclosing Party" and ---------------- such party when receiving such information being the "Receiving Party"). All --------------- such information furnished directly or indirectly by the Disclosing Party or its Representatives (as defined below), whether furnished before or after the date hereof, whether oral or written, and regardless of the manner in which it is furnished, is referred to in this letter agreement as "Proprietary Information". ----------------------- Proprietary Information does not include, however, information which the Receiving Party demonstrates (a) is or becomes generally available to the public other than as a result of a disclosure directly or indirectly by the Receiving Party or its Representatives, (b) was available to the Receiving Party on a nonconfidential basis prior to its disclosure by the Disclosing Party or its Representatives, as substantiated by written documentation, or (c) becomes available to the Receiving Party on a nonconfidential basis from a person other than the Disclosing Party or its Representatives who is not otherwise bound by a confidentiality agreement with the Disclosing Party or any of its Representatives, and is otherwise not under an obligation to the Disclosing Party or any of its Representatives not to transmit the information to the Receiving Party, as substantiated by written documentation. As used in this letter agreement, the term "Representative" means, as to any person, such -------------- person's affiliates and its and their directors, officers, employees, agents, advisors (including, without limitation, financial advisors, counsel and accountants), potential financing sources and controlling persons and the term "person" shall be broadly interpreted to include, without limitation, any corporation, company, partnership, limited liability company, joint venture, trust, other entity or individual. Subject to the immediately succeeding paragraph, unless otherwise agreed to in writing by the Disclosing Party, the Receiving Party agrees (a) except as required by law, to keep all Proprietary Information confidential and not to disclose or reveal any Proprietary Information ORATEC Interventions, Inc. November 13, 2001 Page 2 to any person other than its Representatives who are actively and directly participating in the evaluation of the Proposed Transaction or who otherwise need to know the Proprietary Information for the purpose of evaluating the Proposed Transaction (all of whom shall be specifically informed of the confidential nature of such Proprietary Information and that by receiving such information they are agreeing to be bound by the terms of this letter agreement relating to the confidential treatment of such Proprietary Information) and to cause those persons to observe the terms of this letter agreement, (b) not to use Proprietary Information for any purpose other than in connection with its evaluation of the Proposed Transaction or the consummation of the Proposed Transaction and (c) except as required by applicable law or regulation or pursuant to a listing agreement with any securities exchange or the National Association of Securities Dealers, Inc., not to disclose to any person (other than its Representatives who are actively and directly participating in the evaluation of the Proposed Transaction or who otherwise need to know for the purpose of evaluating the Proposed Transaction and, in any such case, whom it will cause to observe the terms of this letter agreement) the fact that the Proprietary Information exists or has been made available, the fact that the Receiving Party is considering the Proposed Transaction or any other transaction involving the Disclosing Party, the fact that the Receiving Party is subject to any of the restrictions set forth in this letter agreement, or that discussions or negotiations are taking or have taken place concerning the Proposed Transaction or involving the Disclosing Party or any term, condition or other fact relating to the Proposed Transaction or such discussions or negotiations, including, without limitation, the status thereof. The Receiving Party will be responsible for any breach of the terms of this letter agreement by the Receiving Party or any of its Representatives. If the Receiving Party is requested pursuant to, or required by, applicable law, regulation or stock exchange rule or by legal process to disclose any Proprietary Information or any other information concerning the Disclosing Party or the Proposed Transaction, the Receiving Party agrees that it will provide the Disclosing Party with prompt notice of such request or requirement in order to enable the Disclosing Party to seek an appropriate protective order or other remedy, to consult with the Receiving Party with respect to the Disclosing Party taking steps to resist or narrow the scope of such request or legal process, or to waive compliance, in whole or in part, with the terms of this letter agreement. If no such protective order or remedy is obtained, or if the Disclosing Party waives compliance with the terms of this letter agreement, the Receiving Party will furnish only that portion of any Proprietary Information which the Receiving Party is advised by counsel is legally required and will exercise all reasonable efforts to obtain reliable assurance that confidential treatment will be accorded any Proprietary Information. Each