<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------
SYMPHONIX DEVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------
<TABLE>
<S> <C> <C>
CALIFORNIA (BEFORE
REINCORPORATION)
DELAWARE (AFTER REINCORPORATION) 3998 77-0376250
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
SYMPHONIX DEVICES, INC.
3047 ORCHARD PARKWAY
SAN JOSE, CA 95134
(408) 232-0710
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------
HARRY S. ROBBINS
CHIEF EXECUTIVE OFFICER
SYMPHONIX DEVICES, INC.
3047 ORCHARD PARKWAY
SAN JOSE, CA 95134
(408) 232-0710
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------
Copies to:
<TABLE>
<S> <C>
J. CASEY MCGLYNN ALAN C. MENDELSON
JOHN T. SHERIDAN PATRICK A. POHLEN
ISSAC J. VAUGHN COOLEY GODWARD LLP
DAVID J. SAUL FIVE PALO ALTO SQUARE
WILSON SONSINI GOODRICH & ROSATI 3000 EL CAMINO REAL
PROFESSIONAL CORPORATION PALO ALTO, CALIFORNIA 94306-2155
650 PAGE MILL ROAD (650) 843-5000
PALO ALTO, CA 94304
(650) 493-9300
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
-------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED(1) REGISTERED PER SHARE OFFERING PRICE FEE(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $0.001 par
value per share....... 2,645,000 $13.00 $34,385,000 $10,420
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 345,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
November 17, 1997
2,300,000 Shares
[LOGO OF SYMPHONIX]
COMMON STOCK
--------------
All of the 2,300,000 shares of Common Stock, $0.001 par value per share (the
"Common Stock"), offered hereby are being sold by Symphonix Devices, Inc.
("Symphonix" or the "Company"). Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $11.00 and $13.00 per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"SMPX."
--------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
to be $800,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days after the date hereof, to purchase an aggregate of up to 345,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
--------------
The Common Stock is offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected
that delivery of certificates for the shares will be made at the offices of
Cowen & Company, New York, New York on or about , 1998.
--------------
COWEN & COMPANY UBS SECURITIES
, 1998
<PAGE>
The Company's family of products under development, vibrant soundbridges, are
designed to work in the middle ear.
[Illustration of Vibrant soundbridge in place and illustration of Floating Mass
Transducer in middle ear]
The Floating Mass Transducer (FMT) is attached to one ossicle.
The patented FMT, Symphonix's core technology, mimics and amplifies the
movement of the ear's vibratory structure.
The Company's implantable hearing devices have not been approved for
marketing by the United States Food and Drug Administration or any
international regulatory authorities.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
Vibrant and Symphonix are registered trademarks and Floating Mass Transducer,
FMT, Vibrating Ossicular Prosthesis, VORP and Audio Processor are trademarks of
Symphonix Devices, Inc.
2
<PAGE>
The external audio processor is magnetically held in place behind the ear and
covered by the user's hair.
[PHOTOGRAPH OF MAN WITH AUDIO PROCESSOR IN PLACE]
The Vibrant TI, a totally implantable soundbridge with no external components,
is in the early stages of development. The product is designed to incorporate
the Company's proprietary microphone technology.
[PHOTOGRAPH OF VIBRANT TI MODEL]
[Symphonix Logo Appears Here]
[PHOTOGRAPH OF THE VIBRANT P, WITH PROGRAMMING UNIT]
The Vibrant P, a second generation programmable soundbridge (pictured above),
is currently being implanted in clinical trials in Europe. The Vibrant D, a
third generation programmable digital soundbridge, is under development.
Hearing Management
The first generation Vibrant soundbridge is currently being implanted in
clinical trials in the United States and Europe.
[PHOTOGRAPH OF VIBRANT SOUNDBRIDGE]
The Company's implantable hearing devices
have not been approved for marketing by
the United States Food and Drug Adminis-
tration or any international regulatory
authorities.
Vibrant and Symphonix are registered trademarks and Floating Mass Transducer,
FMT, Vibrating Ossicular Prosthesis, VORP and Audio Processor are trademarks of
Symphonix Devices, Inc.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Except as set forth in the Financial Statements or as
otherwise indicated herein, information in this Prospectus gives effect to (i)
the reincorporation of the Company from California to Delaware to be effected
prior to the completion of this offering, (ii) the one-for-1.376 reverse split
of the outstanding Common Stock to be effected prior to the completion of this
offering and (iii) the conversion of all outstanding shares of Preferred Stock
into shares of Common Stock, which will occur automatically upon the closing of
this offering, and assumes that the Underwriters' over-allotment option is not
exercised. See "Certain Transactions," "Description of Capital Stock" and
"Underwriting." This Prospectus contains certain statements of a forward-
looking nature relating to future events or the future financial performance of
the Company. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this Prospectus, including the matters set
forth under the caption "Risk Factors," which would cause actual results to
differ materially from those indicated by such forward-looking statements.
THE COMPANY
Symphonix is a leader in the development of proprietary semi-implantable and
implantable products, or soundbridges, for the management of moderate to severe
hearing impairment. In 1994, mild to severe hearing impairment affected
approximately 26 million people in the United States, or 10% of the population,
of whom approximately 17 million people were classified as moderately or
severely hearing impaired. The Company believes that its family of Vibrant
soundbridges, designed to overcome the inherent limitations of traditional
hearing devices, represent a novel approach in the management of hearing
impairment. The Company's initial product under development, the Vibrant
soundbridge, is a semi-implantable device which mechanically drives the three
small bones of the middle ear to overcome the user's hearing impairment. The
Company's second generation product, the Vibrant P programmable soundbridge,
provides a greater degree of customization to address the specific needs of a
particular user's hearing loss and expands the types of hearing loss that can
be managed by the Company's products.
The Vibrant soundbridge is designed for the management of moderate to severe
sensorineural hearing impairment. Sensorineural hearing impairment accounts for
the vast majority of adults who are hearing impaired and occurs typically as a
result of aging or exposure to loud noise over a protracted period of time. The
traditional approach to the management of mild to severe sensorineural hearing
impairment has been the use of hearing aids, which were first introduced a
hundred years ago. Hearing aids are acoustic drive devices that amplify sound
to increase the movement of the ear drum, thereby indirectly vibrating the
bones of the middle ear in an attempt to overcome the decreased sensitivity of
the delicate sensory hair cells of the inner ear. Although there have been
continued advancements in hearing aid technology, for optimal performance, all
or part of the device must fit tightly in the ear canal which results in
significant drawbacks, including distorted sound quality, acoustic feedback,
poor localization, social stigma, discomfort and poor reliability. Despite the
inherent limitations of hearing aids, in 1995, approximately 1.7 million
hearing aids were sold in the United States, representing a retail market of
approximately $1.2 billion. The United States market represents approximately
38% of the worldwide hearing aid market. The Company estimates that the
worldwide retail market for hearing aids exceeded $3.0 billion in 1995.
Rather than indirectly driving the ear's vibratory structure, the Vibrant
soundbridge is a direct drive device which incorporates the Company's patented
core technology, the Floating Mass Transducer ("FMT"). The FMT is a tiny
transducer, smaller than a grain of rice, that is attached directly to the
incus bone of the middle ear. The FMT converts sound into mechanical vibrations
and enhances the natural movement of the bones of the middle ear, which in turn
generate enhanced stimulation of the delicate
3
<PAGE>
sensory hair cells of the inner ear. The Company believes that its direct drive
soundbridges offer significant benefits, including improved sound quality and
speech intelligibility, elimination of acoustic feedback, improved sound
localization, minimized social stigma and improved reliability. The Company has
three patents issued in the United States and 20 patents pending in both the
United States and internationally covering a number of fundamental aspects of
the FMT and related technologies.
The Company is currently developing a family of Vibrant soundbridges,
including the Vibrant D soundbridge, which is designed to permit an even
greater degree of customization along with the additional benefit of digital
signal processing, and the Vibrant HF soundbridge, which is designed to provide
hearing correction to those individuals who have noise-induced hearing loss at
high frequencies but relatively normal hearing at lower frequencies. In
addition, the Company is in the early stage of developing versions of the
Vibrant soundbridge that are totally implantable with no external components.
The Company's soundbridges are designed to be implanted in a single ear in a
two-hour, outpatient procedure which requires surgical techniques similar to
those employed in common middle ear surgical procedures. The Company's strategy
is to market its soundbridges initially to those specialists in otology who are
currently most active in ear surgery and thereafter, to the general population
of Ear, Nose and Throat ("ENT") surgeons. Because the surgical procedure for
implanting the Vibrant soundbridge utilizes many of the same techniques
employed by surgeons trained and experienced in otological procedures, the
Company believes that surgeon training will not be a significant impediment to
market acceptance.
In September 1996, the Company initiated clinical trials of the Vibrant
soundbridge in both the United States and Europe, and in July 1997 the Company
initiated clinical trials of the Vibrant P soundbridge in Europe. As of October
31, 1997, 41 patients have been implanted with the Company's soundbridges of
whom 37 have had the Audio Processor fitted and the soundbridge's performance
evaluated. To date, the Company has received United States Food and Drug
Administration ("FDA") approval of an Investigational Device Exemption ("IDE")
to commence clinical testing of the Vibrant soundbridge. In the United States,
Phase I testing limited to two sites and five patients has been completed. The
Company intends to initiate a multi-site Phase II trial with ten additional
patients, followed by a multi-site Phase III pivotal trial in approximately 85
patients. On October 3, 1997, the Company submitted a Phase I report and an IDE
supplement to the FDA requesting modification and expansion to the next phase
of clinical testing. On October 31, 1997, the Company received notification
from the FDA that it would require additional audiologic and safety data prior
to commencement of the next phase of clinical testing. On November 14, 1997,
the Company submitted the additional information.
The Company has completed its European clinical trial and is in the process
of submitting the technical, preclinical and clinical data that it believes
will be necessary, together with the previously obtained certifications, to
satisfy the applicable regulatory requirements for commercial sales in the
European Union ("EU").
The Company's objectives are to establish its family of Vibrant soundbridges
as the standard of care worldwide for the management of moderate to severe
hearing impairment and to establish Symphonix as the leader in the hearing
management market. Key elements of the Company's strategy include:
demonstrating improved quality of life, developing surgeon endorsement of the
Company's family of soundbridges, leveraging the Company's patented core
technology and protecting and enhancing the Company's proprietary position.
The Company was incorporated under the laws of California in May 1994 and
will be reincorporated under the laws of Delaware prior to the completion of
this offering. The Company's principal executive offices are located at 3047
Orchard Parkway, San Jose, CA 95134. Its telephone number is (408) 232-0710.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock to be offered by the Company.... 2,300,000 shares
Common Stock to be outstanding after the
offering(1)................................. 11,696,021 shares(1)
Use of proceeds.............................. For research and development,
including clinical trials;
development of a sales and
marketing organization;
construction of a clean room
and other capital expenditures;
working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... SMPX
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 17, 1994 PERIOD FROM
(DATE OF NINE MONTHS MAY 17, 1994
INCEPTION) YEARS ENDED ENDED (DATE OF
TO DECEMBER 31, SEPTEMBER 30, INCEPTION) TO
DECEMBER 31, ---------------- ---------------- SEPTEMBER 30,
1994 1995 1996 1996 1997 1997
------------ ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Costs and expenses:
Research and
development........... $ 707 $ 3,307 $ 5,399 $ 3,801 $ 4,643 $ 14,056
General and
administrative........ 141 625 1,047 830 1,330 3,143
----- ------- ------- ------- ------- --------
Loss from operations.... (848) (3,932) (6,446) (4,631) (5,973) (17,199)
Interest income, net.... 96 280 337 233 348 1,061
----- ------- ------- ------- ------- --------
Net loss................ $(752) $(3,652) $(6,109) $(4,398) $(5,625) $(16,138)
===== ======= ======= ======= ======= ========
Pro forma net loss per
share(2)............... $ (0.71) $ (0.59)
======= =======
Shares used in
calculation of pro
forma net loss per
share(2)............... 8,546 9,533
======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... $11,528 $36,396
Total assets............................................ 12,557 37,425
Capital lease obligations, less current portion......... 406 406
Deficit accumulated during the development stage........ (16,138) (16,138)
Total stockholders' equity.............................. 10,655 35,523
</TABLE>
- --------
(1) Based upon the number of shares outstanding as of September 30, 1997.
Excludes (i) 441,734 shares of Common Stock subject to outstanding options
at a weighted average exercise price of $0.65 per share under the Company's
1994 Stock Option Plan and 223,683 shares reserved for future issuance
thereunder (the "1994 Option Plan") and (ii) 33,611 shares issuable upon
exercise of outstanding warrants to purchase Common Stock at a weighted
average exercise price of $2.20 per share. See "Management--Incentive Stock
Plans" and "Description of Capital Stock--Warrants."
(2) See Note 10 of Notes to Financial Statements for an explanation for the
computation of pro forma net loss per share.
(3) Adjusted to reflect the sale of 2,300,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $12.00 per share
after deducting estimated underwriting discounts and commissions and
estimated offering expenses and the receipt of the net proceeds therefrom.
See "Use of Proceeds"
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. The following principal factors should be carefully considered in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.
EARLY STAGE OF DEVELOPMENT
Since the Company's inception in 1994, substantially all of the Company's
resources have been dedicated to research and development, and the Company has
not generated any revenue from product sales. All of the Company's products are
in development and will require additional clinical trials and, in some cases,
additional development and preclinical testing prior to the submission of a
regulatory application for commercial use. Since the Company's products are
currently in development, significant product revenues will not be realized for
at least several years, if ever. There can be no assurance that any of the
Company's product development efforts will be successfully completed, that
clinical trials will commence on time or be completed, that any of the
Company's products will be proven to be safe and effective, that regulatory
approvals will be obtained at all or labeling claims will be as broad as
sought, that the Company's products will be capable of being produced in
commercial quantities at reasonable costs or that any products, if introduced,
will achieve market acceptance.
LIMITED CLINICAL TESTING EXPERIENCE
The Company has conducted only limited clinical trials of its Vibrant and
Vibrant P soundbridges. The Company has received approval of an IDE to conduct
a clinical trial of the Vibrant soundbridge, which has been the subject of
limited clinical testing in the United States. The Vibrant and the Vibrant P
soundbridges have both been the subject of limited clinical testing in Europe.
None of the Company's other soundbridges under development have been tested in
human clinical trials. The Company's soundbridges will require additional
development, clinical trials and regulatory approval prior to
commercialization. The results from preclinical studies and early clinical
trials may not be indicative of results obtained in later clinical trials, and
there can be no assurance that clinical trials conducted by the Company will
demonstrate sufficient safety and efficacy to obtain requisite approvals.
The rate of completion of the Company's clinical trials may be delayed by
many factors, including slower than anticipated patient enrollment or adverse
events occurring during clinical trials. Completion of preclinical and clinical
activities may take several years, and the length of time for completion of the
required studies is unpredictable. In addition, data obtained from preclinical
and clinical activities are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. No assurance can be given that any
of the Company's clinical trials will be successfully completed on a timely
basis, or at all, that additional clinical trials will be allowed by the FDA or
other regulatory authorities or that such clinical trials will commence as
planned.
The Company is in the process of submitting clinical data on approximately 30
patients to the Company's Notified Body, a certification body authorized to
test and certify medical devices for sale in the EU, to demonstrate the safety
and performance of the Vibrant and Vibrant P soundbridges. As of October 31,
1997, 36 patients in the European clinical trial have been implanted with the
Company's soundbridges, of whom 32 have had the Audio Processor fitted and the
soundbridge's performance evaluated. There can be no assurance that such data
will be accepted by the Company's Notified Body, or that the Notified Body will
not require the Company to obtain additional data from additional clinical
trials involving more patients in order to demonstrate the safety and
performance
6
<PAGE>
of the Vibrant and Vibrant P soundbridges. If the Notified Body requires the
Company to submit additional data, the timing of regulatory approval and
commercialization of the Company's products in Europe could be delayed. See
"Business--Government Regulation."
RELIANCE ON FMT TECHNOLOGY
The Company has concentrated its efforts primarily on the development,
implementation and acceptance of the FMT, the patented core direct drive
technology upon which all of the Company's soundbridges are based, and will be
dependent upon the successful development of its soundbridges to generate
revenues. The Company's soundbridges employ a direct drive approach to the
management of hearing impairment, which is a novel development. There can be no
assurance that the Company's soundbridges, based on the Company's FMT
technology, will prove to be safe and effective, or that if proven safe and
effective, can be manufactured at reasonable cost or successfully
commercialized. See "Business--Products Under Development."
NO ASSURANCE OF PRODUCT APPROVAL; GOVERNMENT REGULATION
The research, preclinical and clinical activities, manufacturing, labeling,
distribution, sale, marketing, advertising and promotion of the Company's
proposed products are subject to extensive and rigorous government regulation
in the United States and certain other countries. In the United States and
certain other countries, the process of obtaining and maintaining required
regulatory clearances or approvals is lengthy, expensive and uncertain. The
Company's future success will be significantly dependent upon commercial sales
of its products under development. The Company will also not be able to market
such products domestically or overseas until it meets the safety and quality
regulations of each jurisdiction in which the Company, its agents or
distributors seek to sell such products. Noncompliance with applicable FDA
requirements can result in administrative sanctions or judicially imposed
sanctions such as civil penalties, criminal prosecution, injunctions, product
seizure or detention, product recalls, or total or partial suspension of
production. In addition, noncompliance may result in the FDA's refusal to
approve pending applications for marketing approval or clearance or supplements
to approved marketing approvals, or in the withdrawal of marketing approval.
Before these products can be commercialized in the United States, the Company
must submit, in a premarket approval ("PMA") application, extensive data on
preclinical studies and clinical trials, device design, manufacturing,
labeling, promotion and advertising, as well as other aspects of the product.
In addition, the Company must submit clinical data gathered in trials conducted
under an IDE demonstrating to the satisfaction of the FDA that the product is
safe and effective and represents an improvement in hearing compared to
currently marketed well-functioning acoustic hearing aids, and obtain marketing
approval from the FDA. To date, the Company has received FDA approval of an IDE
to commence clinical testing of the Vibrant. The testing will be conducted in
phases. Phase I has been completed, was limited to two sites and five patients
and was intended to test the safety and preliminary evidence of efficacy of the
device and the surgical procedure used to implant the device. As of October
1997, the five patients required for the Phase I clinical trial have been
implanted with the Vibrant soundbridge, have had the Audio Processor fitted and
have completed the follow-up required by the trial protocol. The Company
intends to initiate a multi-site Phase II study with ten additional patients,
followed by a multi-site Phase III pivotal trial in approximately 85 patients.
The Company has filed an IDE supplement to incorporate the Vibrant P into the
Phase II and Phase III trials for the Vibrant soundbridge, but there can be no
assurance that the FDA will not require a separate IDE for the Vibrant P. If
the Company is required to submit a separate IDE, regulatory approval of the
Vibrant P would be delayed. On October 3, 1997, the Company submitted a Phase I
report and an IDE supplement to the FDA requesting modification and expansion
to the next phase of clinical testing. On October 31, 1997, the Company
received notification from the FDA that it would require additional audiologic
and safety data prior to commencement of the next phase of clinical
7
<PAGE>
testing. On November 14, 1997, the Company submitted the additional
information. There can be no assurance that any additional approvals to
commence Phase II or Phase III clinical trials will be obtained in a timely
fashion, or at all, or that the Company's clinical trial effort will progress
as expected, not be delayed or that such efforts will lead to the successful
development of any product.
Any delays in the Company's clinical trials would have a material adverse
effect on the Company's business, financial condition and results of
operations. Success in preclinical studies or early stage clinical trials does
not assure success in later stage clinical trials. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. Further, there can be
no assurance that if such testing of products under development is completed,
any such devices will be accepted for formal review by the FDA or approved by
the FDA for marketing in the United States.
Subsequent to the receipt of an FDA approval, the Company will continue to
be regulated by the FDA with regard to the reporting of adverse events related
to its products, and ongoing Quality System regulation ("QS regulation")
compliance (which includes elaborate testing, control, documentation and other
quality assurance procedures). The Company's manufacturing facility must be
registered with the FDA and the California Food and Drug Branch and will be
subject to periodic inspections by the FDA and by the California Food and Drug
Branch. The timing and requirements of obtaining approval for sale in foreign
countries may differ from that required for FDA approval. In addition, there
may be foreign regulatory barriers other than pre-market approval.
The EU consists of 15 countries encompassing most of the major countries in
Europe. The EU has adopted numerous directives and standards regulating the
design, manufacture, clinical trial, labeling, and adverse event reporting for
medical devices. The principal directives prescribing the laws and regulations
pertaining to medical devices in the EU are the Medical Devices Directive,
93/42/EEC ("MDD") and the Active Implantable Medical Devices Directive,
90/385/EEC ("AIMDD"). In the EU, the Company's soundbridges will be regulated
as active implantables and therefore be governed by the AIMDD. Certain other
countries, such as Switzerland, have voluntarily adopted laws and regulations
that mirror those of the EU with respect to medical devices.
The Company's facilities have been inspected by the Notified Body and its
quality system has been certified by the Notified Body as being in compliance
with the required standards. The Company is in the process of compiling the
technical, preclinical and clinical data that its Notified Body has indicated
will be required to satisfy the essential requirements of the AIMDD. To
satisfy the essential requirements, the Company must complete a clinical trial
conducted under European clinical trial standards (EN 540) to determine the
safety and performance of the products. The Company is in the process of
submitting clinical data to its Notified Body on approximately 30 patients to
demonstrate the safety and performance of the Vibrant and Vibrant P
soundbridges. As of October 31, 1997, a total of 36 patients in the European
clinical trial have been implanted (19 with the Vibrant and 17 with the
Vibrant P soundbridge) of whom 32 have had the Audio Processor fitted and the
soundbridge's performance evaluated. There can be no assurance that such data
will be accepted by the Company's Notified Body, or that the Notified Body
will not require the Company to obtain additional data from additional
clinical trials involving more patients in order to demonstrate the safety and
performance of the Vibrant soundbridge and the Vibrant P soundbridge. If the
Notified Body requires the Company to submit additional data, the timing of
regulatory approval and commercialization of the Company's products in Europe
could be delayed.
Once a manufacturer has satisfactorily completed the regulatory compliance
tasks required by the directives and received favorable determinations by the
Notified Body, it is eligible to place the CE mark on its products.
Manufacturers are subject to ongoing regulation under the AIMDD. The quality
system will be subject to periodic audit and recertification, and serious
adverse events must
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be reported to the authorities in the country where the incident takes place.
If such incidents occur, the manufacturer may have to take remedial action,
including withdrawal of the product from the EU market. See "Business--Products
Under Development" and "--Government Regulation."
NO ASSURANCE OF MARKET ACCEPTANCE
The market acceptance of the Company's soundbridges will depend upon their
acceptance by the medical community and patients as clinically useful, reliable
and cost-effective compared to other devices. Clinical acceptance will depend
on numerous factors, including the establishment of the safety and the
effectiveness of the soundbridge's ability to drive the ossicles directly and
improve hearing over currently available hearing aids. Clinical acceptance will
also depend on the receipt of regulatory approvals in the United States and
internationally and the Company's ability to adequately train ear surgeons on
the techniques for implanting the Company's soundbridges. In addition, there
can be no assurance that the Company's soundbridges will be preferable
alternatives to existing devices, some of which, such as the acoustic hearing
aid, do not require surgery, or that the Company's soundbridges will not be
rendered obsolete or noncompetitive by products under development by other
companies. Patient acceptance of the Company's soundbridges will depend in part
upon physician and surgeon recommendations as well as other factors, including
the effectiveness, safety, reliability and invasiveness of the procedure as
compared to established approaches. Even if the Company's soundbridges are
adopted by the medical community, a significant market may not develop for the
Company's products unless acceptable reimbursement from health care payors is
available. There can be no assurance that the Company's soundbridges under
development will be accepted by the medical community or consumers or that
market demand for such products will be sufficient to allow the Company to
achieve profitable operations. Failure of the Company's soundbridges, for
whatever reason, to achieve significant adoption by the medical community or
consumers or failure of the Company's products to achieve any significant
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Government Regulation" and "--Third-Party Reimbursement."
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES
To date, the Company is in the development stage, has generated no revenue
from product sales and has experienced significant operating losses since
inception. As of September 30, 1997, the Company had an accumulated deficit of
$16.1 million. The Company expects its operating losses to continue at least
through 1999 as it continues to expend substantial funds for clinical trials in
support of regulatory approvals, expansion of research and development
activities and establishment of commercial-scale manufacturing and sales and
marketing capabilities. Any commercialization of the Company's products will
require substantial development, clinical, regulatory, manufacturing, sales and
marketing and other expenditures. There can be no assurance that the Company's
soundbridges will be successfully commercialized or that the Company will
achieve significant revenues from either international or domestic sales. In
addition, there can be no assurance that the Company will achieve or sustain
profitability in the future. The Company's results of operations may fluctuate
from quarter to quarter or year to year and will depend upon numerous factors,
including action relating to regulatory matters, progress of clinical trials,
the timing and scope of research and development efforts, the extent to which
the Company's products gain market acceptance or achieve reasonable
reimbursement levels, the timing of scale-up of manufacturing capabilities, the
timing of expansion of sales and marketing activities and competition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HIGHLY COMPETITIVE MARKET; RISK OF COMPETING HEARING DEVICES
The medical device industry is subject to intense competition in the United
States and abroad. The Company believes its products will compete primarily
with the traditional approaches to
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managing hearing impairment, principally hearing aids. Principal manufacturers
of acoustic hearing aids include Siemens Hearing Instruments, Inc., Philips
Medical Systems North America Co., Starkey Laboratories Inc., Beltone
Electronics Corp., Dahlberg Inc., ReSound Corp., Oticon, Inc., Widex Hearing
Aid Co., Inc. and Phonak Inc. There can be no assurance that the Company's
soundbridges will be able to successfully compete with established hearing aid
products. In addition, there can be no assurance that these potential
competitors will not succeed in developing technologies and products in the
future that are more effective, less expensive than those being developed by
the Company or that do not require surgery. The Company is aware of several
university research groups and development-stage companies that have active
research or development programs related to direct drive sensorineural hearing
devices. In addition, some large medical device companies, some of which are
currently marketing implantable medical devices, may develop programs in
hearing management. Certain of these companies have substantially greater
financial, technical, manufacturing, marketing and other resources than the
Company. In addition, there can be no assurance that certain of the Company's
competitors will not develop technologies and products that may be more
effective in managing hearing impairment than the Company's products or that
render the Company's products obsolete. See "Business--Competition."
LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK; DEPENDENCE ON KEY SUPPLIERS
The Company currently manufactures its products in limited quantities for
laboratory testing and for its United States and European clinical trials. The
manufacture of the Vibrant soundbridge is a complex operation involving a
number of separate processes, components and assemblies. Each device is
assembled and individually tested by the Company. The manufacturing process
consists primarily of assembly of internally manufactured and purchased
components and subassemblies, and certain processes are performed in a clean
room environment. After completion of the manufacturing and testing processes,
implantable devices are sterilized by a sub-contracted supplier. The Company
has no experience manufacturing its products in the volumes or with the yields
that will be necessary for the Company to achieve significant commercial
sales, and there can be no assurance that the Company can establish high-
volume manufacturing capacity or, if established, that the Company will be
able to manufacture its products in high volumes with commercially acceptable
yields. If the Company receives regulatory approval to commercialize its
products, it will need to expend significant capital resources and develop
manufacturing expertise to establish large-scale manufacturing capabilities.
Before the Company commences large-scale commercial manufacturing activities,
it intends to move to a new facility. Furthermore, prior to approval of a PMA,
the Company's facilities, procedures and practices will be subject to a pre-
approval inspection by the FDA. The Company's inability to successfully
manufacture its products in a timely manner or at a reasonable cost could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Raw materials, components and subassemblies for the Company's soundbridges
are purchased from various qualified suppliers. A number of components and
subassemblies, such as silicone, control electronics and implant packaging are
provided by single source suppliers. None of the Company's vendors is
contractually obligated to continue to supply the Company nor is the Company
contractually obligated to buy from a particular vendor. For certain of these
components and subassemblies, there are relatively few alternative sources of
supply, and establishing additional or replacement suppliers for such
components and subassemblies could not be accomplished quickly. In addition,
if the Company wishes to significantly modify its manufacturing processes or
change the supplier of a critical component, additional approvals will be
required from the FDA before the change can be implemented. Because of the
long lead time for some components and subassemblies that are currently
available from a single source, a supplier's inability or failure to supply
such components or subassemblies in a timely manner or the Company's decision
to change its suppliers could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Manufacturing."
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DEPENDENCE UPON PATENTS AND PROPRIETARY TECHNOLOGY
In the United States, the Company holds three issued patents and ten pending
patent applications. Additionally, the Company has ten pending foreign patent
applications. These patents and patent applications generally cover the
invention and application of the FMT as well as the specific application of the
FMT and other concepts in the field of hearing impairment. In addition, the
Company has licensed, on a royalty-free basis, a United States patent covering
the magnetic attachment of an external audio processor to an implanted
receiver. The Company's success will depend in part on its ability to obtain
patent protection for its products and processes, to preserve its trade secrets
and to operate without infringing or violating the proprietary rights of
others.
The patent positions and trade secret provisions of medical device companies,
including those of the Company, are uncertain and involve complex and evolving
legal and factual questions. The coverage sought in a patent application either
can be denied or significantly reduced before or after the patent is issued.
Consequently, there can be no assurance that any patents from pending
applications or from any future patent application will be issued, that the
scope of the patent protection will exclude competitors or provide competitive
advantages to the Company, that any of the Company's patents will be held valid
if subsequently challenged or that others will not claim rights in or ownership
of the patents and other proprietary rights held by the Company. Since patent
applications are secret until patents are issued in the United States or
corresponding applications are published in other countries, and since
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, the Company cannot be certain that it was the first
to file patent applications for such inventions.
In addition, there can be no assurance that competitors, many of which have
substantial resources, will not seek to apply for and obtain patents that will
prevent, limit or interfere with the Company's ability to make, use or sell its
products either in the United States or in international markets. Although the
Company has conducted searches of patents issued to other companies, research
or academic institutions or others, there can be no assurance that such patents
do not exist, have not been filed or could not be filed or issued, which
contain claims relating to the Company's technology, products or processes.
Patents issued and patent applications filed in the United States or
internationally relating to medical devices are numerous and there can be no
assurance that current and potential competitors and other third parties have
not filed or in the future will not file applications for, or have not received
or in the future will not receive, patents or obtain additional proprietary
rights relating to products or processes used or proposed to be used by the
Company. In addition, patent applications in foreign countries are maintained
in secrecy for a period after filing. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and the
filing of related patent applications. There may be pending applications, which
if issued with claims in their present form, might provide proprietary rights
to third parties relating to products or processes used or proposed to be used
by the Company. The Company may be required to obtain licenses to patents or
proprietary rights of others. Further, the laws of certain foreign countries do
not protect the Company's intellectual property rights to the same extent as do
the laws of the United States. Litigation or regulatory proceedings, which
could result in substantial cost and uncertainty to the Company, may also be
necessary to enforce patent or other intellectual property rights of the
Company or to determine the scope and validity of other parties' proprietary
rights. There can be no assurance that the Company will have the financial
resources to defend its patents from infringement or claims of invalidity.
The Company also relies upon trade secrets and other unpatented proprietary
technology, and no assurance can be given that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to or disclose the Company's proprietary technology or
that the Company can meaningfully protect its rights in such unpatented
proprietary technology. The Company's policy is to require each of its
employees, consultants,
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investigators and advisors to execute a confidentiality agreement upon the
commencement of an employment or consulting relationship with the Company.
These agreements generally provide that all inventions conceived by the
individual during the term of the relationship shall be the exclusive property
of the Company and shall be kept confidential and not be disclosed to third
parties except in specified circumstances. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information.
Recently Public Law 104-208 was signed into law in the United States and
limits the enforcement of patents relating to the performance of surgical or
medical procedures on a body. This law precludes medical practitioners and
health care entities who practice these procedures from being sued for patent
infringement. Therefore, depending upon how these limitations are interpreted
by the courts, they could have a material adverse effect on the Company's
ability to enforce any of its proprietary methods or procedures deemed to be
surgical or medical procedures. In certain other countries outside the United
States, patent coverage relating to the performance of surgical or medical
procedures is not available. Therefore, patent coverage in such countries will
be limited to the FMT or to narrower aspects of the FMT.
The medical device industry in general has been characterized by substantial
litigation. Litigation regarding patent and other intellectual property rights,
whether with or without merit, could be time-consuming and expensive to respond
to and could distract the Company's technical and management personnel. The
Company may become involved in litigation to defend against claims of
infringement by the Company, to enforce patents issued to the Company or to
protect trade secrets of the Company. If any relevant claims of third-party
patents are held as infringed and not invalid in any litigation or
administrative proceeding, the Company could be prevented from practicing the
subject matter claimed in such patents, or would be required to obtain licenses
from the patent owners of each such patent, or to redesign its products or
processes to avoid infringement. In addition, in the event of any possible
infringement, there can be no assurance that the Company would be successful in
any attempt to redesign its products or processes to avoid such infringement or
in obtaining licenses on terms acceptable to the Company, if at all.
Accordingly, an adverse determination in a judicial or administrative
proceeding or failure by the Company to redesign its products or processes or
to obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations. Although the
Company has not been involved in any litigation to date, in the future, costly
and time-consuming litigation brought by the Company may be necessary to
enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company or to determine the enforceability, scope and validity of
the proprietary rights of others. See "Business--Patents and Proprietary
Technology."
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will expend substantial funds in the future for research and
development, preclinical and clinical testing, capital expenditures and the
manufacturing, marketing and sale of its products. The timing and amount of
spending of such capital resources cannot be accurately predicted and will
depend upon several factors, including the progress of its research and
development efforts and preclinical and clinical activities, competing
technological and market developments, the time and costs of obtaining
regulatory approvals, the time and costs involved in filing, prosecuting and
enforcing patent claims, the progress and cost of commercialization of products
currently under development, market acceptance and demand for the Company's
products if approved for marketing and other factors not within the Company's
control. While the Company believes that the net proceeds of this offering,
together with its existing capital resources and projected interest income,
will be sufficient to fund its operations for at least the next 18 months,
there can be no assurance that the Company will not require additional
financing prior to that time.
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There can be no assurance that such additional financing will be available on a
timely basis on terms acceptable to the Company, or at all, or that such
financing will not be dilutive to stockholders. If adequate funds are not
available, the Company could be required to delay development or
commercialization of certain of its products, to license to third parties the
rights to commercialize certain products or technologies that the Company would
otherwise seek to commercialize for itself, or to reduce the marketing,
customer support or other resources devoted to certain of its products, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds," "Dilution" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
LACK OF SALES, MARKETING AND DISTRIBUTION EXPERIENCE
The Company will have to establish an effective internal sales and marketing
organization prior to commercial introduction of its products. The Company is
in the process of establishing a sales and marketing organization in Europe. An
office has been established in Basel, Switzerland, where the Company's Director
of European Sales and Marketing and European Clinical Manager are based. The
Company expects to recruit sales personnel to provide direct sales coverage in
Germany, France and the United Kingdom by the first quarter of 1998. In other
international markets, including Japan, the Company will seek to establish a
network of distributors. By the end of the first quarter of 1998, the Company
intends to establish distributors in Italy, Spain and the Benelux countries.
There can be no assurance that the Company will be able to build a direct sales
force or marketing organization in any country, that establishing a direct
sales force or marketing organization will be cost-effective or that the
Company's sales and marketing efforts will be successful. In addition, the
Company has had only limited discussions with potential international
distributors and has not yet entered into any agreements with distributors.
There can be no assurance that the Company will be able to enter into
agreements with qualified distributors on a timely basis on terms acceptable to
the Company, or at all, or that such distributors will devote adequate
resources to selling the Company's products. Failure to establish a direct
sales force domestically and in select international markets, and to enter into
successful distribution relationships, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Sales, Marketing and Training."
UNCERTAIN AVAILABILITY OF THIRD-PARTY REIMBURSEMENT
The Company believes that its products will generally be purchased by
hospitals and clinics upon the recommendation of a surgeon. In the United
States, hospitals, physicians and other health care providers that purchase
medical devices generally rely on third-party payors, to reimburse all or part
of the cost of the procedure in which the medical device is being used. Such
third-party payors have become increasingly sensitive to cost containment in
recent years and place a high degree of scrutiny on coverage and payment
decisions for new technologies and procedures.
Hearing aids, which are the subject of 510(k) clearance and do not involve
surgery, are generally not reimbursed, although a modest reimbursement is
provided under certain insurance plans. Traditionally, hearing aid users have
paid for these devices directly. There can be no assurance that the Company
will be able to demonstrate improvement in quality of life or that
reimbursement will ever be available for the Company's products. During
clinical trials, the Company does not anticipate that there will be any
reimbursement for the Vibrant soundbridge implant or procedure.
Certain third-party payors are moving toward a managed care system in which
they contract to provide comprehensive health care for a fixed cost per person.
The fixed cost per person established by these third-party payors may be
independent of the hospital's cost incurred for the specific case and the
specific devices used. Medicare and other third-party payors are increasingly
scrutinizing whether to cover new products and the level of reimbursement for
covered products. Because the Company's products are currently under
development and have not received FDA clearance or
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approval, uncertainty exists regarding the availability of third-party
reimbursement for procedures that would use the Company's soundbridges. Failure
by physicians, hospitals and other potential users of the Company's
soundbridges to obtain sufficient reimbursement from third-party payors for the
procedures in which the Company's soundbridges are intended to be used could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Third-party payors that do not use prospectively fixed payments increasingly
use other cost-containment processes or require various outcomes data that may
pose administrative hurdles to the use of the Company's soundbridges. In
addition, third-party payors may deny reimbursement if they determine that the
device used in a procedure is unnecessary, inappropriate, experimental, used
for a non-approved indication or is not cost-effective. Potential purchasers
must determine that the clinical benefits of the Company's products justify the
additional cost or the additional effort required to obtain prior authorization
or coverage and the uncertainty of actually obtaining such authorization or
coverage.
If the Company obtains the necessary foreign regulatory approvals, market
acceptance of the Company's products and products currently under development
in international markets would be dependent, in part, upon the availability of
reimbursement within prevailing health care payment systems. Reimbursement and
health care payment systems in international markets vary significantly by
country and include both government sponsored health care and private
insurance. There can be no assurance that any international reimbursement
approvals will be obtained in a timely manner, if at all. Failure to receive
international reimbursement approvals could have a material adverse effect on
market acceptance of the Company's products in the international markets in
which such approvals are sought. See "Business--Third-Party Reimbursement."
DEPENDENCE UPON KEY PERSONNEL
The Company's future success depends in significant part upon the continued
service of certain key scientific, technical and management personnel.
Competition for such personnel is intense and there can be no assurance that
the Company can retain its key scientific, technical and managerial personnel
or that it can attract, assimilate or retain other highly qualified scientific,
technical and managerial personnel in the future. The loss of key personnel,
especially if without advance notice, or the inability to hire or retain
qualified personnel could have a material adverse effect upon the Company's
business, financial condition and results of operations. The Company is the
beneficiary under a $1.0 million key man insurance policy on Harry S. Robbins,
the Company's President.
PRODUCT LIABILITY RISK; POSSIBLE INSUFFICIENCY OF INSURANCE
The manufacture, sale and implantation of the Company's products involve the
risk of product liability claims. The Company currently has limited product
liability insurance. There can be no assurance that such insurance will be
available on commercially reasonable terms or that the coverage limits will be
adequate. The Company intends to evaluate its coverage on a regular basis and
in connection with the introduction of products currently under development.
Such insurance is expensive and may not be available on acceptable terms, in
sufficient amount of coverage or at all. A successful claim brought against the
Company in excess of its insurance coverage would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Product Liability."
CONTROL BY EXISTING STOCKHOLDERS
After the completion of this offering, current stockholders, including
certain executive officers and directors of the Company and their affiliates,
will own approximately 81.1% of the outstanding Common Stock (assuming the
exercise of all outstanding options and warrants). As a result, these
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stockholders will, to the extent they act together, continue to have the
ability to exert significant influence and control over matters requiring the
approval of the Company's stockholders, including the election of a majority
of the Company's Board of Directors. See "Principal Stockholders."
POTENTIAL ADVERSE IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of Common Stock (including shares issued upon the exercise of
outstanding options) in the public market after this offering could materially
and adversely affect the market price of the Common Stock. Such sales also
might make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this offering, the Company will have
11,696,021 shares of Common Stock outstanding (assuming no exercise of options
after September 30, 1997), of which the 2,300,000 shares offered hereby will
be freely tradeable (unless held by affiliates of the Company) without
restriction. The remaining 9,396,021 shares will be restricted securities
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). The Company and its directors, executive officers and all other holders
of such restricted securities, have entered into lock-up agreements with the
Company or Cowen & Company (the "Lock-up Agreements") under which they have
agreed not to offer, sell, contract to sell, grant any options to purchase or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
options to acquire shares of Common Stock, or securities exchangeable or
convertible into shares of Common Stock, owned by them for a period of 180
days following the day on which the Registration Statement becomes effective
without the prior written consent of Cowen & Company or the Company, as the
case may be except that, without such consent, the Company may issue Common
Stock and grant options pursuant to the Stock Plans and issue Common Stock
pursuant to the exercise of outstanding warrants and the current stockholders
of the Company who are not executive officers or directors of the Company may
sell Common Stock acquired in the offering or in the open market. The Company
has agreed not to release any stockholders from the terms of the Lock-up
Agreements with the Company. Cowen & Company may, in its sole discretion and
at any time without notice, release all or any portion of the shares subject
to such Lock-up Agreements. As a result of the Lock-up Agreements and the
provisions of Rules 144 and 701 promulgated under the Securities Act, upon
consummation of this offering, such restricted securities will be available
for public resale in the public market as follows: (i) no shares will be
available for immediate sale on the date of this Prospectus and (ii) the
remaining approximately 9,685,303 shares will be available for public resale
180 days after the date of this Prospectus, upon expiration of the Lock-up
Agreements (including approximately 289,282 shares subject to outstanding
vested options and outstanding warrants), subject in some cases to volume
limitations pursuant to Rule 144. In addition, 6,715,694 of the shares
outstanding immediately following the completion of this offering (including
up to 33,611 shares of Common Stock issuable upon exercise of certain
outstanding warrants) will be entitled to registration rights with respect to
such shares upon termination of the Lock-up Agreements. The number of shares
sold in the public market could increase if such registration rights are
exercised and such sales may have an adverse effect on the market price of the
Common Stock. See "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
be sustained or that the market price of the Common Stock will not decline
below the initial public offering price. The initial public offering price of
the Common Stock is determined by negotiations between the Company and the
Underwriters. As such, the initial public offering price is not necessarily
related to the Company's net worth or any other established criteria of value
and may not bear any relationship to the market price of the Common Stock
following the completion of the offering. The market prices for securities of
medical device companies have historically been highly volatile. Announcements
of technological innovations
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or new products by the Company or its competitors, developments concerning
proprietary rights, including patents and litigation matters, publicity
regarding actual or potential results with respect to products under
development by the Company or others, regulatory developments in both the
United States and foreign countries and public concern as to the safety of new
technologies, changes in financial estimates by securities analysts or failure
of the Company to meet such estimates and other factors may have a significant
impact on the market price of the Common Stock. In addition, the Company
believes that fluctuations in its operating results may cause the market price
of its Common Stock to fluctuate, perhaps substantially. See "Underwriting."
DILUTION; ABSENCE OF DIVIDENDS
Purchasers of shares of Common Stock offered hereby will experience an
immediate dilution of $8.96 in the pro forma net tangible book value per share
of their Common Stock from the assumed initial public offering price of $12.00
per share. The Company has never paid dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy" and "Dilution."
ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CERTAIN CHARTER, BYLAWS AND
CONTRACTUAL PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation and
Bylaws may have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions eliminate the right of stockholders to act by
written consent without a meeting and specify procedures for director
nominations by stockholders and submission of other proposals for consideration
at stockholder meetings. In addition, the Company's Board of Directors has the
authority to issue up to 5,000,000 shares of Preferred Stock and to determine
the price, rights, preferences, privileges and restrictions of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue shares of
Preferred Stock. Certain provisions of Delaware law applicable to the Company
could also delay or make more difficult a merger, tender offer or proxy contest
involving the Company, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years unless certain conditions are met. The existence of a classified Board of
Directors, the inability of stockholders to act by written consent without a
meeting, the procedures required for director nominations and stockholder
proposals and Delaware law could have the effect of delaying, deferring or
preventing a change in control of the Company, including without limitation,
discouraging a proxy contest or making more difficult the acquisition of a
substantial block of the Company's Common Stock. These provisions could also
limit the price that investors might be willing to pay in the future for shares
of the Company's Common Stock. In addition, the Company has granted one of its
existing stockholders, Johnson & Johnson Development Corporation ("JJDC"),
first negotiation rights with regard to certain proposed transactions, which
may have the effect of making it more difficult for a third party to acquire,
or discouraging a third party from attempting to acquire, control of the
Company. See "Certain Transactions" and "Description of Capital Stock."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute "forward-looking statements."
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of Symphonix to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include the following: uncertainties related to the
early stage of the Company's development; limited clinical testing experience;
uncertainties related to the reliance on the Company's FMT technology; existing
government regulations and changes in, or the failure to comply with,
government regulations; the Company's limited manufacturing experience, the
risk associated with manufacturing scale-up, and the Company's dependence on
key suppliers; uncertainty of market acceptance; history of operating losses
and expectations of future losses; the highly competitive market and the risk
of competing hearing management approaches; dependence on patents and
proprietary technology and uncertainty of patent protection; future capital
needs and uncertainty of additional funding; dependence on key personnel; the
Company's lack of sales, marketing and distribution experience and reliance on
third parties to perform such functions; uncertain availability of third-party
reimbursement and other factors referenced in this Prospectus. Certain of these
factors are discussed in more detail elsewhere in this Prospectus, including,
without limitation, under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
Symphonix disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,300,000 shares of Common
Stock offered hereby are estimated to be approximately $24,868,000
($28,718,200 if the Underwriters' over-allotment option is exercised in full),
at an assumed initial public offering price of $12.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The Company anticipates that it will use approximately $10.0 million of the
net proceeds of this offering to fund the Company's research and development
efforts, including clinical trials, approximately $3.0 million to develop a
sales and marketing organization and initiate commercial sales of its
products, when and if approved for marketing by regulatory authorities and
approximately $1.0 million for expenditures for constructing a clean room and
other capital expenditures. The Company will use the remaining net proceeds
for working capital and general corporate purposes. Although the Company
believes the proceeds of this offering, together with its existing resources
and projected interest income will be adequate to satisfy its capital needs
for at least the next 18 months, the timing and amount of spending of such
capital resources cannot be accurately determined at this time and will depend
upon several factors, including the timing and cost of obtaining regulatory
approvals, progress of its research and development efforts and preclinical
and clinical activities, competing technological and market developments,
commercialization of products currently under development, and market
acceptance and demand for the Company's products if approved for marketing.
The Company's management will retain broad discretion in the allocation of a
substantial portion of the net proceeds. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Pending such uses, the Company intends to invest the net proceeds in short-
term, interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital
stock. The Company currently expects to retain its future earnings for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, (i) on an actual basis, (ii) on a pro forma basis after
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock upon the closing of the offering made hereby and the
restatement of the Company's Certificate of Incorporation to provide for
authorized capital stock consisting of 50,000,000 shares of Common Stock and
5,000,000 shares of undesignated Preferred Stock, and (iii) as adjusted to
reflect the application of the estimated net proceeds from the sale of
2,300,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 per share:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligation, less current
portion(1)...................................... $ 406 $ 406 $ 406
-------- -------- --------
Stockholders' equity:
Preferred Stock; $0.001 par value; 9,750,000
shares authorized; 9,194,631 shares issued and
outstanding, actual; 5,000,000 shares
authorized, none issued and outstanding, pro
forma and as adjusted......................... 9 -- --
Common Stock; $0.001 par value; 20,000,000
shares authorized; 2,713,938 shares issued and
outstanding, actual; 50,000,000 shares
authorized, 9,396,021 shares issued and
outstanding, pro forma; 50,000,000 shares
authorized, 11,696,021 shares issued and
outstanding, as adjusted(2)................... 3 9 12
Notes receivable from stockholders............... (371) (371) (371)
Deferred compensation............................ (300) (300) (300)
Unrealized gains on short-term investments....... 1 1 1
Additional paid-in capital....................... 27,451 27,454 52,319
Deficit accumulated during the development stage. (16,138) (16,138) (16,138)
-------- -------- --------
Total stockholders' equity................... $ 10,655 $ 10,655 $ 35,523
-------- -------- --------
Total capitalization......................... $ 11,061 $ 11,061 $ 35,929
======== ======== ========
</TABLE>
- --------
(1) See Note 5 of Notes to Financial Statements.
(2) Based upon shares outstanding as of September 30, 1997. Excludes (i)
441,734 shares issuable upon exercise of options outstanding at a weighted
average exercise price of $0.65 per share under the 1994 Option Plan and
223,683 shares reserved for future issuance thereunder and (ii) 33,611
shares issuable upon exercise of outstanding warrants to purchase Common
Stock at a weighted average exercise price of $2.20 per share. See
"Management--Incentive Stock Plans" and "Description of Capital Stock--
Warrants."
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was $10.7 million or $1.13 per share of Common Stock. Pro forma net
tangible book value per share represents the Company's total tangible assets
less total liabilities, divided by the pro forma number of outstanding shares
of Common Stock (after giving effect to the conversion of the Preferred Stock
into Common Stock). Dilution per share represents the difference between the
amount per share paid by investors in this offering and the pro forma net
tangible book value per share after the offering. After giving effect to the
sale of 2,300,000 shares in this offering at an assumed initial public
offering price of $12.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses, the
pro forma net tangible book value of the Company as of September 30, 1997
would have been $35.5 million or $3.04 per share. This represents an immediate
increase of pro forma net tangible book value of $1.91 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$8.96 per share to new investors purchasing shares of Common Stock in this
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $12.00
Pro forma net tangible book value per share before the
offering.................................................... $1.13
Increase attributable to new investors....................... 1.91
-----
Pro forma net tangible book value per share after the offering. 3.04
------
Dilution per share to new investors............................ $ 8.96
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the difference between existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 9,396,021 80.3% $27,184,651 49.6% $ 2.89
New investors.............. 2,300,000 19.7 27,600,000 50.4 12.00
---------- ----- ----------- -----
Total.................... 11,696,021 100.0% $54,784,651 100.0%
========== ===== =========== =====
</TABLE>
The computations in the above tables assume (i) no exercise of outstanding
stock options or warrants and (ii) the conversion of all outstanding shares of
Preferred Stock into Common Stock upon the closing of this offering. As of
September 30, 1997, there were options outstanding to purchase up to 441,734
shares of Common Stock at a weighted average exercise price of $0.65 per share
under the 1994 Option Plan and warrants outstanding to purchase up to
33,611 shares of Common Stock at a weighted average exercise price of $2.20
per share. To the extent outstanding options are exercised or warrants are
further exercised, there will be further dilution to new investors. See
"Management--Incentive Stock Plans," "Description of Capital Stock--Warrants"
and "Underwriting."
20
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial data is qualified in its entirety by and
should be read in conjunction with the Company's Financial Statements and the
related Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
The statement of operations data for the period from May 17, 1994 (date of
inception) to December 31, 1994 and for the years ended December 31, 1995 and
1996, and the balance sheet data as of December 31, 1995 and 1996 are derived
from audited financial statements included elsewhere in this Prospectus. The
balance sheet data at December 31, 1994 is derived from financial statements
that have been audited by Coopers & Lybrand L.L.P. that are not included in
this Prospectus. The balance sheet data as of September 30, 1997 and the
statement of operations data for the nine months ended September 30, 1996 and
1997 and for the period from May 17, 1994 (inception) to September 30, 1997
are derived from unaudited financial statements included elsewhere in this
Prospectus. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's operating results and
financial position for such periods. The operating results for the nine months
ended September 30, 1997 are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 17, 1994 MAY 17, 1994
(DATE OF YEARS ENDED NINE MONTHS ENDED (DATE OF
INCEPTION) TO DECEMBER 31, SEPTEMBER 30, INCEPTION) TO
DECEMBER 31, ---------------- ------------------ SEPTEMBER 30,
1994 1995 1996 1996 1997 1997
------------- ------- ------- -------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Costs and expenses:
Research and
development........... $ 707 $ 3,307 $ 5,399 $ 3,801 $ 4,643 $ 14,056
General and
administrative........ 141 625 1,047 830 1,330 3,143
----- ------- ------- -------- -------- --------
Loss from operations.... (848) (3,932) (6,446) (4,631) (5,973) (17,199)
Interest income, net.... 96 280 337 233 348 1,061
----- ------- ------- -------- -------- --------
Net loss................ $(752) $(3,652) $(6,109) $ (4,398) $ (5,625) $(16,138)
===== ======= ======= ======== ======== ========
Pro forma net loss per
share(1)............... $ (0.71) $ (0.59)
======= ========
Shares used in
calculation of
pro forma net loss per
share(1)............... 8,546 9,533
======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996 1997
------ ------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $4,552 $6,803 $11,110 $11,528
Total assets............................ 4,910 7,685 11,951 12,557
Capital lease obligations, less current
portion................................ 99 423 596 406
Deficit accumulated during the
development stage...................... (752) (4,404) (10,513) (16,138)
Total stockholders' equity.............. 4,568 6,593 10,238 10,655
</TABLE>
- --------
(1) See Note 10 of Notes to Financial Statements for an explanation of the
computation of pro forma net loss per share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
Since its inception in May 1994, Symphonix has been a development stage
company. The Company is developing a family of proprietary semi-implantable and
implantable soundbridges for the management of moderate to severe hearing
impairment. The Company's family of Vibrant soundbridges are based on its
patented core FMT technology. The Company has not generated any revenue from
sales of products and as of September 30, 1997, had a cumulative deficit of
$16.1 million. To date, the Company's principal sources of funding have been
private equity financings and equipment leases.
In September 1996, the Company initiated clinical trials of the Vibrant
soundbridge in both the United States and Europe, and in July 1997, the Company
initiated clinical trials of the Vibrant P in Europe. The Company will be
required to conduct further research, development, testing and regulatory
activities. The costs of these activities, together with the costs of
establishing commercial-scale manufacturing and sales and marketing
capabilities, and general and administrative expenses, are expected to result
in substantial losses through at least 1999.
RESULTS OF OPERATIONS
Research and Development Expenses. Research and development expenses were
$707,000 in the period ended December 31, 1994, $3.3 million and $5.4 million
in the years ended December 31, 1995 and 1996, respectively, and $3.8 million
and $4.6 million in the nine months ended September 30, 1996 and 1997,
respectively. Research and development expenses consist primarily of personnel
costs, professional services, materials, supplies and equipment in support of
product development, clinical trials, regulatory submissions and patent
applications. Expenses increased from the period ended December 31, 1994 to the
year ended December 31, 1995, due to the inclusion of a full year of expenses
in 1995, and to increases in the level of staffing, professional services, and
other costs as the Company established a research and development organization
and initiated its product development effort. Expenses increased from 1995 to
1996 and from the nine months ended September 30, 1996 to the nine months ended
September 30, 1997, due to increases in the level of staffing and increased
spending on supplies, professional services and equipment as the Company
increased its product development effort, developed its clinical research and
regulatory functions, initiated clinical trials of its products and established
a pilot manufacturing capability.
General and Administrative Expenses. General and administrative expenses were
$141,000 in the period ended December 31, 1994, $625,000 and $1.0 million in
the years ended December 31, 1995 and 1996, respectively, and $830,000 and $1.3
million in the nine months ended September 30, 1996 and 1997, respectively.
General and administrative expenses consist primarily of personnel costs and
professional services. Expenses increased from the period ended December 31,
1994 to the year ended December 31, 1995, due to the inclusion of a full year
of expenses in 1995, and to increases in the level of staffing as the Company
increased its product development activities. Expenses increased from 1995 to
1996 and from the nine months ended September 30, 1996 to the nine months ended
September 30, 1997, due to further increases in the level of staffing and
spending on professional services.
22
<PAGE>
Deferred compensation of $322,000 was recorded in the nine months ended
September 30, 1997, representing the difference between the exercise prices of
certain options granted and the deemed fair value of the Company's Common
Stock on the grant dates. Deferred compensation expense of $22,000 attributed
to such options was amortized during the nine months ended September 30, 1997.
The remaining deferred compensation will be amortized over the vesting period
of the options (generally four years). In October 1997, the Company recorded
an additional $1.0 million of deferred compensation associated with additional
option grants.
Interest Income, Net. Interest income, net was $96,000 in the period ended
December 31, 1994, $280,000 and $337,000 in the years ended December 31, 1995
and 1996, respectively, and $233,000 and $348,000 in the nine months ended
September 30, 1996 and 1997, respectively. The increases in interest income
over these periods were primarily due to the Company's increasing average cash
and short-term investment balances, which have been the result of the timing
of the Company's private equity financings.
Income Taxes. As a result of the net losses incurred, the Company has not
incurred any income tax obligations. At December 31, 1996, the Company had net
operating loss carry forwards of $8.2 million for both federal and state
income tax purposes, which will expire at various dates through 2011 if not
utilized. The principal differences between losses for financial and tax
reporting purposes are the result of the capitalization of research and
development and start-up expenses for tax purposes. United States and state
tax laws contain provisions that may limit the net operating loss carry
forwards that can be used in any given year, should certain changes in the
beneficial ownership of the Company's shares occur. Such events could limit
the future utilization of the Company's net operating loss carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations and its capital
investments from the private sale of equity securities, totaling $26.7
million, and from equipment lease financing totaling $1.3 million. At
September 30, 1997, the Company had $10.3 million in working capital, and its
primary source of liquidity was $11.5 million in cash, cash equivalents and
short-term investments.
Capital expenditures, primarily related to the Company's research and
development and manufacturing activities, were $294,000 in the period ended
December 31, 1994, $691,000 and $409,000 in the years ended December 31, 1995
and 1996, respectively, and $394,000 and $301,000 in the nine months ended
September 30, 1996 and 1997, respectively. At September 30, 1997, the Company
did not have any material commitments for capital expenditures.
In October 1997, the Company entered into a five-year lease commencing in
January 1998 for a new facility (See Note 11 of Notes to Financial
Statements). The Company anticipates that between the fourth quarter of 1997
and the first quarter of 1998, it will incur capital expenditures of
approximately $1.0 million in constructing a clean room and other leasehold
improvements in this facility.
Cash used in operating activities was $519,000 in the period ended December
31, 1994, $3.1 million and $5.4 million in the years ended December 31, 1995
and 1996, respectively, and $3.9 million and $5.1 million in the nine months
ended September 30, 1996 and 1997, respectively. The increases in cash used in
operating activities over these periods reflect the increased net losses
incurred, primarily as a result of higher research and development expenses.
The Company will expend substantial funds in the future for research and
development, preclinical and clinical testing, capital expenditures and the
manufacturing, marketing and sale of its products. The timing and amount of
spending of such capital resources cannot be accurately
23
<PAGE>
predicted and will depend upon several factors, including the progress of its
research and development efforts and preclinical and clinical activities,
competing technological and market developments, the time and costs of
obtaining regulatory approvals, the time and costs involved in filing,
prosecuting and enforcing patent claims, the progress and cost of
commercialization of products currently under development, market acceptance
and demand for the Company's products if approved for marketing and other
factors not within the Company's control. While the Company believes that the
net proceeds of this offering, together with its existing capital resources
and projected interest income, will be sufficient to fund its operations for
at least the next 18 months, there can be no assurance that the Company will
not require additional financing prior to that time. There can be no assurance
that such additional financing will be available on a timely basis on terms
acceptable to the Company, or at all, or that such financing will not be
dilutive to stockholders. If adequate funds are not available, the Company
could be required to delay development or commercialization of certain of its
products, to license to third parties the rights to commercialize certain
products or technologies that the Company would otherwise seek to
commercialize for itself, or to reduce the marketing, customer support or
other resources devoted to certain of its products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
24
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors," and
elsewhere in this Prospectus.
OVERVIEW
Symphonix is a leader in the development of proprietary semi-implantable and
implantable products, or soundbridges, for the management of moderate to
severe hearing impairment. In 1994, mild to severe hearing impairment affected
approximately 26 million people in the United States, or 10% of the
population, of whom approximately 17 million people were classified as
moderately or severely hearing impaired. The Company believes that its family
of Vibrant soundbridges, designed to overcome the inherent limitations of
traditional hearing devices, represent a novel approach in the management of
hearing impairment. The Company's initial product under development, the
Vibrant soundbridge, is a semi-implantable device which mechanically drives
the three small bones of the middle ear to overcome the user's hearing
impairment. The Company's second generation product, the Vibrant P
soundbridge, provides a greater degree of customization to address the
specific needs of a particular user's hearing loss and expands the types of
hearing loss that can be managed by the Company's products. In September 1996,
the Company initiated clinical trials of the Vibrant soundbridge in both the
United States and Europe, and in July 1997 the Company initiated clinical
trials of the Vibrant P soundbridge in Europe. As of October 31, 1997, 41
patients have been implanted with the Company's soundbridges, of whom 37 have
had the Audio Processor fitted and the soundbridge's performance evaluated.
THE HEARING IMPAIRMENT MARKET
Background
The human ear consists of three regions: the outer ear, the middle ear and
the inner ear. The outer ear consists of the external auricle and the ear
canal. The ear canal is a passageway through which sound waves reach the
middle ear. The outer ear is separated from the middle ear by the tympanic
membrane, commonly referred to as the eardrum. The middle ear is a chamber
that contains three tiny bones, the malleus, the incus, and the stapes, that
together are known as the ossicles. The ossicles form a chain from the
tympanic membrane to the inner ear. The inner ear includes the cochlea, which
is a fluid-filled structure that contains a large number of delicate sensory
hair cells that are connected to the auditory nerve.
Sound, which is a wave-like vibration of the air, enters the ear canal and
is slightly amplified by the natural resonant characteristics of the ear
canal. These sound waves cause vibration of the tympanic membrane and are
amplified and transmitted to the fluid filling the inner ear by the motion of
the ossicles. The waves created in the fluid pass through the snail-shaped
cochlea and stimulate the delicate sensory hair cells. These hair cells
generate electrochemical signals that are detected by the auditory nerve and
are then subsequently interpreted by the brain as sound.
The signals that are interpreted by the brain as sound are distinguished by
frequency and intensity. The frequency of sound is perceived as pitch and is
measured in cycles per second, or Hertz ("Hz"). The normal human ear perceives
sounds in the range of 20 to 18,000 Hz, although most components of human
speech are generally in the range of 400 to 4,000 Hz. A more subtle aspect of
frequency is that certain letters of the alphabet are spoken at a different
frequency than others. For example, certain consonants such as "m," "n" and
"g" and all vowels are spoken at relatively low frequencies while other
consonants and sounds such as "t," "s," "f" and "sch" are spoken at higher
frequencies. Accordingly, at a given volume, certain letters may be more
audible than others.
25
<PAGE>
The intensity of sound is perceived as loudness and is measured in decibels
("dB"). The lowest level of intensity at which an individual perceives sound
is known as the threshold of hearing. The range in decibels from a person's
threshold of hearing to the level at which the person perceives sound to be
uncomfortably loud is known as the dynamic range. Both the threshold of
hearing and the dynamic range vary with the frequency of sound. An individual
with normal hearing can comfortably hear sounds ranging in intensity from
approximately 30 dB to 100 dB.
[ILLUSTRATION OF EAR ANATOMY]
Hearing Impairment
Hearing impairment can adversely effect a person's quality of life and
psychological well-being. Hearing impaired people often withdraw from
discussions and other social interactions to avoid frustration and
embarrassment from not being able to fully participate in and understand
conversations. Difficulty in communicating effectively can lead to negative
emotions and attitudes, increased stress levels, reduced self-confidence,
reduced sociability and reduced effectiveness in the workplace. In addition,
recent studies suggest that hearing impairment may also contribute to
physiological complications, such as heart disease.
Audiologists typically classify the hearing impaired population into four
categories: mild, moderate, severe and profound. In 1994, the total hearing
impaired population in the United States was approximately 26 million people,
of whom approximately 17 million were classified as either moderately or
severely hearing impaired.
While the exact causes of hearing impairment are varied and unclear, hearing
impairment can be characterized according to its physiological source. There
are two general categories of hearing impairment, conductive and
sensorineural, although sometimes a combination of the two may arise.
Conductive hearing impairment results from diseases or disorders that limit
the transmission of sound through the outer and/or middle ear. Conductive
hearing impairment is often treated surgically with an implanted prosthesis to
replace part or all of the ossicles. The Company believes that people with a
conductive hearing loss represent a small portion of the total hearing
impaired population.
26
<PAGE>
Sensorineural hearing impairment occurs in the inner ear and/or neural
pathways and, the Company believes, accounts for the vast majority of hearing
impairment. In patients with sensorineural hearing impairment, the external
and middle ear function normally. The sound vibrations pass undisturbed
through the eardrum and ossicles, and fluid waves are created in the cochlea.
However, because some or many of the delicate sensory hair cells inside the
cochlea have degenerated or been damaged, the inner ear cannot detect the full
intensity and quality of the sound. Sensorineural hearing impairment typically
occurs as a result of aging or exposure to loud noise over a protracted period
of time.
As people age, their level of hearing deteriorates and the dynamic range of
audible frequencies is compressed, especially at the higher frequencies. While
approximately 10% of the United States population is hearing impaired, based
on 1994 data, this percentage increases to an average of approximately 25% for
individuals over 55 years of age. The Company believes that with the growth
and aging of the population, the hearing impaired population will continue to
increase throughout the industrialized world. With the increasing exposure to
noise in modern society, it has been observed that people may experience noise
induced hearing loss from aircraft, automobiles, lawn mowers and high powered
stereo equipment as well as military service and machinery within the
workplace.
Existing Therapies
The traditional approaches to management of sensorineural hearing impairment
have been the use of hearing aids and cochlear implants. Hearing aids are the
most common devices used to manage mild to severe sensorineural hearing
impairment. Cochlear implants have been used for the narrow segment of the
sensorineural market represented by profound hearing impairment. However, both
approaches have significant limitations in addressing their respective
markets.
Hearing Aids. The following table, based upon 1996 and 1997 articles in the
Hearing Journal, illustrates the ownership of traditional hearing aids by the
hearing impaired population in 1994. Approximately 18% of the hearing aid
owners did not use their device.
<TABLE>
<CAPTION>
TYPE OF HEARING IMPAIRED HEARING AID MARKET
HEARING POPULATION OWNERS PENETRATION OF
IMPAIRMENT (MILLIONS) (MILLIONS) HEARING AIDS
------------------------------------------------------------
<S> <C> <C> <C>
Mild 8.0 0.3 4%
Moderate 13.2 2.9 22%
Severe 3.9 2.0 51%
Profound 1.1 0.4 36%
---- ---
Total 26.2 5.6 21%
</TABLE>
Hearing aids are acoustic drive devices that amplify sound to increase the
movement of the tympanic membrane and thereby indirectly vibrate the ossicles
in an attempt to overcome the decrease in sensitivity of the delicate sensory
hair cells inside the cochlea. The first electrically enhanced hearing aid was
invented about a hundred years ago and consisted of a microphone, amplifier,
battery and speaker. More recently, hearing aid manufacturers have increased
the sophistication of sound processing, often using digital technology, to
provide features such as programmability and multi-band compression, allowing
different degrees of amplification at different frequencies. Hand-held
programmers have also been developed to compensate for the inability of
hearing aids to adequately process sound in a variety of acoustic
environments. In addition, as technology has enabled greater miniaturization,
less obtrusive hearing aids have become available. Although there have been
continued advancements in hearing aid device technology, for optimal
27
<PAGE>
performance all or part of the device must fit tightly in the ear canal, which
results in significant drawbacks, including the following:
Distorted sound quality. Obstructing the ear canal with either all or part
of the hearing aid creates an effect known as occlusion, where outside
sounds such as music are overwhelmed by internal sounds such as breathing
or talking. Because the ear canal's natural resonance is significantly
altered, the resulting sound can be unnatural and highly distorted.
Acoustic feedback. Feedback is a high pitched squeal which results when a
speaker and microphone are placed in close proximity and the sound from the
speaker is loud enough to be picked up by the microphone. The problem of
feedback is magnified since the volume of these devices must be turned up
to not only compensate for the patient's hearing impairment but to overcome
the reduction in sound caused by the blockage of the ear canal by the
hearing aid. In addition, as hearing aids have been manufactured in smaller
configurations, the problem of feedback has become inherently greater due
to the closer proximity of the speaker to the microphone.
Poor localization. Occlusion also results in the inability to differentiate
the direction of sounds, as well as the inability to adequately
differentiate between background noise and more important sounds, such as
conversation.
Social stigma. Many hearing aid users and potential users perceive a strong
social stigma related to wearing a hearing aid.
Discomfort. Hearing aids have been manufactured in smaller configurations
in an attempt to address the perceived social stigma associated with
wearing these devices. Since a tight fitting ear piece is required for
optimal performance, the smaller versions of these devices must be placed
deeper in the ear canal, which can cause substantial discomfort.
Reliability. Hearing aids require frequent maintenance, in part due to
their placement in the ear canal, where ear wax can cause problems with the
speaker or dampen the sound produced by the hearing aid. Hearing aids
generally have to be replaced every three or four years, either because of
loss, damage or obsolescence. The need for periodic replacement increases
the lifetime cost of wearing a hearing aid. Traditionally, most hearing aid
users have paid for these devices directly.
As a result of these problems, the benefits perceived by hearing aid users
are generally very low. An article in the 1996 Hearing Journal reported that
only approximately 53% of all hearing aid users are satisfied. Reflecting this
low level of user satisfaction, in 1996 hearing aid manufacturers experienced
product return rates ranging from 14% to 26%. Despite the inherent limitations
of hearing aids, in 1995, approximately 1.7 million hearing aids were sold in
the United States, representing a retail market of approximately $1.2 billion.
The United States market represents approximately 38% of the worldwide hearing
aid market. The Company estimates that the worldwide retail market for hearing
aids exceeded $3.0 billion in 1995.
Cochlear Implants. Cochlear implants have been developed for people who have
a profound hearing loss and are essentially deaf. The cochlear implant is
inserted into the inner ear in a highly invasive and non-reversible surgery.
The implant electrically stimulates the auditory nerve through an electrode
array that provides audible cues to the user which are not interpreted by the
brain as normal sound. Instead, these cues have to be interpreted by the user,
and primarily aid in lipreading and alerting the user to very loud or
dangerous sounds. Users generally require intensive and extended counseling
and training following surgery to achieve any benefit. Best results are
achieved with adults whose hearing loss develops later in life or with
children. Cochlear implants have been controversial both because of strong
resistance from portions of the deaf community and because of the irreversible
nature of the surgery in which the cochlea is invaded and any residual hearing
is destroyed. Accordingly, the Company does not believe that cochlear implants
will achieve significant market penetration beyond their initial indication of
profound hearing impairment. The Company estimates that, in 1996, the
worldwide market for cochlear implants was under $100 million.
28
<PAGE>
THE SYMPHONIX SOLUTION
The Company is developing a family of proprietary semi-implantable and
implantable products, or soundbridges, for the management of moderate to
severe hearing impairment. The Company's family of Vibrant soundbridges is
based on its patented core technology, the Floating Mass Transducer ("FMT").
The FMT is a tiny transducer that is designed to enhance hearing by precisely
mimicking and amplifying the movements of the ossicles by converting sound
into mechanical vibrations. While conventional approaches have indirectly
driven the ossicles by amplifying sound to increase the vibrations of the
tympanic membrane, the FMT is attached directly to the ossicles and enhances
the natural movement of these vibratory structures. This in turn generates
enhanced stimulation of the delicate sensory hair cells in the inner ear. The
FMT receives electrical signals from an Audio Processor, which picks up sound
from the environment and converts these sounds into electrical signals. The
Audio Processor transmits the signals to an implant under the skin. As a
result, the ear canal is not obstructed, the natural resonance of the ear is
maintained and an amplified, natural sound quality is achieved.
The Company's soundbridges are implanted in a two hour surgery that can be
performed on an outpatient basis utilizing the techniques which are similar to
those employed in routine otologic procedures. Based on preclinical studies,
the Company believes that the surgical procedure can be reversed without
clinically meaningful damage to the patient's residual hearing. The Company
believes that its family of Vibrant soundbridges offers a number of
significant benefits, including:
Improved sound quality and speech intelligibility. By leaving the ear canal
unobstructed and the natural resonance undisturbed, a more natural sound
quality is obtained over a broader range of frequencies, and the user's
ability to understand speech is expected to be greater.
Elimination of acoustic feedback. Since the Vibrant soundbridge
mechanically drives the ossicles, it does not generate any acoustic
feedback.
Improved sound localization. Users are able to comprehend the acoustic
sound environment, identify specific sounds and their source and
differentiate sounds from background noise.
Minimized social stigma. In the semi-implantable versions of the Company's
soundbridges, the only external component is located behind the ear and
generally hidden by the user's hair. As a result, social stigma is
minimized. The totally implantable versions of the Company's soundbridges
are being designed with no external components, and aesthetic
considerations would be completely eliminated.
Improved comfort. No part of the Vibrant soundbridge is inserted in the ear
canal, resulting in increased comfort for users of the Vibrant soundbridge.
Improved reliability. Since no components of the Vibrant soundbridge will
be within the ear canal, the reliability problems caused by wax and
moisture are eliminated.
STRATEGY
The Company's objectives are to establish its family of Vibrant soundbridges
as the standard of care worldwide for the management of moderate to severe
hearing impairment and to establish Symphonix as the leading company in the
hearing management market. The following are key elements of the Company's
strategy:
Demonstrate improved quality of life. The Company intends to promote the
potential benefits of its products to the hearing impaired population in
order to expand the market to include not only current dissatisfied hearing
aid users but also former users who have abandoned hearing aids due to
either previous dissatisfaction or perceived social stigma. The Company
believes that achieving real patient benefit in the form of improved
quality of life will be an important factor in differentiating its products
from the traditional approaches to hearing management.
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Develop surgeon endorsement of the Company's family of soundbridges. The
Company intends to position the family of Vibrant soundbridges as
technologically advanced implants that address an unmet patient need and
add to the products and services that surgeons can offer. The Company's
strategy is to market its soundbridges initially to those specialists in
otology who are currently most active in ear surgery and, thereafter, to
the general population of ENT surgeons. Because the surgical procedure for
implementing the Vibrant soundbridge utilizes many of the same techniques
employed by surgeons trained and experienced in cochlear implant surgery,
the Company believes that surgeon training will not be a significant
impediment to market acceptance.
Leverage the Company's patented core technology. The Company intends to
leverage its patented core FMT technology to develop new soundbridges and
enhancements to its current technology. The Company intends to continue to
dedicate significant resources to research and development to further
develop its technology base and to expand the market it addresses through
development of a family of alternate configurations of soundbridges. The
Company is developing the Vibrant P soundbridge to permit a greater degree
of customization to address the specific needs of a particular patient, the
Vibrant D soundbridge to permit an even greater degree of customization
along with the additional benefit of digital signal processing, and the
Vibrant HF soundbridge to provide a benefit suited to those individuals who
have a noise-induced hearing loss at high frequencies but relatively normal
hearing at lower frequencies.
Protect and enhance the Company's proprietary position. The Company intends
to continue to aggressively pursue proprietary protection for its
technologies and products. The Company has three patents issued in the
United States and 20 patents pending both in the United States and
internationally covering a number of fundamental aspects of the FMT and
related technologies.
PRODUCTS UNDER DEVELOPMENT
Symphonix is developing proprietary semi-implantable and implantable
soundbridges, utilizing the Company's core FMT technology to manage hearing
impairment. The Company believes that the Vibrant soundbridge, Vibrant P
soundbridge, Vibrant HF soundbridge and Vibrant D soundbridge will enable the
Company to address a significant portion of the moderate to severe hearing
impairment market currently not satisfied with traditional hearing aid devices.
The Vibrant XP soundbridge has the potential to enable the Company to address a
portion of the profound hearing impairment market currently served by cochlear
implants. In addition, the Company is in the early stage of developing the
Vibrant TI which is being designed to be totally implantable with no external
components.
The Vibrant soundbridge, Vibrant P soundbridge, Vibrant HF soundbridge and
Vibrant D soundbridge are designed to utilize the same implant, with the
differences in function being provided by modifications to the external Audio
Processor, its software and programming unit. Utilization of a common implant
will allow a user to upgrade the Audio Processor if a user's hearing changes
over time.
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The following table sets out the soundbridges under development by the
Company and their development status:
<TABLE>
<CAPTION>
SOUNDBRIDGE Description HEARING LOSS ADDRESSED STATUS(1)(2)
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C>
Vibrant First generation semi- Moderate to IDE approved; Phase I
implantable hearing moderately severe clinical trial
device. complete in the
United States; EN 540
clinical trial
complete in Europe
- ---------------------------------------------------------------------------------------
Vibrant P Second generation semi- Moderate to severe IDE supplement
implantable hearing submitted in the
device, with fourth quarter of
programmable dual-band 1997; EN 540 clinical
analog signal trial complete in
processing. Europe
- ---------------------------------------------------------------------------------------
Vibrant HF Second generation semi- Noise-induced high IDE expected to be
implantable hearing frequency loss submitted in 1997
device designed to
address noise induced
high frequency hearing
loss, by using modified
signal processing.
- ---------------------------------------------------------------------------------------
Vibrant D Third generation semi- Moderate to severe
implantable hearing IDE supplement
device, with expected to be
programmable 3-band submitted in the
digital signal fourth quarter of
processing. 1998
- ---------------------------------------------------------------------------------------
Vibrant XP Second generation semi- Severe to profound Limited feasibility
implantable hearing study expected to be
device designed to performed in 1998
address more severe
hearing impairment by
using modified signal
processing and an
external battery in a
body-worn pack, coupled
with a modified implant.
- ---------------------------------------------------------------------------------------
Vibrant TI A second family of Moderate to severe Early stage of
Vibrant soundbridges development
which are being designed
to be totally
implantable with no
external components.
</TABLE>
(1) Regulatory filing dates reflect the Company's plans and are subject to
delay or cancellation depending upon contingencies that may arise in the
development process. See "Risk Factors--Limited Clinical Testing
Experience" and "--Limited Manufacturing Experience; Scale-Up Risk;
Dependence on Key Suppliers."
(2) "Phase I" indicates limited safety and efficacy testing in humans.
"EN 540" indicates European clinical trial standards to determine the
safety and performance of products.
31
<PAGE>
Vibrant soundbridge
The Company's initial product under development, the Vibrant soundbridge,
has both external and implantable components. The external Audio Processor
consists of (i) a microphone that picks up sound from the environment, (ii)
sound processing circuitry that converts the sound to an electronic signal and
modulates the signal to reduce potential noise interference from broad band
electromagnetic fields and (iii) a small 1.5 volt battery that powers the
device. The Audio Processor is placed on the skull behind the ear and is held
in place by magnetic attraction to an implanted receiver, the VORP (Vibrating
Ossicular Prosthesis). The Audio Processor is small enough to be concealed by
the user's hair.
[ILLUSTRATION OF VIBRANT SOUNDBRIDGE IN PLACE]
The VORP converts the electronic signal to a mechanical vibration of the
ossicles in the middle ear. The VORP consists of (i) a receiver unit that
receives the electromagnetic signal through the skin from the external Audio
Processor and breaks down the electrical signal to the appropriate drive
signal for the FMT, (ii) a conductor link that connects the implanted receiver
unit to the FMT and (iii) the FMT itself, which is attached to the incus using
a titanium clip. All of these components are insulated from body chemistry
using well established implantable device materials used in pacemaker and
implantable defibrillator systems.
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<PAGE>
The FMT is a tiny transducer, smaller than a grain of rice, that comprises a
floating magnet contained within a titanium housing. A coil surrounding the
housing generates a small electromagnetic field based on a signal received from
the VORP's receiver unit. The electromagnetic interaction of the magnet and the
coil creates a mechanical vibration of the entire FMT. This vibration enhances
the natural movement of the ossicles, which in turn generates enhanced
stimulation of the delicate sensory hair cells in the inner ear. A critical
element of the proprietary FMT design is the proximity of the magnet to the
electromagnetic field that causes the magnet to vibrate. By keeping the magnet
and the coil close together, the FMT maximizes electromagnetic coupling while
minimizing power consumption.
[ILLUSTRATION OF FMT AND PHOTOGRAPH OF FMT PICTURED AGAINST A DIME]
The surgical procedure for the implantation of the Vibrant involves
techniques which are similar to those employed in other common otologic
procedures. The internal receiver unit is implanted below the skin and muscle
behind the ear. The conductor link connecting the receiver unit to the FMT is
placed through the excavated mastoid bone. These steps are similar to those
required for the surgical placement of a cochlear implant receiver. In the
middle ear, the FMT is attached to the ossicles in a manner similar to the way
otologists have traditionally attached ossicular prostheses for management of
conductive hearing loss. Because the surgery involves surgical techniques that
are familiar to ear surgeons, the Company believes that surgeon training will
not be a significant impediment to market acceptance. The procedure may be
performed on an outpatient basis, and initial clinical experience has indicated
that the procedure can be performed in about two hours. Approximately eight
weeks following the surgery, the Audio Processor is fitted by an audiologist
with the appropriate sound processing settings. The Company's approved IDE only
permits implantation in one ear. This will generally be the ear with the
poorest unaided functional hearing. Based on preclinical studies, the Company
believes that the surgical procedure can be reversed without damage to the
patient's residual hearing.
Limited clinical trials of the Vibrant were initiated in late 1996 in the
United States. Also in late 1996, an EN 540 clinical trial was initiated in
Europe. As of October 31, 1997, five patients in the United States have been
implanted with the Vibrant soundbridge, all of whom have had the Audio
Processor fitted and the soundbridge's performance evaluated. Additionally, 19
patients in Europe have been implanted with the Company's Vibrant soundbridge,
all of whom have had the Audio Processor fitted and the soundbridge's
performance evaluated.
Vibrant P soundbridge
The Vibrant P soundbridge under development is similar to the Vibrant
soundbridge but is designed to permit a greater degree of customization to
address the specific needs of a particular user's hearing loss and expand the
types of hearing loss that can be managed by the Company's products. At the
time of fitting, the Audio Processor is connected to a hand-held programming
unit
33
<PAGE>
which allows the audiologist to adjust separately the low and high
frequencies. This permits a greater degree of customization in either the high
or low frequency band.
The Company has received approval to incorporate the Vibrant P into its
current European clinical trial of the Vibrant and this trial was initiated in
July 1997. In the United States, the Company has filed an IDE supplement
seeking FDA approval to use the Vibrant P as part of the clinical trial of the
Vibrant. On October 31, 1997, the Company received notification from the FDA
that it would require additional audiologic and safety data prior to
commencement of the next phase of clinical testing. On November 14, 1997, the
Company submitted the additional information. There can be no assurance,
however, that the Company will not be required to file a separate IDE for the
Vibrant P, which would result in a delay in approval. As of October 31, 1997,
17 patients have been implanted with the Vibrant P in Europe, of whom 13 have
had the Audio Processor fitted and the soundbridge's performance evaluated.
Vibrant HF soundbridge
The Vibrant HF soundbridge is being developed to provide a benefit for those
individuals who have a hearing loss at high frequencies but relatively normal
hearing at lower frequencies. Hearing aids usually are limited in
effectiveness at higher frequencies due to acoustic feedback and internal
speaker response. With the increasing exposure to noise in modern society, it
has been observed that people may experience noise-induced hearing loss from
aircraft, automobiles, lawn mowers and high powered stereo equipment as well
as military service and machinery within the workplace. The Vibrant HF will be
configured through selective signal processing. The Company intends to submit
an IDE in 1997 for FDA approval to commence clinical trials of the Vibrant HF
and intends to initiate European clinical trials in 1998.
Vibrant D soundbridge
The Vibrant D soundbridge under development is similar to the Vibrant P, but
is designed to permit an even greater degree of customization to address the
specific needs of a particular user's hearing loss. The Vibrant D features
digital signal processing. Fully automatic and independent sound processing in
three separate frequency bands is provided. At the time of fitting, the Audio
Processor is connected to a programming unit which allows the audiologist to
adjust separately the low, mid and high frequencies. This sophisticated system
will be capable of analyzing sound and automatically adjusting the
soundbridge's response.
The Company intends to seek approval of an IDE supplement for the Vibrant D
during 1998 and to initiate European clinical trials in 1998. There can be no
assurance, however, that the Company will not be required to submit a separate
IDE for the Vibrant D, which would result in a delay in regulatory approval.
Vibrant XP soundbridge
The Vibrant XP soundbridge is being developed to provide a benefit for those
individuals who have a severe to profound hearing loss with speech recognition
above 30%. Currently, there are only limited treatment options for such
individuals.
The Vibrant XP will be configured to provide modified signal processing and
higher output from the FMT, thereby providing additional benefit for certain
people with a severe to profound hearing impairment. Generating this higher
output will require an external body-worn battery pack, similar to those used
for cochlear implants. However, unlike cochlear implants, the Vibrant XP will
not require penetration of the inner ear with its attendant damage to residual
hearing.
34
<PAGE>
The Company intends to conduct a feasibility study in 1998 on a limited
number of patients in Europe to assess the viability of this product concept.
Based on the results of this feasibility study, the Company may seek approval
to initiate U.S. clinical trials of the Vibrant XP by submitting an IDE during
1998 and may initiate European clinical trials in 1998.
Vibrant TI soundbridge
The Company is in the early stages of developing versions of the Vibrant for
the management of moderate to severe hearing impairment that are totally
implantable with no external components. The essential functions of the core
FMT technology of these products will be the same as in the semi-implantable
products. However, all the functions currently performed by the external Audio
Processor are being designed to be performed by implanted components. The
Company believes that the Vibrant TI, if successfully developed, will be
applicable especially for people who are particularly physically active or who
are concerned about aesthetics.
Two critical elements of producing the Vibrant TI are the development of an
implantable microphone that can adequately pick up sound from the external
environment, and the development of a transcutaneously rechargeable battery to
power the device. The microphone is being developed internally by the Company
and the battery is being developed under a cooperative development project with
a specialized battery manufacturer. However, there can be no assurance that
such components will be successfully developed in a timely manner, if ever.
Since all of the Company's products are in development, significant revenues
from product sales will not be realized for at least several years, if ever.
There can be no assurance that any of the Company's product development efforts
will be successfully completed, that any of the Company's products will be
proven to be safe and effective, that regulatory approvals will be obtained or
labeling claims will be as broad as sought, that the Company's products will be
capable of being produced in commercial quantities with acceptable yields at
reasonable costs, or that any products, if introduced, will achieve market
acceptance.
CLINICAL TRIAL ACTIVITIES
United States
On February 23, 1996, the Company received approval of an IDE for the Vibrant
from the FDA. The Company has completed a Phase I trial under the IDE and
submitted the interim report to the FDA. This trial was limited to five
subjects, including Geoffrey R. Ball, a founder of the Company, at two
investigational sites and was intended to test the safety and provide
preliminary evidence of efficacy of the device and the surgical procedures used
to implant the device. Due to the limited number of subjects evaluated, no
statistically valid conclusions can be made from the results reported to the
FDA.
The Company observed the following performance characteristics: increased
functional gain at higher frequencies (i.e., >2000 Hz); elimination of
occlusion effect; elimination of acoustic feedback; elimination of placement
loss; reduction of maintenance issues; and elimination of ear mold issues. A
standardized hearing test was also administered to evaluate each subject's
ability to comprehend speech in a noisy environment. Three of the five subjects
demonstrated a 50% improvement with the Vibrant compared to their hearing aid.
The trial included a self-assessment questionnaire of improvement for the
following seven categories of device performance as compared to a hearing aid:
communication, reverberation, familiar talker, reduced cues, background noise,
aversion to sounds and distortion of sounds. Subjects reported an improvement
greater than 20% in six of the seven categories with the Vibrant when compared
to their current hearing aid.
On October 3, 1997, the Company submitted a Phase I report and an IDE
supplement to the FDA requesting modification and expansion to the next phase
of clinical testing. On October 31, 1997, the
35
<PAGE>
Company received notification from the FDA that it would require additional
audiologic and safety data prior to commencement of the next phase of clinical
testing. On November 14, 1997, the Company submitted the additional
information.
Europe
The Company has conducted a multi-center EN 540 clinical trial in Europe at
seven institutions. Clinical sites were located in Germany, Italy, the
Netherlands, the United Kingdom, Switzerland and France. The EN 540 protocol
investigated the safety and performance of the Vibrant and the Vibrant P. As
of October 31, 1997, 36 subjects have been implanted with the Company's
soundbridges, 19 with the Vibrant and 17 with the Vibrant P. With the Vibrant,
performance was only evaluated for functional gain and the results were
comparable to those achieved by the subjects in the United States trial. With
the Vibrant P, the subjects demonstrated functional gains as high as 50 dB at
1000 Hz, 55 dB at 1500 Hz, 60 dB at 2000 Hz, 40 dB at 3000 Hz, 50 dB at
4000 Hz, 40 dB at 6000 Hz, and 35 dB at 8000 Hz. These functional gain values
reported were at "user settings" and did not necessarily reflect the maximum
functional gains attainable with the device.
There can be no assurance that regulatory approvals to commence Phase II or
Phase III clinical trials will be obtained in a timely fashion, or at all, or
that the Company's clinical trial efforts will progress as expected, not be
delayed or that such efforts will lead to the successful development of any
product. No assurance can be given that any of the Company's clinical trials
will be allowed by the FDA or other regulatory agencies or that clinical
trials will commence as planned. Any delays in the Company's clinical trials
would have a material adverse effect on the Company's business, financial
condition and results of operations. Success in preclinical studies or early
stage clinical trials does not assure success in later stage clinical trials.
Data obtained from preclinical and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory
approval. Further, there can be no assurance that if such testing of products
under development is completed, any such devices will be accepted for formal
review by the FDA or approved by the FDA for marketing in the United States.
RESEARCH AND DEVELOPMENT
The Company had 20 employees engaged in research and development, including
regulatory and clinical affairs, as of September 30, 1997. The Company's
research and development has focused on developing its patented core FMT
technology, developing the Vibrant soundbridge and conducting appropriate
preclinical and clinical testing. The Company expended approximately $3.3
million, $5.4 million and $4.6 million for the years ended December 31, 1995
and 1996 and for the nine months ended September 30, 1997, respectively, on
research and development, and anticipates that it will continue to expend
substantial resources on completion of the clinical testing of the Vibrant and
Vibrant P soundbridges, development and clinical testing of the Vibrant HF and
Vibrant D soundbridges, and supporting manufacturing scale-up. In addition,
the Company expects to devote substantial resources to the development of the
Vibrant XP soundbridge and of the Vibrant TI family of totally implantable
versions of the Vibrant soundbridge. In addition, the Company may devote
resources for the development of products for the treatment of conductive
hearing loss. Product development involves a high degree of risk and there can
be no assurance that the Company's product development efforts will result in
any commercially successful products.
MANUFACTURING
The Company currently manufactures its products in limited quantities for
laboratory testing and for its United States and European clinical trials. The
manufacture of the Company's soundbridges is a complex operation involving a
number of separate processes, components and assemblies. Each
36
<PAGE>
device is assembled and individually tested by the Company. The manufacturing
process consists primarily of assembly of internally manufactured and
purchased components and subassemblies, and certain processes are performed in
a clean room environment. After completion of the manufacturing and testing
processes, implantable devices are sterilized by a sub-contracted supplier.
The Company has no experience manufacturing its products in the volumes or
with the yields that will be necessary for the Company to achieve significant
commercial sales, and there can be no assurance that the Company can establish
high volume manufacturing capacity or, if established, that the Company will
be able to manufacture its products in high volumes with commercially
acceptable yields. If the Company receives regulatory approval to
commercialize its products, it will need to expend significant capital
resources and develop manufacturing expertise to establish commercial-scale
manufacturing capabilities. Before the Company commences commercial-scale
manufacturing activities, it intends to move to a new facility. Furthermore,
prior to approval of a PMA, the Company's facilities, procedures and practices
will be subject to a pre-approval inspection by the FDA. The Company's
inability to successfully manufacture or commercialize its soundbridges in a
timely matter could have a material adverse effect on the Company's business,
financial condition and results of operations.
Raw materials, components and subassemblies for the Company's soundbridges
are purchased from various qualified suppliers and are subject to stringent
quality specifications and inspections. The Company conducts quality audits of
its key suppliers, several of whom are experienced in the supply of components
to manufacturers of implantable medical devices, such as pacemakers,
defibrillators and drug delivery pumps. A number of components and
subassemblies, such as silicone, control electronics and implant packaging are
provided by single source suppliers. None of the Company's suppliers is
contractually obligated to continue to supply the Company nor is the Company
contractually obligated to buy from a particular supplier. For certain of
these components and subassemblies, there are relatively few alternative
sources of supply, and establishing additional or replacement suppliers for
such components and subassemblies could not be accomplished quickly. In
addition, if the Company wishes to significantly modify its manufacturing
processes or change the supplier of a critical component, additional approvals
will be required from the FDA before the change can be implemented. Because of
the long lead time for some components and subassemblies that are currently
available from a single source, a supplier's inability or failure to supply
such components or subassemblies in a timely manner or the Company's decision
to change suppliers could have a material adverse effect on the Company's
business, financial condition and results of operations.
Although the Company believes that its current facilities are sufficient to
meet its clinical manufacturing needs, before the Company commences
commercial-scale manufacturing operations, it intends to move to a new
facility. The Company has signed a lease on a new facility and is in the
process of constructing a clean room and other leasehold improvements in this
building and expects to occupy the building in the first quarter of 1998. This
new facility, which will replace the current facility, is necessary for the
establishment of commercial-scale manufacturing.
The Company's manufacturing facilities are subject to periodic inspection by
regulatory authorities, and its operations must undergo QS regulation
compliance inspections conducted by the FDA and corresponding state agencies.
Additionally, prior to approval of a PMA, the Company's and its third-party
manufacturers' facilities, procedures and practices will be subject to pre-
approval QS regulation inspections. The Company has been inspected by the Food
and Drug Branch of the California Department of Health Services ("CDHS") and a
Device Manufacturing License has been issued to the Company. The Company will
be required to comply with the QS regulation requirements in order to produce
products for sale in the United States and with applicable quality system
standards and directives in order to produce products for sale in the EU. Any
failure of the Company to comply with the QS regulation or applicable
standards and directives may result in the Company being required to take
corrective actions, such as modification of its policies and
37
<PAGE>
procedures. Pending such corrective actions, the Company could be unable to
manufacture or ship any products, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
SALES, MARKETING AND TRAINING
The primary market for the Vibrant soundbridge is well defined and highly
concentrated. Of the approximately 8,000 ENT surgeons in the United States,
approximately 400 are specialists in otology. The Company's strategy is to
market its products initially to those specialists in otology who are
currently most active in ear surgery, and, subsequently, to the general
population of ENT surgeons. Because the surgical procedure for implementing
the Vibrant soundbridge utilizes many of the same techniques employed by
surgeons trained and experienced in cochlear implant surgery, the Company
believes that surgeon training will not be a significant impediment to market
acceptance.
The Company intends to position the family of Vibrant soundbridges as
technologically advanced implants that address an unmet patient need and add
to the products and services that surgeons can offer. Patients who have
traditionally been candidates for a hearing aid often are first seen by an ENT
surgeon, prior to being referred to a hearing device dealer or dispensing
audiologist. Accordingly, endorsement by the surgical community will be an
important goal of the Company's marketing programs. The Company will also seek
to develop a high degree of awareness by and endorsement from audiologists.
The Company intends to promote the benefits of its products to consumers in
order to expand usage to include not only those who are currently dissatisfied
with hearing aids, but also those who have abandoned hearing aids due to
either dissatisfaction or perceived social stigma.
Because the target market is quite concentrated, the Company believes that
it can address the market in the United States with a small direct sales
force. The Company is in the process of establishing a sales and marketing
organization in Europe. An office has been established in Basel, Switzerland,
where the Company's Director of European Sales and Marketing and European
Clinical Manager are based. The Company expects to recruit sales personnel to
provide direct sales coverage in Germany, France and the United Kingdom by the
first quarter of 1998. By the end of the first quarter of 1998, the Company
intends to establish distributors in Italy, Spain and the Benelux countries.
In other international markets, including Japan, the Company will seek to
establish a network of distributors. There can be no assurance that the
Company will be able to build a direct sales force or marketing organization
in any country, that establishing a direct sales force or marketing
organization will be cost-effective or that the Company's sales and marketing
efforts will be successful. In addition, the Company has had only limited
discussions with potential international distributors and has not yet entered
into any agreements with distributors. There can be no assurance that the
Company will be able to enter into agreements with qualified distributors on a
timely basis on terms acceptable to the Company, or at all, or that such
distributors will devote adequate resources to selling the Company's products.
COMPETITION
The medical device industry is subject to intense competition in the United
States and abroad. The Company believes its products will compete primarily
with the traditional approaches to managing hearing impairment, principally
hearing aids. Principal manufacturers of acoustic hearing aids include Siemens
Hearing Instruments, Inc., Philips Medical Systems North America Co., Starkey
Laboratories Inc., Beltone Electronics Corp., Dahlberg Inc., ReSound Corp.,
Oticon, Inc., Widex Hearing Aid Co., Inc. and Phonak Inc. There can be no
assurance that the Company's soundbridges will be able to successfully compete
with established hearing aid products. Although, to the Company's knowledge,
none of these acoustic hearing aid manufacturers are currently developing
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direct drive devices, there can be no assurance that these potential
competitors will not succeed in developing technologies and products in the
future that are more effective, less expensive than those being developed by
the Company or that do not require surgery. The Company is aware of several
university research groups and development-stage companies that have active
research or development programs related to direct drive sensorineural hearing
devices. Research of this type has been conducted at various sites for over 20
years. In addition, some large medical device companies, some of which are
currently marketing implantable medical devices, may develop programs in
hearing management. Certain of these companies have substantially greater
financial, technical, manufacturing, marketing and other resources than the
Company. In addition, there can be no assurance that certain of the Company's
competitors will not develop technologies and products that may be more
effective in managing hearing impairment than the Company's products or that
render the Company's products obsolete.
The Company believes that the primary competitive factors in the hearing
management market will be the quality of the hearing enhancement, safety,
whether surgery is required, reliability, endorsement by the surgeon and
audiology communities, patient comfort, cosmetic result and price. The medical
device industry is characterized by rapid and significant technological
change. Accordingly, the Company's success will depend in part on its ability
to respond quickly to medical and technological change and user preference
through the development and introduction of new products that are of high
quality and that address patient and surgeon requirements.
PATENTS AND PROPRIETARY TECHNOLOGY
In the United States, the Company holds three issued patents and ten pending
patent applications. Additionally, the Company has ten pending foreign patent
applications. These patents and patent applications generally cover the
invention and application of the FMT as well as the specific application of
the FMT and other concepts in the field of hearing impairment. In addition,
the Company has licensed, on a royalty-free basis, a United States patent
covering the magnetic attachment of an external audio processor to an
implanted receiver. The Company's success will depend in part on its ability
to obtain patent protection for its products and processes, to preserve its
trade secrets, and to operate without infringing or violating the proprietary
rights of others.
The patent positions and trade secret provisions of medical device
companies, including those of the Company, are uncertain and involve complex
and evolving legal and factual questions. The coverage sought in a patent
application either can be denied or significantly reduced before or after the
patent is issued. Consequently, there can be no assurance that any patents
from pending applications or from any future patent application will be
issued, that the scope of the patent protection will exclude competitors or
provide competitive advantages to the Company, that any of the Company's
patents will be held valid if subsequently challenged or that others will not
claim rights in or ownership of the patents and other proprietary rights held
by the Company. Since patent applications are secret until patents are issued
in the United States or corresponding applications are published in other
countries, and since publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, the Company cannot be certain
that it was the first to file patent applications for such inventions.
In addition, there can be no assurance that competitors, many of which have
substantial resources, will not seek to apply for and obtain patents that will
prevent, limit or interfere with he Company's ability to make, use or sell its
products either in the United States or in international markets. Although the
Company has conducted searches of patents issued to other companies, research
or academic institutions or others, there can be no assurance that such
patents do not exist, have not been filed or could not be filed or issued,
which contain claims relating to the Company's technology, products or
processes. Patents issued and patent applications filed in the United States
or internationally relating to medical devices are numerous and there can be
no assurance that
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current and potential competitors and other third parties have not filed or in
the future will not file applications for, or have not received or in the
future will not receive, patents or obtain additional proprietary rights
relating to products or processes used or proposed to be used by the Company.
In addition, patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and the
filing of related patent applications. There may be pending applications,
which if issued with claims in their present form, might provide proprietary
rights to third parties relating to products or processes used or proposed to
be used by the Company. The Company may be required to obtain licenses to
patents or proprietary rights of others. Further, the laws of certain foreign
countries do not protect the Company's intellectual property rights to the
same extent as do the laws of the United States. Litigation or regulatory
proceedings, which could result in substantial cost and uncertainty to the
Company, may also be necessary to enforce patent or other intellectual
property rights of the Company or to determine the scope and validity of other
parties' proprietary rights. There can be no assurance that the Company will
have the financial resources to defend its patents from infringement or claims
of invalidity.
The Company also relies upon trade secrets and other unpatented proprietary
technology, and no assurance can be given that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to or disclose the Company's proprietary technology or
that the Company can meaningfully protect its rights in such unpatented
proprietary technology. The Company's policy is to require each of its
employees, consultants, investigators and advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. These agreements generally provide that all
inventions conceived by the individual during the term of the relationship
shall be the exclusive property of the Company and shall be kept confidential
and not be disclosed to third parties except in specified circumstances. There
can be no assurance, however, that these agreements will provide meaningful
protection for the Company's proprietary information in the event of
unauthorized use or disclosure of such information.
Recently Public Law 104-208 was signed into law in the United States and
limits the enforcement of patents relating to the performance of surgical or
medical procedures on a body. This law precludes medical practitioners and
health care entities, who practice these procedures, from being sued for
patent infringement. Therefore, depending upon how these limitations are
interpreted by the courts, they could have a material adverse effect on the
Company's ability to enforce any of its proprietary methods or procedures
deemed to be surgical or medical procedures on a body. In certain other
countries outside the United States, patent coverage relating to the
performance of surgical or medical procedures is not available. Therefore,
patent coverage in such countries will be limited to the FMT or to narrower
aspects of the FMT.
The medical device industry in general has been characterized by substantial
litigation. Litigation regarding patent and other intellectual property
rights, whether with or without merit, could be time-consuming and expensive
to respond to and could distract the Company's technical and management
personnel. The Company may become involved in litigation to defend against
claims of infringement by the Company, to enforce patents issued to the
Company or to protect trade secrets of the Company. If any relevant claims of
third-party patents are held as infringed and not invalid in any litigation or
administrative proceeding, the Company could be prevented from practicing the
subject matter claimed in such patents, or would be required to obtain
licenses from the patent owners of each such patent, or to redesign its
products or processes to avoid infringement. In addition, in the event of any
possible infringement, there can be no assurance that the Company would be
successful in any attempt to redesign its products or processes to avoid such
infringement or in obtaining licenses on terms acceptable to the Company, if
at all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure by the Company to redesign its products or processes
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or to obtain necessary licenses could prevent the Company from manufacturing
and selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations. Although
the Company has not been involved in any litigation to date, in the future,
costly and time-consuming litigation brought by the Company may be necessary
to enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company, or to determine the enforceability, scope and validity
of the proprietary rights of others.
GOVERNMENT REGULATION
The Company's medical products, such as the Vibrant soundbridge, are
regulated as medical devices. Accordingly, clinical trials, product
development, labeling, manufacturing processes and promotional activities are
subject to extensive review and rigorous regulation by government agencies in
most countries in which the Company will seek to commercialize its products.
United States
In the United States, the Company's products are subject to applicable
provisions of the United States Federal Food, Drug, and Cosmetic Act ("FDC
Act"), and other federal statutes and regulations governing, among other
things, the design, manufacture, testing, safety, labeling, storage, record
keeping, reporting, approval, advertising and promotion of medical devices.
Noncompliance with applicable requirements can result in warning letters,
fines, recalls or seizure of products, civil penalties, injunctions, total or
partial suspension of production, withdrawal of approval or refusal to approve
new marketing applications and criminal prosecution. Changes in existing
requirements or adoption of new requirements could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Pursuant to the FDC Act, the FDA regulates the design, manufacture,
distribution, preclinical and clinical study and approval of medical devices
in the United States. Medical devices are classified in one of three classes
(Class I, Class II or Class III) on the basis of the controls necessary to
reasonably assure their safety and effectiveness. Safety and effectiveness is
considered to be reasonably assured for Class I devices through general
controls (e.g., labeling, premarket notification and adherence to current QS
regulations) and for Class II devices through the use of additional special
controls (e.g., performance standards, post-market surveillance, patient
registries and FDA guidelines).
Generally, Class III devices are those which must receive premarket approval
by the FDA to reasonably assure their safety and effectiveness (e.g., life-
sustaining, life-supporting and implantable devices, or new devices which have
been found not to be substantially equivalent to legally marketed devices, or
devices whose safety and effectiveness cannot be reasonably assured through
general controls, even if supplemented by additional special controls). Active
implantable devices, such as the Company's implantable hearing devices, are
considered Class III devices.
Before a new device can be introduced to the market, the manufacturer
generally must obtain FDA clearance through a 510(k) Premarket Notification or
FDA approval through a PMA application. While the Company has no products for
which it expects to seek 510(k) clearance, it may file 510(k) submissions with
respect to future products. A 510(k) clearance will generally only be granted
if the information submitted to the FDA establishes that the device is
"substantially equivalent" to a legally marketed predicate medical device.
Frequently, the FDA will require clinical data in support of a 510(k)
submission, and the 510(k) process can become time-consuming and expensive.
Significant modifications of the labeling, manufacturing and design of any
product that has been cleared through the 510(k) process will require a new
510(k) Premarket Notification, if those modifications could significantly
affect the safety, effectiveness or intended use of the device.
A PMA must be submitted if the device cannot be cleared through the 510(k)
process. A PMA must be supported by extensive data, including, but not limited
to, technical, preclinical, clinical
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trials, manufacturing, and labeling to demonstrate the safety and
effectiveness of the device. The Company believes that all versions of the
Vibrant soundbridge currently under development are Class III devices and will
require a PMA, as will future configurations of implantable hearing devices.
Before the Company's products can be commercialized in the United States,
the Company must submit, in a PMA, extensive data on preclinical studies and
clinical trials, device design, manufacturing, labeling, promotion and
advertising, as well as other aspects of the product. In addition, the Company
must submit clinical data gathered in trials conducted under an IDE
demonstrating to the satisfaction of the FDA that the product is safe and
effective and represents an improvement in hearing compared to currently
marketed well-functioning acoustic hearing aids, and obtain marketing approval
from the FDA. To date, the Company has received FDA approval of an IDE to
commence clinical testing of the Vibrant. The testing will be conducted in
phases. Phase I has been completed, was limited to two sites and five patients
and was intended to test the safety and provide preliminary evidence of
efficacy of the device and the surgical procedure used to implant the device.
The Company intends to initiate a multi-site Phase II study with ten
additional patients, followed by a multi-site Phase III pivotal trial in
approximately 85 patients. The Company has filed an IDE supplement to
incorporate the Vibrant P into the Phase II and Phase III trials for the
Vibrant soundbridge, but there can be no assurance that the FDA will not
require a separate IDE for the Vibrant P. If the Company is required to submit
a separate IDE, regulatory approval of the Vibrant P would be delayed. On
October 3, 1997, the Company submitted a Phase I report and an IDE supplement
to the FDA requesting modification and expansion to the next phase of clinical
testing. On October 31, 1997, the Company received notification from the FDA
that it would require additional audiologic and safety data prior to
commencement of the next phase of clinical testing. On November 14, 1997, the
Company submitted the additional information. There can be no assurance that
additional approvals to commence Phase II or Phase III clinical trials will be
obtained in a timely fashion, or at all, or that the Company's clinical trial
effort will progress as expected, not be delayed or that such effort will lead
to the successful development of any product. No assurance can be given that
any of the Company's proposed clinical trials will be allowed by the FDA or
other regulatory agencies or that clinical trials will commence as planned. As
of October 1997, the five patients required for the Phase I clinical trial
have been implanted with the Vibrant soundbridge, have had the Audio Processor
fitted, and have completed the follow-up required by the trial protocol.
Any delays in the Company's clinical trials would have a material adverse
effect on the Company's business, financial condition and results of
operations. Success in preclinical studies or early stage clinical trials does
not assure success in later stage clinical trials. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. Further, there can be
no assurance that if such testing of products under development is completed,
any such devices will be accepted for formal review by the FDA, or approved by
the FDA for marketing in the United States.
After a PMA is filed, the FDA begins its review of the submitted
information, which generally takes between one and two years, but may take
significantly longer. During this review period, the FDA may request
additional information or clarification of information already provided. Also
during the review period, an advisory panel of experts from outside the FDA
will be convened to review and evaluate the application and provide
recommendations to the FDA as to the approvability of the device. In addition,
the FDA will conduct a preapproval inspection of the manufacturing facility to
ensure compliance with QS regulation requirements. There can be no assurance
that the Company will be able to meet the FDA's requirements or that any
necessary approval will be granted in a reasonable time frame, or at all.
New PMAs or PMA supplements are required for significant modifications to
the manufacture, labeling and design of a device that is approved through the
PMA process. Supplements to a PMA
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often require submission of the same type of information as a PMA, except that
the supplement is limited to information needed to support any changes from
the device covered by the original PMA and may not require as extensive
clinical data or the convening of an advisory panel.
The PMA process can be expensive, uncertain and can frequently require
several years. Even when a PMA is approved, the FDA may impose restrictions on
the indications for which the device can be marketed. There can be no
assurance that the Company will be able to obtain necessary approvals on a
timely basis, or at all, and delays in obtaining or failure to obtain such
approvals, the loss of previously obtained approvals, or failure to comply
with existing or future regulatory requirements could have an adverse effect
on the Company's business, financial condition and results of operations.
Subsequent to the receipt of an FDA approval, the Company will continue to
be regulated by the FDA with regard to the reporting of adverse events related
to its products, and ongoing compliance with QS regulation. The Company's
manufacturing facility must be registered with the FDA and the California Food
and Drug Branch and will be subject to periodic inspections by the FDA and by
the California Food and Drug Branch. A Device Manufacturing License has been
issued by the State of California and this license must be renewed annually
for the Company to continue manufacture of medical devices in California.
Europe
The primary regulatory environment in Europe is that of the EU which
consists of 15 countries encompassing most of the major countries in Europe.
The EU has adopted numerous directives and standards regulating the design,
manufacture, clinical trial, labeling, and adverse event reporting for medical
devices. The principal directives prescribing the laws and regulations
pertaining to medical devices in the EU are the MDD and the AIMDD. In the EU,
the Company's soundbridges will be regulated as active implantables and
therefore be governed by the AIMDD. For products, such as those of the
Company, that have not previously been commercialized in the EU, CE marking is
required prior to initiation of sales in the EU. Certain other countries, such
as Switzerland, have voluntarily adopted laws and regulations that mirror
those of the EU with respect to medical devices.
Devices that comply with the requirements of a relevant directive will be
entitled to bear CE conformity marking, indicating that the device conforms
with the essential requirements of the applicable directive, and accordingly,
can be commercially distributed throughout the EU. The method of assessing
conformity varies depending on the class of the product, but normally involves
a combination of self-assessment by the manufacturer and a third-party
assessment by a Notified Body. This third party assessment may consist of an
audit of the manufacturer's quality system and specific testing of the
manufacturer's product. An assessment by a Notified Body in one country within
the EU is required in order for a manufacturer to commercially distribute the
product throughout the EU.
For purposes of determining the necessary steps for assessing conformity,
devices are classified under the Directives as Class I, Class IIa, Class IIb,
Class III, or Active Implantable Medical Devices. Devices having a higher
classification are considered to have a higher risk and, accordingly, are
subject to more controls in order to bear CE marking. The Vibrant is
designated as an Active Implantable Medical Device. Essential requirements
under the AIMDD include substantiating that the device meets the
manufacturer's performance claims and that safety issues, if any, constitute
an acceptable risk when weighed against the intended benefits of the device.
The two principal aspects of assessing conformity for Active Implantable
Medical Devices are determinations from the Notified Body that the processes
employed in the design and manufacture of a device qualify as a full quality
system in compliance with applicable standards (e.g., EN ISO 9001, EN 46001
and 90/385/EEC), and
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that the technical, preclinical, and clinical data gathered on the device are
adequate to support CE marking.
The Company has undergone an inspection by its Notified Body and its quality
system has been certified by the Notified Body as being in compliance with the
required standards. The Company is in the process of submitting the technical,
preclinical and clinical data that its Notified Body has indicated will be
required to satisfy the essential requirements of the AIMDD. To satisfy these
requirements, the Company must complete a clinical trial conducted under
European clinical trial standards (EN 540) to determine the safety and
performance of the products. The Company must continue to pass annual ISO
9001/EN 46001 and AIMDD 2.3 annual quality system audits in order to retain
international approvals. As of October 31, 1997, a total of 36 patients in the
European clinical trial have been implanted with the Company's soundbridges (19
with the Vibrant and 17 with the Vibrant P) of whom 32 have had the Audio
Processor fitted and the soundbridge's performance evaluated. The Company
intends to complete its submission to the Notified Body by the end of 1997.
There can be no assurance that such data will be accepted by the Company's
Notified Body, or that the Notified Body will not require the Company to obtain
additional data from additional clinical trials involving more patients in
order to demonstrate the safety and performance of the Vibrant and the Vibrant
P.
Once a manufacturer has satisfactorily completed the regulatory compliance
tasks required by the directives and received favorable determinations by the
Notified Body, it is eligible to place the CE mark on its products.
Manufacturers are subject to ongoing regulation under the AIMDD. The quality
system will be subject to periodic audit and recertification, and serious
adverse events must be reported to the authorities in the country where the
incident takes place. If such incidents occur, the manufacturer may have to
take remedial action, including withdrawal of the product from the EU market.
While no additional premarket approvals in individual EU countries are
required, prior to the marketing of a device bearing the CE mark, practical
complications with respect to market introduction may occur. For example,
differences among countries have arisen with regard to labeling requirements.
Also, as the directives do not cover reimbursement and distribution practices,
differences may occur in these and other areas.
THIRD-PARTY REIMBURSEMENT
The Company believes that its products will generally be purchased by
hospitals and clinics upon the recommendation of a surgeon. In the United
States, hospitals, physicians and other health care providers that purchase
medical devices generally rely on third-party payors, principally Medicare,
Medicaid, private health insurance plans, health maintenance organizations and
other sources of reimbursement for health care costs, to reimburse all or part
of the cost of the procedure in which the medical device is being used. Such
third-party payors have become increasingly sensitive to cost containment in
recent years and place a high degree of scrutiny on coverage and payment
decisions for new technologies and procedures.
Hearing aids, which are the subject of 510(k) and do not involve surgery, are
generally not reimbursed, although a modest reimbursement is provided under
certain insurance plans. Traditionally, hearing aid users have paid for these
devices directly. For cochlear implants, however, that are technologically
advanced and FDA-approved through the PMA process for the treatment of profound
hearing impairment, a reimbursement is available for the device, the
audiological testing, and the surgery. Similarly, reimbursement is available
for ossicular replacement prostheses that are FDA-approved for the treatment of
conductive hearing impairment. The Company anticipates that, as surgically
implanted devices that require FDA approval, the Company's products may also be
the
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subject of reimbursement in the future. During clinical trials, the Company
does not anticipate that there will be any reimbursement for the Vibrant
soundbridge implant or procedure.
The Company's strategy is to pursue reimbursement for the Vibrant
soundbridge, once a PMA is approved by the FDA, based on surgeon endorsement
and demonstration of improved quality of life for specific patient groups.
Quality of life issues are included in the Company's clinical trial to provide
data in support of this reimbursement strategy. There can be no assurance that
the Company will be able to demonstrate improvement in quality of life or that
reimbursement will ever be available for the Company's products.
Certain third-party payors are moving toward a managed care system in which
they contract to provide comprehensive health care for a fixed cost per person.
The fixed cost per person established by these third-party payors may be
independent of the hospital's cost incurred for the specific case and the
specific devices used. Medicare and other third-party payors are increasingly
scrutinizing whether to cover new products and the level of reimbursement for
covered products. Because the Company's hearing prostheses are currently under
development and have not received FDA clearance or approval, uncertainty exists
regarding the availability of third-party reimbursement for procedures that
would use the Company's soundbridges. Failure by physicians, hospitals and
other potential users of the Company's soundbridges to obtain sufficient
reimbursement from third-party payors for the procedures in which the Company's
soundbridges are intended to be used could have a material adverse effect on
the Company's business, financial condition and results of operations.
Third-party payors that do not use prospectively fixed payments increasingly
use other cost-containment processes or require various outcomes data that may
pose administrative hurdles to the use of the Company's soundbridges. In
addition, third-party payors may deny reimbursement if they determine that the
device used in a procedure is unnecessary, inappropriate, experimental, used
for a non-approved indication or is not cost-effective. Potential purchasers
must determine that the clinical benefits of the Company's products justify the
additional cost or the additional effort required to obtain prior authorization
or coverage and the uncertainty of actually obtaining such authorization or
coverage.
If the Company obtains the necessary foreign regulatory approvals, market
acceptance of the Company's products and products currently under development
in international markets would be dependent, in part, upon the availability of
reimbursement within prevailing health care payment systems. Reimbursement and
health care payment systems in international markets vary significantly by
country, and include both government sponsored health care and private
insurance. There can be no assurance that any international reimbursement
approvals will be obtained in a timely manner, if at all. Failure to receive
international reimbursement approvals could have a material adverse effect on
market acceptance of the Company's products in the international markets in
which such approvals are sought.
The Company believes that in the future reimbursement will be subject to
increased restrictions both in the United States and in international markets.
The Company believes that the overall escalating cost of medical products and
services will continue to lead to increased pressures on the health care
industry, both foreign and domestic, to reduce the cost of products and
services, including the Company's products and products currently under
development. There can be no assurance in either United States or international
markets that third-party reimbursement and coverage will be available or
adequate, that future legislation, regulation or reimbursement policies of
third-party payors will not otherwise adversely affect the demand for the
Company's products or products currently under development or its ability to
sell its products on a profitable basis. The unavailability of third-party
payor coverage or the inadequacy of reimbursement could have a material adverse
effect on the Company's business, financial condition and results of
operations.
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PRODUCT LIABILITY
The Company's business involves the inherent risk of product liability
claims. The Company maintains limited product liability insurance. However,
there can be no assurance that such insurance will continue to be available on
commercially reasonable terms, or at all, or that such insurance will be
adequate to cover liabilities that may arise. Any claims that are brought
against the Company could, if successful, have an adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
At September 30, 1997, the Company had 40 employees. Of these employees, 20
were in research and development, regulatory and clinical affairs, 15 were in
manufacturing and quality assurance and five were in administration, sales and
marketing. None of the Company's employees is covered by a collective
bargaining agreement and the Company believes that it maintains good relations
with its employees.
FACILITIES
The Company's principal administrative, manufacturing and research and
development facility occupies approximately 11,500 square feet in San Jose,
California, pursuant to a lease that expires in August 1998. The Company has
signed a lease on a facility of approximately 30,500 square feet in San Jose,
California that expires in December 2002. The Company is in the process of
constructing a clean room and other leasehold improvements in this building and
expects to occupy the facility in the first quarter of 1998. This new facility,
which will replace the current facility, is necessary for the establishment of
commercial-scale manufacturing, and will house all of the Company's U.S.
operations. The Company has established an office in Basel, Switzerland for the
headquarters of its European sales and marketing organization.
LEGAL MATTERS
The Company is not currently engaged in any legal proceedings.
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SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board consisting of leading
professionals in the fields of otology, otolaryngology and audiology. Each
member of the Board has received options for stock, pursuant to the 1994 Option
Plan, for participation on the Board. The Board meets periodically and reviews
the Company's clinical progress and product development plans. In addition,
members of the Scientific Advisory Board are available on an individual basis
to consult with the Company. The members of the Scientific Advisory Board are
as follows:
BYRON J. BAILEY, MD. Dr. Bailey is an otolaryngologist. He is Chairman of the
Department of Otolaryngology at the University of Texas Medical Branch at
Galveston, Texas. Dr. Bailey has served on numerous committees with the
American Academy of Otolaryngology-Head and Neck Surgery as well as advisory
committees for the FDA. He is a past president of the American Academy of
Otolaryngology-Head and Neck Surgery.
CHARLES I. BERLIN, PH.D. Dr. Berlin is a clinical audiologist. He is Director
of the Kresge Hearing Research Laboratory of the South, part of Louisiana State
University Medical Center ("LSUMC") in New Orleans, Louisiana. At LSUMC, Dr.
Berlin is also a Professor in the Department of Otorhinolaryngology and
Biocommunication, in the Department of Physiology and in the School of Allied
Health's Department of Communication Disorders.
DERALD E. BRACKMANN, MD. Dr. Brackmann is an otologist and neurotologist. He
is President of the House Ear Clinic, and Chief of the Otology Service at St.
Vincent Medical Center in Los Angeles, California and at the University of
Southern California/Los Angeles County Medical Center. Dr. Brackmann has
published more than 200 papers and has three textbooks to his credit. He is a
past president of the American Academy of Otolaryngology-Head and Neck Surgery,
the American Otological Society and the North American Skull Base Society.
RICHARD A. CHOLE, MD, PH.D. Dr. Chole is an otologist and neurotologist. He
is Chairman of the Department of Otolaryngology at the University of
California, Davis School of Medicine. Dr. Chole's research has been supported
by the National Institutes of Health, The Deafness Research Foundation, the
American Otologic Society and the University of California. He serves on the
Expert Panel on Hearing and Hearing Impairment for the National Institute of
Deafness and Communication Disorders.
CHARLES M. LUETJE, MD. Dr. Luetje is an otologist and neurotologist in
private practice. Additionally, Dr. Luetje serves as a Clinical Assistant
Professor in the Department of Surgery/Otolaryngology at the University of
Missouri Medical Center and as a preceptor and instructor in the Department of
Otolaryngology at the University of Kansas Medical Center. He has over 100
presentations and papers to his credit and serves as the President Elect of the
American Otological Society.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company, their
positions with the Company and ages as of September 30, 1997, are as follows:
<TABLE>
<CAPTION>
Name AGE POSITION
---- --- --------
<C> <C> <S>
Harry S. Robbins............ 50 Chairman of the Board of Directors,
President and Chief Executive Officer
Geoffrey R. Ball............ 33 Vice President, Chief Technical Officer and
Director
R. Michael Crompton......... 39 Vice President of Regulatory Affairs and
Quality Assurance
Peter Hertzmann............. 49 Vice President of Marketing and Clinical
Affairs
Bob H. Katz................. 37 Vice President of Research and Development
Alfred G. Merriweather...... 43 Vice President of Finance and Chief
Financial Officer
Patrick J. Rimroth.......... 42 Vice President of Operations
John de Mora-Mieszkowski.... 52 Director of European Sales and Marketing
B.J. Cassin(1)(2)........... 63 Director
Terry Gould................. 40 Director
Michael J. Levinthal(1)(2).. 43 Director
Petri T. Vainio(1)(2)....... 38 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
HARRY S. ROBBINS co-founded the Company and has served as Chairman of the
Board of Directors, President and Chief Executive Officer of the Company since
its founding in May 1994. From January 1991 to December 1993, Mr. Robbins was
President and Chief Executive Officer of CardioRhythm, Inc., a medical device
company that, from May 1992, was a subsidiary of Medtronic Inc. Previously,
Mr. Robbins held executive sales and marketing positions with Laserscope and
Diasonics, Inc., medical device companies. Mr. Robbins is a director of
Business Resource Group, a distributor of office furniture and systems. Mr.
Robbins holds a B.A. degree in arts and sciences from Pennsylvania State
University.
GEOFFREY R. BALL invented the FMT, co-founded the Company and has served as
Vice President and Chief Technical Officer and a director since May 1994. From
1987 to March 1994, Mr. Ball was a biomedical engineer in the hearing research
laboratory at the Veterans Hospital in Palo Alto, California, affiliated with
Stanford University. Mr. Ball holds an M.S. degree in systems management from
the University of Southern California and a B.S. degree in human development
and performance from the University of Oregon.
R. MICHAEL CROMPTON has been Vice President of Regulatory Affairs and
Quality Assurance of the Company since June 1996. From June 1995 to May 1996,
from October 1993 to January 1994 and from February 1992 to August 1992, Mr.
Crompton was employed by Advanced Bioresearch Associates, a medical device
consulting company, where he specialized in regulatory consultation for FDA-
regulated products. From February 1994 to May 1995, Mr. Crompton was an
attorney with Hyman, Phelps & McNamara, a Washington, D.C. law firm
specializing in FDA matters. From September 1992 to September 1993, Mr.
Crompton was Manager of Regulatory Affairs at Tosoh Medics, Inc., a medical
device company. Mr. Crompton has a J.D. degree from the University of San
Francisco, and a B.A. degree in biochemistry and an M.P.H. degree in
biomedical sciences from the University of California at Berkeley.
48
<PAGE>
PETER HERTZMANN has been Vice President of Marketing and Clinical Affairs of
the Company since October 1994. From July 1990 to October 1994, Mr. Hertzmann
was the president of Peter Hertzmann, Inc., a marketing consulting firm to the
medical device and surgical community. Mr. Hertzmann holds a B.S. degree in
photographic science and instrumentation from the Rochester Institute of
Technology.
BOB H. KATZ has been Vice President of Research and Development of the
Company since October 1994. From April 1990 to October 1994, Mr. Katz was
employed by Telectronics Pacing Systems, a manufacturer of implantable medical
devices. At Telectronics Pacing Systems, he served as Program Manager,
Bradycardia Product Development, from 1990 to September 1993 and as Director
of Strategic Planning, Instrument Systems, from September 1993 to October
1994. Mr. Katz holds a B.A. degree in business administration and a B.S.
degree in electrical engineering from Rutgers University, an M.S. degree in
biomedical engineering from Boston University and an M.B.A. from Nova
Southeastern University.
ALFRED G. MERRIWEATHER has been Vice President of Finance and Chief
Financial Officer of the Company since March 1996. From September 1993 to
March 1996, Mr. Merriweather was Senior Vice President of Finance and
Administration and Chief Financial Officer of LipoMatrix Inc., a medical
device company. From 1983 to August 1993, Mr. Merriweather held executive
management positions with Laserscope, including serving as Vice President of
Finance and Chief Financial Officer from 1988. Mr. Merriweather holds a B.A.
degree in economics from the University of Cambridge, England.
PATRICK J. RIMROTH has served as Vice President of Operations of the Company
since March 1996 and as Vice President of Manufacturing, from November 1995 to
March 1996. From June 1994 to October 1995, Mr. Rimroth was Vice President of
Research and Development for Camino Neurocare, a medical device company. From
December 1988 to June 1994, Mr. Rimroth held multiple research and development
management positions with divisions of C.R. Bard, Inc., a medical device
company. Mr. Rimroth has a B.S. degree in biology and a B.S.E.E. degree in
electronic engineering from Purdue University.
JOHN DE MORA-MIESZKOWSKI has been Director of European Sales and Marketing
since September 1997. From September 1994 to August 1997, Mr. de Mora-
Mieszkowski was Marketing and Sales Manager, Europe, for Cochlear AG, a
distributor of cochlear implants. From March 1992 to September 1994, Mr. de
Mora-Mieszkowski was Divisional Sales Manager for Cilag International AG, a
pharmaceutical company. Mr. de Mora-Mieszkowski holds a B.S. degree in
biochemistry from the University of London, England.
B.J. CASSIN has served as a director of the Company since July 1994. Mr.
Cassin has been a private venture capital investor since 1979. Previously, he
co-founded Xidex Corporation, a manufacturer of data storage media, and served
as Vice President of Marketing. Mr. Cassin is a director of Advanced Fiber
Communications, Inc. and Cerus Corporation (of which he is Chairman). Mr.
Cassin holds an A.B. degree from Holy Cross College.
TERRY GOULD has served as a director of the Company since May 1996. Mr.
Gould has been a partner in the Private Markets Group of Brinson Partners,
Inc. since January 1994. From November 1989 to December 1993, Mr. Gould was
employed by Trinity Ventures Ltd., a venture capital firm. Mr. Gould holds a
B.A. degree in engineering science from Dartmouth College and an M.B.A. degree
from Stanford University.
MICHAEL J. LEVINTHAL has served as a director of the Company since July
1994. Mr. Levinthal has been a General Partner of several venture capital
funds affiliated with Mayfield Fund since 1984. He currently serves as a
director of InControl, Inc., Focal, Inc. and Heartstream, Inc., medical device
companies. Mr. Levinthal holds a B.S., an M.S. and an M.B.A. degree from
Stanford University.
49
<PAGE>
PETRI T. VAINIO has served as a director of the Company since July 1994. Dr.
Vainio is a general partner of Sierra Ventures, a venture capital firm he
joined in 1988. He currently serves as a director of Heartport, Inc., a
medical device company. Dr. Vainio holds M.D. and Ph.D. degrees from the
University of Helsinki, Finland, and an M.B.A. degree from Stanford
University.
BOARD COMPOSITION
The Company currently has authorized six directors. In accordance with the
terms of the Company's Restated Certificate of Incorporation, to be filed
after the closing of this offering, the terms of office of the Board of
Directors will be divided into three classes: Class I, whose term will expire
at the annual meeting of stockholders to be held in 1999; Class II, whose term
will expire at the annual meeting of stockholders to be held in 2000; and
Class III, whose term will expire at the annual meeting of stockholders to be
held in 2001. The Class I directors will be Terry Gould and Geoffrey R. Ball,
the Class II directors will be Petri T. Vainio and Michael J. Levinthal and
the Class III directors will be B.J. Cassin and Harry S. Robbins. At each
annual meeting of stockholders after the initial classification of the Board
of Directors, the successors to directors whose term will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following such election. In addition, the Company's Restated
Certificate of Incorporation provides that the authorized number of directors
may be changed only by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the Board
of Directors may have the effect of delaying or preventing changes in control
or management of the Company.
Each officer is elected by and serves at the discretion of the Board of
Directors. Each of the Company's officers, directors and key employees, other
than nonemployee directors, devote substantially full time to the affairs of
the Company. The Company's nonemployee directors devote such time to the
affairs of the Company as is necessary to discharge their duties. There are no
family relationships among any of the directors, officers or key employees of
the Company.
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with and reviews the
services provided by the Company's independent accountants. The members of the
Audit Committee are B.J. Cassin, Michael J. Levinthal and Petri T. Vainio. The
Compensation Committee of the Board of Directors reviews and recommends to the
Board the compensation and benefits of all officers of the Company and
establishes and reviews general policies relating to compensation and benefits
of employees of the Company. The members of the Compensation Committee are
B.J. Cassin, Michael J. Levinthal and Petri T. Vainio.
DIRECTOR COMPENSATION
The Company does not compensate the directors for the services they provide
as directors other than reasonable expenses in connection with attendance at
Board Meetings, for which directors may receive reimbursement. However, in the
past, stock options have been granted to individuals who serve as directors.
50
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the summary of the compensation paid by the
Company during the fiscal year ended December 31, 1996 to the Company's Chief
Executive Officer and each of the Company's other most highly compensated
executive officers (collectively the "Named Executive Officers"), whose total
annual salary and bonus for such fiscal year were in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS
- ------------------ ---- --------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Harry S. Robbins........ 1996 $199,039 $82,000 -- 250,600
President and Chief
Executive Officer
Geoffrey R. Ball........ 1996 102,835 28,118 -- --
Vice President, Chief
Technical Officer
Peter Hertzmann......... 1996 114,192 19,838 -- 14,534
Vice President of
Marketing and Clinical
Affairs
Bob H. Katz............. 1996 116,473 29,208 -- 14,534
Vice President of
Research and
Development
Patrick J. Rimroth...... 1996 115,008 33,961 $13,920 14,534
Vice President of
Operations
</TABLE>
- --------
(1) Other compensation represents relocation expenses paid.
51
<PAGE>
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1996 to each of the Named Executive Officers:
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATE OF STOCK
GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES IN OR BASE FOR OPTION TERM(5)
GRANTED FISCAL YEAR PRICE EXPIRATION ---------------------
NAME (#)(1) (%)(3) ($/Sh)(4) DATE 5% ($) 10% ($)
- ---- ------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Harry S. Robbins(2)..... 125,300 21.9 0.80 8/2/2001 1,818,777 2,321,323
125,300 21.9 0.80 8/2/2001 1,818,777 2,321,323
Peter Hertzmann......... 14,534 2.5 0.73 8/2/2006 273,482 441,760
Bob H. Katz............. 14,534 2.5 0.73 8/2/2006 273,482 441,760
Patrick J. Rimroth...... 14,534 2.5 0.73 8/2/2006 273,482 441,760
</TABLE>
- --------
(1) Each grant for 14,534 shares vests as follows: The options were immediately
exercisable, conditioned upon the optionee entering into a restricted stock
purchase agreement with the Company with respect to any unvested shares.
The options vest or are released from the repurchase option at the rate of
one forty-eighth ( 1/48) at the end of each full month beginning on the
third anniversary of the commencement of each optionee's employment with
the Company. Vesting of such options will commence as follows: Peter
Hertzmann--October 31, 1997, Bob H. Katz--October 30, 1997 and Patrick J.
Rimroth--November 10, 1998.
(2) Of these shares, 125,300 were immediately exercisable and 125,300 shares
were exercisable January 1, 1997, conditioned upon the optionee entering
into a restricted stock purchase agreement with respect to any unvested
options. The options vest or are released from the repurchase option at the
rate of one forty-eighth ( 1/48) at the end of each full month following
March 1, 1998.
(3) Based on an aggregate of 571,616 options granted by the Company in the year
ended December 31, 1996 to employees of and consultants to the Company,
including the Named Executive Officers.
(4) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors. The exercise prices per share of the options granted to Harry
S. Robbins were granted at 110% of the fair market value of the Common
Stock on the date of grant due to Mr. Robbin's ownership of 10% or greater
of the outstanding capital stock of the Company.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
option term will be at the assumed 5% or 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officers. The potential realizable value is calculated by
assuming that the initial public offering price of $12.00 per share
appreciates at the indicated rate for the entire term of the option and
that the option is exercised at the exercise price and sold on the last day
of its term at the appreciated price.
52
<PAGE>
The following table sets forth the information with respect to stock option
exercises during the year ended December 31, 1996 by each of the Named
Executive Officers, and the number and value of securities underlying
unexercised options held by the Named Executive Officers at December 31, 1996:
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1996 AND
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR-END (#)(1) FISCAL YEAR-END ($)(2)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE (#)(1) ($)(2) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Harry S. Robbins........ -- -- 125,300/125,300 1,403,360/1,403,360
Peter Hertzmann......... 14,534 163,798 --/-- --/--
Bob H. Katz............. 130,813 1,551,442 --/-- --/--
14,534 163,798 --/-- --/--
Patrick J. Rimroth...... 65,406 748,899 --/-- --/--
14,534 163,798 --/-- --/--
</TABLE>
- --------
(1) Shares and options held by the above Named Executive Officers are subject
to vesting over a four year period.
(2) Based on the assumed initial public offering price of $12.00 per share,
minus the per share exercise price, multiplied by the number of shares
underlying the option.
OPTION VESTING AGREEMENTS
The Company has entered into an option vesting agreement with each of its
officers with whom it has entered into a stock option agreement, to provide
for accelerated vesting of all shares subject to such option (i) 12 months
after a change in control or (ii) in the event such officer is involuntarily
terminated within the 12 month period following a change in control. For
purposes of the option vesting agreement, "change in control" is defined as
(i) the closing of a merger, reorganization, sale of shares or sale of
substantially all of the assets of the Company in which the stockholders of
the Company immediately prior to the closing of the transaction own less than
50% of the voting power of the surviving or controlling entity (or its parent)
immediately after the transaction, or (ii) the date of the approval by the
stockholders of the Company of a plan of complete liquidation of the Company.
The following officers held the following options to purchase shares of Common
Stock as of September 30, 1997, which options vest over four years from the
date of grant: R. Michael Crompton (79,940 shares); Peter Hertzmann (94,474
shares); Bob H. Katz (159,881 shares); Alfred G. Merriweather (98,109 shares);
Patrick J. Rimroth (94,474 shares); and Harry S. Robbins (250,600 shares).
INCENTIVE STOCK PLANS
1994 Option Plan. The 1994 Option Plan was adopted by the Board of Directors
and approved by the stockholders in July 1994. As of September 30, 1997,
441,734 shares were subject to outstanding options at exercise prices ranging
from $0.14 to $1.10 per share and 223,683 shares were available for future
grant under the 1994 Option Plan. In November 1997 the Board of Directors
approved an increase of 375,000 shares available for grant under the 1994
Option Plan subject to approval of the stockholders within 12 months of the
approval by the Board of Directors. The purposes of the 1994 Option Plan are
to attract and retain qualified personnel, to provide additional incentives to
employees, officers and consultants of the Company and to promote the success
of the Company's business. Pursuant to the 1994 Option Plan, the Company may
grant options which qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as
53
<PAGE>
amended (the "Code"), to employees (including officers and directors who are
employees) and nonqualified stock options to employees, officers, directors
and consultants.
The Compensation Committee is authorized to administer the 1994 Option Plan,
including the selection of the employees, directors and consultants of the
Company to whom stock options may be granted and the interpretation and
adoption of rules for the operation of the 1994 Option Plan. Options granted
under the 1994 Option Plan generally vest incrementally over a four-year
period. However, the vesting schedule is subject to modification by the Board
of Directors. The maximum term for options granted under the 1994 Option Plan
is ten years, except that, if at the time of the grant the optionee possesses
more than 10% of the combined voting power of the Company (a "10%
Stockholder"), the maximum term of an option is five years. The exercise price
of incentive stock options granted to a 10% stockholder must be at least 110%
of the fair market value of the stock subject to the option on the date of
grant. Except pursuant to a merger or other corporate transaction, the
exercise price of nonqualified stock options granted under the 1994 Option
Plan must be at least 100% of the fair market value of the stock subject to
the option on the date of grant. Payment of the exercise price may be made by
cash, check, promissory note, other shares of Common Stock of the Company
owned by the optionee for a sufficient period, cancellation of indebtedness
pursuant to a cashless exercise program, if one is implemented by the Company,
and any other method permitted by law. The 1994 Option Plan may be amended at
any time by the Board of Directors, although certain amendments would require
stockholder approval. The 1994 Option Plan will terminate in 2004, unless
earlier terminated by the Board of Directors.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Company's Board of Directors in
November 1997 and the Company anticipates that the Purchase Plan will be
approved by the stockholders prior to the closing of this offering. The
Purchase Plan is intended to qualify under Section 423 of the Code. The
Company has reserved 75,000 shares of Common Stock for issuance under the
Purchase Plan. Under the Purchase Plan, an eligible employee may purchase
shares of Common Stock from the Company through payroll deductions of up to
10% of his or her compensation, at a price per share equal to 85% of the lower
of (i) the fair market value of the Company's Common Stock on the first day of
an offering period under the Purchase Plan or (ii) the fair market value of
the Common Stock on the last day of a purchase period. Each offering period
will last for 24 months and will commence the first day on which the national
stock exchanges and The Nasdaq Stock Market are open for trading on or after
May 1 and November 1 of each year. The first offering period will begin upon
the effective date of this offering and will end on October 31, 1998. Any
employee who is customarily employed for at least 20 hours per week and more
than five months per calendar year is eligible to participate in the Purchase
Plan. No shares have been purchased under the Purchase Plan to date.
EMPLOYEE RETIREMENT PLANS
In April 1996, the Company implemented a Retirement Savings and Investment
Plan that is intended to qualify under Section 401(k) of the Code (the "401(k)
Plan") covering all of the Company's employees who have attained age 18. An
employee may elect to defer, in the form of contributions to the 401(k) Plan
on his or her behalf, up to 20% of the total compensation that would otherwise
be paid to the employee, not to exceed the amount allowed by applicable
Internal Revenue Service guidelines. The Company may in its discretion make
matching contributions to the 401(k) Plan, but has not yet done so.
Contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn
from the 401(k) Plan. Contributions by the Company are deductible by the
Company when made.
54
<PAGE>
CERTAIN TRANSACTIONS
In July, August and October 1994 and January 1995, the Company issued and
sold 5,463,000 shares of Series A Preferred Stock at a purchase price of $1.00
per share to a total of 40 investors. The directors, officers and 5%
stockholders that purchased shares of Series A Preferred Stock and the number
of shares that each purchased are (i) B.J. Cassin and affiliates, 295,000
shares, (ii) Coral Partners IV, Limited Partnership, 1,000,000 shares; (iii)
Mayfield VII and affiliates, 1,500,000 shares, (iv) Peter Hertzmann, Inc.,
15,000 shares and (v) Sierra Ventures IV and affiliates, 1,750,000 shares.
Upon completion of this offering at an assumed initial public offering price
of $12.00 per share, all outstanding shares of Preferred Stock will convert
into shares of Common Stock at a 1.376-to-one ratio.
In June 1995, the Company issued and sold 1,378,500 shares of Series B
Preferred Stock at a purchase price of $4.00 per share to a total of 31
investors. The directors, officers and 5% stockholders that purchased shares
of Series B Preferred Stock and the number of shares that each purchased are
(i) B.J. Cassin and affiliates, 111,188 shares, (ii) Coral Partners IV,
Limited Partnership, 250,000 shares, (iii) Mayfield VII and affiliates,
375,000 shares, (iv) Peter Hertzmann, Inc., 3,750 shares and (v) Sierra
Ventures IV and affiliates, 437,500 shares.
In May and June 1996, the Company issued and sold 1,162,451 shares of Series
C Preferred Stock at a purchase price of $5.35 per share to a total of 20
investors pursuant to the terms of the Series C Preferred Stock Purchase
Agreement. The directors, officers and 5% stockholders that purchased or
beneficially held shares of Series C Preferred Stock and the number of shares
that each purchased or beneficially held are (i) B.J. Cassin, 18,690 shares,
(ii) Brinson Venture Capital Fund III, L.P. and affiliates, 373,832 shares,
(iii) Coral Partners IV, Limited Partnership, 170,841 shares, (iv) Mayfield
VII and affiliates, 256,262 shares, (v) Peter Hertzmann, Inc., 2,804 shares
and (vi) Sierra Ventures IV and affiliates, 299,065 shares.
In November and December 1996 and June 1997, the Company issued and sold
1,190,680 shares of Series D Preferred Stock at a purchase price of $8.00 per
share to a total of 14 investors. The 5% stockholders that purchased or
beneficially held shares of Series D Preferred Stock and the number of shares
that each purchased or beneficially held are (i) B.J. Cassin, 23,125 shares,
(ii) Coral Partners IV, Limited Partnership, 92,706 shares, (iii) Mayfield VII
and affiliates, 139,036 shares, (iv) Sierra Ventures and affiliates, 162,238
shares and (v) JJDC, 750,000 shares.
In connection with the Company's Series D Preferred Stock issuances, the
Company granted one of the investors, JJDC, first negotiation rights, whereby
the Company agreed that it will not (i) transfer, dispose of, sell, lease or
license (exclusively or nonexclusively) to any third party, any of certain
defined intellectual property rights that are or may be used or may have
application in the field of implantable and semi-implantable hearing aid
devices or (ii) transfer or dispose of all or substantially all of the assets
or voting securities of the Company to any third party until it provides JJDC
the opportunity to consummate a similar transaction. JJDC's first negotiation
rights survive for a period of 18 months from the date of the June 1997 Series
D Preferred Stock financing or 12 months from the effective date of the
Company's registration statement relating to its initial public offering,
whichever first occurs. Notwithstanding the foregoing, JJDC's first
negotiation rights terminate in the event that JJDC, either directly or
through an affiliate, does not participate as an investor in this offering.
On March 14, 1997, the Company entered into an assignment agreement with
VibRx, Inc., a Delaware corporation ("VibRx"), whereby the Company assigned to
VibRx all of the right, title and interest of the Company in and to any and
all existing inventions, original works of authorship, developments,
improvements, trade secrets, patents and patent applications relating to (i)
an apparatus and method for sonically enhanced drug delivery and (ii) an
apparatus and method for
55
<PAGE>
sonically enhanced drug delivery with micro electromechanical machining. Harry
S. Robbins, the Company's President, is the President, sole director and sole
stockholder of VibRx. Immediately prior to the VibRx closing an initial
financing of at least $500,000 to VibRx, VibRx will issue to Symphonix that
number of shares of common stock equal to 20% of the then outstanding capital
stock of VibRx (including reserved shares).
The Company has granted certain officers options to purchase shares of the
Company's Common Stock, which options were early exercised and paid for by
delivery of promissory notes to the Company by the following officers in the
following aggregate amounts: Bob H. Katz ($90,600), Alfred G. Merriweather
($88,600) and Patrick J. Rimroth ($94,600). The notes have a term of five years
and accrue interest at an annual rate of approximately 6.5%.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of September 30, 1997, and
as adjusted to reflect the sale of Common Stock offered by the Company hereby
for (i) each person who is known by the Company to own beneficially more than
5% of the Common Stock, (ii) each of the Company's directors, (iii) each Named
Executive Officers and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
OWNED
SHARES -----------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities Affiliated with Sierra Ventures(2)..... 1,952,250 20.7% 16.7%
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Entities Affiliated with Mayfield(3)............ 1,682,638 17.9% 14.4%
2800 Sand Hill Road, 2nd Floor
Menlo Park, CA 94025
Harry S. Robbins(4)............................. 1,326,181 14.1% 11.3%
Coral Partners IV, Limited Partnership.......... 1,099,960 11.7% 9.4%
60 South Sixth Street, Suite 3510
Minneapolis, MN 55402
Geoffrey R. Ball................................ 672,238 7.2% 5.8%
Petri T. Vainio(2).............................. 1,952,250 20.7% 16.7%
Michael J. Levinthal(3)......................... 1,682,638 17.9% 14.4%
Johnson & Johnson Development Corporation....... 545,058 5.8% 4.7%
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
B.J. Cassin(5).................................. 352,831 3.7% 3.0%
Terry Gould(6).................................. 286,486 3.1% 2.5%
Bob H. Katz..................................... 159,881 1.7% 1.4%
Peter Hertzmann(7).............................. 110,137 1.2% *
Patrick J. Rimroth.............................. 94,474 1.0% *
All directors and executive officers as a group
(11 persons)
(2)(3)(4)(5)(6)(7)(8).......................... 6,815,165 71.6% 57.7%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent.
(1) Except as otherwise noted in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Consists of 1,850,887 shares held by Sierra Ventures IV, 74,111 shares
held by Sierra Ventures IV International and an option to purchase up to
27,252 shares exercisable within 60 days after September 30, 1997 held by
Petri T. Vainio. Mr. Vainio, a director of the Company, is a General
Partner of the Sierra entities and disclaims beneficial ownership of the
shares held by such entities except to the extent of his proportionate
partnership interest therein.
(3) Consists of 1,567,441 shares held by Mayfield VII, 82,494 shares held by
Mayfield Associates Fund II and 32,703 shares held by Mayfield VII
Management Partners. Mr. Levinthal is a General Partner of Mayfield VII
Management Partners, which is General Partner of Mayfield VII and Mayfield
Associates Fund II, and disclaims beneficial ownership of the shares held
by such entities except to the extent of his proportionate partnership
interest.
57
<PAGE>
(4) All such shares are held in the name of the Robbins Family Trust. Mr.
Robbins holds voting and dispositive power over all such shares.
(5) Consists of (i) 230,195 shares held in the name of the Cassin Family
Trust, over which Mr. Cassin holds voting and dispositive power, (ii)
95,384 shares held by Cassin Family Partners, a California Limited
Partnership, over which Mr. Cassin holds voting and dispositive power and
(iii) an option to purchase up to 27,252 shares exercisable within 60 days
after September 30, 1997.
(6) Consists of 246,316 shares held by Brinson Venture Capital Fund III, L.P.
("Brinson L.P.") and 40,170 shares held by Brinson Trust Company as
Trustee of the Brinson MAP Venture Capital Fund III ("Brinson MAP"). Mr.
Gould, a director of the Company, is a partner in the Private Markets
Group of Brinson Partners, Inc. Brinson Partners, Inc. is the General
Partner of Brinson L.P. and the manager of Brinson MAP. Mr. Gould
disclaims beneficial ownership of the shares held by such entities.
(7) Consists of 94,474 shares held in the name of the Peter Hertzmann
Revocable Trust and 15,663 shares held by Peter Hertzmann, Inc. Mr.
Hertzmann holds voting and dispositive power over all such shares.
(8) Includes options to purchase up to 65,406 shares exercisable within 60
days after September 30, 1997.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 50,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock and the restatement of the Company's Certificate of Incorporation
after the closing of this offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated
Certificate of Incorporation which is included as an exhibit to the
Registration Statement of which this Prospectus is a part, and by the
provisions of applicable law.
COMMON STOCK
As of September 30, 1997, there were 9,396,021 shares of Common Stock
outstanding which were held of record by 90 stockholders, on a pro forma basis
to reflect the conversion of all outstanding shares of Preferred Stock which
will occur upon the closing of this offering.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and non-assessable, and the shares of Common Stock to be issued
upon the closing of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock, none of which will
be outstanding. The Board of Directors will have the authority, without
further action by the stockholders, to issue the undesignated Preferred Stock
in one or more series, to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued shares of
undesignated Preferred Stock and to fix the number of shares constituting any
series and the designation of such series.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of and the voting and other rights of the holders of Common Stock. At
present, the Company has no plans to issue any of the Preferred Stock.
WARRANTS
As of September 30, 1997, the Company had outstanding a warrant to purchase
26,889 shares of Common Stock at $1.38 per share expiring in October 2004 and
two warrants to purchase an aggregate of 6,722 shares of Common Stock at $5.50
per share expiring in October 2004. The shares underlying these warrants are
entitled to registration rights. See "--Registration Rights of Certain
Holders."
59
<PAGE>
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 6,682,083 shares of Common Stock and warrants to purchase
33,611 shares of Common Stock (the "Registrable Securities") or their
transferees are entitled to certain rights with respect to the registration of
such shares under the Securities Act. These rights are provided under the
terms of an agreement between the Company and the holders of Registrable
Securities. Subject to certain limitations in the agreement, the holders of at
least a majority of the Registrable Securities may require, on two occasions
beginning three months after the date of this Prospectus, that the Company use
its best efforts to register the Registrable Securities for public resale. If
the Company registers any of its Common Stock either for its own account or
for the account of other security holders, the holders of Registrable
Securities are entitled to include their shares of Common Stock in the
registration, subject to the ability of the underwriters to limit the number
of shares included in the offering. The holders of at least 20% of the
Registrable Securities may also require the Company to register all or a
portion of their Registrable Securities on Form S-3 when use of such form
becomes available to the Company, provided, among other limitations, that the
proposed aggregate selling price (net of any underwriters' discounts or
commissions) is at least $1.0 million. All registration expenses must be borne
by the Company and all selling expenses relating to Registrable Securities
must be borne by the holders of the securities being registered.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws to be effective upon completion of this offering may have the
effect of preventing, discouraging or delaying a change in the control of the
Company and may maintain the incumbency of the Board of Directors and
management. The authorization of undesignated Preferred Stock makes it
possible for the Board of Directors to issue Preferred Stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of the Company. In addition, the Company's Bylaws limit the
ability of stockholders of the Company to raise matters at a meeting of
stockholders without giving advance notice.
The Restated Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot
be taken by written consent in lieu of a meeting. The Restated Certificate of
Incorporation and the Bylaws provide that, except as otherwise required by
law, special meetings of the stockholders can only be called pursuant to a
resolution adopted by a majority of the Board of Directors, by the Chairman of
the Board, by the President of the Company, or by stockholders holding shares
in the aggregate entitled to cast not less than 10% of the votes at that
meeting.
The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder who was a stockholder who was a
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting and who has given to the Company's Secretary timely
written notice, in proper form, of the stockholder's intention to bring that
business before the meeting. Although the Bylaws do not give the Board the
power to approve or disapprove stockholder nominations of candidates or
proposals regarding other business to be conducted at a special or annual
meeting, the Bylaws may have the effect of precluding the conduct of certain
business at a meeting if the proper procedures are not followed or may
discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company.
60
<PAGE>
CERTAIN PROVISIONS OF DELAWARE LAW
Following the consummation of the offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation form
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three year after the date of the transaction in
which the person became an "interested stockholder," unless (i) the
transaction is approved by the Board of Directors prior to the date the
interested stockholder obtained such status, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding those shares owned by (a) persons who are
directors and also officers an (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." A "business
combination" is defined to include mergers, asset sales and other transactions
resulting in a financial benefit to a stockholder. In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within three years, did own) 15% or more of a corporation's voting stock.
The statute could prohibit or delay mergers or other takeover or change in
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could materially and adversely affect market prices prevailing from
time to time. Sales of substantial amounts of Common Stock of the Company in
the public market after the restrictions lapse could materially and adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
Upon the completion of this offering, the Company will have 11,696,021
shares of Common Stock outstanding, assuming no exercise of options after
September 30, 1997. Of these shares, all of the 2,300,000 shares sold in this
offering will be freely tradeable without restriction under the Securities
Act, unless held by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act. The remaining 9,396,021 shares of Common
Stock held by existing stockholders were issued and sold by the Company in
reliance on exemptions from the registration requirements of the Securities
Act. These shares may be sold in the public market only if registered, or
pursuant to an exemption from registration such as Rule 144, 144(k) or 701
under the Securities Act. Such restricted shares will be available for sale in
the public market as follows: (i) no shares will be eligible for immediate
sale on the date of this Prospectus and (ii) approximately 9,685,303
additional shares (including approximately 289,282 shares subject to
outstanding vested options and outstanding warrants) will be available for
sale 180 days after the date of this Prospectus upon expiration of the Lock-up
Agreements, subject to certain volume and other limitations under Rule 144.
The Company and its directors, executive officers and all of its stockholders
have entered into the Lock-up Agreements, under which they have agreed not to
offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of, or agree to dispose of, directly or indirectly, any shares of
Common Stock or options, rights or warrants to acquire shares of Common Stock,
or securities exchangeable for or convertible into shares of Common Stock,
owned by them for a period of 180 days following the day on which the
Registration Statement becomes effective, without the prior written consent of
Cowen & Company or the Company, as the case may be, except that, without such
consent, the Company may issue Common Stock and grant options pursuant to the
Stock Plans and issue Common Stock pursuant to the exercise of outstanding
warrants, and the current stockholders of the Company who are not executive
officers or directors of the Company may sell Common Stock acquired in the
offering or in the open market. The Company has agreed not to release any
stockholders from the terms of the Lock-up Agreements with the Company. Cowen
& Company may, in its sole discretion and at any time without notice, release
all or a portion of the shares subject to Lock-up Agreements.
As of September 30, 1997, 441,734 shares were subject to outstanding
options. All of these shares are subject to the Lock-up Agreements. In
addition, 6,719,694 of the shares outstanding immediately following the
completion of this offering (including up to 33,611 shares of Common Stock
subject to outstanding warrants) will be entitled to registration rights with
respect to such shares upon the release of the Lock-up Agreements. The number
of shares sold in the public market could increase if such rights are
exercised.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year (including the holding period of any prior owner, except an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of (i) one
percent of the number of shares of Common Stock then outstanding
(approximately 117,000 shares immediately after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the required filing of a Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to certain manner of sale
provisions and notice requirements and to the availability of current public
62
<PAGE>
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding
a sale, and who has beneficially owned the shares proposed to be sold for at
least two years (including the holding period of any prior owner, except an
affiliate), is entitled to sell such shares without having to comply with the
manner
of sale, public information, volume limitation or notice provisions of Rule
144. Under Rule 701 promulgated under the Securities Act, persons who purchase
shares upon exercise of options granted prior to the effective date of this
offering are entitled to sell such shares 90 days after the effective date of
this offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters named below (the "Underwriters"), through their
representatives, Cowen & Company and UBS Securities LLC (the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares at the initial public offering price
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Cowen & Company..................................................
UBS Securities LLC...............................................
---------
Total.......................................................... 2,300,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may re-
allow a concession not in excess of $ per share to certain other dealers.
The Underwriters have informed the Company that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority. After
the initial public offering of the shares, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the Effective Date, to purchase up to 345,000 additional
shares of Common Stock at the initial public offering price, less the
underwriting discounts and commissions, set forth on the cover page of this
Prospectus, to cover over-allotments, if any. If the Underwriters exercise
such over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares of Common Stock to be purchased by each of them shown in
the foregoing table bears to the total number of shares of Common Stock
offered hereby. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.
The Company and its directors, executive officers and all of its
stockholders (holding in the aggregate approximately 9,396,021 shares of
Common Stock) have agreed with the Company or Cowen & Company that they will
not, without the prior written consent of the Company or Cowen & Company, as
the case may be, offer, sell, contract to sell, grant any option to purchase
or otherwise dispose of or otherwise agree to dispose of, directly or
indirectly any shares of Common Stock,
64
<PAGE>
options, rights or warrants to acquire shares of Common Stock, or securities
exchangeable for or convertible into shares of Common Stock, owned by them for
a period of 180 days following the day on which the Registration Statement
becomes effective, except that, without such consent, the Company may issue
Common Stock and grant options pursuant to the Stock Plans and issue Common
Stock pursuant to the exercise of outstanding warrants, and the current
stockholders of the Company who are not executive officers or directors of the
Company may sell Common Stock acquired in the offering or in the open market.
The Company has agreed not to release any stockholders from the terms of Lock-
up Agreements with the Company. See "Shares Eligible for Future Sale." In
addition, the Company has agreed that it will not, without the prior written
consent of Cowen & Company, offer, sell or otherwise dispose of any shares of
Common Stock options, rights or warrants to acquire shares of Common Stock, or
securities exchangeable for or convertible into shares of Common Stock during
such 180-day period except in certain limited circumstances.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
Prior to this offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock has been determined by
negotiation among the Company and the Representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant.
The Representatives have advised the Company that certain persons
participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids which may have the effect of stabilizing or maintaining the market price
of the Common Stock at a level above that which might otherwise prevail in the
open market. A "stabilizing bid" is a bid for or the purchase of the Common
Stock on behalf of the Underwriters for the purpose of fixing or maintaining
the price of the Common Stock. A "syndicate covering transaction" is the bid or
the purchase of the Common Stock on behalf of the Underwriters to reduce a
short position incurred by the Underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the Representatives to reclaim the
selling concession otherwise accruing to an Underwriter or syndicate member in
connection with the offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Cooley Godward, LLP, Palo Alto, California is acting as
counsel for the Underwriters in connection with certain legal matters relating
to the shares of Common Stock offered hereby. As of September 30, 1997, a
certain investment partnership of Wilson Sonsini Goodrich & Rosati,
Professional Corporation beneficially owned an aggregate of 18,168 shares of
the Company's Common Stock.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996 and
for each of the two years in the period ended December 31, 1996 and the period
from May 17, 1994 (date of
65
<PAGE>
inception) to December 31, 1994 and for the cumulative period from May 17,
1994 to December 31, 1996, included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and Common Stock offered hereby, reference is made to the Registration
Statement and such exhibits and schedules filed therewith, which may be
inspected without charge at, or copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Registration Statement and such exhibits and schedules are also available on
the Commissions's Web site (http://www.sec.gov). Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
66
<PAGE>
SYMPHONIX DEVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-7
Notes to Financial Statements.............................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Symphonix Devices, Inc.
We have audited the accompanying balance sheets of Symphonix Devices, Inc.
(a company in the development stage) as of December 31, 1995 and 1996, and the
related statements of operations, stockholders' equity and cash flows for the
years then ended, and the period from May 17, 1994 (date of inception) to
December 31, 1994 and for the cumulative period from May 17, 1994 (date of
inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Symphonix Devices, Inc. (a
company in the development stage) as of December 31, 1995 and 1996, and the
results of its operations and its cash flows for the years then ended, and for
the period from May 17, 1994 (date of inception) to December 31, 1994, and for
the cumulative period from May 17, 1994 (date of inception) to December 31,
1996, in conformity with generally accepted accounting principles.
San Jose, California
January 17, 1997, except for Note 11
as to which the date is November 7, 1997
- -------------------------------------------------------------------------------
To the Board of Directors and Stockholders
Symphonix Devices, Inc.
The financial statements included herein have been adjusted to give effect
to the one-for-1,376 reverse stock split of the Company's outstanding Common
Stock and the reincorporation of the Company in Delaware as described more
fully in Note 11 to the financial statements. The above report is in the form
that will be signed by Coopers & Lybrand L.L.P. upon the effectiveness of such
split and reincorporation assuming that, from November 13, 1997 to the
effective date of such split and reincorporation, no other events shall have
occurred that would affect the accompanying financial statements or notes
thereto.
COOPERS & LYBRAND L.L.P.
San Jose, California
November 13, 1997
F-2
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, SEPTEMBER 30,
------------------------- SEPTEMBER 30, 1997
1995 1996 1997 (SEE NOTE 10)
----------- ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... $ 2,566,199 $ 6,539,156 $ 4,980,136
Short-term
investments.......... 4,237,029 4,570,723 6,547,994
Prepaid expenses and
other current assets. 54,097 76,694 314,014
----------- ------------ ------------
Total current
assets............. 6,857,325 11,186,573 11,842,144
Property and equipment,
net.................... 769,205 757,111 694,290
Other assets............ 58,684 7,720 20,922
----------- ------------ ------------
Total assets........ $ 7,685,214 $ 11,951,404 $ 12,557,356
=========== ============ ============
LIABILITIES
-----------
Current liabilities:
Accounts payable...... $ 68,796 $ 42,487 $ 204,278
Accrued compensation.. 424,572 675,429 603,385
Other accrued
liabilities.......... 15,189 115,002 371,520
Current portion of
capital lease obliga-
tion................. 160,506 284,644 317,697
----------- ------------ ------------
Total current
liabilities........ 669,063 1,117,562 1,496,880
Capital lease
obligation, less
current portion........ 422,899 595,572 405,886
----------- ------------ ------------
Total liabilities... 1,091,962 1,713,134 1,902,766
----------- ------------ ------------
Commitments (Note 6)
STOCKHOLDERS' EQUITY
--------------------
Convertible preferred
stock, $.001 par value:
Authorized: 7,000,000
shares in 1995,
9,000,000 shares in
1996 and 9,750,000
shares at September
30, 1997.............
Issued and
outstanding:
6,841,500 shares in
1995, 8,444,631
shares in 1996,
9,194,631 shares at
September 30, 1997,
no shares pro forma
(Liquidation value:
$20,721,553 at
December 31, 1996)... 6,842 8,445 9,195
Common stock, $.001 par
value:
Authorized: 20,000,000
shares in 1995, 1996
and September 30,
1997.................
Issued and
outstanding:
1,980,142 shares in
1995, 2,384,329
shares in 1996,
2,713,938 shares at
September 30, 1997
and 9,396,021 at
September 30, 1997
pro forma............ 1,980 2,384 2,714 $ 9,396
Notes receivable from
stockholders........... (14,800) (139,200) (371,199) (371,199)
Deferred compensation... (300,813) (300,813)
Unrealized gains on
short-term investments. 1,349 1,349
Additional paid-in
capital................ 11,003,265 20,879,232 27,450,911 27,453,424
Deficit accumulated
during the development
stage.................. (4,404,035) (10,512,591) (16,137,567) (16,137,567)
----------- ------------ ------------ ------------
Total stockholders'
equity............. 6,593,252 10,238,270 10,654,590 $ 10,654,590
----------- ------------ ------------ ============
Total liabilities
and stockholders'
equity........... $ 7,685,214 $ 11,951,404 $ 12,557,356
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SYMPHONIX DEVICES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE CUMULATIVE
MAY 17, 1994 PERIOD FROM PERIOD FROM
(DATE OF MAY 17, 1994 MAY 17, 1994
INCEPTION) (DATE OF NINE MONTHS ENDED (DATE OF
TO YEAR ENDED DECEMBER 31, INCEPTION) SEPTEMBER 30, INCEPTION)
DECEMBER 31, ------------------------ TO DECEMBER ------------------------ TO SEPTEMBER
1994 1995 1996 31, 1996 1996 1997 30, 1997
------------ ----------- ----------- ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Costs and expenses:
Research and
development.......... $ 706,607 $ 3,306,994 $ 5,399,056 $ 9,412,657 $ 3,801,024 $ 4,643,249 $ 14,055,906
General and
administrative....... 140,961 624,685 1,047,076 1,812,722 829,819 1,330,321 3,143,043
--------- ----------- ----------- ------------ ----------- ----------- ------------
Operating loss...... (847,568) (3,931,679) (6,446,132) (11,225,379) (4,630,843) (5,973,570) (17,198,949)
Interest income......... 95,344 340,818 423,689 859,851 288,231 428,844 1,288,695
Interest expense........ (60,950) (86,113) (147,063) (55,302) (80,250) (227,313)
--------- ----------- ----------- ------------ ----------- ----------- ------------
Net loss............ $(752,224) $(3,651,811) $(6,108,556) $(10,512,591) $(4,397,914) $(5,624,976) $(16,137,567)
========= =========== =========== ============ =========== =========== ============
Net loss per share...... $ (0.29) $ (1.30) $ (2.01) $ (3.66) $ (1.49) $ (1.66) $ (5.38)
========= =========== =========== ============ =========== =========== ============
Shares used in computing
net loss per share..... 2,622,167 2,812,992 3,041,481 2,873,253 2,955,684 3,397,726 2,996,950
========= =========== =========== ============ =========== =========== ============
Pro forma net loss per
share.................. $ (0.12) $ (0.50) $ (0.71) $ (1.37) $ (0.53) $ (0.59) $ (1.98)
========= =========== =========== ============ =========== =========== ============
Shares used in computing
pro forma net loss per
share.................. 8,546,048 9,532,502
=========== ===========
</TABLE>
F-4
<PAGE>
SYMPHONIX DEVICES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MAY 17, 1994
(DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
DEFICIT
NOTES UNREALIZED ACCUMULATED
PREFERRED STOCK COMMON STOCK RECEIVABLE GAINS (LOSSES) ADDITIONAL DURING THE TOTAL
---------------- ---------------- FROM DEFERRED ON SHORT-TERM PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION INVESTMENTS CAPITAL STAGE EQUITY
--------- ------ --------- ------ ------------ ------------ -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock
issued in July
1994 to founder
at $.03 per
share in
exchange for
promissory
note........... 1,075,581 $1,076 $(29,600) $28,524 $ --
Common stock
issued in July
1994 to founder
at $.03 per
share in
exchange for
services and
cash........... 679,501 679 18,021 18,700
Common stock
issued in
December 1994
in connection
with stock
option
exercises...... 145,348 145 19,855 20,000
Partial
repayment on
promissory note
from
stockholder.... 14,800 14,800
Series A
preferred stock
issued in July
1994 to
investors at
$1.00 per
share, net of
issuance costs
of $27,089..... 5,270,000 $5,270 5,237,641 5,242,911
Series A
preferred stock
issued in July
1994 at $1.00
per share in
exchange for
services....... 24,000 24 23,976 24,000
Net loss........ $ (752,224) (752,224)
--------- ------ --------- ------ -------- --- --- ---------- ---------- ----------
Balances,
December 31,
1994........... 5,294,000 5,294 1,900,430 1,900 (14,800) 5,328,017 (752,224) 4,568,187
Series A
preferred stock
issued in
January 1995 at
$1.00 per share
in exchange for
services....... 30,000 30 29,970 30,000
Series A
preferred stock
issued in
January 1995 to
investors at
$1.00 per
share, net of
issuance costs
of $470........ 139,000 139 138,391 138,530
Series B
preferred stock
issued in June
1995 to
investors at
$4.00 per
share, net of
issuance costs
of $16,622..... 1,378,500 1,379 5,495,999 5,497,378
Common stock
issued in
January and
December 1995
in connection
with stock
option
exercises...... 79,712 80 10,888 10,968
Net loss........ (3,651,811) (3,651,811)
--------- ------ --------- ------ -------- --- --- ---------- ---------- ----------
Balances,
December 31,
1995........... 6,841,500 6,842 1,980,142 1,980 (14,800) 11,003,265 (4,404,035) 6,593,252
</TABLE>
F-5
<PAGE>
SYMPHONIX DEVICES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY, CONTINUED
FOR THE PERIOD FROM MAY 17, 1994
(DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
DEFICIT
NOTES UNREALIZED ACCUMULATED
PREFERRED STOCK COMMON STOCK RECEIVABLE GAINS ON ADDITIONAL DURING THE TOTAL
---------------- ---------------- FROM DEFERRED SHORT-TERM PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION INVESTMENTS CAPITAL STAGE EQUITY
--------- ------ --------- ------ ------------ ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1995............. 6,841,500 $6,842 1,980,142 $1,980 $ (14,800) $11,003,265 $ (4,404,035) $ 6,593,252
Series C
preferred stock
issued in June
1996 to
investors at
$5.35 per share,
net of issuance
costs of
$55,864......... 1,162,451 1,162 6,162,087 6,163,249
Series D
preferred stock
issued in
December 1996 to
investors at
$8.00 per share,
net of issuance
costs $5,865.... 440,680 441 3,519,134 3,519,575
Common stock
issued in
connection with
stock option
exercise in
exchange for
$70,750 in cash
and $124,400 of
notes receivable
from
stockholders,
net of
repurchase of
72,674 shares... 404,187 404 (124,400) 194,746 70,750
Net loss........ (6,108,556) (6,108,556)
--------- ------ --------- ------ --------- ----------- ------------ -----------
Balances,
December 31,
1996............. 8,444,631 8,445 2,384,329 2,384 (139,200) 20,879,232 (10,512,591) 10,238,270
Series D
preferred stock
issued in June
1997 to
investors at
$8.00 per share,
net of issuance
costs $10,100... 750,000 750 5,989,150 5,989,900
Common stock
issued in
connection with
stock option
exercise in
exchange for
$10,482 in cash
and $231,999 of
notes receivable
from
stockholders.... 329,609 330 (231,999) 260,179 28,510
Deferred
compensation
related to grant
of stock
options......... $(322,350) 322,350
Amortization of
deferred
compensation.... 21,537 21,537
Unrealized gains
on short-term
investments..... $1,349 1,349
Net loss........ (5,624,976) (5,624,976)
--------- ------ --------- ------ --------- --------- ------ ----------- ------------ -----------
Balances,
September 30,
1997 (unaudited). 9,194,631 $9,195 2,713,938 $2,714 $(371,199) $(300,813) $1,349 $27,450,911 $(16,137,567) $10,654,590
========= ====== ========= ====== ========= ========= ====== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SYMPHONIX DEVICES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM PERIOD FROM
MAY 17, MAY 17, CUMULATIVE
1994 (DATE 1994 PERIOD FROM
OF (DATE OF MAY 17,
INCEPTION) YEAR ENDED INCEPTION) NINE MONTHS ENDED 1994 (DATE OF
TO DECEMBER 31, TO SEPTEMBER 30, INCEPTION) TO
DECEMBER 31, ------------------------- DECEMBER 31, ------------------------ SEPTEMBER 30,
1994 1995 1996 1996 1996 1997 1997
------------ ------------ ----------- ------------ ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $ (752,224) $ (3,651,811) $(6,108,556) $(10,512,591) $(4,397,914) $(5,624,976) $(16,137,567)
Adjustment to
reconcile net loss to
net cash used in
operating activities:
Amortization of
deferred
compensation........ 21,537 21,537
Depreciation and
amortization........ 17,523 198,891 420,814 637,228 280,777 363,731 1,000,959
Preferred and common
shares issued for
services............ 62,600 30,000 92,600 92,600
Changes in operating
assets and
liabilities:
Prepaid expenses
and other current
assets............ (56,473) 2,376 (22,597) (76,694) 9,506 (237,320) (314,014)
Accounts payable.. 24,483 44,313 (26,309) 42,487 45,883 161,791 204,278
Accrued
compensation...... 44,137 380,435 250,857 675,429 22,409 (72,044) 603,385
Other accrued
liabilities....... 141,338 (126,149) 99,813 115,002 94,768 256,518 371,520
------------ ------------ ----------- ------------ ----------- ----------- ------------
Net cash used in
operating
activities....... (518,616) (3,121,945) (5,385,978) (9,026,539) (3,944,571) (5,130,763) (14,157,302)
------------ ------------ ----------- ------------ ----------- ----------- ------------
Cash flows from
investing activities:
Purchases of short-
term investments...... (20,104,675) (12,784,507) (8,223,266) (41,112,448) (6,638,150) (8,001,895) (49,114,343)
Sales of short-term
investments........... 15,840,978 12,811,175 7,889,572 36,541,725 4,700,348 6,025,973 42,567,698
Purchases of property
and equipment......... (294,492) (691,127) (408,720) (1,394,339) (394,233) (300,910) (1,695,249)
Change in other
assets................ (24,643) (34,041) 50,964 (7,720) 43,436 (13,202) (20,922)
------------ ------------ ----------- ------------ ----------- ----------- ------------
Net cash used in
investing
activities....... (4,582,832) (698,500) (691,450) (5,972,782) (2,288,599) (2,290,034) (8,262,816)
------------ ------------ ----------- ------------ ----------- ----------- ------------
Cash flows from
financing activities:
Proceeds from capital
leases................ 134,968 552,938 518,254 1,206,160 340,196 63,021 1,269,181
Payments on capital
lease obligations..... (2,970) (101,531) (221,443) (325,944) (11,320) (219,654) (545,598)
Payments received on
notes receivable from
stockholders.......... 14,800 14,800 14,800
Proceeds from issuance
of preferred stock,
net of issuance costs. 5,242,911 5,635,908 9,682,824 20,561,643 6,164,759 5,989,900 26,551,543
Proceeds from issuance
of common stock....... 100 10,968 70,750 81,818 40,406 28,510 110,328
------------ ------------ ----------- ------------ ----------- ----------- ------------
Net cash provided
by financing
activities....... 5,389,809 6,098,283 10,050,385 21,538,477 6,534,041 5,861,777 27,400,254
------------ ------------ ----------- ------------ ----------- ----------- ------------
Net increase (decrease)
in cash and cash
equivalents............ 288,361 2,277,838 3,972,957 6,539,156 300,871 (1,559,020) 4,980,136
Cash and cash
equivalents, beginning
of period.............. 288,361 2,566,199 2,566,199 6,539,156
------------ ------------ ----------- ------------ ----------- ----------- ------------
Cash and cash
equivalents, end of
period................. $ 288,361 $ 2,566,199 $ 6,539,156 $ 6,539,156 $ 2,867,070 $ 4,980,136 $ 4,980,136
============ ============ =========== ============ =========== =========== ============
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for interest... $ -- $ 60,950 $ 86,113 $ 147,063 $ 55,302 $ 80,250 $ 227,313
============ ============ =========== ============ =========== =========== ============
Common stock issued in
exchange for
promissory note....... $ 29,600 $ -- $ 124,400 $ 154,000 $ -- $ 231,999 $ 385,999
============ ============ =========== ============ =========== =========== ============
Preferred stock issued
in exchange for
services.............. $ 24,000 $ 30,000 $ -- $ 54,000 $ -- $ -- $ 54,000
============ ============ =========== ============ =========== =========== ============
Common stock issued in
exchange for services. $ 38,600 $ -- $ -- $ 38,600 $ -- $ -- $ 38,600
============ ============ =========== ============ =========== =========== ============
Unrealized gains
(losses) on short-term
investments........... $ -- $ -- $ -- $ -- $ -- $ 1,349 $ 1,349
============ ============ =========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY:
Symphonix Devices, Inc. (a company in the development stage, referred to
hereafter as the "Company") was incorporated on May 17, 1994 to develop and
manufacture implantable and semi-implantable hearing devices. Since its
inception, the Company has been primarily engaged in developing its initial
product technology, raising capital and recruiting personnel.