of Orchid and S&N is aware, and each of Orchid and S&N will advise their respective Representatives who are informed of the matters that are the subject of this agreement, of the restrictions imposed by the United States securities laws on the purchase or sale of securities by any person who has received material, non-public information from the issuer of such securities and on the communication of such information to any other person when it is reasonably foreseeable that such other person is likely to purchase or sell such securities in reliance upon such information. ORATEC Interventions, Inc. November 13, 2001 Page 3 The Receiving Party acknowledges that neither the Disclosing Party nor any of its Representatives make any express or implied representation or warranty as to the accuracy or completeness of any Proprietary Information, and the Receiving Party agrees that none of such persons shall have any liability to the Receiving Party or any of its Representatives relating to or arising from the use of any Proprietary Information by the Receiving Party or its Representatives or for any errors therein or omissions therefrom. The Receiving Party also agrees that it is not entitled to rely on the accuracy or completeness of any Proprietary Information and that it shall be entitled to rely solely on such representations and warranties regarding Proprietary Information as may be made to it in any final agreement relating to the Proposed Transaction, subject to the terms and conditions of any such agreement. If either party hereto determines that it does not wish to proceed with the Proposed Transaction, it will promptly advise the other party of that decision. In such case, or if the Proposed Transaction is not consummated by Orchid and S&N, each party will promptly return to the other party all copies of Proprietary Information in its possession or in the possession of any of its Representatives and will not retain any copies or other reproductions in whole or in part of such material. All other documents, memoranda, notes, summaries, analyses, extracts, compilations, studies or other material whatsoever prepared by each party or any of its Representatives based on the Proprietary Information will be destroyed. Any oral Proprietary Information will continue to be subject to the terms of this agreement. For a period of one year following the date hereof, neither party will, directly or indirectly, solicit for employment or hire any officer, director, or employee of the other with whom such party has had contact or who became known to such party in connection with its consideration of the Proposed Transaction, except that such party shall not be precluded from hiring any such employee who (a) initiates discussions regarding such employment without any direct or indirect solicitation by such party, (b) responds to any public advertisement placed by such party, or (c) has been terminated by the other party prior to commencement of employment discussions between such party and such officer, director, or employee. Without prejudice to the rights and remedies otherwise available to each of the parties hereto, each such party shall be entitled to equitable relief by way of specific performance, injunction or otherwise if the other party or any of its Representatives breach or threaten to breach any of the provisions of this agreement. It is further understood and agreed that no failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. If any term or provision of this agreement or any application hereof shall be invalid or unenforceable, the remainder of this agreement and any other application of such term or provision shall not be affected thereby. ORATEC Interventions, Inc. November 13, 2001 Page 4 This agreement shall not be assigned by either party, by operation of law or otherwise, without the prior written consent of the other party. This agreement contains the entire agreement between Orchid and S&N with respect to the matters covered hereby, and no modification of this agreement or waiver of the terms and conditions hereof shall be binding upon Orchid and S&N, unless approved in writing by each of the parties hereto or, in the case of waiver, by the party against whom such waiver is sought to be enforced. Except as otherwise provided herein, this agreement shall expire on the date which is five years from the date first written above. Orchid and S&N also agree that unless and until a definitive agreement with respect to a Proposed Transaction has been executed and delivered, neither party has any legal obligation of any kind whatsoever with respect to any Proposed Transaction by virtue of this agreement or any other written or oral communication with respect to such Proposed Transaction. This agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts executed in and to be performed in that state. Please confirm your agreement with the foregoing by signing and returning to the undersigned the duplicate copy of this agreement enclosed herewith. ORATEC Interventions, Inc. By: /s/ Nancy V. Westcott ---------------------------------- Name: Nancy V. Westcott Title: Chief Financial Officer and Vice President Administration Accepted and Agreed as of the date first written above: Smith & Nephew, Inc. By: /s/Ron Sparks --------------------------- Name: Ron Sparks Title: President -----END PRIVACY-ENHANCED MESSAGE-----