In the course of its development activities, the Company has sustained
losses and expects such losses to continue through at least 1999. The Company
plans to continue its operations with proceeds from the sale of capital stock,
such as the initial public offering contemplated by the Prospectus, of which
these financial statements are a part, and with revenues from product sales.
If the offering contemplated herein is not consummated, the Company will have
to seek other sources of capital or adjust its operating plans.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Short-Term Investments:
All short-term investments are classified as available-for-sale and
therefore are carried at fair market value. Unrealized gains and losses on
such securities, when material, are reported as a separate component of
stockholders' equity. Realized gains and losses on sales of all such
securities are reported in earnings and computed using the specific
identification cost method.
Property and Equipment:
Property and equipment are stated at cost and are depreciated on a straight-
line basis over the shorter of the estimated useful lives of three to five
years or the length of the lease for leasehold improvements and assets
acquired under capital leases.
Research and Development:
Research and development costs are charged to operations as incurred.
Concentration of Credit Risk and Other Risks and Uncertainties:
The Company's cash and cash equivalents are maintained at two financial
institutions.
The Company's products require approvals from the Food and Drug
Administration and international regulatory agencies prior to commercialized
sales. There can be no assurance that the Company's products will receive any
of these required approvals. If the Company was denied such approval or such
approvals were delayed, it would have a materially adverse impact on the
Company.
Income Taxes:
The Company accounts for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases
F-8
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Computation of Historical Net Loss Per Share:
Net loss per share, on an historical basis, is computed using the weighted
average number of shares of Common Stock outstanding. Common equivalent shares
from stock options and Preferred Stock are excluded from the computation as
their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin No. 83, Common and Common
equivalent shares issued at prices below the anticipated public offering price
during the 12 months immediately preceding the initial filing date have been
included in the calculation as if they were outstanding for all periods
presented (using the treasury stock method and the anticipated initial public
offering price).
Interim Financial Information (unaudited):
The financial statements and related notes as of September 30, 1997 and for
the nine months ended September 30, 1996 and 1997 and for the cumulative
period from May 17, 1994 (date of inception) to September 30, 1997 have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments consisting of only recurring
adjustments necessary for a fair presentation of the financial position and
results of operations in accordance with generally accepted accounting
principles. Results for the interim period are not necessarily indicative of
results to be expected for the full fiscal year.
Recent Accounting Pronouncements:
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS
No. 128 specifies the computation and disclosure requirements for earnings per
share. SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15 and
is effective for the Company's 1997 fiscal year. Early application is not
permitted. SFAS No. 128 will not have a material effect on the Company's net
loss per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity
of a business enterprise during a period, resulting from transactions and
other events and circumstances from nonowner sources. The impact of adopting
SFAS No. 130, which is effective for the Company in 1998, has not been
determined.
F-9
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-
producing segments of the entity for which such information is available and
is utilized by the chief operating decision maker. Specific information to be
reported for individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be provided.
SFAS No. 131 is effective for the Company in 1998. The Company operates in one
business segment; namely, the design, manufacture, and sale of implantable and
semi-implantable hearing management devices.
3. SHORT-TERM INVESTMENTS:
Marketable securities are deemed by management to be available-for-sale and
at December 31, 1995 and 1996 comprise:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------------ ------------------------------
ACCRUED ESTIMATED ACCRUED ESTIMATED
COST BASIS INTEREST FAIR VALUE COST BASIS INTEREST FAIR VALUE
---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Municipal bonds......... $ -- $ -- $ -- $ 499,200 $ 8,229 $ 507,429
Commercial paper........ 998,274 -- 998,274 1,000,512 33,753 1,034,265
Medium term notes....... 2,199,768 28,794 2,228,562 1,999,496 27,324 2,026,820
U.S. Government agen-
cies................... 999,357 10,836 1,010,193 1,000,000 2,209 1,002,209
---------- ------- ---------- ---------- ------- ----------
$4,197,399 $39,630 $4,237,029 $4,499,208 $71,515 $4,570,723
========== ======= ========== ========== ======= ==========
</TABLE>
At December 31, 1995 and 1996, scheduled maturities for all of the
available-for-sale securities were less than one year. There were no realized
gains or losses recognized in 1995 and 1996.
4. PROPERTY AND EQUIPMENT:
Property and equipment include amounts for assets acquired under capital
leases of $687,906 and $1,206,160, with related accumulated amortization of
$159,064 and $510,734 at December 31, 1995 and 1996, respectively. Property
and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Furniture and fixtures................................ $ 128,274 $ 123,598
Machinery and equipment............................... 665,158 984,285
Leasehold improvements................................ 192,187 223,426
Software.............................................. -- 63,030
--------- ----------
985,619 1,394,339
Less accumulated depreciation and amortization........ (216,414) (637,228)
--------- ----------
$ 769,205 $ 757,111
========= ==========
</TABLE>
F-10
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. CAPITAL LEASE OBLIGATIONS:
Capital Leases:
The Company has capital lease obligations under seven lease lines drawn from
a $1,250,000 equipment lease line of credit that expires between 1998 and
2001. Under the terms of the lease line of credit, the Company is responsible
for property taxes and insurance. At December 31, 1996, the Company had
approximately $64,812 available under the lease line of credit.
At December 31, 1996, the future minimum payments under capital leases are
as follows:
<TABLE>
<S> <C>
1997............................................................. $ 382,699
1998............................................................. 370,265
1999............................................................. 236,400
2000............................................................. 77,707
2001............................................................. 528
----------
Minimum lease payments........................................... 1,067,599
Less amount representing interest................................ 187,383
----------
Principal amount of minimum lease payments....................... 880,216
Less current portion............................................. 284,644
----------
$ 595,572
==========
</TABLE>
6. COMMITMENTS:
Operating Lease:
The Company rents its facilities under an operating lease which expires in
August 1998. Under the terms of the lease, the Company is responsible for
taxes, insurance and maintenance expenses.
Subsequent to year end, the Company exercised an option to extend the lease
on its existing facilities and entered into a lease on a new facility (See
Note 11).
Rent expense for the periods ended December 31, 1994, 1995, 1996 and the
period from May 17, 1994 (date of inception) to September 30, 1997 was
$45,532, $117,243, $118,344 and $384,797 (unaudited), respectively.
F-11
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCKHOLDERS' EQUITY:
Convertible Preferred Stock:
At December 31, 1996 and September 30, 1997, the amounts, terms and
liquidation value of Series A, Series B, Series C and Series D convertible
preferred stock were:
<TABLE>
<CAPTION>
SHARES OF
COMMON
STOCK
SHARES RESERVED PREFERENTIAL
SHARES ISSUED AND FOR LIQUIDATION
SERIES AMOUNT AUTHORIZED OUTSTANDING CONVERSION VALUE
- ------ ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
A....................... $ 5,435,441 5,500,000 5,463,000 5,500,000 $ 5,463,000
B....................... 5,497,378 1,500,000 1,378,500 1,500,000 5,514,000
C....................... 6,163,249 1,500,000 1,162,451 1,500,000 6,219,113
D....................... 3,519,575 500,000 440,680 500,000 3,525,440
----------- --------- --------- --------- -----------
Balances, December 31,
1996................... 20,615,643 9,000,000 8,444,631 9,000,000 20,721,553
D....................... 5,989,900 750,000 750,000 750,000 6,000,000
----------- --------- --------- --------- -----------
Balances, September 30,
1997 (unaudited)....... $26,605,543 9,750,000 9,194,631 9,750,000 $26,721,553
=========== ========= ========= ========= ===========
</TABLE>
Under the Company's restated Articles of Incorporation, the Company's
preferred stock is issuable in series and the Company's Board of Directors is
authorized to determine the rights, preferences and terms of each series.
Dividends:
The holders of Series A, Series B, Series C and Series D preferred stock are
entitled to receive dividends, out of any assets legally available, prior and
in preference to any declaration or payment of any dividend on the common
stock of the Company, at the rate of $0.10, $0.40, $0.535 and $0.80 per share
per year, respectively, or if greater (as determined on a per year basis and
on an as converted basis for the preferred stock), an amount equal to that
paid on any other outstanding shares of the Company. Such dividends are
payable when, as and if declared by the Board of Directors, and are not
cumulative. No dividends have been declared to date.
Liquidation:
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series A, Series B, Series C
and Series D preferred stock are entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the Company to
the holders of common stock, an amount per share equal to the sum of $1.00,
$4.00, $5.35 and $8.00 respectively, for each outstanding Series A, Series B,
Series C and Series D preferred stock (as adjusted for any stock dividends,
combinations or splits) plus any declared but unpaid dividends on such shares.
If upon the occurrence of such event, the assets and funds distributed among
the holders of the preferred stock are insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then, the entire
assets and funds of the Company legally available for distribution are to be
distributed first ratably among the holders of the Series C and Series D
preferred stock in proportion to the full preferential amount each such holder
is otherwise entitled to receive. Then, such assets and funds shall be
distributed ratably among the holders of
F-12
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Series A and Series B preferred stock in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
After payment has been made to the holders of Series A, Series B, Series C
and Series D preferred stock, any remaining assets and funds are to be
distributed among the holders of common stock pro rata based on the number of
common stock held by each stockholder.
Mergers:
A merger, reorganization, or sale of all or substantially all of the assets
of the Company, in which the existing stockholders of the Company prior to the
transaction possess less than 50% of the voting power of the surviving entity
(or its parent) immediately after the transaction, shall be deemed to be a
liquidation, dissolution or winding up of the Company.
Voting:
Each share of preferred stock is entitled to voting rights equal to the
number of common shares into which each preferred share could be converted
into at the record date for a vote or consent of stockholders, except as
otherwise required by law, and has voting rights and powers equal to the
voting rights and powers of the common stock.
Conversion and Registration:
Each share of preferred stock, at the option of the holder, is convertible
into the number of fully paid and nonassessable shares of common stock which
results from dividing the conversion price per share in effect for the
preferred stock at the time of conversion into the per share conversion value
of such stock. The initial conversion price per share and initial per share
conversion value of Series A, Series B, Series C and Series D preferred stock
is $1.38, $5.50, $7.36 and $11.01, respectively. The initial conversion price
of Series A, Series B, Series C and Series D preferred stock is subject to
adjustment from time to time, as described in the Company's Restated Articles
of Incorporation.
In the event of a conversion of the Series C Preferred Stock in connection
with this initial public offering at a price lower than $11.70 per share of
Common Stock, then the Conversion Price for the Series C Preferred Stock shall
be reduced to $6.90. In the event of a conversion of the Series D Preferred
Stock in connection with this initial public offering at a price lower than
$11.00 per share of Common Stock, then the Conversion Price for the Series D
Preferred Stock shall be reduced to the initial public offering price.
Conversion is automatic at the then effective conversion rate immediately
upon the closing of a firm commitment underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933 covering
the offer and sale of common stock in which the public offering price equals
or exceeds $15.14 per share (adjusted to reflect subsequent share dividends,
share splits or recapitalization) and the aggregate proceeds raised equals or
exceeds $17,000,000. The Company has reserved 9,000,000 shares of common stock
upon conversion of the preferred stock (9,750,000 shares as of September 30,
1997).
Negotiation Rights:
In connection with the Series D Preferred Stock issuances, the Company
granted one of the investors first negotiation rights, whereby the Company
agreed not to (i) transfer, dispose of, sell,
F-13
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
lease or license to any third party certain defined intellectual property
rights that are or may be used or may have application in the field of
implantable or semi-implantable hearing aid devices or (ii) transfer or
dispose of all or substantially all of the assets or voting securities of the
Company to any third party until it provides that investor the opportunity to
consummate a similar transaction. The first negotiation rights survive from a
period of 18 months from the date of the Series D Preferred Stock agreement or
12 months from the effective date of the Company's initial public offering,
whichever first occurs. However, the first negotiation rights will terminate
if the investor, either directly or through an affiliate, does not participate
as an investor in the Company's initial public offering.
Warrants:
The Company has issued warrants in connection with obtaining its equipment
lease line of credit.
The Company issued to the leasing company warrants to purchase up to 37,000
of the Company's Series A preferred stock at $1.00 per share and up to 9,250
of the Company's Series B preferred stock at $4.00 per share. The warrants to
purchase the Company's Series A and Series B preferred stock are exercisable
until October 2004.
Common Stock:
The Company has 2,384,329 shares of its common stock outstanding at December
31, 1996. Such shares of common stock were issued to the founders and other
key persons under purchase agreements. Under these agreements, any unvested
shares are subject to repurchase by the Company for a period of 90 days after
termination of services to the Company. Shares generally vest 1/48 per month
at the end of each full month. At December 31, 1996, approximately 779,034
shares of common stock are subject to repurchase.
Notes Receivable:
In 1994 and 1996, the Company issued 1,075,581 and 207,122 shares,
respectively, of its common stock to one of the founders and other key persons
in exchange for promissory notes of $29,600 and $124,400, respectively. The
1994 promissory notes bear annual interest of 5.36%, payable in the year 1999.
A principal payment of $14,800 was made in 1994. The 1996 promissory notes
bear annual interest ranging from 6.36% to 6.84%, payable in the year 2001.
The related shares are pledged as collateral for the notes.
1994 Stock Option Plan:
The 1994 Stock Option Plan (the "1994 Plan") provides for grants of
incentive stock options to employees (including officers and employee
directors) and nonstatutory stock options to employees (including officers and
employee directors) and consultants of the Company. The 1994 Plan is
administered by a committee appointed by the Board of Directors which
identifies optionees and determines the terms of options granted, including
the exercise price, number of shares subject to the option and the
exercisability thereof.
The terms of options granted under the 1994 Plan generally may not exceed
ten years. The term of all incentive stock options granted to an optionee who,
at the time of grant, owns stock
F-14
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
representing more than 10% of the voting power of all classes of stock of the
Company or a parent or subsidiary of the Company (a "Ten Percent
Stockholder"), may not exceed five years, however. Generally, options granted
under the 1994 Plan vest and become exercisable starting one year after the
date of grant, with 25% of the shares subject to the option becoming
exercisable at that time and an additional 1/48th of such shares becoming
exercisable each month thereafter. Holders of options granted under the 1994
Plan may exercise their unvested options prior to complete vesting of shares,
subject to such holder's entering a restricted stock purchase agreement
granting the Company an option to repurchase, in the event of a termination of
the optionee's employment or consulting relationship, any unvested shares at a
price per share equal to the original exercise price per share for the option.
The exercise price of incentive stock options granted under the 1994 Plan must
be at least equal to the fair market value of the shares on the date of grant.
The exercise price of nonstatutory stock options granted under the 1994 Plan
is determined by the Board of Directors. The exercise price of any incentive
stock option granted to a Ten Percent Stockholder must equal at least 110% of
the fair market value of the common stock on the date of grant.
Activity under the 1994 Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------
SHARES NUMBER
AVAILABLE OF EXERCISE AGGREGATE
FOR GRANT SHARES PRICE PRICE
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Options reserved for 1994 Plan at
inception........................... 970,203
Options granted.................... (439,676) 439,676 $0.14 $ 61,555
Options exercised.................. (145,348) $0.14 (20,349)
-------- -------- --------
Balance, December 31, 1994........... 530,527 294,328 $0.14 41,206
Options granted.................... (486,903) 486,903 $0.14-$0.55 144,890
Options exercised.................. (79,712) $0.14 (11,160)
-------- -------- --------
Balance, December 31, 1995........... 43,624 701,519 $0.14-$0.55 174,936
Additional options reserved........ 654,070
Options granted.................... (571,616) 571,616 $0.55-$0.83 419,938
Options exercised.................. (476,861) $0.14-$0.83 (195,796)
Options canceled................... 211,592 (211,592) $0.14-$0.55 (59,717)
Repurchase of common shares........ 72,674
-------- -------- --------
Balance, December 31, 1996........... 410,344 584,682 $0.14-$0.83 339,361
Options granted.................... (192,570) 192,570 $1.10 211,827
Options exercised.................. (329,609) $0.14-$1.10 (260,982)
Options canceled................... 5,909 (5,909) $0.14-$1.10 (2,116)
-------- -------- --------
Balance, September 30, 1997 (unau-
dited).............................. 223,683 441,734 $0.14-$1.10 $288,090
======== ======== ========
</TABLE>
For the years ended December 31, 1995 and 1996, the weighted average fair
value of options granted was $0.30 and $0.70 per share, respectively.
The difference between the exercise price and the deemed fair market value
of the Company's common stock at the date of issue of certain stock options,
totaling $322,350, has been recorded as deferred compensation as a component
of stockholders' equity. Of this amount, $21,537 has been recognized as an
expense through September 30, 1997. The remaining $300,813 will be recognized
as an expense as the shares and options vest over a period of up to four
years.
F-15
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The options outstanding and currently exercisable by exercise price at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
- ------------------------------------------------------- --------------------------
WEIGHTED AVERAGE WEIGHTED
EXERCISE NUMBER REMAINING WEIGHTED AVERAGE NUMBER AVERAGE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------- ----------- ---------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.14 159,819 8.00 $0.14 63,009 $0.14
$0.55 68,354 8.95 $0.55 11,010 $0.55
$0.73 89,928 9.59 $0.73 66,009 $0.73
$0.80 250,600 4.59 $0.80 125,300 $0.80
$0.83 15,981 9.74 $0.83 1,661 $0.83
------- -------
584,682 6.94 $0.58 266,989 $0.62
======= =======
</TABLE>
As of December 31, 1995, options to purchase 114,752 shares were exercisable
at an average weighted exercise price of $0.14 per share.
The Company has elected to continue to follow the provisions of APB No. 25,
"Accounting for Stock Issued to Employees," for financial reporting purposes
and has adopted the disclosure-only provisions of SFAS No. 123 ("SFAS No.
123"). Had compensation cost for the Company's stock option plans been
determined based on the fair market value at the grant date for awards in 1995
and 1996 consistent with the provisions of SFAS No. 123, the Company's net
loss for 1995 and 1996 would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Net loss--as reported................................. $3,651,811 $6,108,556
========== ==========
Net loss--pro forma................................... $3,656,311 $6,126,556
========== ==========
Net loss per share--as reported....................... $ 1.30 $ 2.01
========== ==========
Net loss per share--pro forma......................... $ 1.30 $ 2.01
========== ==========
</TABLE>
The above pro forma disclosures are not necessarily representative of the
effects on reported net income or loss for future years.
In accordance with the provisions of SFAS No. 123, the fair value of each
option is estimated using the following assumptions used for grants during
1995 and 1996; dividend yield of 0%, volatility of 0%, weighted risk-free
interest rate of 5.84% at the date of grant and an expected term of 5.4 years.
F-16
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1996 and 1995 are
presented below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Depreciation..................................... $ 162,469 $ 103,164
Capitalized start-up costs....................... -- 735,047
Net operating loss carryforward.................. 1,499,827 3,293,903
Research and development credits................. 108,453 445,933
Other............................................ 116,470 35,991
Valuation allowance.............................. (1,887,219) (4,614,038)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Due to the uncertainties surrounding the realization of deferred tax assets
through future taxable income, the Company has provided a full valuation
allowance and, therefore, no benefit has been recognized for the net operating
loss and other deferred tax assets.
At December 31, 1996, the Company has approximately $8,205,285 for federal
and $8,212,855 for state net operating loss carryforwards which expire in 2011
and 2001, respectively, if not utilized.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. In the event the Company has had a change in
ownership, utilization of the carryforwards could be restricted.
9. EMPLOYEE BENEFIT PLAN:
During 1996, the Company established a Retirement Savings and Investment
Plan (the "Plan") under which employees may defer a portion of their salary up
to the maximum allowed under IRS rules. The Company has the discretion to make
contributions to the Plan. As of December 31, 1996, no Company contributions
have been made to the Plan.
10. UNAUDITED PRO FORMA INFORMATION:
Upon the closing of the Company's initial public offering, all outstanding
preferred stock will be converted automatically into common stock. The pro
forma effect of the conversion has been presented as a separate column in the
Company's balance sheet, assuming the conversion had occurred as of September
30, 1997.
Pro forma net loss per share has been presented to depict what the net loss
per share would have been had the Common Stock issuable upon the conversion of
the outstanding Preferred Stock been outstanding during such periods.
11. SUBSEQUENT EVENTS:
In February 1997, the stockholders approved the assignment of technology
relating to and including two patent applications to VibRx in consideration
for repayment of approximately $10,000 of related patent expenses and issuance
of common stock equal to 20% of all VibRx's outstanding shares at such time as
VibRx completes an initial financing with aggregate proceeds of at least
$500,000. VibRx was formed and is controlled by the Company's President and
Chief Executive Officer.
F-17
<PAGE>
SYMPHONIX DEVICES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In April 1997, the Company exercised an option to extend the lease on its
existing facilities through August 1998 and in October 1997, entered into a
lease on a new facility for a five year period commending in January 1998 and
ending in December 2002.
Future minimum lease payments under these operating leases as of September
30, 1997 are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 70,390
1998.......................................................... 755,468
1999.......................................................... 655,950
2000.......................................................... 664,663
2001.......................................................... 634,704
Thereafter.................................................... 666,432
----------
$3,447,607
==========
</TABLE>
In October 1997, the Company granted 166,061 options to employees below the
deemed fair market value. The difference between the exercise price and the
deemed fair market value of the options, totaling approximately $1.0 million,
will be recorded as deferred compensation and will be recognized as an expense
as the options vest over a period of up to four years.
In November 1997, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell its Common Stock in an initial
public offering.
The Board of Directors also has authorized the reincorporation of the
Company in Delaware prior to the effectiveness of this offering and the
associated exchange of shares of each class and series of shares of the
predecessor company for one share of identical class and series of stock of
the Delaware successor company having a par value of $0.001 per share for both
Common Stock and Preferred Stock. The accompanying financial statements have
been adjusted retroactively to give effect to the reincorporation.
In November 1997, the Board of Directors adopted the 1997 Employee Stock
Purchase Plan and has reserved 75,000 shares of common stock for issuance
under this plan. The Company anticipates that the plan will be approved by the
stockholders prior to the closing of this offering.
In November, 1997, the Company's Board of Directors approved, subject to
stockholder approval, a one-for 1.376 reverse split of the Company's Common
Stock and a corresponding change in the Preferred Stock conversion ratios. All
common stock and per share amounts in these financial statements have been
adjusted retroactively to give effect to the split. In addition, the Company's
Board of Directors approved an Amended and Restated Certificate of
Incorporation which eliminates the existing convertible preferred stock and
changes the number of authorized preferred stock to 5,000,000 shares, $0.001
par value, and increases the shares of common stock authorized to 50,000,000
shares, which Certificate is to be filed following the effectiveness of the
initial public offering.
F-18
<PAGE>
The Company's implantable
hearing devices have not
been approved for marketing
by the United States Food
and Drug Administration or
any international regula-
tory authorities.
[ILLUSTRATION OF LASER DOPPLER VIBROMETRY]
Laser Doppler Vibrometry is used to map the movement of the ear's vibratory
structures for optimization of transducer design and performance.
[PICTURE OF FLOATING MASS TRANSDUCER]
Leveraging the Company's core FMT technology
[Symphonix Logo Appears Here]
Selective signal processing and FMT modification are designed to allow for
management of different types of hearing impairments.
[ILLUSTRATION OF AUDIOGRAM]
The Vibrant HF soundbridge is under development and designed to provide
hearing management for users with noise induced hearing loss at high
frequencies but relatively normal hearing at lower frequencies.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales person, or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or any of the Underwriters or by
any other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy a security other than the shares of Common
Stock offered hereby, nor does it constitute an offer to sell or solicitation
of an offer to buy any of the securities offered hereby, to any person in any
jurisdiction in which it is unlawful to make such offer or solicitation to
such person. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that
information contained herein is correct as of any date subsequent to the date
hereof.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Special Note Regarding Forward-Looking Statements......................... 17
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Financial Information............................................ 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 25
Management................................................................ 48
Certain Transactions...................................................... 55
Principal Stockholders.................................................... 57
Description of Capital Stock.............................................. 59
Shares Eligible for Future Sale........................................... 62
Underwriting.............................................................. 64
Legal Matters............................................................. 65
Experts................................................................... 65
Additional Information.................................................... 66
Index to Financial Statements............................................. F-1
</TABLE>
--------------------
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery is
in addition to the obligation of dealers to deliver a Prospectus when acting
as Underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,300,000 Shares
[LOGO OF SYMPHONIX]
Common Stock
--------------------
PROSPECTUS
--------------------
COWEN & COMPANY
UBS SECURITIES
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 10,420
NASD filing fee.................................................. 3,939
Nasdaq National Market Listing Fee............................... 50,000
Printing and engraving costs..................................... 150,000
Legal fees and expenses.......................................... 225,000
Accounting fees and expenses..................................... 175,000
Blue Sky fees and expenses....................................... 10,000
Director and Officer Liability Insurance......................... 150,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 15,641
--------
Total.......................................................... $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in the terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. The Registrant's Restated Certificate of Incorporation to be
filed after the closing of the offering to which this Registration Statement
relates (Exhibit 3.2 hereto) and the Registrant's Bylaws to be effective upon
the closing of the offering (Exhibit 3.4 hereto) provides for indemnification
of the Registrant's directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General
Corporation Law. The Registrant also intends to enter into agreements with its
directors and executive officers that will require the Registrant among other
things to indemnify them against certain liabilities that may arise by reason
of their status or service as directors to the fullest extent not prohibited
by Delaware law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Securities Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1994, the Registrant has issued and sold the following
unregistered securities (such share numbers and per share prices do not
reflect the one-for-1.376 reverse split of the outstanding Common Stock to be
effected prior to the completion of this offering and the conversion of all
outstanding shares of Preferred Stock into shares of Common Stock which will
occur automatically upon the closing of this offering:
(1) Since May 1994, the Company has issued and sold 3,734,437 shares of
Common Stock to a total of 23 employees, employee and non-employee directors,
consultants, and accredited investors for consideration paid in cash and
transfer of technology at a price per share ranging from $0.02 to $0.80.
(2) Since November 1994, the Company has granted stock options to purchase
2,326,576 shares of Common Stock to a total of 67 employees, consultants, non-
employee directors and an employee
II-1
<PAGE>
director, at a weighted average exercise price of $0.65 per share pursuant to
the 1994 Stock Option Plan.
(3) In November 1994, the Company issued a warrant to purchase 37,000 shares
of Series A Preferred Stock, convertible into shares of Common Stock, at an
exercise price of $1.00 per share to its lessor, Lighthouse Capital Partners.
(4) In May and November 1995, the Company issued warrants to purchase an
aggregate of shares of Series B Preferred Stock, convertible into shares of
Common Stock, at an exercise price of $4.00 per share to its lessor,
Lighthouse Capital Partners.
(5) In July, August and October 1994 and January 1995, the Company issued
and sold 5,463,000 shares of Series A Preferred Stock to a total of 40
accredited investors, including one officer, for cash and services in the
aggregate amount of $5,463,000.
(6) In June 1995, the Company issued and sold 1,378,500 shares of Series B
Preferred Stock to a total of 31 accredited investors, including one officer,
for cash and services in the aggregate amount of $5,514,000.
(7) In May and June 1996, the Company issued and sold 1,162,451 shares of
Series C Preferred Stock to a total of 20 accredited for cash in the aggregate
amount of $6,219,113.
(8) In November and December 1996 and June 1997, the Company issued and sold
1,190,680 shares of Series D Preferred Stock to a total of 14 accredited
investors, for cash in the aggregate amount of $9,525,440.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act,
except in the case of item (5), above, which was deemed to be exempt from such
registration pursuant to Regulation D promulgated thereunder, and in the case
of items (1) and (2), above, on Rule 701 promulgated thereunder, as
transactions by an issuer not involving a public offering. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with the Company,
to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Symphonix Devices, Inc., a
California corporation, as currently in effect.
3.2* Form of Restated Certificate of Incorporation of the Registrant to
be filed after the closing of the offering made under this
Registration Statement.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Form of Bylaws, to be effective upon the Company's reincorporation
into Delaware.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2 1994 Stock Option Plan and forms of Stock Option Agreements
thereunder.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 1997 Employee Stock Purchase Plan.
10.4 Restated Investors Rights Agreement dated June 11, 1997 between the
Registrant and certain holders of the Registrant's securities.
10.5 Master Equipment Lease Agreement between Registrant and Lighthouse
Capital Partners dated December 2, 1994.
10.6 Assignment by Registrant to VibRx, Inc. dated March 14, 1997.
10.7 Registrant's Series D Preferred Stock Purchase Agreement dated June
11, 1997.
10.8 Net Lease Agreement between Realtec Properties I, L.P., a California
limited partnership, and Registrant dated July 28, 1994; letter
agreements dated July 28, 1994 and August 17, 1994 and First
Amendment dated April 17, 1997.
10.9 Lease between Silicon Valley Properties, L.L.C., a Delaware limited
liability partnership, and Registrant dated October 27, 1997.
10.10 Form of Option Vesting Agreement between the Registrant and its
officers.
10.11 License Agreement dated June 1, 1995 between Baptist Medical Center
of Oklahoma, Inc. and Registrant.
11.1 Computation of net loss per share.
21.1 List of Subsidiary of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants (see
page II-6).
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment.
(b) Financial Statement Schedules
Financial schedules not listed above have been omitted because the
information required to be set forth therein is not applicable or is shown in
the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(a) It will provide to the Underwriters at the closing as specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
<PAGE>
(c) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar volume of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(b) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide Offering thereof;
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN JOSE, STATE OF
CALIFORNIA, ON THE 14TH DAY OF NOVEMBER, 1997.
SYMPHONIX DEVICES, INC.
/s/ Harry S. Robbins
By: _________________________________
Harry S. Robbins
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harry S. Robbins and Alfred G. Merriweather,
and each of them, his attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to sign any registration statement for the same
offering covered by this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933,
and all post-effective amendments thereto, and to file the same, with all
exhibits thereto in all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents or any of
them, or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Harry S. Robbins President, Chief Executive November 14, 1997
____________________________________ Officer and Director
Harry S. Robbins (Principal Executive
Officer)
/s/ Alfred G. Merriweather Chief Financial Officer November 14, 1997
____________________________________ (Principal Financial and
Alfred G. Merriweather Accounting Officer)
/s/ Geoffrey R. Ball Director November 14, 1997
____________________________________
Geoffrey R. Ball
/s/ B.J. Cassini Director November 14, 1997
____________________________________
B.J. Cassin
/s/ Terry Gould Director November 14, 1997
____________________________________
Terry Gould
/s/ Michael J. Levinthal Director November 14, 1997
____________________________________
Michael J. Levinthal
/s/ Petri T. Vainio Director November 14, 1997
____________________________________
Petri T. Vainio
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 17, 1997, except for Note 11, for which the date is
November 7, 1997 on our audits of the financial statements of Symphonix
Devices, Inc. We also consent to the references to our firm under the captions
"Experts" and "Selected Financial Data."
COOPERS & LYBRAND L.L.P.
San Jose, California
November 13, 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Symphonix
Devices, Inc., a California corporation, as currently
in effect.
3.2* Form of Restated Certificate of Incorporation of the
Registrant to be filed after the closing of the
offering made under this Registration Statement.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Form of Bylaws, to be effective upon the Company's
reincorporation into Delaware.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
10.1 Form of Indemnification Agreement between the
Registrant and each of its directors and officers.
10.2 1994 Stock Option Plan and forms of Stock Option
Agreements thereunder.
10.3 1997 Employee Stock Purchase Plan.
10.4 Restated Investors Rights Agreement dated June 11, 1997
between the Registrant and certain holders of the
Registrant's securities.
10.5 Master Equipment Lease Agreement between Registrant and
Lighthouse Capital Partners dated December 2, 1994.
10.6 Assignment by Registrant to VibRx, Inc. dated March 14,
1997.
10.7 Registrant's Series D Preferred Stock Purchase
Agreement dated June 11, 1997.
10.8 Net Lease Agreement between Realtec Properties I, L.P.,
a California limited partnership, and Registrant dated
July 28, 1994; letter agreements dated July 28, 1994
and August 17, 1994 and First Amendment dated April
17, 1997.
10.9 Lease between Silicon Valley Properties, L.L.C., a
Delaware limited liability partnership, and Registrant
dated October 27, 1997.
10.10 Form of Option Vesting Agreement between the Registrant
and its officers.
10.11 License Agreement dated June 1, 1995 between Baptist
Medical Center of Oklahoma, Inc. and Registrant.
11.1 Computation of net loss per share.
21.1 List of Subsidiary of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Accountants (see page II-6).
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment.
<PAGE>
EXHIBIT 1.1
2,300,000 SHARES
SYMPHONIX DEVICES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
[Date]
COWEN & COMPANY and UBS SECURITIES LLC,
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York,
New York 10005
Dear Sirs:
1. INTRODUCTORY. Symphonix Devices, Inc., a Delaware corporation (the
"Company"), proposes to sell, pursuant to the terms of this Agreement, to the
several underwriters named in Schedule A hereto (the "Underwriters," or, each,
an "Underwriter"), an aggregate of 2,300,000 shares of Common Stock, $0.01 par
value (the "Common Stock"), of the Company. The aggregate of 2,300,000 shares so
proposed to be sold is hereinafter referred to as the "Firm Stock". The Company
also proposes to sell to the Underwriters, upon the terms and conditions set
forth in Section 3 hereof, up to an additional 2,345,000 shares of Common Stock
(the "Optional Stock"). The Firm Stock and the Optional Stock are hereinafter
collectively referred to as the "Stock". Cowen & Company ("Cowen") and UBS
Securities LLC ("UBS") are acting as representatives of the several Underwriters
and in such capacity are hereinafter referred to as the "Representatives".
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to, and agrees with, the several Underwriters that:
(A) A registration statement on Form S-1 (File No. 333-____) in the form in
which it became or becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective with respect to the
Stock, including any preeffective prospectuses included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, copies of which have heretofore been delivered to you,
has been carefully prepared by the Company in conformity with the requirements
of the Securities Act and has been filed with the Commission under the
Securities Act; one or more amendments to such registration statement,
1.
<PAGE>
including in each case an amended preeffective prospectus, copies of which
amendments have heretofore been delivered to you, have been so prepared and
filed. If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Stock may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. The term "Registration
Statement" as used in this Agreement shall also include any registration
statement relating to the Stock that is filed and declared effective pursuant to
Rule 462(b) under the Securities Act. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement, or, (A) if the prospectus included in the Registration Statement
omits information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Securities Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b) and (B) if
prospectuses that meet the requirements of Section 10(a) of the Securities Act
are delivered pursuant to Rule 434 under the Securities Act, then (i) the term
"Prospectus" as used in this Agreement means the "prospectus subject to
completion" (as such term is defined in Rule 434(g) under the Securities Act) as
supplemented by (a) the addition of Rule 430A information or other information
contained in the form of prospectus delivered pursuant to Rule 434(b)(2) under
the Securities Act or (b) the information contained in the term sheets described
in Rule 434(b)(3) under the Securities Act, and (ii) the date of such
prospectuses shall be deemed to be the date of the term sheets. The term
"Preeffective Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the Registration Statement at the time of
the initial filing of the Registration Statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus.
(B) The Commission has not issued or threatened to issue any order
preventing or suspending the use of any Preeffective Prospectus, and, at its
date of issue, each Preeffective Prospectus conformed in all material respects
with the requirements of the Securities Act and did not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and, when the
Registration Statement becomes effective and at all times subsequent thereto up
to and including each of the Closing Dates (as hereinafter defined), the
Registration Statement and the Prospectus and any amendments or supplements
thereto contained and will contain all material statements and information
required to be included therein by the Securities Act and conformed and will
conform in all material respects to the requirements of the Securities Act and
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, included or will include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing
representations, warranties and agreements shall not apply to information
contained in or omitted from any Preeffective Prospectus or the Registration
Statement or the Prospectus or any such amendment or supplement thereto in
reliance upon, and in conformity with, written information furnished to
2.
<PAGE>
the Company by or on behalf of any Underwriter, directly or through you,
specifically for use in the preparation thereof; there is no franchise, lease,
contract, agreement or document required to be described in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed therein as required; and all
descriptions of any such franchises, leases, contracts, agreements or documents
contained in the Registration Statement are accurate and complete descriptions
of such documents in all material respects.
(C) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, and except as set forth or
contemplated in the Prospectus, the Company has incurred any liabilities or
obligations, direct or contingent, nor entered into any transactions not in the
ordinary course of business, and there has not been any material adverse change
in the condition (financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company or any change in
the capital stock, short-term or long-term debt of the Company.
(D) The financial statements, together with the related notes and
schedules, set forth in the Prospectus and elsewhere in the Registration
Statement fairly present, on the basis stated in the Registration Statement, the
financial position and the results of operations and changes in financial
position of the Company at the respective dates or for the respective periods
therein specified. Such statements and related notes and schedules have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis except as may be set forth in the Prospectus. The summary and
selected financial and statistical data set forth in the Prospectus under the
captions "Summary Financial Data" and "Selected Financial Data" fairly present,
on the basis stated in the Registration Statement, the information set forth
therein.
(E) Coopers & Lybrand L.L.P., who have expressed their opinions on the
audited financial statements and related schedules included in the Registration
Statement and the Prospectus are independent public accountants as required by
the Securities Act and the Rules and Regulations.
(F) The Company has been duly organized and is validly existing and in good
standing as a corporation under the laws of the State of Delaware, with power
and authority (corporate and other) to own or lease its properties and to
conduct its business as described in the Prospectus; the Company is in
possession of and operating in compliance with all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
required for the conduct of its business, all of which are valid and in full
force and effect; and the Company is duly qualified to do business and in good
standing as a foreign corporation in all other jurisdictions where its ownership
or leasing of properties or the conduct of its business requires such
qualification. The Company has all requisite power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public regulatory or
governmental agencies and bodies to own, lease and operate its properties and
conduct its business as now being conducted and as described in the Registration
Statement and the Prospectus, and no such consent, approval, authorization,
order, registration, qualification, license or permit contains a materially
burdensome restriction not
3.
<PAGE>
adequately disclosed in the Registration Statement and the Prospectus. The
Company does not own or control, directly or indirectly, any corporations,
associations or other entities.
(G) The Company's authorized and outstanding capital stock is on the date
hereof, and will be on the Closing Date, as set forth under the heading
"Capitalization" in the Prospectus; the outstanding shares of common stock of
the Company conform to the description thereof in the Prospectus and have been
duly authorized and validly issued and are fully paid and nonassessable and have
been issued in compliance with all federal and state securities laws and were
not issued in violation of or subject to any preemptive rights or similar rights
to subscribe for or purchase securities and conform to the description thereof
contained in the Prospectus. Except as disclosed in and or contemplated by the
Prospectus and the financial statements of the Company and related notes thereto
included in the Prospectus, the Company does not have outstanding any options or
warrants to purchase, or any preemptive rights or other rights to subscribe for
or to purchase any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations, except for options
granted subsequent to the date of information provided in the Prospectus
pursuant to the Company's employee and stock option plans as disclosed in the
Prospectus. The description of the Company's stock option and other stock plans
or arrangements, and the options or other rights granted or exercised
thereunder, as set forth in the Prospectus, accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(H) The Stock to be issued and sold by the Company to the Underwriters
hereunder has been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and validly issued,
fully paid and nonassessable and free of any preemptive or similar rights and
will conform to the description thereof in the Prospectus.
(I) Except as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its affiliates
is a party or of which any property of the Company or any affiliate is subject,
which, if determined adversely to the Company or any such affiliate, might
individually or in the aggregate (i) prevent or adversely affect the
transactions contemplated by this Agreement, (ii) suspend the effectiveness of
the Registration Statement, (iii) prevent or suspend the use of the Preeffective
Prospectus in any jurisdiction or (iv) result in a material adverse change in
the condition (financial or otherwise), properties, business, management
prospects, net worth or results of operations of the Company and there is no
valid basis for any such legal or governmental proceeding; and to the best of
the Company's knowledge no such proceedings are threatened or contemplated
against the Company or any or affiliate by governmental authorities or others.
The Company is not a party nor subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body or other
governmental agency or body. The description of the Company's litigation under
the heading "Legal Proceedings" in the Prospectus is true and correct and
complies with the Rules and Regulations.
(J) The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated (A) will not result in any
violation of the provisions of
4.
<PAGE>
the certificate of incorporation, by-laws or other organizational documents of
the Company, or any law, order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its properties or
assets, (B) will not conflict with or result in a breach or violation of any of
the terms or provisions of or constitute a default under any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which it or any of its properties is or may
be bound, the Certificate of Incorporation, By-laws or other organizational
documents of the Company, or any law, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
properties or will result in the creation of a lien.
(K) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby, except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under the Securities Act
or the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the
securities or "Blue Sky" laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the Underwriters.
(L) The Company has the full corporate power and authority to enter into
this Agreement and to perform its obligations hereunder (including to issue,
sell and deliver the Stock), and this Agreement has been duly and validly
authorized, executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except to the extent that rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or the public
policy underlying such laws.
(M) The Company is in all material respects in compliance with, and
conducts its business in conformity with, all applicable federal, state, local
and foreign laws, rules and regulations or any court or governmental agency or
body; to the knowledge of the Company, otherwise than as set forth in the
Registration Statement and the Prospectus, no prospective change in any of such
federal or state laws, rules or regulations has been adopted which, when made
effective, would have a material adverse effect on the operations of the
Company.
(N) The Company has filed all necessary federal, state, local and foreign
income, payroll, franchise and other tax returns and has paid all taxes shown as
due thereon or with respect to any of its properties, and there is no tax
deficiency that has been, or to the knowledge of the Company is likely to be,
asserted against the Company or any of its properties or assets that would
adversely affect the financial position, business or operations of the Company.
(O) No person or entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the filing or
effectiveness of the Registration Statement or otherwise, except for persons and
entities who have expressly waived such right or who have been given proper
notice and have failed to exercise such right within the time or times required
under the terms and conditions of such right.
5.
<PAGE>
(P) Neither the Company nor any of its officers, directors or affiliates
has taken or will take, directly or indirectly, any action designed or intended
to stabilize or manipulate the price of any security of the Company, or which
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company.
(Q) The Company has provided you with all financial statements since
January, 1998 to the date hereof that are available to the officers of the
Company, including financial statements for the months of December 31, 1997 and
January 31, 1998.
(R) The Company owns or possesses the right to use all patents, trademarks
(including "Symphonix" and "Vibrant"), trademark registrations, service marks,
service mark registrations, trade names, copyrights, licenses, inventions, trade
secrets and rights described in the Prospectus as being owned by it or necessary
for the conduct of its business, and the Company is not aware of any claim to
the contrary or any challenge by any other person to the rights of the Company
with respect to the foregoing. The Company's business as now conducted and as
proposed to be conducted does not and will not infringe or conflict with in any
material respect patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses or other intellectual property or franchise right of any
person. Except as described in the Prospectus, no claim has been made against
the Company alleging the infringement by the Company of any patent, trademark,
service mark, trade name, copyright, trade secret, license in or other
intellectual property right or franchise right of any person.
(S) The Company has performed all material obligations required to be
performed by it under all contracts required by Item 601(b)(10) of Regulation S-
K under the Securities Act to be filed as exhibits to the Registration
Statement, and neither the Company nor any other party to such contract is in
default under or in breach of any such obligations. The Company has not
received any notice of any such default or breach.
(T) The Company is not involved in any labor dispute nor is any such
dispute threatened. The Company is not aware that (A) any executive, key
employee or significant group of employees of the Company plans to terminate
employment with the Company or (B) any such executive or key employee is subject
to any noncompete, nondisclosure, confidentiality, employment, consulting or
similar agreement that would be violated by the present or proposed business
activities of the Company. The Company does not have or expect to have any
liability for any prohibited transaction or funding deficiency or any complete
or partial withdrawal liability with respect to any pension, profit sharing or
other plan which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), to which the Company makes or ever has made a
contribution and in which any employee of the Company is or has ever been a
participant. With respect to such plans, the Company is in compliance in all
material respects with all applicable provisions of ERISA.
(U) The Company has obtained the written agreement described in Section
8(j) of this Agreement from each of its officers, directors and holders of
Common Stock listed on Schedule C hereto.
6.
<PAGE>
(V) The Company has, and the Company as of the Closing Date will have,
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned or proposed to be owned by it
which is material to the business of the Company, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as would not have a material adverse effect on the Company;
and any real property and buildings held under lease by the Company or proposed
to be held after giving effect to the transactions described in the Prospectus
are, or will be as of [each of] the Closing Date[s], held by it under valid,
subsisting and enforceable leases with such exceptions as would not have a
material adverse effect on the Company, in each case except as described in or
contemplated by the Prospectus.
(W) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
customary in the businesses in which it is engaged or propose to engage after
giving effect to the transactions described in the Prospectus; and the Company
does not have any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company,
except as described in or contemplated by the Prospectus.
(X) Other than as contemplated by this Agreement, there is no broker,
finder or other party that is entitled to receive from the Company any brokerage
or finder's fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
(Y) The Company has complied with all provisions of Section 517.075
Florida Statutes (Chapter 92-198; Laws of Florida).
(Z) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(AA) To the Company's knowledge, neither the Company nor any employee or
agent of the Company has made any payment of funds of the Company or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
(AB) The Company is not, nor after application of the net proceeds of this
offering as described under the caption "Use of Proceeds" in the Prospectus,
will it become, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended.
7.
<PAGE>
(AC) Each certificate signed by any officer of the Company and delivered to
the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company as to the matters covered thereby;
and
(AD) The Company has filed with the United States Food and Drug
Administration the "FDA"), and all applicable state and local regulatory bodies,
for and received approval of, all material registrations, applications,licenses,
requests for exemptions,permits and other regulatory authorizations necessary to
conduct the Company's business as it is described in the Registration Statement
and Prospectus based on all available information provided to the Company
through the date hereof by applicable regulatory authorities; the Company is in
compliance with all such registrations, applications, licenses, requests for
exemptions, permits and other regulatory authorizations, and all applicable FDA,
state and local rules, regulations, guidelines and policies, except where the
failure so to comply would not have a material adverse effect on the business or
condition (financial or otherwise) of the Company; and the Company has no reason
to believe that any party granting any such registration, application, license,
request for exemption, permit or other authorization intends to limit, suspend
or revoke the same and knows of no basis for any such limitation, suspension or
revocation.
3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS--CLOSING DATES. The
Company agrees to sell to the Underwriters the Firm Stock, and on the basis of
the representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase the Firm Stock from the Company, the
number of shares of Firm Stock to be purchased by each Underwriter being set
opposite its name in Schedule A, subject to adjustment in accordance with
Section 12 hereof.
The purchase price per share to be paid by the Underwriters to the Company will
be the price per share set forth in the table on the cover page of the
Prospectus under the heading "Proceeds to the Company" (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 9:00 a.m., San Francisco Time, on the second full business day preceding the
First Closing Date (as defined below) or, if no such direction is received, in
the names of the respective Underwriters or in such other names as Cowen may
designate (solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate Purchase
Price therefor by certified or official bank check or checks in immediately
available funds (same day funds), payable to the order of the Company, all at
the offices of Wilson, Sonsini, Goodrich & Rosati, PC 650 Page Mill Road,
Palo Alto, California 94306-2155. The time and date of the delivery and closing
shall be at 7:00 A.M., San Francisco Time, on _______________, 1997, in
accordance with Rule 15c6-1 of the Exchange Act. The time and date of such
payment and delivery are herein referred to as the "First Closing Date". The
First Closing Date and the location of delivery of, and the form and form
8.
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of payment for, the Firm Stock may be varied by agreement between the Company
and Cowen. The First Closing Date may be postponed pursuant to the provisions
of Section 12.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., New York Time, on the business day preceding the First Closing Date
at the offices of Cowen & Company, Financial Square, New York, New York 10005.
It is understood that Cowen or UBS, individually and not as Representatives of
the several Underwriters, may (but shall not be obligated to) make payment to
the Company on behalf of any Underwriter or Underwriters, for the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by Cowen or UBS
shall not relieve such Underwriter or Underwriters from any of its or their
other obligations hereunder.
The several Underwriters agree to make an initial public offering of the Firm
Stock at the initial public offering price as soon after the effectiveness of
the Registration Statement as in their judgment is advisable. The
Representatives shall promptly advise the Company of the making of the initial
public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase, severally and
not jointly, up to the aggregate number of shares of Optional Stock set forth on
Schedule B hereto. The price per share to be paid for the Optional Stock shall
be the Purchase Price. The option granted hereby may be exercised as to all or
any part of the Optional Stock at any time, and from time to time, not more than
thirty (30) days subsequent to the effective date of this Agreement. No
Optional Stock shall be sold and delivered unless the Firm Stock previously has
been, or simultaneously is, sold and delivered. The right to purchase the
Optional Stock or any portion thereof may be surrendered and terminated at any
time upon notice by the Underwriters to the Company.
The option granted hereby may be exercised by the Underwriters by giving written
notice from Cowen to the Company setting forth the number of shares of the
Optional Stock to be purchased by them and the date and time for delivery of and
payment for the Optional Stock. Each date and time for delivery of and payment
for the Optional Stock (which may be the First Closing Date, but not earlier) is
herein called the "Option Closing Date" and shall in no event be earlier than
two (2) business days nor later than ten (10) business days after written notice
is given. (The Option Closing Date and the First Closing Date are herein called
the "Closing Dates".) All purchases of Optional Stock from the Company shall be
made on a pro rata basis. Optional Stock shall be purchased for the account of
each Underwriter in the same proportion as the number of shares of Firm Stock
set forth opposite such Underwriter's name in Schedule B hereto bears to the
total number of shares of Firm Stock (subject to adjustment by the Underwriters
to eliminate odd lots). Upon exercise of the option by the Underwriters, the
Company agrees to sell to the Underwriters the number of shares of Optional
Stock set forth in the written notice of exercise and the Underwriters agree,
severally and not jointly and subject to the terms and conditions herein set
forth, to purchase the number of such shares determined as aforesaid.
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The Company will deliver the Optional Stock to the Underwriters (in the form of
definitive certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing given at or prior to 9:00 a.m.,
San Francisco Time, on the second full business day preceding the Option Closing
Date or, if no such direction is received, in the names of the respective
Underwriters or in such other names as Cowen may designate (solely for the
purpose of administrative convenience) and in such denominations as Cowen may
determine, against payment of the aggregate Purchase Price therefor by certified
or official bank check or checks in Clearing House funds (next day funds),
payable to the order of the Company all at the offices of Wilson, Sonsini,
Goodrich and Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto,
California 94306-2155. The Option Closing Date and the location of delivery of,
and the form and form of payment for, the Option Stock may be varied by
agreement between the Company and Cowen. The Option Closing Date may be
postponed pursuant to the provisions of Section 12.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and agrees
with the several Underwriters that:
(A) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A of the of the Rules and
Regulations, use its best efforts to cause the Registration Statement to become
effective, (ii) if the Company and the Representatives have determined to
proceed pursuant to Rule 430A of the Rules and Regulations, use its best efforts
to comply with the provisions of and make all requisite filings with the
Commission pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use its best
efforts to comply with all the applicable provisions thereof. The Company will
advise the Representatives promptly as to the time at which the Registration
Statement becomes effective, will advise the Representatives promptly of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible the lifting thereof, if issued. The
Company will advise the Representatives promptly of the receipt of any comments
of the Commission or any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for additional
information and will not at any time file any amendment to the Registration
Statement or supplement to the Prospectus which shall not previously have been
submitted to the Representatives a reasonable time prior to the proposed filing
thereof or to which the Representatives shall reasonably object in writing or
which is not in compliance with the Securities Act and the Rules and
Regulations.
(B) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to the
Registration Statement or the Prospectus which in the opinion of the
Representatives may be necessary to enable the several Underwriters to continue
the distribution of the Stock and will use its best efforts to cause the same to
become effective as promptly as possible.
10.
<PAGE>
(C) If at any time after the effective date of the Registration Statement
when a prospectus relating to the Stock is required to be delivered under the
Securities Act any event relating to or affecting the Company occurs as a result
of which the Prospectus or any other prospectus as then in effect would include
an untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to amend
the Prospectus to comply with the Securities Act, the Company will promptly
notify the Representatives thereof and will prepare an amended or supplemented
prospectus which will correct such statement or omission; and in case any
Underwriter is required to deliver a prospectus relating to the Stock nine (9)
months or more after the effective date of the Registration Statement, the
Company upon the request of the Representatives and at the expense of such
Underwriter will prepare promptly such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Securities Act.
(D) The Company will deliver to the Representatives, at or before the
Closing Dates, signed copies of the Registration Statement, as originally filed
with the Commission, and all amendments thereto including all financial
statements and exhibits thereto, and will deliver to the Representatives such
number of copies of the Registration Statement, including such financial
statements but without exhibits, and all amendments thereto, as the
Representatives may reasonably request. The Company will deliver or mail to or
upon the order of the Representatives, from time to time until the effective
date of the Registration Statement, as many copies of the Preeffective
Prospectus as the Representatives may reasonably request. The Company will
deliver or mail to or upon the order of the Representatives on the date of the
initial public offering, and thereafter from time to time during the period when
delivery of a prospectus relating to the Stock is required under the Securities
Act, as many copies of the Prospectus, in final form or as thereafter amended or
supplemented as the Representatives may reasonably request; provided, however,
that the expense of the preparation and delivery of any prospectus required for
use nine (9) months or more after the effective date of the Registration
Statement shall be borne by the Underwriters required to deliver such
prospectus.
(E) The Company will make generally available to its shareholders as soon
as practicable, but not later than fifteen (15) months after the effective date
of the Registration Statement, an earning statement which will be in reasonable
detail (but which need not be audited) and which will comply with Section 11(a)
of the Securities Act, covering a period of at least twelve (12) months
beginning after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.
(F) The Company will cooperate with the Representatives to enable the Stock
to be registered or qualified for offering and sale by the Underwriters and by
dealers under the securities laws of such jurisdictions as the Representatives
may designate and at the request of the Representatives will make such
applications and furnish such consents to service of process or other documents
as may be required of it as the issuer of the Stock for that purpose; provided,
however, that the Company shall not be required to qualify to do business or to
file a general consent (other than that arising out of the offering or sale of
the Stock) to service of process in any such jurisdiction where it is not now so
subject. The Company will, from time
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to time, prepare and file such statements and reports as are or may be required
of it as the issuer of the Stock to continue such qualifications in effect for
so long a period as the Representatives may reasonably request for the
distribution of the Stock. The Company will advise the Representatives promptly
after the Company becomes aware of the suspension of the qualifications or
registration of (or any such exception relating to) the Common Stock of the
Company for offering, sale or trading in any jurisdiction or of any initiation
or threat of any proceeding for any such purpose, and in the event of the
issuance of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the Representatives use its
best efforts to obtain the withdrawal thereof.
(G) The Company will furnish to its shareholders annual reports containing
financial statements certified by independent public accountants and with
quarterly summary financial information in reasonable detail which may be
unaudited. During the period of five (5) years from the date hereof, the
Company will deliver to the Representatives and, upon request, to each of the
other Underwriters, as soon as they are available, copies of each annual report
of the Company and each other report furnished by the Company to its
shareholders and will deliver to the Representatives, (i) as soon as they are
available, copies of any other reports (financial or other) which the Company
shall publish or otherwise make available to any of its shareholders as such,
(ii) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange and (iii) from time to time such other information concerning the
Company as you may request.
(H) The Company will use its best efforts to list the Stock, subject to
official notice of issuance, on the Nasdaq National Market concurrently with the
effectiveness of the Registration Statement.
(I) The Company will maintain a transfer agent and registrar for its Common
Stock.
(J) Prior to filing its quarterly statements on Form 10-Q, the Company will
have its independent auditors perform a limited quarterly review of its
quarterly numbers.
(K) The Company will not offer, sell, assign, transfer, encumber, contract
to sell, grant an option to purchase or otherwise dispose of, other than by
operation of law, gifts, pledges or dispositions by estate representatives, any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock (including, without limitation, Common Stock of
the Company which may be deemed to be beneficially owned by the Company in
accordance with the Rules and Regulations) during the 180 days following the
date on which the price of the Common Stock to be purchased by the Underwriters
is set, other than the Company's sale of Common Stock hereunder and the
Company's issuance of Common Stock upon the exercise of warrants and stock
options which are presently outstanding and described in the Prospectus.
(L) Prior to filing with the Commission any reports on Form SR pursuant to
Rule 463 of Rules and Regulations, the Company will furnish a copy thereof to
the counsel for the
12.
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Underwriters and receive and consider its comments thereon, and will deliver
promptly to the Representatives a signed copy of each report on Form SR filed by
it with the Commission.
(M) The Company will apply the net proceeds from the sale of the Stock as
set forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of Item 504 of
Regulation S-K.
(N) The Company will supply you with copies of all correspondence to and
from, and all documents issued to and by, the Commission in connection with the
registration of the Stock under the Securities Act.
(O) Prior to each of the Closing Dates the Company will furnish to you, as
soon as they have been prepared, copies of any unaudited interim consolidated
financial statements of the Company for any periods subsequent to the periods
covered by the financial statements appearing in the Registration Statement and
the Prospectus.
(P) Prior to each of the Closing Dates the Company will issue no press
release or other communications directly or indirectly and hold no press
conference with respect to the Company, the financial condition, results of
operations, business, prospects, assets or liabilities of the Company, or the
offering of the Stock, without your prior written consent. For a period of
twelve (12) months following the first Closing Date, the Company will use its
best efforts to provide to you copies of each press release or other public
communications with respect to the financial condition, results of operations,
business, prospects, assets or liabilities of the Company at least twenty-four
(24) hours prior to the public issuance thereof or such longer advance period as
may reasonably be practicable.
(Q) During the period of five (5) years hereafter, the Company will furnish
to the Representatives, and upon request of the Representatives, to each of the
Underwriters: (i) as soon as practicable after the end of each fiscal year,
copies of the Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other
report filed by the Company with the Commission, or the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or communication
of the Company mailed generally to holders of its Common Stock.
5. PAYMENT OF EXPENSES. (A) The Company will pay (directly or by
reimbursement) all costs, fees and expenses incurred in connection with expenses
incident to the performance of its obligations under this Agreement and in
connection with the transactions contemplated hereby, including but not limited
to (i) all expenses and taxes incident to the issuance and delivery of the Stock
to the Representatives; (ii) all expenses incident to the registration of the
Stock under the Securities Act; (iii) the costs of preparing stock certificates
(including printing and engraving costs); (iv) all fees and expenses of the
registrar and transfer agent of the Stock; (v) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Stock to the
13.
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Underwriters; (vi) fees and expenses of the Company's counsel and the Company's
independent accountants; (vii) all costs and expenses incurred in connection
with the preparation, printing filing, shipping and distribution of the
Registration Statement, each Preeffective Prospectus and the Prospectus
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, the "Agreement Among Underwriters" between the
Representatives and the Underwriters, the Master Selected Dealers' Agreement,
the Underwriters' Questionnaire and the Blue Sky memoranda (including related
fees and expenses of counsel to the Underwriters) and this Agreement; (viii) all
filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with exemptions from the qualifying or registering
(or obtaining qualification or registration of) all or any part of the Stock for
offer and sale and determination of its eligibility for investment under the
Blue Sky or other securities laws of such jurisdictions as the Representatives
may designate; (ix) all fees and expenses paid or incurred in connection with
filings made with the NASD; and (x) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section.
(B) In addition to its other obligations under Section 6(a) hereof, the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
(i) any statement or omission or any alleged statement or omission, (ii) any act
or failure to act or any alleged act or failure to act or (iii) any breach or
inaccuracy in its representations and warranties, it will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse each Underwriter for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly return
it to the Company together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Citibank, N.A., New
York, New York (the "Prime Rate"). Any such interim reimbursement payments which
are not made to an Underwriter in a timely manner as provided below shall bear
interest at the Prime Rate from the due date for such reimbursement. This
expense reimbursement agreement will be in addition to any other liability which
the Company may otherwise have. The request for reimbursement will be sent to
the Company.
(C) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in paragraph (b) this Section 5,
including the amounts of any requested reimbursement payments and the method of
determining such amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of the New
York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of
the NASD. Any such arbitration must be commenced by service of a written demand
for arbitration or written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice
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is authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in paragraph (b) of this Section
5 and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of Section
6.
6. INDEMNIFICATION AND CONTRIBUTION. (A) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls such
Underwriter within the meaning of the Securities Act and the respective
officers, directors, partners, employees, representatives and agents of each of
such Underwriter (collectively, the "Underwriter Indemnified Parties" and, each,
an "Underwriter Indemnified Party"), against any losses, claims, damages,
liabilities or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in connection
therewith), joint or several, which may be based upon the Securities Act, or any
other statute or at common law, (i) on the ground or alleged ground that any
Preeffective Prospectus, the Registration Statement or the Prospectus (or any
Preeffective Prospectus, the Registration Statement or the Prospectus as from
time to time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof or (ii) for any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or expense arising out of or based upon matters
covered by clause (i) above (provided that the Company shall not be liable under
this clause (ii) to the extent that it is determined in a final judgment by a
court of competent jurisdiction that such loss, claim, damage, or liability or
expense resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or willful
misconduct). The Company will be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it and reasonably
acceptable to the Underwriters. In the event the Company elects to assume the
defense of any such suit and retain such counsel, any Underwriter Indemnified
Parties, defendant or defendants in the suit, may retain additional counsel but
shall bear the fees and expenses of such counsel unless (i) the Company shall
have specifically authorized the retaining of such counsel or (ii) the parties
to such suit include any such Underwriter Indemnified Parties, and the Company
and such Underwriter Indemnified Parties at law or in equity have been advised
by counsel to the Underwriters that one or more legal defenses may be available
to it or them which may not be available to the Company, in which case the
Company shall not be entitled to assume the defense of such suit notwithstanding
its obligation to bear the fees and expenses of such counsel. This indemnity
agreement is not exclusive and will be in addition to any liability which the
Company might otherwise have and shall not limit any rights or remedies which
may otherwise be available at law or in equity to each Underwriter Indemnified
Party.
15.
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(B) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the "Company
Indemnified Parties") against any losses, claims, damages, liabilities or
expenses (including, unless the Underwriter or Underwriters elect to assume the
defense, the reasonable cost of investigating and defending against any claims
therefor and counsel fees incurred in connection therewith), joint or several,
which arise out of or are based in whole or in part upon the Securities Act, the
Exchange Act or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground that any
Preeffective Prospectus, the Registration Statement or the Prospectus (or any
Preeffective Prospectus, the Registration Statement or the Prospectus, as from
time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, but only insofar as any such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by such Underwriter, directly or through
the Representatives, specifically for use in the preparation thereof; provided,
however, that in no case is such Underwriter to be liable with respect to any
claims made against any Company Indemnified Party, against whom the action is
brought unless such Company Indemnified Party shall have notified such
Underwriter in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Company Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any liability which it may
have to any Company Indemnified Party otherwise than on account of its indemnity
agreement contained in this paragraph. Such Underwriter shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but, if such
Underwriter elects to assume the defense, such defense shall be conducted by
counsel chosen by it. In the event that any Underwriter elects to assume the
defense of any such suit and retain such counsel, the Company Indemnified
Parties and any other Underwriter or Underwriters or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, respectively. The Underwriter
against whom indemnity may be sought shall not be liable to indemnify any person
for any settlement of any such claim effected without such Underwriter's
consent. This indemnity agreement is not exclusive and will be in addition to
any liability which such Underwriter might otherwise have and shall not limit
any rights or remedies which may otherwise be available at law or in equity to
any Company Indemnified Party.
(C) If the indemnification provided for in this Section 6 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other from the offering of the Stock. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law,
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then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, defending, settling or compromising any
such claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the shares of the Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. The
Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The respective
indemnities, covenants, agreements, representations, warranties and other
statements of the Company and the several Underwriters, as set forth in this
Agreement or made by them respectively, pursuant to this Agreement, shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter, the Company or any of its officers or directors or any
controlling person, and shall survive delivery of and payment for the Stock.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of the
several Underwriters hereunder shall be subject to the accuracy, at and (except
as otherwise stated herein) as of the date hereof and at and as of each of the
Closing Dates, of the representations and warranties made herein by the Company
to compliance at and as of each of the Closing Dates by the Company with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to each of the Closing Dates, and to the following
additional conditions:
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(A) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or the Representatives, shall be threatened by the Commission, and
any request for additional information on the part of the Commission (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required pursuant to
Rule 424(b) or Rule 434 of the Rules and Regulations, shall have been made in
the manner and within the time period required by Rule 424(b) and Rule 434 of
the Rules and Regulations, as the case may be.
(B) The Representatives shall have been satisfied that there shall not have
occurred any change prior to each of the Closing Dates in the condition
(financial or otherwise), properties, business, management, prospects, net worth
or results of operations of the Company, or any change in the capital stock,
short-term or long-term debt of the Company, such that (i) the Registration
Statement or the Prospectus, or any amendment or supplement thereto, contains an
untrue statement of fact which, in the opinion of the Representatives, is
material, or omits to state a fact which, in the opinion of the Representatives,
is required to be stated therein or is necessary to make the statements therein
not misleading, or (ii) it is unpracticable in the reasonable judgment of the
Representatives to proceed with the public offering or purchase the Stock as
contemplated hereby.
(C) The Representatives shall be satisfied that no legal or governmental
action, suit or proceeding affecting the Company which is material and adverse
to the Company or which affects or may affect the Company's ability to perform
their respective obligations under this Agreement shall have been instituted or
threatened and there shall have occurred no material adverse development in any
existing such action, suit or proceeding.
(D) At the time of execution of this Agreement, the Representatives shall
have received from Coopers & Lybrand L.L.P., independent certified public
accountants, a letter, dated the date hereof, in form and substance satisfactory
to the Underwriters.
(E) The Representatives shall have received from Coopers & Lybrand L.L.P.,
independent certified public accountants, letters, dated each of the Closing
Dates, to the effect that such accountants reaffirm, as of each of the Closing
Dates, and as though made on each of the Closing Dates, the statements made in
the letter furnished by such accountants pursuant to paragraph (d) of this
Section 8.
(F) The Representatives shall have received from Wilson, Sonsini, Goodrich
and Rosati, counsel for the Company, opinions, dated each of the Closing Dates,
to the effect set forth in Exhibit I hereto.
(G) The Representatives shall have received from Cooley Godward LLP,
counsel for the Underwriters, their opinions dated each of the Closing Dates
with respect to the incorporation of the Company, the validity of the Stock, the
Registration Statement and the Prospectus and such other related matters as it
may reasonably request, and the Company shall
18.
<PAGE>
have furnished to such counsel such documents as they may request for the
purpose of enabling them to pass upon such matters.
(H) The Representatives shall have received a certificates, dated each of
the Closing Dates, of the chief executive officer or the President and the chief
financial or accounting officer of the Company to the effect that:
(I) No stop order suspending the effectiveness of the Registration
Statement has been issued, and, to the best of the knowledge of the signers, no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act;
(II) Neither any Preeffective Prospectus, as of its date, nor the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, as of the time when the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, included
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(III) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as set forth
or contemplated in the Prospectus, the Company has not incurred any material
liabilities or obligations, direct or contingent, nor entered into any material
transactions not in the ordinary course of business and there has not been any
material adverse change in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of the
Company, or any change in the capital stock, short-term or long-term debt of the
Company;
(IV) The representations and warranties of the Company in this
Agreement are true and correct at and as of each of the Closing Dates, and the
Company has complied with all the agreements and performed or satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Dates; and
(V) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as disclosed in or
contemplated by the Prospectus, (i) there has not been any material adverse
change or a development involving a material adverse change in the condition
(financial or otherwise), properties, business, management, prospects, net worth
or results of operations of the Company; (ii) the business and operations
conducted by the Company and its subsidiaries have not sustained a loss by
strike, fire, flood, accident or other calamity (whether or not insured) of such
a character as to interfere materially with the conduct of the business and
operations of the Company; (iii) no legal or governmental action, suit or
proceeding is pending or threatened against the Company which is material to the
Company, whether or not arising from transactions in the ordinary course of
business, or which may materially and adversely affect the transactions
contemplated by this Agreement; (iv) since such dates and except as so
disclosed, the Company has not incurred any material liability or obligation,
direct, contingent or indirect, made any change in its capital stock (except
pursuant to its stock plans), made any material change in its short-term or
funded
19.
<PAGE>
debt or repurchased or otherwise acquired any of the Company's capital stock;
and (v) the Company has not declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock payable to stockholders of
record on a date prior to the Closing Date.
(I) The Company shall have furnished to the Representatives such additional
certificates as the Representatives may have reasonably requested as to the
accuracy, at and as of each of the Closing Dates, of the representations and
warranties made herein by it them and as to compliance at and as of each of the
Closing Dates by it with its covenants and agreements herein contained and other
provisions hereof to be satisfied at or prior to each of the Closing Dates, and
as to satisfaction of the other conditions to the obligations of the
Underwriters hereunder.
(J) Cowen shall have received the written agreements, substantially in the
form of Exhibit II hereto, of the officers, directors and holders of Common
Stock listed in Schedule C that each will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or otherwise dispose of,
other than by operation of law, gifts, pledges or dispositions by estate
representatives, any shares of Common Stock (including, without limitation,
Common Stock which may be deemed to be beneficially owned by such officer,
director or holder in accordance with the Rules and Regulations) during the 180
days following the effective date of the final Prospectus.
The Nasdaq National Market shall have approved the stock for listing, subject
only to official notice of issuance.
All opinions, certificates, letters and other documents will be in compliance
with the provisions hereunder only if they are satisfactory in form and
substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to each of the Closing Dates, but Cowen,
on behalf of the Representatives, shall be entitled to waive any of such
conditions.
9. EFFECTIVE DATE. This Agreement shall become effective immediately as to
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
20.
<PAGE>
10. TERMINATION. This Agreement (except for the provisions of Section 5) may
be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representatives and may be terminated
by the Representatives at any time before it becomes effective in accordance
with Section 9 by notice to the Company. In the event of any termination of
this Agreement under this or any other provision of this Agreement, there shall
be no liability of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to
the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First Closing
Date trading in securities on of the Nasdaq National Market shall have been
suspended or minimum or maximum prices shall have been established on any such
exchange or market, or a banking moratorium shall have been declared by New York
or United States authorities; (ii) trading of any securities of the Company
shall have been suspended on any exchange or in any over-the-counter market;
(iii) if at or prior to the First Closing Date there shall have been (A) an
outbreak or escalation of hostilities between the United States and any foreign
power or of any other insurrection or armed conflict involving the United States
or (B) any change in financial markets or any calamity or crisis which, in the
judgment of the Representatives, makes it impractical or inadvisable to offer or
sell the Stock on the terms contemplated by the Prospectus; (iv) if there shall
have been any development or prospective development involving particularly the
business or properties or securities of the Company or the transactions
contemplated by this Agreement, which, in the judgment of the Representatives,
makes it impracticable or inadvisable to offer or deliver the Stock on the terms
contemplated by the Prospectus; (v) if there shall be any litigation or
proceeding, pending or threatened, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer or deliver the
on the terms contemplated by the Prospectus; or (vi) if there shall have
occurred any of the events specified in the immediately preceding clauses (i) -
(v) together with any other such event that makes it, in the judgment of the
Representatives, impractical or inadvisable to offer or deliver the Stock on the
terms contemplated by the Prospectus.
11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any election
of the Company pursuant to the first paragraph of Section 10 or shall be
terminated by the Representatives under Section 8 or Section 10, the Company
will bear and pay the expenses specified in Section 5 hereof and, in addition to
its obligations pursuant to Section 6 hereof, the Company will reimburse the
reasonable out-of-pocket expenses of the several Underwriters (including
reasonable fees and disbursements of counsel for the Underwriters) incurred in
connection with this Agreement and the proposed purchase of the Stock, and
promptly upon demand the Company will pay such amounts to you as
Representatives.
12. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder and
the aggregate number of shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed ten percent (10%) of the total
number of shares underwritten, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to
21.
<PAGE>
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight (48)
hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required hereby or
agree to take up all or part of the shares of Stock of a defaulting Underwriter
or Underwriters as provided in this Section 12, (i) the Company shall have the
right to postpone the Closing Date[s] for a period of not more than five (5)
full business days in order that the Company may effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter of
its liability to the Company or the other Underwriters for damages occasioned by
its default hereunder. Any termination of this Agreement pursuant to this
Section 12 shall be without liability on the part of any non-defaulting
Underwriter or the Company, except for expenses to be paid or reimbursed
pursuant to Section 5 and except for the provisions of Section 6.
13. NOTICES. All communications hereunder shall be in writing and, if sent to
the Underwriters shall be mailed, delivered or telegraphed and confirmed to you,
as their Representatives c/o Cowen & Company at Financial Square, New York, New
York 10005 except that notices given to an Underwriter pursuant to Section 6
hereof shall be sent to such Underwriter at the address furnished by the
Representatives or, if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed c/o Harry Robbins, Symphonix Devices, Inc., 3047
Orchard Parkway, San Jose, CA 95134.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and their respective successors and
legal representatives. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person other than the persons
mentioned in the preceding sentence any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person; except that the representations, warranties, covenants,
agreements and indemnities of the Company contained in this Agreement shall also
be for the benefit of the person or persons, if any, who control any Underwriter
or Underwriters within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, and the indemnities of the several Underwriters
shall also be for the benefit of each director of the Company, each of its
officers who has signed the Registration Statement and the person or persons, if
any, who control the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act.
22.
<PAGE>
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
16. AUTHORITY OF THE REPRESENTATIVES. In connection with this Agreement, you
will act for and on behalf of the several Underwriters, and any action taken
under this Agreement by Cowen, as Representative, will be binding on all the
Underwriters.
17. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
18. GENERAL. This Agreement constitutes the entire agreement of the parties to
this Agreement and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings and negotiations with respect to the subject
matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the singular
and the plural include one another. The section headings in this Agreement are
for the convenience of the parties only and will not affect the construction or
interpretation of this Agreement. This Agreement may be amended or modified,
and the observance of any term of this Agreement may be waived, only by a
writing signed by the Company and the Representatives.
19. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
23.
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon this
letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
SYMPHONIX DEVICES, INC.
By:_____________________________________
President
Accepted and delivered in
____________, California as of
the date first above written.
COWEN & COMPANY
UBS SECURITIES LLC
Acting on its own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: COWEN & COMPANY
By: Cowen Incorporated,
its general partner
By:______________________________
John P. Dunphy
Managing Director - Syndicate
24.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number Number of
of Firm Optional
Shares Shares
to be to be
Name Purchased Purchased
--------- ---------
<S> <C> <C>
Cowen & Company.....
UBS Securities LLC..
--------- -------
Total 2,300,000 345,000
========= =======
</TABLE>
-25-
<PAGE>
SCHEDULE C
-26-
<PAGE>
EXHIBIT I
[FORM OF OPINION OF ISSUER'S COUNSEL]
[Date]
Cowen & Company
UBS Securities LLC
As representatives of the several
Underwriters named in Schedule A
c/o Cowen & Company
Financial Square
New York, New York 10005
Re: Symphonix Devices, Inc.
2,300,000 Shares of Common Stock
Dear Sirs:
We have acted as counsel for Symphonix Devices, Inc., a Delaware corporation
(the "Company"), in connection with the sale by the Company and purchase of
2,300,000 shares of Common Stock, par value $0.01 per share, of the Company (the
"Shares") by the several Underwriters listed in Schedule A to the Underwriting
Agreement, dated ____, 1997 among the Company, Cowen & Company and UBS
Securities LLC, as representatives of the several Underwriters named therein
(the "Underwriting Agreement"). This opinion is being furnished pursuant to
Section 8(f) of the Underwriting Agreement. All defined terms not defined herein
shall have the meanings ascribed to them in the Underwriting Agreement.
We are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which its ownership or lease of property or the conduct of
its business requires such qualification, and has all power and authority
necessary to own or hold its properties and conduct the business in which it is
engaged;
-27-
<PAGE>
2. The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and all of the Shares to be issued and sold by the Company to the Underwriters
pursuant to the Underwriting Agreement have been duly and validly authorized
and, when issued and delivered against payment therefor as provided for in the
Underwriting Agreement, shall be duly and validly issued, fully paid and non-
assessable;
3. There are no preemptive or other rights to subscribe for or to purchase,
nor any restriction upon the voting or transfer of, any of the Shares pursuant
to the Company's Certificate of Incorporation or By-Laws or any agreement or
other instrument;
4. There are no legal or governmental proceedings pending to which the Company
is a party or of which any property or assets of the Company is the subject
which, if determined adversely to the Company, could have a material adverse
effect on the Company; and, to the best of our knowledge, no such proceedings
are threatened or contemplated by governmental authorities or other third
parties;
5. The Company owns or possesses all patents, trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by it or necessary for the conduct of its business,
and the Company is not aware of any claim to the contrary or any challenge by
any other person to the rights of the Company with respect to the foregoing. The
Company's business as now conducted and as proposed to be conducted does not and
will not infringe or conflict with any patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses or other intellectual property or
franchise right of any person;
6. The Company has, and the Company as of the Closing Dates will have, good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned or proposed to be owned by it which is
material to the business of the Company, in each case free and clear of all
liens, encumbrances and defects; and any real property and buildings held under
lease by the Company or proposed to be held after giving effect to the
transactions described in the Prospectus are, or will be as of the Closing
Dates, held by it under valid, subsisting and enforceable leases with such
exceptions as would not have a material adverse effect on the Company considered
as a whole;
7. The Company has full corporate power and authority to enter into the
Underwriting Agreement and to perform its obligations thereunder (including to
issue, sell and deliver the Shares), and the Underwriting Agreement has been
duly and validly authorized, executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that rights to indemnification
and contribution thereunder may be limited by federal or state securities laws
or the public policy underlying such laws;
8. The execution, delivery and performance of the Underwriting Agreement and
the consummation of the transactions therein contemplated will not result in a
breach or violation
-28-
<PAGE>
of any of the terms or provisions of or constitute a default under any
indenture, mortgage, deed of trust, note agreement or other agreement or
instrument to which the Company is a party or by which it or any of its
properties is or may be bound, the Certificate of Incorporation, By-laws or
other organizational documents of the Company, or any law, order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its properties or result in the creation of a lien;
9. No consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Company of the
transactions contemplated by the Underwriting Agreement, except such as may be
required by the National Association of Securities Dealers, Inc. (the "NASD") or
under the Securities Act or the securities or "Blue Sky" laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters;
10. The Company is in compliance with, and conducts its business in conformity
with, all applicable federal, state, local and foreign laws, rules and
regulations, including, but not limited to, those of any governmental agency,
court or tribunal; to the best of our knowledge, no prospective change in any of
such federal, state, local or foreign laws, rules or regulations has been
adopted which, when made effective, would have a material adverse effect on the
operations of the Company. The Company is in compliance with all applicable
federal, state, local and foreign laws and regulations relating to the
protection of human health or the environment or imposing liability or requiring
standards of conduct concerning any Hazardous Materials;
11. The Registration Statement was declared effective under the Securities Act
as of __________, 1997, the Prospectus was filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations on __________, 1997 and no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose is pending or, to the best of our knowledge,
threatened by the Commission;
12. The Registration Statement and the Prospectus and any amendments or
supplements thereto comply as to form in all respects with the requirements of
the Securities Act and the Rules and Regulations and the documents incorporated
by reference in the Prospectus, when they became effective or were filed with
the Commission, as the case may be, complied as to form in all respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and the
Rules and Regulations; and any amendment or supplement to any such incorporated
document, when they became effective or were filed with the Commission, as the
case may be, complied as to form in all respects with the requirements of the
Securities Act or the Exchange Act, as applicable, and the Rules and
Regulations;
13. To the best of our knowledge, there are no contracts or other documents
which are required by the Securities Act or by the Rules and Regulations to be
described in the Prospectus or filed as exhibits to the Registration Statement
which have not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by the
Rules and Regulations;
-29-
<PAGE>
14. Other than as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right (other than rights which have been waived or satisfied) to
require the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the securities
registered pursuant to this Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Securities Act;
15. The descriptions in the Registration Statement and Prospectus of statutes,
rules, regulations, legal or governmental proceedings, contracts and other
documents are accurate and such descriptions fairly present the information
required to be disclosed; and to the best of our knowledge, there are no legal
or governmental proceedings, statutes, ruler or regulations, or any contracts or
documents of a character required to be described in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement which are
not described and filed as required;
16. The statements under the captions "Risk Factors"; and "Business-Government
Regulation", to the extent they reflect matters of federal law arising under the
laws of the United States or legal conclusions relating to such law, accurately
summarize and fairly present the legal and regulatory matters described therein;
17. The Company has complied with all provisions of Section 517.075 of the
Florida Statutes (Chapter 92 - l98; Laws of Florida);
18. The Company is not, nor will it be immediately after receiving the proceeds
from the sale of the Shares, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended;
The foregoing opinion is limited to matters governed by the Federal laws of the
United States of America, the general corporate law of the States of Delaware
and New York and the laws of the State of California.
We have acted as counsel to the Company on a regular basis, have acted as
counsel to the Company in connection with previous financing transactions and
have acted as counsel to the Company in connection with the preparation and
filing of the Registration Statement and the Prospectus, and based on the
foregoing, no facts have come to our attention which lead us to believe that (i)
the Registration Statement or any amendment thereto, as of the Effective Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectus contains any untrue statement of
a material fact or omits to state a material fact Required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or (ii) any document
incorporated by reference in the Prospectus or any amendment or supplement to
any such incorporated document made by the Company, when they became effective
or were filed with the Commission, as the case may be, contained, in the case of
a registration statement which
-30-
<PAGE>
became effective under the Securities Act, any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or, in the
case of documents filed under the Exchange Act with the Commission, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Very truly yours,
-31-
<PAGE>
Text of forms of legal opinion
for FDA opinion and patent opinion
to come
-32-
<PAGE>
SCHEDULE A
[Underwriters]
-33-
<PAGE>
[Date]
Cowen & Company
UBS Securities, Inc.
As representatives of the
several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Re: Symphonix Devices, Inc.
____ Shares of Common Stock
Dear Sirs:
In order to induce Cowen & Company ("Cowen") and UBS Securities, LLC (together
with Cowen, the "Representatives"), to enter in to a certain underwriting
agreement with Symphonix Devices, Inc., a Delaware corporation (the "Company"),
with respect to the public offering of shares of the Company's Common Stock, par
value $0.01 per share ("Common Stock"), the undersigned hereby agrees that for a
period of one hundred eighty (180) days following the date of the final
prospectus filed by the Company with the Securities and Exchange Commission in
connection with such public offering, the undersigned will not, without the
prior written consent of Cowen, directly or indirectly, offer, sell, assign,
transfer, encumber, pledge, contract to sell, grant an option to purchase or
otherwise dispose of, other than by operation of law, any shares of Common Stock
(including, without limitation, Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations promulgated under the Securities Act of 1933, as the same may be
amended or supplemented from time to time (such shares, the "Beneficially Owned
Shares")).
Anything contained herein to the contrary notwithstanding, any person to whom
shares of Common Stock or Beneficially Owned Shares are transferred from the
undersigned shall be bound by the terms of this Agreement.
-34-
<PAGE>
In addition, the undersigned hereby waives, from the date hereof until the
expiration of the one-year period following the date of the Company's final
Prospectus, any and all rights, if any, to request or demand registration
pursuant to the Securities Act of any shares of Common Stock that are registered
in the name of the undersigned or that are Beneficially Owned Shares.
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Common Stock with respect to any shares of Common Stock or
Beneficially Owned Shares.
[Signatory]
By:_________________________
Name:
Title:
-35-
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION OF
SYMPHONIX DEVICES, INC.
Alfred G. Merriweather and J. Casey McGlynn certify that:
1. They are the Vice President and the Secretary, respectively, of
Symphonix Devices, Inc., a California corporation.
2. The articles of incorporation of this corporation are hereby amended
and restated to read as follows:
"I.
The name of this corporation is Symphonix Devices, Inc. (the
"Corporation").
II.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
The Corporation is authorized to issue two (2) classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is twenty-nine
million seven hundred fifty thousand (29,750,000) shares, twenty million
(20,000,000) shares of which shall be Common Stock (the "Common Stock") and nine
million seven hundred fifty thousand (9,750,000) shares of which shall be
Preferred Stock (the "Preferred Stock").
IV.
The rights, preferences, privileges, restrictions and other matters
relating to the nine million seven hundred fifty thousand (9750,000) shares of
Preferred Stock are as follows:
1. Designation. Five million five hundred thousand (5,500,000) shares of
-----------
Preferred Stock are hereby designated "Series A Preferred Stock", one million
five hundred thousand (1,500,000) shares of Preferred Stock are hereby
designated "Series B Preferred Stock,"
<PAGE>
one million five hundred thousand (1,500,000) shares of Preferred Stock are
hereby designated "Series C Preferred Stock" and one million two hundred fifty
thousand (1,250,000) shares of Preferred Stock are hereby designated "Series D
Preferred Stock."
2. Dividends. The holders of shares of Series A Preferred Stock, Series
---------
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
be entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the Corporation) on the Common Stock of the
Corporation, at the rate of $0.10, $0.40, $0.535 and $0.80 per share per annum,
respectively, or if greater (as determined on a per annum basis and an as-
converted basis for the Preferred Stock), an amount equal to that paid on any
other outstanding shares of the Corporation whenever funds are legally available
therefor, payable when, as and if declared by the Board of Directors. No
dividend shall be declared with respect to any series of Preferred Stock unless
a dividend is declared with respect to each series of outstanding Preferred
Stock at a rate that is no less favorable to the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock than $0.10, $0.40, $0.535 and $0.80 per annum for each share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, respectively. Such dividends shall not be cumulative.
3. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, an amount per
share equal to $1.00, $4.00, $5.35 and $8.00 for each outstanding share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, respectively (as adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares, hereinafter "as adjusted"), plus all declared but unpaid dividends on
such shares. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire assets and funds of the Corporation legally available for
distribution shall be distributed first ratably among the holders of Series C
Preferred Stock and Series D Preferred Stock until the holders of Series C
Preferred Stock and Series D Preferred Stock have received payment of their full
aforesaid preferential amounts; provided, however, that if the assets and funds
thus distributed among the holders of the Series C Preferred Stock and Series D
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then such assets shall be distributed
among such holders of Series C Preferred Stock and Series D Preferred Stock in
proportion to the respective amounts which would be payable on such shares of
Series C Preferred Stock and Series D Preferred Stock held by them if the
aforesaid preferential amounts were paid in full. Then, such assets and funds
shall be distributed ratably among the holders of the Series A Preferred Stock
and Series B Preferred Stock, based upon the number of shares of
-2-
<PAGE>
Series A Preferred Stock and Series B Preferred Stock then held, in proportion
to the respective amounts which would be payable on the shares held by them if
the aforesaid preferential amounts were paid in full.
(b) After the payment of the full liquidation preference set forth in
Section 3(a) above, the remaining assets of the Corporation available for
distribution to shareholders shall be distributed pro rata to the holders of
Common Stock (based on the number of shares of Common Stock then held by each
such holder).
(c) A liquidation, dissolution, or winding up within the meaning of
this Section 3 shall be deemed to be occasioned by, and to include, (i) any sale
of all or substantially all of the assets of the Corporation and (ii) any
consolidation, merger or other transaction or series of transactions pursuant to
which the holders of the outstanding voting securities of the Corporation
immediately prior to such consolidation, merger or other transaction or series
of transactions fail to hold equity securities representing a majority of the
voting power of the surviving entity immediately following such consolidation,
merger or other transaction or series of transactions.
(d) Any securities to be delivered to the holders of the Preferred
Stock or Common Stock pursuant to this Section 3 shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(1) If traded on a national securities exchange or the
Nasdaq National Market (the "NMS"), the value shall be deemed to be the average
of the security's last reported sale prices on such exchange or the NMS over the
thirty (30) day period ending three (3) days prior to the closing;
(2) If traded over-the-counter (but not on the NMS), the
value shall be deemed to be the average of the mean of the closing bid and ask
prices over the thirty (30) day period ending three (3) days prior to the
closing; or
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of not less than fifty percent (50%) of the outstanding Preferred Stock,
voting together as a single class.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in Sections
3(d)(i)(1), (2) or (3) to reflect the approximate fair market value thereof, as
mutually determined by the Corporation and the holders of not less than fifty
percent (50%) of the outstanding Preferred Stock, voting together as a single
class.
(e) Each holder of any outstanding shares of Preferred Stock shall be
deemed to have consented, for purposes of Sections 502, 503 and 506 of the
California Corporations Code, to
-3-
<PAGE>
distributions made by the Corporation in connection with (i) the repurchase of
shares of Common Stock issued to or held by employees, directors or consultants
of or to the Corporation or any of its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of such
repurchase between the Corporation and such persons and (ii) the repurchase of
shares of Common Stock in connection with the exercise of the right of first
refusal pursuant to agreements providing for the right of first refusal between
the Corporation and any of its share holders, provided that a majority of
disinterested members of the Board of Directors has approved such distributions.
(f) In the event the Corporation will not, at the closing of any
transaction identified in Sections 3(c)(i) or (ii) above, comply with the
requirements of this Section 3, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 3 have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 3(g) hereof.
(g) The Corporation shall give each holder of record of Preferred
Stock written notice of such impending transaction not later than twenty (20)
days prior to the shareholders' meeting called to approve a transaction
referenced in Sections 3(c)(i) and (ii), or twenty (20) days prior to the
closing of such transaction, whichever is earlier and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 3, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein. Notwithstanding the foregoing, the provisions of this
Section 3(g) may be waived, either prospectively or retrospectively, in whole or
in part, or any time period in this Section 3(g) may be shortened, in either
case, upon the written consent of the holders of the Preferred Stock which
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock, voting together as a single class.
4. Conversion. The holders of the Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(i) Each share of Preferred Stock shall be convertible into
shares of Common Stock, at the option of the holder thereof, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for such stock. Each share of Preferred
-4-
<PAGE>
Stock shall be convertible into the number of fully paid and nonassessable
shares of Common Stock which results from dividing the Conversion Price (as
hereinafter defined) per share in effect for each series of Preferred Stock at
the time of conversion into the per share Conversion Value (as hereinafter
defined) of such series. As of the date these Restated Articles of Incorporation
are filed with the California Secretary of State, the Conversion Price per share
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall be $1.00, $4.00, $5.35, and $8.00
respectively. The per share Conversion Value shall be $1.00, $4.00, $5.35 and
$8.00, respectively. The Conversion Price of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
subject to adjustment from time to time as provided below.
(ii) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective applicable
Conversion Price immediately upon the closing of the sale of the Corporation's
Common Stock in a firm commitment, underwritten public offering registered under
the Securities Act of 1933, as amended (other than a registration relating
solely to a transaction under Rule 145 under such Act (or any successor thereto)
or to an employee benefit plan of the Company), at a public offering price
(prior to underwriter commissions and expenses) equal to or exceeding eleven
dollars ($11.00) per share of Common Stock (appropriately adjusted for
subdivisions and combinations of shares of Common Stock and dividends on Common
Stock payable in shares of Common Stock) and the aggregate dollar amount of the
offering (before deduction for underwriter commissions and expenses relating to
the issuance) of which exceeds seventeen million dollars ($17,000,000).
(iii) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective applicable
Conversion Price upon the vote or written consent of the holders of sixty-six
and two-thirds percent (66 2/3%) of the authorized shares of Preferred Stock
then outstanding, voting together as a single class.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates thereof, duly endorsed, at the office
of the Corporation or of any transfer agent for such stock, and shall give
written notice to the Corporation at such office that he elects to convert the
same and shall state therein the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date. If
the conversion is in connection with an underwritten offer of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such
-5-
<PAGE>
conversion of Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Section 4(c), the
-------------------
following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Convertible Securities" shall mean any evidences of
----------------------
indebted ness, shares or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(3) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock issued (or, pursuant to Section 4(c) (iii), deemed to be
issued) by the Corporation after the date hereof, other than:
(A) shares of Common Stock issued or issuable upon
conversion of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock authorized herein;
(B) up to an aggregate of two million two hundred
thirty-five thousand (2,235,000) shares of Common Stock issued or issuable to
officers, directors, and employees of, or consultants or advisers to, the
Corporation pursuant to agreements, plans or arrangements approved by the Board
of Directors of the Corporation;
(C) shares of Common Stock issued or issuable as a
dividend or distribution on the Series A Preferred Stock, the Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock or any event for
which adjustment is made pursuant to Sections 4(e), 4(f) or 4(n) hereof;
(D) shares of Common Stock issued or issuable by way of
dividend or other distribution on shares excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (A) or (C) or this
clause (D) or on shares of Common Stock so excluded; or
(E) shares of Common Stock or other securities issued
or issuable to licensors of technology to the Corporation under any agreement or
arrangement approved by a majority of the disinterested Board of Directors of
the Corporation.
(ii) No Adjustment of Conversion Price. No adjustment to the
---------------------------------
Conversion Price of any series of Preferred Stock shall be made in respect of
the issuance of Additional Shares of
-6-
<PAGE>
Common Stock unless the consideration per share for any Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price of such series of Preferred Stock in effect on the date of, and
immediately prior to, the issue of such Additional Share of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
--------------------------------------------------------
Common Stock. In the event the Corporation at any time or from time to time
- ------------
after the date hereof shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that in
any such case in which Additional Shares of Common Stock are deemed to be
issued:
(1) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decreases in the number of shares
of Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(3) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(A) in the case of Convertible Securities or Options
for Common Stock the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
-7-
<PAGE>
(B) in the case of Options for Convertible Securities
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of common Stock actually
deemed to have been then issued was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clause (2) or (3) above
shall have the effect of increasing the Conversion Price for any series of
Preferred Stock to an amount which exceeds the lower of (i) such Conversion
Price on the original adjustment date, or (ii) such Conversion Price that would
have resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date; and
(5) in the case of any Options which expire by their terms
not more than thirty (30) days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock. If the Corporation shall issue Additional Shares of
- ----------------------
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 4(c) (iii)) without consideration or for a consideration per
share less than the Conversion Price for any series of Preferred Stock in effect
on the date of and immediately prior to such issuance (excluding stock
dividends, distributions, subdivisions, split-ups, or combinations which are
covered by Sections 4(e) and 4(f)), then the Conversion Price for such series of
Preferred Stock shall be reduced, concurrently with such issuance, to a price
(calculated to the nearest tenth of a cent) equal to the quotient obtained by
dividing the total computed under clause (x) below by the total computed under
clause (y) below as follows:
(x) an amount equal to the sum of:
(1) the total number of shares of Common Stock issuable
upon conversion of all of the then outstanding shares of Preferred Stock
(at the applicable Conversion Prices for the Preferred Stock in effect
immediately prior to such issuance) multiplied by the applicable Conversion
Price for such series of Preferred Stock in effect immediately prior to
such issuance, plus
(2) the aggregate consideration, if any, received by the
Corporation for such issuance;
(y) an amount equal to the sum of
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<PAGE>
(1) the total number of shares of Common Stock issuable
upon conversion of all of the then outstanding shares of Preferred Stock
(at the applicable Conver sion Prices for the Preferred Stock in effect
immediately prior to such issuance), plus
(2) the Additional Shares of Common Stock issued in such
issuance.
Notwithstanding the foregoing, the Conversion Price of a series of Preferred
Stock shall not be so reduced at such time if the amount of such reduction would
be an amount less than one-tenth of a cent ($0.001), but any such amount shall
be carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate one-tenth of a cent
($0.001) or more.
(v) Determination of Consideration. For purposes of this Section
------------------------------
4(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors irrespective of any accounting
treatment; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 4(c)(iii), relating to Options
and Convertible Securities, shall be deter mined by dividing:
(A) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the
-9-
<PAGE>
exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(d) Adjustment to Conversion Price in the Event of a Forced or
----------------------------------------------------------
Automatic Conversion. In the event of (i) a forced conversion of the Series C
- --------------------
Preferred Stock pursuant to Section 4(a)(iii) in connection with an initial
public offering at a price lower than $8.50 per share of Common Stock or (ii) an
automatic conversion of the Series C Preferred Stock pursuant to Section
4(a)(ii) at a price lower than $8.50 per share of Common Stock, then the
Conversion Price for the Series C Preferred Stock shall be reduced to $5.0156.
In the event of a forced conversion of the Series D Preferred Stock pursuant to
Section 4(a)(iii) in connection with an initial public offering at a price lower
than $8.00 per share of Common Stock or (ii) an automatic conversion of the
Series D Preferred Stock pursuant to Section 4(a)(ii) at a price lower than
$8.00 per share of Common Stock, then the Conversion Price for the Series D
Preferred stock shall be reduced to the amount of such initial public offering
price. The above numbers are subject to adjustment for subdivisions and
combinations of shares of Common Stock and dividends on Common Stock payable in
shares of Common Stock.
(e) Adjustments to Conversion Price for Other Events. The
------------------------------------------------
Conversion Price shall be subject to adjustment from time to time as follows:
(vi) If the number of shares of Common Stock outstanding is
increased by a stock dividend or distribution payable in shares of Common Stock
or by a subdivision or split-up of shares of Common Stock, then, as of the
record date fixed for the determination of holders of Common Stock entitled to
receive such stock dividend, distribution, subdivision or split-up (or the date
of such dividend, distribution, split-up or subdivision if no record date is
fixed), the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Preferred Stock shall be increased in proportion to
such increase of outstanding shares of Common Stock.
(vii) If the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Price of each
series of Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares of
Common Stock.
(f) Other Distributions. In the event the Corporation shall declare a
-------------------
distribution payable in securities of other persons, evidence of indebtedness
issued by the Corporation or other persons, or assets, options or rights not
referred to in Section 4(c) hereof, then, in each such case, provision shall be
made so that the holders of the Preferred Stock shall be entitled to receive,
upon
-10-
<PAGE>
the conversion thereof, the consideration per share which they would have
received had their Preferred Stock been converted into Common Stock on the date
of such event.
(g) No Impairment. The Corporation will not, through any
-------------
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(h) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Conversion Price of any series of Preferred
Stock pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock the Conversion Price of which has been
adjusted a certificate signed by the chief executive officer or the chief
financial officer of the Company setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of the Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive Common Stock
or other securities of the Company, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Preferred Stock at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right, and the
amount and character of such dividend, distribution, security or right.
(j) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(k) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued
-11-
<PAGE>
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including, without limitation, engaging in
best efforts to obtain the requisite shareholder approval of any necessary
amendment to these Articles.
(l) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation).
(m) Notices. Any notice required by the provisions of this Section 4
-------
to be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Corporation.
(n) Adjustments. In case of any reorganization or any
-----------
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into another corporation or corporations, or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation (other than a subdivision, combination or merger or sale of
assets transaction provided for elsewhere in Section 3 or in this Section 4),
each share of Preferred Stock shall thereafter be convertible into the number of
shares of stock or other securities or property (including cash) to which a
holder of the number of shares of Common Stock deliverable upon conversion of
such share of Preferred Stock would have been entitled upon the record date of
(or date of, if no record date is fixed) such reorganization, reclassification,
consolidation, merger or conveyance; and, in any case, appropriate adjustment
(as determined by the Board of Directors) shall be made in the application of
the provisions herein set forth with respect to the rights and interests
thereafter of the holders of such Preferred Stock, to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
equivalent as is practicable, in relation to any shares of stock or the
securities or property (including cash) thereafter deliverable upon the
conversion of the shares of Preferred Stock.
5. Voting Rights. Except as otherwise expressly provided herein or as
-------------
required by law, the holder of each share of the Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Preferred Stock could be converted and shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock (except as otherwise expressly provided herein or as required by law,
voting together with the Common Stock as a single class) and shall be entitled
to notice of any shareholders' meeting in
-12-
<PAGE>
accordance with the Bylaws of the Corporation. Fractional votes shall not,
however, be permitted and any fractional voting rights resulting from the above
formula (after aggregating all shares into which shares of Preferred Stock held
by each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
6. Covenants. So long as at least five hundred thousand (500,000) shares
---------
of the Preferred Stock shall be outstanding, the Corporation shall not, without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority in interest of the then outstanding shares of
Preferred Stock, voting together as a single class and on an as if converted
basis:
(a) Effect any sale of all or substantially all of the assets of the
Corporation or any merger or consolidation of the Corporation with another
corporation;
(b) Take any action (other than of a ministerial nature, including
the registration of a transfer on the books and records of the Corporation) to
initiate a transfer of 50% or more in interest (determined on an as converted
basis) of the capital stock of the Corporation in a single transaction or a
series of related transactions;
(c) amend or repeal any provision of, or add any provision to, the
Corporation's Articles of Incorporation if such action would increase the
authorized number of shares of Preferred Stock, or alter or change the rights,
preferences, privileges or limitations provided for the benefit of the Preferred
Stock;
(d) create any series or class of stock having any preference or
priority as to dividends, redemption, voting, liquidation, conversion or assets
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
Series D Preferred Stock; or
(e) amend or repeal any provision of, or add any provision to, the
Corporation's Bylaws if such action would increase the authorized number of
directors of the Company to more than seven (7) directors.
V.
The following is applicable to the Common Stock:
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corpora tion
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
-13-
<PAGE>
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
------------------
of the Corpora tion, the assets of the Corporation shall be distributed as
provided in Section 3 of Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights.
-------------
(a) General. The holder of each share of Common Stock shall have the
-------
right to one vote, and shall be entitled to notice of any shareholders' meeting
in accordance with the Bylaws of the Corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
VI.
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. Any
repeal or modification of this Article shall only be prospective and shall not
affect the rights under this Article in effect at the time of the alleged
occurrence of any action or omission to act giving rise to liability.
VII.
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) for breach of duty
to the Corporation and its shareholders through bylaw provisions, or through
agreements with the agents, or through shareholder resolutions, or through
resolutions of disinterested directors, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject to the limits on such excess indemnification set
forth in Section 204 of the California Corporations Code. Any repeal or
modification of this Article shall only be prospective and shall not affect the
rights under this Article in effect at the time of the alleged occurrence of any
action or omission to act giving rise to indemnification."
3. The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the Board of Directors of this
corporation.
4. The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the Corporations Code. The total number of
outstanding shares of this corporation is 5,463,000 shares of Series A Preferred
Stock, 1,378,500 shares of Series B Preferred Stock, 1,162,451 shares of Series
C Preferred Stock, 440,680 shares of Series D Preferred Stock and 3,315,561
shares of Common Stock.
-14-
<PAGE>
The number of shares voting in favor of the amendment equaled or exceeded the
vote required. The percentage vote required was more than fifty percent (50%) of
the outstanding shares of Common Stock (voting as a separate class), more than
fifty percent (50%) of the outstanding shares of Preferred Stock (voting as a
separate class) and more than fifty percent (50%) of the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock (voting together as a
class).
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-15-
<PAGE>
We further declare under penalty of perjury that the matters set forth in
the foregoing certificate are true and correct of our own knowledge.
Executed at San Jose, California, on June 4, 1997.
/s/ Alfred G. Merriweather
-------------------------------------------
Alfred G. Merriweather, Vice President
/s/ J. Casey McGlynn
-------------------------------------------
J. Casey McGlynn, Secretary
-16-
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
SYMPHONIX DEVICES, INC.
-----------------------
<PAGE>
BYLAWS OF
SYMPHONIX DEVICES, INC.
-----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES................................................... 1
1.1 PRINCIPAL OFFICE.......................................................... 1
1.2 OTHER OFFICES............................................................. 1
ARTICLE II - MEETINGS OF SHAREHOLDERS........................................... 1
2.1 PLACE OF MEETINGS......................................................... 1
2.2 ANNUAL MEETING............................................................ 1
2.3 SPECIAL MEETING........................................................... 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS.......................................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.............................. 3
2.6 QUORUM.................................................................... 3
2.7 ADJOURNED MEETING; NOTICE................................................. 4
2.8 VOTING.................................................................... 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT......................... 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING................................................................... 6
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING
CONSENTS.................................................................. 7
2.12 PROXIES.................................................................. 7
2.13 INSPECTORS OF ELECTION................................................... 8
ARTICLE III - DIRECTORS......................................................... 9
3.1 POWERS.................................................................... 9
3.2 NUMBER OF DIRECTORS....................................................... 9
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.................................. 9
3.4 RESIGNATION AND VACANCIES................................................. 10
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................................. 10
3.6 REGULAR MEETINGS.......................................................... 11
3.7 SPECIAL MEETINGS; NOTICE.................................................. 11
3.8 QUORUM.................................................................... 11
3.9 WAIVER OF NOTICE.......................................................... 12
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
---
<S> <C>
3.10 ADJOURNMENT............................................................. 12
3.11 NOTICE OF ADJOURNMENT................................................... 12
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING....................... 12
3.13 FEES AND COMPENSATION OF DIRECTORS...................................... 12
3.14 APPROVAL OF LOANS TO OFFICERS........................................... 13
ARTICLE IV - COMMITTEES........................................................ 13
4.1 COMMITTEES OF DIRECTORS.................................................. 13
4.2 MEETINGS AND ACTION OF COMMITTEES........................................ 14
ARTICLE V - OFFICERS........................................................... 14
5.1 OFFICERS................................................................. 14
5.2 ELECTION OF OFFICERS..................................................... 15
5.3 SUBORDINATE OFFICERS..................................................... 15
5.4 REMOVAL AND RESIGNATION OF OFFICERS...................................... 15
5.5 VACANCIES IN OFFICES..................................................... 15
5.6 CHAIRMAN OF THE BOARD.................................................... 15
5.7 PRESIDENT................................................................ 16
5.8 VICE PRESIDENTS.......................................................... 16
5.9 SECRETARY................................................................ 16
5.10 CHIEF FINANCIAL OFFICER................................................. 17
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS.................................................. 17
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................................ 17
6.2 INDEMNIFICATION OF OTHERS................................................ 18
6.3 PAYMENT OF EXPENSES IN ADVANCE........................................... 18
6.4 INDEMNITY NOT EXCLUSIVE.................................................. 18
6.5 INSURANCE INDEMNIFICATION................................................ 19
6.6 CONFLICTS................................................................ 19
ARTICLE VII - RECORDS AND REPORTS.............................................. 19
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER............................. 19
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.2 MAINTENANCE AND INSPECTION OF BYLAWS.................................. 20
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS................. 20
7.4 INSPECTION BY DIRECTORS............................................... 21
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER................................. 21
7.6 FINANCIAL STATEMENTS.................................................. 21
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS........................ 22
ARTICLE VIII - GENERAL MATTERS.............................................. 22
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING................. 22
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS............................. 23
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.................... 23
8.4 CERTIFICATES FOR SHARES............................................... 23
8.5 LOST CERTIFICATES..................................................... 24
8.6 CONSTRUCTION; DEFINITIONS............................................. 24
ARTICLE IX - AMENDMENTS..................................................... 24
9.1 AMENDMENT BY SHAREHOLDERS............................................. 24
9.2 AMENDMENT BY DIRECTORS................................................ 24
</TABLE>
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<PAGE>
BYLAWS
------
OF
--
SYMPHONIX DEVICES, INC.
-----------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 PRINCIPAL OFFICE
----------------
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the second
Tuesday of May at 10:00 a.m. However, if such day falls on a legal holi day,
then the meeting shall be held at the same time and place on the next succeeding
full business day. At the meeting, directors shall be elected, and any other
proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chair man of the board, the president, any vice president
or the secretary of the corporation. The officer receiving the request shall
cause notice to be promptly given to the shareholders entitled to vote, in
accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a
meeting will be held at the time requested by the person or persons calling the
meeting, so long as that time is not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after receipt of the request, then the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing or affecting the time
when a meeting of shareholders called by action of the board of directors may be
held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Sec tion 2.5 of these bylaws, thirty (30)) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding pre ferred shares, pursuant to
Section 2007 of the Code, then the notice shall also state the general nature of
that proposal.
-2-
<PAGE>
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written com
munication. Notices not personally delivered shall be sent charges prepaid and
shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
-3-
<PAGE>
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation
may transact any business which might have been transacted at the original
meeting.
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sec tions 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to com mencement of the voting of the shareholder's intention to cumulate
votes. If any shareholder has given such a notice, then every shareholder
entitled to vote may cumulate votes for candidates in nomination either (i) by
giving one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the
-4-
<PAGE>
candidates, as the shareholder thinks fit. The candidates receiving the highest
number of affirmative votes, up to the number of directors to be elected, shall
be elected; votes against any candidate and votes withheld shall have no legal
effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be trans acted or the
purpose of any annual or special meeting of shareholders, except that if action
is taken or proposed to be taken for approval of any of those matters specified
in the second paragraph of Sec tion 2.4 of these bylaws, the waiver of notice
or consent or approval shall state the general nature of the proposal. All such
waivers, consents, and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
-5-
<PAGE>
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
2.12 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name
-6-
<PAGE>
is placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's attorney-in-
fact. A validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) the person who executed the proxy
revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presump tively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
-7-
<PAGE>
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these bylaws relating to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than five
(5)** nor more than seven (7)**. The exact number of directors shall be six
(6)** until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
-------------------------
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Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the re moval of a director by the vote
or written consent of the shareholders or by court order may be filled only by
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum), or by the
unanimous written consent of all shares entitled to vote thereon. Each director
so elected shall hold office until the next annual meeting of the shareholders
and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
share holders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal, if by written consent, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all direc tors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
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3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
------
A majority of the authorized number of directors shall consti tute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Sec tion 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meet ing, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such direc tors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
-----------
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A majority of the directors present, whether or not consti tuting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compen sation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
-----------------------------
The corporation may, upon the approval of the board of direc tors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
_____________________
* This section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code.
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ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a major ity of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corpora tion, except at
a rate or in a periodic amount or within a price range determined by the board
of directors; or
(g) the appointment of any other committees of the board of directors
or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjourn ment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of
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committees may also be called by resolution of the board of directors, and that
notice of special meetings of committees shall also be given to all alternate
mem bers, who shall have the right to attend all meetings of the com mittee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secre tary, and a
chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant sec retaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Sec
tion 5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the presi dent to
appoint, such other officers as the business of the corpo ration may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any con tract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the accep tance of the resignation shall not be
necessary to make it effec tive. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or non
existence of a chairman of the board, at all meetings of the board of directors.
He shall have the general powers and duties of man agement usually vested in
the office of president of a corporation, and shall have such other powers and
duties as may be prescribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presi dents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at directors' meetings or com mittee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the princi pal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolu tion of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the cor poration, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and direc tors, whenever they request it, an account of all of his
trans actions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
--------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judg ments, fines, settlements, and
other amounts actually and reason ably incurred in connection with any
proceeding (as defined in Sec tion 317(a) of the Code), arising by reason of
the fact that such person is or was an agent of the corporation. For purposes
of this Article VI, a "director" or "officer" of the corporation includes any
person (i) who is or was a director or officer of the corpora tion, (ii) who is
or was serving at the request of the corporation as a director or officer of
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another corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settle ments, and other amounts actually and
reasonably incurred in con nection with any proceeding (as defined in Section
317(a) of the Code), arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Article VI, an "employee" or
"agent" of the corporation (other than a director or officer) includes any
person (i) who is or was an employee or agent of the corporation, (ii) who is or
was serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was an employee or agent of a corporation which was a predecessor corporation of
the corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Direc tors shall be paid by the corporation in advance
of the final disposition of such action or proceeding upon receipt of an under
taking by or on behalf of the indemnified party to repay such amount if it shall
ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indem nification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, offi cer, employee or agent of
the corporation against any liability asserted against or incurred by such
person in such capacity or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify him against such
liability under the provisions of this Article VI.
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6.6 CONFLICTS
---------
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the trans fer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
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Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
------------------------------------
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of Cali fornia, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
cor poration is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
-----------------------------------------------------
The accounting books and records and the minutes of proceed ings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust cer tificate. The inspection may be made in person or by an
agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
-------------------------------------
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meet ing of shareholders to be held during the next fiscal
year and in the manner specified in Section 2.5 of these bylaws for giving
notice to shareholders of the corporation.
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The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
--------------------
If no annual report for the fiscal year has been sent to share holders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a bal ance sheet as of the end of such fiscal year and an
income state ment and statement of changes in financial position for such
fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corpo ration makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corpora tion has not sent to the shareholders its annual
report for the last fiscal year, the statements referred to in the first
paragraph of this Section 7.6 shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the cer tificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
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ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by share holders by written consent without a
meeting), the board of direc tors may fix, in advance, a record date, which
shall not be more than sixty (60) days before any such action. In that case,
only shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allot ment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
-----------------------
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All
certificates shall be signed in the
-20-
<PAGE>
name of the corporation by the chairman of the board or the vice chairman of the
board or the president or a vice presi dent and by the chief financial officer
or an assistant treasurer or the secretary or an assistant secretary, certifying
the number of shares and the class or series of shares owned by the share
holder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certifi cate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certifi cate unless the latter
is surrendered to the corporation and can celled at the same time. The board
of directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certifi cates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corpora tion against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the autho rized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
----------------------
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<PAGE>
Subject to the rights of the shareholders as provided in Sec tion 9.1
of these bylaws, bylaws, other than a bylaw or an amend ment of a bylaw
changing the authorized number of directors (except to fix the authorized number
of directors pursuant to a bylaw pro viding for a variable number of
directors), may be adopted, amended or repealed by the board of directors.
-22-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
SYMPHONIX DEVICES, INC.
-----------------------
Adoption by Incorporator
------------------------
The undersigned person appointed in the Articles of Incorpo ration to act
as the Incorporator of Symphonix Devices, Inc. hereby adopts the foregoing
bylaws, comprising twenty-five (25) pages, as the Bylaws of the corporation.
Executed this 17th day of May, 1994.
/s/ J. Casey McGlynn
______________________________
J. Casey McGlynn, Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Symphonix Devices, Inc. and that the foregoing Bylaws,
comprising twenty-five (25) pages, were adopted as the Bylaws of the corporation
on May 17, 1994, by the person appointed in the Articles of Incorporation to act
as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 17th day of May, 1994.
/s/ J. Casey McGlynn
______________________________
J. Casey McGlynn, Secretary
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<PAGE>
Exhibit 3.4
BYLAWS
OF
SYMPHONIX DEVICES, INC.
(a Delaware corporation)
<PAGE>
BYLAWS OF
SYMPHONIX DEVICES, INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
CORPORATE OFFICES..................................................... -1-
1.1 REGISTERED OFFICE.............................................. -1-
1.2 OTHER OFFICES.................................................. -1-
ARTICLE II
MEETINGS OF STOCKHOLDERS.............................................. -1-
2.1 PLACE OF MEETINGS.............................................. -1-
2.2 ANNUAL MEETING................................................. -1-
2.3 SPECIAL MEETING................................................ -1-
2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................... -2-
2.5 ADVANCE NOTICE OF STOCKHOLDER
NOMINEES AND STOCKHOLDER BUSINESS.............................. -2-
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................... -3-
2.7 QUORUM......................................................... -4-
2.8 ADJOURNED MEETING; NOTICE...................................... -4-
2.9 VOTING......................................................... -4-
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING..................... -5-
2.11 PROXIES........................................................ -6-
2.12 ORGANIZATION................................................... -6-
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.......................... -6-
2.14 WAIVER OF NOTICE............................................... -6-
ARTICLE III
DIRECTORS............................................................. -7-
3.1 POWERS......................................................... -7-
3.2 NUMBER OF DIRECTORS............................................ -7-
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS....................... -7-
3.4 RESIGNATION AND VACANCIES...................................... -8-
3.5 REMOVAL OF DIRECTORS........................................... -9-
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE....................... -9-
3.7 REGULAR MEETINGS............................................... -9-
3.8 SPECIAL MEETINGS; NOTICE....................................... -9-
3.9 QUORUM........................................................ -10-
3.10 WAIVER OF NOTICE.............................................. -10-
3.11 ADJOURNMENT................................................... -10-
3.12 NOTICE OF ADJOURNMENT......................................... -10-
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............. -10-
3.14 FEES AND COMPENSATION OF DIRECTORS............................ -11-
3.15 APPROVAL OF LOANS TO OFFICERS................................. -11-
ARTICLE IV
COMMITTEES........................................................... -11-
4.1 COMMITTEES OF DIRECTORS....................................... -11-
4.2 MEETINGS AND ACTION OF COMMITTEES............................. -12-
4.3 COMMITTEE MINUTES............................................. -12-
ARTICLE V
OFFICERS............................................................. -12-
5.1 OFFICERS...................................................... -12-
5.2 ELECTION OF OFFICERS.......................................... -13-
5.3 SUBORDINATE OFFICERS.......................................... -13-
5.4 REMOVAL AND RESIGNATION OF OFFICERS........................... -13-
5.5 VACANCIES IN OFFICES.......................................... -14-
5.6 CHAIRMAN OF THE BOARD......................................... -14-
5.7 PRESIDENT..................................................... -14-
5.8 VICE PRESIDENTS............................................... -14-
5.9 SECRETARY..................................................... -14-
5.10 CHIEF FINANCIAL OFFICER....................................... -15-
5.11 ASSISTANT SECRETARY........................................... -15-
5.12 ADMINISTRATIVE OFFICERS....................................... -15-
5.13 AUTHORITY AND DUTIES OF OFFICERS.............................. -16-
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS..................................................... -16-
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... -16-
6.2 INDEMNIFICATION OF OTHERS..................................... -17-
6.3 INSURANCE..................................................... -17-
ARTICLE VII
RECORDS AND REPORTS.................................................. -18-
7.1 MAINTENANCE AND INSPECTION OF RECORDS......................... -18-
7.2 INSPECTION BY DIRECTORS....................................... -18-
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.............................. -18-
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................ -18-
7.5 CERTIFICATION AND INSPECTION OF BYLAWS........................ -19-
ARTICLE VIII
GENERAL MATTERS...................................................... -19-
8.1 RECORD DATE FOR PURPOSES OTHER
THAN NOTICE AND VOTING........................................ -19-
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS..................... -19-
8.3 CORPORATE CONTRACTS AND
INSTRUMENTS: HOW EXECUTED.................................... -19-
8.4 STOCK CERTIFICATES; TRANSFER;
PARTLY PAID SHARES............................................ -20-
8.5 SPECIAL DESIGNATION ON CERTIFICATES........................... -20-
8.6 LOST CERTIFICATES............................................. -21-
8.7 TRANSFER AGENTS AND REGISTRARS................................ -21-
8.8 CONSTRUCTION; DEFINITIONS..................................... -21-
ARTICLE IX
AMENDMENTS........................................................... -21-
</TABLE>
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<PAGE>
BYLAWS
------
OF
--
SYMPHONIX DEVICES, INC.
-----------------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the second
Tuesday of May in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more stockholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting. No other person or
persons are permitted to call a special meeting.
If a special meeting is called by any person or persons other than the
board of directors, then the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the president, or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.6 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 2.6 of these bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting. The notice shall specify the
place, date and hour of the meeting and (i) in the case of a special meeting,
the purpose or purposes for which the meeting is called (no business other than
that specified in the notice may be transacted) or (ii) in the case of the
annual meeting, those matters which the board of directors, at the time of
giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder meeting
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<PAGE>
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of their intent to make such nomination or nominations or to
propose such business. To be timely, such stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than one hundred twenty (120) calendar days in advance of
the date specified in the corporation's proxy statement released to stockholders
in connection with the previous year's annual meeting of stockholders; provided,
however, that in the event that no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy statement,
notice by the stockholder to be timely must be so received a reasonable time
before the solicitation is made. To be in proper form, a stockholder's notice
to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of stock
of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as director of
the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
-3-
<PAGE>
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
------
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.8 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
------
-4-
<PAGE>
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.13 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder and stockholders shall not be entitled to
cumulate their votes in the election of directors or with respect to any matter
submitted to a vote of the stockholders.
Notwithstanding the foregoing, if the stockholders of the corporation are
entitled, pursuant to Sections 2115 and 301.5 of the California Corporations
Code, to cumulate their votes in the election of directors, each such
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes that such stockholder normally
is entitled to cast) only if the candidates' names have been properly placed in
nomination (in accordance with these bylaws) prior to commencement of the
voting, and the stockholder requesting cumulative voting has given notice prior
to commencement of the voting of the stockholder's intention to cumulate votes.
If cumulative voting is properly requested, each holder of stock, or of any
class or classes or of a series or series thereof, who elects to cumulate votes
shall be entitled to as many votes as equals the number of votes that (absent
this provision as to cumulative voting) he or she would be entitled to cast for
the election of directors with respect to his or her shares of stock multiplied
by the number of directors to be elected by him, and he or she may cast all of
such votes for a single director or may distribute them among the number to be
voted for, or for any two or more of them, as he or she may see fit.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
-5-
<PAGE>
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.11 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.12 ORGANIZATION
------------
The president, or in the absence of the president, the chairman of the
board, or, in the absence of the president and the chairman of the board, one of
the corporation's vice presidents, shall call the meeting of the stockholders to
order, and shall act as chairman of the meeting. In the absence of the
president, the chairman of the board, and all of the vice presidents, the
stockholders shall appoint a chairman for such meeting. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such matters as the regulation of the manner of voting
and the conduct of business. The secretary of the corporation shall act as
secretary of all meetings of the stockholders, but in the absence of the
secretary at any meeting of the stockholders, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.14 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except
-6-
<PAGE>
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The board of directors shall not be less than five (5) nor more than nine
(9) members. The exact number of directors shall be six (6) until changed,
within the limits specified above by a bylaw amending this Section 3.2 duly
adopted by the board of directors or the stockholders. The indefinite number of
directors may be changed, or a definite number may be fixed without provision
for an indefinite number, by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation. No reduction of the authorized number of
directors shall have the effect of removing any director before that director's
term of office expires.
Upon the closing of the first sale of the corporation's common stock
pursuant to a firmly underwritten registered public offering (the "IPO"), the
directors shall be divided into three classes, with the term of office of the
first class, which class shall initially consist of two directors, to expire at
the first annual meeting of stockholders held after the IPO; the term of office
of the second class, which class shall initially consist of two directors, to
expire at the second annual meeting of stockholders held after the IPO; the
term of office of the third class, which class shall initially consist of two
directors, to expire at the third annual meeting of stockholders held after the
IPO; and thereafter for each such term to expire at each third succeeding annual
meeting of stockholders held after such election.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director
-7-
<PAGE>
elected or appointed to fill a vacancy, shall hold office until the expiration
of the term for which elected and until a successor has been elected and
qualified.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
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election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors; provided, however, that, if and so
long as stockholders of the corporation are entitled to cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire board of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day.
3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least forty-
eight (48) hours before the time
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of the holding of the meeting. Any oral notice given personally or by telephone
may be communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose or the
place of the meeting, if the meeting is to be held at the principal executive
office of the corporation.
3.9 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.10 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.11 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
3.12 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.8 of these
bylaws, to the directors who were not present at the time of the adjournment.
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3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board of directors.
3.14 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.15 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted
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by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings; notice), Section 3.9 (quorum), Section
3.10 (waiver of notice), Section 3.11 (adjournment), Section 3.12 (notice of
adjournment) and Section 3.13 (board action by written consent without meeting),
with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the board of directors and its members;
provided, however, that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the board of directors, and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
4.3 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The Corporate Officers of the corporation shall be a president, a secretary
and a chief financial officer. The corporation may also have, at the discretion
of the board of directors, a chairman of the board, one or more vice presidents
(however denominated), one or more assistant secretaries, a treasurer
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and one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these bylaws. Any
number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described above, there
may also be such Administrative Officers of the corporation as may be designated
and appointed from time to time by the president of the corporation in
accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
--------------------
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate Officer may be removed, either with or without cause,
by the board of directors at any regular or special meeting of the board or,
except in case of a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
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<PAGE>
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, and if there is no chairman
of the board, the vice presidents, if any, in order of their rank as fixed by
the board of directors or, if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors, these bylaws, the president or the
chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director for a purpose reasonably related to
his position as a director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
-----------------------
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall
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have limited authority to act on behalf of the corporation as the board of
directors shall establish, including but not limited to limitations on the
dollar amount and on the scope of agreements or commitments that may be made by
such Administrative Officers on behalf of the corporation, which limitations may
not be exceeded by such individuals or altered by the president without further
approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing powers, authority and duties, all officers of
the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding in which such person was or is a party or is threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the corporation. For purposes of this Section 6.1, a "director" or "officer"
of the corporation shall mean any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer
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to repay all amounts advanced if it should ultimately be determined that the
director of officer is not entitled to be indemnified under this Section 6.1 or
otherwise.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
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ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine (and to make copies of) the
corporation's stock ledger, a list of its stockholders and its other books and
records for a purpose reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
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7.5 CERTIFICATION AND INSPECTION OF BYLAWS
--------------------------------------
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
ARTICLE VII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize and empower any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
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8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
------------------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or vice-president, and
by the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
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<PAGE>
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
------------------------------
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company -- either domestic or foreign, who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their
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<PAGE>
power to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
SYMPHONIX DEVICES, INC.
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of Symphonix Devices, Inc. hereby adopts the foregoing
bylaws, comprising twenty-two (22) pages, as the Bylaws of the corporation.
Effective as of ______________, 1997.
________________________________
David J. Saul, Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Symphonix Devices, Inc. and that the foregoing Bylaws,
comprising twenty-two (22) pages, were adopted as the Bylaws of the corporation
effective as of ______________, 1997, by the person appointed in the Certificate
of Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this ____ day of __________ 1997.
________________________________
J. Casey McGlynn, Secretary
<PAGE>
EXHIBIT 10.1
SYMPHONIX DEVICES, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
_______________, 1997 by and between Symphonix Devices, Inc., a Delaware
corporation (the "Company"), and __________________________________,
("Indemnitee").
WHEREAS, effective as of the date hereof, Symphonix Devices, Inc., a
California corporation, is reincorporating into Delaware;
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in connection with the Company's reincorporation, the Company and
Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement to provide indemnification and
advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified and advanced expenses by the Company as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended) or group acting in concert, other than a trustee
<PAGE>
or other fiduciary holding securities under an employee benefit plan of the
Company acting in such capacity or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing more than 50% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation
other than a merger or consolidation which would result in the Voting Securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Symphonix Devices, Inc., any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger to which Symphonix
Devices, Inc. (or any of its wholly owned subsidiaries) is a party which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or fiduciary of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other
-2-
<PAGE>
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(e) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of any Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
-3-
<PAGE>
(k) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. Subject to the provisions of
---------------------------
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a Covered Event), including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
-------------------------------------
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
-------- -------
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect.
--------------------------------------------------------------
If any Reviewing Party determines that Indemnitee substantively is not entitled
to be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has
-----------------------------------------------
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change
-4-
<PAGE>
in Control), any Reviewing Party with respect to all matters thereafter arising
concerning the rights of Indemnitee to indemnification of Expenses under this
Agreement or any other agreement or under the Company's Certificate of
Incorporation or Bylaws as now or hereafter in effect, or under any other
applicable law, if desired by Indemnitee, shall be Independent Legal Counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be entitled to be indemnified hereunder under applicable law
and the Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. Notwithstanding any other
provision of this Agreement, the Company shall not be required to pay Expenses
of more than one Independent Legal Counsel in connection with all matters
concerning a single Indemnitee, and such Independent Legal Counsel shall be the
Independent Legal Counsel for any or all other Indemnitees unless (i) the
employment of separate counsel by one or more Indemnitees has been previously
authorized by the Company in writing, or (ii) an Indemnitee shall have provided
to the Company a written statement that such Indemnitee has reasonably concluded
that there may be a conflict of interest between such Indemnitee and the other
Indemnitees with respect to the matters arising under this Agreement.
(e) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
----------------
(a) Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefore by the Company hereunder under applicable law, the Company shall make
Expense Advances to Indemnitee.
(b) Form of Undertaking. Any obligation to repay any Expense
-------------------
Advances hereunder pursuant to a written undertaking by the Indemnitee shall be
unsecured and no interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree
--------------------------------------------
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
-5-
<PAGE>
4. Procedures for Indemnification and Expense Advances.
---------------------------------------------------
(a) Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement under applicable law, shall be a
defense to Indemnitee's claim or create a presumption that Indemnitee has not
met any particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder under applicable
law, the burden of proof shall be on the Company to establish that Indemnitee is
not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
-6-
<PAGE>
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently retained by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
--------------
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
-7-
<PAGE>
6. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
----------
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify or make Expense
----------------------------
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the
-8-
<PAGE>
case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for Expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or Interpretation.
---------------------------------------------------------------------
In the event that any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this
-9-
<PAGE>
Agreement, Indemnitee shall be entitled to be indemnified for all Expenses
incurred by Indemnitee in defense of such action (including without limitation
costs and expenses incurred with respect to Indemnitee's counterclaims and
cross-claims made in such action), unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material defenses asserted by Indemnitee in such action was made in bad
faith or was frivolous; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled under Section 3 to receive
payment of Expense Advances hereunder with respect to such action.
14. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
15. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
-10-
<PAGE>
18. Choice of Law. This Agreement, and all rights, remedies, liabilities,
-------------
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
in the State of Delaware without regard to principles of conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
SYMPHONIX DEVICES, INC.
By: _____________________ AGREED TO AND ACCEPTED
Print Name: _____________________ INDEMNITEE:
Title: _____________________
______________________________
Address: 3047 Orchard Parkway (signature)
San Jose, California 95134
Print Name:___________________
Address:______________________
-11-
<PAGE>
EXHIBIT 10.2
SYMPHONIX DEVICES, INC.
1994 STOCK OPTION PLAN
(AS AMENDED AND RESTATED EFFECTIVE [___])
1. Purposes of the Plan. The purposes of this Stock Option Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall be
-------------
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board in
---------
accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Symphonix Devices, a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services to such entity.
<PAGE>
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(m) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
<PAGE>
(o) "Nonstatutory Stock Option" means an Option not intended to qualify
-------------------------
as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within the
-------
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding Options
-----------------------
are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(v) "Optionee" means the holder of an outstanding Option granted under
--------
the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1994 Stock Option Plan.
----
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
----------
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(aa) "Service Provider" means an Employee, Director or Consultant.
----------------
(bb) "Share" means a share of the Common Stock, as adjusted in accordance
-----
with Section 13 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the
-------------------------
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,235,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
<PAGE>
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
--------
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option, shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if Shares of
Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be administered by
------------------------------
different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator determines
--------------
it to be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee of two or more "outside directors" within the
meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
--------------------
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
---------------------------
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may be granted
hereunder;
(iii) to determine the number of shares of Common Stock to be covered
by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
<PAGE>
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option of the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option shall have declined since the date the Option was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(x) to modify or amend each Option (subject to Section 15(c) of the
Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option previously granted by the
Administrator;
(xiii) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Service
-----------
Providers. Incentive Stock Options may be granted only to Employees.
<PAGE>
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
(iii) If an Option is cancelled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 13), the cancelled Option will be counted against the limit set forth
in subsection (i) above. For this purpose, if the exercise price of an Option is
reduced, the transaction will be treated as a cancellation of the Option and the
grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant.
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price of less than 100% of the Fair Market Value per Share on the
date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
---------------------------------
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option may
be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and
<PAGE>
(B) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised;
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting
of Options granted hereunder shall be tolled during any unpaid leave of absence.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his
<PAGE>
or her Option within such period of time as is specified in the Option Agreement
to the extent that the Option is vested on the date of termination (but in no
event later than the expiration of the term of such Option as set forth in the
Option Agreement). In the absence of a specified time in the Option Agreement,
the Option shall remain exercisable for three (3) months following the
Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider, the
-----------------
Option may be exercised within such period of time as is specified in the Option
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy out
-----------------
for a payment in cash or Shares an Option previously granted based on such terms
and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Non-Transferability of Options. Unless determined otherwise by the
------------------------------
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime
<PAGE>
of the Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
------------------------------------------------------------------------
Sale.
- ----
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Optionee to have the
right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
--------------------
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an
Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee in writing or electronically that the Option shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the
<PAGE>
merger or sale of assets, the option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all purposes,
-------------
the date on which the Administrator makes the determination granting such
Option, or such other later date as is determined by the Administrator. Notice
of the determination shall be provided to each Optionee within a reasonable time
after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
----------------
of an Option unless the exercise of such Option and the issuance and delivery of
such Shares shall comply with Applicable Laws and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present
<PAGE>
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan, will at
---------------------
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Stockholder Approval. The Plan shall be subject to approval by
--------------------
the stockholders of the Company within twelve (12) months after the date the
Plan is adopted. Such stockholder approval shall be obtained in the manner and
to the degree required under Applicable Laws.
<PAGE>
SYMPHONIX DEVICES, INC.
1994 STOCK OPTION PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
- -----------------------
(Address)
- -----------------------
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share
Total Number of Shares Granted
Total Exercise Price
Type of Option: ____ Incentive Stock Option
____ Nonstatutory Stock Option
Term/Expiration Date:
<PAGE>
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, conditioned
upon Optionee entering into a Restricted Stock Purchase Agreement with respect
to any unvested Option Shares. The Shares subject to this Option shall vest
and/or be released from the Company's repurchase option, as set forth in the
Restricted Stock Purchase Agreement, according to the following schedule:
Termination Period:
------------------
This Option may be exercised, to the extent vested, for thirty days after
termination of Optionee's employment or consulting relationship, or such longer
period as may be applicable upon death or disability of Optionee as provided in
the Plan, but in no event later than the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. Symphonix Devices, Inc. (the "Company"), hereby
---------------
grants to the Optionee named in the Notice of Grant (the "Optionee"), an option
(the "Option") to purchase the total number of shares of Common Stock (the
"Shares") set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price") subject to the terms,
definitions and provisions of the 1994 Stock Option Plan (the "Plan") adopted by
the Company, which is incorporated herein by reference.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an ISO as defined in Section 422
of the Code. However, if this Option is intended to be an ISO, to the extent
that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as
a Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) Subject to subsections 2(i)(b) through 2(i)(e) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
out in the Notice of Grant. Alternatively, at the election of the Optionee, this
option may be exercised in whole or in part at any time as to Shares which have
not yet vested. For purposes of this Stock Option Agreement, Shares subject to
Option shall vest based on continued employment of Optionee with the Company.
Vested
-2-
<PAGE>
Shares shall not be subject to the Company's repurchase right (as set forth in
the Restricted Stock Purchase Agreement, attached hereto as Exhibit C-1).
(b) As a condition to exercising this Option for unvested
Shares, the Optionee shall execute the Restricted Stock Purchase Agreement.
(c) This Option may not be exercised for a fraction of a Share.
(d) In the event of Optionee's death, disability or other
termination of the employment or consulting relationship, the exercisability of
the Option is governed by Sections 6, 7 and 8 below, subject to the limitation
contained in subsection 2(i)(e).
(e) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements with respect to
such shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and,
together with an executed copy of the Restricted Stock Purchase Agreement, if
applicable, shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice and Restricted Stock Purchase Agreement shall
be accompanied by payment of the Exercise Price. This Option shall be deemed to
be exercised upon receipt by the Company of such written notice and Restricted
Stock Purchase Agreement accompanied by the Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.
4. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or
-3-
<PAGE>
otherwise transfer any Shares or other securities of the Company during the 180-
day period (or such longer period as may be requested in writing by the Managing
Underwriter and agreed to in writing by the Company) (the "Market Standoff
Period") following the effective date of a registration statement of the Company
filed under the Securities Act; provided, however, that such restriction shall
apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on behalf
of the Company to the public in an underwritten public offering under the
Securities Act. The Company may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such Market
Standoff Period.
5. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check;
(iii) promissory note (in the form attached hereto as Exhibit C-7);
(iv) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(v) to the extent permitted by the Administrator, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
7. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent the
Option was vested at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set
-4-
<PAGE>
out in the Notice of Grant. To the extent that Optionee was not vested in this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within six (6) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Stock Option Agreement), exercise the Option to the extent the Option was
vested at the date of such termination; provided, however, that if such
disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code, in the case of an ISO such ISO shall cease to be treated as an ISO and
shall be treated for tax purposes as an NSO on the ninety-first (91st) day
following such termination. To the extent that Optionee is not vested in the
Option at the date of termination, or if Optionee does not exercise such Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
9. Death of Optionee. In the event of termination of Optionee's
-----------------
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent the Option was vested at the date of
death. To the extent that Optionee is not vested in the Option at the date of
death, or if the Option is not exercised within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
10. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
11. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as ISOs and Options
granted to more than ten percent (10%) shareholders shall apply to this Option.
12. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal and state tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
-5-
<PAGE>
(i) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability or state income tax liability upon
the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.
(ii) Exercise of ISO Following Disability. If the Optionee's
------------------------------------
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within 90 days of such termination for the ISO to
be qualified as an ISO.
(iii) Exercise of NSO. There may be a regular federal income tax
---------------
liability and state income tax liability upon the exercise of an NSO. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an Employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise. If the Optionee is subject to Section 16 of the Securities
Act of 1934, as amended, the date of income recognition may be deferred for up
to six months.
(iv) Disposition of Shares. In the case of an NSO, if Shares are
---------------------
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal and state income tax purposes.
In the case of an ISO, if Shares transferred pursuant to the Option are held for
at least one year after exercise and are disposed of at least two years after
the Date of Grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal and state income tax purposes. If
Shares purchased under an ISO are disposed of within such one-year period or
within two years after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (1) the
Fair Market Value of the Shares on the date of exercise, or (2) the sale price
of the Shares.
(v) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(vi) Section 83(b) Election for Unvested Shares Purchased Pursuant
-------------------------------------------------------------
to Nonqualified Stock Options. With respect to the exercise of a nonqualified
- -----------------------------
stock option for unvested Shares, an
-6-
<PAGE>
election may be filed by the Optionee with the Internal Revenue Service and, if
necessary, the proper state taxing authorities, within 30 days of the purchase
--------------
of the Shares, electing pursuant to Section 83(b) of the Code (and similar state
tax provisions if applicable) to be taxed currently on any difference between
the purchase price of the Shares and their Fair Market Value on the date of
purchase. This will result in a recognition of taxable income to the Optionee on
the date of exercise, measured by the excess, if any, of the fair market value
of the Shares, at the time the Option is exercised over the purchase price for
the Shares. Absent such an election, taxable income will be measured and
recognized by Optionee at the time or times on which the Company's Repurchase
Option lapses. Optionee is strongly encouraged to seek the advice of his or her
own tax consultants in connection with the purchase of the Shares and the
advisability of filing of the Election under Section 83(b) and similar tax
provisions. A form of Election under Section 83(b) is attached hereto as Exhibit
C-5 for reference.
(vii) Section 83(b) Election for Unvested Shares Purchased Pursuant
-------------------------------------------------------------
to Incentive Stock Options. With respect to the exercise of an incentive stock
- --------------------------
option for unvested Shares, an election may be filed by the Optionee with the
Internal Revenue Service and, if necessary, the proper state taxing authorities,
within 30 days of the purchase of the Shares, electing pursuant to Section 83(b)
- --------------
of the Code (and similar state tax provisions if applicable) to be taxed
currently on any difference between the purchase price of the Shares and their
Fair Market Value on the date of purchase for alternative minimum tax purposes.
This will result in a recognition of income to the Optionee on the date of
exercise, for alternative minimum tax purposes, measured by the excess, if any,
of the fair market value of the Shares, at the time the option is exercised,
over the purchase price for the Shares. Absent such an election, alternative
minimum taxable income will be measured and recognized by Optionee at the time
or times on which the Company's Repurchase Option lapses. Optionee is strongly
encouraged to seek the advice of his or her tax consultants in connection with
the purchase of the Shares and the advisability of filing of the Election under
Section 83(b) and similar tax provisions. A form of Election under Section
83(b) for alternative minimum tax purposes is attached hereto as Exhibit C-6 for
reference.
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
SYMPHONIX DEVICES, INC.,
a California Corporation
By: ___________________________
Title: ___________________________
-7-
<PAGE>
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated: _____________________ _______________________________
, Optionee
Residence Address:
_______________________________
_______________________________
-9-
<PAGE>
EXHIBIT A
---------
SYMPHONIX DEVICES, INC.
1994 STOCK OPTION PLAN
EXERCISE NOTICE
Symphonix Devices, Inc.
3047 Orchard Parkway
San Jose, CA 95134
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ________________, 19_____,
------------------
the undersigned ("Optionee") hereby elects to exercise Optionee's option to
--------
purchase _____________ shares of the Common Stock (the "Shares") of Symphonix
Devices, Inc. (the "Company") under and pursuant to the Company's 1994 Stock
Option Plan, as amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory
Stock Option Agreement dated ______________________ (the "Option Agreement").
----------------
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as Optionee
disposes of the Shares or the Company and/or its assignee(s) exercises the Right
of First Refusal hereunder. Upon such exercise, Optionee shall have no further
rights as a holder of the Shares so purchased except the right to receive
payment for the Shares so purchased in accordance with the provisions of this
Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
<PAGE>
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide
cash price or other consideration for which the Holder proposes to transfer the
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within thirty (30) days after receipt of the Notice or in the manner and
at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within one hundred twenty (120) days after the date of the Notice
and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section shall continue to apply to
the Shares in the hands of such Proposed Transferee. If the Shares described in
the Notice are not transferred to the Proposed Transferee within such period, a
new Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father,
-2-
<PAGE>
mother, brother or sister. In such case, the transferee or other recipient shall
receive and hold the Shares so transferred subject to the provisions of this
Section, and there shall be no further transfer of such Shares except in
accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares ninety (90) days after the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the 1933 Act.
5. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST
REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS
SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST
-3-
<PAGE>
REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
-4-
<PAGE>
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the full
-------------------
Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and is governed by California law except for that body of law pertaining
to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: SYMPHONIX DEVICES, INC.
By:___________________________
Its:__________________________
__________________________
(Signature)
Address:
- -------
__________________________
__________________________
-5-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : SYMPHONIX DEVICES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Optionee is
acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one (1) year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the securities. Optionee
understands that the certificate evidencing the securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, a legend prohibiting their transfer without the
consent of the Commissioner of Corporations of the State of California and any
other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at
<PAGE>
the time of the grant of the Option to the Optionee, the exercise will be exempt
from registration under the Securities Act. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), ninety (90) days
thereafter (or such longer period as any market stand-off agreement may require)
the securities exempt under Rule 701 may be resold, subject to the satisfaction
of certain of the conditions specified by Rule 144, including: (1) the resale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Exchange Act); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of securities being sold
during any three (3) month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of
grant of the Option, then the securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two (2) years after the party has purchased, and made
full payment for, within the meaning of Rule 144, the securities to be sold;
and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than three (3) years, the satisfaction of the conditions set
forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Shares or other securities of the
Company during the one hundred eighty (180) day period following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that such restriction shall only apply to the first
registration statement of the Company to become effective under the Securities
Act which include securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such one hundred eighty (180) day
period.
(e) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the Commissioner of Corporations of California. Optionee
has read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.
Signature of Optionee:
__________________________
Date:__________________________, 19
<PAGE>
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security upon
---------- -----------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferror's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferrer or the transferror's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien given
by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation,
or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113
of the Code, provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
-2-
<PAGE>
EXHIBIT C-1
-----------
1994 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between (the "Purchaser") and Symphonix Devices, Inc.
(the "Company") as of __________________, 199__.
RECITALS
--------
(1) Pursuant to the exercise of the stock option (grant no. 51) granted to
Purchaser under the Company's 1994 Stock Option Plan and pursuant to the Stock
Option Agreement (the "Option Agreement") by and between the Company and
Purchaser with respect to such grant, which Option Agreement is hereby
incorporated by reference, Purchaser has elected to purchase _________ of those
shares which have not become vested under the vesting schedule set forth in the
Option Agreement ("Unvested Shares"). The Unvested Shares and the shares
subject to the Option Agreement which have become vested are sometimes
collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's employment or consulting relationship with the Company
is terminated for any reason, including for cause, death, and disability, the
Company shall have the right and option to purchase from Purchaser, or
Purchaser's personal representative, as the case may be, all of the Purchaser's
Unvested Shares as of the date of such termination at the price paid by the
Purchaser for such Shares (the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares being transferred shall deliver the stock
certificate or certificates evidencing the Unvested Shares, and the Company
shall deliver the purchase price therefor.
<PAGE>
(c) At its option, the Company may elect to make payment for the Unvested
Shares to a bank selected by the Company. The Company shall avail itself of
this option by a notice in writing to Purchaser stating the name and address of
the bank, date of closing, and waiving the closing at the Company's office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the Company,
or such other person designated by the Company, to transfer the Unvested Shares
as to which the Repurchase Option has been exercised from Purchaser to the
Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it may
do or omit to do with respect to holding the Shares in escrow and while acting
in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on transfer
imposed by any applicable state and federal securities laws. Any transferee
shall hold such Shares subject to all the provisions hereof and the Exercise
Notice executed by the Purchaser with respect to any
-2-
<PAGE>
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Elections.
-----------------------
(a) Election for Unvested Shares Purchased Pursuant to Nonqualified Stock
---------------------------------------------------------------------
Options. Purchaser hereby acknowledges that he or she has been informed that,
- -------
with respect to the exercise of a nonqualified stock option for Unvested Shares,
that unless an election is filed by the Purchaser with the Internal Revenue
Service and, if necessary, the proper state taxing authorities, within 30 days
--------------
of the purchase of the Shares, electing pursuant to Section 83(b) of the Code
(and similar state tax provisions if applicable) to be taxed currently on any
difference between the purchase price of the Shares and their Fair Market Value
on the date of purchase, there will be a recognition of taxable income to the
Optionee, measured by the excess, if any, of the fair market value of the
Shares, at the time the Company's Repurchase Option lapses over the purchase
price for the Shares. Optionee represents that Optionee has consulted any tax
consultant(s) Optionee deems advisable in connection with the purchase of the
Shares or the
-3-
<PAGE>
filing of the Election under Section 83(b) and similar tax provisions. A form of
Election under Section 83(b) is attached hereto as Exhibit C-5 for reference.
(b) Election for Unvested Shares Purchased Pursuant to Incentive Stock
------------------------------------------------------------------
Options. Purchaser hereby acknowledges that he or she has been informed that,
- -------
with respect to the exercise of an incentive stock option for Unvested Shares,
that unless an election is filed by the Purchaser with the Internal Revenue
Service and, if necessary, the proper state taxing authorities, within 30 days
--------------
of the purchase of the Shares, electing pursuant to Section 83(b) of the Code
(and similar state tax provisions if applicable) to be taxed currently on any
difference between the purchase price of the Shares and their Fair Market Value
on the date of purchase, there will be a recognition of income to the Optionee,
for alternative minimum tax purposes, measured by the excess, if any, of the
fair market value of the Shares, at the time the Company's Repurchase Option
lapses over the purchase price for the Shares. Optionee represents that
Optionee has consulted any tax consultant(s) Optionee deems advisable in
connection with the purchase of the Shares or the filing of the Election under
Section 83(b) and similar tax provisions. A form of Election under Section
83(b) for alternative minimum tax purposes is attached hereto as Exhibit C-6 for
reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPON SIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or represen tations of the Company or
any of its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with applicable state laws.
Purchaser represents that he has read this Agreement and is familiar with its
terms and provisions. Purchaser hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
SYMPHONIX DEVICES, INC.
By:_____________________________________
Title:__________________________________
"PURCHASER"
________________________________________
Address:________________________________
________________________________
Soc. Sec. No.:__________________________
-5-
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto ______________________________ (__________) shares of the Common
Stock of Symphonix Devices, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint _________________________________ to transfer
the said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between________________________ and the undersigned
dated ______________, 19__.
Dated: _______________, 19_____
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
___________________, 19______
Corporate Secretary
Symphonix Devices, Inc.
3047 Orchard Parkway
San Jose, CA 95134
Attention: Secretary
Dear ____________:
As Escrow Agent for both Symphonix Devices, Inc. (the "Company"), and the
undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Restricted Stock Purchase Agreement ("Agreement") between
the Company and the undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or
<PAGE>
notice of transfer of, the securities. Subject to the provisions of this
paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder
of the Company while the stock is held by you.
4. Upon written request of the Purchaser, but no more than once per calendar
year, unless the Company's repurchase option has been exercised, you will
deliver to Purchaser a certificate or certificates representing so many shares
of stock as are not then subject to the Company's repurchase option. Within 120
days after cessation of Purchaser's continuous employment by or services to the
Company, or any parent or subsidiary of the Company, you will deliver to
Purchaser a certificate or certificates representing the aggregate number of
shares held or issued pursuant to the Agreement and not purchased by the Company
or its assignees pursuant to exercise of the Company's repurchase option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the Statute
of Limitations with respect to these Joint Escrow Instructions or any documents
deposited with you.
-2-
<PAGE>
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Symphonix Devices, Inc.
3047 Orchard Parkway
San Jose, CA 95134
Attention: Secretary
PURCHASER:
__________________________________________
__________________________________________
ESCROW AGENT: J. Casey McGlynn
Corporate Secretary
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
-3-
<PAGE>
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed and
enforced in accordance with, the laws of the State of California.
SYMPHONIX DEVICES, INC.
By:_____________________________________
Title:__________________________________
Purchaser:______________________________
Escrow Agent:___________________________
Corporate Secretary
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ____________, have read and approve the
foregoing Agreement. In consideration of granting of the right to my spouse to
purchase shares of ____________________________, as set forth in the Agreement,
I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, 19____
______________________________
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: _____________ SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: _______ shares (the "Shares") of the Common Stock of Symphonix
Devices, Inc. (the "Company").
3. The date on which the property was transferred is:_______________, 19 ____.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the terms
of an agreement between the taxpayer and the Company. These restrictions lapse
upon the satisfaction of certain conditions contained in such agreement.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never lapse, of
such property is: $______________________.
6. The amount (if any) paid for such property is: $______________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ___________________, 19____ ___________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ ___________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT C-6
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to the provisions of Sections
55-56 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in
taxpayer's alternative minimum taxable income for the current taxable year, as
compensation for services, the excess, if any, of the fair market value of the
property described below at the time of transfer over the amount paid for such
property.
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: _____________ SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ___________ shares (the "Shares") of the Common Stock of Symphonix
Devices, Inc. (the "Company").
3. The date on which the property was transferred is: _______________, 199___,
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, at its original
purchase price, on certain events. This right lapses with regard to a portion of
the Shares over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never lapse, of
such property is: $_______________
6. The amount paid for such property is: $_______________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ___________________, 19____ ___________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ ___________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT C-7
-----------
PROMISSORY NOTE
$___________ ________________, 199___
For value received, the undersigned promises to pay to Symphonix Devices,
Inc., a California corporation (the "Company"), or order, at its principal
office the principal sum of $__________ with interest thereon at the rate of
_____ percent compounded annually on the unpaid balance of the principal sum.
Said principal and interest shall be due on the earlier of (i) ____________, or
(ii) one year following the undersigned's termination of employment with the
Company.
Principal payable in lawful money of the United States of America.
Should suit be commenced to collect this Note or any portion thereof, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The maker waives presentment for payment, protest, notice of protest, and notice
of non-payment of this Note.
This Note is secured by a pledge of certain shares (the "Shares") of Common
Stock of the Company, pursuant to the provisions of a Restricted Stock Purchase
Agreement between the Company and the undersigned executed contemporaneously
with this Note.
The holder of this Note shall have full recourse against the maker, and
shall not be required to proceed against the Shares or other collateral securing
this Note in the event of default.
________________________________________
<PAGE>
SYMPHONIX DEVICES, INC.
1994 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
NOTICE OF STOCK OPTION GRANT
----------------------------
________________________
Address
________________________
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share
Total Number of Shares Granted
(the "Shares")
Total Exercise Price
Type of Option ___________ Incentive Stock Option
________________ Nonstatutory Stock Option
Term/Expiration Date
Vesting Schedule:
----------------
<PAGE>
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
Termination Period:
------------------
This Option may be exercised for thirty (30) days after termination of
employment or consulting relationship, or such longer period as may be
applicable upon death or disability of Optionee as provided in the Plan, but in
no event later than the Term/Expiration Date as provided above.
I. AGREEMENT
---------
1. Grant of Option. Symphonix Devices, Inc., a California corporation (the
---------------
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase up to a total number of shares
of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the 1994 Stock Option Plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option.
If designated in the Notice of Grant as an Incentive Stock Option, this
Option is intended to qualify as an Incentive Stock Option as defined in Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option.
2. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the Exercise Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitation contained in subsection
2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and
-2-
<PAGE>
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by the Optionee and shall be delivered
in person or by certified mail to the Secretary of the Company. The written
notice shall be accompanied by payment of the Exercise Price. This Option shall
be deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.
4. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check;
(iii) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to
-3-
<PAGE>
make any representation and warranty to the Company as may be required by any
applicable law or regulation.
6. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within six (6) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination; provided, however, that if such
disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code, in the case of an Incentive Stock Option such Incentive Stock Option
shall automatically convert to a Nonstatutory Stock Option on the day three (3)
months and one (1) day following such termination. To the extent that Optionee
was not entitled to exercise the Option at the date of termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
8. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
11. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercising a nonstatutory Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the exercise price. However, the timing of this
-4-
<PAGE>
income recognition may be deferred for up to six (6) months if Optionee is
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). If the Optionee is an employee, the Company will be required to
withhold from Optionee's compensation, or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income. Additionally, the Optionee may at some point be required to
satisfy tax withholding obligations with respect to the disqualifying
disposition of an Incentive Stock Option. The Optionee shall satisfy his or her
tax withholding obligation arising upon the exercise of this Option out of
Optionee's compensation or by payment to the Company.
12. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal and California tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability or California income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.
(ii) Exercise of ISO following Disability. If the Optionee's
------------------------------------
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within ninety (90) days of such termination for
the ISO to be qualified as an ISO.
(iii) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability and California income tax liability upon the
exercise of a Nonstatutory Stock Option. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an employee, the Company will be
required to withhold from Optionee's compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(iv) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one (1) year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal and California income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one (1) year after exercise and are disposed of at least
two (2) years after the Date of Grant, any gain realized on disposition of the
Shares will also be treated as long-term capital gain for federal and California
income tax purposes. If Shares purchased under an ISO are disposed of within
such one (1) year period or within two (2) years after the Date of Grant, any
gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates)
-5-
<PAGE>
to the extent of the difference between the Exercise Price and the lesser of (1)
the fair market value of the Shares on the date of exercise, or (2) the sale
price of the Shares.
(v) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two (2) years after the Date of Grant, or (2) the date one
(1) year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
SYMPHONIX DEVICES, INC.,
a California corporation
By:________________________________
Title:_____________________________
-6-
<PAGE>
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CON SULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated:__________________ __________________________________
-7-
<PAGE>
EXHIBIT 10.3
SYMPHONIX DEVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock Purchase
Plan of Symphonix Devices, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean [Name of Company] and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after May 1 and
November 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after
the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day
on or before October 31, 1998. The duration and timing of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first
-2-
<PAGE>
Purchase Period of any Offering Period shall commence on the Enrollment Date and
end with the next Exercise Date.
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
a the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after
the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day
on or before October 31, 1998. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding [_______________ (___%)]
of the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
-4-
<PAGE>
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than [
________ ] shares of the Company's Common Stock (subject to any adjustment
pursuant to Section 19) on the Enrollment Date, and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12
hereof. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The option
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions
-5-
<PAGE>
shall not resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be seventy-five thousand
(75,000) shares, subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised exceeds the
number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and
-6-
<PAGE>
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to an Exercise Date on
which the option is exercised but prior to delivery to such participant of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the option.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each
-7-
<PAGE>
Purchase Period (pursuant to Section 7), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the
-8-
<PAGE>
best interests of the Company and its shareholders. Except as provided in
Section 19 hereof, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. To the extent
necessary to comply with Section 423 of the Code (or any successor rule or
provision or any other applicable law, regulation or stock exchange rule), the
Company shall obtain shareholder approval in such a manner and to such a degree
as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock
-9-
<PAGE>
on any Exercise Date in an Offering Period is lower than the Fair Market Value
of the Common Stock on the Enrollment Date of such Offering Period, then all
participants in such Offering Period shall be automatically withdrawn from such
Offering Period immediately after the exercise of their option on such Exercise
Date and automatically re-enrolled in the immediately following Offering Period
as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
SYMPHONIX DEVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in the [Name of Company] [1997] Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
___________________________________________________________________________
___________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing
---------------------------------------------
<PAGE>
within 30 days after the date after the date of any disposition of my
---------------------------------------------------------------------
shares and I will make adequate provision for Federal, state or other tax
-------------------------------------------------------------------------
withholding obligations, if any, which arise upon the disposition of the
------------------------------------------------------------------------
Common Stock. The Company may, but will not be obligated to, withhold from
------------
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_______________________________ _________________________________________
Relationship
_________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
SYMPHONIX DEVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the [Name of Company]
[1997] Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:__________________________
<PAGE>
EXHIBIT 10.4
SYMPHONIX DEVICES, INC.
RESTATED INVESTORS RIGHTS AGREEMENT
This Restated Investors Rights Agreement (the "Agreement") is effective as
of June 11, 1997, by and among Symphonix Devices, Inc., a California corporation
(the "Company") and certain holders of the Company's securities listed on
Exhibit A attached hereto (the "Holders").
The Investors Rights Agreement originally executed on July 27, 1994 and
subsequently amended is hereby restated in its entirety to read as follows:
1. Certain Definitions. As used in this Agreement, the following terms shall
-------------------
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
------------
"Holder" shall mean any holder of outstanding Securities.
------
"Initiating Holders" shall mean any Holder or Holders of not less than
------------------
fifty percent (50%) of the then outstanding Registrable Securities.
"Major Holder" shall mean a Holder of at least one hundred thousand
------------
(100,000) shares of Preferred Stock (or shares of Common Stock issuable upon
conversion thereof).
"Restricted Securities" shall mean the securities of the Company required
---------------------
to bear the legend set forth in Section 2.2 hereof.
"Registrable Securities" means (i) shares of Common Stock issued or
----------------------
issuable pursuant to the conversion of the Series A Preferred Stock, the Series
B Preferred Stock, the Series C Preferred Stock and the Series D Preferred
Stock, (ii) shares of Common Stock issued or issuable pursuant to the conversion
of the Series A Preferred Stock and Series B Preferred Stock issued or issuable
upon exercise of Warrants issued to Lighthouse Capital Partners (or any entity
affiliated therewith) in connection with equipment financings, and (iii) shares
of Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange or in replacement of such Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a holder (y) pursuant to a registration statement
under this Agreement or (z) in a transaction in which his rights under this
<PAGE>
Agreement are not transferred, including a transaction pursuant to a
registration statement under this Agreement.
The number of shares of "Registrable Securities then outstanding" shall be
---------------------------------------
determined by the number of shares of Common Stock outstanding which are, and
the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are, Registrable Securities.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
"Registration Expenses" shall mean all expenses incurred by the Company in
---------------------
complying with Sections 3.1 and 3.2 hereof and all expenses incurred in
complying with Section 3.9 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements of a single special
counsel for the Holders, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company) and Selling Expenses.
"Securities" shall mean the warrants issued to Lighthouse Capital Partners
----------
and the securities issuable upon exercise thereof, and the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Common Stock issued or issuable upon the conversion of
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in affect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale of Registrable Securities.
2. Transferability.
---------------
2.1 Restrictions on Transferability. The Securities shall not be
-------------------------------
transferable except upon the conditions specified in this Agreement, which
conditions are intended to insure compliance with the provisions of the
Securities Act, or, in the case of Section 3.8 hereof, to assist in an orderly
distribution. Each Holder will cause any proposed transferee of the Securities
held by such Holder to agree to take and hold such Securities subject to the
provisions and upon the conditions specified in this Agreement.
2.2 Restrictive Legend. Each certificate representing (i) the Securities
------------------
or (ii) any securities issued in respect of the Securities shall (unless
otherwise permitted by the provisions of
-2-
<PAGE>
Section 2.3 below) be stamped or otherwise imprinted with a legend in
substantially the following form (in addition to any legend required under
applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT UNDER AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY
NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN EXEMPTION
THEREFROM OR IN CONTRAVENTION OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER.
COPIES OF THE AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
2.3 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 2.3. Prior to any proposed
transfer of any Restricted Securities, unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the holder
thereof shall give written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall be
accompanied (except in the following cases, with respect to which the
requirements set forth in the balance of this sentence need not be complied
with; transactions in compliance with Rule 144 or Rule 144A so long as the
Company is furnished with evidence of compliance with such Rule; transactions
involving the distribution of Restricted Securities by any holder thereof which
is a general or limited partnership to any of its partners, or retired partners,
or to the estate of any of its partners or retired partners; transactions
involving the transfer of Restricted Securities to a parent, subsidiary or
affiliate of the transferring holder; transactions involving the transfer of
Restricted Securities by any holder who is an individual to his family members
or to a trust for the benefit of such shareholder or his family members; or
transfers not involving a change in beneficial ownership) by either (i) a
written opinion of legal counsel who shall be reasonably satisfactory to the
Company addressed to the Company and reasonably satisfactory in form and
substance to the Company's counsel, to the effect that the proposed transfer of
the Restricted Securities may be effected without registration under the
Securities Act, (ii) a "no action" letter from the Commission to the effect that
the distribution of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, or (iii) such other showing that may be reasonably satisfactory to
legal counsel to the Company, whereupon the holder of such Restricted Securities
shall be entitled to transfer such Restricted Securities in accordance with the
terms of the notice delivered by the holder to the Company. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear
the appropriate restrictive legend set forth in Section 2.2 above, except that
such certificate shall not bear such restrictive legend if in the
opinion of counsel for the Company such legend is not required in order to
establish compliance with any provisions of the Securities Act. All Restricted
Securities transferred as above that continue to
-3-
<PAGE>
bear the restrictive legend set forth in Section 2.2 shall continue to be
subject to the provisions of this Section 2.3 in the same manner as before such
transfer.
3. Registration Rights.
-------------------
3.1 Requested Registration. Prior to such time as the Company has
----------------------
effected two (2) registrations pursuant to this Section 3.1 and such
registrations have been declared or ordered effective, if the Company shall
receive from Initiating Holders a written request that the Company effect any
registration (other than a registration on Form S-3 or any related form of
registration statement) with respect to Registrable Securities having an
anticipated aggregate offering price to the public of at least one million
dollars ($1,000,000), the Company will:
(a) promptly give written notice of the proposed registration to all
other Holders; and
(b) as soon as practicable but in any event within one hundred twenty
(120) days, use its diligent best efforts to effect such registration
(including, without limitation, the execution of an undertaking to file post-
effective amendments, appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request given within fifteen (15)
days after receipt of such written notice from the Company; provided that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 3.1:
(i) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or com pliance unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(ii) Prior to the earlier of two (2) years after the date of this
Agreement or three (3) months following closing of the first underwritten public
offering of common stock of the Company for its own account pursuant to a
registration statement filed under to the Securities Act; or
(iii) If at the time of the request to register Registrable
Securities the Company in good faith gives notice within thirty (30) days of
such request that it is engaged or has fixed plans to engage within sixty (60)
days of the time of the request in an initial firmly underwritten registered
public offering; provided, however, that such notice may not be given more than
once in any six (6) month period.
-4-
<PAGE>
Subject to the foregoing clauses (i) through (iii) and to Section 3.1(d),
the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request of the Initiating Holders.
(c) Underwriting. If the Initiating Holders intend to distribute the
------------
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 3.1 and the Company shall include such information in the written notice
referred to in Section 3.1(a). The right of any Holder to registration pursuant
to Section 3.1 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested (unless otherwise mutually agreed by a
majority in interest of the Holders and such Holder) to the extent provided
herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders with the
approval of the Company, which approval shall not be unreasonably withheld.
Notwithstanding any other provision of this Section 3.1, if the underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten and so advises the Initiating Holders in writing, then the
Initiating Holders shall so advise all Holders (except those Holders who have
indicated to the Company their decision not to distribute any of their
Registrable Securities through such underwriting) and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all such Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities owned by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company, the underwriter
and the Initiating Holders. The Registrable Securities and/or other securities
so withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used above in determining the
underwriter limitation; and, provided further that in the event that the
withdrawal of a Holder, and the subsequent inclusion of additional Registrable
Securities by other Holders, results in an anticipated aggregate offering price
to the public of less than one million dollars ($1,000,000), the Company shall
no longer be required to effect such registration pursuant to this Section 3.1.
If the underwriter has not limited the number of Registrable Securities to
be underwritten, the Company may include securities for its own account or the
account of others in such registration if the underwriter so agrees and if the
number of Registrable Securities which would otherwise have been included in
such registration and underwriting will not thereby be limited.
-5-
<PAGE>
(d) Delay of Registration. If the Company shall furnish to the
---------------------
Initiating Holders a certificate signed by the President of the Company stating
that, in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be filed on or before the date filing would be
required and it is therefore essential to defer the filing of such registration
statement, then the Company may direct that such request for registration be
delayed for a period not in excess of ninety (90) days, such right to delay a
request to be exercised by the Company not more than once in any one-year
period.
3.2 Company Registration.
--------------------
(a) If at any time or from time to time, the Company shall determine
to register any of its Common Stock, for its own account or for the account of
others (other than the Holders), other than a registration relating solely to
employee benefit plans or a registration relating solely to a Commission Rule
145 transaction or a registration on any registration form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of Registrable Securities, the
Company will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within ten (10) days after receipt of such written notice from
the Company, by any Holder or Holders.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 3.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 3.2, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may limit the number of
Registrable Securities and shares of Common Stock to be included in the
registration and underwriting to (i) in the case of the first underwritten
public offering of the securities of the Company, any amount that the
underwriter may determine, or (ii) in the case of any registration subsequent to
the first underwritten public offering of the securities of the Company, to not
less than thirty percent (30%) of the total securities covered by the
registration. The Company shall so advise all Holders (except those Holders who
have indicated to the Company their decision not to distribute any of their
Registrable Securities through such underwriting), and the number of shares of
-6-
<PAGE>
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all Holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities owned by the Holders at the
time of filing the registration statement.
No Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
any Holder disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The securities so withdrawn from such underwriting shall also be
withdrawn from such registration; provided, however, that, if by the withdrawal
of such securities a greater number of Registrable Securities held by other
Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used above
in determining the underwriter limitation.
3.3 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration pursuant to Section 3.1 or Section 3.2 shall be
borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder and all Registration Expenses incurred in connection
with any registration pursuant to Section 3.9 hereunder, shall be borne by the
Holders of the Registrable Securities so registered pro-rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 3.1,
the request of which has been subsequently withdrawn by the Initiating Holders
(unless the withdrawal is based upon material adverse information concerning the
Company of which the Initiating Holders were not aware at the time of such
request or unless the Holders of a majority of Registrable Securities agree to
forfeit their right to one requested registration pursuant to Section 3.1 in
which event such right shall be forfeited by all Holders), in which case such
expenses shall be borne by the holders of Registrable Securities requesting such
registration in proportion to the number of shares for which registration was
requested.
3.4 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 3,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Keep such registration, qualification or compliance effective for
a period of one hundred twenty (120) days or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.
-7-
<PAGE>
3.5 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors, partners and legal counsel, and each person controlling such Holder
within the meaning of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 3,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other similar document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, or (ii) any violation by the Company of any federal, state or common law
rule or regulation applicable to the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors, partners and legal counsel, and each person
controlling such Holder, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, as incurred, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Holder and stated to be specifically for use
therein or furnished by the Holder to the Company in response to a request by
the Company stating specifically that such information will be used by the
Company therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each legal counsel and independent accountant of the Company, each
person who controls the Company within the meaning of the Securities Act, and
each other such Holder, each of its officers, directors, and partners and each
person controlling such Holder within the meaning of the Securities Act, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other similar document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and will reimburse the Company, such
Holders, such directors, officers, persons, or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, as incurred, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in con formity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein or furnished by the Holder to the Company in
response to a request by the Company stating specifically that such information
will be used by the Company therein; provided, however, that the obligations of
such Holders hereunder shall be limited to an
-8-
<PAGE>
amount equal to the proceeds to each such Holder of Registrable Securities sold
as contemplated herein.
(c) Each party entitled to indemnification under this Section 3.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has received written notice of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld). The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall bear the expense of such defense of the Indemnified Party if
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicts of interest. The failure of any Indemnified Party
to give notice within a reasonable period of time as provided herein shall
relieve the Indemnifying Party of its obligations under this Section 3.5 only to
the extent that such failure to give notice shall materially adversely prejudice
the Indemnifying Party in the defense of any such claim or any such litigation.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that the provisions
on indemnification contained in the underwriting agreement entered into in
connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
(e) The obligations of the Company and Holders under this Section 3.5
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 3, and otherwise.
3.6 Information by Holder. Each Holder including securities of the
---------------------
Company in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 3.
3.7 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Use its best efforts to facilitate the sale of the Restricted
Securities to the public, without registration under the Securities Act,
pursuant to Rule 144 under the Securities Act,
-9-
<PAGE>
provided that this shall not require the Company to file reports under the
Securities Act and the Exchange Act at anytime prior to the Company's being
otherwise required to file such reports.
(b) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act at all times after
ninety (90) days after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(c) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act,
(at any time after it has become subject to such reporting requirements);
(d) So long as a Holder owns any Restricted Securities to furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as such Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
3.8 "Market Stand-off" Agreement. Each Holder agrees not to sell or
----------------------------
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by it for a period not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act if so requested by the Company and the underwriter of
Common Stock (or other securities) of the Company, provided that:
(a) such agreement shall apply only to the first underwritten
registered public offering of the Company; and
(b) all officers and directors of the Company enter into similar
agreements. The Company may impose stop-transfer instructions with respect to
the shares (or securities) subject to the foregoing restriction until the end of
such period.
3.9 Form S-3. The Company shall use its best efforts to qualify for
--------
registration on Form S-3 and to that end the Company shall register (whether or
not required by law to do so) its Common Stock under the Exchange Act within
twelve (12) months following the effective date of the first registration of any
securities of the Company on Form S-1. After the Company has qualified for the
use of Form S-3, in addition to the rights contained in the foregoing provisions
of this Section 3, the Holders of Registrable Securities shall have the right to
request registrations on Form S-3 thereafter under this Section 3.9 (such
requests shall be in a writing signed by Holders holding not less than twenty
percent (20%) of the then outstanding Registrable Securities and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such
-10-
<PAGE>
shares by such Holder or Holders), provided that the Company shall not be
required to effect a registration pursuant to this Section 3.9 unless the Holder
or Holders requesting registration propose to dispose of shares of Registrable
Securities which they reasonably anticipate will have an aggregate disposition
price (before deduction of underwriting discounts and expenses of sale) of at
least five hundred thousand dollars ($500,000), provided further that the
Company shall not be required to effect a registration pursuant to this Section
3.9 if at the time of the request for a registration on Form S-3 the Company in
good faith gives notice within thirty (30) days of such request that it is
engaged or has fixed plans to engage within sixty (60) days of the time of the
request in a firmly underwritten registered public offering (but such notice may
not be given more than once in any six (6) month period), and provided further
that the Company shall not be required to effect more than one registration
pursuant to this Section 3.9 in any twelve (12) month period.
The Company shall give notice to all Holders of Registrable Securities of
the receipt of a request for registration pursuant to this Section 3.9 and shall
provide a reasonable opportunity for other Holders to participate in the
registration. Subject to the foregoing, the Company will use its best efforts
to effect promptly the registration of all shares of Registrable Securities on
Form S-3, as the case may be, to the extent requested by the Holder or Holders
thereof for purposes of disposition.
3.10 Transfer of Registration Rights. Except as otherwise provided
-------------------------------
herein, the rights contained in this Section 3 may be assigned or otherwise
conveyed to a transferee, affiliate or assignee of Registrable Securities, who
shall be considered a "Holder" for purposes of this Section 3, provided that (i)
such transfer is effected in accordance with applicable federal and state
securities laws, (ii) such transferee or assignee becomes a party to this
Agreement or agrees in writing to be subject to the terms hereof to the same
extent as if he were an original purchaser hereunder and (iii) such transferee
or assignee (A) is a parent, wholly owned subsidiary or constituent partner
(including limited partners) or affiliate of the transferring Holder, or (B)
acquires at least ten thousand (10,000) shares of Registrable Securities (as
shares are presently constituted) or (C) acquires all of the Registrable
Securities originally held by the transferring Holder and, provided further,
that the Company is given written notice by such Holder at the time of or within
a reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 3.
3.11 Certain Limitations in Connection with Future Grants of
-------------------------------------------------------
Registration Rights. From and after the date of this Agreement, the Company
- -------------------
shall not, without the prior written consent of the Holders of at least a
majority of the outstanding Registrable Securities, enter into any agreement
with any person or persons providing for the granting to such holder of
registration rights superior to those granted to Holders pursuant to this
Section 3, or of registration rights which might cause a reduction
-11-
<PAGE>
in the number of shares includable by the Holders in any offering pursuant to
Section 3.1 or in any offering subject to Section 3.2.
3.12 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.13 Termination of Registration Rights. All rights and duties provided for
----------------------------------
in this Section 3 shall terminate on the date five (5) years from the date of a
Qualified IPO (as defined below in Section 4.1(d)).
4. Right of First Refusal on Company Issuances.
-------------------------------------------
4.1 Right of First Refusal. The Company hereby grants to each Major
----------------------
Holder the right of first refusal to purchase, pro rata, all (or any part) of
New Securities (as defined in this Section 4.1) that the Company may, from time
to time propose to sell and issue. Such Major Holder's pro rata share, for
purposes of this right of first refusal, is the ratio of the number of shares of
Common Stock then owned or issuable upon conversion of the Preferred Stock of
the Company then owned by such Major Holder to the total number of shares of
Common Stock outstanding immediately prior to the issuance of the New
Securities, assuming full conversion of all outstanding shares of Preferred
Stock of the Company and exercise of all outstanding rights, options and
warrants to acquire, directly or indirectly, Common Stock of the Company. This
right of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock of the Company,
whether now authorized or not, and rights, options, or warrants to purchase said
capital stock, and securities of any type whatsoever that are, or may become,
convertible into said capital stock; provided, however, that "New Securities"
does not include (1) currently outstanding securities; (ii) securities issuable
upon conversion or exercise of or with respect to outstanding options, warrants
or convertible securities; (iii) securities issued pursuant to the acquisition
of another corporation by the Company by merger, purchase of substantially all
of the assets, or other reorganization whereby the Company owns more than fifty
percent (50%) of the voting power of such corporation; (iv) shares of the
Company's Common Stock (or related options) issued to employees, officers,
directors, consultants or advisers of the Company pursuant to any employee stock
offering, plan, or arrangement approved by a majority of the outside Board of
Directors; (v) shares of the Company's Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, or similar recapitalization by
the Company; (vi) securities issued in connection with equipment or debt
financing or leases (including securities issued in consideration of guarantees
of such financing or leases) which are approved by the Company's Board of
Directors; or (vii) securities issued to vendors, customers or coventurers or to
other persons in similar commercial or corporate partnering situations with the
Company if such issuance is approved by a majority of the outside Board of
Directors.
(b) In the event that the Company proposes to undertake an issuance of
New Securities, it shall give each Major Holder written notice of its intention,
describing the type of New
-12-
<PAGE>
Securities, the price, and the general terms upon which the Company proposes to
issue the same. Each Major Holder shall have twenty (20) days from the date of
mailing of any such notice to agree to purchase its pro rata share of such New
Securities, in whole or in part, for the price and upon the general terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. Each Major Holder shall
have a right of overallotment such that if any Major Holder fails to exercise
its right hereunder to purchase its full pro rata portion of New Securities, the
Company shall so notify the other Major Holders who are purchasing their full
pro rata portion, and such fully-exercising Major Holders may purchase that
portion of the New Securities not subscribed for on a pro rata basis, within ten
(10) days from the date of such notice.
(c) In the event that Major Holders fail collectively to exercise in
full the right of first refusal within said twenty (20) day period (plus ten
(10) day period, if applicable) the Company shall have sixty (60) days
thereafter to sell or enter into an agreement providing for the closing of the
sale of the New Securities respecting which the Major Holders' rights were not
exercised within thirty (30) days of such agreement at a price and upon general
terms no more favorable to the purchasers thereon than specified in the
Company's notice. In the event the Company has not sold the New Securities
within such sixty (60) day period, the Company shall not thereafter issue or
sell any New Securities, without first offering such securities to the Major
Holders in the manner provided above.
(d) The right of first refusal granted under this Agreement shall not
apply to and shall expire upon the closing of the first firmly underwritten
public offering of Common Stock of the Company that is pursuant to a
registration statement filed with, and declared effective by, the Commission
under the Securities Act, covering the offer and sale of Common Stock to the
public in which the shares of the Company's Preferred Stock will be converted
into shares of the Company's Common Stock pursuant to the provisions of the
Company's Articles of Incorporation, as now in effect or hereafter amended (a
"Qualified IPO").
(e) This right of first refusal is assignable only to an affiliate of
a Major Holder or in connection with a sale or transfer of Registrable
Securities.
5. Waiver of Right of First Refusal. The Holders hereby waive their rights of
--------------------------------
first refusal set forth in Section 4 of the Agreement with regard to the
proposed sale and issuance of Series D Preferred Stock and the Common Stock into
which such shares are convertible and all prior issuances. This waiver shall be
effective upon execution of this Agreement by the Company and the Holders of
more than 50% of the Securities.
6. Information Rights.
------------------
6.1 Financial Information. The Company will furnish the following
---------------------
information to each Major Holder:
(a) within twenty (20) days after the end of each quarterly accounting
period in each fiscal year,
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<PAGE>
(i) unaudited statements of income and of cash flow of the
Company for such quarterly period and for the period from the beginning of such
fiscal year to the end of such quarterly period, and
(ii) balance sheets of the Company as of the end of such
quarterly period, which statements will be prepared in accordance with generally
accepted accounting principles, consistently and uniformly applied.
(b) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company's operations and financial affairs or in conjunction with any annual or
interim audit given to the Company by its independent accountants (and not
otherwise contained in other materials provided pursuant to this Section);
(c) not less than thirty (30) days prior to the end of each fiscal
year, annual consolidated budgets prepared on a monthly basis for the Company
for the succeeding fiscal year, as approved by the Board of Directors
(displaying anticipated statements of income and cash flow and balance sheets
and containing a brief description by the Chief Executive Officer of the
Company's plans for the subsequent year);
(d) within ninety (90) days after the end of each fiscal year,
statements of income and retained earnings and cash flows of the Company for
such fiscal year, and a balance sheet of the Company as of the end of such
fiscal year, which statements shall be prepared in accordance with generally
accepted accounting principles, consistently and uniformly applied, and
accompanied by the unqualified opinion of an accounting firm of recognized
national standing.
6.2 Inspection Rights; Management Rights. The Company shall permit each
------------------------------------
Major Holder, its attorney, or its other representative to visit and inspect the
Company's properties, to examine the Company's books of account and other
records, to make copies or extracts therefrom and to discuss the Company's
affairs, finances and accounts with its officers, management employees and
independent accountants, all at such reasonable times and as often as such Major
Holder may reasonably request.
6.3 Termination of Covenants. The covenants provided in Sections 6.1 and
------------------------
6.2 shall terminate upon a Qualified IPO.
6.4 Assignment of Rights to Information. The rights granted pursuant to
-----------------------------------
Sections 6.1 and 6.2 may not be assigned or otherwise conveyed by any Major
Holder or by any subsequent transferee of any such rights without the written
consent of the Company, which consent shall not be unreasonably withheld;
provided that the Company may refuse such written consent if the proposed
transferee is a competitor of the Company as determined by the Company's Board
of Directors; and provided further, that no such written consent shall be
required if the transfer is made to a party who is not a competitor of the
Company and who is a parent, subsidiary, affiliate, partner or group member of
any Major Holder.
-14-
<PAGE>
6.5 Confidentiality. Each Holder agrees that it will keep confidential
---------------
and will not disclose or divulge any confidential, proprietary or secret
information which such Holder may obtain from the Company, and which the Company
has prominently marked "confidential", "proprietary" or "secret" or has
otherwise identified as being such, pursuant to financial statements, reports
and other materials submitted by the Company as required hereunder, or pursuant
to visitation or inspection rights granted hereunder unless such information is
or becomes known to the Holder from a source other than the Company or is or
becomes publicly known, or unless the Company gives its written consent to the
Holder's release of such information, except that no such written consent shall
be required (and Holder shall be free to release such information) if such
information is to be provided to a Holder's counsel or accountant, or to an
officer, director or general or limited partner of a Holder or to employees of,
or consultants to, a Holder on a "need to know" basis, provided that the Holder
shall inform the recipient of the confidential nature of such information, and
shall instruct the recipient to treat the information as confidential.
7. Miscellaneous.
-------------
7.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
7.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
7.3 Entire Agreement. This Agreement between the Holders and the Company
----------------
constitutes the full and entire understanding and agreement among the parties
with regard to the subjects hereof.
7.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be effective five (5) days
after deposited by first-class mail, postage prepaid, with the United States
mail or delivery by hand or by messenger, if addressed (a) to a Holder, at such
Holder's address set forth on the attached Exhibit A, or at such other address
as such Holder shall have furnished to the Company in writing, or (b) to any
other Holder of Registrable Securities, at such address as such holder shall
have furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Registrable Securities who has so furnished an address to the Company, or (c) to
the Company, at the address set forth below the Company's name on the signature
page to this Agreement or such other address as the Company shall have furnished
to each Holder and each such other holder in writing.
-15-
<PAGE>
7.5 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party, upon any breach or default of any other
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereunder
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
7.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the Holders,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
7.7 Severability. In the case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.8 Amendments. The provisions of this Agreement may be amended at any
----------
time and from time to time, and particular provisions of this Agreement may be
waived, with and only with an agreement or consent in writing signed by the
Company and by the holders of not less than a majority of the number of shares
of Securities outstanding as of the date of such amendment or waiver. Each
Holder acknowledges that by the operation of this Section 7.8 the Holders of a
majority of the outstanding Securities may have the right and power to diminish
or eliminate all rights of such Holder under this Agreement.
-16-
<PAGE>
The foregoing Restated Investors Rights Agreement is hereby executed as of
the date first above written.
COMPANY:
SYMPHONIX DEVICES, INC.
/s/ Harry S. Robbins
--------------------
Harry S. Robbins
Chairman, President and CEO
-17-
<PAGE>
HOLDERS:
ANDREW P. AMES & DELORES L. AMES,
TRUSTEES UNDER DECLARATION OF TRUST
DATED JUNE 22, 1988
By: /s/ A.P. Ames
---------------------------
Title: ___________________________
/s/ Ronald P. Antipa
---------------------------------
Ronald P. Antipa
/s/ Anelina Ayala
---------------------------------
Angelina Ayala
/s/ James Victor Ball
---------------------------------
James Victor Ball
/s/ Diane Ball
---------------------------------
Diane Ball
THE FIRST NATIONAL BANK OF CHICAGO AS
CUSTODIAN TO THE BRINSON VENTURE
CAPITAL FUND III, L.P.
By: __________________________
Title: __________________________
-18-
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO AS
CUSTODIAN TO THEBRINSON TRUST
COMPANY AS TRUSTEE OF THE BRINSON MAP
VENTURE CAPITAL FUND III
By: ___________________________
Title: ___________________________
CASSIN FAMILY PARTNERS, A CALIFORNIA
LIMITED PARTNERSHIP
By: ___________________________
Title: ___________________________
BRENDAN JOSEPH CASSIN AND ISABEL B.
CASSIN, TRUSTEES OF THE CASSIN FAMILY
TRUST U/D/T DATED JANUARY 31, 1996
By: /s/ B. J. Cassin
---------------------------
Title: ___________________________
ANDREW L. CHASE, TTEE CHASE 1991
REVOCABLE TRUST DTD. 4-2-91
By: /s/ Andrew Chase
---------------------------
Title: ___________________________
/s/ Warren G. Christianson
----------------------------------
Warren G. Christianson
-19-
<PAGE>
/s/ Carol P. Christie
----------------------------------
Carol P. Christie
CORAL PARTNERS IV, LIMITED
PARTNERSHIP
By: Coral Management Partners IV
Limited Partnership, Its: General Partner
/s/ Peter H. McNerney
----------------------------------
Peter H. McNerney, General Partner
LAURENCE CORASH, M.D. AND MICHELE B.
CORASH AS JOINT TENANTS
/s/ Laurence Corash
----------------------------------
Laurence Corash, M.D.
/s/ Michele B. Corash
----------------------------------
Michele B. Corash
/s/ Allen Cross
----------------------------------
Allen Cross
ANGELO DELLAPORTA, TTEE DELLAPORTA
FAMILY TRUST, DTD. 8-16-82
By: /s/ A. Delaporte
---------------------------
Title: ___________________________
/s/ Gerald C. Down
----------------------------------
Gerald C. Down
/s/ Larry G. Gerdes
----------------------------------
Larry G. Gerdes
-20-
<PAGE>
G&H PARTNERS
By: /s/ Illigible
---------------------------
Title: ___________________________
JOHN EUGENE HEARST AND JEAN
BANKSON HEARST, CO-TTEES FBO
HEARST REVOCABLE TRUST DTD
3/13/89 c/o JOHN E. HEARST
By: /s/ John E. Hearst
---------------------------
Title: ___________________________
PETER HERTZMANN, INC.
By: /s/ P. Hertzmann
---------------------------
Title: ___________________________
/s/ Walter S. Huff
----------------------------------
Walter S. Huff, Jr.
/s/ Steve Isaacs
----------------------------------
Steve Isaacs
/s/ Paul K. Joas
----------------------------------
Paul K. Joas
-21-
<PAGE>
JOHNSON & JOHNSON DEVELOPMENT
CORPORATION
By: /s/ Illigible
---------------------------
Title: ___________________________
/s/ Roy Kirkorian
----------------------------------
Roy Kirkorian
/s/ Larry Kuhn
----------------------------------
Larry Kuhn
ANGELINA P. LAWTON IRREVOCABLE TRUST
By: /s/ Angelina P. Lawton
---------------------------
Title: ___________________________
DONALD L. LUCAS, SUCCESSOR TTEE
PROFIT SHARING TRUST DATED 1-1-87
By: /s/ Donald L. Lucas
---------------------------
Title: ___________________________
DONALD L. LUCAS, TTEE, DONALD L. LUCAS &
LYGIA S. LUCAS TRUST DTD 12/3/84
-22-
<PAGE>
By: ____________________________
Title: ___________________________
/s/ Donald L. Lucas
----------------------------------
Donald A. Lucas
RICHARD M. LUCAS CANCER FOUNDATION
By: ___________________________
Title: ___________________________
MAYFIELD VII
A CALIFORNIA LIMITED PARTNERSHIP
BY MAYFIELD VII MANAGEMENT
A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Illigible
---------------------------
MAYFIELD ASSOCIATES FUND II
A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Illigible
---------------------------
__________________________________
Jonathan Osgood
-23-
<PAGE>
ROBERT J. & MARION E. OSTER, TTEE
OSTER FAMILY REVOCABLE TRUST, DTD.
10-5-76, AS AMENDED
By: ___________________________
Title: ___________________________
ADRIANA I. RAHN IRREVOCABLE TRUST
By: /s/ Adriana I. Rahn
---------------------------
Title: ___________________________
NOEL P. RAHN, JR. IRREVOCABLE TRUST
By: /s/ Noel P. Rahn, Jr.
---------------------------
Title: ___________________________
MARK C. RAHN IRREVOCABLE TRUST
By: /s/ Mark C. Rahn
---------------------------
Title: ___________________________
/s/ Noel P. Rahn
----------------------------------
Noel P. Rahn
-24-
<PAGE>
SAND HILL FINANCIAL COMPANY
By: /s/ Donald L. Lucas
---------------------------
Title: ___________________________
ROBERT F. SHAW, TRUSTEE OF THE ROBERT
F. SHAW 1990 FAMILY TRUST
By: ___________________________
Title: ___________________________
SIERRA VENTURES IV, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
BY SV ASSOCIATES IV, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP,
ITS GENERAL PARTNER
By: /s/ Petri Vainio
---------------------------
Petri Vainio, General Partner
SIERRA VENTURES IV INTERNATIONAL,
L.P., A DELAWARE LIMITED PARTNERSHIP
BY SV ASSOCIATES IV, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP,
ITS GENERAL PARTNER
By: ___________________________
Petri Vainio, General Partner
ARNOLD N. SILVERMAN, TTEE
SILVERMAN FAMILY TRUST DTD. 6-2-88
-25-
<PAGE>
By: /s/ Arnold N. Silverman
---------------------------
Title: ___________________________
ST. MARY'S COLLEGE OF CALIFORNIA GAEL
GROWTH FUND
By: /s/ Illigible
---------------------------
Title: ___________________________
ST. FRANCIS GROWTH FUND
By: /s/ Kevin J. Makley
---------------------------
Title: ___________________________
STANFORD UNIVERSITY
By: /s/ Carol Gilmer
---------------------------
Title: ___________________________
/s/ Wesley Sterman
----------------------------------
Wesley Sterman
/s/ Richard . Stubblefield
----------------------------------
Richard D. Stubblefield
/s/ Gregory V. Vaughn
----------------------------------
Gregory V. Vaughn
-26-
<PAGE>
VWCSYM INVESTORS
By: /s/ Paul W. Brown
---------------------------
Title: ___________________________
WS INVESTMENT CO. 94B
By: /s/ Illigible
---------------------------
Title: ___________________________
/s/ Leonard S. Yaffe
----------------------------------
Leonard S. Yaffe
/s/ Gwill E. York
----------------------------------
Gwill E. York
-27-
<PAGE>
EXHIBIT 10.5
MASTER EQUIPMENT LEASE AGREEMENT
Agreement No. 1001 Dated: December 2, 1994
LESSOR: LIGHTHOUSE CAPITAL PARTNERS, L.P., a Delaware limited partnership
("Lessor"), 100 Drakes Landing Road, Suite 260, Greenbrae, California
94904
LESSEE: SYMPHONIX DEVICES, INC., a California corporation ("Lessee")
ADDRESS: 3047 Orchard Parkway, San Jose, CA 95134.
IN CONSIDERATION of the mutual covenants contained herein, the parties
agree as follows:
1. LEASE. Lessor leases to Lessee and Lessee leases from Lessor the
personal property described in each Equipment Schedule executed pursuant hereto,
subject to the terms and conditions of this Master Equipment Lease Agreement
("Master Lease") and the applicable Lease Line Schedule (defined below). The
"Equipment" (as defined in the Lease Line Schedule) is being leased for
commercial or business purposes only, and not for personal, home, or family
purposes. The parties agree that each Lease is a "finance lease" under the
Uniform Commercial Code (as in effect in the State of California during the term
of the Lease and referred to hereafter as the "UCC").
2. LEASE LINE SCHEDULE. "Lease Line Schedule" means a Lease Line Schedule
in the form of EXHIBIT A, signed by Lessor and Lessee and incorporating by
reference the terms and provisions of this Master Lease.
3. EQUIPMENT SCHEDULES. "Equipment Schedule" means an Equipment Schedule
in the form of EXHIBIT B, signed by Lessor and Lessee and incorporating, by
reference, the terms and provisions of this Master Lease and the applicable
Lease Line Schedule. Each Equipment Schedule shall constitute a separate and
independent lease (a "Lease"); the original of such Lease shall consist of the
signed Equipment Schedule and a copy of the Master Lease and applicable Lease
Line Schedule. Capitalized terms used, but not defined, in this Master Lease
have the meanings given to such terms in the applicable Lease Line Schedule or
Equipment Schedule, as the case may be.
4. TERM AND RENTALS.
(a) ACCEPTANCE. The Lease shall commence with respect to Equipment
described on the Equipment Schedule upon the Acceptance Date. The "Acceptance
Date" shall be the date upon which Lessee executes a Delivery and Acceptance
Certificate in the form of EXHIBIT C.
(b) TERM AND PAYMENT OF RENT. The lease term for the Equipment shall
be the "Lease Term" set forth in the Equipment Schedule which shall commence on
the "Commencement Date" (as defined in the Lease Line Schedule). Lessee agrees
to pay to Lessor the "Rental Payments" for the Lease Term, in the amounts and at
the times set forth in the Equipment Schedule.
(c) INTERIM PERIOD. If the Acceptance Date does not fall on the
Commencement Date, then Lessee agrees to pay to Lessor "Interim Rent" for the
period commencing on the Acceptance Date through and including the day preceding
the Commencement Date (the "Interim Period"). The Interim Rent payment for the
Interim Period shall accrue at the "Interim Rate" (as defined in the Lease Line
Schedule) and shall be due and payable in full on the Commencement Date.
(d) LEASE TERMINATION. Lessee may terminate the Lease at the
expiration of the Lease Term or any renewal term (the "Lease Termination") by
submitting to Lessor a Notice of Election in the form of EXHIBIT D. If a Notice
of Election is not submitted by Lessee to Lessor during the "Advance Notice
Period" (as defined in the Lease Line Schedule), then the Lease Term or any
renewal Term will be automatically extended for an additional period equal to
the "Automatic Extension Period" (as defined in the Lease Line Schedule). The
Lease
1.
<PAGE>
will continue to automatically extend until Lessee submits to Lessor a Notice of
Election. The Lease may only be terminated as expressly provided in this
Section, in the applicable Lease Line Schedule or in the applicable Equipment
Schedule. Lessee agrees to continue paying rent for the Equipment in the amount
of the Rental Payment set forth in the Equipment Schedule until the later of (i)
the expiration of the Lease Term, any renewal term and any Automatic Extension
Period and (ii) either (A) the purchase option price is paid pursuant to SECTION
6(A), or (B) a mutually agreed renewal of the Lease takes effect pursuant to
SECTION 6(B), or (C) the Equipment is returned in the manner and condition
prescribed in SECTION 6(C), in each case after delivery of a Notice of Election.
(e) NET LEASE. Each Equipment Schedule shall be a net lease, and
Lessee's obligation to pay all rent and other sums thereunder shall be absolute
and unconditional, and shall not be subject to any abatement, reduction, set-
off, defense, counterclaims, interruption, deferment or recoupment, for any
reason whatsoever.
5. LATE FEE. Lessee shall pay a late charge on any rent payments or other
sums due hereunder which are past due, in the amount specified in the Lease Line
Schedule, payable on demand. In addition, interest shall accrue daily at the
"Default Rate" (as defined in the Lease Line Schedule), or if such rate exceeds
the maximum rate allowed by law, then at such maximum rate, and shall be payable
on demand.
6. LEASE TERMINATION OPTIONS. Upon Lease Termination, Lessee will have
the option to purchase the Equipment, renew the term of the Lease, or return the
Equipment to Lessor, as set forth below. Lessee shall specify its election of a
Lease Termination Option in the Notice of Election.
(a) PURCHASE OPTION. If Lessee exercises the option to purchase,
then, provided no Event of Default has occurred and is then continuing, Lessee
shall at the expiration of the Lease Term, renewal term or extension, as the
case may be, purchase the Equipment. The purchase price shall be the
Equipment's then fair market value ("FMV"). FMV, as applied to a purchase
option, shall be determined by Lessor based on the price a willing buyer would
pay and a willing seller would accept (neither buyer nor seller being under
compulsion to act) for the Equipment as installed and in use, giving due
consideration to its condition, utility, revenue-producing capability, and
replacement costs. If Lessee fails to agree with Lessor's good faith
determination of the FMV, Lessee shall nevertheless pay Lessor's invoice and
provide Lessor with a written request for a determination of the FMV with or
prior to such payment. Within ten (10) days after such request Lessor and
Lessee shall agree on an appraiser to determine the FMV or, lacking such
agreement, shall each tender the name of an appraiser. The appraiser(s) shall,
within thirty (30) days, either agree on the FMV or select a third appraiser, to
form a committee to determine the FMV. Determination by the appraiser(s) shall
be final and binding on both parties. Within fifteen (15) days after such
determination, Lessor shall refund any excess received over the FMV, and/or
Lessee shall pay any additional amount of the FMV above the amount previously
paid. Each party shall bear the fees and expenses of any appraiser which it
names and share equally the fees and expenses of any appraiser(s) jointly
selected. If the appraised FMV is within 5% of the amount invoiced by Lessor,
then Lessee shall pay all appraiser fees and expenses. The purchase option
price shall be paid not later than the last day of the Lease Term.
(b) RENEWAL. If Lessee exercises the option to renew this Lease,
such renewal shall be upon the terms and conditions of this Master Lease and the
applicable Lease Line Schedule, for a rental period and rental amount to be
agreed upon by Lessee and Lessor.
(c) RETURN. If the Notice of Election specifies return of the
Equipment, Lessee at its own risk and expense (i) will immediately return the
Equipment to Lessor in the same condition as when delivered, ordinary wear and
tear excepted, at such location as Lessor shall designate; and (ii) will, on
request from Lessor, obtain from the Equipment supplier (or other maintenance
service supplier approved by Lessor) a certificate stating that the Equipment
qualifies for continued maintenance service at the standard rates and terms then
in effect.
2.
<PAGE>
7. USE; MAINTENANCE.
(a) Lessee, at its expense, shall make all necessary site preparations
and cause the Equipment to be operated in accordance with any applicable
operating manuals and manufacturer's instructions. Notwithstanding any transfer
or assignment by Lessor and provided Lessee is not in default hereunder, Lessee
shall have the right to quietly possess and use the Equipment as provided herein
without interference by Lessor, its assigns or any other third party claiming
through or under Lessor.
(b) Lessee shall effect and bear the expense of all necessary repair,
maintenance, operation and replacements required to be made to maintain the
Equipment in good condition, reasonable wear and tear excepted, and to comply
with all domestic and international laws to which the use and of the Equipment
may be or become subject. All replacement Equipment and parts furnished in
connection with such maintenance or repair shall immediately become the property
of Lessor and part of the Equipment for all purposes hereof. All such
maintenance, repair and replacement services shall be immediately paid for and
discharged by Lessee with the result that no lien under any applicable laws will
attach to the Equipment as a result of the performance of such services or the
provision of any such material.
8. INSURANCE. Lessee shall obtain and maintain for the Lease Term (and
any renewal term or extension), at its own expense, (a) "all risk" insurance
against loss or damage to the Equipment, (b) commercial general liability
insurance (including contractual liability, products liability and completed
operations coverages) reasonably satisfactory to Lessor, and (c) such other
insurance against such other risks of loss and with such terms, as shall in each
case be reasonably satisfactory to or reasonably required by Lessor (as to
carriers, amounts and otherwise). The amount of the "all risk" insurance shall
be greater than or equal to the Stipulated Loss Value (as defined in SECTION 9
below) of all Equipment outstanding under the Lease Line Schedule, and must
otherwise be reasonably satisfactory to Lessor as of each anniversary date of
this Lease. Any increase in the amount of such insurance coverage reasonably
requested by Lessor shall be put into effect on the next succeeding renewal date
of such insurance.
Each "all risk" policy shall: (i) name Lessor as sole loss payee with
respect to the Equipment, (ii) provide for each insurer's waiver of its right of
subrogation against Lessor and Lessee, and (iii) provide that such insurance
shall not be invalidated by any action of, or breach of warranty by, Lessee of a
provision of any of its insurance policies, and shall waive set-off,
counterclaim or offset against Lessor.
Each liability policy shall name Lessor as an additional insured and
provide that such insurance shall have cross-liability and severability of
interest endorsements (which shall not increase the aggregate policy limits of
Lessee's insurance).
All insurance policies shall provide that Lessee's insurance shall be
primary without a right of contribution of Lessor's insurance, if any, or any
obligation on the part of Lessor to pay premiums of Lessee, and shall contain a
clause requiring the insurer to give Lessor at least 30 days' prior written
notice of its cancellation (other than cancellation for non-payment for which 10
days' notice shall be sufficient). Lessee shall on or prior to the date of
Equipment Schedule No. 1 and prior to each policy renewal, furnish to Lessor
certificates of insurance or other evidence satisfactory to Lessor that such
insurance coverage is in effect. Lessee further agrees to give Lessor prompt
notice of any damage to, or loss of, the Equipment, or any part thereof.
9. LOSS OR DAMAGE. If any items of Equipment shall become lost, stolen,
destroyed, or damaged beyond repair for any reason, or in the event of
condemnation, confiscation, seizure or requisition of title to or use of such
items (collectively, an "Event of Loss"), Lessee shall promptly pay to Lessor
the applicable Stipulated Loss Value of the Equipment subject to the Event of
Loss. Upon payment by Lessee of the Stipulated Loss Value, Lessor will transfer
to Lessee, "AS IS, WHERE IS, WITHOUT RECOURSE, REPRESENTATION OR WARRANTY," all
of Lessor's right, title and interest, if any, in such items of Equipment. The
"Stipulated Loss Value" payable by Lessee under this Lease shall be an amount
equal to the product of (a) Lessor's Cost of the affected Equipment and (b) the
percentage set forth in the table attached to the applicable Lease Line Schedule
as
3.
<PAGE>
ANNEX A opposite the Rental Payment number next following the Event of Loss.
Stipulated Loss Values and Rental Payments shall not be prorated.
10. TITLE, INSPECTION AND LOCATION.
(a) TITLE. Lessor and Lessee confirm their intent that title to the
Equipment shall remain in Lessor (or its successors and assigns) exclusively.
If requested by Lessor, Lessee will affix plates or markings on the Equipment
and on any operating manuals and manufacturer's instructions indicating the
interests of Lessor and its assigns therein, and Lessee will not allow any other
indicia of ownership or other interest in the Equipment to be placed on the
Equipment. Lessee shall not sell, assign, grant a security interest in, sublet,
pledge, hypothecate or otherwise encumber or suffer a lien upon or against this
Lease or the Equipment.
(b) INSPECTION. Lessor (through any of its officers, employees or
agents) shall have the right to inspect the Equipment during regular business
hours, with reasonable notice, and in compliance with Lessee's reasonable
security procedures; provided, that such inspections will be conducted no more
often than every six (6) months unless an Event of Default, or event which, with
notice or lapse of time or both, would become an Event of Default, has occurred
and is continuing.
(c) LOCATION. In the case of Equipment other than mobile Equipment,
Lessee may move such Equipment from the installation address shown on the
Equipment Schedule (or any other location for which Lessee has complied with
this provision) only if (i) the new location is within the continental United
----
States, and (ii) Lessee gives at least 30 days' prior written notice of the
relocation and provides UCC-1 financing statements, landlord waivers or such
other documentation as Lessor reasonably requests to protect its interest in the
Equipment. In the case of mobile equipment (including, without limitation, lap-
top computers), Lessee agrees to obtain from the person using such mobile
Equipment, and deliver to Lessor, an Acknowledgment in the form of EXHIBIT F.
(d) Lessee shall keep copies of all operating manuals and
manufacturer's instructions with respect to the Equipment in good condition at
the locations specified in SECTION 10(C).
11. LESSEE'S REPRESENTATIONS, WARRANTIES AND WAIVERS. Upon execution of
the Master Lease and each Equipment Schedule, Lessee warrants and represents the
following:
(a) Lessee is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation. Lessee has full
power and authority and all necessary licenses and permits to carry on its
business as presently conducted, to own or hold under lease its properties and
to enter into this Master Lease, the Lease Line Schedule and each Equipment
Schedule and to perform its obligations thereunder; and Lessee is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the character of its properties or the nature of its
business or the performance of its obligations under this Master Lease, the
Lease Line Schedule and any Equipment Schedule requires such qualification,
except for such jurisdictions in which failure to qualify would not have a
material adverse effect on Lessee.
(b) The execution and delivery by Lessee of this Master Lease, the
Lease Line Schedule and each Equipment Schedule and the performance by Lessee of
its obligations thereunder have been duly authorized by all necessary corporate
action on the part of Lessee; and do not and will not contravene the provisions
of, or constitute a default (either with or without notice or lapse of time, or
both) under, or result in the creation of any lien upon, the Equipment or any
property of Lessee under any indenture, mortgage, contract or other instrument
to which Lessee is a party or by which Lessee or its properties is bound.
(c) No consent or approval of, giving of notice to, registration with,
or taking of any other action by, any state, federal, foreign or other
governmental commission, agency or regulatory authority or any other person or
entity is required for the consummation or performance by Lessee of the
transactions contemplated under this Master Lease, the Lease Line Schedule and
each Equipment Schedule.
4.
<PAGE>
(d) This Master Lease, the Lease Line Schedule and each Equipment
Schedule, when executed by Lessee, constitute legal, valid and binding
agreements of Lessee enforceable against Lessee in accordance with their terms,
except as limited by any bankruptcy, insolvency, reorganization, or other
similar laws of general application affecting the enforcement of creditor or
Lessor rights.
(e) There are no actions, suits or proceedings pending or threatened
against or affecting Lessee or any property of Lessee in any court, before any
arbitrator of any kind or before or by any federal state, municipal or other
government department, commission, board, bureau, agency or instrumentality
(collectively "Governmental Body"), which, if adversely determined, would
materially adversely affect the business, financial condition, assets, or
operations of Lessee, or adversely affect the ability of Lessee to perform its
obligations under this Master Lease, the Lease Line Schedule and each Equipment
Schedule; and Lessee is not in default with respect to any order of any court,
arbitrator or Governmental Body or with respect to any material loan agreement,
debt instrument or contract with a supplier or customer of Lessee, except as
disclosed in writing to Lessor.
(f) To the extent permitted by applicable law, Lessee waives any and
all rights and remedies to: (i) cancel this Lease; (ii) repudiate this Lease;
(iii) reject the Equipment; (iv) revoke acceptance of the Equipment; (v) recover
damages from Lessor for any breaches of warranty or for any other reason; (vi)
claim a security interest in the Equipment in Lessee's possession or control for
any reason; (vii) deduct from Rental Payments all or any part of any claimed
damages resulting from Lessor's default, if any, under this Lease; (viii) accept
partial delivery of the Equipment; (ix) "cover" by making any purchase or lease
of or contract to purchase or lease equipment in substitution for Equipment
designated in the Lease; (x) recover any direct, general, special, incidental,
indirect, exemplary or consequential damages, for any reason whatsoever; and
(xi) obtain specific performance, replevin, detinue, sequestration, claim and
delivery or the like for any Equipment identified to this Lease. To the extent
permitted by applicable law, Lessee also waives any rights now or hereafter
conferred by statute or otherwise which may require Lessor to sell, lease or
otherwise use any Equipment in mitigation of Lessor's damages or which may
otherwise limit or modify any of Lessor's rights or remedies.
12. ASSIGNMENT BY LESSOR. LESSEE ACKNOWLEDGES THAT LESSOR MAY SELL,
ASSIGN, GRANT A SECURITY INTEREST IN, OR OTHERWISE TRANSFER ALL OR ANY PART OF
ITS RIGHTS, TITLE AND INTEREST IN THIS LEASE AND THE EQUIPMENT WITHOUT NOTICE TO
OR CONSENT OF LESSEE. Upon Lessor's written notice to Lessee that this Lease,
or the right to the Rental Payments hereunder, have been assigned, Lessee shall,
if requested, pay directly to Lessor's assignee without abatement, deduction or
set-off all amounts which become due hereunder. Lessee waives and agrees it
will not assert against Lessor's assignee any counterclaim or set-off in any
action for rent under the Lease. Upon the assignment of this Lease, Lessor's
assignee shall have and be entitled to exercise any and all rights and remedies
(but none of the obligations) or lessor hereunder, and all references herein to
Lessor shall include Lessor's assignee. Lessee acknowledges that any assignment
or transfer by Lessor does not materially change Lessee's duties or obligations
under this Lease nor materially increase the burdens or risks imposed on Lessee.
13. ASSIGNMENT BY LESSEE. LESSEE MAY NOT, WITHOUT LESSOR'S PRIOR WRITTEN
CONSENT, (i) ASSIGN THIS LEASE, WHETHER BY OPERATION OF LAW OR OTHERWISE, OR
SUBLEASE THE EQUIPMENT OR ANY PART THEREOF OR (II) ASSIGN, GRANT A SECURITY
INTEREST IN, OR OTHERWISE TRANSFER ALL OR ANY PART OF ITS RIGHTS, TITLE AND
INTEREST IN AND TO THIS LEASE OR THE EQUIPMENT. In the event Lessee makes an
assignment, sublease or other transfer (to which Lessor has consented), Lessee
shall not thereby be relieved of its duties and obligations hereunder, for which
it shall remain fully responsible and liable (independent of its assignee).
14. TAXES.
(a) Lessee shall comply with all applicable federal, state, local,
foreign and international laws, regulations and orders relating to this Lease.
Lessee assumes liability for, and shall pay when due, and on a net after-tax
basis shall indemnify and defend Lessor against, all federal, state, local,
foreign and international fees, taxes and government charges (including, without
limitation, interest and penalties) or any nature imposed upon
5.
<PAGE>
or in any way relating to Lessor, Lessee, any item of Equipment or this Lease,
except federal, state and local taxes on or measured by Lessor's net income
(other than any such tax which is in substitution for or relieves Lessee from
the payment of taxes it would otherwise be obligated to pay to or reimburse
Lessor for as herein provided). Lessee shall at its expense file when due with
the appropriate authorities any and all tax and similar returns and reports
required to be filed with respect thereto or, if requested by Lessor, notify
Lessor of all such requirements and furnish Lessor with all information required
for Lessor to effect such filings, which filings shall also be at Lessee's
expense. Any fees, taxes or other charges paid by Lessor upon failure of Lessee
to make such payments shall at Lessor's option become immediately due from
Lessee to Lessor.
(b) This Lease has been entered into on the assumption that Lessor
shall be entitled to all deductions, credits, and other tax benefits as are
provided in the Internal Revenue Code of 1986, including amendments as may occur
(the "Code"), to an owner of property including, without limitation,
depreciation deductions and interest deductions with respect to any debts
incurred to finance the purchase of the Equipment. If, as a result of any acts,
omissions or misrepresentations by Lessee or as a result of any changes in the
Code, the regulations issued thereunder or the administrative or judicial
interpretations, Lessor's projected after-tax economic return resulting from
ownership and lease of the Equipment is reduced, then Lessee's Rental Payments
shall be increased in an amount (based on Lessor's reasonable calculations)
sufficient to provide the same net after-tax economic return as if such acts or
omissions or changes had not occurred. Appropriate increases shall also be made
in the applicable Stipulated Loss Values for this Lease. In the event the
Equipment is sold by Lessor to another party, the net after-tax economic returns
considered shall be those of such other party.
15. EQUIPMENT WARRANTIES. Lessee acknowledges that (i) Lessee has
selected the supplier of the Equipment, (ii) Lessor acquired the goods or the
right to possession and use of the goods in connection with the Lease, and (iii)
Lessee received a copy of the contract by which Lessor acquired the Equipment or
the right to possession and use of the Equipment before signing the Lease.
LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES INCLUDING THOSE OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR USE WITH RESPECT TO THE EQUIPMENT AND DISCLAIMS THE
SAME. Lessor shall have no liability for any damages, whether direct, indirect,
general, special, incidental, exemplary or consequential, incurred by Lessee as
a result of any defect or malfunction of the Equipment. Lessee shall look
solely to the Equipment supplier for any and all claims related to the
Equipment. Lessor assigns to Lessee, for and during the Lease Term, any
warranty on the Equipment provided by the supplier. Lessor and Lessee agree
that all limitations on remedies and liability contained in this Lease represent
a reasonable allocation of risks that is part of the fundamental bargain between
the parties.
16. EVENTS OF DEFAULT. An Event of Default shall occur if Lessee (i)
fails to pay any Rental Payment or other payment required under the Lease when
due and such failure continues for a period of five (5) days after written
notice from Lessor; or (ii) fails to perform or observe any other covenant,
condition or agreement to be performed or observed by it or breaches any
provision contained in the Lease or in any other document furnished to Lessor in
connection herewith, and such failure or breach continues for a period of thirty
(30) days after written notice from Lessor; or (iii) without Lessor's consent,
attempts to assign this Lease or sell, transfer, encumber, part with possession,
or subject any item of Equipment; or (iv) makes any representation or warranty
herein or in any document furnished by Lessor in connection herewith, which
shall have been materially false or inaccurate when made or at the time to which
such representation or warranty relates; or (v) shall commit an act of
bankruptcy or become insolvent or bankrupt or made an assignment for the benefit
of creditors or consent to the appointment of a Trustee or Receiver or either
shall be appointed for Lessee or for a substantial part of its property without
its consent, or bankruptcy reorganization, or insolvency proceedings shall be
instituted by or against Lessee, and if instituted against Lessee shall not be
vacated or dismissed within sixty (60) days. Any Event of Default shall be
deemed material and a substantial impairment of Lessor's interests for the
purposes of this Lease, the UCC, and any other applicable law.
17. REMEDIES. Upon the occurrences of any Events of Default and at any
time thereafter, provided such Event of Default is then continuing, Lessor may,
in its discretion, do any one or more of the following:
6.
<PAGE>
(a) cancel any or all Leases which reference this Master Lease or the
Lease Line Schedule, upon notice to Lessee;
(b) recover any accrued and unpaid Rental Payments and other amounts
which are due and owing under the Leases so canceled on the Rental Payment Date
immediately preceding the date on which Lessor obtains possession of the
Equipment (or such earlier date as judgment is entered in favor of Lessor) (the
"Determination Date"), plus interest at the Default Rate;
(c) with or without canceling this Lease, recover (i) such Stipulated
Loss Value as of the Rental Payment Date immediately preceding the Determination
Date, and (ii) the amount of any loss or reduction of tax benefits which Lessor
anticipated it would receive if the Lease continued for its full Lease Term;
(d) recover any amounts due under any indemnity then determinable,
plus interest at the Default Rate;
(e) require that Lessee provide the return and certification of the
Equipment in accordance with SECTION 6(C) hereof;
(f) enter the premises where such Equipment is located and take
immediate possession of and remove the same, all without liability to Lessor or
its agents for such entry;
(g) sell any or all of the Equipment at public or private sale, with
or without notice to Lessee or advertisement, or otherwise dispose of, hold,
use, operate, lease to others or keep idle such Equipment, all free and clear of
any rights of Lessee and without any duty to account to Lessee for such action
or inaction or for any proceeds with respect thereto; and
(h) exercise any other right or remedy which may be available to it
under the UCC or other applicable law including the right to recover damages for
the breach hereof.
In addition, Lessee shall be liable for, and reimburse Lessor for, all
reasonable legal fees and all commercially reasonable costs and expenses
incurred by Lessor as a result of the foregoing defaults or the exercise of
Lessor's remedies, including without limitation recovering possession of the
Equipment, selling or leasing the Equipment (including broker's and sales
representative's fees and commissions), and placing any Equipment in the
condition and obtaining the certificate required by SECTION 6(C) hereof. No
remedy referred to in this Section is intended to be exclusive, but each shall
be cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at law or in equity. No express or implied waiver by Lessor
of any default shall constitute a waiver of any other default by Lessor, or a
waiver of any of Lessor's rights.
18. INDEMNIFICATION. Lessee assumes liability for, and shall pay when
due, and shall indemnify, reimburse and hold each Indemnified Person (defined
below) harmless from and against all Claims (defined below), directly or
indirectly relating to or arising out of the acquisition, use, manufacture,
purchase, shipment, transportation, delivery, installation, lease or sublease,
ownership, operation, possession, control, storage, return or condition of any
item of Equipment (regardless of whether such item of Equipment is at the time
in the possession of Lessee), the falsity of any non-tax representation or
warranty of Lessee or Lessee's failure to comply with the terms of the Lease
during the Lease Term. The foregoing indemnity shall cover, without limitation,
(i) any Claim in connection with a design or other defect (latent or patent) in
any item of Equipment, (ii) any Claim for infringement of any patent, copyright,
trademark or other intellectual property right, or (iii) any Claim for
negligence or strict or absolute liability in tort; provided, however, that
Lessee shall not indemnify Lessor for any liability incurred by Lessor as a
direct and sole result of Lessor's gross negligence or willful misconduct.
"Claim" means all liabilities, losses, damages, actions, suits, demands,
claims of any kind and nature (including, without limitation, claims relating to
environmental discharge, cleanup or compliance), and all costs and expenses
whatsoever to the extent they may be incurred or suffered by an Indemnified
Person in connection
7.
<PAGE>
therewith (including, without limitation, reasonable attorneys' fees and
expenses), fines, penalties (and other charges of applicable governmental
authorities), licensing fees relating to any item of Equipment, damage to or
loss of use of property (including, without limitation, consequential or special
damages to third parties or damages to Lessee's property), or bodily injury to
or death of any person (including, without limitation, any agent or employee of
Lessee).
"Indemnified Person" means Lessor (including without limitation, each of
its partners) and each of their respective successors, assigns, agents,
officers, directors, shareholders, partners, servants, agents and employees.
Such indemnities shall continue in full force and effect, notwithstanding
the expiration or termination of this Lease. Upon Lessor's written demand,
Lessee shall assume and diligently conduct, at its sole cost and expense, the
entire defense of any Indemnified Person against any indemnified Claim described
in this SECTION 18. Lessee shall not settle or compromise any Claim against or
involving Lessor without first obtaining Lessor's written consent thereto, which
consent shall not be unreasonably withheld. Lessee shall give Lessor prompt
notice of any occurrence, event or condition in connection with which Lessor may
be entitled to indemnification hereunder. The provisions of this SECTION 18 are
in addition to, and not in limitation of, the provisions of SECTION 14(B).
19. NOTICES. Any notices or demands required or permitted hereunder shall
be given to the parties in writing and by personal delivery, regular or
certified mail, facsimile or telegram at the address set forth in the Lease Line
Schedule or to such other address as the parties may hereafter substitute by
written notice given in the manner prescribed in this Section. Such notices or
demands shall be deemed given upon receipt in the case of personal delivery and
upon mailing or transmission in the case of mail, facsimile or telegram. Lessee
agrees to provide Lessor with thirty (30) days' prior written notice of (a) any
merger or consolidation with or into any other business organization, (b) any
sale, lease or other disposition of assets not in the ordinary course of
business, and (c) any other material change in Lessee's financial structure or
ownership.
20. FURTHER ASSURANCES. Lessee will promptly execute and deliver to
Lessor such further reasonable documents and take such further reasonable action
as Lessor may request in order to more effectively carry out the intent and
purpose of this Lease or an assignment of Lessor's interest herein.
21. MISCELLANEOUS. This Lease shall be binding upon and inure to the
benefit of the parties hereto, their permitted successors and assigns. Any
provision of the Lease which is unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof; and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction; provided,
however, that to the extent that the provisions of any such applicable law can
be waived, they are waived by Lessee. Time is of the essence with respect to
the Lease. Lessee expressly assumes liability for and agrees to indemnify and
defend and hold Lessor harmless from and against any breach by Lessee of any
representation, warranty or covenant made by Lessee herein and in connection
therewith to pay and reimburse Lessor for the payment of any and all expenses,
including reasonable attorney fees incurred by Lessor in connection with or as
the result of any such breach. The captions set forth herein are for
convenience only and shall not define or limit any of the terms hereof. THIS
LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO CONFLICT OF LAWS
PRINCIPLES. LESSOR AND LESSEE WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
LITIGATION ARISING FROM THIS LEASE. THIS LEASE SHALL BECOME EFFECTIVE AND
BINDING ON THE PARTIES, THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS, AND
SHALL BE DEEMED EXECUTED AND PERFORMED IN THE STATE OF CALIFORNIA, WHEN THE
RELATED EQUIPMENT SCHEDULE IS ACCEPTED BY LESSOR. LESSEE CONSENTS TO THE NON-
EXCLUSIVE JURISDICTION OF THE STATE COURTS OF CALIFORNIA FOR THE RESOLUTION OF
ANY DISPUTES HEREUNDER.
8.
<PAGE>
22. AMENDMENTS, MODIFICATIONS, WAIVERS. NONE OF THE PROVISIONS OF THIS
LEASE MAY BE AMENDED, MODIFIED OR WAIVED EXCEPT IN A WRITING SIGNED BY LESSOR
AND LESSEE.
INITIALS (LESSEE) INITIALS (LESSOR)
---------- ----------
LESSEE: LESSOR:
SYMPHONIX DEVICES, INC. LIGHTHOUSE CAPITAL PARTNERS, L.P.
By: By: LIGHTHOUSE MANAGEMENT PARTNERS,
----------------------------- L.P., its general partner
Name: By: LIGHTHOUSE CAPITAL PARTNERS,
---------------------------- INC., its general partner
Title: By:
---------------------------- ----------------------------
Name:
--------------------------
Title:
--------------------------
9.
<PAGE>
LIGHTHOUSE CAPITAL PARTNERS, L.P.
---------------------------------
VENTURE LEASE DOCUMENTATION PACKAGE
TABLE OF CONTENTS
Tab
- ---
1. Master Equipment Lease Agreement
2. Exhibit A -- Lease Line Schedule
Annex A Stipulated Loss Value Table
3. Exhibit B -- Equipment Schedule
Annex A Summary of Equipment Schedule
4. Exhibit C -- Delivery and Acceptance Certificate
Annex A Equipment Description
Annex B-1 Bill of Sale
Annex B-2 Purchase Order and Invoice Assignment
5. Exhibit D Notice of Election
6. Exhibit E Landlord Waiver
Annex A Legal Description of Premises
7. Exhibit F Form of Acknowledgement re mobile Equipment
8. Exhibit G Warrant
<PAGE>
EXHIBIT A
LEASE LINE SCHEDULE NO. ________, dated _________________, 199____ ("Lease
Line Schedule"), to MASTER EQUIPMENT LEASE AGREEMENT NO. ________, dated
___________, 199____ ("Master Lease"), by and between LIGHTHOUSE CAPITAL
PARTNERS, L.P., a Delaware limited partnership ("Lessor") and SYMPHONIX DEVICES,
INC., a California corporation ("Lessee"). (All capitalized terms not otherwise
defined herein shall have the meanings given to such terms in the Master Lease.)
IN CONSIDERATION of the mutual covenants contained herein, the parties agree
as follows:
1. LEASE LINE. The total Lessor's Cost of all units of Equipment under all
Equipment Schedules pursuant to this Lease Line Schedule shall not exceed Five
Hundred Thousand Dollars ($500,000) (the "Commitment"). "LESSOR'S COST" means,
with respect to a unit of Equipment, the total cost to Lessor of purchasing such
unit, as indicated on the applicable Equipment Schedule. Lessor's obligation to
fund Equipment Schedules under the Commitment shall terminate on October 31,
1996 (the "Commitment Termination Date"). The minimum Lessor's Cost for each
Equipment Schedule shall be Ten Thousand Dollars ($10,000).
2. RENTAL FACTOR. The Rental Factor for each Equipment Schedule will be
based upon an implicit interest rate equal to the prime lending rate as quoted
in The Wall Street Journal three business days prior to the Commencement Date
for such Equipment Schedule (the "Prime Rate") plus 300 basis points. If on
----
such date the Prime Rate is other than 7.75%, then the Rental Factor for that
Equipment Schedule will be adjusted upward of downward basis point for basis
point to maintain an implicit interest rate equal to the Prime Rate plus 300
----
basis points. Once the Lease Term commences for any Equipment Schedule, there
will be no further adjustments to the Rental Factor for such Equipment Schedule.
The Rental Payment under a particular Equipment Schedule shall be an amount
equal to the product of (a) the Rental Factor and (b) the aggregate Lessor's
Cost of Equipment subject to such Equipment Schedule.
3. INTERIM RATE. The Interim Rate used to calculate the daily Interim Rent
shall be equal to the Rental Factor for each Equipment Schedule divided by
thirty (30).
4. ADVANCE RENT. Upon execution of this Lease Line Schedule, Lessee shall
pay to Lessor advance rent of Twelve Thousand Seven Hundred and Forty-Eight
Dollars ($12,748) ("Advance Rent"), to be applied on a pro rata basis (using the
ratio of the Lessor's Cost under each Equipment Schedule to the total Commitment
amount) toward the last Rental Payment due from Lessee to Lessor under each
Equipment Schedule. If Lessee shall not have leased, on or prior to the
Commitment Termination Date or the earlier termination of this Lease, Equipment
in an aggregate Lessor's Cost equal to the Commitment, then Lessor shall retain
as a non-utilization fee any portion of the Advance Rent not applied as set
forth in this SECTION 4.
5. EXPENSES. Lessee agrees to reimburse Lessor for up to One Thousand Five
Hundred Dollars ($1,500) of expenses incurred in connection with the negotiation
and documentation of this transaction, promptly upon receipt of an invoice
together with appropriate back-up.
6. ELIGIBLE EQUIPMENT. All equipment financed under an Equipment Schedule
shall be Eligible Equipment. "Eligible Equipment" means the following the types
of equipment to the extent acceptable to Lessor:
Various used and new computers, peripherals, analytical and test equipment,
office furniture and equipment, and other equipment; provided, that all
Equipment shall be delivered to Lessee by the manufacturer or vendor after,
upon or not more than ninety (90) days prior to the funding date with respect
to such Equipment.
together with all replacements, parts, cables, repairs, additions and
accessories incorporated therein or affixed thereto and all operating manuals
and manufacturer's instructions (collectively hereinafter called the
"Equipment"). Such replacements, parts, cables, repairs, additions and
accessories shall (whether or not purchased by Lessor) be considered part of the
Equipment for all purposes and, when installed in or attached to the Equipment
(unless
1.
<PAGE>
otherwise agreed), be or become the property of the Lessor. Except as otherwise
specifically provided or the context so requires, the term "Equipment" includes
operating system or other bundled software which is delivered on or with the
Equipment or is included on the Equipment Schedules.
7. COMMENCEMENT DATE. The "Commencement Date" for each Equipment Schedule
shall be the first day of the calendar quarter following the Acceptance Date for
the items of Equipment subject to such Equipment Schedule. If the Acceptance
Date is the first day of a calendar quarter, then the Commencement Date shall be
the Acceptance Date.
8. LEASE TERMINATION OPTIONS. Upon Lease Termination (as defined in the
Master Lease), Lessee will have, with respect to all but not less than all of
the Equipment governed by this Lease Line Schedule, the option to purchase the
Equipment, renew the Lease or return the Equipment to Lessor as provided in
SECTION 6 of the Master Lease.
9. ADVANCE NOTICE PERIOD. The "Advance Notice Period" shall be at least
ninety (90) days, but not more than 180 days, prior to Lease Termination (as
defined in the Master Lease) of Equipment Schedule No. 1 to this Lease Line
Schedule.
10. AUTOMATIC EXTENSION PERIOD. The "Automatic Extension Period" shall equal
three (3) months and affects each Equipment Schedule under this Lease Line
Schedule.
11. INSURANCE. The amount of commercial general liability insurance (other
than products liability coverage and completed operations insurance) required
under the Master Lease shall be at least $2,000,000 per occurrence. The amount
of the products liability and completed operations insurance under the Master
Lease shall be at least $2,000,000 per occurrence.
12. ASSIGNMENT BY LESSEE. Notwithstanding anything to the contrary in
SECTION 13 of the Master Lease, in the event of (a) a merger, sale of
substantially all of the assets or other reorganization involving Lessee in
which the shareholders of Lessee immediately prior to such transaction own less
than 50% of the voting securities of the surviving entity or purchaser of assets
(or its parent) in such transaction or (b) a merger or other reorganization
effected solely for the purpose of changing Lessee's jurisdiction of
incorporation, Lessor shall not withhold its consent to the assignment of this
Lease to the successor entity if each of the following conditions precedent is
satisfied:
(i) in the case of paragraph (a) above, the successor entity is as of the
date of such assignment at least as creditworthy (as reasonably determined by
Lessor in accordance with Lessor's usual credit standards) as Lessee on the
date of this Lease;
(ii) Lessee gives Lessor at least thirty (30) days prior written notice of
such merger, sale of assets or other reorganization;
(iii) such merger, sale of assets or other reorganization does not
adversely affect the rights of Bank;
(iv) the corporation that results from such merger or other reorganization
or which purchases the assets in the case of a sale of assets (the "Surviving
Corporation") shall have executed and delivered to Lessor an agreement in form
and substance reasonably satisfactory to Lessor, containing an assumption by
the Surviving Corporation of the due and punctual performance and observance
of each covenant and condition of Lessee in the Master Lease, Lease Line
Schedule and Equipment Schedules (the "Lease Documents") and making
representations and warranties with respect to the Surviving Corporation
similar in scope and substance to the representations and warranties made by
Lessee in the Lease Documents;
(v) the Surviving Corporation executes any precautionary financing
statements or amendments thereto reasonably requested by Lessor; and
2.
<PAGE>
(vi) immediately after giving effect to such merger, sale of assets or
other reorganization, no Event of Default or, event which with the lapse of
time or giving of notice or both, would result in an Event of Default shall
have occurred and be continuing.
13. FINANCIAL STATEMENTS. Lessee shall deliver to Lessor: (a) as soon as
available, but in any event within twenty (20) days after the end of each month,
a company prepared balance sheet, income statement and cash flow statement
covering Lessee's operations during such period, certified by an officer of
Lessee reasonably acceptable to Lessor; (b) as soon as available, but in any
event within ninety (90) days after the end of Lessee's fiscal year, audited
financial statements of Lessee prepared in accordance with generally accepted
accounting principles, consistently applied, together with an unqualified
opinion on such financial statements of an independent certified public
accounting firm reasonably acceptable to Lessor; (c) promptly upon becoming
available, copies of all statements, reports, budgets, sales projections,
operating plans and notices sent or made available generally by Lessee to its
security holders; (d) immediately upon receipt of notice thereof, a report of
any material legal actions pending or threatened against Lessee; and (e) such
other financial information as Lessor may reasonably request from time to time.
14. MAINTENANCE SERVICE CONTRACTS. Lessee shall obtain and keep in effect at
all times during the Lease Term (and any renewal or extension thereof),
maintenance service contracts covering the Equipment with the Equipment supplier
or with suppliers of maintenance services approved by Lessor, such approval not
to be unreasonably withheld.
15. INSTALLATION, HANDLING AND DELIVERY CHARGES. Any handling and delivery
charge to cover all Equipment transportation, rigging, drayage, packing,
installation and handling to and from vendor's plant and upon return to Lessor's
designated location shall be paid by Lessee.
16. MISCELLANEOUS TAXES. Without limitation of the provisions of the Master
Lease, Lessee agrees to pay and to indemnify Lessor for any sales or use tax and
any property tax in connection with the sale, lease or use of the Equipment.
17. LATE FEE. Lessee shall pay a late charge on any rent payments or other
sums due hereunder which are past due, in an amount equal to two percent (2%) of
the past due amount, payable on demand.
18. DEFAULT RATE. The Default Rate of interest on late payments shall be
eighteen percent (18%) per annum.
19. NOTICES. All notices shall be addressed as follows:
If to Lessor: If to Lessee:
Lighthouse Capital Partners, L.P. Symphonix Devices, Inc.
100 Drakes Landing Road, Suite 260 3047 Orchard Parkway
Greenbrae, California 94904 San Jose, CA 95134
Attn: Contract Administration Attn: _________________________
Phone: (415) 459-3346 Phone: ________________________
Fax: (415) 459-4874 Fax: __________________________
20. CONDITIONS TO THE FIRST EQUIPMENT SCHEDULE. On or prior to the date of
execution of the first Equipment Schedule under this Lease Line Schedule, Lessor
shall have received in form and substance satisfactory to Lessor, each of the
following:
(a) A Warrant substantially in the form of EXHIBIT G to the Master Lease.
(b) Copies, certified by the Secretary or Assistant Secretary or Chief
Financial Officer of Lessee, of: (i) the Articles of Incorporation and By-
Laws of Lessee (as amended to the date of the Lease) and (ii) the
3.
<PAGE>
resolutions adopted by Lessee's board of directors authorizing the
execution and delivery of this Lease, the Lease Line Schedule, the
Equipment Schedules, the Warrant and the other documents referred in this
Lease Line Schedule and the performance by Lessee of its obligations in
such documents.
(c) A Good Standing Certificate (including franchise tax status) with respect
to Lessee from Lessee's state of incorporation, dated a date reasonably
close to the date of acceptance of the Lease by Lessor.
(d) Evidence of the insurance coverage required by SECTION 8 of the Master
Lease.
(e) All necessary consents of shareholders and other third parties with
respect to the subject matter of the Master Lease, the Lease Line
Schedule, the Equipment Schedules and the Warrant.
(f) Payment of the Advance Rent.
21. CONDITIONS TO ALL FUNDINGS UNDER ALL EQUIPMENT SCHEDULES. On or prior to
each funding under each Equipment Schedule under this Lease Line Schedule, each
of the following conditions shall have been satisfied:
(a) No Event of Default or event which, with notice or lapse of time or both,
would become an Event of Default, has occurred and is continuing.
(b) Lessor shall have received all necessary or desirable estoppel
certificates and UCC filings, releases or terminations.
(c) Lessor shall have received a landlord waiver and consent in substantially
the form of EXHIBIT E to the Master Lease with respect to each equipment
location.
(d) There shall not have occurred (i) any material adverse change to the
general affairs, management, results of operations, condition (financial
or otherwise) or prospects of Lessee, whether or not arising from
transactions in the ordinary course of business, or (ii) any material
adverse deviation by Lessee from the business plan of Lessee presented to
and not disapproved by Lessor, since the date of the Master Lease.
(e) Lessee shall have delivered to Lessor an Equipment Schedule covering the
appropriate funding period.
(f) Lessee shall have delivered to Lessor (i) in the case of a sale-leaseback,
copies of invoices, canceled checks or other proof of payment, a Bill of
Sale, a Delivery and Acceptance Certificate, and any UCC filings or other
notices deemed necessary or desirable in connection with the sale-
leaseback or (ii) at Lessor's request, in the case of a purchase of new
equipment in excess of $25,000 from an equipment vendor, a Purchase Order
and Invoice Assignment and a Delivery and Acceptance Certificate.
(g) All terms and conditions in the Equipment Schedule shall have been
satisfied by the Acceptance Date for the Equipment under such Equipment
Schedule.
(h) Lessor shall have received any security deposit provided for in the
Equipment Schedule as security for Lessee's performance of its obligations
hereunder. Lessor shall not be required to escrow the security deposit or
credit Lessee with any interest earned thereon, and Lessor may, at its
option, apply such deposit against any sum due from Lessee or paid by
Lessor on Lessee's behalf, but such application shall not relieve Lessee
of its obligation to pay or reimburse Lessor.
(i) All other documents as Lessor shall have reasonably requested.
4.
<PAGE>
LESSEE: LESSOR:
SYMPHONIX DEVICES, INC. LIGHTHOUSE CAPITAL PARTNERS, L.P.
By: By: LIGHTHOUSE MANAGEMENT PARTNERS,
----------------------------- L.P., its general partner
Name: By: LIGHTHOUSE CAPITAL PARTNERS,
---------------------------- INC., its general partner
Title: By:
---------------------------- ----------------------------
Name:
--------------------------
Title:
--------------------------
ANNEX A - Stipulated Loss Value Table
5.
<PAGE>
ANNEX A
STIPULATED LOSS VALUE TABLE
TO
LEASE LINE SCHEDULE NO. __________, dated __________, 199____, to MASTER
EQUIPMENT LEASE AGREEMENT NO. __________, dated ______, 199__ ("Master Lease"),
by and between LIGHTHOUSE CAPITAL PARTNERS, L.P., a Delaware limited partnership
("Lessor"), and SYMPHONIX DEVICES, INC., a California corporation ("Lessee").
(All capitalized terms not otherwise defined herein shall have the meanings
given to such terms in the Master Lease.)
In the case of an Event of Loss, the Stipulated Loss Value for each item of
leased Equipment is the Lessor's Cost for the item multiplied by Stipulated Loss
Value Percentage for the Rent Payment Number following the month of the Event of
Loss.
<TABLE>
<CAPTION>
Stipulated Stipulated
Rent Loss Rent Loss
Payment Value Payment Value
Number Percentage Number Percentage
--------- ----------- ------- -----------
<S> <C> <C> <C>
1 111.3590% 25 69.4005%
2 109.7841% 26 67.4498%
3 108.1952% 27 65.4816%
4 106.5920% 28 63.4957%
5 104.9744% 29 61.4921%
6 103.3424% 30 59.4705%
7 101.6957% 31 57.4309%
8 100.0343% 32 55.3729%
9 98.3580% 33 53.2985%
10 96.6667% 34 51.2015%
11 94.9602% 35 49.0878%
12 93.2385% 36 46.9551%
13 91.5013% 37 44.8033%
14 89.7485% 38 42.6322%
15 87.9801% 39 40.4417%
16 86.1958% 40 38.2315%
17 84.3955% 41 36.0016%
18 82.5791% 42 33.7516%
19 80.7465% 43 31.4815%
20 78.8974% 44 29.1911%
21 77.0317% 45 26.8802%
22 75.1494% 46 24.5486%
23 73.2501% 47 22.1960%
24 71.3339% 48 20.0000%
</TABLE>
Lessor: ____________________ Lessee: ____________________
6.
<PAGE>
EXHIBIT B
EQUIPMENT SCHEDULE NO. __________ dated _________, 199___ ("Equipment
Schedule") to LEASE LINE SCHEDULE NO. _______ dated __________, 199____ ("Lease
Line Schedule"), to MASTER EQUIPMENT LEASE AGREEMENT NO. __________ dated
__________, 199___ ("Master Lease"), by and between LIGHTHOUSE CAPITAL PARTNERS,
L.P. ("Lessor") and SYMPHONIX DEVICES, INC., a California corporation
("Lessee"). (All capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Master Lease.)
<TABLE>
<CAPTION>
<S> <C>
1. Total Lessor's Cost: The total Lessor's Cost under this Equipment Schedule
shall be an amount equal to the sum of the Lessor's
Cost under each Delivery and Acceptance Certificate
executed by Lessee between the date of this Equipment
Schedule and the Commencement Date, and which refers
to this Equipment Schedule.
2. Lease Term: Forty-Eight (48) Months
3. Commencement Date:
--------------------
4. Interim Rent: On or about the Commencement Date, Lessor shall send
Lessee a "Summary of Equipment Schedule" in the form
of ANNEX A hereto, specifying, among other things, the
applicable Interim Rent; provided, however, that any
failure by Lessor to send Lessee a Summary Equipment
Schedule shall not relieve Lessee of its obligation to
pay rent hereunder.
5. Rental Factor: The Rental Factor shall be set forth in the Summary of
Equipment Schedule.
6. Rental Payments: The amount of the monthly Rental Payments, calculated
in accordance with the Lease Line Schedule and payable
monthly in advance, shall be set forth in the Summary
of Equipment Schedule. Payments shall be made to
Lessor's address set forth in the Lease Line Schedule.
7. Rental Payment Dates: First day of each calendar month.
8. Equipment Description. The Equipment shall be described in each Delivery and
Acceptance Certificate executed by Lessee between the
date of this Equipment Schedule and the Commencement
Date, and which refers to this Equipment Schedule.
Delivery and Acceptance Certificates under this
Equipment Schedule must be received by Lessor no later
than the Commencement Date.
9. Equipment Location:
----------------------------------------------------
10. Terms and conditions. The terms and conditions of the above-referenced
Master Lease and Lease Line Schedule are incorporated herein. In addition, the
following attachments apply to this Equipment Schedule only: .
------------------
</TABLE>
1.
<PAGE>
11. No Default. No Event of Default or event which, with notice or lapse of
time or both, would become an Event of Default, has occurred and is continuing.
LESSEE: LESSOR:
SYMPHONIX DEVICES, INC. LIGHTHOUSE CAPITAL PARTNERS, L.P.
By: By: LIGHTHOUSE MANAGEMENT PARTNERS,
----------------------------- L.P., its general partner
Name: By: LIGHTHOUSE CAPITAL PARTNERS,
---------------------------- INC., its general partner
Title: By:
---------------------------- ----------------------------
Name:
--------------------------
Title:
--------------------------
2.
<PAGE>
ANNEX A
SUMMARY OF EQUIPMENT SCHEDULE NO. __________
to
LEASE LINE SCHEDULE NO. ______ dated _______, 199__, to MASTER EQUIPMENT
LEASE AGREEMENT NO. __________ dated __________, 199___ ("Master Lease") by and
between LIGHTHOUSE CAPITAL PARTNERS, L.P. ("Lessor") and SYMPHONIX DEVICES,
INC., a California corporation ("Lessee"). (All capitalized terms not otherwise
defined herein shall have the meanings given to such terms in the Master Lease.)
1. Total Lessor's Cost:
-----------------------------
2. Total Interim Rent: $
-----------------------------
3. Rental Factor: %
-----------------------------
4. Rental Payments: Payments of $
----------------------------- ----------
each, payable monthly in advance
5. Amount of Advance Rent applied to this Equipment Schedule: $
----------------
LESSOR:
LIGHTHOUSE CAPITAL PARTNERS, L.P.
By: LIGHTHOUSE MANAGEMENT PARTNERS, L.P.,
its general partner
By: LIGHTHOUSE CAPITAL PARTNERS, INC.,
its general partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
3.
<PAGE>
EXHIBIT C
DELIVERY AND ACCEPTANCE CERTIFICATE
UNDER
EQUIPMENT SCHEDULE NO. __________, dated ___________, 199___, to LEASE LINE
SCHEDULE NO. _____, dated ________, 199__, to MASTER EQUIPMENT LEASE AGREEMENT
NO. __________, dated __________, 199___ by and between LIGHTHOUSE CAPITAL
PARTNERS, L.P. ("Lessor") and SYMPHONIX DEVICES, INC., a California corporation
("Lessee"). (All capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Master Lease.)
1. Installation Address:
---------------------------------------
2. Lessor's Cost:
--------------------------
3. Commencement Date:
----------------
4. Equipment Description:
MODEL & ORIGINAL UNIT
QTY. DESCRIPTION PURCHASE PRICE LESSOR'S COST
---- ----------- -------------- -------------
SEE ANNEX A
5. Lessee acknowledges receipt and acceptance of the Equipment listed in
ANNEX A and agrees the Equipment has been delivered and is ready for use under
the terms of the above-referenced Master Equipment Lease Agreement, Lease Line
Schedule, and Equipment Schedule, the terms and conditions of which are
incorporated herein, including, without limitation, the obligation to pay
Interim Rent and to make Rental Payments.
Acceptance Date: _________________, 19____.
LESSEE:
SYMPHONIX DEVICES, INC.
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
ANNEX A
EQUIPMENT DESCRIPTION
Model & Original Unit
Quantity Description Purchase Price Lessor's Cost
- -------- ----------- -------------- -------------
2.
<PAGE>
ANNEX B-1
BILL OF SALE
For and in consideration of the sum of One Dollar ($1.00) and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, SYMPHONIX DEVICES, INC. (herein "Seller"), does hereby sell,
grant, transfer and deliver all right, title and interest in and to the
equipment further described on ANNEX A hereto (herein the "Equipment"), together
with all warranties, guarantees or other similar rights with respect to the
Equipment ("Equipment Warranties") unto LIGHTHOUSE CAPITAL PARTNERS, L.P.
(herein "Purchaser") and to its successors and assigns to have and to hold said
Equipment and the Equipment Warranties forever. Except for the Equipment
Warranties, the Equipment is sold "as is" and "where is" and the description of
the Equipment is for the sole purpose of identifying it and is not part of the
basis of the bargain.
Seller represents and warrants that it holds all right, title and interest
in and to the Equipment being transferred free and clear of all liens and
encumbrances of any kind and Seller does for itself, its successors and assigns
covenant and agree with Purchaser, its successors and assigns, to warrant and
defend the sale of the Equipment and the transfer of the Equipment Warranties
unto Purchaser, its successors and assigns against all and every person and
persons whomsoever claiming or laying claim to the same, except for any defects
in title or liens or encumbrances in or to the Equipment arising solely by
reason of Purchaser's own acts.
THE WARRANTY SET FORTH IN THE FOREGOING PARAGRAPH AND THE EQUIPMENT
WARRANTIES ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF SELLER, WHETHER
WRITTEN, ORAL OR IMPLIED, AND SELLER SHALL NOT, BY VIRTUE OF HAVING SOLD THE
EQUIPMENT HEREWITH, BE DEEMED TO HAVE MADE ANY REPRESENTATION OF WARRANTY AS TO
THE MERCHANTABILITY, FITNESS, DESIGN OR CONDITION OF, OR AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP IN, THE EQUIPMENT.
IN WITNESS WHEREOF, we have set our hand and seal this _________ day of
_________, 19_______.
SYMPHONIX DEVICES, INC.
By:___________________________
Name:_________________________
Title: _______________________
1.
<PAGE>
ANNEX B-2
PURCHASE ORDER AND INVOICE ASSIGNMENT
THIS PURCHASE ORDER ASSIGNMENT, dated as of ______________________,
199____________ (this "Assignment"), between SYMPHONIX DEVICES, INC., a
California corporation ("Assignor") and LIGHTHOUSE CAPITAL PARTNERS, L.P.
("Assignee").
W I T N E S S E T H :
WHEREAS, Assignor has submitted its Purchase Orders and Invoices
listed in SCHEDULE 1 hereto (collectively, the "Purchase Orders"), to
________________________________________________________________________________
___________________________________________________________ (the "Vendor")
concerning certain units of equipment (the "Units") listed in SCHEDULE 1 hereto
to be subject to a Master Equipment Lease Agreement No. ____, dated as of
_____________________________________________, 19___________ (the "Master
Lease"), between Assignor and Assignee (all terms used but not otherwise defined
herein shall have the meaning given to them in the Master Lease):
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties
hereto agree as follows:
1. Assignor does hereby sell, assign, transfer and set over unto
Assignee, all of the Assignor's rights to and interests in the Purchase Orders
as and to the extent that the same relates to the Units. The assignment herein
shall include, without limitation, the right of Assignee to purchase the Units
pursuant to the Purchase Orders and to take title to the Units, all claims for
damages in respect of the Units arising as a result of any default by Vendor
under the Purchase Orders, together with any and all rights of Assignor to
compel performance of the terms of the Purchase Orders in respect of the Units.
2. The exercise by Assignee of any of the rights assigned hereunder
shall not release Assignor from any of its duties or obligations to Vendor under
the Purchase Orders except to the extent that such exercise by Assignee shall
constitute performance of such duties and obligations.
3. Upon satisfaction of the conditions set forth in the applicable
Lease Line Schedule to the Master Lease with respect to the Units, Assignee
shall purchase such Unit by paying or causing to be paid, by check mailed or
delivered to Vendor, on such date or thereafter as permitted by Vendor, an
amount equal to the purchase price of the Unit, as such amount may be adjusted
in accordance with the terms of the Purchase Orders and reflected on invoices
prepared by Vendor to Assignee on or before the date of delivery and acceptance
of the Unit.
4. Assignor agrees that it will, at any time and from time to time,
upon the written consent of Assignee, promptly and duly exercise and deliver any
and all such further instruments and documents and take such further action as
Assignee may reasonably request in order that Assignee may obtain the full
benefits of this Agreement and of the rights and powers herein granted.
5. Assignor represents and warrants that the Purchase Orders are in
full force and effect and that Assignor is not in default under any of them.
Assignor further represents and warrants that Assignor has not assigned or
pledged, and so long as this Assignment shall remain in effect, will not assign
or pledge, the whole or any part of the rights hereby assigned or any of its
rights with respect to the Units under the Purchase Orders to anyone other than
Assignee.
1.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Purchase Order
Assignment to be duly executed as of the day and year first above written.
SYMPHONIX DEVICES, INC. LIGHTHOUSE CAPITAL PARTNERS, L.P.
By: By: LIGHTHOUSE MANAGEMENT PARTNERS,
----------------------------- L.P., its general partner
Name: By: LIGHTHOUSE CAPITAL PARTNERS,
---------------------------- INC., its general partner
Title: By:
---------------------------- ----------------------------
Name:
--------------------------
Title:
--------------------------
Acknowledged and Consented to this
___________________ day of______________________, 199_______________.
__________________________________________(Vendor)
By:____________________________ Title:_______________________________
2.
<PAGE>
SCHEDULE I
TO
PURCHASE ORDER AND INVOICE ASSIGNMENT
3.
<PAGE>
EXHIBIT D
NOTICE OF ELECTION
under
LEASE LINE SCHEDULE NO. _____, dated ________, 199__, to MASTER EQUIPMENT
LEASE AGREEMENT NO. __________, dated __________, 199___ ("Master Lease") by and
between LIGHTHOUSE CAPITAL PARTNERS, L.P. ("Lessor") and SYMPHONIX DEVICES,
INC., a California corporation ("Lessee"). (All capitalized terms not otherwise
defined herein shall have the meanings given to such terms in the Master Lease.)
1. Pursuant to SECTION 4(D) of the Master Lease, Lessee hereby elects the
Lease Termination Option indicated below for the above Lease Line Schedule.
Option Election (check one)
------ --------------------
Purchase ______________________
Renew ______________________
Return ______________________
2. If the renewal option is selected, then Lessee and Lessor must agree
upon the rental period and rental amount. If Lessee and Lessor are unable to
agree upon the terms of renewal, then this Notice of Election shall be deemed
invalid and a new Notice of Election must be submitted by Lessee.
Dated: __________________
SYMPHONIX DEVICES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
1.
<PAGE>
EXHIBIT E
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
Lighthouse Capital Partners, L.P.
100 Drakes Landing Road, Suite 260
Greenbrae, California 94904
Attn: Contract Administration
LANDLORD'S WAIVER AND CONSENT
THIS LANDLORD'S WAIVER AND CONSENT (this "Waiver"), dated as of
_________________________________________, 199____________, is executed by and
between _____________, a _______________ ("Landlord") and LIGHTHOUSE CAPITAL
PARTNERS, L.P., a Delaware limited partnership ("Lessor").
RECITALS
A. Landlord and SYMPHONIX DEVICES, INC., a California corporation
("Tenant") are parties to a [Lease Agreement], dated as of , 19
(together with any other agreement between Landlord and Tenant relating to the
Premises, as defined below, all as amended from time to time, to be referred to
herein collectively as the "Lease"), pursuant to which Landlord has leased to
Tenant that certain real property commonly known as , and more particularly
described in ANNEX A hereto (the "Premises").
B. Tenant and Lessor intend to or have entered into a Master Equipment
Lease Agreement No. _____ dated as of ____________, 199____________ (the "Credit
Agreement") pursuant to which Lessor has agreed or will agree to lease to Tenant
from time to time certain equipment (the "Equipment") which will be located on
the Premises.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Lessor agree as follows:
1. WAIVER AND CONSENT. Landlord consents to the location of the
Equipment on the Premises and does irrevocably waive, disclaim and relinquish
and assign to Lessor any and all rights to impose, receive, assert or enforce
any lien, encumbrance, charge, security interest, ownership interest, claim or
demand of any kind against or involving the Equipment, whether arising by common
law, statute or consensually (under the Lease or otherwise) and whether now in
existence or hereafter created, including, but not limited to, those for rent or
other right of payment. This waiver, disclaimer, relinquishment and assignment
shall survive the termination of the Lease. Landlord further agrees that (a)
neither the Equipment nor any item thereof shall become part of, or otherwise be
or become a fixture attached to, the Premises, notwithstanding the manner of the
Equipment's annexation, the Equipment's adaptability to the uses and purposes
for which the Premises are used, and the intentions of the party making the
annexation; (b) the Equipment (or any item thereof) may be repossessed by
Lessor; (c) in connection with such repossession or otherwise, Lessor, and any
of its agents and employees, may enter upon the Premises for the purposes of (i)
guarding and maintaining the Equipment (or any item thereof), (ii) showing the
Equipment (or any item thereof) to prospective lenders, buyers, lessees and
sublessees, as applicable, and any of their respective agents and employees,
(iii) preparing, disassembling, dismantling, loading and/or removing the
Equipment (or any item thereof), and (iv) general inspections of the Equipment
pursuant to the Credit Agreement; and (d) the right of Lessor to enter the
Premises and the other rights granted to Lessor in
<PAGE>
this Waiver shall not terminate until thirty (30) days after Lessor receives
written notice from Landlord of the termination of the Lease. If Lessor should
exercise its rights hereunder (and the failure to exercise such rights shall not
be construed as a waiver thereof), Landlord agrees upon receiving prior written
notice, to provide ingress and egress to effect such exercise as well as provide
reasonably adequate space contiguous to the location of the Equipment to permit
the exercise of such rights. Landlord further agrees that Lessor has no
obligation to exercise any right granted to Lessor in this Waiver and that
Lessor may elect to remove only a portion or none of the Equipment from the
Premises.
2. COSTS. Lessor agrees to indemnify and hold the Landlord harmless
from any out-of-pocket costs incurred by Landlord for any physical damage to the
Premises caused by Lessor solely from the exercise of its rights under clause
(b) or (c) of Paragraph 1 above.
3. LEASE DEFAULTS. Landlord further agrees to provide Lessor
written notice of any default or event of default under the Lease (each a
"Default Notice") simultaneously with the giving of notice of the same to Tenant
or, if no such notice is required under the Lease, at least thirty (30) days
prior to the date Landlord would be entitled to terminate the Lease. Each such
notice shall be sent to the address of Lessor set forth below the signature of
Lessor on the last page hereof or such other address as Lessor may from time to
time provide to Landlord, and shall be deemed delivered (i) in the case of
notice by letter, five (5) business days after deposited in the United States
mail registered and return receipt requested, (ii) in the case of notice by
overnight courier, two (2) business days after delivery to such courier and
(iii) in the case of notice given by telex or telecommunication, when given or
sent with electronic confirmation of receipt. During any time period when
Tenant is in default under the Lease, Lessor shall have the option, but not the
obligation, to cure any such default. Landlord shall accept such cure if it
occurs within thirty (30) days after Lessor has received the relevant Default
Notice as fully as if Tenant had fully performed its obligation under the Lease.
Upon curing any such default, Lessor shall be subrogated to the rights of
Landlord against Tenant and, as between Landlord and Tenant, such cured defaults
shall no longer exist.
4. LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord warrants and
represents to Lessor that (a) Landlord is the lessor under the Lease; (b) there
are no other agreements between the parties affecting or relating to the
Premises; (c) Landlord has all requisite power and authority to execute and
deliver this Waiver and no consents from any third party are required to do so;
(d) Landlord is the sole owner of the landlord's interest under the Lease and
has not conveyed, transferred or assigned any part of that interest to any other
person or entity; (e) no event of default (nor any event which with the passage
of time would constitute an event of default) has occurred under the Lease; (f)
there exists no litigation affecting title to the Premises or any adverse claim
with respect to the Premises of which Landlord has received notice; (g) there is
no condemnation proceeding pending with respect to any part of the Premises, nor
any threat thereof, of which the Landlord has received notice; (h) the Lease is
in full force and effect; and (i) the Premises are not subject to any mortgage
or other security interest in favor of any person which has not executed an
attornment agreement acceptable to Lessor with respect to this Waiver.
5. MISCELLANEOUS. This Waiver and all rights granted to Lessor
hereunder shall remain in effect so long as there are any obligations owing by
Tenant under the Credit Agreement or any present or future agreement between
Tenant and Lessor which involves the Equipment. All the terms and provisions of
this Waiver shall be binding on and inure to the benefit of the respective
successors and assigns of Landlord and Lessor, and Landlord covenants and agrees
that any assignment, mortgage or other transfer of all or any part of its
interest as the owner and/or landlord of the Premises shall provide and shall be
subject and subordinate to all the terms and provisions hereof. Landlord shall
provide each of Tenant and Lessor a duly executed copy of the agreement
evidencing such subordination. Such agreement shall be in form and substance
reasonably satisfactory to Lessor. The rights and benefits of this Waiver may
be assigned or transferred by Lessor or to third parties who may become the
lessor, directly or indirectly, to Tenant. Lessor shall provide subsequent
written notice to Landlord and Tenant of the assignment or transfer. Headings
in this Waiver are for convenience of reference only and are not part of the
substance hereof. This Waiver shall be governed by and construed in accordance
with the laws of the State of California.
2.
<PAGE>
IN WITNESS WHEREOF, Landlord and Lessor have executed this Waiver as of the
date and year first written above.
-----------------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Attention:
-------------------------
LIGHTHOUSE CAPITAL PARTNERS, L.P.
By: LIGHTHOUSE MANAGEMENT PARTNERS,
L.P., its general partner
By: LIGHTHOUSE CAPITAL PARTNERS,
INC., its general partner
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Address:
Lighthouse Capital Partners, L.P.
100 Drakes Landing Road, Suite 260
Greenbrae, California 94904
Attention: Contract Administrator
3.
<PAGE>
ANNEX A
LEGAL DESCRIPTION OF PREMISES
[To Be Provided By Tenant]
4.
<PAGE>
NOTARY ACKNOWLEDGEMENT
TO LANDLORD'S WAIVER AND CONSENT
State of )
------------------------ )
County of )
----------------
On , 19 before me, the undersigned, personally appeared
-- -------
, personally known to me (or proved to me on the basis of satisfactory
- ----------
evidence) to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ______________________________________________ (Seal)
State of )
------------------------ )
County of )
----------------
On , 19 before me, the undersigned, personally appeared
------- --------
, personally known to me (or proved to me on the basis of satisfactory
- ----------
evidence) to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ____________________________ (Seal)
5.
<PAGE>
EXHIBIT F
ACKNOWLEDGEMENT FROM USER OF MOBILE EQUIPMENT
UNDER
EQUIPMENT SCHEDULE NO. __________, dated ___________, 199___ ("Equipment
Schedule"), to LEASE LINE SCHEDULE NO. _____, dated ________, 199__ ("Lease Line
Schedule"), to MASTER EQUIPMENT LEASE AGREEMENT NO. __________, dated
__________, 199___ ("Master Lease") by and between LIGHTHOUSE CAPITAL PARTNERS,
L.P. ("Lessor") and SYMPHONIX DEVICES, INC., a California corporation
("Lessee"). (All capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Master Lease.)
1. The undersigned acknowledges and agrees that:
(a) the Equipment listed in ANNEX A is owned by Lessor and is subject
to the terms and conditions of the Master Lease, Lease Line Schedule and
Equipment Schedule; and
(b) upon the occurrence and continuance of an Event of Default under
the Master Lease, Lessor may, among other things, take possession of the
Equipment and upon request the undersigned agrees to make such Equipment
available to Lessor.
2. The undersigned's address is:
_______________________
_______________________
_______________________
Phone: ________________
Fax: __________________
IN WITNESS WHEREOF, the undersigned has executed this Acknowledgement as of
the date written below.
Dated: _______________, 199____
------------------------------------
Name:
-------------------------------
<PAGE>
EXHIBIT G
WARRANT
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH
RESPECT THERETO.
PREFERRED STOCK PURCHASE WARRANT
Warrant No. 1001 Number of Shares 37,000
----
SYMPHONIX DEVICES, INC,
Void after October 31, 2004
1. ISSUANCE. This Warrant is issued to LIGHTHOUSE CAPITAL
PARTNERS, L.P., a Delaware limited partnership, by SYMPHONIX DEVICES, INC., a
California corporation (hereinafter with its successors called the "Company").
2. PURCHASE PRICE; NUMBER OF SHARES. The registered holder of
this Warrant (the "Holder"), commencing on the date hereof, is entitled upon
surrender of this Warrant with the subscription form annexed hereto duly
executed, at the principal office of the Company, to purchase from the Company
at a price per share (the "Purchase Price") of $1.00, Thirty-Seven Thousand
(37,000) fully paid and nonassessable shares (the "Shares") of Series A
Preferred Stock, no par value, of the Company (the "Preferred Stock"). Until
such time as this Warrant is exercised in full or expires, the Purchase Price
and the securities issuable upon exercise of this Warrant are subject to
adjustment as hereinafter provided. The person or persons in whose name or names
any certificate representing shares of Preferred Stock is issued hereunder shall
be deemed to have become the holder of record of the shares represented thereby
as at the close of business on the date this Warrant is exercised with respect
to such shares, whether or not the transfer books of the Company shall be
closed.
3. PAYMENT OF PURCHASE PRICE. The Purchase Price may be paid
(i) in cash or by check, (ii) by the surrender by the Holder to the Company of
any promissory notes or other obligations issued by the Company, with all such
notes and obligations so surrendered being credited against the Purchase Price
in an amount equal to the principal amount thereof plus accrued interest to the
date of surrender, or (iii) by any combination of the foregoing.
4. NET ISSUE ELECTION. The Holder may elect to receive,
without the payment by the Holder of any additional consideration, shares of
Preferred Stock equal to the value of this Warrant or any portion hereof by the
surrender of this Warrant or such portion to the Company, with the net issue
election notice annexed hereto duly executed, at the principal office of the
Company. Thereupon, the Company shall issue to the Holder such number of fully
paid and nonassessable shares of Preferred Stock as is computed using the
following formula:
Y (A-B)
X= -------
A
where: X = the number of shares of Preferred Stock to be issued to the
Holder pursuant to this SECTION 4.
Y = the number of shares of Preferred Stock covered by this
Warrant in respect of which the net issue election is made
pursuant to this SECTION 4.
1.
<PAGE>
A = the fair market value of one share of Preferred
Stock, as determined in good faith by the Board, as at
the time the net issue election is made pursuant to
this SECTION 4 or in the case of an Accelerating
Merger as contemplated by SECTION 10 , the value
received per share of Preferred Stock by all holders
of the Preferred Stock as determined in good faith by
the Board.
B = the Purchase Price in effect under this Warrant at the
time the net issue election is made pursuant to this
SECTION 4.
5. PARTIAL EXERCISE. This Warrant may be exercised in part,
and the Holder shall be entitled to receive a new warrant, which shall be dated
as of the date of this Warrant, covering the number of shares in respect of
which this Warrant shall not have been exercised.
6. FRACTIONAL SHARES. In no event shall any fractional share
of Preferred Stock be issued upon any exercise of this Warrant. If, upon
exercise of this Warrant as an entirety, the Holder would, except as provided in
this SECTION 6, be entitled to receive a fractional share of Preferred Stock,
then the Company shall issue the next higher number of full shares of Preferred
Stock, issuing a full share with respect to such fractional share.
7. EXPIRATION DATE; AUTOMATIC EXERCISE. This Warrant shall
expire at the close of business on October 31, 2004, and shall be void
thereafter. Notwithstanding the foregoing, this Warrant shall automatically be
deemed to be exercised in full pursuant to the provisions of SECTION 4 hereof,
without any further action on behalf of the Holder, immediately prior to the
time this Warrant would otherwise expire pursuant to the preceding sentence.
8. RESERVED SHARES; VALID ISSUANCE. The Company covenants
that it will at all times from and after the date hereof reserve and keep
available such number of its authorized shares of Preferred Stock and Common
Stock, no par value, of the Company (the "Common Stock"), free from all
preemptive or similar rights therein, as will be sufficient to permit,
respectively, the exercise of this Warrant in full and the conversion into
shares of Common Stock of all shares of Preferred Stock receivable upon such
exercise. The Company further covenants that such shares as may be issued
pursuant to such exercise and/or conversion will, upon issuance, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
9. STOCK SPLITS AND DIVIDENDS. If after the date hereof the
Company shall subdivide the Preferred Stock, by split-up or otherwise, or
combine the Preferred Stock, or issue additional shares of Preferred Stock in
payment of a stock dividend on the Preferred Stock, the number of shares of
Preferred Stock issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination, and the Purchase Price
shall forthwith be proportionately decreased in the case of a subdivision or
stock dividend, or proportionately increased in the case of a combination.
10. MERGERS AND RECLASSIFICATIONS. If after the date hereof
the Company shall enter into any Reorganization (as hereinafter defined), then,
as a condition of such Reorganization, lawful provisions shall be made, and duly
executed documents evidencing the same from the Company or its successor shall
be delivered to the Holder, so that the Holder shall thereafter have the right
to purchase, at a total price not to exceed that payable upon the exercise of
this Warrant in full, the kind and amount of shares of stock and other
securities and property receivable upon such Reorganization by a holder of the
number of shares of Preferred Stock which might have been purchased by the
Holder immediately prior to such Reorganization, and in any such case
appropriate provisions shall be made with respect to the rights and interest of
the Holder to the end that the provisions hereof (including without limitation,
provisions for the adjustment of the Purchase Price and the number of shares
issuable hereunder) shall thereafter be applicable in relation to any shares of
stock or other securities and property thereafter deliverable upon exercise
hereof. For the purposes of this SECTION 10, the term "Reorganization" shall
include without limitation any reclassification, capital reorganization or
change of the Preferred Stock (other than as a result of a subdivision,
combination or stock dividend provided for in SECTION 9 hereof), or any
consolidation of the Company with, or
2.
<PAGE>
merger of the Company into, another corporation or other business organization
(other than a merger in which the Company is the surviving corporation and which
does not result in any reclassification or change of the outstanding Preferred
Stock), or any sale or conveyance to another corporation or other business
organization of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, the unexercised portion of this Warrant
shall automatically be deemed to be exercised in full upon satisfaction of each
of the following conditions precedent:
(a) the Company shall enter into a merger or consolidation of the
Company with or into another corporation where the Company is not the
surviving corporation (an "Accelerating Merger") and such Accelerating
Merger results in a value of $3.00 or more per share of Preferred Stock
(as proportionately adjusted for any stock splits, stock dividends or
recapitalizations relating to the Preferred Stock and occurring after
the date of this Warrant);
(b) the consideration received by the holders of Preferred Stock of the
Company in the Accelerating Merger consists of either cash or Liquid
Stock (defined below) or a combination of cash and Liquid Stock and
Holder receives the same cash and/or Liquid Stock in the same proportion
as the other holders of Preferred Stock; and
(c) Holder receives at least twenty (20) business days written notice
prior to the effective date of the Accelerating Merger. Such notice
shall contain such details of the proposed Accelerating Merger as are
reasonable in the circumstances and notice that this Warrant may expire
upon closing thereof in accordance with the terms and conditions of this
SECTION 10.
Upon failure of Holder to exercise this Warrant in full prior to the
effective date of an Accelerating Merger, the unexercised portion of this
Warrant shall be deemed to have been automatically exercised in full pursuant to
SECTION 4 hereof immediately prior to such effective date. If the closing of the
Accelerating Merger does not take place, the Company shall promptly notify
Holder that such proposed transaction has been terminated. Anything to the
contrary in this Warrant notwithstanding, Holder may rescind the exercise of its
purchase rights promptly after such notice of termination of the proposed
transaction if the exercise or conversion of the Warrant occurred after the
Company notified the Holder that the Accelerating Merger was proposed, or if the
exercise or conversion were otherwise precipitated by such proposed Accelerating
Merger. In the event of such rescission, the Warrant will continue to be
exercisable on the same terms and conditions as if the Company's notice of the
Accelerating Merger had not been given.
"Liquid Stock" means stock or other securities (i) which are freely
tradeable and which have been registered pursuant to a registration statement or
similar document in compliance with the Securities Act of 1933, as amended, and
for which the registration statement or similar document has gone effective or
(ii) which are freely tradeable by virtue of their issuance pursuant to a
transaction described in Section 3(a)(10) of the Securities Act of 1933. as
amended.
11. CERTIFICATE OF ADJUSTMENT. Whenever the Purchase Price is
adjusted, as herein provided, the Company shall promptly deliver to the Holder a
certificate of the Company's chief financial officer setting forth the Purchase
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
12. NOTICES OF RECORD DATE, ETC. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase, sell or otherwise acquire or dispose
of any shares of stock of any class or any other securities or property,
or to receive any other right;
3.
<PAGE>
(b) any reclassification of the capital stock of the Company,
capital reorganization of the Company, consolidation or merger
involving the Company, or sale or conveyance of all or substantially
all of its assets; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then and in each such event the Company will provide or cause to be provided to
the Holder a written notice thereof. Such notice shall be provided at least
twenty (20) business days prior to the date specified in such notice on which
any such action is to be taken.
13. REPRESENTATIONS, WARRANTIES AND COVENANTS. This Warrant is
issued and delivered by the Company and accepted by each Holder on the basis of
the following representations, warranties and covenants made by the Company:
A. The Company has all necessary authority to issue, execute
and deliver this Warrant and to perform its obligations hereunder. This Warrant
has been duly authorized, issued, executed and delivered by the Company and is
the valid and binding obligation of the Company, enforceable in accordance with
its terms.
B. The shares of Preferred Stock issuable upon the exercise of
this Warrant have been duly authorized and reserved for issuance by the Company
and, when issued in accordance with the terms hereof, will be validly issued,
fully paid and nonassessable.
C. The issuance, execution and delivery of this Warrant do not,
and the issuance of the shares of Preferred Stock upon the exercise of this
Warrant in accordance with the terms hereof will not, (i) violate or contravene
the Company's articles of incorporation or by-laws, or any law, statute,
regulation, rule, judgment or order applicable to the Company, (ii) violate,
contravene or result in a breach or default under any contract, agreement or
instrument to which the Company is a party or by which the Company or any of its
assets are bound or (iii) require the consent or approval of or the filing of
any notice or registration with any person or entity.
D. As long as this Warrant is, or any shares of Preferred Stock
issued upon exercise of this Warrant or any shares of Common Stock issued upon
conversion of such shares of Preferred Stock are, issued and outstanding, the
Company will provide to the Holder the financial and other information described
in SECTION 12 of that certain Lease Line Schedule No. I to Master Equipment
Lease Agreement No. 1001 between the Company and Lighthouse Capital Partners,
----
L.P. dated as of December 2, 1994.
---------- ----
E. The Company hereby grants to the Holder the Registration
Rights contained in Section 3 of the Company's Investor Rights Agreement dated
as of July 27, 1994, so that (i) the shares of Common Stock issuable upon
conversion of the shares of Preferred Stock issuable upon exercise of this
Warrant shall be Registrable Securities, and (ii) the Holder shall be a
"Holder", for all purposes of such Investor Rights Agreement.
14. AMENDMENT. The terms of this Warrant may be amended, modified or
waived only with the written consent of the Holder.
15. NOTICES, TRANSFERS, ETC.
A. Any notice or written communication required or permitted to
be given to the Holder may be given by certified mail or delivered to the Holder
at the address most recently provided by the Holder to the Company.
B. Subject to compliance with applicable federal and state
securities laws, this Warrant may be transferred by the Holder with respect to
any or all of the shares purchasable hereunder. Upon surrender of this Warrant
to the Company, together with the assignment notice annexed hereto duly
executed, for transfer of this Warrant as an entirety by the Holder, the Company
shall issue a new warrant of the same denomination to the
4.
<PAGE>
assignee. Upon surrender of this Warrant to the Company, together with the
assignment hereof properly endorsed, by the Holder for transfer with respect to
a portion of the shares of Preferred Stock purchasable hereunder, the Company
shall issue a new warrant to the assignee, in such denomination as shall be
requested by the Holder hereof, and shall issue to such Holder a new warrant
covering the number of shares in respect of which this Warrant shall not have
been transferred.
C. In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of an affidavit of the Holder or other
evidence reasonably satisfactory to the Company of the loss, theft or
destruction of such Warrant.
16. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution, liquidation,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance of performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder.
17. GOVERNING LAW. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
California.
18. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
19. BUSINESS DAYS. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in California, then such action may be
taken or right may be exercised on the next succeeding day which is not a
Saturday or Sunday or such a legal holiday.
20. QUALIFYING PUBLIC OFFERING. If the Company shall effect a firm
commitment underwritten public offering of shares of Common Stock which results
in the conversion of the Preferred Stock into Common Stock pursuant to the
Company's Articles of Incorporation in effect immediately prior to such
offering, then, effective upon such conversion, this Warrant shall change from
the right to purchase shares of Preferred Stock to the right to purchase shares
of Common Stock, and the Holder shall thereupon have the right to purchase, at a
total price equal to that payable upon the exercise of this Warrant in full, the
number of shares of Common Stock which would have been receivable by the Holder
upon the exercise of this Warrant for shares of Preferred Stock immediately
prior to the such conversion of such shares of Preferred Stock into shares of
Common Stock, and in such event appropriate provisions shall be made with
respect to the rights and interest of the Holder to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Purchase Price and of the number of shares purchasable upon exercise of this
Warrant) shall thereafter be applicable to any shares of Common Stock
deliverable upon the exercise hereof.
Dated: December 2 , 1994 SYMPHONIX DEVICES, INC,
---------------------- -----
/s/ HARRY S. ROBBINS
-----------------------------
(Corporate Seal) By: Harry S. Robbins
-------------------------
Title: President
----------------------
Attest:
- ------------------------------------
5.
<PAGE>
Subscription
To: Date:
---------------------------------- ---------------------------------
The undersigned hereby subscribes for shares of
-----------------------
preferred Stock covered by this Warrant. The certificate(s) for such shares
shall be issued in the name of the undersigned or as otherwise indicated below:
--------------------------------
Signature
--------------------------------
Name in Registration
--------------------------------
Mailing Address
Net Issue Election Notice
To: Date:
---------------------------------- ---------------------------------
The undersigned hereby elects under SECTION 4 to surrender the right to
purchase shares of Preferred Stock pursuant to this Warrant. The
--
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.
--------------------------------
Signature
--------------------------------
Name in Registration
--------------------------------
Mailing Address
6.
<PAGE>
Assignment
For value received __________________ hereby sells, assigns and transfers
unto ___________________________________________________________________________
________________________________________________________________________________
[Please print or typewrite name and address of Assignee]
________________________________________________________________________________
the within Warrant, and does hereby irrevocably constitute and appoint _________
_________________ its attorney to transfer the within Warrant on the books of
the within named Company with full power of substitution on the premises.
Dated: ______________________
__________________________________________
In the Presence of:
_____________________________
7.
<PAGE>
EXHIBIT 10.6
ASSIGNMENT TO VIBRX, INC.
In exchange for the consideration set forth on Exhibit A attached hereto,
Symphonix Devices, Inc. ("Symphonix") hereby assigns to VibRx, Inc. ("VibRx")
all of the right, title and interest of Symphonix in and to any and all existing
inventions, original works of authorship, developments, improvements, trade
secrets, patents and patent applications related to (i) an apparatus and method
for sonically enhanced drug delivery and (ii) an apparatus and method for
sonically enhanced drug delivery with MEMS.
With respect to the original works of authorship, developments,
improvements, trade secrets, patents and patent applications assigned by
Symphonix to VibRx hereunder, Symphonix will assist VibRx in any reasonable
manner to obtain for VibRx's benefit patents and/or copyrights in any and all
countries and Symphonix will execute, when requested, patent and/or copyright
applications and assignments thereof to VibRx or persons designated by it, and
any other lawful documents deemed necessary by VibRx to carry out the purposes
of this Assignment. Symphonix will further assist VibRx in every way to enforce
any patents and/or copyrights obtained, including without limitation, testifying
in any suit or proceeding involving any of said patents and/or copyrights, or by
executing any documents deemed necessary by VibRx.
Dated: March 14, 1997
SYMPHONIX DEVICES, INC.
By: /s/ Alfred G. Merriweather
---------------------------
Chief Financial Officer
Title: ___________________________
<PAGE>
EXHIBIT A
---------
1. Repayment of all expenses incurred by Symphonix in preparing the
Patent Applications.
2. Issuance of shares of VibRx equal to 20% of the outstanding capital
stock of VibRx (including reserved shares) immediately prior to the closing of
an initial financing of at least $500,000.
3. VibRx would assume all patent expenses with regard to the drug
delivery patent applications.
4. For a period of three years after the effective date of this
Assignment, VibRx agrees to not solicit or hire any Symphonix employee while
they are employed by Symphonix and for one year thereafter without the consent
of the board of directors of Symphonix. Harry Robbins would, however, be
entitled to spend a limited amount of time (less than 10 hours per week) outside
of normal business hours as a consultant, officer and/or director of VibRx.
<PAGE>
Exhibit 10.7
SYMPHONIX DEVICES, INC.
SERIES D PREFERRED STOCK
PURCHASE AGREEMENT
JUNE 11, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 Authorization and Sale of the Shares................... -1-
------------------------------------
1.1 Authorization.......................................... -1-
-------------
1.2 Sale and Purchase of the Shares........................ -1-
-------------------------------
1.3 Purchases and Sales Subsequent to the Closing.......... -1-
--------------------------------------------
SECTION 2 Closing Date; Delivery................................. -2-
----------------------
2.1 Closing Date........................................... -2-
------------
2.2 Closing................................................ -2-
-------
SECTION 3 Representations of the Company......................... -2-
------------------------------
3.1 Organization and Standing.............................. -2-
-------------------------
3.2 Corporate Power........................................ -3-
---------------
3.3 Capitalization......................................... -3-
--------------
3.4 Authorization.......................................... -4-
-------------
3.5 Absence of Changes..................................... -4-
------------------
3.6 Title to Properties and Assets; Liens, etc............. -5-
------------------------------------------
3.7 Financial Statements................................... -5-
--------------------
3.8 Patents, Trademarks, and Trade Secrets................. -5-
--------------------------------------
3.9 Compliance with Other Instruments, None Burdensome, etc -6-
-------------------------------------------------------
3.10 Litigation, etc........................................ -6-
---------------
3.11 Registration Rights.................................... -7-
-------------------
3.12 Governmental Consent, etc.............................. -7-
-------------------------
3.13 Offering............................................... -7-
--------
3.14 Disclosure............................................. -7-
----------
3.15 No Conflicting Agreements.............................. -7-
-------------------------
3.16 Contracts and Other Commitments........................ -7-
-------------------------------
3.17 Subsidiaries........................................... -8-
------------
3.18 Manufacturing Rights................................... -8-
--------------------
3.19 Transactions with Principals........................... -8-
----------------------------
3.20 Insurance.............................................. -8-
---------
3.21 Employees.............................................. -9-
---------
3.22 Voting Agreement....................................... -9-
----------------
3.23 Permits................................................ -9-
-------
3.24 Environmental and Safety Laws.......................... -9-
-----------------------------
3.25 Tax Returns, Payments and Elections.................... -9-
-----------------------------------
3.26 Section 83(b) Elections................................ -9-
-----------------------
3.27 Qualified Small Business Stock......................... -10-
------------------------------
SECTION 4 Investment Representations............................. -10-
--------------------------
4.1 Authorization.......................................... -10-
-------------
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.2 Experience............................................. -10-
----------
4.3 Investment............................................. -10-
----------
4.4 Rule 144 and Rule 144A................................. -11-
----------------------
4.5 No Public Market....................................... -11-
----------------
4.6 Access to Data......................................... -11-
--------------
SECTION 5 Conditions to Investors' Obligations at the Closing.... -11-
---------------------------------------------------
5.1 Representations and Warranties Correct................. -11-
--------------------------------------
5.2 Covenants.............................................. -11-
---------
5.3 Opinion of Company's Counsel........................... -11-
----------------------------
5.4 Election of Directors.................................. -12-
---------------------
5.5 Investors Rights Agreement............................. -12-
--------------------------
5.6 Articles............................................... -12-
--------
5.7 Compliance Certificate................................. -12-
----------------------
5.8 Proceedings and Documents.............................. -12-
-------------------------
SECTION 6 Conditions to Company's Obligations at Closing......... -12-
----------------------------------------------
6.1 Representations Correct................................ -12-
-----------------------
6.2 Qualifications, Legal Investment....................... -12-
--------------------------------
6.3 Minimum Investment..................................... -12-
------------------
6.4 Covenants.............................................. -13-
---------
6.5 Articles............................................... -13-
--------
SECTION 7 Affirmative Covenants of the Company................... -13-
------------------------------------
7.1 Employee Agreements.................................... -13-
-------------------
7.2 Key Man Life Insurance................................. -13-
----------------------
7.3 Preservation of Small Business Stock Status............ -13-
-------------------------------------------
7.4 Termination of Covenants............................... -14-
------------------------
SECTION 8 Certain Covenants...................................... -14-
-----------------
8.1 First Negotiation Right................................ -14-
-----------------------
8.2 Observer Rights........................................ -14-
---------------
8.3 Publicity.............................................. -15-
---------
SECTION 9 Miscellaneous.......................................... -15-
-------------
9.1 Governing Law.......................................... -15-
-------------
9.2 Survival............................................... -15-
--------
9.3 Successors and Assigns................................. -16-
----------------------
9.4 Entire Agreement; Amendment............................ -15-
---------------------------
9.5 Effect of Amendment or Waiver.......................... -16-
-----------------------------
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
9.6 Rights of Investors.................................... -16-
-------------------
9.7 Exculpation Among Investors............................ -16-
---------------------------
9.8 Notices, etc........................................... -16-
------------
9.9 Delays or Omissions.................................... -16-
-------------------
9.10 California Corporate Securities Law.................... -17-
-----------------------------------
9.11 Expenses............................................... -17-
--------
9.12 Counterparts........................................... -17-
------------
9.13 Severability........................................... -17-
------------
</TABLE>
Exhibits
Exhibit A - Schedule of Investors
Exhibit B - Restated Certificate of Incorporation
Exhibit C - Restated Investors Rights Agreement
Exhibit D - Schedule of Exceptions
-iii-
<PAGE>
SYMPHONIX DEVICES, INC.
Series D Preferred Stock
Purchase Agreement
This Agreement is made as of June 11, 1997 by and among Symphonix Devices,
Inc., a California corporation (the "Company"), and the persons and entities
listed on the "Schedule of Investors" attached hereto as Exhibit A (the
"Investors").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
SECTION 1
Authorization and Sale of the Shares
------------------------------------
1.1 Authorization. The Company has, or before the Closing (as
-------------
hereinafter defined) will have, authorized the sale and issuance of one million
two hundred fifty thousand (1,250,000) shares of its Series D Preferred Stock
(the "Shares") having the rights, restrictions, privileges and preferences set
forth in the Restated Articles of Incorporation of the Company attached hereto
as Exhibit B (the "Articles"). The Company has, or before the Closing will
have, adopted and filed the Articles with the Secretary of State of the State of
California.
1.2 Sale and Purchase of the Shares. Subject to the terms and conditions
-------------------------------
hereof and in reliance upon the representations and agreements contained herein,
at the Closing the Company will issue and sell to each Investor and each
Investor, severally and not jointly, will purchase from the Company, the number
of Shares set forth opposite the Investor's name in the column entitled "Shares"
on the Schedule of Investors at a purchase price of eight dollars ($8.00) per
Share.
1.3 Purchases and Sales Subsequent to the Closing. If less than all of
---------------------------------------------
the authorized number of Shares are sold at the closing, then, subject to the
terms and conditions of this Agreement, the Company may sell, on or before the
thirtieth (30th) day after the date hereof, up to the balance of the authorized
but unissued Shares to such persons or entities (the "Subsequent Investors") as
the Company may determine at the same price per share as the Shares purchased
and sold at the Closing. Any such sale shall be upon the same terms and
conditions as those contained herein, may occur on one or more occasions, and
the Subsequent Investors shall become parties to this Agreement and that certain
Restated Investors Rights Agreement dated as of the date hereof, by and among
the Company and the Investors, the form of which is attached hereto as Exhibit C
(the "Investors Rights Agreement"). Such persons or entities may become
parties to such agreements (i)(a) by executing copies of such agreements which,
as of the date hereof, provide for execution by them or (b) by appending
additional signature pages to such agreements containing their signatures and
(ii) by
<PAGE>
appending additional pages to or revising the Exhibit A of each such agreement
appropriately, and the Company is authorized to effect any of such alternatives
on one or more occasions without the further consent of the Investors, provided,
however, that (i) those persons designated in the Schedule of Investors who do
not purchase the Shares set forth opposite their respective names shall be
entitled to and the Company shall sell to them, upon receipt of the requisite
consideration and signature pages and upon the Company's satisfaction that the
issuance to such persons is in compliance with federal and state securities
laws, the amount of Shares set forth opposite their respective names (and such
purchases and sales shall not be deemed separate Closings hereunder) and (ii)
the Shares reserved for any persons designated in the Schedule of Investors at
the time of execution of this Agreement may not be allocated to any other person
without the consent of Investors holding a majority of the then outstanding
Shares. In the event that there is more than one Closing, the term "Closing"
shall apply to each such Closing unless otherwise specified. At any Closing
after the first Closing, to satisfy the conditions set forth in Section 5
hereof, the Company shall only be required to satisfy the conditions set forth
in Sections 5.1, 5.2 and 5.8 thereof. A bring-down of the opinion of counsel
referred to in Section 5.3 shall also be provided at any such Closing.
SECTION 2
Closing Date; Delivery
----------------------
2.1 Closing Date. The closing for the purchase and sale of the Shares
------------
hereunder (the "Closing") shall be held at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, on June 11, 1997,
at 10:00 a.m. or at such other time and place as the Company and a majority in
interest of the Investors mutually agree upon (the "Closing Date").
2.2 Closing. At the Closing, the Company will deliver to each Investor a
-------
certificate representing the number of Shares to be purchased by such Investor,
each as set forth in the Schedule of Investors, against payment of the purchase
price therefor by cancellation of indebtedness, check payable to the order of
the Company, wire transfer or any combination of the foregoing in the amounts
specified in the Schedule of Investors.
SECTION 3
Representations of the Company
------------------------------
Subject to and except as disclosed by the Company in the Schedule of
Exceptions attached hereto as Exhibit D, the Company hereby represents to each
Investor as follows:
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized, validly existing, and in good standing under the laws of the State of
California. The Company has all requisite corporate power to own and operate its
properties and assets, and to carry on its business as presently conducted and
as proposed to be conducted. The Company is qualified to do business as a
foreign corporation in each jurisdiction in which such qualification is required
and where the failure
-2-
<PAGE>
to be so qualified would have a material adverse effect on the Company's
business. The Company has made available to special counsel for the Investors
copies of its Articles of Incorporation, Bylaws, and minute books. Said copies
are true, correct and complete and contain all amendments through the date of
this Agreement.
3.2 Corporate Power. The Company has all requisite legal and corporate
---------------
power to execute and deliver this Agreement and any other agreement contemplated
hereby, to sell and issue the Shares hereunder and to carry out and perform its
obligations under the terms of this Agreement and any other agreement
contemplated hereby.
3.3 Capitalization. The authorized capital stock of the Company consists
--------------
of twenty million (20,000,000) shares of Common Stock (the "Common Stock"), of
which three million three hundred fifteen thousand five hundred sixty-one
(3,315,561) shares are issued and outstanding, and nine million seven hundred
fifty thousand (9,750,000) shares of Preferred Stock, of which five million four
hundred sixty-three thousand (5,463,000) shares designated Series A Preferred
Stock, one million three hundred seventy-eight thousand five hundred (1,378,500)
shares designated Series B Preferred Stock, one million one hundred sixty two
thousand four hundred fifty one (1,162,451) shares designated Series C Preferred
Stock, and four hundred forty thousand six hundred eighty (440,680) shares
designated Series D Preferred Stock are issued and outstanding. All such issued
and outstanding shares have been duly authorized and validly issued, and are
fully paid and nonassessable. Five million five hundred thousand (5,500,000)
shares of the Preferred Stock have been designated "Series A Preferred Stock,"
one million five hundred thousand (1,500,000) shares of the Preferred Stock have
been designated "Series B Preferred Stock," one million five hundred thousand
(1,500,000) shares of the Preferred Stock have been designated "Series C
Preferred Stock" and one million two hundred fifty thousand (1,250,000) shares
have been designated "Series D Preferred Stock." The rights, restrictions,
privileges and preferences of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
are as stated in the Articles. The Company by appropriate action by the Board
of Directors has reserved (or shall have reserved prior to the Closing) nine
million seven hundred fifty thousand (9,750,000) shares of Common Stock for
issuance upon conversion of the Preferred Stock. Two million two hundred
thirty-five thousand (2,235,000) shares of Common Stock have been duly reserved
under the Company's 1994 Stock Option Plan, and options exercisable for seven
hundred ninty-five thousand three hundred sixty-two (795,362) shares of Common
Stock are issued and outstanding, and warrants exercisable for 37,000 and 9,250
shares of Series A Preferred Stock and Series B Preferred Stock, respectively,
are issued and outstanding.
Except as set forth above and in the Investors Rights Agreement, there are
no preemptive or other outstanding rights, options, warrants, conversion rights,
understandings or agreements for the purchase or acquisition from the Company of
any shares of its capital stock or other securities of the Company. To the best
of the Company's knowledge, there are not any agreements, understandings or
arrangements among the shareholders relating to the transfer of outstanding
capital stock of the Company. All of the outstanding shares of Common Stock have
been duly and validly issued in compliance with federal and state securities
laws. Set forth in Section 3.3 of the Schedule of
-3-
<PAGE>
Exceptions is an accurate list of the holders of the Company's outstanding
Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock.
3.4 Authorization. All corporate action on the part of the Company, its
-------------
directors and shareholders necessary for the sale and issuance of the Shares,
the Common Stock issuable upon conversion of the Shares (the Common Stock
issuable upon conversion of the Shares being referred to herein as the
"Underlying Stock") and the performance of the Company's obligations hereunder
and under each of the other Agreements contemplated hereby and the reservation
of the Underlying Stock has been taken or will be taken prior to the Closing.
This Agreement and the other agreements contemplated hereby are valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and subject to general equity principles
and to limitations on the availability of equitable relief, including specific
performance. The Shares and the Underlying Stock, when issued in compliance
with the provisions of this Agreement, will be validly issued and will be fully
paid and nonassessable, and will be free of any liens or encumbrances; provided,
however, that the Shares and the Underlying Stock may be subject to restrictions
on transfer under state and/or federal securities laws as set forth herein.
3.5 Absence of Changes.
------------------
Since March 31, 1997, there has not been:
(a) Any change in the assets, liabilities, financial condition or
operations of the Company except changes in the ordinary course of business
which have not been, either in any case or in the aggregate, materially adverse;
(b) Any change (individually or in the aggregate), except in the
ordinary course of business, in the contingent obligations of the Company by way
of guaranty, endorsement, indemnity, warranty or otherwise;
(c) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Company;
(d) Any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(e) Any loans made by the Company to its employees, officers or
directors other than travel advances made in the ordinary course of business;
(f) Any changes in the compensation of the Company's employees,
officers or directors;
(g) Any declaration or payment of any dividend or other distribution
of the assets of the Company;
-4-
<PAGE>
(h) Any agreement obligating the Company to make payments that could
exceed twenty five thousand dollars ($25,000) in any fiscal year;
(i) To the best knowledge of the Company, any other event or
condition of any character which has materially and adversely affected the
Company's business or prospects; or
(j) Any agreement or commitment by the Company to do any of the
things described in this Section 3.5.
3.6 Title to Properties and Assets; Liens, etc. The Company has good and
------------------------------------------
marketable title to all of its properties and assets, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of
current taxes not yet due and payable, and (ii) possible minor liens and
encumbrances which do not in any case materially detract from the value of the
property subject thereto or materially impair the operations of the Company, and
which have not arisen otherwise than in the ordinary course of business. With
respect to the property and assets it leases, the Company is in compliance with
such leases and, to the best of its knowledge, holds a valid leasehold interest
free of any liens, claims or encumbrances.
3.7 Financial Statements. The Company has delivered to each Investor,
--------------------
its audited balance sheet and income statement for the fiscal year ended
December 31, 1996 and unaudited balance sheet and income statement for the
period ended March 31, 1997 (collectively the "Financial Statements"). The
Financial Statements, together with the notes thereto, (i) are complete and
correct in all material respects, (ii) are in accordance with the Company's
books and records, (iii) present fairly its financial position as of that date
and the results of its operations for the period indicated, and (iv) have been
prepared in conformity with generally accepted accounting principles
consistently applied throughout the periods indicated, subject in the case of
interim statements to normal year end adjustments and the absence of footnotes.
Except as set forth in the Financial Statements, the Company has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in the Financial Statements
which, in both cases, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. Except as disclosed in
the Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
3.8 Patents, Trademarks, and Trade Secrets. There are no pending or, to
--------------------------------------
the best of the Company's knowledge, threatened claims against the Company
alleging that the Company's business, as conducted or as proposed to be
conducted, infringes or conflicts with the rights of others under patents,
service marks, trade names, trademarks, copyrights, trade secrets or other
proprietary rights. The Company's business as now conducted and as proposed to
be conducted in the Business
Plan (as hereinafter defined) does not and will not infringe or conflict with
the rights of others, including rights under patents, service marks, trade
names, trademarks, copyrights, trade secrets and other proprietary rights. The
Company owns or possesses sufficient legal rights to all the patents,
copyrights, trademarks, trade names, service marks, trade secrets and other
rights necessary for the
-5-
<PAGE>
operation of its business as now conducted and as proposed to be conducted
without conflict or infringement against the rights of others. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, (trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. To the best of the Company's knowledge, no employee
or consultant of the Company owns any rights in patents, trademarks, trade
names, processes, data or know-how directly or indirectly competitive with those
owned or to be used by the Company or derived from or in connection with the
conduct of the Company's business. The Company is not aware of any violation or
infringement by a third party of any of the Company's patents, licenses,
trademarks, service marks, trade names, copyrights, trade secrets or other
proprietary rights. The Company has taken and will take reasonable security
measures to protect the secrecy, confidentiality and value of all trade secrets
useful in the conduct of its business. The Company does not believe it is or
will be necessary to use any proprietary information of any of its employees or
consultants (or persons it intends to hire or retain) made prior to their
employment by, or consultation with, the Company.
3.9 Compliance with Other Instruments, None Burdensome, etc. The Company
-------------------------------------------------------
is not in violation of any term of its Articles or Bylaws, or of any term
contained in any instrument or contract to which it is a party the damages
arising from which would have a liquidated value exceeding five thousand dollars
($5,000), and, to the best of its knowledge, is not in violation of any order,
statute, rule or regulation applicable to the Company. No event or failure of
performance has occurred which, with the passage of time or the giving of notice
or both, would constitute such a violation. Neither the execution, delivery and
performance of this Agreement nor any other agreement contemplated hereby, nor
the issuance of the Shares or the Underlying Stock, will result in any such
violation or be in conflict with or constitute a default under any such term, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company; and there is no such violation
or default, nor any such term, which materially and adversely affects the
business of the Company as presently conducted or as proposed to be conducted or
any of its properties or assets. To the best of the Company's knowledge, no
other party is in material default of any such instrument or contract.
3.10 Litigation, etc. There is no action, suit, proceeding or
---------------
investigation pending or currently threatened against the Company, nor, to the
best of its knowledge, is there any basis therefor. The foregoing includes any
action, suit, proceeding or investigation, pending or threatened, which
questions the validity of this Agreement or any other agreement contemplated
hereby or the right of the Company to enter into such agreements, or which might
result, either individually or in
the aggregate, in any material adverse change in the assets, condition, affairs
or prospects of the Company, financial or otherwise, and also includes any
litigation pending or threatened, (or any basis therefor known to the Company),
against the Company, by reason of the past employment or consulting
relationships of any employee, officer or consultant of the Company, the
activities or proposed activities of the Company, or negotiations by the Company
with possible backers of, or
-6-
<PAGE>
investors in, the Company or its proposed business. No action, suit, proceeding
or investigation is pending or threatened by the Company. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgement or
decree of any court or governmental agency or instrumentality.
3.11 Registration Rights. Except as set forth in the Investors Rights
-------------------
Agreement, the Company is not under any obligation to register any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
3.12 Governmental Consent, etc. No consent, approval or authorization
-------------------------
of, or designation, declaration or filing with, any governmental authority on
the part of the Company is required in connection with the valid execution,
delivery and performance of this Agreement and any other agreement contemplated
hereby, or the offer, sale or issuance of the Shares or the Underlying Stock
except (i) the filing of the Articles with the Secretary of State of the State
of California which filing will have been made and be effective on the Closing
Date, and (ii) the filing of a Notice with the California Commissioner of
Corporations pursuant to Section 25102(f) of the California Corporations Code
within 15 days of the Closing covering the sale of the Shares, which filing
shall be promptly made.
3.13 Offering. Based in part on the representations of the Investors set
--------
forth in Section 4 hereof, the offer, sale and issuance of the Shares and the
Underlying Stock in conformity with the terms of this Agreement constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act").
3.14 Disclosure. The Company has fully provided each Investor with all
----------
the information which such Investor has requested for deciding whether to
purchase the Series D Preferred Stock and all information which the Company
believes is reasonably necessary to enable such Investor to make such decision.
No representation or warranty by the Company contained in this Agreement or any
other agreement contemplated hereby, nor any other statement or certificate
furnished or to be furnished to the Investors pursuant hereto or in connection
with the transactions contemplated hereby by the Company (when read together)
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
therein or herein not misleading in light of the circumstances under which they
were made; except that no representation is made with respect to projections
delivered to the Investors, other than that the Company represents that such
projections were prepared in good faith and that the Company reasonably believes
there is a reasonable basis for such projections.
3.15 No Conflicting Agreements. To the best of the Company's knowledge,
-------------------------
no employee of the Company is, or will be in connection with the proposed
operations of the Company, in violation of any term of any employment contract,
proprietary information and inventions agreement, or any other contract or
agreement relating to the relationship of any such employee with the Company or
any previous employer. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that
-7-
<PAGE>
would interfere with the use of his best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted.
3.16 Contracts and Other Commitments. The Company does not have any
-------------------------------
contract, agreement, lease, or other commitment, written or oral, absolute or
contingent, other than contracts for the purchase of supplies and services that
were entered into in the ordinary and usual course of business and that do not
involve more than twenty five thousand ($25,000), or do not extend for more than
one year beyond the date hereof. For the purpose of this section, employment and
consulting contracts, contracts with labor unions, license agreements,
agreements with employees, directors or affiliates of employees or directors and
any other agreements relative to the Company's technology, shall not be
considered to be contracts entered into in the ordinary and usual course of
business. For the purposes of the foregoing, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts set forth above. The
Company has not engaged in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the Company of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company.
3.17 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, and has no stock or other interest as owner or principal
in, any other corporation or partnership, joint venture, association or other
business venture
or entity.
3.18 Manufacturing Rights. The Company has not granted rights to
--------------------
manufacture, produce, assemble, license or sell its products to any other person
and is not bound by any agreement which affects the Company's exclusive right to
manufacture, assemble or sell its products.
3.19 Transactions with Principals. No employee, shareholder, officer or
----------------------------
director of the Company is indebted to the Company, nor is the Company indebted
(or committed to make loans or extend or guarantee credit) to any of them. To
the best of the Company's knowledge, none of such persons has any direct or
indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that employees,
officers, or directors of the Company and members of their immediate families
may own stock (not to exceed 3% of the outstanding voting securities of any such
entity) in publicly traded companies that may compete with the Company. No
member of the immediate family of any officer or director of the Company is
directly or indirectly interested in any material contract with the Company.
-8-
<PAGE>
3.20 Insurance. The Company has insurance with financially sound and
---------
reputable insurers, with respect to its properties that are of a character
customarily insured by entities engaged in the same or a similar business
similarly situated, against loss or damage of the kinds customarily insured
against by such entities, which insurance is of such types (including public
liability insurance) as are customarily carried under similar circumstances by
such other entities.
3.21 Employees. The Company has no employment contract with any officer
---------
or employee or any other consultant or person which is not terminable by it at
will without liability, except as the Company's right to terminate its employees
at will may be limited by applicable law. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. The Company has
no deferred compensation, pension, health, profit sharing, bonus, stock
purchase, stock option, hospitalization, insurance, severance or any other
employee benefit or welfare benefit plan or obligation covering any of its
officers or employees. There are no controversies or labor trouble or union
organization activities pending or, to the knowledge of the Company, threatened,
between it and its employees. None of the Company's employees belongs to any
union or collective bargaining unit. All employees of the Company have signed
proprietary information agreements with the Company prior to or at the
commencement of their employment in substantially the form attached as Exhibit F
to the Company's Series A Preferred Stock Purchase Agreement dated July 27,
1994. To the best of its knowledge, the Company has complied with all
applicable state and federal equal employment opportunity and other laws related
to employment.
3.22 Voting Agreement. Except as set forth in the Articles and the
----------------
Shareholders Agreement dated May 23, 1996 among the Company and certain holders
of the Company's Common Stock and Series A, Series B, and Series C Preferred
Stock (the "Shareholders Agreement"), the Company has no agreement, obligation
or commitment with respect to the election of any individual or individuals to
the Board of Directors, and to the best of the Company's knowledge, except as
set forth in the Shareholders Agreement, there is no voting agreement or other
arrangement among its shareholders with respect to the election of any
individual or individuals to the Board of Directors.
3.23 Permits. The Company has all franchises, permits, licenses, and any
-------
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
3.24 Environmental and Safety Laws. To the best of its knowledge, the
-----------------------------
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
-9-
<PAGE>
3.25 Tax Returns, Payments and Elections. The Company has filed all tax
-----------------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due.
3.26 Section 83(b) Elections. To the best of the Company's knowledge,
-----------------------
all elections and notices required by Section 83(b) of the Internal Revenue Code
and any analogous provisions of applicable state tax laws have been timely filed
by all individuals who have purchased shares of the Company's Common Stock.
3.27 Qualified Small Business Stock.
------------------------------
(a) As of and immediately following the Closing Date, the Shares will
meet each of the requirements for qualification as "qualified small business
stock" set forth in Section 1202(c) of the Internal Revenue Code of 1986, as
amended (the "Code"), including without limitation the following: (i) the
Company will be a domestic C corporation, (ii) the Company will not have made
any purchases of its own stock described in Code Section 1202(c)(3)(B) during
the one-year period preceding the Closing, and (iii) the Company's (and any
predecessor's) aggregate gross assets, as defined by Code Section 1202(d)(2), at
no time between August 10, 1993 and through the Closing Date have exceeded or
will exceed $50 million, taking into account the assets of any corporations
required to be aggregated with the Company in accordance with Code Section
1202(d)(3).
(b) As of the Closing Date, at least 80% (by value) of the assets of
the Company are used by it in the active conduct of one or more qualified trades
or businesses, as defined by Code Section 1202(e)(3), and the Company is an
eligible corporation, as defined by Code Section 1202(e)(4).
SECTION 4
Investment Representations
--------------------------
Each Investor hereby represents and warrants only to the Company with
respect to this purchase as follows:
4.1 Authorization. The Investor has all the requisite power and is duly
-------------
authorized to execute and deliver this agreement and each other agreement
contemplated hereby and has taken all necessary action to consummate the
transactions contemplated hereby and thereby. This Agreement and each other
agreement contemplated hereby have been duly executed and delivered by the
Investor and constitute valid and binding obligations of the Investor,
enforceable in accordance with their respective terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and subject to general equity principles and to limitations on the availability
of equitable relief, including specific performance.
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<PAGE>
4.2 Experience. The Investor is experienced in evaluating and investing
----------
in high technology companies such as the Company and is an "accredited investor"
as such term is defined in Rule 501 under the Securities Act.
4.3 Investment. The Investor is acquiring the Shares for investment for
----------
its own account and not with a view to, or for resale in connection with, any
distribution thereof, and it has no present intention of selling or distributing
the Shares or the Underlying Stock. The Investor understands that the Shares and
the Underlying Stock to be purchased by it have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein.
4.4 Rule 144 and Rule 144A. The Investor acknowledges that, because they
----------------------
have not been registered under the Securities Act, the Shares and the Underlying
Stock being purchased by the Investor must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available. The Investor is aware of the provisions of Rule 144
and Rule 144A promulgated under the Securities Act, which rules permit limited
resale of securities purchased in a private placement subject to the
satisfaction of certain conditions.
4.5 No Public Market. The Investor understands that no public market now
----------------
exists for any of the securities issued by the Company and that it is uncertain
whether a public market will ever exist for the Shares or the Underlying Stock.
4.6 Access to Data. The Investor has received and reviewed such
--------------
information that such Investor deemed necessary to make an informed decision
concerning the purchase of the Shares and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
obtain any additional information necessary to verify the accuracy of the
information given to such Investor. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 3 of this
Agreement or the right of the Investors to rely thereon.
SECTION 5
Conditions to Investors' Obligations at the Closing
---------------------------------------------------
The Investors' obligations to purchase the Shares at the Closing are
subject to the fulfillment on or prior to the Closing Date of all of the
conditions set forth below in this Section 5 to the extent not waived by each
Investor.
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made in Section 3 hereof shall be true and correct when made, and
shall be true and correct on the Closing Date.
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<PAGE>
5.2 Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all respects.
5.3 Opinion of Company's Counsel. At the Closing the Investors shall
----------------------------
have received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an
opinion in form and substance satisfactory to them.
5.4 Election of Directors. The members of the Board of Directors as of
---------------------
the Closing shall be Harry Robbins, Geoffrey Ball, Michael Levinthal, Petri
Vainio, B.J. Cassin and Terry Gould.
5.5 Investors Rights Agreement. The Company and the Investors shall have
--------------------------
entered into the Investors Rights Agreement attached hereto as Exhibit C.
5.6 Articles. The Articles attached hereto as Exhibit B shall have been
--------
filed with the Secretary of State of the State of California.
5.7 Compliance Certificate. The Company shall have delivered to the
----------------------
Investors a certificate, executed by the President of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement.
5.8 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Investors and their special counsel,
and the Investors and their special counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
SECTION 6
Conditions to Company's Obligations at Closing
----------------------------------------------
The Company's obligation to sell the Shares at the Closing is subject to
the fulfillment of the following conditions to the extent not waived by the
Company:
6.1 Representations Correct. The representations made by the Investors
-----------------------
in Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date.
6.2 Qualifications, Legal Investment. All authorizations, approvals, or
--------------------------------
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the Shares or the proposed issuance of the Underlying
Stock shall have been issued and no proceedings for such purpose shall be
pending or, to the knowledge of the Company, threatened by the Securities and
Exchange Commission, the California Commissioner of
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<PAGE>
Corporations, or any commissioner of corporations or similar officer of any
other state having jurisdiction over this transaction. At the time of the
Closing, the sale and issuance of the Shares and the Warrants and the proposed
issuance of the Underlying Stock shall be legally permitted by all laws and
regulations to which the Investors and the Company are subject.
6.3 Minimum Investment. The Investors shall purchase Shares with an
------------------
aggregate purchase price of at least $6,000,000.
6.4 Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Investors on or prior to the Closing Date
shall have been performed or complied with in all respects.
6.5 Articles. The Articles in the form of Exhibit B shall have been
--------
filed with the Secretary of State of the State of California.
SECTION 7
Affirmative Covenants of the Company
------------------------------------
The Company hereby covenants and agrees as follows:
7.1 Employee Agreements. All future technical and other key employees
-------------------
and consultants of the Company shall be required to execute a proprietary
information agreement substantially in the form attached as Exhibit F to the
Company's Series A Preferred Stock Purchase Agreement dated July 27, 1994, with
such amendments thereto or deviations therefrom as the Board of Directors may
from time to time deem appropriate. All current and future employees, officers
and consultants of the Company who shall, subsequent to the Closing Date,
purchase or receive options to purchase shares of the Company's Common Stock
shall (unless the Board of Directors shall direct otherwise) be required to
execute stock purchase or option agreements providing for vesting of shares no
less restrictive than as follows: one-eighth of the total number of shares
subject to such an agreement six months after the date of employment and one
forty-eighth of the total number of shares subject to such an agreement each
month thereafter. Upon the termination of an employee, officer or consultant,
with or without cause, the Company or its assignee will (unless the Board of
Directors shall direct otherwise) have the option to repurchase the unvested
portion of such shares held by the employee, officer or consultant at cost. Such
stock purchase or option agreements shall (unless the Board of Directors shall
direct otherwise) also provide for (i) no transfers prior to vesting, (ii) a
right of first refusal on any vested shares terminating not prior to the initial
public offering of the Company's securities and (iii) a "lock-up" provision of
at least 180 days after the initial public offering of the Company's securities.
7.2 Key Man Life Insurance. The Company will maintain, with financially
----------------------
sound and reputable insurers, a term life insurance policy on the life of Harry
S. Robbins in the amount of $1,000,000. Such policy shall be owned by the
Company and all benefits thereunder shall be payable to the Company.
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<PAGE>
7.3 Preservation of Small Business Stock Status. After the Closing Date,
-------------------------------------------
the Company shall not (a) make any purchases of its stock during the one year
period following the Closing Date having an aggregate value exceeding 5% of the
aggregate value of all of the Company's stock, (b) fail to use at least 80% (by
value) of its assets in the active conduct of one or more qualified trades or
businesses for substantially all of the five-year period following the Closing
Date, or (c) cease to be a C corporation which is an eligible corporation, as
defined by Code Section 1202(e)(4).
7.4 Termination of Covenants. The covenants of the Company set forth in
------------------------
Section 7 shall terminate upon the first to occur of (i) the closing of the
Company's first public offering at a price per share in excess of eleven dollars
($11.00) per share of Common Stock (as shares are presently constituted) with
aggregate proceeds in excess of seventeen million dollars ($17,000,000) or (ii)
the tenth anniversary of the Closing Date.
SECTION 8
Certain Covenants
-----------------
8.1 First Negotiation Right. The Company agrees that it shall not
-----------------------
transfer, dispose of, sell, lease or license (exclusively or nonexclusively),
any of the Rights (as defined below) or transfer or dispose of all or
substantially all of the assets or voting securities of the Company (any of such
transactions begin hereinafter referred to as a "Sale") until it complies in
full with the provisions of this Section 8.1.
(a) Prior to consummating a Sale, or if the Company determines to
commence discussions with any party with respect to a proposed Sale or receives
an unsolicited offer from a third party with respect to a proposed Sale, the
Company shall promptly notify Johnson & Johnson Development Corporation ("J&J")
of the proposed Sale and the principal terms thereof (but not the identity of
the third party) and shall, before entering into any agreement with respect
thereto, during a sixty (60) day period negotiate in good faith with J&J to
provide J&J the opportunity to consummate a similar Sale, If at the end of such
period the parties are unable to agree upon mutually acceptable terms thereof,
the Company shall have the right to continue or enter into discussions with
third parties, but may not enter into any agreement with respect hereto with a
third party on terms more favorable to the third party or less favorable to the
Company than those offered by or to J&J either during or after such period.
(b) For purposes of this Section 8.1, all inventions, developments,
patents, patent applications, know-how, other proprietary rights or products
owned, developed or acquired by the Company after the date hereof that are or
may be used or may have application in the field of implantable and semi-
implantable hearing aid devices shall be referred to as "Rights." J&J's rights
under Section 8.1 shall not be assignable except to an affiliate of J&J and
shall survive for a period of eighteen (18) months from the date of this
Agreement or twelve (12) months from the effective date of the Company's
registration statement relating to its initial public offering of equity
securities, whichever first occurs. Notwithstanding the foregoing, J&J's rights
under this Section 8.1 shall terminate in the event that J&J, either directly or
through an affiliate, does not participate as an
-14-
<PAGE>
investor in the Company's next equity financing transaction (which may involve
the issuance of Common Stock, Preferred Stock or other equity security).
(c) This Section 8.1 terminates and supersedes any prior agreements
or understandings between the Company and J&J with regard to a first negotiation
right, including Section 8.1 from the Company's Series D Preferred Stock
Purchase Agreement dated November 13, 1996.
8.2 Observer Rights. Any holder of more than 100,000 shares of Series D
---------------
Preferred Stock or an equivalent number of shares of Common Stock issued or
issuable upon conversion of Series D Preferred Stock (subject to proportionate
adjustment in the event of stock splits, dividends, combination and the like)
shall be entitled to appoint one representative (an "Observer") to attend
meetings of the Board of Directors of the Corporation. Notwithstanding the
foregoing, the Company's board of directors may request the Observer to leave
meetings of the board of directors when, in the reasonable judgment of the
board, such recusal is necessary or appropriate because the matters to be
discussed are of a competitive or confidential nature or relate to the
relationship of the Company with J&J and/or one or more of its affiliates.
8.3 Publicity The Corporation shall not originate any publicity, news
---------
release, or other announcement, written or oral, relating to this Agreement, or
the performance hereunder or the existence of an arrangement between the
parties, without the prior written approval of a majority in interest of the
Investors. Notwithstanding the foregoing, the Company may make such disclosures
as are necessary to comply with applicable laws, including without limitation
the Securities Act of 1933, the Securities Exchange Act of 1934 and the rules
and regulations thereunder.
SECTION 9
Miscellaneous
-------------
9.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California without regard to that body
of law known as Conflict of Laws.
9.2 Survival. The representations, warranties, covenants and agreements
--------
made by the parties herein shall survive any investigation made by any Investor
or the Company and shall survive the closing of the transactions contemplated
hereby.
9.3 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
-15-
<PAGE>
9.4 Entire Agreement; Amendment. This Agreement and the other documents
---------------------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
Any term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Company and the
holders of at least a majority in interest of (i) the outstanding Shares and
(ii) any outstanding shares of Underlying Stock that have not been sold to the
public (collectively determined on an as if converted basis). Any amendment or
waiver effected in accordance with this section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted or for
which such, securities have been exercised), each future holder of all such
securities, and the Company.
9.5 Effect of Amendment or Waiver. Each Investor acknowledges that, by
-----------------------------
the operation of Section 9.4 hereof, the holders of a majority in interest of
the outstanding Shares and outstanding shares of Underlying Stock (determined on
an as if converted basis) that have not been sold to the public will have the
right and power to diminish or eliminate all rights of such Investor under this
Agreement.
9.6 Rights of Investors. Each holder of the Shares, or the Underlying
-------------------
Stock shall have the absolute right to exercise or refrain from exercising any
right or rights that such holder may have by reason of this Agreement or its
ownership of the Shares or the Underlying Stock, including without limitation
the right to consent to the waiver of any obligation of the Company under this
Agreement and to enter into an agreement with the Company for the purpose of
modifying this Agreement or any agreement effecting any such modification, and
such holder shall not incur any liability to any other holder or holders of the
Shares or the Underlying Stock with respect to exercising or refraining from
exercising any such right or rights.
9.7 Exculpation Among Investors. Each Investor acknowledges that it is
---------------------------
not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Investor agrees that no Investor nor the respective
controlling person, officers, directors, partners, agents, or employees of any
Investor shall be liable for any action heretofore or hereafter taken or omitted
to be taken by any of them in connection with the purchase of the Shares.
9.8 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be effective five days after
mailed by first-class, registered, or certified mail, postage prepaid, or upon
delivery if delivered by hand or by messenger or a courier delivery service,
addressed (a) if to an Investor, at such Investor's address set forth in the
Schedule of Investors, or at such other address as such Investor shall have
furnished to the Company in writing, or (b) if to any other holder of any Shares
or Underlying Stock, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares or
Underlying Stock who has so furnished an address to the Company, or (c) if to
the Company, at the address set forth below the
-16-
<PAGE>
Company's name on the signature page to this Agreement or at such other address
as the Company shall have furnished to each Investor and each such other holder
in writing.
9.9 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any Shares upon any breach or default
of the Company under this Agreement shall impair any such right, power or remedy
of such holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereunder occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to any holder, shall be cumulative
and not alternative.
9.10 California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
FROM SUCH QUALIFICATION BEING AVAILABLE.
9.11 Expenses. The Company and each Investor shall bear its own expenses
--------
and legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
9.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the Investors,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
9.13 Severability. In the case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
-17-
<PAGE>
The foregoing Series D Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
COMPANY:
SYMPHONIX DEVICES, INC.
/s/ Harry S. Robbins
- ----------------------------------
Harry S. Robbins
Chairman, President and CEO
SYMPHONOX DEVICES, INC.
Series D Preferred Stock Purchase Agreement
-18-
<PAGE>
INVESTORS:
CORAL PARTNERS IV, LIMITED
PARTNERSHIP
By: Coral Management Partners IV
Limited Partnership, Its General Partner
/s/ Peter H. McNerney
-----------------------------------------
Peter H. McNerney, General Partner
MAYFIELD VII
A CALIFORNIA LIMITED PARTNERSHIP
BY MAYFIELD VII MANAGEMENT
A CALIFORNIA LIMITED PARTNERSHIP
/s/ Michael J. Levinthal
By:______________________________________
General Partner
Title:___________________________________
MAYFIELD ASSOCIATES FUND II
A CALIFORNIA LIMITED PARTNERSHIP
/s/ Michael J. Levinthal
By:______________________________________
General Partner
Title:___________________________________
SIERRA VENTURES IV, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
BY SV ASSOCIATES IV, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP,
ITS GENERAL PARTNER
/s/Petri Vainio
By:______________________________________
Petri Vainio, General Partner
SYMPHONOX DEVICES, INC.
Series D Preferred Stock Purchase Agreement
-19-
<PAGE>
SIERRA VENTURES IV
INTERNATIONAL, L.P.,
A DELAWARE LIMITED PARTNERSHIP
BY SV ASSOCIATES IV, L.P.
A CALIFORNIA LIMITED
PARTNERESHIP, ITS GENERAL PARTNER
By:\s\ Petri Vainio
-------------------------------------
Petri Vainio, General Partner
BRINSON VENTURE CAPITAL FUND
III, L.P
By: \s\ Terry Gould
------------------------------------
Terry Gould, Partner
BRINSON TRUST COMPANY AS
TRUSTEES OF THE BRINSON MAP
VENTURE CAPITAL FUND III
By:\s\ Terry Gould
-------------------------------------
Terry Gould, Assistant Trust Officer
Brinson Trust Company
BRENDAN JOSEPH CASSIN AND ISABEL B.
CASSIN, TRUSTEES OF THE CASSIN
FAMILY TRUST U/D/T DATED JANUARY 31,
1996
\s\ B. J. Cassin
-----------------------------------------
B. J. Cassin, Trustee
SYMPHONOX DEVICES, INC.
Series D Preferred Stock Purchase Agreement
-20-
<PAGE>
JOHNSON & JOHNSON
DEVELOPMENT CORPORATION
By: /s/ Thomas M. Gorrie
-------------------------------------
Title: Vice President
----------------------------------
SYMPHONOX DEVICES, INC.
Series D Preferred Stock Purchase Agreement
-21-
<PAGE>
EXHIBIT 10.8
NET LEASE AGREEMENT
BETWEEN
REALTEC PROPERTIES I, L.P.,
a California limited partnership
("Landlord")
and
SYMPHONIX DEVICES, INC.,
a California corporation
("Tenant")
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
--------
<C> <S> <C>
1. Summary of Lease Provisions................................................................. 1
2. Property Leased............................................................................. 2
2.1 Premises.............................................................................. 2
2.2 Improvements.......................................................................... 3
2.3 Acceptance of Premises................................................................ 3
3. Term........................................................................................ 4
3.1 Commencement Date..................................................................... 4
3.2 Delay of Commencement Date............................................................ 5
3.3 Early Occupancy....................................................................... 5
3.4 Tenant to Physically Occupy Premises.................................................. 5
4. Rent........................................................................................ 6
4.1 Rent................................................................................... 6
4.2 Late Charge............................................................................ 6
4.3 Additional Rent........................................................................ 6
5. Security Deposit............................................................................ 7
6. Use of Premises............................................................................. 7
6.1 Permitted Uses.......................................................................... 7
6.2 Tenant to Comply with Legal Requirements................................................ 8
6.3 Prohibited Uses......................................................................... 9
6.4 Hazardous Materials..................................................................... 9
7. Taxes....................................................................................... 11
7.1 Personal Property Taxes................................................................. 11
7.2 Other Taxes Payable Separately by Tenant................................................ 11
7.3 Common Taxes............................................................................ 12
8. Insurance; Indemnity; Waiver................................................................ 13
8.1 Insurance by Landlord.................................................................. 13
8.2 Insurance by Tenant.................................................................... 14
8.3 Failure by Tenant to Obtain Insurance.................................................. 15
8.4 Indemnification........................................................................ 16
8.5 Claims by Tenant....................................................................... 16
8.6 Mutual Waiver of Subrogation........................................................... 17
9. Utilities................................................................................... 17
10. Repairs and Maintenance..................................................................... 18
10.1 Landlord's Responsibilities............................................................ 18
10.2 Tenant's Responsibilities.............................................................. 18
11. Common Area................................................................................. 19
11.1 In General............................................................................. 19
11.2 Parking Areas.......................................................................... 20
11.3 Maintenance by Landlord................................................................ 20
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
12. Common Area Charges......................................................................... 21
12.1 Definition............................................................................ 21
12.2 Payment of Common Area Charges by Tenant.............................................. 22
12.3 Exclusions From Common Area Charges................................................... 23
13.1 In General I.......................................................................... 24
13.2 Removal Upon Lease Termination........................................................ 25
13.3 Landlord's Improvements............................................................... 25
14. Default and Remedies........................................................................ 26
14.1 Events of Default...................................................................... 26
14.2 Remedies............................................................................... 26
15. Damage or Destruction....................................................................... 28
15.1 Definition of Terms................................................................... 28
15.2 Insured Casualty...................................................................... 29
15.3 Uninsured Casualty.................................................................... 29
15.4 Tenant's Election..................................................................... 30
15.5 Damage or Destruction Near End of Lease Term.......................................... 30
15.6 Termination of Lease.................................................................. 31
15.7 Abatement of Rentals.................................................................. 31
15.8 Liability for Personal Property....................................................... 31
15.9 Waiver of Civil Code Remedies......................................................... 31
15.10 Damage or Destruction to the Building................................................. 31
16. Condemnation................................................................................ 32
16.1 Definition of Terms.................................................................... 32
16.2 Rights................................................................................. 32
16.3 Total Taking........................................................................... 32
16.4 Partial Taking......................................................................... 32
17. Liens....................................................................................... 33
17.1 Premises to Be Free of Liens........................................................... 33
17.2 Notice of Lien; Bond................................................................... 33
18. Landlord's Right of Access to Premises...................................................... 34
19. Landlord's Right to Perform Tenant's Covenants.............................................. 34
20. Lender Requirements......................................................................... 35
20.1 Subordination.......................................................................... 35
20.2 Subordination Agreements............................................................... 35
20.3 Approval by Lenders.................................................................... 35
20.4 Attornment............................................................................. 35
20.5 Estoppel Certificates and Financial Statements......................................... 36
21. Holding Over................................................................................ 37
22. Notices..................................................................................... 37
23. Attorneys' Fees............................................................................. 38
24. Assignment, Subletting and Hypothecation.................................................... 38
24.1 In General............................................................................. 38
24.2 Voluntary Assignment and Subletting.................................................... 38
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
24.3 Collection of Rent...................................................................... 41
24.4 No Bonus Value.......................................................................... 41
24.5 Corporations and Partnerships........................................................... 42
24.6 Reasonable Provisions................................................................... 42
24.7 Attorneys' Fees......................................................................... 42
24.8 Involuntary Transfer.................................................................... 43
24.9 Hypothecation........................................................................... 43
24.10 Binding on Successors.................................................................. 43
25. Successors................................................................................... 43
26. Landlord Default; Mortgagee Protection....................................................... 44
27. Exhibits..................................................................................... 44
28. Surrender of Lease Not Merger................................................................ 44
29. Waiver....................................................................................... 44
30. General...................................................................................... 45
30.1 Captions and Headings................................................................... 45
30.2 Definitions............................................................................. 45
30.3 Copies.................................................................................. 46
30.4 Time of Essence......................................................................... 46
30.5 Severability............................................................................ 46
30.6 Governing Law........................................................................... 46
30.7 Joint and Several Liability............................................................. 46
30.8 Construction of Lease Provisions........................................................ 46
30.9 Tenant's Financial Statements........................................................... 46
30.10 Withholding of Landlord's Consent...................................................... 46
31. Signs........................................................................................ 47
32. Landlord as Party Defendant.................................................................. 47
33. Landlord Not a Trustee....................................................................... 47
34. Interest..................................................................................... 47
35. Surrender of Premises........................................................................ 48
36. No Partnership or Joint Venture.............................................................. 48
37. Entire Agreement............................................................................. 48
38. Submission of Lease.......................................................................... 49
39. Quiet Enjoyment.............................................................................. 49
40. Building Plans............................................................................... 49
41. Authority.................................................................................... 49
42. Addendum..................................................................................... 50
44. Option to Extend Lease Term.................................................................. 51
45. Rent During the Extended Term................................................................ 51
46. Right of Notice.............................................................................. 53
</TABLE>
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<PAGE>
NET LEASE AGREEMENT
-------------------
(MultiTenant)
For and in consideration of the rentals, covenants, and conditions hereinafter
set forth, Landlord hereby leases to Tenant, and Tenant hereby rents from
Landlord, the following described Premises for the term, at the rental and
subject to and upon all of the terms, covenants and agreements set forth in this
Net Lease Agreement, including Landlord's right to recover the Premises pursuant
to Paragraph 24 below ("Lease"):
1 Summary of Lease Provisions.
---------------------------
1.1 Tenant: SYMPHONIX DEVICES, INC., a California
corporation, ("Tenant").
1.2 Landlord: REALTEC PROPERTIES I, L.P., a
California limited partnership
("Landlord").
1.3 Date of Lease, for reference purposes only:
July 28, 1994.
1.4 Premises: That certain space hereinafter more particularly
described, situated in that certain building shown crosshatched
on the site plan attached hereto as Exhibit "A" and commonly
referred to as 3047 Orchard Parkway and located in the City of
San Jose, County of Santa Clara, State of California.
(Paragraph 2.1)
1.5 Term: Three (3) Years (Paragraph 3)
1.6 Commencement Date: August 1, 1994, subject to the provisions of
Paragraph 3 below. (Paragraph 3)
1.7 Ending Date: July 31, 1997, subject to the provisions of
Paragraph 3 below, unless sooner terminated pursuant to the
terms of this Lease. (Paragraph 3)
1.8 Rent: August 1, 1994 to July 31, 1997 - Seven Thousand Seven
Hundred Twenty Dollars ($7,720.00) per month (Paragraph 4)
Receipt of the first month's Rent is hereby acknowledged by
Landlord.
1.9 Use of Premises: Office, marketing, research and development,
light manufacturing, distribution
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<PAGE>
and warehousing of medical devices, and all legal related uses.
(Paragraph 6)
1.10 Tenant's percentage share of Common Area Charges: 33.40%
percent. (Paragraph 12)
1.11 Security Deposit: Seven Thousand Seven Hundred Twenty Dollars
($7,720.00). (Paragraph 5)
1.12 Addresses for Notices:
To Landlord: Realtec Properties I, L. P.
987 University Avenue, Suite 3
Los Gatos, CA 95030
To Tenant: To the Premises, with a courtesy copy to:
---------------------------
---------------------------
---------------------------
1.13 Nonexclusive Right to Use No More Than: Forty-five (45)
parking spaces within the Common Area. (Paragraph 11.2)
1.14 Summary Provisions in General. Parenthetical
-----------------------------
references in this Paragraph 1 to other paragraphs in this Lease are for
convenience of reference, and designate some of the other Lease paragraphs where
applicable provisions are set forth. All of the terms and conditions of each
such referenced paragraph shall be construed to be incorporated within and made
a part of each of the above referring Summary of Lease Provisions. In the event
of any conflict between any Summary of Lease provision as set forth above and
the balance of the Lease, the latter shall control.
2. Property Leased.
---------------
2.1 Premises. Landlord hereby leases to Tenant and Tenant
--------
hereby leases from Landlord upon the terms and conditions herein set forth,
those certain premises ("Premises") referred to in Paragraph 1.4 above and shown
on the floor plan attached hereto as Exhibit "B." In addition, Tenant shall have
such rights in and to the Common Area (defined in Paragraph 11.1 below) as are
more fully described in Paragraph 11.1 below.
The building in which the Premises are located is referred to herein as
the "Building." The "Land" shall mean and refer to all of the real property
outlined in red on Exhibit "A," and shall not be limited to the parcel of real
property on which the Building is located (if the same is a separate legal
parcel). Any reference in this Lease to the "Parcel" shall be deemed a reference
to the Land. The Land, Building and any other building(s) or improvement(s) now
or hereafter located on the Land are referred
2
<PAGE>
to herein collectively as the "Project."
Landlord reserves the right to grant to tenants of the Project or of
the buildings or improvements which now exist or may hereafter be constructed
upon real property owned by Landlord adjacent to the Land, and to the agents,
employees, servants, invitees, contractors, guests, customers and
representatives of such tenants or to any other user authorized by Landlord, the
nonexclusive right to use the Land for pedestrian and vehicular ingress and
egress and vehicular parking (excluding only that portion of the Land designated
herein for Tenant's exclusive use for vehicular parking, if any).
2.2 Improvements. The improvements to be constructed by Landlord
------------
for the Tenant's use in the Premises are set forth in detail on the attached
Exhibits "C-l" and "C-2". The improvements identified on Exhibit "C-1" shall be
constructed by Landlord at Landlord's sole cost. Tenant shall pay to Landlord
the sum of Thirty-one Thousand Twenty-nine Dollars ($31,029) for the
construction of the improvements identified on Exhibit "C-2", with one-half of
said amount payable on execution of the Lease, and one-half of said amount
payable on the Commencement Date. Tenant hereby agrees that Tenant has prepared
the plans and specifications for the improvements identified on Exhibit "C-l"
and that is shall be the responsibility of Tenant to assure that said
improvements are in compliance with Title 24 and Title III of the Americans with
Disabilities Act of 1990, 42 U.S.C. section 12101 et. seq., and the regulations
promulgated thereunder (the "ADA"). In addition, Tenant shall be responsible
for the cost of any alterations to the Premises, the Building and/or the Common
Area that may be required as a result of the construction of said improvements.
Since any construction work on the Premises by Tenant prior to
substantial completion of the work required of Landlord pursuant to this
Paragraph 2.2 may interfere with the work required of Landlord or with
Landlord's ability to obtain a Certificate of Completion therefor, any such work
by Tenant shall be subject to the provisions of Paragraph 13.1 hereof, and
Landlord may in its reasonable discretion withhold its consent to any such work
by Tenant.
2.3 Acceptance of Premises. By taking possession of the Premises,
----------------------
Tenant shall be deemed to have accepted the Premises as being in good and
sanitary order, condition and repair and to have accepted the Premises in their
condition existing as of the date Tenant takes possession of the Premises,
subject to all applicable laws, covenants, conditions, restrictions, easements
and other matters of public record and the rules and regulations from time to
time promulgated by Landlord governing the use of any portion of the Project and
further, to have accepted tenant improvements to be constructed by Landlord (if
any) as being completed in accordance with the plans and specifications for such
improvements subject only to completion of items on Landlord's punch list.
Tenant acknowledges that neither Landlord nor
-3-
<PAGE>
Landlord's agents have made any representation or warranty as to the suitability
of the Premises for the conduct of Tenant's business, the condition of the
Building or Premises, or the use or occupancy which may be made thereof, and
Tenant has independently investigated and is satisfied that the Premises are
suitable for Tenant's intended use and that the Building and Premises meet all
governmental requirements for such intended use. In addition, Landlord makes no
representation or warranty as to the compliance of the Premises, the Building or
the Project with the requirements of the ADA.
Notwithstanding anything to the contrary contained in this Lease,
Tenant's acceptance of the Premises or submission of a "punchlist" shall not be
deemed a waiver of Tenant's right to have defects in the improvements
constructed by Landlord pursuant to Paragraph 2.2 or the Premises repaired at no
cost to Tenant. Tenant shall give notice to Landlord whenever any such defect
becomes reasonably apparent, and Landlord shall repair the defect as soon as
practicable. Landlord also hereby assigns to Tenant all warranties with respect
to the Premises, including warranties that would reduce Tenant's maintenance
obligations under this Lease, and shall cooperate with Tenant to enforce such
warranties. Finally, notwithstanding anything to the contrary contained in this
Lease, as of the Commencement Date, the roof (including roof screens and
membrane), plumbing, electrical (including all outlets), heating and air
conditioning systems in the Premises shall be in good working order and repair.
3. Term.
----
3.1 Commencement Date. The term of this Lease (the "Lease
-----------------
Term") shall be for the period specified in Paragraph 1.5 above, commencing on
the date set forth in Paragraph 1.6 ("Commencement Date"); provided, however, in
the event any improvements to be constructed by Landlord, as set forth on
Exhibits "C-1" and "C-2", are not completed by the aforesaid Commencement Date,
then the Commencement Date shall be deemed to be the date on which the
improvements to be constructed by Landlord are substantially completed. Such
improvements shall be deemed to be substantially completed upon the occurrence
of the earlier of the following:
(a) The date on which all improvements to be constructed by
Landlord have been substantially completed except for: (i) punch list items
which do not prevent Tenant from using the Premises for its intended use;
(ii) such work as Landlord is required to perform but which is delayed
because of fault or neglect of Tenant, acts of Tenant or Tenant's agents
(including without limitation, delays caused by work done on the Premises
by Tenant or Tenant's agents or by acts of Tenant's contractors or
subcontractors) or delays caused by change orders requested by Tenant or
required because of any errors or omissions in plans submitted by Tenant;
and (iii) such work as Landlord is required to perform but cannot complete
until Tenant performs necessary
-4-
<PAGE>
portions of construction work it has elected or is required to do; or
(b) The issuance of appropriate governmental approvals for
occupancy of the Premises; or
(c) The date Tenant opens for business in the Premises.
If the Commencement Date is a date other than the date set forth in Paragraph
1.6, then the Ending Date set forth in paragraph 1.7, and any other certain
dates specified herein shall be adjusted accordingly. When the Commencement
Date, Ending Date and such other dates become ascertainable, Landlord and Tenant
shall specify the same in writing, in the form of the attached Exhibit "D,"
which writing shall be deemed incorporated herein. Tenant's failure to execute
and deliver the letter attached hereto as Exhibit "D" (subject to any
legitimate disagreement by Tenant with the terms thereof, which both parties
shall use reasonable efforts to resolve) shall be a Default by Tenant hereunder.
The expiration of the Lease Term or sooner termination of this Lease is referred
to herein as the "Lease Termination."
3.2 Delay of Commencement Date. Landlord shall not be liable for
--------------------------
any damage or loss incurred by Tenant for Landlord's failure for whatever cause
to deliver possession of the Premises by a particular date (including the
Commencement Date), nor shall this Lease be void or voidable on account of such
failure to deliver possession of the Premises; provided that if Landlord does
not deliver possession of the Premises to Tenant by the date which is sixty (60)
days from the date this Lease is executed by both parties, Tenant shall have the
right to terminate this Lease by written notice delivered to Landlord within
five (5) days thereafter, and Landlord and Tenant shall be relieved of their
respective obligations hereunder; provided further that said sixty (60) day
period shall be extended by the number of days work on the Premises is delayed
due to fault or neglect of Tenant, acts of Tenant or Tenant's agents, or due to
acts of God, labor disputes, strikes, fires, rainy or stormy weather, acts or
failures to act of public agencies, inability to obtain labor or materials,
earthquake, war, insurrection, riots and other causes beyond Landlord's
reasonable control, excluding, however, delays caused solely by Landlord, its
agents, employees, contractors or invitees.
3.3 Early Occupancy. If Tenant takes possession of the Premises
---------------
prior to the Commencement Date, Tenant shall do so subject to all of the terms
and conditions hereof and shall pay the Rentals provided for herein.
3.4 Tenant to Physically Occupy Premises. Tenant shall, no later
------------------------------------
than thirty (30) days after the Commencement Date, go into actual physical
occupancy of the Premises and open the Premises for business in accordance with
the uses specified in Paragraph 6 below; provided, however, the date of Tenant's
physical
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<PAGE>
occupancy of the Premises shall in no event extend the Commencement Date, the
Lease Termination date or the date the payment of Rentals hereunder commences.
Time is of the essence.
4. Rent.
----
4.1 Rent. Tenant shall pay to Landlord as rent for the Premises
----
("Rent"), in advance, on the first day of each calendar month, commencing on the
date specified in Paragraph 1.6 and continuing throughout the Lease Term (until
adjusted pursuant to Paragraph 4.4 below) the Rent set forth in Paragraph 1.8
above. Rent shall be prorated, based on thirty (30) days per month, for any
partial month during the Lease Term. Rent shall be payable without deduction,
offset, prior notice or demand in lawful money of the United States to Landlord
at the address herein specified for purposes of notice or to such other persons
or such other places as Landlord may designate in writing.
4.2 Late Charge. Tenant hereby acknowledges that late payment by
-----------
Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
mortgage or deed of trust covering the Premises. Accordingly, Tenant shall pay
to Landlord, as Additional Rent, without the necessity of prior notice or
demand, a late charge equal to five percent (5%) of any installment of Rent
which is not received by Landlord within ten (10) days after the due date for
such installment. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. In no event shall this provision for a late charge be deemed
to grant to Tenant a grace period or extension of time within which to pay any
installment of Rent or prevent Landlord from exercising any right or remedy
available to Landlord upon Tenant's failure to pay such installment of Rent when
due, including without limitation the right to terminate this Lease. In the
event any installment of Rent is not received by Landlord by the thirtieth
(30th) day after the due date for such installment, such installment shall bear
interest at the annual rate set forth in Paragraph 34 below, commencing on the
thirty-first (31st) day after the due date for such installment and continuing
until such installment is paid in full.
4.3 Additional Rent. All taxes, charges, costs and expenses and
---------------
other sums which Tenant is required to pay hereunder (together with all interest
and charges that may accrue thereon in the event of Tenant's failure to pay the
same), and all damages, costs and expenses which Landlord may incur by reason of
any Default by Tenant shall be deemed to be additional rent hereunder
("Additional Rent"). Additional Rent shall accrue commencing on the,
Commencement Date. In the event of nonpayment by Tenant of any Additional Rent,
Landlord shall have all the rights and remedies
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<PAGE>
with respect thereto as Landlord has for the nonpayment of Rent. The term
"Rentals" as used in this Lease shall mean Rent and Additional Rent:
5. Security Deposit. Concurrently with Tenant's execution of this Lease,
----------------
Tenant shall deposit with Landlord a security deposit ("Security Deposit") in
the amount set forth in Paragraph 1.11 above. The Security Deposit shall be held
by Landlord as security for the faithful performance by Tenant of each and every
term, covenant, or condition of this Lease applicable to Tenant, and not as
prepayment of Rent. If Tenant shall at any time fail to keep or perform any
term, covenant or condition of this Lease applicable to Tenant, including
without limitation, the payment of Rentals or those provisions requiring Tenant
to repair damage to the Premises caused by Tenant or to surrender the Premises
in the condition required pursuant to Paragraph 35 below, Landlord may, but
shall not be obligated to, and without waiving or releasing Tenant from any
obligation under this Lease, use, apply or retain the whole or any part of the
Security Deposit reasonably necessary for the payment of any amount which
Landlord may spend by reason of Tenant's default or as necessary to compensate
Landlord for any loss or damage which Landlord may suffer by reason of Tenant's
default. In the event Landlord uses or applies any portion of the Security
Deposit, Tenant shall, within five (5) business days after written demand by
Landlord, remit to Landlord sufficient funds to restore any Security Deposit to
its original sum. Failure by Tenant to so remit funds shall be a Default by
Tenant. Should Tenant comply with all of the terms, covenants and conditions of
this Lease applicable to Tenant, the balance of the Security Deposit shall be
returned to Tenant within fourteen (14) days after Lease Termination and
surrender of the Premises by Tenant; provided, however, if any portion of the
Security Deposit is to be applied to repair damages to the Premises caused by
Tenant or Tenant's agents, to clean the Premises, or to remove alterations and
restore the Premises pursuant to Paragraph 13.2 below, then the balance of the
Security Deposit shall be returned to Tenant no later than thirty (30) days
after the date Landlord receives possession of the Premises.
6. Use of Premises.
---------------
6.1 Permitted Uses. Tenant shall use the Premises and the Common
--------------
Area only in conformance with applicable governmental or quasi-governmental
laws, statutes, orders, regulations, rules, ordinances and other requirements
now or hereafter in effect (collectively, "Laws") for the purposes set forth in
Paragraph 1.9 above, and for no other purpose without the prior written consent
of Landlord, which consent Landlord may withhold in its sole discretion. Tenant
acknowledges and agrees that Landlord has selected or will be selecting tenants
for the Building in order to produce a mix of tenant uses compatible and
consistent with the design integrity of the Building and with other uses of the
Building; provided, however, the selection of Building tenants shall be in
Landlord's reasonable discretion and Landlord
-7-
<PAGE>
in making such selection shall not be deemed to be warranting that any use of
the Building made by any such tenant is compatible or consistent with the design
integrity of the Building or other uses of the Building. Any change in use of
the Premises or the Common Area without the prior written consent of Landlord
shall be a Default by Tenant. Tenant and Tenant's agents shall comply with the
provision of any Declaration of Covenants, Conditions, and Restrictions
affecting the Premises and the Common Area.
6.2 Tenant to Comply with Legal Requirements. Tenant shall, at
----------------------------------------
its sole cost, promptly comply with all Laws relating to or affecting Tenant's
particular use or occupancy of the Premises, including without limitation those
relating to utility usage and load or number of permissible occupants or users
of the Premises, whether or not the same are now contemplated by the parties;
with the provisions of all recorded documents affecting the Premises or the
Common Area insofar as the same relate to or affect Tenant's particular use or
occupancy of the Premises or use of the Common Area; and with the requirements
of any board of fire underwriters (or similar body now or hereafter constituted)
relating to or affecting the use, occupational safety, occupancy, or condition
of the Premises or the Common Area. Tenant's obligations pursuant to this
paragraph shall include, without limitation, maintaining or restoring the
Premises and making structural and nonstructural alterations and additions in
compliance and conformity with all laws and recorded documents (including,
without limitation, alterations or additions to the Premises, Building or Common
Area that are required pursuant to the ADA), each relating to Tenant's
particular use or occupancy of the Premises during the Lease Term or alterations
made to the Premises by Tenant. At Landlord's option, Landlord may make the
required alteration, addition or change, and Tenant shall pay the cost thereof
as Additional Rent. The foregoing notwithstanding, Landlord shall make any
alteration or addition required to bring the Premises or the Common Area into
compliance with legal requirements in effect at the time the Premises, any
improvements installed therein by Landlord (excluding the improvements
identified on Exhibit "C-2"), or the Common Area, respectively, were originally
constructed. With respect to any structural alterations or additions as may be
hereafter required due to a change in laws and unrelated to Tenant's specific
use of the Premises or the Common Area or Tenant's alterations to the Premises,
Tenant shall not be responsible for the cost thereof. Tenant shall obtain prior
to taking possession of the Promises any permits, licenses or other
authorizations required for the lawful operation of its business at the
Premises. The judgment of any court of competent jurisdiction or the admission
of Tenant in any action or proceeding against Tenant, regardless of whether
Landlord is a party thereto or not, that Tenant has violated such Law or
recorded document relating to Tenant's particular use or occupancy of the
Premises shall be conclusive of the fact of such violation by Tenant. Any
alterations or additions undertaken by Tenant pursuant to this Paragraph 6.2
shall be subject to the requirements of Paragraph 13.1 below.
-8-
<PAGE>
6.3 Prohibited Uses. Tenant and Tenant's agents shall not commit or
---------------
suffer to be committed any waste upon the Premises. Tenant and Tenant's agents
shall not do or permit anything to be done in or about the Premises or Common
Area which will in any way obstruct or interfere with the rights of any other
tenants of the Building, other authorized users of the Common Area, or occupants
of neighboring property, or injure or annoy them. Tenant and Tenant's agents
shall not use or allow the Premises to be used for any unlawful, immoral or
hazardous purpose or any purpose not permitted by this Lease, nor shall Tenant
or Tenant's agents cause, maintain, or permit any nuisance in, on or about the
Premises. Tenant and Tenant's agents shall not do or permit anything to be done
in or about the Premises nor bring or keep anything in the Premises which will
in any way increase the rate of any insurance upon any portion of the Project or
any of its contents, or cause a cancellation of any insurance policy covering
any portion of the Project or any of its contents, nor shall Tenant or Tenant's
agents keep, use or sell or permit to be kept, used or sold in or about the
Premises any articles which may be prohibited by a standard form policy of fire
insurance. In the event the rate of any insurance upon any portion of the
Project or any of its contents is increased because of Tenant's particular use
of the Premises or that of Tenant's agents, Tenant shall pay, as Additional
Rent, the full cost of such increase; provided, however this provision shall in
no event be deemed to constitute a waiver of Landlord's right to declare a
default hereunder by reason of the act or conduct of Tenant causing such
increase or of any other rights or remedies of Landlord in connection therewith.
Tenant and Tenant's agents shall not place any loads upon the floor, walls or
ceiling of the Premises which would endanger the Building or the structural
elements thereof or of the Premises, nor place any harmful liquids in the
drainage system of the Building or Common Area. No waste materials or refuse
shall be dumped upon or permitted to remain upon any part of the Project except
in enclosed trash containers designated for that purpose by Landlord. No
materials, supplies, equipment, finished products (or semifinished products),
raw materials, or other articles of any nature shall be stored upon, or be
permitted to remain on, any portion of the Project outside the Premises.
6.4 Hazardous Materials. Neither Tenant nor Tenant's agents shall
-------------------
permit the introduction, placement, use, storage, manufacture, transportation,
release or disposition (collectively "Release") of any Hazardous Material(s)
(defined below) on or about any portion of the Premises, Building or Project
without the prior written consent of Landlord, which consent may be withheld in
the sole and absolute discretion of Landlord without any requirement of
reasonableness in the exercise of that discretion. Notwithstanding the
immediately preceding sentence to the contrary, Tenant may use de minimis
quantities of the types of materials which are technically classified as
Hazardous Materials but commonly used in domestic or office use to the extent
not in an amount, which, either individually or cumulatively, would be a
"reportable quantity" under any applicable Law. Tenant covenants
-9-
<PAGE>
that, at its sole cost and expense, Tenant will comply with all applicable Laws
with respect to the Release by Tenant, its agents, employees, contractors or
invitees of such permitted Hazardous Materials. Any Release beyond the scope
allowed in this paragraph shall be subject to Landlord's prior consent, which
may be withheld in Landlord's sole and absolute discretion, and shall require an
amendment to the Lease in the event Landlord does consent which shall set forth
the materials, scope of use, indemnification and any other matter required by
Landlord in Landlord's sole and absolute discretion. Tenant shall indemnify,
defend and hold Landlord and Landlord's agents harmless from and against any and
all claims, losses, damages, liabilities, or expenses arising in connection with
the Release of Hazardous Materials in violation of Hazardous Materials Laws by
Tenant, Tenant's agents or any other person using the Premises with Tenant's
knowledge and consent or authorization. Tenant's obligation to defend, hold
harmless and indemnify pursuant to this Paragraph 6.4 shall survive Lease
Termination.
The foregoing indemnity shall not apply to, and Tenant shall not be
responsible for, the presence of Hazardous Materials on, under, or about the
Premises, Building, or Project to the extent caused by any third parties or by
Landlord or Landlord's employees, agents, contractors or invitees.
Notwithstanding anything to the contrary contained in this Lease,
Landlord hereby represents and warrants to Tenant that, to the best of
Landlord's knowledge, (i) the Premises, the Building, and Project are in
compliance with all laws regarding Hazardous Materials ("Hazardous Materials
Laws"); (ii) no asbestos-containing materials exist in or on the Premises, the
Building, or Project; and (iii) any handling, transportation, storage or use of
Hazardous Materials that occurred in the Premises, the Building, or Project
prior to the Commencement Date is now in compliance with all Hazardous
Materials Laws. Landlord further represents and warrants that, to the best of
Landlord's knowledge, no litigation has been brought or threatened, nor any
settlements reached with any governmental or private party, concerning the
actual or alleged presence of Hazardous Materials on or about the Premises,
Building, or Project, nor has Landlord received any notice of any violation, or
alleged violation, of any Hazardous Materials Laws, pending claims or pending
investigations with respect to the presence of Hazardous Materials on or about
the Premises, Building, or Project. Landlord's representations and warranties
set forth in this paragraph shall survive termination of this Lease.
As used in this Lease, the term "Hazardous Materials" means any
chemical, substance, waste or material which has been or is hereafter determined
by any federal, state or local governmental authority to be capable of posing
risk of injury to health or safety, including without limitation, those
substances included within the definitions of "hazardous substances," "hazardous
materials," "toxic substances," or "solid waste" under the Comprehensive
Environmental Response, Compensation, and Liability
-10-
<PAGE>
Act of 1980, the Resource Conservation and Recovery Act of 1976, and the
Hazardous Materials Transportation Act, as amended, and in the regulations
promulgated pursuant to said laws; those substances defined as "hazardous
wastes" in section 25117 of the California Health & Safety Code, or as
"hazardous substances" in section 25316 of the California Health & Safety Code,
as amended, and in the regulations promulgated pursuant to said laws; those
substances listed in the United States Department of Transportation Table (49
CFR 172.101 and amendments thereto) or designated by the Environmental
Protection Agency (or any successor agency) as hazardous substances (see, e.g.,
--- ----
40 CFR Part 302 and amendments thereto); such other substances, materials and
wastes which are or become regulated or become classified as hazardous or toxic
under any Laws, including without limitation the California Health & Safety
Code, Division 20, and Title 26 of the California Code of Regulations; and any
material, waste or substance which is (i) petroleum, (ii) asbestos, (iii)
polychlorinated biphenyls, (iv) designated as a "hazardous substance" pursuant
to section 311 of the Clean Water Act of 1977, 33 U.S.C. sections 1251 et seq.
-- ---
(33 U.S.C. (S)1321) or listed pursuant to section 307 of the Clean Water Act of
1977 (33 U.S.C. (S)1317), as amended; (v) flammable explosives; (vi) radioactive
materials; or (vii) radon gas.
7. Taxes.
-----
7.1 Personal Property Taxes. Tenant shall cause Tenant's trade
-----------------------
fixtures, equipment, furnishings, furniture, merchandise, inventory, machinery,
appliances and other personal property installed or located on the Premises
(collectively the "personal property") to be assessed and billed separately from
the Land and the Building. Tenant shall pay before delinquency any and all
taxes, assessments and public charges levied, assessed or imposed upon or
against Tenant's personal property. If any of Tenant's personal property shall
be assessed with the Land or the Building, Tenant shall pay to Landlord, as
Additional Rent, the amounts attributable to Tenant's personal property within
twenty (20) days after receipt of a written statement from Landlord setting
forth the amount of such taxes, assessments and public charges attributable to
Tenant's personal property. Tenant shall comply with the provisions of any Law
which requires Tenant to file a report of Tenant's personal property located on
the Premises.
7.2 Other Taxes Payable Separately by Tenant. Tenant shall pay (or
----------------------------------------
reimburse Landlord, as Additional Rent, if Landlord is assessed), prior to
delinquency or within thirty (30) days after receipt of Landlord's statement
thereof, any and all taxes, levies, assessments or surcharges payable by
Landlord or Tenant and relating to this Lease or the Premises (other than
Landlord's net income, succession, transfer, gift, franchise, estate or
inheritance taxes, and Taxes, as that term is defined in Paragraph 7.3(a) below,
payable as a Common Area Charge), whether or not now customary or within the
contemplation of the parties hereto, whether or not now in force or which may
hereafter become effective, including but not limited to taxes:
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<PAGE>
(a) Upon, allocable to, or measured by the area of the Premises
or the Rentals payable hereunder, including without limitation any gross
rental receipts, excise, or other tax levied by the state, any political
subdivision thereof, city or federal government with respect to the receipt
of such Rentals;
(b) Upon or with respect to the use, possession occupancy,
leasing, operation and management of the Premises or any portion thereof;
(c) Upon this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises; or
(d) Imposed as a means of controlling or abating environmental
pollution or the use of energy or any natural resource (including without
limitation gas, electricity or water), including, without limitation, any
parking taxes, levies or charges or vehicular regulations imposed by any
governmental agency. Tenant shall also pay, prior to delinquency, all
privilege, sales, excise, use, business, occupation, or other taxes,
assessments, license fees, or charges levied, assessed or imposed upon
Tenant's business operations conducted at the Premises.
7.3 Common Taxes.
------------
(a) Definition of Taxes. The term "Taxes" as used in this Lease
-------------------
shall collectively mean (to the extent any of the following are not paid by
Tenant pursuant to Paragraphs 7.1 and 7.2 above) all real estate taxes and
general and special assessments (including, but not limited to, assessments
for public improvements or benefit); personal property taxes; taxes based
on vehicles utilizing parking areas on the Land; taxes computed or based on
rental income or on the square footage of the Premises or the Building
(including without limitation any municipal business tax but excluding
federal, state and municipal net income taxes); environmental surcharges;
excise taxes; gross rental receipts taxes; sales and/or use taxes; employee
taxes; water and sewer taxes, levies, assessments and other charges in the
nature of taxes or assessments (including, but not limited to, assessments
for public improvements or benefit); and all other governmental,
quasi-governmental or special district impositions of any kind and nature
whatsoever; regardless of whether any of the foregoing are now customary or
within the contemplation of the parties hereto and regardless of whether
resulting from increased rate and/or valuation, or whether extraordinary or
ordinary, general or special, unforeseen or foreseen, or similar or
dissimilar to any of the foregoing and which during the Lease Term are
laid, levied, assessed or imposed upon Landlord and/or become a lien upon
or chargeable against any portion of the Project under or by virtue of any
present or future laws, statutes, ordinances, regulations, or other
requirements of any governmental, quasi-governmental or special district
authority whatsoever. The term "environmental
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<PAGE>
surcharges" shall include any and all expenses, taxes, charges or penalties
imposed by the Federal Department of Energy, Federal Environmental Protection
Agency, the Federal Clean Air Act, or any regulations promulgated thereunder, or
imposed by any other local, state or federal governmental agency or entity now
or hereafter vested with the power to impose taxes, assessments or other types
of surcharges as a means of controlling or abating environmental pollution or
the use of energy or any natural resource in regard to the use, operation or
occupancy of the Project. The term "Taxes" shall include (to the extent the same
are not paid by Tenant pursuant to Paragraphs 7.1 and 7.2 above), without
limitation, all taxes, assessments, levies, fees, impositions or charges levied,
imposed, assessed, measured, or based in any manner whatsoever upon or with
respect to the use, possession, occupancy, leasing, operation or management of
the Project or in lieu of or equivalent to any Taxes set forth in this Paragraph
7.3(a). Notwithstanding anything to the contrary contained in this Lease, Tenant
shall not be required to pay any portion of any tax or assessment (i) in excess
of the amount which would be payable if the tax or assessment were paid in
installments over the longest possible term; (ii) imposed on land and
improvements other than the Project; and (iii) any increases in such tax or
assessment occasioned by or relating to a voluntary or involuntary change of
ownership or other conveyance of the Premises.
(b) Common Area Charge. All Taxes which are levied or assessed
------------------
or which become a lien upon any portion of the Project or which become due
or accrue during the Lease Term shall be a Common Area Charge, and Tenant
shall pay as Additional Rent each month during the Lease, Term 1/12th of
Tenant's percentage share of such Taxes, based on Landlord's estimate
thereof, pursuant to Paragraph 12 below. Tenant's share of Taxes during any
partial tax fiscal year(s) within the Lease Term shall be prorated
according to the ratio which the number of days during the Lease Term or of
actual occupancy of the Premises by Tenant, whichever is greater, during
such year bears to 365.
8. Insurance; Indemnity; Waiver.
----------------------------
8.1 Insurance by Landlord.
---------------------
(a) Landlord shall, during the Lease Term, procure and keep in
force the following insurance, the cost of which shall be a Common Area
Charge, payable by Tenant pursuant to Paragraph 12 below:
(i) Property Insurance. "All risk" property
------------------
insurance, including, without limitation, coverage for earthquake and
flood; boiler and machinery (if applicable); sprinkler damage; vandalism;
malicious mischief; full coverage plate glass insurance; and demolition,
increased cost of construction and contingent liability from change in
building laws on the Building and the Land, including any improvements or
fixtures constructed or installed in the Building and on the Land
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<PAGE>
by Landlord. The annual insurance cost (including earthquake insurance premium
costs) shall not increase more than ten percent (10%) per annum from the 4-1-94
to 3-31-95 insurance premium of $13,672.00. Such insurance shall be in the full
amount of the replacement cost of the foregoing, with reasonable deductible
amounts, which deductible amounts shall be a Common Area Charge, payable by
Tenant pursuant to Paragraph 12, but the amount of such deductible shall not
exceed two (2) times the deductible for Landlord's "all-risk" property
insurance. Such insurance shall also include rental income insurance, insuring
that one hundred percent (100%) of the Rentals (as the same may be adjusted
hereunder) will be paid to Landlord for a period of up to twelve (12) months if
the Premises are destroyed or damaged, or such longer period as may be required
by any beneficiary of a deed of trust or any mortgagee of any mortgage affecting
the Premises. Such insurance shall not cover any leasehold improvements
installed in the Premises by Tenant at its expense, or Tenant's equipment, trade
fixtures, inventory, fixtures or personal property located on or in the
Premises;
(ii) Liability Insurance. Comprehensive general
-------------------
liability (lessor's risk) insurance against any and all claims for personal
injury, death or property damage occurring in or about the Building or the Land.
Such insurance shall have a combined single limit of not less than Three Million
Dollars ($3,000,000) per occurrence and Five Million Dollars ($5,000,000)
aggregate; and
(iii) Other. Such other insurance as Landlord deems
-----
necessary and prudent.
8.2 Insurance by Tenant. Tenant shall, during the Lease Term, at
-------------------
Tenant's sole cost and expense, procure and keep in force the following
insurance:
(a) Personal Property Insurance. "All risk" property insurance,
---------------------------
including, without limitation, coverage for boiler and machinery (if
applicable); sprinkler damage; vandalism; malicious mischief; and demolition,
increased cost of construction and contingent liability from changes in
building laws on all leasehold improvements installed in the Premises by Tenant
at its expense (if any), and on all equipment, trade fixtures, inventory,
fixtures and personal property located on or in the Premises, including
improvements or fixtures hereinafter constructed or installed on the Premises.
Such insurance shall be in an amount equal to the full replacement cost of the
aggregate of the foregoing and shall provide coverage comparable to the coverage
in the standard ISO all risk form, when such form is supplemented with the
coverages required above.
(b) Liability Insurance. Comprehensive general liability
-------------------
insurance for the mutual benefit of Landlord and Tenant, against any and all
claims for personal injury, death or property damage occurring in or about the
Premises and Common Area or
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<PAGE>
arising out of Tenant's or Tenant's agents' use of the Common Area, use or
occupancy of the Premises or Tenant's operations on the Premises. Such
insurance shall have a combined single limit of not less than One Million
Dollars ($1,000,000) per occurrence and One Million Dollars ($1,000,000)
aggregate. Such insurance shall contain a cross-liability (severability of
interests) clause and an extended ("broad form") liability endorsement,
including blanket contractual coverage. Such liability insurance shall be
primary and not contributing to any insurance available to Landlord, and
Landlord's insurance (if any) shall be in excess thereto. Such insurance shall
specifically insure Tenant's performance of the indemnity, defense and hold
harmless agreements contained in Paragraph 8.4, although Tenant's obligations
pursuant to Paragraph 8.4 shall not be limited to the amount of any insurance
required of or carried by Tenant under this Paragraph 8.2(b). Tenant shall
be responsible for insuring that the amount of insurance maintained by Tenant is
sufficient for Tenant's purposes.
(c) Other. Such other insurance as required by law, including,
-----
without limitation, workers' compensation insurance.
(d) Form of the Policies. The policies required to be maintained
--------------------
by Tenant pursuant to Paragraphs 8.2(a), (b), and (c) above shall be with
companies, on forms, with deductible amounts (if any), and loss payable
clauses reasonably satisfactory to Landlord, shall include Landlord and the
beneficiary or mortgagee of any deed of trust or mortgage encumbering the
Premises and/or the Land as additional insureds, and shall provide that
such parties may, although additional insureds, recover for any loss
suffered by Tenant's negligence. Certified copies of policies or
certificates of insurance shall be delivered to Landlord prior to the
Commencement Date; a new policy or certificate shall be delivered to
Landlord at least ten (10) business days prior to the expiration date of
the old policy. Tenant shall have the right to provide insurance coverage
which it is obligated to carry pursuant to the terms hereof in a blanket
policy, provided such blanket policy expressly affords coverage to the
Premises and Common Area and to Tenant as required by this Lease. Tenant
shall obtain a written obligation on the part of Tenant's insurer(s) to
notify Landlord and any beneficiary or mortgagee of a deed of trust or
mortgage encumbering the Premises and/or the Land in writing of any
delinquency in premium payments and at least thirty (30) days prior to any
cancellation or modification of any policy. Tenant's policies shall provide
coverage on an occurrence basis and not on a claims made basis. In no event
shall the limits of any policies maintained by Tenant be considered as
limiting the liability of Tenant under this Lease.
8.3 Failure by Tenant to Obtain Insurance. If Tenant does not take
-------------------------------------
out the insurance required pursuant to Paragraph 8.2 or keep the same in full
force and effect, Landlord may, but shall not be obligated to, take out the
necessary insurance and pay the premium therefor, and Tenant shall repay to
Landlord, as Additional
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Rent, the amount so paid promptly upon demand. In addition, Landlord may recover
from Tenant and Tenant agrees to pay, as Additional Rent, any and all reasonable
expenses (including attorneys' fees) and damages which Landlord may sustain by
reason of the failure of Tenant to obtain and maintain such insurance, it being
expressly declared that the expenses and damages of Landlord shall not be
limited to the amount of the premiums thereon.
8.4 Indemnification. Tenant shall indemnify, hold harmless, and
---------------
defend Landlord with competent counsel reasonably satisfactory to Landlord
(except for Landlord's negligence or willful misconduct, or that of its agents,
employees, contractors or invitees) against all claims, losses, damages,
expenses or liabilities for injury or death to any person or for damage to or
loss of use of any property arising out of any occurrence in, on or about the
Building, Common Area or Land, if caused or contributed to by Tenant or Tenant's
agents, or arising out of any occurrence in, upon or at the Premises or on
account of the use, condition, occupational safety or occupancy of the Premises.
Tenant's indemnification, defense and hold harmless obligations under this Lease
shall include and apply to reasonable attorneys' fees, investigation costs, and
other costs actually incurred by Landlord. Tenant shall further indemnify,
defend and hold harmless Landlord from and against any and all claims, losses,
damages, liabilities or expenses arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease. The provisions of this Paragraph 8.4 shall survive Lease
Termination with respect to any damage, injury, death, breach or default
occurring prior to such termination. This Lease is made on the express condition
that Landlord shall not be liable for, or suffer loss by reason of, injury to
person or property, from whatever cause, in any way connected with the
condition, use, occupational safety or occupancy of the Premises specifically
including, without limitation, any liability for injury to the person or
property of Tenant or Tenant's agents, except to the extent caused by the
negligence or willful misconduct of Landlord, its agents, employees, contractors
or invitees. Notwithstanding anything to the contrary contained in this Lease,
Landlord shall not be released from, and shall indemnify, hold harmless and
defend Tenant for and against, any and all claims, losses, damages, expenses, or
liabilities for bodily injury or death to any person or for damage to any
property to the extent arising out of the negligence or wilful misconduct of
Landlord or its agents or employees; provided, however, such indemnification
obligation of Landlord shall not extend to or cover any claim by Tenant for lost
profits or loss of business.
8.5 Claims by Tenant. Landlord shall not be liable to Tenant, and
----------------
Tenant waives all claims against Landlord, for injury or death to any person,
damage to any property, or loss of use of any property in any portion of the
Project by and from all causes, including without limitation, any defect in any
portion of the Project and/or any damage or injury resulting from fire, steam,
electricity, gas, water or rain, which may leak or flow from or
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into any part of the Premises, or from breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, whether the damage or injury results from conditions arising
upon the Premises or upon other portions of the Project or from other sources.
Neither Landlord nor Tenant shall be liable for any damages arising from any act
or negligence of any other tenant or user of the Project. Tenant or Tenant's
agents shall immediately notify Landlord in writing of any known defect in the
Project. The provisions of this Paragraph 8.5 shall not apply to any damage or
injury caused by Landlord's willful misconduct or negligence, or that of its
agents, employees, contractors or invitees.
8.6 Mutual Waiver of Subrogation. Landlord hereby releases Tenant,
----------------------------
and Tenant hereby releases Landlord, and their respective officers, agents,
employees and servants, from any and all claims or demands of damages, loss,
expense or injury to the Project, or to the furnishings, fixtures, equipment,
inventory or other property of either Landlord or Tenant in, about or upon the
Project, which is caused by or results from perils, events or happenings which
are the subject of insurance carried by the respective parties pursuant to this
Paragraph 8 and in force at the time of any such loss, whether due to the
negligence of the other party or its agents and regardless of cause or origin;
provided, however, that such waiver shall be effective only to the extent
permitted by the insurance covering such loss, to the extent such insurance is
not prejudiced thereby, and to the extent insured against.
9. Utilities. Tenant shall pay during the Lease Term and prior to
---------
delinquency all charges for water, gas, light, heat, power, electricity,
telephone or other communication service, janitorial service, trash pickup,
sewer and all other services supplied to or consumed on the Premises
(collectively the "Services") and all taxes, levies, fees or surcharges
therefor. Tenant shall arrange for Services to be supplied to the Premises and
shall contract for all of the Services in Tenant's name prior to the
Commencement Date. The Commencement Date shall not be delayed by reason of any
failure by Tenant to so contract for Services. In the event that any of the
Services are not separately billed or metered to the Premises, or if any of the
Services are not separately metered as of the Commencement Date, the cost of
such Services shall be a common Area Charge and Tenant shall pay, as Additional
Rent, Tenant's proportionate share of such cost to Landlord as provided in
Paragraph 12 below, except that if any meter services less than the entire
Building, Tenant's proportionate share of the costs measured by such meter shall
be based upon the square footage of the gross leasable area in the Premises as a
percentage of the total square footage of the gross leasable area of the portion
of the Building serviced by such meter. If Landlord determines that Tenant is
using a disproportionate amount of any commonly metered Services or an amount in
excess of the customary amount of any Services ordinarily furnished for use of
the Premises in accordance with the uses set
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forth in Paragraph 6 above, then Landlord may elect to periodically charge
Tenant, as Additional Rent, a sum equal to Landlord's estimate of the cost of
Tenant's excess use of any or all such Services. The lack or shortage of any
Services due to any cause whatsoever shall not affect any obligation of Tenant
hereunder, and Tenant shall faithfully keep and observe all the terms,
conditions and covenants of this Lease and pay all Rentals due hereunder, all
without diminution, credit or deduction.
10. Repairs and Maintenance.
-----------------------
10.1 Landlord's Responsibilities. Subject to the provisions of
---------------------------
Paragraph 15 below, Landlord shall maintain in reasonably good order and repair
the structural roof, roof membrane and roof surface, structural and exterior
walls (including painting thereof) and foundations of the Building. In addition,
Landlord shall maintain the service contract (covering periodic inspection and
servicing) for the heating and air conditioning systems of the Premises. Tenant
shall give prompt written notice to Landlord of any known maintenance work
required to be made by Landlord pursuant to this Paragraph 10.1. The costs of
(i) repairs and maintenance of the roof surface and roof membrane, (ii) regular
servicing of the heating and air conditioning systems of the Premises, and (iii)
painting the exterior of the Premises, which are the obligation of Landlord
hereunder shall be a Common Area Charge and Tenant shall pay such costs to
Landlord as Additional Rent, as provided in Paragraph 12 below. The costs of
maintenance, repair and replacement of the structural parts of the Premises
(including foundations, floor slab, load bearing walls and roof structure),
which are the obligation of Landlord hereunder shall be at the cost and expense
of Landlord and shall not be a Common Area Charge, except for any repairs
required because of the wrongful act of Tenant or Tenant's agents, which repairs
shall be made at the expense of Tenant and as Additional Rent.
10.2 Tenant's Responsibilities. Except as expressly provided in
-------------------------
Paragraph 10.1 above, and subject to the provisions of Paragraph 2.3 hereof,
Tenant shall, at its sole' cost, maintain the entire Premises and every part
thereof, including without limitation, the windows, skylights, window frames,
plate glass, freight docks, doors and related hardware, interior walls and
partitions, and the electrical, plumbing, lighting, heating and air conditioning
systems in good order, condition and repair. Tenant's obligations with respect
to the heating and air conditioning systems of the Premises shall include the
replacement of components thereof. If Tenant fails to make repairs or perform
maintenance work required of Tenant hereunder within fourteen (14) days after
notice from Landlord specifying the need for such repairs or maintenance work,
Landlord or Landlord's agents may, in addition to all other rights and remedies
available hereunder or by law and without waiving any alternative remedies,
enter into the Premises and make such repairs and/or perform such maintenance
work. If Landlord makes such repairs and/or performs such maintenance work,
Tenant shall reimburse Landlord upon demand and as Additional Rent,
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for the cost of such repairs and/or maintenance work. Landlord shall have no
liability to Tenant for any damage, inconvenience or interference with the use
of the Premises by Tenant or Tenant's agents as a result of Landlord performing
any such repairs or maintenance. Tenant shall reimburse Landlord, on demand and
as Additional Rent, for the cost of damage to the Project caused by Tenant or
Tenant's agents. Tenant expressly waives the benefits of any statute now or
hereafter in effect (including without limitation the provisions of subsection 1
of Section 1932, Section 1941 and Section 1942 of the California Civil Code and
any similar law, statute or ordinance now or hereafter in effect) which would
otherwise afford Tenant the right to make repairs at Landlord's expense (or to
deduct the cost of such repairs from Rentals due hereunder) or to terminate this
Lease because of Landlord's failure to keep the Premises in good and sanitary
order.
11. Common Area.
-----------
11.1 In General. Subject to the terms and conditions of this Lease
----------
and such rules and regulations as Landlord may from time to time prescribe,
Tenant and Tenant's agents shall have, in common with other tenants of the
Building and other permitted users, the nonexclusive right to use during the
Lease Term the access roads, parking areas, sidewalks, landscaped areas and
other facilities on the Land or in the Building designated by Landlord for the
general use and convenience of the occupants of the Building and other
authorized users, which areas and facilities are referred to herein as the
"Common Area." This right to use the Common Area shall terminate upon Lease
Termination. Landlord reserves the right from time to time to make changes in
the shape, size, location, amount and extent of the Common Area, Notwithstanding
anything to the contrary contained in this Lease, if Landlord, whether
voluntarily of by mandate of public agency with jurisdiction over the Project,
makes any alteration, addition or change to the exterior of the Building or the
Common Areas (unless such alteration or addition is required due to an
alteration or addition made by Tenant to the Premises), Landlord will make the
alteration, addition or change at its sole cost and expense, and Tenant shall
not be obligated to reimburse Landlord for any part of such expense. Landlord
further reserves the right to promulgate such reasonable rules and regulations
relating to the use of all or any portion of the Common Area and to amend such
rules and regulations from time to time with or without advance notice, as
Landlord may deem appropriate for the best interests of the occupants of the
Building and other authorized users. Any amendments to the rules and regulations
shall be effective as to Tenant, and binding on Tenant, upon delivery of a copy
of such rules and regulations to Tenant. Tenant and Tenant's agents shall
observe such rules and regulations and any failure by Tenant or Tenant's agents
to observe and comply with the rules and regulations shall be a Default by
Tenant. Landlord shall not be responsible for the nonperformance of the rules
and regulations by any tenants or occupants of the Building or other authorized
users, nor shall Landlord be liable to Tenant by reason of the
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noncompliance with or violation of the rules and regulations by any other tenant
or user. Notwithstanding anything to the contrary contained in this Lease,
Tenant shall not be required to comply with any rule or regulation unless the
same applies nondiscriminatorily to all occupants of the Project, and does not
unreasonably interfere with Tenant's use of the Premises or Tenant's parking
rights.
11.2 Parking Areas. Tenant is allocated and Tenant and Tenant's
-------------
employees and invitees shall have the nonexclusive right to use not more than
the number of parking spaces set forth in Paragraph 1.13, the location of which
may be designated from time to time by Landlord. Neither Tenant nor Tenant's
agents shall at any time use more parking spaces than the number so allocated to
Tenant or park or permit the parking of their vehicles in any portion of the
Land not designated by Landlord as a nonexclusive parking use. Tenant and
Tenant's agents shall not have the exclusive right to use any specific parking
space. Notwithstanding the number of parking spaces designated for Tenant's
nonexclusive use, in the event by reason of any Law relating to or affecting
parking on the Land, or any other cause beyond Landlord's reasonable control,
Landlord is required to reduce the number of parking spaces on the Land,
Landlord shall have the right to proportionately reduce the number of Tenant's
parking spaces and the nonexclusive parking spaces of other tenants in the
Building. Landlord reserves the right to promulgate such reasonable rules and
regulations relating to the use of such parking areas on the Land as Landlord
may deem appropriate. Landlord furthermore reserves the right, after having
given Tenant reasonable notice, to have any vehicles owned by Tenant or Tenant's
agents which are parked in violation of the provisions of this Paragraph 11.2 or
in violation of Landlord's rules and regulations relating to parking, to be
towed away at Tenant's cost. In the event Landlord elects or is required by any
law to limit or control parking on the Land, by validation of parking tickets or
any other method, Tenant agrees to participate in such validation or other
program under such reasonable rules and regulations as are from time to time
established by Landlord. Landlord shall have the right to close, at reasonable
times, all or any portion of the parking areas for any reasonable purpose,
including without limitation, the prevention of a dedication thereof, or the
accrual of rights of any person or public therein. Tenant and Tenant's agents
shall not at any time park or permit the parking of (i) trucks or other vehicles
(whether owned by Tenant or other persons) adjacent to any loading areas so as
to interfere in any manner with the use of such areas, (ii) Tenant's or Tenant's
agents' vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or
others, in any portion of the Common Area not designated by Landlord for such
use by Tenant, or (iii) any inoperative vehicles or equipment on any portion of
the Common Area.
11.3 Maintenance by Landlord. Landlord shall operate, manage and
-----------------------
maintain the Common Area. The manner in which the Common Area shall be
maintained and the expenditures for such
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maintenance shall be at the reasonable discretion of Landlord. The cost of such
maintenance, operation and management shall be a "Common Area Charge," and
Tenant shall pay to Landlord, as Additional Rent, Tenant's share of such costs
as provided in Paragraph 12 below.
12. Common Area Charges.
-------------------
12.1 Definition. "Common Area Charge" or "Common Area Charges" as
----------
used in this Lease shall mean and include all items identified in other
paragraphs of this Lease as a Common Area Charge and the total cost paid or
incurred by Landlord for the operation, maintenance, repair, and management of
the Project which costs shall include, without limitation: the cost of Services
and utilities supplied to the Project (to the extent the same are not separately
charged or metered to tenants of the Building); water; sewage; trash removal;
fuel; electricity; heat; lighting systems; fire protection systems; storm
drainage and sanitary sewer systems; HVAC including air conditioning (to the
extent the heating and air conditioning systems in the Building are not
maintained by tenants of the Building at such tenants' sole cost and expense);
repairing or replacing the roof membrane and roof surface (including repair of
leaks and resurfacing); property and liability insurance covering the Building
and the Land and any other insurance carried by Landlord pursuant to Paragraph 8
above; window cleaning; cleaning, sweeping, striping, resurfacing of parking and
driveway areas; cleaning the Common Area following storms or other severe
weather; cleaning and repairing of sidewalks, curbs, stairways; costs related to
irrigation systems and Project signs; fees for licenses and permits required for
the operation of the Project; the cost of complying with Laws, including,
without limitation, maintenance, alterations and repairs required in connection
therewith (subject to the provisions of Paragraph 12.3 hereof); costs related to
landscape maintenance; and the cost of contesting the Validity or applicability
of any governmental enactments which may affect Common Area Charges. If the
Project contains more than one (1) building at any time during the Lease Term,
then the term "Common Area Charges" shall mean and include all of the Common
Area Charges allocable to the Building and a proportionate share (based on the
square footage of gross leasable area in the Building as a percentage of the
total of square footage of gross leasable area of the buildings in the Project
at the time in question) of all Common Area Charges which are related to the
Project in general and are not allocated to any one building in the Project.
Common Area Charges shall also include a management fee to Landlord in an amount
equal to ten percent (10%) of the total Common Area Charges. The cost of (i)
capital repair items (i.e., items which Landlord is required to capitalize and
not expense in the current year for federal income tax purposes), (ii)
replacement of the roof membrane or roof surface, (iii) resurfacing the parking
lot, (iv) repainting the exterior of the Building, and (v) structural
alterations or additions required due to a change in laws and unrelated to
Tenant's specific use of the Premises or the Common Area, shall be amortized at
ten percent (10%) over the useful life of the repair
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or item, and be paid monthly by Tenant from the date of installation or repair
through Lease Termination. The specific examples of Common Area Charges stated
in this Paragraph 12.1 are in no way intended to and shall not limit the costs
comprising Common Area Charges, nor shall such examples be deemed to obligate
Landlord to incur such costs or to provide such services or to take such actions
except as Landlord may be expressly required in other portions of this Lease, or
except as Landlord, in its reasonable discretion, may elect. All costs incurred
by Landlord in good faith for the operation, maintenance, repair and management
of the Project shall be deemed conclusively binding on Tenant. Notwithstanding
anything to the contrary contained in this Lease, within thirty (30) days after
receipt by Tenant of Landlord's statement of Common Area Charges prepared
pursuant to Paragraph 12.2 hereof for any prior calendar year during the Term,
Tenant or its authorized representative shall have the right to inspect the
books of Landlord during the business hours of Landlord at Landlord's office in
the Building or, at Landlord's option, such other location as Landlord
reasonably may specify, for the purpose of verifying the information contained
in the statement. Unless Tenant asserts specific errors within thirty (30) days
after receipt of the statement, the statement shall be deemed correct as between
Landlord and Tenant, except as to individual components subsequently determined
to be in error by future audit.
12.2 Payment of Common Area Charges by Tenant. Tenant shall pay to
----------------------------------------
Landlord, as Additional Rent and without deduction or offset, an amount equal to
Tenant's percentage share (stated in Paragraph 1.10 above) of the Common Area
Charges. Payment of Common Area Charges by Tenant shall be made by whichever of
the following methods is from time to time designated by Landlord, and Landlord
reasonably may change the method of payment at any time. Tenant's share of
Common Area Charges actually incurred or paid by Landlord but not theretofore
billed to Tenant, as invoiced by Landlord shall be payable by Tenant within ten
(10) days after receipt of Landlord's invoice, but not more often than once each
calendar month. Alternatively, Tenant's share of Common Area Charges shall be
based upon Landlord's estimate of Common Area Charges and Tenant's share shall
be payable in equal monthly installments in advance on the first day of each
calendar month commencing with the month following receipt of Landlord's
estimate (and subject to Landlord's right to change the method of payment)
Within ninety (90) days after the end of each calendar year (or at Lease
Termination) Landlord shall furnish Tenant a statement showing the actual Common
Area Charges for the period to which Landlord's estimate pertains and shall
concurrently either bill Tenant for the balance due (payable upon demand by
Landlord) or credit Tenant's account for the excess previously paid.
Notwithstanding the foregoing provisions of this Paragraph 12, Landlord and
Tenant agree that if Landlord incurs any costs for insurance, Services, repairs
or maintenance exclusively for or to the Premises or for less than all the
tenants of the Building and such costs are Common Area Charges, or if any
improvements installed in the Premises by Tenant or Landlord are valued by the
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assessor disproportionately higher than those of any other tenants in the
Building, then Tenant's share of such Common Area Charges shall be equitably
increased by Landlord to reflect the portion of any such costs or taxes incurred
by Landlord in regard to the Premises, and Tenant shall pay the same to Landlord
as Additional Rent.
12.3 Exclusions From Common Area Charges. Notwithstanding anything to
-----------------------------------
the contrary contained in this Lease, in no event shall Tenant have any
obligation to perform, to pay directly, or to reimburse Landlord for, all or any
portion of the following repairs, maintenance, improvements, replacements,
premiums, claims, losses, fees, commissions, charges, disbursements, attorneys'
fees, experts' fees, costs and expenses (collectively, "Costs").
(a) Losses Caused by Others and Construction Defects. Costs
------------------------------------------------
occasioned by the act, omission or violation of Law by Landlord, any other
occupant of the Project, or their respective agents, employees or
contractors, or Costs to correct any construction defect in the Premises
(other than alterations constructed by Tenant), Building or Project, or
costs arising out of the failure to construct the Building, Premises,
tenant improvements (other than the improvements identified on Exhibit "C-
2") or Common Areas in accordance with Laws and private restrictions
applicable at the time of construction thereof.
(b) Condemnation and Insurance Costs. Costs occasioned by the
--------------------------------
exercise of the power of eminent domain, or increases in insurance Costs
caused by the activities of other occupant(s) of the Project.
(c) Reimbursable Expenses. Costs for which Landlord has a right of
---------------------
reimbursement from others, or Costs which Tenant pays directly to a third
person.
(d) Utilities or Services. Costs (i) arising from the
---------------------
disproportionate use of any utility or service supplied by Landlord to any
other occupant of the Project; or (ii) associated with utilities and
services of a type not provided to Tenant.
(e) Leasing Expenses. Costs incurred in connection with negotiations
----------------
or disputes with other occupant(s) of the Project, and Costs arising from
the violation by Landlord or any occupant of the Project (other than
Tenant) of the terms and conditions of any lease or other agreement.
(f) Reserves. Depreciation, amortization or other expense reserves.
--------
(g) Mortgages. Interest, charges and fees incurred on debt, payments
---------
or mortgages and rent under ground leases.
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(h) Hazardous Materials. Costs incurred to investigate the presence
-------------------
of any Hazardous Material, Costs to respond to any claim of Hazardous
Material contamination or damage, Costs to remove any Hazardous Material
from the Premises, Building or Project or to remediate any Hazardous
Material contamination, and any judgments or other Costs incurred in
connection with any Hazardous Material exposure or release, except to the
extent such Costs are caused by or incurred by reason of the storage, use
or disposal of the Hazardous Material in question by Tenant, its agents,
employees, contractors or invitees.
(i) Management. Wages, salaries, compensation and labor burden for
----------
any employee not stationed on the Project on a full-time basis, or any fee,
profit or compensation retained by Landlord or its affiliates for
management and administration of the Project in excess of ten percent (10%)
of Common Area Charges.
(j) Amortization of Capital Improvements Required by Law. Costs for
----------------------------------------------------
capital improvements required by Law that do not relate solely to Tenant's
particular use or occupancy of the Premises, and Costs of retrofitting any
part of the Project, other than the Premises, in order to comply with the
ADA in connection with the leasing or alteration of portions of the Project
other than the Premises.
13. Alterations and Improvements.
----------------------------
13.1 In General. Tenant shall not make, or permit to be made,
----------
any alterations, changes, enlargements, improvements or additions (collectively
"Alterations") in excess of Five Thousand Dollars ($5,000) in, on, about or to
the Premises, or any part thereof, without the prior written consent of
Landlord (which shall not be unreasonably withheld or delayed) and without
acquiring and complying with the conditions of all permits required for such
Alterations by any governmental authority having jurisdiction thereof. The term
"Alterations" as used in this Paragraph 13 shall also include all heating,
lighting, electrical (including all wiring, conduit outlets, drops, buss ducts,
main and subpanels), air conditioning and partitioning in the Premises made by
Tenant regardless of how affixed to the Premises. As a condition to the giving
of its consent, Landlord may impose such reasonable requirements as Landlord
reasonably may deem necessary in its sole discretion, including without
limitation, the manner in which the work is done; a right of approval of the
contractor by whom the work is to be performed; the times during which the work
is to be accomplished; the requirement that Tenant post a completion bond in an
amount and form reasonably satisfactory to Landlord; and the requirement that
Tenant reimburse Landlord, as Additional Rent, for Landlord's actual costs
incurred in reviewing any proposed Alteration, whether or not Landlord's consent
is granted. In the event Landlord consents to the making of any Alterations by
Tenant, the same shall be made by Tenant at Tenant's sole cost and expense, in
accordance with the plans and specifications approved by Landlord and in a
manner causing Landlord and Landlord's agents and
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other tenants of the Building the least interference and inconvenience
practicable under the circumstances. Tenant shall give written notice to
Landlord five days prior to employing any laborer or contractor to perform
services related to, or receiving materials for use upon the Premises, and prior
to the commencement of any work of improvement on the Premises. Any Alterations
to the Premises made by Tenant shall be made in accordance with applicable Laws
and in a first-class workmanlike manner. In making any such Alterations, Tenant
shall, at Tenant's sole cost and expense, file for and secure and comply with
any and all permits or approvals required by any governmental departments or
authorities having jurisdiction thereof and any utility company having an
interest therein. In no event shall Tenant make any structural changes to the
Premises or make any changes to the Premises which would weaken or impair the
structural integrity of the Building.
13.2 Removal Upon Lease Termination. At the time Tenant requests
------------------------------
Landlord's consent, Tenant shall request a decision from Landlord in writing as
to whether Landlord will require Tenant, at Tenant's expense, to remove any such
Alterations and restore the Premises to their prior condition at Lease
Termination. In the event Tenant fails to earlier obtain Landlord's written
decision as to whether Tenant will be required to remove any Alteration, or in
the event Landlord elects to defer such decision, then no less than ninety (90)
nor more than one hundred twenty (120) days prior to the expiration of the Lease
Term, Tenant by written notice to Landlord shall request Landlord to inform
Tenant whether or not Landlord desires to have any Alterations made to the
Premises by Tenant removed at Lease Termination. Following receipt of such
notice, Landlord may elect to have all or a portion of Tenant's Alterations
removed from the Premises at Lease Termination, and Tenant shall, at its sole
cost and expense, remove at Lease Termination such Alterations designated by
Landlord for removal and repair all damage to the Project arising from such
removal. In the event Tenant fails to so request Landlord's decision or fails to
remove any Alterations designated by Landlord for removal, Landlord may remove
any Alterations made to the Premises by Tenant and repair all damage to the
Premises and Common Area arising from such removal, and may recover from Tenant
all reasonable costs and expenses incurred thereby. Tenant's obligation to pay
such costs and expenses to Landlord shall survive Lease Termination. Unless
Landlord elects to have Tenant remove any such Alterations, all such
Alterations, except for moveable furniture and trade fixtures of Tenant not
affixed to the Premises, shall become the property of Landlord upon Lease
Termination (without any payment therefor) and remain upon and be surrendered
with the Premises at Lease Termination.
13.3 Landlord's Improvements. All fixtures, improvements or
-----------------------
equipment which are installed, constructed on or attached to the Premises,
Building or Common Area by Landlord shall be a part of the realty and belong to
Landlord.
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14. Default and Remedies.
--------------------
14.1 Events of Default. The term "Default by Tenant" as used
-----------------
in this Lease shall mean the occurrence of any of the following events:
(a) Tenant's failure to pay when due any Rentals;
(b) Commencement and continuation for at least sixty
(60) days of any case, action or proceeding by, against or concerning
Tenant under any federal or state bankruptcy, insolvency or other debtor's
relief law, including without limitation, (i) a case under Title 11 of the
United States Code concerning Tenant, whether under Chapter 7, 11, or 13 of
such Title or under any other Chapter, or (ii) a case, action or proceeding
seeking Tenant's financial reorganization or an arrangement with any of
Tenant's creditors;
(c) Voluntary or involuntary appointment of a receiver,
trustee, keeper or other person who takes possession for more than sixty
(60) days of substantially all of Tenant's assets or of any asset used in
Tenant's business on the Premises, regardless of whether such appointment
is as a result of insolvency or any other cause;
(d) Execution of an assignment for the benefit of
creditors of substantially all assets of Tenant available by law for the
satisfaction of judgment creditors;
(e) Commencement of proceedings for winding up or
dissolving (whether voluntary or involuntary) the entity of Tenant, if
Tenant is a corporation or a partnership;
(f) Levy of a writ of attachment or execution on
Tenant's interest under this Lease, if such writ continues for a period of
thirty (30) days;
(g) Transfer or attempted Transfer of this Lease or the
Premises by Tenant contrary to the provisions of Paragraph 24 below; or
(h) Breach by Tenant of any term, covenant, condition,
warranty, or other provision contained in this Lease or of any other
obligation owing or due to Landlord.
14.2 Remedies. Upon any Default by Tenant, Landlord shall
--------
have the following remedies, in addition to all other rights and remedies
provided by law, to which Landlord may resort cumulatively, or in the
alternative:
14.2.1 Termination. Upon any Default by Tenant,
-----------
Landlord shall give written notice to Tenant of such default and shall have the
right (but not the obligation) to
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terminate this Lease and Tenant's right to possession of the Premises if (i)
such default is in the payment of Rentals and is not cured within five (5) days
after any such notice, or, (ii) with respect to the defaults referred to in
subparagraphs 14.1(d), (e), (g) and (h), and such default is not cured within
thirty (30) days after any such notice (or if a default under subparagraph
14.1(h) cannot be reasonably cured within thirty (30) days, if Tenant does not
commence to cure the default within the thirty (30) day period or does not
diligently and in good faith prosecute the cure to completion), or, (iii) with
respect to the defaults specified in subparagraphs 14.1(b), (c) and (f) such
default is not cured within the respective time periods specified in those
subparagraphs. The parties agree that any notice given by Landlord to Tenant
pursuant to this Paragraph 14.2.1 shall be sufficient notice for purposes of
California Code of Civil Procedure Section 1161 and Landlord shall not be
required to give any additional notice in order to be entitled to commence an
unlawful detainer proceeding. Upon termination of this Lease, Landlord shall
have the right to recover from Tenant:
(a) The worth at the time of award of the unpaid
Rentals which had been earned at the time of termination;
(b) The worth at the time of award of the amount by
which the Rentals which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided;
(c) The worth at the time of award (computed by
discounting at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent) of the amount by which the
Rentals for the balance of the Lease Term after the time of award exceed
the amount of such rental loss that Tenant proves could be reasonably
avoided;
(d) Any other amounts necessary to compensate Landlord
for all detriment proximately caused by the Default by Tenant or which in
the ordinary course of events would likely result, including without
limitation the following:
(i) Expenses in retaking possession of the
Premises;
(ii) Expenses for cleaning, repairing or restoring
the Premises;
(iii) Any unamortized real estate brokerage
commission paid in connection with this Lease;
(iv) Expenses for removing, transporting, and
storing any of Tenant's property left at the Premises (although Landlord shall
have no obligation to remove,
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<PAGE>
transport, or store any such property);
(v) Expenses of reletting the Premises,
including without limitation, brokerage commissions and attorneys' fees;
(vi) Attorneys' fees and court costs; and
(vii) Costs of carrying the Premises such as
repairs, maintenance, taxes and insurance premiums, utilities and security
precautions (if any).
(e) The "worth at the time of award" of the amounts
referred to in subparagraphs (a) and (b) of this Paragraph 14.2.1 is
computed by allowing interest at an annual rate equal to the greater of:
ten percent (10%); or five percent (5%) plus the rate established by the
Federal Reserve Bank of San Francisco, as of the twenty-fifth (25th) day of
the month immediately preceding the Default by Tenant, on advances to
member banks under Sections 13 and 13(a) of the Federal Reserve Act, as now
in effect or hereafter from time to time amended, not to exceed the maximum
rate allowable by law.
14.2.2 Continuance of Lease. Upon any Default by Tenant and
--------------------
unless and until Landlord elects to terminate this Lease pursuant to Paragraph
14.2.1 above, this Lease shall continue in effect after the Default by Tenant
and Landlord may enforce all its rights and remedies under this Lease, including
without limitation, the right to recover payment of Rentals as they become due.
Neither efforts by Landlord to mitigate damages caused by a Default by Tenant
nor the acceptance of any Rentals shall constitute a waiver by Landlord of any
of Landlord's rights or remedies, including the rights and remedies specified in
Paragraph 14.2.1 above.
15. Damage or Destruction.
---------------------
15.1 Definition of Terms. For the purposes of this Lease, the
-------------------
term: (a) "Insured Casualty" means damage to or destruction of the Premises from
a cause actually insured against, or required by this Lease to be insured
against, for which the insurance proceeds paid or made available to Landlord are
sufficient to rebuild or restore the Premises under then existing building codes
to the condition existing immediately prior to the damage or destruction; and
(b) "Uninsured Casualty" means damage to or destruction of the Premises from a
cause not actually insured against, or not required to be insured against, or
from a cause actually insured against but for which the insurance proceeds paid
or made available to Landlord are for any reason insufficient to rebuild or
restore the Premises under then existing building codes to the condition
existing immediately prior to the damage or destruction, or from a cause
actually insured against but for which the insurance proceeds are not paid or
made available to Landlord
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<PAGE>
within ninety (90) days of the event of damage or destruction.
15.2 Insured Casualty.
----------------
15.2.1 Rebuilding Required. In the event of an Insured Casualty
-------------------
where the extent of damage or destruction is less than twenty-five percent (25%)
of the then full replacement cost of the Premises, Landlord shall rebuild or
restore the Premises to the condition existing immediately prior to the damage
or destruction, provided the damage or destruction was not a result of a
negligent or willful act of Tenant, and that there exist no governmental codes
or regulations that would interfere with Landlord's ability to so rebuild or
restore.
15.2.2 Landlord's Election. In the event of an Insured Casualty
-------------------
where the extent of damage or destruction is equal to or greater than twenty-
five percent (25%) of the then full replacement cost of the Premises, Landlord
may, at its option and at its sole discretion, rebuild or restore the Premises
to the condition existing immediately prior to the damage or destruction, or
terminate this Lease. Landlord shall notify Tenant in writing within sixty (60)
days after the event of damage or destruction of Landlord's election to either
rebuild or restore the Premises or terminate this Lease.
15.2.3 Continuance of Lease. If Landlord is required to rebuild
--------------------
or restore the Premises pursuant to Paragraph 15.2.1 or if Landlord elects to
rebuild or restore the Premises pursuant to Paragraph 15.2.2, this Lease shall
remain in effect and Tenant shall have no claim against Landlord for
compensation for inconvenience or loss of business during any period of repair
or restoration.
15.3 Uninsured Casualty.
------------------
15.3.1 Landlord's Election. In the event of an Uninsured
-------------------
Casualty, Landlord may, at its option and at its sole discretion (i) rebuild or
restore the Premises as soon as reasonably possible at Landlord's expense
(unless the damage or destruction was caused by a negligent or willful act of
Tenant, in which event Tenant shall pay all costs of rebuilding or restoring),
in which event this Lease shall continue in full force and effect or (ii)
terminate this Lease, in which event Landlord shall give written notice to
Tenant within sixty (60) days after the event of damage or destruction of
Landlord's election to terminate this Lease as of the date of the event of
damage or destruction, and if the damage or destruction was caused by a
negligent or willful act of Tenant, Tenant shall be liable therefor to Landlord.
15.3.2 Tenant's Ability to Continue Lease. If Landlord elects
----------------------------------
to terminate this Lease and the extent of damage or destruction is less than
twenty-five percent (25%) of the then full replacement cost of the Premises or
the proceeds paid or made available to Landlord are for any reason insufficient
to rebuild
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<PAGE>
or restore the Premises under then existing building codes to the condition
existing immediately prior to the damage or destruction, and if there exist no
governmental codes or regulations that would interfere with Landlord's ability
to so repair or restore, then Tenant may nevertheless cause the Lease to
continue in effect by (i) notifying Landlord in writing within ten (10) days
after Landlord's notice of termination of Tenant's agreement to pay all costs of
rebuilding or restoring not covered by insurance, and (ii) providing Landlord
with reasonable security for or assurance of such payment. Tenant shall pay to
Landlord in cash no later than thirty (30) days prior to the date of
commencement of construction the reasonable estimated cost of rebuilding or
restoring. In the event Tenant fails to pay such cost to Landlord by the date
specified, Landlord may immediately terminate the Lease and recover from Tenant
all reasonable costs incurred by Landlord in preparation for construction. If
the actual cost of rebuilding or restoring exceeds the estimated cost of such
work, Tenant shall pay the difference to Landlord in cash upon notification by
Landlord of the final cost. If the cost of rebuilding or restoring is less than
the estimated cost of such work, Tenant shall be entitled to a refund of the
difference upon completion of the rebuilding or restoring and determination of
final cost.
15.4 Tenant's Election. Notwithstanding anything to the contrary
-----------------
contained in this Paragraph 15, Tenant may elect to terminate this Lease in the
event the Premises are damaged or destroyed and, in the reasonable opinion of
Landlord's architect or construction consultants, the restoration of the
Premises cannot be substantially completed within one hundred eighty (180) days
after the event of damage or destruction. Tenant's election shall be made by
written notice to Landlord within ten (10) days after Tenant receives from
Landlord the estimate of the time needed to complete repair or restoration of
the Premises. If Tenant does not deliver said notice within said ten (10) day
period, Tenant may not later terminate this Lease even if substantial completion
of the rebuilding or restoration occurs subsequent to said one hundred eighty
(180) day period, provided that Landlord is proceeding with diligence to rebuild
or restore the Premises. If Tenant delivers said notice within said ten (10) day
period, this Lease shall terminate as of the date of the event of damage or
destruction.
15.5 Damage or Destruction Near End of Lease Term. Notwithstanding
--------------------------------------------
anything to the contrary contained in this Paragraph 15, in the event the
Premises are damaged or destroyed in whole or in part (regardless of the extent
of damage) from any cause during the last twelve (12) months of the Lease Term,
Landlord or Tenant may, at its option, terminate this Lease as of the date of
the event of damage or destruction by giving written notice to the other of its
election to do so within thirty (30) days after the event of such damage or
destruction. For purposes of this Paragraph 15.5, if Tenant has been granted an
option to extend or renew the Lease Term pursuant to another provision of this
Lease, then the damage or destruction shall be deemed to have occurred during
the last twelve (12) months of the Lease Term if
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<PAGE>
Tenant fails to exercise its option to extend or renew within twenty (20) days
after the event of damage or destruction.
15.6 Termination of Lease. If the Lease is terminated pursuant to
--------------------
this Paragraph 15, the unused balance of the Security Deposit shall be refunded
to Tenant. The current Rent shall be proportionately reduced during the period
following the event of damage or destruction until the date on which Tenant
surrenders the Premises, based upon the extent to which the damage or
destruction interferes with Tenant's business conducted in the Premises, as
reasonably determined by Landlord, to the extent such loss is covered as an
insured peril by the insurance carried by Landlord pursuant to Paragraph 8.1.
All other Rentals due hereunder shall continue unaffected during such period.
The proceeds of insurance carried Tenant pursuant to Paragraph 8.2 shall be
paid to Landlord and Tenant, as their interests appear.
15.7 Abatement of Rentals. If the Premises are to be rebuilt or
--------------------
restored pursuant to this Paragraph 15, the then current Rentals shall be
proportionately reduced during the period of repair or restoration, based upon
the extent to which the making of repairs interferes with Tenant's business
conducted in the Premises, as reasonably determined by Tenant and Landlord, to
the extent such loss is covered as an insured peril by the insurance carried, or
required to be carried hereunder, by Landlord pursuant to Paragraph 8.1.
15.8 Liability for Personal Property. In no event shall Landlord have
-------------------------------
any liability for, nor shall it be required to repair or restore, any injury or
damage to any Alterations to the Premises made by Tenant, trade fixtures,
equipment, merchandise, furniture, or any other property installed by Tenant or
at the expense of Tenant. If Landlord or Tenant do not elect to terminate this
Lease pursuant to this Paragraph 15, Tenant shall be obligated to promptly
rebuild or restore the same to the condition existing immediately prior to the
damage or destruction in accordance with the provisions of Paragraph 13.1.
15.9 Waiver of Civil Code Remedies. Landlord and Tenant acknowledge
-----------------------------
that the rights and obligations of the parties upon damage or destruction of the
Premises are as set forth herein; therefore Tenant hereby expressly waives any
rights to terminate this Lease upon damage or destruction of the Premises,
except as specifically provided by this Lease, including without limitation any
rights pursuant to the provisions of Subdivision 2 of Section 1932 and
Subdivision 4 of Section 1933 of the California Civil Code, as amended from time
to time, and the provisions of any similar law hereinafter enacted, which
provisions relate to the termination of the hiring of a thing upon its
substantial damage or destruction.
15.10 Damage or Destruction to the Building. The foregoing
-------------------------------------
notwithstanding, in the event the Building is damaged or destroyed to the extent
of more than thirty-three and one-third
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<PAGE>
percent (33 1/3%) of the then replacement cost thereof, Landlord may elect to
terminate this Lease, whether or not the Premises are injured.
16. Condemnation.
------------
16.1 Definition of Terms. For the purposes of this Lease, the
-------------------
term: (a) "Taking" means a taking of the Premises, Common Area or Building or
damage related to the exercise of the power of eminent domain and includes,
without limitation, a voluntary conveyance, in lieu of court proceedings, to any
agency, authority, public utility, person or corporate entity empowered to
condemn property; (b) "Total Taking" means the Taking of the entire Premises or
so much of the Premises, Building or Common Area as to prevent or substantially
impair the use thereof by Tenant for the uses herein specified; provided,
however, that in no event shall the Taking of less than twenty percent (20%) of
the Premises or fifty percent (50%) of the Building and Common Area be
considered a Total Taking; (c) "Partial Taking" means the Taking of only a
portion of the Premises, Building or Common Area which does not constitute a
Total Taking; (d) "Date of Taking" means the date upon which the title to the
Premises, Building or Common Area or a portion thereof, passes to and vests in
the condemnor or the effective date of any order for possession if issued prior
to the date title vests in the condemnor; and (e) "Award" means the amount of
any award made, consideration paid, or damages ordered as a result of a Taking.
16.2 Rights. The parties agree that in the event of a Taking
------
all rights between them or in and to an Award shall be as set forth herein.
16.3 Total Taking. In the event of a Total Taking during the
------------
Lease Term: (a) the rights of Tenant under this Lease and the leasehold estate
of Tenant in and to the Premises shall cease and terminate as of the Date of
Taking; (b) Landlord shall refund to Tenant any prepaid Rent and the unused
balance of the Security Deposit; (c) Tenant shall pay Landlord any Rentals due
Landlord under the Lease, prorated as of the Date of Taking; (d) to the extent
the Award is not payable to the beneficiary or mortgagee of a deed of trust or
mortgage affecting the Premises, Tenant shall receive from the Award those
portions of the Award attributable to trade fixtures of Tenant; and (e) the
remainder of the Award shall be paid to and be the property of Landlord. Nothing
in this Paragraph 16.3 shall be deemed to deny Tenant its right to recover all
awards made by the condemning authority for moving costs, relocation costs and
costs attributable to goodwill and leasehold improvements installed by Tenant.
16.4 Partial Taking. In the event of a Partial Taking during
--------------
the Lease Term: (a) the rights of Tenant under the Lease and the leasehold
estate of Tenant in and to the portion of the Premises taken shall cease and
terminate as of the Date of Taking; (b) from and after the Date of Taking the
Rent shall be an amount
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<PAGE>
equal to the proportion that the gross square footage of the Premises, as
reduced, bears to the gross square footage of the Building, as reduced; (c) to
the extent the Award is not payable to the beneficiary or mortgagee of a deed of
trust or mortgage affecting the Premises, Tenant shall receive from the Award
the portions of the Award attributable to trade fixtures of Tenant; and (d) the
remainder of the Award shall be paid to and be the property of Landlord. Each
party waives the provisions of California Code of Civil Procedure Section
1265.130 allowing either party to petition the Superior Court to terminate this
Lease in the event of a Partial Taking. Nothing contained in this Paragraph
16.4 shall be deemed to deny Tenant its right to recover awards made by the
condemning authority for moving cots, relocation costs, and costs attributable
to goodwill and leasehold improvements installed by Tenant.
17. Liens.
-----
17.1 Premises to Be Free of Liens. Tenant shall pay for all
----------------------------
labor and services performed for, and all materials used by or furnished to
Tenant, Tenant's agents, or any contractor employed by Tenant with respect to
the Premises. Tenant shall indemnify, defend and hold Landlord harmless from and
keep the Project free from any liens, claims, demands, encumbrances, or
judgments, including all costs, liabilities and attorneys' fees with respect
thereto, created or suffered by reason of any labor or services performed for,
or materials used by or furnished to Tenant or Tenant's agents or any contractor
employed by Tenant with respect to the Premises. Landlord shall have the right,
at all times, to post and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper for the protection of
Landlord and the Premises, Building, Common Area and Land, and any other party
having an interest therein, from mechanics' and materialmen's liens, including
without limitation a notice of nonresponsibility. In the event Tenant is
required to post an improvement bond with a public agency in connection with any
work performed by Tenant on or to the Premises, Tenant shall include Landlord as
an additional obligee.
17.2 Notice of Lien; Bond. Should any claims of lien be filed
--------------------
against, or any action be commenced affecting the Premises, Tenant's interest in
the Premises or any other portion of the Project, Tenant shall give Landlord
notice of such lien or action within three (3) days after Tenant receives notice
of the filing of the lien or the commencement of the action. In the event that
Tenant shall not, within twenty (20) days following the imposition of any such
lien, cause such lien to be released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other remedies provided herein and
by law, the right, but not the obligation, to cause the same to be released by
such means as Landlord shall deem proper, including payment of the claim giving
rise to such lien or posting of a proper bond. All such sums paid by Landlord
and all expenses incurred by Landlord in connection therewith, including
attorneys' fees and costs, shall
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be payable to Landlord by Tenant as Additional Rent on demand.
18. Landlord's Right of Access to Premises. Landlord reserves and
--------------------------------------
shall have the right and Tenant and Tenant's agents shall permit Landlord and
Landlord's agents to enter the Premises at any reasonable time for the purpose
of (i) inspecting the Premises, (ii) performing Landlord's maintenance and
repair responsibilities set forth herein, (iii) posting notices of
nonresponsibility, (iv) placing upon the Premises at any time "For Sale" signs,
(v) placing on the Premises ordinary "For Lease" signs at any time within ninety
(90) days prior to Lease Termination, or at any time Tenant is in uncured
default hereunder, or at such other times as agreed to by Landlord and Tenant,
(vi) protecting the Premises in the event of an emergency and (vii) exhibiting
the Premises to prospective purchasers, lenders or tenants. In the event of an
emergency, Landlord shall have the right to use any and all means which
Landlord reasonably may deem proper to gain access to the Premises. Any entry to
the Premises by Landlord or Landlord's agents in accordance with this Paragraph
18 or any other provision of this Lease shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of
the Premises, or an eviction of Tenant from the Premises or any portion thereof
nor give Tenant the right to abate the Rentals payable under this Lease. Except
to the extent caused by the negligence or willful misconduct of Landlord, its
agents, employees, contractors or invitees, Tenant hereby waives any claims for
damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned by Landlord's or Landlord's agents' entry into the
Premises as permitted by this Paragraph 18 or any other provision of this Lease.
Notwithstanding anything to the contrary contained in this Lease, Landlord and
Landlord's agents, except in the case of emergency, shall provide Tenant with
twenty-four (24) hours' notice prior to entry of the Premises. Any entry by
Landlord and Landlord's agents shall not impair Tenant's operations more than
reasonably necessary, and Tenant shall have the right to have an employee
accompany Landlord at all times that Landlord is present on the Premises.
19. Landlord's Right to Perform Tenant's Covenants. Except as
----------------------------------------------
otherwise expressly provided herein, if Tenant shall at any time fail to make
any payment or perform any other act required to be made or performed by Tenant
under this Lease, Landlord may upon ten (10) days written notice to Tenant, but
shall not be obligated to and without waiving or releasing Tenant from any
obligation under this Lease, make such payment or perform such other act to the
extent that Landlord may deem desirable, and in connection therewith, pay
expenses and employ counsel. All reasonable sums so paid by Landlord and all
penalties, interest and reasonable costs in connection therewith shall be due
and payable by Tenant as Additional Rent upon demand.
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20. Lender Requirements.
-------------------
20.1 Subordination. This Lease, at Landlord's option, shall
-------------
be subject and subordinate to the lien of any mortgages or deeds of trust
(including all advances thereunder, renewals, replacements, modifications,
supplements, consolidations, and extensions thereof) in any amount(s) whatsoever
now or hereafter placed on or against or affecting the Premises, Building or
Land, or Landlord's interest or estate therein without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination. If any mortgagee or beneficiary shall elect to
have this Lease prior to the lien of its mortgage or deed of trust, and shall
give written notice thereof to Tenant, this Lease shall be deemed prior to such
mortgage or deed of trust, whether this Lease is dated prior or subsequent to
the date of such mortgage or deed of trust or the date of the recording thereof.
20.2 Subordination Agreements. Tenant shall execute and
------------------------
deliver, without charge therefor, such further instruments evidencing
subordination of this Lease to the lien of any mortgages or deeds of trust
affecting the Premises, Building or Land as may be required by Landlord within
ten (10) days following Landlord's request therefor; provided that such
mortgagee or beneficiary under such mortgage or deed of trust agrees in writing
that this Lease shall not be terminated or modified in any material way in the
event of any foreclosure if Tenant is not in default under this Lease. Failure
of Tenant to execute such instruments evidencing subordination of this Lease
shall constitute a Default by Tenant hereunder.
20.3 Approval by Lenders. Tenant recognizes that the
-------------------
provisions of this Lease may be subject to the approval of any financial
institution that may make a loan secured by a new or subsequent deed of trust or
mortgage affecting the Premises, Building or Land. If the financial institution
should require, as a condition to such financing, any modifications of this
Lease in order to protect its security interest in the Premises including
without limitation, modification of the provisions relating to damage to and/or
condemnation of the Premises, Tenant agrees to execute the appropriate
amendments; provided, however, that no modification shall substantially change
the size, location or dimension of the Premises, or increase the Rentals payable
by Tenant hereunder, or reduce or materially change Tenant's other rights
hereunder. If Tenant refuses to execute any such amendment, Landlord may, in
Landlord's reasonable discretion, terminate this Lease.
20.4 Attornment. In the event of foreclosure or the exercise
----------
of the power of sale under any mortgage or deed of trust made by Landlord and
covering the Premises, Building or Land, Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease, provided such purchaser expressly agrees in writing to be
bound by
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<PAGE>
the terms of the Lease, including, but not limited to, the quiet enjoyment
provisions of Paragraph 40.
20.5 Estoppel Certificates and Financial Statements.
-----------------------------------------------
(a) Delivery by Tenant. Tenant shall, within ten (10)
------------------
business days following request by Landlord therefor and without charge, execute
and deliver to Landlord any and all documents, estoppel certificates, and
current financial statements of Tenant reasonably requested by Landlord in
connection with the sale or financing of the Premises, Building or Land, or
reasonably requested by any lender making a loan affecting the Premises,
Building or Land. Landlord may require that Tenant in any estoppel certificate
shall (i) certify that this Lease is unmodified and in full force and effect
(or, if modified, state the nature of such modification and certify that this
Lease, as so modified, is in full force and effect) and has not been assigned,
(ii) certify the date to which Rentals are paid in advance, if any, (iii)
acknowledge that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specify such defaults if claimed, (iv)
evidence the status of this Lease as may be required either by a lender making a
loan to Landlord to be secured by a deed of trust or mortgage covering the
Premises, Building or Land or a purchaser of the Premises, Building or Land from
Landlord, (v) warrant that in the event any beneficiary of any security
instrument encumbering the Premises, Building or Land forecloses on the security
instrument or sells the Premises, Building or Land pursuant to any power of sale
contained in such security instrument, such beneficiary shall not be liable for
the Security Deposit, unless the Security Deposit actually has been received by
the beneficiary from Landlord; (vi) certify the date Tenant entered into
occupancy of the Premises and that Tenant is conducting business at the
Premises, (vii) certify that all improvements to be constructed on the Premises
by Landlord have been substantially completed except for punch list items which
do not prevent Tenant from using the Premises for its intended use, and (viii)
certify such other matters relating to the Lease and/or Premises as may
reasonably be requested by a lender making a loan to Landlord or a purchaser of
the Premises, Building or Land from Landlord. Any such estoppel certificate may
be conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises, Building or Land. Any financial statements of Tenant shall include an
opinion of a certified public accountant (if available) and a balance sheet and
profit and loss statement for the most recent fiscal year, or a reasonable
substitute for the form of such financial information, all prepared in
accordance with generally accepted accounting principles consistently applied.
(b) Nondelivery by Tenant. Tenant's failure to deliver an
---------------------
estoppel certificate as required pursuant to Paragraph 20.5(a) above shall be
conclusive upon Tenant that (i) this Lease is in full force and effect, without
modification except as may be represented by Landlord and has not been assigned,
(ii) there are now no uncured defaults in Landlord's performance, (iii)
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<PAGE>
no Rentals have been paid in advance except those that are set forth in this
Lease, (iv) no beneficiary of any security instrument encumbering the Premises,
Building or Land shall be liable for the Security Deposit in the event of a
foreclosure or sale under such security instrument, unless the Security Deposit
actually has been received by the beneficiary from Landlord; (v) the
improvements to be constructed on the Premises by Landlord have been
substantially completed except for punch list items which do not prevent Tenant
from using the Premises for its intended use, and (vi) Tenant has entered into
occupancy of the Premises on such date as may be represented by Landlord and is
open and conducting business at the Premises. Tenant's failure to deliver any
financial statements, estoppel certificates or other documents as required
pursuant to Paragraph 20.5(a) above shall be a Default by Tenant.
21. Holding Over. This Lease shall terminate without further notice at
------------
the expiration of the Lease Term. It is the desire of Landlord either to enter
into a new lease with Tenant for the Premises prior to the termination hereof or
to have Tenant vacate the Premises upon expiration of the Lease Term pursuant to
Paragraph 35 below. Therefore, any holding over by Tenant after Lease
Termination shall not constitute a renewal or extension of the Lease Term, nor
give Tenant any rights in or to the Premises except as expressly provided in
this Lease. Any holding over after Lease Termination with the consent of
Landlord, shall be construed to be a tenancy from month to month, at one hundred
twenty-five percent (125%) of the monthly Rent for the month preceding Lease
Termination in addition to all Additional Rent payable hereunder, and shall
otherwise be on the terms and conditions herein specified insofar as applicable.
If Tenant remains in possession of the Premises after Lease Termination without
Landlord's consent, Tenant shall indemnify, defend and hold Landlord harmless
from and against any loss, damage, expense, claim or liability resulting from
Tenant's failure to surrender the Premises, including without limitation, any
claims made by any succeeding tenant based on delay in the availability of the
Premises.
22. Notices. Any notice required or desired to be given under this Lease
-------
shall be in writing, and all notices shall be given by personal delivery or
mailing. All notices personally given on Tenant may be delivered to any person
apparently in charge at the Premises, on any corporate officer or agent of
Tenant if Tenant is a corporation, or on any one signatory party if more than
one party signs this Lease on behalf of Tenant; any notice so given shall be
binding upon all signatory parties as if served upon each such party personally.
Any notice given pursuant to this Paragraph 22 shall be deemed to have been
given when personally delivered, or if mailed, when seventy-two (72) hours have
elapsed from the time when such notice was deposited in the United States mail,
certified or registered mail and postage prepaid, addressed to the party at the
last address given for purposes of notice pursuant to the provisions of this
Paragraph 22. At the date of execution of this Lease, the addresses of Landlord
and Tenant are set forth in Paragraph 1.12 above.
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23. Attorneys' Fees. In the event either party hereto shall bring any
----------------
action or legal proceeding for damages for an alleged breach of any provision of
this Lease, to recover Rentals, to enforce an indemnity, defense or hold
harmless obligation, to terminate the tenancy of the Premises, or to enforce,
protect, interpret, or establish any term, condition, or covenant of this Lease
or right or remedy of either party, the prevailing party shall be entitled to
recover, as a part of such action or proceeding, reasonable attorneys' fees and
court costs, including reasonable attorneys' fees and costs for appeal, as may
be fixed by the court or jury. Notwithstanding anything to the contrary
contained in this Lease, "prevailing party" as used in this paragraph shall
include the party who dismisses an action for recovery hereunder in exchange for
sums allegedly due, performance of covenants allegedly breached or
considerations substantially equal to the relief sought in the action.
24. Assignment, Subletting and Hypothecation.
----------------------------------------
24.1 In General. Tenant shall not voluntarily sell, assign or
----------
transfer all or any part of Tenant's interest in this Lease or in the Premises
or any part thereof, sublease all or any part of the Premises, or permit all or
any part of the Premises to be used by any person or entity other than Tenant or
Tenant's employees, except as specifically provided in this Paragraph 24.
24.2 Voluntary Assignment and Subletting.
-----------------------------------
(a) Notice to Landlord. Tenant shall, by written notice,
------------------
advise Landlord of Tenant's desire on a stated date (which date shall not be
less than thirty (30) days nor more than ninety (90) days after the date of
Tenant's notice) to assign this Lease or to sublet all or any part of the
Premises for any part of the Lease Term. Said notice shall state that the
notice constitutes an offer to terminate the Lease or Tenant's interest in the
portion of the Premises specified pursuant to Paragraph 24.2(b) if the notice
applies to a proposed assignment of the Lease or Tenant's interest therein, a
proposed sublease of all or any part of the Premises for more than fifty percent
(50%) of the remainder of the Lease Term, or a proposed sublease of more than
fifty percent (50%) of the Premises for any period. Tenant's notice shall state
the name, legal composition and address of the proposed assignee or subtenant,
and Tenant shall provide the following information to Landlord with said
notice: a true and complete copy of the proposed assignment agreement or
sublease; an audited financial statement of the proposed assignee or subtenant
prepared in accordance with generally accepted accounting principles within one
year prior to the proposed effective date of the assignment or sublease; the
nature of the proposed assignee's or subtenant's business to be carried on in
the Premises; the payments to be made or other consideration to be given on
account of the assignment or sublease; a current financial statement of Tenant;
and such other pertinent information as may be requested
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by Landlord, all in sufficient detail to enable Landlord to evaluate the
proposed assignment or sublease and the prospective assignee or subtenant.
Tenant's notice shall not be deemed to have been served or given until such time
as Tenant has provided Landlord with all information reasonably requested by
Landlord pursuant to this Paragraph 24.2. Tenant shall immediately notify
Landlord of any modification to the proposed terms of such assignment or
sublease. Tenant may withdraw its notice at any time prior to or after exercise
by Landlord of Landlord's right to terminate as described in Paragraph 24.2(b).
(b) Offer to Terminate. If Tenant notifies Landlord of
------------------
its desire to assign this Lease or any interest herein, to sublet all or any
part of the Premises for more than fifty percent (50%) of the remainder of the
Lease Term, or to sublet more than fifty percent (50%) of the Premises for any
period, Tenant's notice shall constitute an offer to terminate this Lease or
Tenant's interest in the portion of the Premises specified and Landlord shall
have the right, to be exercised by giving written notice to Tenant within thirty
(30) days after receipt of Tenant's notice, to terminate the Lease (i) entirely,
in the event of a proposed assignment or a sublease of the entire Premises for
the remainder of the Lease Term, (ii) as to the portion of the Premises which is
the subject of a proposed sublease for more than fifty percent (50%) of the
remainder of the Lease Term, or (iii) as to the portion of the Premises which is
the subject of a proposed sublease of more than fifty percent (50%) of the
Premises for any period, as specified in Tenant's notice. For purposes of this
Paragraph 24.2(b), (i) the term of a proposed sublease shall include all options
to extend or renew, and (ii) a proposed sublease shall be deemed to be for the
remainder of the Lease Term if the term of the proposed sublease will expire
within one year prior to the end of the Lease Term. If Tenant's notice specifies
all of the Premises and Landlord elects to terminate within ten (10) days after
receipt of Landlord's election, Tenant shall have the right to rescind its
request to assign or sublet, and this Lease shall continue in full force and
effect. If Tenant does not rescind its request, this Lease shall terminate on
the date stated in the notice (given by Tenant pursuant to Paragraph 24.2(a),
subject to any obligations which have accrued and are unfulfilled as of such
date. If Tenant's notice specifies less than all of the Premises and Landlord
elects to terminate, within ten (10) days after receipt of Landlord's election,
Tenant shall have the right to rescind its request to assign or sublet, and this
Lease shall continue in full force and effect. If Tenant does not rescind its
request, this Lease shall terminate on the date stated with respect to that
portion of the Premises, and Rent and Tenant's percentage share of Common Area
Charges shall be adjusted, based upon the number of gross square feet retained
by Tenant after the termination, compared to the total number of gross square
feet in the entire Premises excluding any areas of the Premises designated in
the proposed sublease for ingress and egress and common areas, if any. The Lease
as so amended shall continue thereafter in full force and effect. Landlord and
Tenant shall execute an amendment
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to this Lease specifying the new Premises, the adjusted Rent, and Tenant's
adjusted percentage share of Common Area Charges; provided, however, that
failure by either party to execute such an amendment shall not affect the
validity of this Lease.
(c) Landlord's Consent. If Landlord does not exercise its Right
------------------
to terminate pursuant to Paragraph 24.2(b) within thirty (30) days after
receipt of Tenant's notice or if a proposed sublease is not subject to the
provisions of Paragraph 24.2(b), Landlord shall not unreasonably withhold or
delay its consent to the proposed assignment or subletting, on the terms and
conditions specified in said notice. If Tenant's notice fails to state that it
constitutes an offer to terminate the Lease as may be required pursuant to
Paragraph 24.2(a), such notice shall be deemed insufficient for the purposes
of this Paragraph 24.2, and Landlord may withhold its consent to the proposed
assignment or subletting in Landlord's absolute discretion. Without otherwise
limiting the criteria upon which Landlord may withhold its consent to any
proposed assignment or sublease, if Landlord withholds its consent where Tenant
is in default at the time of the giving of Tenant's notice or at any time
thereafter, or where the net worth of the proposed assignee or subtenant
(according to generally accepted accounting principles) is less than the greater
of (i) the net worth of Tenant immediately prior to the assignment or sublease
(ii) or the net worth of Tenant at the time this Lease is executed, such
withholding of consent shall be presumptively reasonable. Fifty percent (50%) of
any and all rent paid by an assignee or subtenant in excess of the Rentals to be
paid under this Lease (prorated in the event of a sublease of less than the
entire Premises), after Tenant's deduction therefrom of all reasonable costs to
effect the assignment or subletting, including without limitation, brokerage
commissions, attorneys' fees, and the cost of leasehold improvements or
alterations installed or redecorating performed by Tenant for the sublessee,
shall be paid directly to Landlord, as Additional Rent, at the time and place
specified in this Lease. For the purposes of this Paragraph 24, the term "rent"
shall include any consideration of any kind received, or to be received, by
Tenant from an assignee or subtenant, if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not limited to key
money, bonus money, and payments (in excess of the fair market value thereof)
for Tenant's assets, fixtures, trade fixtures, inventory, accounts, goodwill,
equipment, furniture, general intangibles, and any capital stock or other
equity ownership interest of Tenant. Any assignment or subletting without
Landlord's consent shall be voidable at Landlord's option, and shall constitute
a Default by Tenant. Landlord's consent to any one assignment or sublease shall
not constitute a waiver of the provisions of this Paragraph 24 as to any
subsequent assignment or sublease nor a consent to any subsequent assignment or
sublease; further, Landlord's consent to an assignment or sublease shall not
release Tenant from Tenant's obligations under this Lease, and Tenant shall
remain jointly and severally liable with the assignee or subtenant.
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(d) Assumption of Obligations. In the event Landlord consents to
-------------------------
any assignment, such consent shall be conditioned upon the assignee expressly
assuming and agreeing to be bound by each of Tenant's covenants, agreements and
obligations contained in this Lease, pursuant to a written assignment and
assumption agreement in a form reasonably approved by Landlord. Landlord's
consent to any assignment or sublease shall be evidenced by Landlord's signature
on said assignment and assumption agreement or on said sublease or by a separate
written consent. In the event Landlord consents to a proposed assignment or
sublease, such assignment or sublease shall be valid and the assignee or
subtenant shall have the right to take possession of the Premises only if an
executed original of the assignment or sublease is delivered to Landlord, and
such document contains the same terms and conditions as stated in Tenant's
notice to Landlord given pursuant to Paragraph 24.2(a) above, except for any
such modifications to which Landlord has consented in writing.
24.3 Collection of Rent. Tenant hereby irrevocably gives to and
------------------
confers upon Landlord, as security for Tenant's obligations under this Lease,
the right, power and authority to collect all rents from any assignee or
subtenant of all or any part of the Premises as permitted by this Paragraph 24,
or otherwise, and Landlord, as assignee of Tenant, or a receiver for Tenant
appointed on Landlord's application, may collect such rent and apply it toward
Tenant's obligations under this Lease; provided, however, that until the
occurrence of any Default, subject to applicable cure periods, by Tenant or
except as provided by the provisions of Paragraph 24.2(c) above, Tenant shall
have the right to collect such rent. Upon the occurrence of any Default by
Tenant, Landlord may at any time without notice in Landlord's own name sue for
or otherwise collect such rent, including rent past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
reasonable attorneys' fees, toward Tenant's obligations under this Lease.
Landlord's collection of such rents shall not constitute an acceptance by
Landlord of attornment by such subtenants; in the event of a Default by Tenant,
Landlord shall have all rights provided by this Lease and by law, and Landlord
may, upon reentry and taking possession of the Premises, eject all parties in
possession or eject some and not others, or eject none, as Landlord shall
determine in Landlord's sole discretion.
24.4 No Bonus Value. It is the intent of the parties hereto that this
--------------
Lease shall confer upon Tenant only the right to use and occupy the Premises,
and to exercise such other rights as are conferred upon Tenant by this Lease.
The parties agree that this Lease is not intended to have a bonus value, nor to
serve as a vehicle whereby Tenant may profit by a future assignment or sublease
of this Lease or the right to use or occupy the Premises as a result of any
favorable terms contained herein or any future changes in the market for leased
space. It is the intent of the parties that any such bonus value that may attach
to this Lease shall be and remain the exclusive property of Landlord.
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24.5 Corporations and Partnerships. If Tenant is a partnership,
-----------------------------
any withdrawal or substitution (whether voluntary, involuntary, or by operation
of law and whether occurring at one time or over a period of time) of any
partner(s) owning fifty percent (50%) or more (cumulatively) of the partnership,
any assignment(s) of fifty percent (50%) or more (cumulatively) of any interest
in the capital or profits of the partnership, or the dissolution of the
partnership shall be deemed an assignment of this Lease requiring the prior
written consent of Landlord. If Tenant is a corporation, any dissolution,
merger, consolidation or other reorganization of Tenant, any sale or transfer
(or cumulative sales or transfers) of the capital stock of Tenant in excess of
fifty percent (50%), or any sale (or cumulative sales) of all of the assets of
Tenant shall be deemed an assignment of this Lease requiring the prior written
consent of Landlord. Any such withdrawal or substitution of partners or
assignment of any interest in or dissolution of a partnership tenant, and any
such sale of stock or assets of a corporate tenant without the prior written
consent of Landlord shall be a Default by Tenant hereunder. The foregoing
notwithstanding, the sale or transfer of any or all of the capital stock of a
corporation, the capital stock of which is now or hereafter becomes publicly
traded, shall not be deemed an assignment of this Lease.
Notwithstanding anything to the contrary contained in this Lease,
Tenant, without Landlord's prior written consent (but with notice to Landlord),
may sublet the Premises or assign this Lease to (i) a subsidiary, affiliate,
division or corporation controlled by or under common control with Tenant; (ii)
a successor corporation related to Tenant by merger, consolidation,
nonbankruptcy reorganization or government action; or (iii) a purchaser of
substantially all of Tenant's assets located at the Premises, provided that in
either of the latter two instances the successor or purchaser has a net worth
not less than the net worth of Tenant at the time that Tenant executes this
Lease (each, a "Permitted Assignee"). Notwithstanding that a Transfer is made
to a Permitted Assignee, Tenant shall not be released from any of its
obligations under this Lease and such Permitted Assignee shall be required to
assume all of Tenant's obligations hereunder as a condition to such transfer
being permitted without Landlord's prior written consent.
24.6 Reasonable Provisions. Tenant expressly agrees that the
---------------------
provisions of this Paragraph 24 are not unreasonable standards or conditions for
purposes of Section 1951.4(b)(2) of the California Civil Code, as amended from
time to time, under bankruptcy laws, or for any other purpose.
24.7 Attorneys' Fees. Tenant shall pay, as Additional Rent,
---------------
Landlord's reasonable attorneys' fees for reviewing, investigating, processing
and/or documenting any requested assignment or sublease, whether or not
Landlord's consent is granted.
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24.8 Involuntary Transfer. No interest of Tenant in this Lease
--------------------
shall be assignable involuntarily or by operation of law, including, without
limitation, the transfer of this Lease by testacy or intestacy. Each of the
following acts shall be considered an involuntary assignment:
(a) If Tenant is or becomes bankrupt or insolvent, makes
an assignment for the benefit of creditors, or a proceeding under any bankruptcy
law is instituted in which Tenant is the bankrupt; or, if Tenant is a
Partnership or consists of more than one person or entity, if any partner of the
partnership or other person or entity is or becomes bankrupt or insolvent, or
makes an assignment for the benefit of creditors;
(b) Levy of a writ of attachment or execution on this
Lease;
(c) Appointment of a receiver with authority to take
possession of the Premises in any proceeding or action to which Tenant is a
party; or
(d) Foreclosure of any lien affecting Tenant's interest
in the Premises, which lien was not consented to by Landlord pursuant to
Paragraph 24.9.
An involuntary assignment shall constitute a Default by Tenant and Landlord
shall have the right to terminate this Lease, in which case this Lease shall not
be treated as an asset of Tenant. In the event the Lease it not terminated, the
provisions of Paragraph 24.2(c) regarding rents paid by an assignee or subtenant
and Paragraph 24.4 shall apply. If a writ of attachment or execution is levied
on this Lease, or if any involuntary proceeding in bankruptcy is brought against
Tenant or a receiver is appointed, Tenant shall have sixty (60) days in which to
cause the attachment or execution to be removed, the involuntary proceeding
dismissed, or the receiver removed.
24.9 Hypothecation. Tenant shall not hypothecate, mortgage or
-------------
encumber Tenant's interest in this Lease or in the Premises or otherwise use
this Lease as a security device in any manner without the consent of Landlord,
which consent Landlord may withhold in its sole and absolute discretion. Consent
by Landlord to any such hypothecation or creation of a lien or mortgage shall
not constitute consent to an assignment or other transfer of this Lease
following foreclosure of any permitted lien or mortgage.
24.10 Binding on Successors. The provisions of this Paragraph
---------------------
24 expressly apply to all heirs, successors, sublessees, assignees and
transferees of Tenant.
25. Successors. Subject to the provisions of Paragraph 24
----------
above and Paragraph 30.2(a) below, the covenants, conditions, and agreements
contained in this Lease shall be binding on the parties
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hereto and on their respective heirs, successors and assigns.
26. Landlord Default; Mortgagee Protection. Landlord shall not be in
--------------------------------------
default under this Lease unless Tenant shall have given Landlord written notice
of the breach and, within thirty (30) days after notice, Landlord has not cured
the breach or, if the breach is such that it cannot reasonably be cured under
the circumstances within thirty (30) days, has not commenced diligently to
prosecute the cure to completion. Any money judgment obtained by Tenant based
upon Landlord's breach of this Lease shall be satisfied only out of the proceeds
of the sale or disposition of Landlord's interest in the Premises (whether by
Landlord or by execution of judgment). In the event of any default on the part
of Landlord under this Lease, Tenant shall give notice by registered or
certified mail to any beneficiary of a deed of trust or any mortgagee of a
mortgage affecting the Premises, Building or Land whose address shall have been
furnished to Tenant, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises by power of sale or judicial foreclosure, if such should prove
necessary to effect a cure.
27. Exhibits. All exhibits attached to this Lease shall be deemed to be
--------
incorporated herein by the individual reference to each such exhibit, and all
such exhibits shall be deemed to be a part of this Lease as though set forth in
full in the body of the Lease.
28. Surrender of Lease Not Merger. The voluntary or other surrender
-----------------------------
of this Lease by Tenant, or a mutual cancellation thereof, shall not work a
merger and shall, at the option of Landlord, terminate all or any existing
subleases or subtenants, or may, at the option of Landlord, operate as an
assignment to Landlord of any or all such subleases or subtenants.
29. Waiver. The waiver by Landlord of any breach of any term,
------
covenant or condition herein contained (or the acceptance by Landlord of any
performance by Tenant after the time the same shall become due) shall not be
deemed to be a waiver of such term, covenant or condition or any subsequent
breach thereof or of any other term, covenant or condition herein contained,
unless otherwise expressly agreed to by Landlord in writing. The acceptance by
Landlord of any sum less than that which is required to be paid by Tenant shall
be deemed to have been received only on account of the obligation for which it
is paid (or for which it is allocated by Landlord, in Landlord's reasonable
discretion, if Tenant does not designate the obligation as to which the payment
should be credited), and shall not be deemed an accord and satisfaction
notwithstanding any provisions to the contrary written on any check or contained
in any letter of transmittal. The acceptance by Landlord of any sum tendered by
a purported assignee or transferee of Tenant shall not be deemed a consent by
Landlord to any assignment or transfer of Tenant's interest herein. No custom or
practice which may arise between the parties hereto in
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the administration of the terms of this Lease shall be construed as a waiver or
diminution of Landlord's right to demand performance by Tenant in strict
accordance with the terms of this Lease.
30. General.
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30.1 Captions and Headings. The captions and paragraph
---------------------
headings used in this Lease are for convenience of reference only. They shall
not be construed to limit or extend the meaning of any part of this Lease, and
shall not be deemed relevant in resolving any question of interpretation or
construction of any paragraph of this Lease.
30.2 Definitions.
-----------
(a) Landlord, The term Landlord as used in this Lease,
--------
so far as the covenants or obligations on the part of Landlord are concerned,
shall be limited to mean and include only the owner at the time in question of
the fee title to the Premises. In the event of any transfer(s) of such interest,
the Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall have no further liability under this Lease
to Tenant except as to matters of liability which have accrued and are
unsatisfied as of the date of such transfer, it being intended the covenants and
obligations contained in this Lease on the part of Landlord shall be binding on
Landlord and its successors and assigns only during and in respect of their
respective period of ownership of the fee; provided that any funds in the
possession of Landlord or the then grantor and as to which Tenant has an
interest, less any deductions permitted by law or this Lease, shall be turned
over to the grantee. The covenants and obligations contained in this Lease on
the part of Landlord shall, subject to the provisions of this Paragraph 30.2(a),
be binding upon each Landlord and such Landlord's heirs, personal
representatives, successors and assigns only during its respective period of
ownership. Except as provided in this Paragraph 30.2(a), this Lease shall
riot be affected by any transfer of Landlord's interest in the Premises, and
Tenant shall attorn to any transferee of Landlord provided that all of
Landlord's obligations hereunder are assumed in writing by such transferee.
(b) Agents. For purposes of this Lease and without
------
otherwise affecting the definition of the word "agent" or the meaning of an
"agency," the term "agents" shall be deemed to include the agents, employees,
officers, directors, servants, invitees, contractors, successors,
representatives, subcontractors, guests, customers, suppliers or partners, of
the respective party, Tenant or Landlord.
(C) Interpretation of Terms. The words "Landlord" and
-----------------------
"Tenant" as used herein shall include the plural as well as the singular. Words
in the neuter gender include the masculine and feminine and words in the
masculine or feminine gender include the neuter.
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30.3 Copies. Any executed copy of this Lease shall be deemed an
------
original for all purposes.
30.4 Time of Essence. Time is of the essence as to each and every
---------------
provision in this Lease requiring performance within a specified time.
30.5 Severability. In case any one or more of the provisions
------------
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein. However, if Tenant's obligation to pay the Rentals is
determined to be invalid or unenforceable, this Lease at the option of Landlord
shall terminate.
30.6 Governing Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the State of California.
30.7 Joint and Several Liability. If Tenant is more than one person
---------------------------
or entity, each such person or entity shall be jointly and severally liable for
the obligations of Tenant hereunder, If Tenant is a husband and wife, the
obligations hereunder shall extend to their sole and separate property as well
as community property.
30.8 Construction of Lease Provisions. Although printed provisions of
--------------------------------
this Lease were prepared by Landlord, this Lease shall not be construed either
for or against Tenant or Landlord, but shall be construed in accordance with the
general tenor of the language to reach a fair and equitable result.
30.9 Tenant's Financial Statements. Tenant hereby warrants that all
-----------------------------
financial statements delivered by Tenant to Landlord are true, correct, and
complete, and prepared in accordance with generally accepted accounting
principles. Tenant acknowledges and agrees that Landlord is relying on such
financial statements in accepting this Lease, and that a breach of Tenant's
warranty as to such financial statements shall constitute a Default by Tenant.
Notwithstanding anything to the contrary contained in this Lease, Landlord shall
keep confidential all such financial information received from Tenant, except
that Landlord may provide such financial information to Landlord's lenders or
prospective lenders with respect to the Project.
30.10 Withholding of Landlord's Consent. Notwithstanding any other
---------------------------------
provision of this Lease where Tenant is required to obtain the consent (whether
written or oral) of Landlord to do any act, or to refrain from the performance
of any act, Tenant agrees that if Tenant is in default with respect to any term,
condition, covenant or provision of this Lease, then Landlord
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shall be deemed to have acted reasonably in withholding its consent if said
consent is, in fact, withheld.
31. Signs. Tenant shall not place or permit to be placed any sign or
-----
decoration on the Land or the exterior of the Building or that would be visible
from the exterior of the Building or Premises, without the prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed. In no
event shall any such sign revolve, rotate, move or create the illusion of
revolving, rotating or moving or be internally illuminated and there shall be no
exterior spotlighting or other illumination on any such sign. Tenant, upon
written notice by Landlord, shall immediately remove any of Tenant's signs or
decorations that are visible from the exterior of the Building or Premises or
that Tenant has placed or permitted to be placed on the Land or the exterior of
the Building without the prior written consent of Landlord. If Tenant fails to
so remove such sign or decoration within five (5) days after Landlord's written
notice, Landlord may enter the Premises and remove such sign or decoration and
Tenant shall pay Landlord, as Additional Rent upon demand, the cost of such
removal. All signs placed on the Premises, Building or Land by Tenant shall
comply with all recorded documents affecting the Premises, including but not
limited to any Declaration of Conditions, Covenants and Restrictions; the sign
criteria attached hereto as Exhibit "E" if applicable (as the same may be
amended from time to time); and applicable statutes, ordinances, rules and
regulations of governmental agencies having jurisdiction thereof. At Landlord's
option, Tenant shall at Lease Termination remove any sign which it has placed on
the Premises, Land or the Building, and shall, at its sole cost, repair any
damage caused by the installation or removal of such sign. Notwithstanding the
foregoing, Landlord hereby grants to Tenant all signage rights currently enjoyed
by other tenants of the Project.
32. Landlord as Party Defendant. If, by reason of any act or
---------------------------
omission by Tenant or Tenant's agents, Landlord is made a party defendant
concerning this Lease, or any portion of the Project, Tenant shall indemnify
Landlord against all liability actually incurred by Landlord as a party
defendant, including all damages, costs and reasonable attorneys' fees.
33. Landlord Not a Trustee. Landlord shall not be deemed to be a
----------------------
trustee of any funds paid to Landlord by Tenant (or held by Landlord for Tenant)
pursuant to this Lease, including without limitation the Security Deposit.
Landlord shall not be required to keep any such funds separate from Landlord's
general funds or segregated from any funds paid to Landlord by (or held by
Landlord for) other tenants of the Building. Any funds held by Landlord pursuant
to this Lease shall not bear interest.
34. Interest. Any payment due from Tenant to Landlord, except for
--------
Rent received by Landlord within thirty (30) days after the same is due, shall
bear interest from the date due until paid, at an annual rate equal to the
greater of: ten percent (10%); or
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five percent (5%) plus the rate established by the Federal Reserve Bank of San
Francisco, as of the twenty-fifth (25th) day of the month immediately preceding
the due date, on advances to member banks under Sections 13 and 13(a) of the
Federal Reserve Act, as now in effect or hereafter from time to time amended. In
addition, Tenant shall pay all costs and reasonable attorneys' fees incurred by
Landlord in the collection of such amounts.
35. Surrender of Premises. On the last day of the Lease Term or upon
---------------------
the sooner termination of this Lease, Tenant shall, to the reasonable
satisfaction of Landlord, surrender the Premises to Landlord in good condition
(reasonable wear and tear, acts of God, casualty, condemnation, Hazardous
Materials other than those stored, used or disposed of by Tenant, its agents,
employees, contractors or invitees, and alterations concerning which Landlord
has not reserved the right to require removal excepted) with all originally
painted interior walls washed, or repainted if marked or damaged and other
interior walls cleaned and repaired or replaced, all carpets cleaned and in good
condition, the air conditioning, ventilating and heating equipment inspected,
serviced and repaired by a reputable and licensed service firm (unless Landlord
has elected to maintain heating and air conditioning systems pursuant to
Paragraph 10.1 above), and all floors cleaned and waxed. Tenant shall remove all
of Tenant's personal property and trade fixtures from the Premises, and all
property not so removed shall be deemed abandoned by Tenant. Furthermore, Tenant
shall immediately repair all damage to the Project caused by any such removal.
If the Premises are not so surrendered at Lease Termination Tenant shall
indemnify, defend and hold Landlord harmless from and against any loss, damage,
expense, claim or liability resulting from delay by Tenant in so surrendering
the Premises including, without limitation, any claims made by any succeeding
tenant or losses to Landlord due to lost opportunities to lease to succeeding
tenants.
36. No Partnership or Joint Venture. Nothing in this Lease shall be
-------------------------------
construed as creating a partnership or joint venture between Landlord, Tenant,
or any other party, or cause Landlord to be responsible for the debts or
obligations of Tenant or any other party.
37. Entire Agreement. Any agreements, warranties, or representations
----------------
not expressly contained herein, or in the Addendum hereto, shall in no way bind
either Landlord or Tenant, and Landlord and Tenant expressly waive all claims
for damages by reason of any statement, representation, warranty, promise or
agreement, if any, not contained in this Lease, This Lease supersedes and
cancels any and all previous negotiations, arrangements, brochures, agreements
and understandings, whether written or oral, between Landlord and its agents and
Tenant and its agents with respect to the Project or this Lease. This Lease
constitutes the entire agreement between the parties hereto and no addition to,
or modification of, any term or provision of this Lease shall be effective until
and unless set forth in a written
-48-
<PAGE>
instrument signed by both Landlord and Tenant.
38. Submission of Lease. Submission of this instrument for Tenant's
-------------------
examination or execution does not constitute a reservation of space nor an
option to lease. This instrument shall not be effective until executed by both
Landlord and Tenant, Execution of this Lease by Tenant shall constitute an
offer by Tenant to lease the Premises, which offer shall be deemed accepted by
Landlord when this Lease is executed by Landlord and delivered to Tenant.
39. Quiet Enjoyment. Landlord covenants and agrees with Tenant that
---------------
upon Tenant paying Rentals and performing its covenants and conditions under the
Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises for the Lease Term, subject, however, to the terms of this Lease and of
any mortgages or deeds of trust affecting the Premises, and the rights reserved
by Landlord hereunder. Any purchaser upon any foreclosure or exercise of the
power of sale under any mortgage or deed of trust made by Landlord and covering
the Premises, Building or Land to whom Tenant attorns pursuant to Paragraph 20.4
above shall be bound by the terms of this Paragraph 40.
40. Building Plans. Tenant acknowledges that any plan of the Project
--------------
which may have been displayed or furnished to Tenant or which may be a part of
Exhibit "A" or Exhibit "B" is tentative; Landlord may change the exterior of the
Project buildings and the shape, size, location, number, and extent of Project
buildings or improvements shown on any such plan and eliminate or add any
ovements to the Project in Landlord's sole discretion and at Landlord's
sole cost without right of reimbursement of Tenant.
41. Authority. The undersigned parties hereby warrant that they have
---------
proper authority and are empowered to execute this Lease on behalf of the
Landlord and Tenant, respectively. If Tenant is a corporation (or partnership),
each individual (executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of said corporation in accordance with a duly
adopted resolution of the Board of Directors of said corporation or in
accordance with the bylaws of said corporation (or on behalf of said partnership
in accordance with the partnership agreement of such partnership), and that this
Lease is binding upon said corporation (or partnership) in accordance with its
terms. if Tenant is a corporation, Tenant shall, upon execution of this Lease,
deliver to Landlord a certified copy of the resolution of the Board of Directors
of said corporation authorizing or ratifying the execution of this Lease. In the
event Tenant should fail to deliver such resolution to Landlord upon execution
of this Lease, Landlord shall not be deemed to have waived its right to require
delivery of such resolution, and at any time during the Lease Term Landlord may
request Tenant to deliver the same, and Tenant agrees it shall thereafter
promptly deliver such resolution to Landlord. If Tenant is a corporation, Tenant
warrants that:
-49-
<PAGE>
(a) Tenant is a valid and existing corporation;
(b) Tenant is qualified to do business in California;
(c) All fees and all franchise and corporate taxes
are paid to date, and will be paid when due;
(d) All required forms and reports will be filed when
due; and
(e) The signers of this Lease are properly authorized to
execute this Lease.
42. Addendum, Paragraphs 44 through 46 are added hereto and made a
--------
part of this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease effective as of
the date set forth below.
LANDLORD: TENANT
REALTEC PROPERTIES I, L.P., SYMPHONIX DEVICES, INC., a
a California limited partnership California corporation
By /s/ Thomas Masters By /s/ Harry S. Robbins
-------------------------------- ---------------------------------
Thomas Masters Harry S. Robbins
Title General Partner Title President/CEO
----------------------------- ------------------------------
Date 7/28/94 Date 7/28/94
------------------------------ -------------------------------
-50-
<PAGE>
ADDENDUM to that certain Lease Agreement dated July 28, 1994, by and between
REALTEC PROPERTIES I, L.P., a California limited partnership, as Landlord, and
SYMPHONIX DEVICES, INC, a California corporation, as Tenant, for the premises
commonly known as 3047 Orchard Drive, San Jose, CA 95134.
44. Option to Extend Lease Term. In consideration for Tenant not
---------------------------
having been in material default under this Lease more than twice within any one
(1) year period during the Lease Term, Landlord hereby grants to Tenant two (2)
options to extend the Lease Term for a period of one (1) year each ("Extended
Term"), on the following terms and conditions:
(a) Tenant must give Landlord notice in writing of its exercise
of the option to extend the Lease Term no earlier than six (6) months nor
later than four (4) months before the date the Lease Term would end but for
said exercise. Time is of the essence.
(b) Tenant may not extend the Lease Term pursuant to the option
granted by this Paragraph 44 if Tenant has been in default in the
performance of any of the material terms and conditions of the Lease more
than twice within any one (1) year period during the Lease Term, or if
Tenant shall have assigned or otherwise transferred its interest in this
Lease and/or the Premises (other than to a "Permitted Assignee" pursuant to
Paragraph 24.5 hereof) whether or not Landlord's consent to such assignment
or transfer has been given. If Tenant is in default under this Lease on the
date that the Extended Term is to commence, then Landlord may elect to
terminate this Lease, notwithstanding any notice given by Tenant of an
exercise of its option to extend.
(c) All terms and conditions of this Lease shall apply during
the Extended Term, except that the Rent for the Extended Terms shall be
determined in accordance with Paragraph 45 below.
(d) Once Tenant delivers notice of its exercise of the option
to extend the Lease Term, Tenant may not withdraw such exercise and,
subject to the provisions of this Paragraph 44, such notice shall operate
to extend the Lease Term. Upon the extension of the Lease Term pursuant to
this Paragraph 44, the term, "Lease Term" as used in this Lease shall
thereafter include the Extended Term and the Lease Termination date shall
be the expiration date of the Extended Term.
45. Rent During the Extended Term. If Tenant elects to extend the
-----------------------------
Lease Term pursuant to Paragraph 44 above, the annual Rent for the Extended Term
shall be an amount equal to the fair market value of the Premises (together with
any applicable cost of living or other rental adjustments) in relation to market
conditions at the time of the extension (including, but not limited to, rental
rates for comparable space with comparable tenant improvements and taking into
consideration any adjustments to rent
-51-
<PAGE>
based upon direct costs (operating expenses) and taxes, load factors, financing
charges, and/or cost of living or other rental adjustments; the relative
strength of the tenants, the size of the space; and any other factors which
affect market rental values at the time of extension, and provided further, that
the annual Rent for the Extended Term shall in no event be lower than the Rent
for the last Lease Year of the original term. Tenant acknowledges that Landlord
shall not be obligated or requested to pay any leasing commissions during or for
the Extended Term. The Rent for the Extended Term shall be determined as
follows:
(a) Mutual Agreement. After timely receipt by Landlord of
----------------
Tenant's notice of exercise of the option to extend the Lease Term,
Landlord and Tenant shall have a period of thirty (30) days in which to
agree on the Rent for the Extended Term. If Landlord and Tenant agree on
said Rent during that period, they shall immediately execute an amendment
to this Lease stating the Rent for the Extended Term. If Landlord and
Tenant are unable to agree on the Rent for the Extended Term as aforesaid,
the provisions of paragraph 45(b) below shall apply.
(b) Appraisal. Within five (5) days after the expiration of the
---------
thirty (30) day period described in Paragraph 45(a) above, each party, at
its cost and by giving notice to the other party, shall appoint an M.A.l.
real estate appraiser, with at least five (5) years' full-time commercial
appraisal experience in the area in which the Premises are located to
appraise and set the fair market rental value of the Premises. If a party
does not appoint an appraiser within five (5) days after the other party
has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall set the fair market rental
value. The cost of such appraiser shall be borne equally by the parties. If
two appraisers are appointed by the parties as provided in this paragraph,
the two appraisers shall meet promptly and attempt to set the fair market
value rental value. If they are unable to agree with twenty (20) days after
the last appraiser has been appointed, then the two appraisers shall
attempt to select a third appraiser meeting the qualifications stated in
Paragraph 45(b) above within ten (10) working days after the last day the
two appraisers are given to set the fair market rental value. If they are
unable to agree on the third appraiser, either of the parties to this
Lease, by giving ten (10) days notice to the other party, may apply to the
presiding judge of the Superior Court of Santa Clara County for selection
of a third appraiser who meets the qualifications stated above. Each of the
parties shall bear one-half (1/2) of the cost of appointing the third
appraiser's fees. The third appraiser, however selected, shall be a person
who has not previously acted in any capacity for either party. Within
twenty (20) days after the selection of the third appraiser, the majority
of the appraisers shall set the fair market rental value. If the majority
of the appraisers are unable to set the fair market rental value within
said twenty (20) day period, the three appraisals shall be added together
and the total divided by three; the resulting quotient shall be the fair
market rental value and shall
-52-
<PAGE>
be deemed incorporated herein, provided, however, that if any appraisal differs
from the median appraisal by an amount equal to more than ten percent (10%) of
such median appraisal, that appraisal shall be disregarded, and the average of
the remaining appraisals (or the remaining appraisal) shall be the fair market
rental value. In establishing the fair market rental value, the appraiser or
appraisers shall consider the reasonable market rental value for the current use
of the Premises (including, but not limited to, renal rates for comparable space
with comparable tenant improvements and any adjustments to rent based upon
direct costs (operating expenses) and taxes, load factors, financing charges,
and/or cost of living or other rental adjustments; the relative strength of the
tenants; and of size of the space); without regard to the existence of this
Lease but taking into consideration the absolute nature of this Lease.
46. Right of Notice. Subject to any prior rights of other tenants of
---------------
the Project, if at any time during the Lease Term, as the same may be extended,
any space in the Project becomes available, Landlord shall notify Tenant of the
availability of such space in the same manner and at the same time that Landlord
notifies (or would notify) other tenants of the Project of the availability of
such space.
53
<PAGE>
EXHIBIT "A"
Site Plan
[ILLUSTRATION OF SITE PLAN]
-54-
<PAGE>
EXHIBIT "B"
Floor Plan
[ILLUSTRATION OF FLOOR PLAN]
-55-
<PAGE>
[LETTERHEAD OF REALTEC APPEARS HERE]
July 28, 1994
Mr. Harry Robbins
SYMPHONIX DEVICES, INC.
3047 Orchard Parkway
San Jose, CA 95134
Dear Harry:
Notwithstanding Paragraph 2.2 of the Lease between Symphonix Devices, Inc.
("Tenant") and Realtec Properties I, L.P. ("Landlord") for 3047 Orchard Parkway,
San Jose, California ("Premises") dated July 28, 1994, or any other pertinent
paragraph of said Lease, in the event that construction of the tenant
improvements by Landlord identified in Exhibit C-1 and C-2 of said Lease
triggers compliance with Title 24 of the Americans with Disabilities Act of
1990, all costs associated with said compliance shall be borne solely by the
Landlord.
The tenant improvements shown on Exhibit C-2 shall not be required to be
restored to their original condition by Tenant upon termination of the Lease
term or option to extend terms.
Landlord warrants that all Heating Ventilating Air Conditioning (HVAC) equipment
shall be in working order upon Lease commencement.
LANDLORD:
Realtec Properties I.L.P
By: /s/ Thomas P. Masters
-----------------------------------
Thomas P. Masters
Title: General Partner
Date: July 28, 1994
TENANT:
Symphonix Devices, Inc.
By: /s/ Harry S. Robbins
-----------------------------------
Harry S. Robbins
Title Pres/CEO
---------------------------------
Date July 28, 1994
-56-
<PAGE>
[LETTERHEAD OF REALTEC APPEARS HERE]
August 17, 1994
Mr. Harry Robbins
SYMPHONIX DEVICES, INC.
3047 Orchard Parkway
San Jose, CA 95134
RE: Lease Commencement
------------------
Dear Mr. Robbins:
In regard to that certain Lease dated July 28, 1994, by and between REALTEC
PROPERTIES I, a California limited partnership, as Landlord ("Landlord"), and
SYMPHONIX DEVICES INC., a California corporation, as Tenant ("Tenant"), this
letter will confirm our understanding and agreements relative to the Lease
commencement date.
Notwithstanding anything to the contrary contained in the Lease, it is agreed
that the Lease commenced on August 18, 1994 and shall end on August 17, 1997.
Please acknowledge receipt of this letter and your Agreement of Approval of the
foregoing, by signing the enclosed copy of this letter and returning the same to
us.
Very truly yours,
REALTEC PROPERTIES I,
a California limited partnership
/s/ Kathryn Rhinehart
Kathryn Rhinehart
Property Manager
ACCEPTED AND AGREED:
SYMPHONIX DEVICES, INC.,
a California corporation
By: /s/ Harry Robbins Dated: 8/17/94
-------------------------------- -------------------------
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<PAGE>
FIRST AMENDMENT to that lease dated July 28, 1994 by and between REALTEC
PROPERTIES I, L.P., a California limited partnership ("Landlord") and SYMPHONIX
DEVICES, INC., a California corporation ("Tenant") for the Premises known as
3047 Orchard Parkway, San Jose, California.
Pursuant to Addendum paragraph 44, "Option to Extend Lease Term" Tenant has, in
writing, opted to extend the lease term for a period of one year.
LANDLORD AND TENANT AGREE TO THE FOLLOWING:
1. The extended term shall commence August 18, 1997 and terminate August
17, 1998.
2. Rent during the extended term shall be Sixteen Thousand Seven Hundred
Seventy-six and no/100 ($16,776.00) Dollars.
3. Tenant hereby surrenders its second Option to Extend Lease Term for one
year, which is contained in Addendum paragraph 44. Tenant shall have no
options to extend beyond August 17, 1998.
4. Except as amended by the terms of this Amendment, the Lease shall remain
unmodified and in full force and effect on the terms, covenants and
conditions set forth therein.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Lease
effective as of the date set forth below.
LANDLORD: TENANT:
REALTEC PROPERTIES I, L.P. SYMPHONIX DEVICES, INC., a
A California limited partnership California corporation
By: /s/ Thomas P. Masters By: /s/ Harry S. Robbins
----------------------------- -----------------------------
Thomas P. Masters Harry S. Robbins
Title: General Partner Title: President and CEO
Date: 4/17/97 Date: 4/14/97
-------- --------
<PAGE>
Exhibit 10.9
SUMMARY OF BASIC LEASE TERMS
----------------------------
SECTION TERMS
(LEASE REFERENCE)
A. Lease Reference Date: October 27, 1997
-------------------------------------
(Introduction)
B. Landlord: Silicon Valley Properties, LLC
--------
(Introduction) a Delaware limited liability company
C. Tenant: Symphonix Devices, Inc., a California
------
(Introduction) corporation
D. Premises: That area consisting of 30,460 square feet
--------
((S)1.21) of gross leasable area the address of which
is 2331 Zanker Road, San Jose, California
95131, within the Building as outlined in
Exhibit A.
---------
E. Project: The land and improvements shown on Exhibit A
------- ---------
((S)1.22) consisting of Five (5) buildings the
aggregate gross leasable area of which is
203,500 square feet.
F. Building: The building in which the Premises are
--------
((S)1.7) located known as 2331-2333 Zanker road,
Building E, San Jose, California 95131
containing 46,860 square feet of gross
leasable area.
G. Tenant's Share: 14.97% of the Project (30,460/203,500)
--------------
((S) 1.29) 65.00% of the Building (30,460/46,860)
H. Tenant's Allocated Parking Stalls: 121 stalls.
---------------------------------
((S) 4.5)
I. INTENTIONALLY DELETED
((S) 1.26)
J. Lease Term: 60 calendar months (plus the partial month
----------
((S) 1.18) following the Commencement Date if such date is
not the first day of a month. SEE ADDENDUM NO.
---------------
1 TO LEASE FOR EXTENSION PROVISIONS.
-----------------------------------
K. Base Monthly Rent: See following rental structure (based on
-----------------
((S)3.1)) 5% annual increases):
01/01/98-12/31/98: $1.50 per square foot-$45,690.00 per month
01/01/99-12/31/99: $1.58 per square foot-$47,974.50 per month
01/01/00-12/31/00: $1.65 per square foot-$50,373.23 per month
01/01/01-12/31/01: $1.74 per square foot-$52,891.89 per month
01/01/02-12/31/02: $1.82 per square foot-$55,536.48 per month
L. Prepaid Rent: $45,690.00
------------
((S) 3.3)
M. Security Deposit: $299,216.48
----------------
((S) 3.5) SEE ADDENDUM NO. 1 TO LEASE FOR LETTER OF CREDIT PROVISIONS.
------------------------------------------------------------
N. Permitted Use: General administrative office, marketing,
-------------
((S) 4.1) research and development, light manufacturing, distribution,
and warehousing of medical and related devices or such other
industries reasonably approved in writing by Landlord.
O. Permitted Tenant's Alterations limit: $10,000.00
------------------------------------
((S) 5.2)
P. Tenant's Liability Insurance Minimum: $2,000,000.00
------------------------------------
((S) 9.1)
1
<PAGE>
Q. Landlord's Address: 2290 North First Street, Suite 108
------------------
((S) 1.3) San Jose, California 95131
R. Tenant's Address: 3047 Orchard Parkway
-----------------
((S) 1.3) San Jose, California 95134
S. Retained Real Estate Brokers: Colliers Parrish
----------------------------
((S) 15.13) International, Inc.
T. Lease: This Lease includes the summary of the Basic Lease
-----
((S) 1.17) Terms, the Lease, and the following exhibits and
addenda, Exhibit A (site plan of the Project
---------
containing description of the Premises),
Exhibit B (Improvement Agreement), Exhibit C
--------- ---------
(Intentionally Deleted), Exhibit D (Acknowledgment
---------
of Commencement Date), Exhibit E (Intentionally
---------
Deleted), Exhibit F (sign criteria), Exhibit G
--------- ---------
(Intentionally Deleted), Exhibit H (Hazardous
---------
Materials Questionnaire), and Addendum No. 1, all
of which are attached hereto and incorporated
herein by this reference.
The foregoing Summary is hereby incorporated into and made a part of this
Lease. Each reference in this Lease to any term of the Summary shall mean the
respective information set forth above and shall be construed to incorporate all
of the terms provided under the particular paragraph pertaining to such
information. In the event of any conflict between the Summary and the Lease,
the Summary shall control.
LANDLORD:
TENANT:
SILICON VALLEY PROPERTIES, L.L.C.
a Delaware limited liability company SYMPHONIX DEVICES, INC.
a California corporation
By: Divco SVP Group, LLC,
a Delaware limited liability company By: ______________________
Its Manager Harry Robbins
Title: President
By: __________________________
Name: Scott Smithers Dated: October __, 1997
Its: President
Dated: October __, 1997
2
<PAGE>
LEASE
This Lease is dated as of the lease reference date specified in Section A
---------
of the Summary and is made by and between the party identified as Landlord in
Section B of the Summary and the party identified as Tenant in Section C of the
- --------- ---------
Summary.
ARTICLE 1
---------
DEFINITIONS
-----------
1.1 General: Any initially capitalized term that is given a special
-------
meaning by this Article 1, the Summary, or by any other provision of this Lease
(including the exhibits attached hereto) shall have such meaning when used in
this Lease or any addendum or amendment hereto unless otherwise clearly
indicated by the context.
1.2 Additional Rent: The term "Additional Rent" is defined in (P)3.2.
---------------
1.3 Address for Notices: The term "Address for Notices" shall mean the
-------------------
addresses set forth in Sections Q and R of the Summary; provided, however, that
----------------
after the Commencement Date, Tenant's Address for Notices shall be the address
of the Premises.
1.4 Agents: The term "Agents" shall mean the following: (i) with respect
------
to Landlord or Tenant, the agents, employees and contractors of such party; and
(ii) in addition with respect to Tenant, Tenant's subtenants and their
respective agents, employees and contractors.
1.5 Agreed Interest Rate: The term "Agreed Interest Rate" shall mean
--------------------
that interest rate determined as of the time it is to be applied that is equal
to the lesser of (i) 5% in excess of the discount rate established by the
Federal Reserve Bank of San Francisco as it may be adjusted from time to time,
or (ii) the maximum interest rate permitted by Law.
1.6 Base Monthly Rent: The term "Base Monthly Rent" shall mean the fixed
-----------------
monthly rent payable by Tenant pursuant to (P)3.1 which is specified in Section
-------
K of the Summary.
- -
1.7 Building: The term "Building" shall mean the building in which the
--------
Premises are located which Building is identified in Section F of the Summary,
---------
the gross leasable area of which is referred to herein as the "Building Gross
Leasable Area."
1.8 Commencement Date: The term "Commencement Date" is the date the
-----------------
Lease Term commences, which term is defined in (P)2.2.
1.9 Common Area: The term "Common Area" shall mean all areas and
-----------
facilities within the Project that are not designated by Landlord for the
exclusive use of Tenant or any other lessee or other occupant of the Project,
including the parking areas, access and perimeter roads, pedestrian sidewalks,
landscaped areas, trash enclosures, recreation areas and the like.
1.10 Common Operating Expenses: The term "Common Operating Expenses" is
-------------------------
defined in (P)8.2.
1.11 Consumer Price Index: INTENTIONALLY DELETED.
--------------------
1.12 Effective Date: The term "Effective Date" shall mean the date the
--------------
last signatory to this Lease whose execution is required to make it binding on
the parties hereto shall have executed this Lease.
1.13 Event of Tenant's Default: The term "Event of Tenant's Default" is
-------------------------
defined in (P)13.1.
1.14 Hazardous Materials: The terms "Hazardous Materials" and "Hazardous
-------------------
Materials Laws" are defined in (P)7.2E.
1.15 Insured and Uninsured Peril: The terms "Insured Peril" and
---------------------------
"Uninsured Peril" are defined in (P)11.2E.
1.16 Law: The term "Law" shall mean any judicial decision, statute,
---
constitution, ordinance, resolution, regulation, rule, administrative order, or
other requirement of any municipal, county, state, federal or other government
agency or authority having jurisdiction over the parties to this Lease or the
Premises, or both, in effect either at the Effective Date or any time during the
Lease Term.
1.17 Lease: The term "Lease" shall mean the Summary and all elements of
-----
this Lease identified in Section T of the Summary, all of which are attached
---------
hereto and incorporated herein by this reference.
1.18 Lease Term: The term "Lease Term" shall mean the term of this Lease
----------
which shall commence on the Commencement Date and continue for the period
specified in Section J of the Summary.
---------
1
<PAGE>
1.19 Lender: The term "Lender" shall mean any beneficiary, mortgagee,
------
secured party, lessor, or other holder of any Security Instrument.
1.20 Permitted Use: The term "Permitted Use" shall mean the use specified
-------------
in Section N of the Summary.
---------
1.21 Premises: The term "Premises" shall mean that building area
--------
described in Section D of the Summary that is within the Building.
---------
1.22 Project: The term "Project" shall mean that real property and the
-------
improvements thereon which are specified in Section E of the Summary, the
---------
aggregate gross leasable area of which is referred to herein as the "Project
Gross Leasable Area."
1.23 Private Restrictions: The term "Private Restrictions" shall mean all
--------------------
recorded covenants, conditions and restrictions, private agreements, reciprocal
easement agreements, and any other recorded instruments affecting the use of the
Premises which (i) exist as of the Effective Date, or (ii) are recorded after
the Effective Date and are approved by Tenant.
1.24 Real Property Taxes: The term "Real Property Taxes" is defined in
-------------------
(P)8.3.
1.25 Scheduled Commencement Date: The term "Scheduled Commencement Date"
---------------------------
shall mean the date specified in Section I of the Summary.
---------
1.26 Security Instrument: The term "Security Instrument" shall mean
-------------------
any underlying lease, mortgage or deed of trust which now or hereafter affects
the Project, and any renewal, modification, consolidation, replacement or
extension thereof.
1.27 Summary: The term "Summary" shall mean the Summary of Basic
-------
Lease Terms executed by Landlord and Tenant that is part of this Lease.
1.28 Tenant's Alterations: The term "Tenant's Alterations" shall mean
--------------------
all improvements, additions, alterations, and fixtures installed in the Premises
by Tenant at its expense which are not Trade Fixtures and are not Tenant
Improvements (as defined in Exhibit B attached hereto).
---------
1.29 Tenant's Share: The term "Tenant's Share" shall mean the
--------------
percentage obtained by dividing Tenant's Gross Leasable Area by the Building
Gross Leasable Area (as defined in section 1.7 above) or the Project Gross
Leasable Area (as defined in section 1.22 above), as applicable, which as of the
Effective Date is the percentage identified in Section G of the Summary.
---------
1.30 Trade Fixtures: The term "Trade Fixtures" shall mean (i)
--------------
Tenant's inventory, furniture, signs, equipment, any clean room equipment
constructed, installed or placed in the Premises by or for Tenant and any
personal property or furnishings of Tenant in the Premises, and (ii) anything
affixed to the Premises by Tenant at its expense for purposes of trade,
manufacture, ornament or domestic use (except replacement of similar work or
material originally installed by Landlord) which can be removed without material
injury to the Premises. Tenant shall be entitled to remove its Trade Fixtures
at any time during the Term (or any Extension Period as defined in Addendum No.
1) of this Lease, including, without limitation, upon the termination of the
Lease Term or any Extension Period, as applicable, and any damage caused by such
removal by Tenant or Tenant's Agents shall be immediately repaired and restored
by Tenant at its expense.
ARTICLE 2
---------
DEMISE, CONSTRUCTION, AND
-------------------------
ACCEPTANCE
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2.1 Demise of Premises: Landlord hereby leases to Tenant, and Tenant
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leases from Landlord, for the Lease Term upon the terms and conditions of this
Lease, the Premises together with (i) the non-exclusive right to use the number
of Tenant's Allocated Parking Stalls within the Common Area (subject to the
limitations set forth in (P)4.5), and (ii) the non-exclusive right to use the
Common Area for ingress to and egress from the Premises. Landlord reserves the
use of the exterior walls, the roof and the area beneath and above the Premises,
together with the right to install, maintain, use, and replace ducts, wires,
conduits and pipes leading through the Premises in locations which will not
materially interfere with Tenant's use of the Premises.
2.2 Commencement Date: Pursuant to Exhibit B attached hereto, Tenant
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is constructing all of the Tenant Improvements (including, without limitation,
the Special Work and Electrical Upgrade as defined in Exhibit B). Accordingly,
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concurrent with the complete execution and delivery of this Lease and receipt by
Landlord of the Security Deposit and prepaid rent (the "Delivery Date"),
Landlord shall deliver possession of the Premises to Tenant for the purpose of
Tenant constructing the Tenant Improvements. The Lease Term and the obligation
of Tenant to pay Base Monthly Rent and Additional Rent shall not commence until
the Commencement Date. The "Commencement Date" shall be the earlier of : (i)
the date the Tenant Improvements have been Substantially Completed, or (ii)
January 1, 1998, subject to any delays caused by any "Landlord Delay" or Force
Majeure Delay (as such terms are defined in Exhibit B attached hereto).
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Promptly after the Commencement Date, Landlord and
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Tenant shall execute a written acknowledgment of the date of commencement in the
form attached hereto as Exhibit D, appropriately completed
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2.3 Delivery of Possession: If this Lease provides that Landlord must
----------------------
deliver possession of the Premises to Tenant on a certain date, then if Landlord
is unable to deliver possession of the Premises to Tenant on or before such date
for any reason whatsoever, this Lease shall not be void or voidable for a period
of 30 days thereafter, and Landlord shall not be liable to Tenant for any loss
or damage resulting therefrom, except that the outside date of January 1, 1998
specified in section 2.2 for the Commencement Date shall be delayed one (1) day
for each day after the Delivery Date that possession is not delivered to Tenant
as provided in section 2.2 above. Tenant acknowledges that it has had an
opportunity to conduct, and has conducted, such inspections of the Premises as
it deems necessary to evaluate its condition. Except as otherwise specifically
provided herein, Tenant agrees to accept possession of the Premises in its then
existing condition, "as-is", including all patent defects.
2.4 Early Occupancy: If Tenant enters or permits its contractors to
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enter the Premises prior to the Commencement Date, it shall do so upon all of
the terms of this Lease (including its obligations regarding indemnity and
insurance) except those regarding the obligation to pay Base Monthly Rent and
Additional Rent, which shall commence on the Commencement Date.
2.5 Acceptance of Premises: Landlord represents and warrants that as of
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the Effective Date (a) the roof, all structural portions of the Premises,
plumbing, electrical (including all outlets), sprinklers and heating and air
conditioning system for the Premises are in good working order and repair. If
there is a breach of the foregoing representation and warranty within sixty (60)
days after the Commencement Date and Tenant provides written notice to Landlord
within said sixty (60) day period specifying the nature of the breach, then
Landlord, at its expense, shall promptly rectify such breach in a manner
reasonably determined by Landlord. The failure of Tenant to provide written
notice of such breach of the warranties set forth above within the specified
time periods shall be conclusively deemed that no such breach occurred.
Tenant's acceptance of the Premises shall not be deemed a waiver of Tenant's
right to have latent defects in the roof structure, foundation, footings, floor
slab and exterior and load bearing walls repaired at Landlord's expense;
provided that Tenant shall give notice to Landlord promptly after Tenant has
knowledge of such defect or such defect becomes reasonably apparent. Landlord
agrees to assign to Tenant during the Lease Term any warranty from any vendor
with respect to the Premises which is applicable to the Premises and will reduce
Tenant's maintenance obligations under this Lease, subject to Landlord's right
to retain an interest in such warranty if Tenant does not enforce such warranty.
Such assignment is made without representation or warranty as to the
assignability, existence or validity of any such warranty.
ARTICLE 3
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RENT
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3.1 Base Monthly Rent: Commencing on the Commencement Date and
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continuing throughout the Lease Term, Tenant shall pay to Landlord the Base
Monthly Rent set forth in Section K of the Summary.
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3.2 Additional Rent: Commencing on the Commencement Date and
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continuing throughout the Lease Term, Tenant shall pay the following as
additional rent (the "Additional Rent"): (i) any late charges or interest due
Landlord pursuant to (P)3.4; (ii) Tenant's Share of Common Operating Expenses as
provided in (P)8.1; (iii) Landlord's share of any Subrent received by Tenant
upon certain assignments and sublettings as required by (P)14.1; (iv) any legal
fees and costs due Landlord pursuant to (P)15.9; and (v) any other charges due
Landlord pursuant to this Lease.
3.3 Payment of Rent: Concurrently with the execution of this Lease by
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both parties, Tenant shall pay to Landlord the amount set forth in Section L of
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the Summary as prepayment of rent for credit against the first installment(s) of
Base Monthly Rent. All rent required to be paid in monthly installments shall
be paid in advance on the first day of each calendar month during the Lease
Term. If Section K of the Summary provides that the Base Monthly Rent is to be
---------
increased during the Lease Term and if the date of such increase does not fall
on the first day of a calendar month, such increase shall become effective on
the first day of the next calendar month. All rent shall be paid in lawful
money of the United States, without any abatement, deduction or offset
whatsoever (except as specifically provided in (P)11.4 and (P)12.3), and without
any prior demand therefor. Rent shall be paid to Landlord at its address set
forth in Section Q of the Summary, or at such other place as Landlord may
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designate from time to time. Tenant's obligation to pay Base Monthly Rent and
Tenant's Share of Common Operating Expenses shall be prorated at the
commencement and expiration of the Lease Term.
3.4 Late Charge and Interest on Rent in Default: If any Base Monthly
-------------------------------------------
Rent or Additional Rent is not received by Landlord from Tenant within three
business days after Landlord has notified Tenant in writing that payment of such
rent has not been received by Landlord, then Tenant shall immediately pay to
Landlord a late charge equal to 5% of such delinquent rent as liquidated damages
for Tenant's failure to make timely payment. In no event shall this provision
for a late charge be deemed to grant to Tenant a grace period or extension of
time within which to pay any rent or prevent Landlord from exercising any right
or remedy available to Landlord upon Tenant's failure to pay any rent due under
this Lease in a timely fashion, including any right to terminate this Lease
pursuant to (P)13.2B. If any rent remains delinquent for a period in excess of
30 days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
following the date such amount became due until paid.
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3.5 Security Deposit: On the Effective Date, Tenant shall deposit
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with Landlord the amount set forth in Section M of the Summary as security for
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the performance by Tenant of its obligations under this Lease, and not as
prepayment of rent (the "Security Deposit"). Landlord may from time to time
apply such portion of the Security Deposit as is reasonably necessary for the
following purposes: (i) to remedy any default by Tenant in the payment of rent
or in the performance of any obligation; (ii) to clean the Premises upon
termination of the Lease if Tenant is required to so clean the Premises and
fails to do so to the extent required under this Lease; and (iii) to remedy any
other default of Tenant. In the event the Security Deposit or any portion
thereof is so used, Tenant agrees to pay to Landlord promptly upon demand an
amount in cash sufficient to restore the Security Deposit to the full original
amount. Landlord shall not be deemed a trustee of the Security Deposit, may use
the Security Deposit in business, and shall not be required to segregate it from
its general accounts. Tenant shall not be entitled to any interest on the
Security Deposit. If Landlord transfers the Premises during the Lease Term,
Landlord may pay the Security Deposit to any transferee of Landlord's interest
in conformity with the provisions of California Civil Code Section 1950.7 and/or
any successor statute, in which event the transferring Landlord will be released
from all liability for the return of the Security Deposit.
ARTICLE 4
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USE OF PREMISES
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4.1 Limitation on Use: Tenant shall use the Premises solely for the
-----------------
Permitted Use specified in Section N of the Summary. Tenant shall not do
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anything in or about the Premises which will (i) cause structural injury to the
Building, or (ii) cause damage to any part of the Building except to the extent
reasonably necessary for the installation of Tenant's Trade Fixtures and
Tenant's Alterations, and then only in a manner which has been first approved by
Landlord in writing. Tenant shall not operate any equipment within the Premises
which will (i) materially damage the Building or the Common Area, (ii) overload
existing electrical systems or other mechanical equipment servicing the
Building, (iii) impair the efficient operation of the sprinkler system or the
heating, ventilating or air conditioning ("HVAC") equipment within or servicing
the Building, or (iv) damage, overload or corrode the sanitary sewer system.
Tenant shall not attach, hang or suspend anything from the ceiling, roof, walls
or columns of the Building or set any load on the floor in excess of the load
limits for which such items are designed nor operate hard wheel forklifts within
the Premises. Any dust, fumes, or waste products generated by Tenant's use of
the Premises shall be contained and disposed so that they do not (i) create an
unreasonable fire or health hazard, (ii) damage the Premises, or (iii) result in
the violation of any Law. Except as approved by Landlord, Tenant shall not
change the exterior of the Building or install any equipment or antennas on or
make any penetrations of the exterior or roof of the Building. Tenant shall not
commit any waste in or about the Premises, and Tenant shall keep the Premises in
a neat, clean, attractive and orderly condition, free of any nuisances. If
Landlord designates a standard window covering for use throughout the Building,
Tenant shall use this standard window covering to cover all windows in the
Premises. Tenant shall not conduct on any portion of the Premises or the
Project any sale of any kind, including any public or private auction, fire
sale, going-out-of-business sale, distress sale or other liquidation sale.
4.2 Compliance with Regulations: Tenant shall not use the Premises in
---------------------------
any manner which violates any Laws or Private Restrictions which affect the
Premises. Tenant shall abide by and promptly observe and comply with all Laws
and Private Restrictions. Tenant shall not use the Premises in any manner which
will cause a cancellation of any insurance policy covering any improvements
installed by Landlord at its expense or which poses an unreasonable risk of
damage or injury to the Premises. Tenant shall not sell, or permit to be sold
in or about the Premises any article which may be prohibited by the standard
form of fire insurance policy. Tenant shall comply with all reasonable
requirements of any insurance company, insurance underwriter, or Board of Fire
Underwriters, which are necessary to maintain the insurance coverage carried by
either Landlord or Tenant pursuant to this Lease, to the extent necessary due to
Tenant's particular use of the Premises or Tenant's Alterations.
Notwithstanding the foregoing, Landlord represents and warrants to its knowledge
that as of the Effective Date: (a) the Private Restrictions do not prohibit the
permitted uses set forth in Section N of the Summary of Basic Lease Terms, and
(b) Landlord is not in receipt of notice of a violation of any Law pertaining to
the Premises (provided that Landlord has informed Tenant that ADA must be
completed as part of Landlord's "Special Work" as defined in Exhibit B attached
hereto which shall be at Landlord's sole cost and expenses as provided in
Exhibit B, and that due to the age of the Building there may be work required to
comply with existing Laws in connection with the construction of the Tenant
Improvements).
4.3 Outside Areas: No materials, supplies, tanks or containers,
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equipment, finished products or semi-finished products, raw materials,
inoperable vehicles or articles of any nature shall be stored upon or permitted
to remain outside of the Premises except in fully fenced and screened areas
outside the Building which have been designed for such purpose and have been
approved in writing by Landlord for such use by Tenant.
4.4 Signs: Tenant shall not place on any portion of the Premises any
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sign, placard, lettering in or on windows, banner, displays or other advertising
or communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord. All such approved signs shall
strictly conform to all Laws, Private Restrictions, and Landlord's sign criteria
attached as Exhibit F, and shall be installed at the expense of Tenant. Tenant
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shall maintain such signs in good condition and repair.
4.5 Parking: Tenant is allocated and shall have the non-exclusive
-------
right to use not more than the number of Tenant's Allocated Parking Stalls
contained within the Project described in Section H of the Summary for its use
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and the use of Tenant's Agents, the location of which may be designated from
time to time by Landlord; provided, however, that Landlord agrees that it will
exercise its rights under this section in a non-discriminatory
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<PAGE>
manner so as not to unreasonably relocate such parking spaces in an unreasonable
location. Tenant shall not at any time use more parking spaces than the number
so allocated to Tenant or park its vehicles or the vehicles of others in any
portion of the Project designated by Landlord as an exclusive parking area.
Tenant shall not have the exclusive right to use any specific parking space. If
Landlord grants to any other tenant the exclusive right to use any particular
parking space(s), Tenant shall not use such spaces. Landlord reserves the right,
after having given Tenant reasonable notice, to have any vehicles owned by
Tenant or Tenant's Agents utilizing parking spaces in excess of the parking
spaces allowed for Tenant's use to be towed away at Tenant's cost. All trucks
and delivery vehicles shall be (i) parked at the rear of the Building, (ii)
loaded and unloaded in a manner which does not interfere with the businesses of
other occupants of the Project, and (iii) permitted to remain on the Project
only so long as is reasonably necessary to complete loading and unloading. In
the event Landlord elects or is required by any Law to limit or control parking
in the Project, whether by validation of parking tickets or any other method of
assessment, Tenant agrees to participate in such validation or assessment
program under such reasonable rules and regulations as are from time to time
established by Landlord. However, the parties hereby acknowledge and agree that
Tenant's parking rights described in Section H of the Summary and Section 4.5 of
this Lease are included in the Base Monthly Rent, and under no circumstances,
including, without limitation, Landlord's institution of a validation or
assessment program, shall Tenant be required to pay Landlord or Landlord's
Agents any additional amount for said parking rights.
4.6 Rules and Regulations: Landlord may from time to time promulgate
---------------------
reasonable and nondiscriminatory rules and regulations applicable to all
occupants of the Project for the care and orderly management of the Project and
the safety of its tenants and invitees. Such rules and regulations shall be
binding upon Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees
to abide by such rules and regulations, provided that such rules and regulations
do not unreasonably interfere with tenant's use of or access to the Premises or
Tenant's parking rights and do not materially increase Tenant's obligations or
decrease Tenant's rights under this Lease. If there is a conflict between the
rules and regulations and any of the provisions of this Lease, the provisions of
this Lease shall prevail. Landlord shall not be responsible for the violation
by any other tenant of the Project of any such rules and regulations.
ARTICLE 5
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TRADE FIXTURES AND ALTERATIONS
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5.1 Trade Fixtures: Throughout the Lease Term, Tenant may provide and
--------------
install, and shall maintain in good condition, any Trade Fixtures required in
the conduct of its business in the Premises. All Tenant's Trade Fixtures and
personal property installed in the Premises at Tenant's expense ("Tenant's
Property") shall at all times remain Tenant's property and Tenant shall be
entitled to all depreciation, amortization and other tax benefits with respect
thereto. At any time Tenant may remove Tenant's Property (including the clean
room equipment) from the Premises, provided Tenant repairs all damage caused by
such removal. Landlord shall have no lien or other interest whatsoever in any
item of Tenant's Property, or any portion thereof or interest therein located in
the Premises or elsewhere, and Landlord hereby waives all such liens and
interests. Within twenty (20) days following Tenant's request, Landlord shall
execute documents in a form reasonably acceptable to Landlord and Tenant to
evidence Landlord's waiver of any right, title, lien or interest in Tenant's
Property located in the Premises.
5.2 Tenant's Alterations: Construction by Tenant of Tenant's
--------------------
Alterations (not including the Tenant Improvements) shall be governed by the
following:
A. Tenant shall not construct any Tenant's Alterations or otherwise
alter the Premises without Landlord's prior written approval. Landlord shall
not unreasonably withhold its approval for any of Tenant's Alterations, unless
any of Tenant's Alterations will affect (i) the roof, foundation or structural
parts of the Building, (ii) the heating, air-conditioning or ventilation or life
safety systems (except in the event of an emergency), (iii) the Common Areas or
portions of the Building outside of the Premises, or (iv) require any additional
work in addition to Tenant's proposed Tenant's Alteration in the Building or
Project to comply with any Law (and Tenant is unwilling to pay for such
additional work), in which case Landlord may withhold its approval in its sole
and absolute discretion.. Tenant shall be entitled, without Landlord's prior
approval, to make Tenant's Alterations (i) which do not affect the structural or
exterior parts or water tight character of the Building, and (ii) the reasonably
estimated cost of which, including, without limitation, the cost of all
demolition of any part of the Premises removed or materially altered in
connection with such Tenant's Alterations, together do not exceed the Permitted
Tenant Alterations Limit specified in Section O of the Summary per work of
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improvement. In the event Landlord's approval for any Tenant's Alterations is
required, Tenant shall not construct the Tenant's Alteration until Landlord has
approved in writing the plans and specifications therefor, if any are required
for obtaining any permits, and such Tenant's Alterations shall be constructed
substantially in compliance with such approved plans and specifications by a
licensed contractor first approved by Landlord, which approval shall not be
unreasonably withheld or delayed. If Landlord's consent is required for any
Tenant's Alteration and Landlord does not notify Tenant in writing of its
approval or disapproval within fifteen (15) days following receipt by Landlord
of Tenant's request for approval and supporting plans and specifications (if any
are required), then Landlord shall be deemed to have disapproved the proposed
Tenant's Alteration, unless Tenant provides a second notice requesting such
consent and Landlord fails to respond within five (5) days after Landlord's
receipt of such second notice, in which case Landlord shall be deemed to have
approved of the proposed Tenant's Alteration. All Tenant's Alterations
constructed by Tenant shall be constructed by a licensed contractor in
accordance with all Laws using new materials of good quality.
5
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B. Tenant shall not commence construction of any Tenant's
Alterations until (i) all required governmental approvals and permits have been
obtained, (ii) all requirements regarding insurance imposed by this Lease have
been satisfied, (iii) Tenant has given Landlord at least five days' prior
written notice of its intention to commence such construction, and (iv) if
reasonably requested by Landlord, Tenant has obtained contingent liability and
broad form builders' risk insurance in an amount reasonably satisfactory to
Landlord if there are any perils relating to the proposed construction not
covered by insurance carried pursuant to Article 9.
C. All Tenant's Alterations shall remain the property of Tenant
during the Lease Term but shall not be altered or removed from the Premises. At
the expiration or sooner termination of the Lease Term, all Tenant's Alterations
shall be surrendered to Landlord as part of the realty and shall then become
Landlord's property, and subject to Articles 11 and 12 of this Lease, Landlord
shall have no obligation to reimburse Tenant for all or any portion of the value
or cost thereof; provided, however, that if Landlord requires Tenant to remove
any Tenant's Alterations, Tenant shall so remove such Tenant's Alterations prior
to the expiration or sooner termination of the Lease Term. Notwithstanding the
foregoing, Tenant shall not be obligated to remove any Tenant's Alterations with
respect to which the following is true: (i) Tenant was required, or elected, to
obtain the approval of Landlord to the installation of the Tenant's Alteration
in question; (ii) at the time Tenant requested Landlord's approval, Tenant
requested of Landlord in writing that Landlord inform Tenant of whether or not
Landlord would require Tenant to remove such Tenant's Alteration at the
expiration of the Lease Term; and (iii) at the time Landlord granted its
approval, it did not inform Tenant that it would require Tenant to remove such
Tenant's Alteration at the expiration of the Lease Term.
5.3 Alterations Required by Law: Tenant shall make any alteration,
---------------------------
addition or change of any sort to the Premises that is required by any Law
because of (i) Tenant's particular use or change of use of the Premises; (ii)
Tenant's application for any permit or governmental approval; or (iii) Tenant's
construction or installation of any Tenant's Alterations or Trade Fixtures. Any
other alteration, addition, or change required by Law which is not the
responsibility of Tenant pursuant to the foregoing shall be made by Landlord
(subject to Landlord's right to reimbursement from Tenant specified in (P)5.4).
5.4 Amortization of Certain Capital Improvements: Tenant shall pay
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Additional Rent in the event Landlord reasonably elects or is required to make
any of the following kinds of capital improvements to the Project and the cost
thereof is not reimbursable as a Common Operating Expense: (i) capital
improvements required to be constructed in order to comply with any Law
(excluding any Hazardous Materials Law) not in effect or applicable to the
Project as of the Effective Date; (ii) modification of existing or construction
of additional capital improvements or building service equipment for the purpose
of reducing the consumption of utility services or Common Operating Expenses of
the Project; and (iii) replacement of capital improvements or building service
equipment existing as of the Effective Date when required because of normal wear
and tear to the extent it affects the Building or Common Area. The amount of
Additional Rent Tenant is to pay with respect to each such capital improvement
shall be determined as follows:
A. All costs paid by Landlord to construct such improvements shall
be amortized over the useful life of such improvement (as reasonably determined
by Landlord in accordance with generally accepted accounting principles) with
interest on the unamortized balance at the then prevailing market rate Landlord
would pay if it borrowed funds to construct such improvements from an
institutional lender, and Landlord shall inform Tenant of the monthly
amortization payment required to so amortize such costs, and shall also provide
Tenant with the information upon which such determination is made. The parties
hereby agree that if the existing HVAC system for the Premises (other than the
changes and additions to the HVAC system completed as part of the Tenant
Improvements) is replaced during the Lease Term, the useful life for such
replacement shall be 15 years.
B. As Additional Rent, Tenant shall pay at the same time the Base
Monthly Rent is due an amount equal to Tenant's Share of that portion of such
monthly amortization payment fairly allocable to the Building (as reasonably
determined by Landlord) for each month after such improvements are completed
until the first to occur of (i) the expiration of the Lease Term (as it may be
extended), or (ii) the end of the term over which such costs were amortized.
5.5 Mechanic's Liens: Tenant shall keep all or any portion of Project
----------------
free from any liens, and shall pay when due all bills, arising out of any work
performed, materials furnished, or obligations incurred by Tenant or Tenant's
Agents relating to all or any portion of the Project. If any claim of lien
described in the preceding sentence is recorded (except those caused by Landlord
or Landlord's Agents), Tenant shall bond against or discharge the same within 10
days after the same has been recorded against all or any portion of the Project.
Should any lien be filed against all or any portion of the Project or any action
be commenced affecting title to all or any portion of the Project, the party
receiving notice of such lien or action shall immediately give the other party
written notice thereof.
5.6 Taxes on Tenant's Property: Tenant shall pay before delinquency
--------------------------
any and all taxes, assessments, license fees and public charges levied, assessed
or imposed against Tenant or Tenant's estate in this Lease or the property of
Tenant situated within the Premises which become due during the Lease Term. If
any tax or other charge is assessed by any governmental agency because of the
execution of this Lease, such tax shall be paid by Tenant. On demand by
Landlord, Tenant shall furnish Landlord with satisfactory evidence of these
payments.
ARTICLE 6
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6
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REPAIR AND MAINTENANCE
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6.1 Tenant's Obligation to Maintain: Except as otherwise provided in
-------------------------------
(P)6.2, (P)11.1, and (P)12.3, Tenant shall be responsible for the following
during the Lease Term:
A. Tenant shall clean and maintain in good order, condition, and
repair and replace when necessary the Premises and every part thereof, through
regular inspections and servicing, including, but not limited to: (i) all
plumbing and sewage facilities (including all sinks, toilets, faucets and
drains), and all ducts, pipes, vents or other parts of the HVAC or plumbing
system; (ii) all fixtures, interior walls, floors, carpets and ceilings; (iii)
all windows, doors, entrances, plate glass, showcases and skylights (including
cleaning both interior and exterior surfaces); (iv) all electrical facilities
and all equipment (including all lighting fixtures, lamps, bulbs, tubes, fans,
vents, exhaust equipment and systems); and (v) any automatic fire extinguisher
equipment in the Premises.
B. With respect to utility facilities serving the Premises
(including electrical wiring and conduits, gas lines, water pipes, and plumbing
and sewage fixtures and pipes), Tenant shall be responsible for the maintenance
and repair of any such facilities which serve only the Premises, including all
such facilities that are within the walls or floor, or on the roof of the
Premises, and any part of such facility that is not within the Premises, but
only up to the point where such facilities join a main or other junction (e.g.,
sewer main or electrical transformer) from which such utility services are
distributed to other parts of the Project as well as to the Premises. Tenant
shall replace any damaged or broken glass in the Premises (including all
interior and exterior doors and windows) with glass of the same kind, size and
quality. Tenant shall repair any damage to the Premises (including exterior
doors and windows) caused by vandalism or any unauthorized entry.
C. Tenant shall (i) maintain and repair when necessary all HVAC
equipment which services only the Premises, and shall keep the same in good
condition through regular inspection and servicing, and (ii) maintain
continuously throughout the Lease Term a service contract for the maintenance of
all such HVAC equipment with a licensed HVAC repair and maintenance contractor
approved by Landlord, which contract provides for the periodic inspection and
servicing of the HVAC equipment at least once every 90 days during the Lease
Term. Notwithstanding anything to the contrary in this Lease, if the HVAC units
or system for the Premises (excluding any HVAC units for the clean room) needs
to be replaced during the Lease Term or Extended Period of this Lease, Landlord
shall replaced such units and/or system at its cost and expense, but Tenant
shall pay Landlord a portion of such cost in accordance with sections 5.4A and B
of this Lease unless the need for such replacement is due to Tenant's willful
misconduct or intentional misuse. If the HVAC units or system for the clean
room need to be replaced during the Lease Term or Extended Period, Tenant shall
be solely responsible for the cost to replace such units or system. Tenant
shall maintain continuously throughout the Lease Term a service contract for the
washing of all windows (both interior and exterior surfaces) in the Premises
with a contractor approved by Landlord, which contract provides for the periodic
washing of all such windows at least once every 90 days during the Lease Term.
Tenant shall furnish Landlord with copies of all such service contracts, which
shall provide that they may not be canceled or changed without at least 30 days'
prior written notice to Landlord. If Tenant fails to maintain such service
contact for the maintenance of the HVAC at any time during the Lease Term or if
Tenant assigns this Lease to an unaffiliated party, Landlord reserves the right
after at least 30 days written notice to Tenant to elect to obtain such HVAC
service contract at Tenant's expense, unless Tenant cures such failure within
said 30-day period.
D. All repairs and replacements required of Tenant shall be promptly
made with new materials of like kind and quality. If the work affects the
structural parts of the Building or if the item of repair or replacement affects
or involves the HVAC or life safety system, then Tenant shall first obtain
Landlord's written approval of the scope of the work, plans therefor if any,
materials to be used, and the contractor, except in cases of an emergency, where
no consent shall be required.
E. Notwithstanding anything to the contrary in this Lease, Landlord
shall perform and construct, and Tenant shall have no responsibility to perform
or construct any repair, maintenance, restoration, replacement, renewal or
improvement (i) necessitated by the gross negligence or willful misconduct of
Landlord or Landlord's Agents, (ii) to the structural portions of the Project
(which for purposes hereof shall mean the roof structure, foundation, floor
slab, footings, exterior and load bearing walls) or (iii) which is treated as a
"capital expenditure" under generally accepted accounting principles as
determined by Landlord in its reasonable discretion in accordance with generally
accepted accounting principles; provided, however that Tenant shall pay Landlord
a portion of the expense for any such repair or replacement of any non-
structural portion of the Premises or Building in accordance with Sections 5.4A
and B of this Lease.
6.2 Landlord's Obligation to Maintain: Landlord shall repair,
---------------------------------
maintain and operate the Common Area and repair and maintain the roof, exterior
and structural parts of the building(s) located on the Project so that the same
are kept in good order and repair. If there is building service equipment
and/or utility facilities serving portions of the Common Area and/or both the
Premises and other parts of the Building, Landlord shall maintain and operate
(and replace when necessary) such equipment. Landlord shall not be responsible
for repairs required by an accident, fire or other peril or for damage caused to
any part of the Project by any act or omission of Tenant or Tenant's Agents
except as otherwise required by this Lease or except due to the gross negligence
or willful misconduct of Landlord or Landlord's Agents. Landlord may engage
contractors of its choice to perform the obligations required of it by this
Article, and the necessity of any expenditure to perform such obligations shall
be at the sole discretion of Landlord.
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6.3 Control of Common Area: Landlord shall at all times have exclusive
----------------------
control of the Common Area. Landlord shall have the right, without the same
constituting an actual or constructive eviction and without entitling Tenant to
any abatement of rent, to: (i) close any part of the Common Area to whatever
extent required in the opinion of Landlord's counsel to prevent a dedication
thereof or the accrual of any prescriptive rights therein; (ii) temporarily
close the Common Area to perform maintenance or for any other reason deemed
sufficient by Landlord; (iii) change the shape, size, location and extent of the
Common Area; (iv) eliminate from or add to the Project any land or improvement,
including multi-deck parking structures; (v) make changes to the Common Area
including, without limitation, changes in the location of driveways, entrances,
passageways, doors and doorways, elevators, stairs, restrooms, exits, parking
spaces, parking areas, sidewalks or the direction of the flow of traffic and the
site of the Common Area; (vi) remove unauthorized persons from the Project;
and/or (vii) change the name or address of the Building or Project. Tenant shall
keep the Common Area clear of all obstructions created or permitted by Tenant.
In exercising any such rights regarding the Common Area, (i) Landlord shall make
a reasonable effort to minimize any disruption to Tenant's business, and (ii)
Landlord shall not exercise its rights to control the Common Area in a manner
that would materially interfere with Tenant's use of the Premises. Landlord
shall have no obligation to provide guard services or other security measures
for the benefit of the Project. Tenant assumes all responsibility for the
protection of Tenant and Tenant's Agents from acts of third parties; provided,
however, that nothing contained herein shall prevent Landlord, at its sole
option, from providing security measures for the Project. Notwithstanding the
foregoing, Tenant shall at all times during the Lease Term have reasonable
access to and from the Premises and the parking lot in the Common Areas.
ARTICLE 7
---------
WASTE DISPOSAL AND UTILITIES
----------------------------
7.1 Waste Disposal: Tenant shall store its waste either inside the
--------------
Premises or within outside trash enclosures that are fully fenced and screened
in compliance with all Private Restrictions, and designed for such purpose. All
entrances to such outside trash enclosures shall be kept closed, and waste shall
be stored in such manner as not to be visible from the exterior of such outside
enclosures. Tenant shall cause all of its waste to be regularly removed from
the Premises at Tenant's sole cost. Tenant shall keep all fire corridors and
mechanical equipment rooms in the Premises free and clear of all obstructions at
all times.
7.2 Hazardous Materials: Landlord and Tenant agree as follows with
-------------------
respect to the existence or use of Hazardous Materials on the Project:
A. Any handling, transportation, storage, treatment, disposal or use
of Hazardous Materials by Tenant and Tenant's Agents after the Effective Date in
or about the Project shall strictly comply with all applicable Hazardous
Materials Laws. Tenant shall not be required to comply with any Laws pertaining
to Hazardous Materials, except to the extent necessitated due to Tenant's or any
of Tenant's Agents use, generation or storage of Hazardous Materials during the
Lease Term. Tenant shall indemnify, defend upon demand with counsel reasonably
acceptable to Landlord, and hold harmless Landlord from and against any
liabilities, losses, claims, damages, lost profits, consequential damages,
interest, penalties, fines, monetary sanctions, attorneys' fees, experts' fees,
court costs, remediation costs, investigation costs, and other expenses to the
extent such result from or arise in any manner whatsoever out of the use,
storage, treatment, transportation, release, or disposal of Hazardous Materials
on or about the Project by Tenant or Tenant's Agents after the Effective Date.
B. If Tenant or Tenant's Agents use, storage, treatment,
transportation , release or disposal of any Hazardous Materials after the
Effective Date results in contamination of water or soil resulting in a level of
contamination greater than the levels established as acceptable by any
governmental agency having jurisdiction over such contamination, then Tenant
shall promptly take any and all action necessary to investigate and remediate
such contamination if required by Law or as a condition to the issuance or
continuing effectiveness of any governmental approval which relates to the use
of the Project or any part thereof to the extent required under applicable
Hazardous Materials Laws and subject to the reasonable approval of Landlord.
Under no circumstance shall Tenant be liable for any liabilities,
losses, claims, damages, lost profits, consequential damages, interest,
penalties, fines, monetary sanctions, attorneys' fees, experts' fees, court
costs, remediation costs, investigation costs, and other expenses of every type
and nature, directly or indirectly arising out of or in connection with (i) any
pre-existing condition at the Project that may be in violation of the Hazardous
Materials Laws, or (ii) any use of Hazardous Materials by any other tenant in
the Project or any third party other than Tenant or Tenant's Agents, or (iii)
any migration of any Hazardous Materials from neighboring property in, to, under
or about the Building or Project.
C. Landlord and Tenant shall each give written notice to the other
as soon as reasonably practicable after each knows of (i) any communication
received from any governmental authority concerning Hazardous Materials which
relates to the Project, and (ii) any contamination of the Project by Hazardous
Materials which constitutes a violation of any Hazardous Materials Law. Tenant
may use (a) small quantities of household chemicals such as adhesives,
lubricants, and cleaning fluids in order to conduct its business at the Premises
and (b) such other Hazardous Materials as are necessary and used in the
management and operation of the business of the original party signing this
Lease as Tenant as of the Commencement Date, which materials in either case were
or are used in the manner for which they were designed and in such amounts as
may be necessary for the operation of such business at the Property. If Tenant
assigns this Lease or sublets any space, then any such assignee's or sublessee's
use of Hazardous Materials in the normal and customary operation of its business
shall be subject to the prior
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written approval of Landlord. At any time during the Lease Term, Tenant shall,
within thirty (30) days after written request therefor received from Landlord,
disclose in writing all Hazardous Materials that are being used by Tenant on the
Project, the nature of such use, and the manner of storage and disposal.
D. Landlord may cause testing wells to be installed on the Project,
and may cause the ground water to be tested to detect the presence of Hazardous
Material by the use of such tests as are then customarily used for such
purposes. If Tenant so requests, Landlord shall supply Tenant with copies of
such test results. The cost of such tests and of the installation, maintenance,
repair and replacement of such wells shall be paid by Tenant to the extent such
testing and costs are necessitated due to a release or emission of Hazardous
Materials by Tenant or Tenant's Agents during the Lease Term in violation of
applicable Hazardous Materials Laws or due to a failure by Tenant to comply with
any of the provisions of section 7.2 and its subsections.
E. As used herein, the term "Hazardous Material," means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or the United States
Government. The term "Hazardous Material," includes, without limitation,
petroleum products, asbestos, PCB's, and any material or substance which is (i)
listed under Article 9 or defined as hazardous or extremely hazardous pursuant
to Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (ii) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42
U.S.C. 6903), or (iii) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response; Compensation and Liability Act,
42 U.S.C. 9601 et seq. (42 U.S.C. 9601). As used herein, the term "Hazardous
Material Law" shall mean any statute, law, ordinance, or regulation of any
governmental body or agency (including the U.S. Environmental Protection Agency,
the California Regional Water Quality Control Board, and the California
Department of Health Services) which regulates the use, storage, release or
disposal of any Hazardous Material.
F. The obligations of Landlord and Tenant under this (P)7.2 shall
survive the expiration or earlier termination of the Lease Term. The rights and
obligations of Landlord and Tenant with respect to issues relating to Hazardous
Materials are exclusively established by this (P)7.2. In the event of any
inconsistency between any other part of this Lease and this (P)7.2, the terms of
this (P)7.2 shall control.
G. Landlord represents and warrants to the best of its actual
knowledge, without independent investigation or the imputation of knowledge from
any other party, that as of the Effective Date, Landlord (i) is not in receipt
of notice of a violation nor is Landlord aware of any violation of any
applicable Hazardous Materials Laws as of the date hereof with respect to the
Premises or Building, (ii) no Hazardous Material is present on the Premises,
Building or Project in violation of any applicable Hazardous Materials Laws,
(iii) no underground storage tanks or asbestos-containing building materials are
present in the Premises or Building in violation of any Hazardous Materials
Laws, and (iv) no action, proceeding or claim is pending or threatened regarding
the Premises, Building or Project concerning the presence of any Hazardous
Materials. Landlord covenants and agrees that it shall not deposit or dispose
of any Hazardous Materials in the Building or Project in violation of the
applicable Hazardous Materials Laws. Under no circumstances shall Landlord be
liable to Tenant for any Hazardous Use by any tenant in the Project or any third
party or as a result of any migration of any Hazardous Materials from adjacent
property in, to, under or about the Building or Project. The foregoing
representation and warranty is made by Landlord, but shall not be applicable to
any lender under any mortgage or deed of trust now or hereafter encumbering the
Building or Project or any such lender that acquires the Building or Project
through foreclosure, trustee sale or deed in lieu thereof or by person acquiring
the Building or Project from such lender.
7.3 Utilities: Tenant shall promptly pay, as the same become due, all
---------
charges for water, gas, electricity, telephone, sewer service, waste pick-up and
any other utilities, materials or services furnished directly to or used by
Tenant on or about the Premises during the Lease Term, including, without
limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fee
(excluding any connection fees or hook-up fees which relate to making the
existing electrical, gas, and water service available to the Premises as of the
Commencement Date), and (ii) penalties for discontinued or interrupted service
cause by Tenant or any of Tenant's Agents. If any utility service is not
separately metered to the Premises, then Tenant shall pay its pro rata share of
the cost of such utility service with all others served by the service not
separately metered. However, if Landlord determines that Tenant is using a
disproportionate amount of any utility service not separately metered, then
Landlord at its election may (i) periodically charge Tenant, as Additional Rent,
a sum equal to Landlord's reasonable estimate of the cost of Tenant's excess use
of such utility service, or (ii) install a separate meter (at Tenant's expense)
to measure the utility service supplied to the Premises.
7.4 Compliance with Governmental Regulations: Landlord and Tenant shall
----------------------------------------
comply with all rules, regulations and requirements promulgated by national,
state or local governmental agencies or utility suppliers concerning the use of
utility services, including any rationing, limitation or other control. Tenant
shall not be entitled to terminate this Lease nor to any abatement in rent by
reason of such compliance.
ARTICLE 8
---------
COMMON OPERATING EXPENSES
-------------------------
8.1 Tenant's Obligation to Reimburse: As Additional Rent, Tenant shall
--------------------------------
pay Tenant's Share (specified in Section G of the Summary) of all Common
---------
Operating Expenses; provided, however, if the Project contains more
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<PAGE>
than one building, then Tenant shall pay Tenant's Share of all Common Operating
Expenses fairly allocable to the Building, including (i) all Common Operating
Expenses paid with respect to the maintenance, repair, replacement and use of
the Building, and (ii) a proportionate share (based on the Building Gross
Leasable Area as a percentage of the Project Gross Leasable Area) of all Common
Operating Expenses which relate to the Project in general and are not fairly
allocable to any one building that is part of the Project. Tenant shall pay such
share of the actual Common Operating Expenses incurred or paid by Landlord but
not theretofore billed to Tenant within 10 days after receipt of a written bill
therefor from Landlord, on such periodic basis as Landlord shall designate, but
in no event more frequently than once a month. Alternatively, Landlord may from
time to time require that Tenant pay Tenant's Share of Common Operating Expenses
in advance in estimated monthly installments, in accordance with the following:
(i) Landlord shall deliver to Tenant Landlord's reasonable estimate of the
Common Operating expenses it anticipates will be paid or incurred for the
Landlord's fiscal year in question; (ii) during such Landlord's fiscal year
Tenant shall pay such share of the estimated Common Operating Expenses in
advance in equal monthly installments over such fiscal year as required by
Landlord, which shall be due with the installments of Base Monthly Rent; and
(iii) within 90 days after the end of each Landlord's fiscal year, Landlord
shall furnish to Tenant a statement in reasonable detail of the actual Common
Operating Expenses paid or incurred by Landlord during the just ended Landlord's
fiscal year and thereupon there shall be an adjustment between Landlord and
Tenant, with payment to Landlord or credit by Landlord against the next
installment of Base Monthly Rent, as the case may require, within 10 days after
delivery by Landlord to Tenant of said statement, so that Landlord shall receive
the entire amount of Tenant's Share of all Common Operating Expenses for such
Landlord's fiscal year and no more. If Tenant overpays Tenant's Share of Common
Operating Expenses during the last year of the Lease Term, Landlord shall
promptly reimburse said excess to Tenant. Tenant shall have the right at its
expense, exercisable upon reasonable prior written notice to Landlord, to
inspect at Landlord's office during normal business hours Landlord's books and
records as they relate to Common Operating Expenses. Such inspection must be
within 30 days of Tenant's receipt of Landlord's annual statement for the same,
and shall be limited to verification of the charges contained in such statement.
Tenant may not withhold payment of such bill pending completion of such
inspection.
8.2 Common Operating Expenses Defined: The term "Common Operating
---------------------------------
Expenses" shall mean the following:
A. All costs and expenses paid or incurred by Landlord in doing the
following (including payments to independent contractors providing services
related to the performance of the following): (i) maintaining, cleaning,
repairing and resurfacing the roof (including repair of leaks) and the exterior
surfaces (including painting) of all buildings located on the Project; (ii)
maintenance of the liability, fire and property damage insurance covering the
Project carried by Landlord pursuant to (P)9.2 (including the prepayment of
premiums for coverage of up to one year); (iii) maintaining, repairing,
operating and replacing when necessary HVAC equipment, utility facilities and
other building service equipment for the Building and Common Area, if any; (iv)
providing utilities to the Common Area (including lighting, trash removal and
water for landscaping irrigation); (v) complying with all applicable Laws and
Private Restrictions to the extent that such requirements are not applicable to
or required at the Building, Common Areas or Project as of the Effective Date
(but noncompliance with any Law in effect as of the Effective Date which is
permitted or not required to be rectified or corrected under applicable Law
because such improvements were in compliance with applicable Law as of the date
they were constructed shall not be considered a violation of Law applicable to
the Building, Common Areas or Project under this section and therefore shall be
included in the Common Operating Expenses); (vi) operating, maintaining,
repairing, cleaning, painting the Building and Common Area and restriping and
resurfacing the Common Area, to the extent required under this Lease; (vii)
replacement or installation of lighting fixtures, directional or other signs and
signals, irrigation systems, trees, shrubs, ground cover and other plant
materials, and all landscaping in the Common Area; and (viii) providing security
to the Building or Common Area of the Project;
B. The following costs: (i) Real Property Taxes as defined in
(P)8.3; and (ii) that portion of all compensation (including benefits and
premiums for workers' compensation and other insurance) paid to or on behalf of
employees of Landlord but only to the extent they are involved in the
performance of the work described by (P)8.2A that is fairly allocable to the
Project;
C. Fees for management services rendered by either Landlord or a
third party manager engaged by Landlord (which may be a party affiliated with
Landlord), except that the total amount charged for management services and
included in Tenant's Share of Common Operating Expenses shall not exceed the
monthly rate of 5% of the Base Monthly Rent.
D. All additional costs and expenses incurred by Landlord with
respect to the operation, protection, maintenance, repair and replacement of the
Building or Common Areas of the Project which would be considered a current
expense (and not a capital expenditure) pursuant to generally accepted
accounting principles; provided, however, that Common Operating Expenses shall
not include any of the following: (i) payments on any loans or ground leases
affecting the Project; (ii) depreciation of any buildings or any major systems
of building service equipment within the Project; (iii) leasing commissions;
(iv) the cost of tenant improvements installed for the exclusive use of other
tenants of the Project; and (v) any cost incurred in complying with Hazardous
Materials Laws, which subject is governed exclusively by (P)7.2.
E. Notwithstanding anything contained in this Lease, Common
Operating Expenses shall not include and in no event shall Tenant have any
obligation to perform or to pay directly, or to reimburse Landlord for, all or
any portion of the following costs and expenses:
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(1) Costs occasioned by the violation of any Law by Landlord or
Landlord's Agents or by the gross negligence or willful misconduct of Landlord
or Landlord's Agents;
(2) Costs occasioned by fire, acts of God, or other casualties
or by the exercise of the power of eminent domain;
(3) Costs to correct any construction defect in the structural
portions of the Building or Project, which for purposes hereof shall mean the
foundation, footings, floor slab, exterior and load bearing walls and roof
structure (as opposed to the roof covering or membrane), or the costs to comply
with any Private Restrictions or Laws relating to the Building or Project for
work or improvements required under the Private Restrictions or Laws prior to
the Effective Date;
(4) Depreciation, amortization (except as permitted above) or
other expense reserves;
(5) Interest, charges and fees incurred on debt, payments on
mortgages and rent under ground leases;
(6) The amount of the deductible under any insurance policy;
provided however, that if Tenant or any Tenant's Agents causes the damage, loss
or claim, then Tenant shall be solely responsible for payment of the applicable
deductible to Landlord; provided further, however, that in no event shall Tenant
be required to pay any deductibles for earthquake or flood insurance maintained
in connection with the Project, Building or Premises;
(7) Costs incurred in connection with the presence of any
Hazardous Material, except to the extent caused by the storage, use or disposal
of the Hazardous Material in question by Tenant or Tenant's Agents;
(8) Costs to the extent for which Landlord has a right of
reimbursement from another tenant at the Project, another source or a vendor
under any warranty, except for warranty claims that Landlord determines in its
commercially reasonable discretion not to pursue or does not collect;
(9) Costs for which Tenant reimburses Landlord directly or which
Tenant pays directly to a third person;
(10) Costs relating to improvements and equipment that should be
capitalized under generally accepted accounting principles, except for Tenant's
Share of the amortized cost (with interest) of such improvement or equipment to
the extent provided in this Lease; and
(11) Costs relating to the repair, maintenance and replacement of
the structural elements of the Premises, Building, Common Areas or Project.
F. Since the Project consists of five (5) separate buildings
including the Building, certain Common Operating Costs may pertain to a
particular building and other Common Operating Costs to the Project as a whole.
Common Operating Costs applicable to any particular building within the Project
shall be allocated and charged to the building in question whose tenants shall
be responsible for payment of their respective proportionate shares in the
pertinent building and other Common Operating Costs applicable to the Project
shall be allocated and charged to each building in the Project based on the
ratio that each building's gross leasable area bears to the total gross leasable
area of all buildings in the Project, with the tenants in each building in the
Project being responsible for paying their respective proportionate shares of
such costs. Landlord shall in good faith attempt to allocate such Common
Operating Costs to the buildings (including the Building) or Project, as the
case may be.
8.3 Real Property Taxes Defined: The term "Real Property Taxes" shall
---------------------------
mean all taxes, assessments, levies, and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any existing or future
general or special assessments for public improvements, services or benefits,
and any increases resulting from reassessments resulting from a change in
ownership, new construction for additional buildings at the Project, or any
other cause), now or hereafter imposed by any governmental or quasi-governmental
authority or special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the value,
occupancy or use of all or any portion of the Project (as now constructed or as
may at any time hereafter be constructed, altered, or otherwise changed) or
Landlord's interest therein, the fixtures, equipment and other property of
Landlord, real or personal, that are an integral part of and located on the
Project, the gross receipts, income, or rentals from the Project, or the use of
parking areas, public utilities, or energy within the Project, or Landlord's
business of leasing the Project. If at any time during the Lease Term the
method of taxation or assessment of the Project prevailing as of the Effective
Date shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason of
a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate or additional tax or charge (i) on the
value, use or occupancy of the Project or Landlord's interest therein, or (ii)
on or measured by the gross receipts, income or rentals from the Project, on
Landlord's business of leasing the Project, or computed in any manner with
respect to the operation of
11
<PAGE>
the Project, then any such tax or charge, however designated, shall be included
within the meaning of the term "Real Property Taxes" for purposes of this Lease.
If any Real Property Tax is based upon property or rents unrelated to the
Project, then only that part of such Real Property Tax that is fairly allocable
to the Project shall be included within the meaning of the term "Real Property
Taxes". Only the amount of the installment then due in each fiscal year of any
bond or assessment payable in installments over a period of time shall be
included as part of the Real Property Taxes each year. Notwithstanding the
foregoing, the term "Real Property Taxes" shall not include estate, inheritance,
transfer, gift or franchise taxes of Landlord or the federal or state net income
tax imposed on Landlord's income from all sources.
ARTICLE 9
---------
INSURANCE
---------
9.1 Tenant's Insurance: Tenant shall maintain insurance complying with
------------------
all of the following:
A. Tenant shall procure, pay for and keep in full force and effect
the following:
(1) Commercial general liability insurance, including property
damage, against liability for personal injury, bodily injury, death and damage
to property occurring in or about, or resulting from an occurrence in or about,
the Premises with combined single limit coverage of not less than the amount of
Tenant's Liability Insurance Minimum specified in Section P of the Summary,
---------
which insurance shall contain a "contractual liability" endorsement insuring
Tenant's performance of Tenant's obligation to indemnify Landlord contained in
(P)10.3;
(2) Fire and property damage insurance in so-called "all risk"
form insuring Tenant's Trade Fixtures and Tenant's Alterations for the full
actual replacement cost thereof; and
(3) Workers' compensation insurance with limits at least as
required by State law, and employers' liability with limits of $500,000 each
accident.
B. Where applicable and required by Landlord, each policy of
insurance required to be carried by Tenant pursuant to this (P)9.1: (i) shall
name Landlord and such other parties in interest as Landlord reasonably
designates as additional insured; (ii) shall be primary insurance which provides
that the insurer shall be liable for the full amount of the loss up to the total
amount of liability set forth in the declarations without the right of
contribution from any other insurance coverage of Landlord; (iii) shall be in a
form satisfactory to Landlord; (iv) shall be carried with companies reasonably
acceptable to Landlord; (v) shall provide that such policy shall not be subject
to cancellation, lapse or change that will reduce coverage except after at
least 30 days prior written notice to Landlord so long as such provision of 30
days notice is reasonably obtainable, but in any event not less than 10 days
prior written notice; (vi) shall not have a "deductible" in excess of such
amount as is reasonably approved by Landlord and which is then customary in the
marketplace; (vii) shall contain a cross liability endorsement; and (viii) shall
contain a "severability" clause. If Tenant has in full force and effect a
blanket policy of liability insurance with the same coverage for the Premises as
described above, as well as other coverage of other premises and properties of
Tenant, or in which Tenant has some interest, such blanket insurance shall
satisfy the requirements of this (P)9.1.
C. A copy of each paid-up policy evidencing the insurance required
to be carried by Tenant pursuant to this (P)9.1 (appropriately authenticated by
the insurer) or a certificate of the insurer, certifying that such policy has
been issued, providing the coverage required by this (P)9.1, and containing the
provisions specified herein, shall be delivered to Landlord prior to the time
Tenant or any of its Agents enters the Premises and upon renewal of such
policies, but not less than 5 days prior to the expiration of the term of such
coverage. Landlord may, at any time, and from time to time, inspect and/or copy
any and all insurance policies required to be procured by Tenant pursuant to
this (P)9.1 if a claim if filed or threatened against Landlord. If the original
five year Lease Term is extended by the parties and any Lender or insurance
advisor reasonably determines at any time during such extension that the amount
of coverage required for any policy of insurance Tenant is to obtain pursuant to
this (P)9.1 is not adequate, then Tenant shall increase such coverage for such
insurance to such amount as such Lender or insurance advisor reasonably deems
adequate, not to exceed the level of coverage for such insurance commonly
carried by comparable businesses similarly situated.
9.2 Landlord's Insurance: Landlord shall have the following obligations
--------------------
and options regarding insurance:
A. Landlord shall maintain a policy or policies of fire and property
damage insurance in so-called "all risk" form insuring Landlord (and such others
as Landlord may designate) against loss of rents for a period of not less than
12 months and from physical damage to the Project with coverage of not less than
the full replacement cost thereof. Landlord may so insure the Project
separately, or may insure the Project with other property owned by Landlord
which Landlord elects to insure together under the same policy or policies.
Such fire and property damage insurance (i) may be endorsed to cover loss caused
by such additional perils against which Landlord may reasonably elect to insure,
including earthquake and/or flood, and to provide such additional coverage as
Landlord reasonably requires, and (ii) shall contain reasonable "deductibles"
which, in the case of earthquake and flood insurance, may be up to 10% of the
replacement value of the property insured or such higher amount as is then
commercially reasonable. Landlord shall not be required to cause such insurance
to cover any Trade Fixtures or Tenant's Alterations of Tenant, but Landlord's
insurance shall cover the initial Tenant Improvements (excluding the clean room
equipment).
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B. Landlord shall maintain a policy or policies of commercial
general liability insurance insuring Landlord (and such others as are designated
by Landlord) against liability for personal injury, bodily injury, death and
damage to property occurring or resulting from an occurrence in, on or about the
Project, with combined single limit coverage in such amount as Landlord from
time to time determines is reasonably necessary for its protection.
C. Tenant's Obligation to Reimburse: If Landlord's insurance rates
--------------------------------
for the Building are increased at any time during the Lease Term as a result of
the nature of Tenant's use of the Premises, Tenant shall reimburse Landlord for
the full amount of such increase immediately upon receipt of a bill from
Landlord therefor.
9.4 Release and Waiver of Subrogation: Notwithstanding anything to the
---------------------------------
contrary in this Lease, the parties hereto release each other, and their
respective agents and employees, successors, assigns and subtenants, from any
liability for injury to any person or damage to property that is caused by or
results from any risk insured against under any valid and collectible insurance
policy carried by either of the parties which contains a waiver of subrogation
by the insurer and is in force at the time of such injury or damage or any
insurance policy which is required to be maintained by the parties under this
Lease without regard to the negligence or willful misconduct of the party or
entity so released, subject to the following limitations: (i) the foregoing
provision shall not apply to the commercial general liability insurance
described by subparagraphs (P)9.1A and (P)9.2B; (ii) such release shall apply to
liability resulting from any risk insured against or covered by self-insurance
maintained or provided by Tenant to satisfy the requirements of (P)9.1A.2 to the
extent permitted by this Lease; and (iii) Landlord or Tenant, as the case may
be, shall not be released from any such liability to the extent any damages
resulting from such injury or damage are not covered by the recovery obtained by
Landlord or Tenant for such insurance, as applicable, but only to the extent of
the applicable deductible and to the extent such damage or claim is caused by
Landlord or Landlord's Agents or Tenant or any of Tenant's Agents, respectively.
This release shall be in effect only so long as the applicable insurance policy
contains a clause to the effect that this release shall not affect the right of
the insured to recover under such policy. Each party shall use reasonable
efforts to cause each insurance policy obtained by it to provide that the
insurer waives all right of recovery by way of subrogation against the other
party and its agents and employees in connection with any injury or damage
covered by such policy. However, if any insurance policy cannot be obtained with
such a waiver of subrogation, or if such waiver of subrogation is only available
at additional cost and the party for whose benefit the waiver is to be obtained
does not pay such additional cost, then the party obtaining such insurance shall
notify the other party of that fact and thereupon shall be relieved of the
obligation to obtain such waiver of subrogation rights from the insurer with
respect to the particular insurance involved.
ARTICLE 10
----------
LIMITATION ON LANDLORD'S
------------------------
LIABILITY AND INDEMNITY
-----------------------
10.1 Limitation on Landlord's Liability: Landlord shall not be liable to
----------------------------------
Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement
of rent (except as expressly provided otherwise herein), for any injury to
Tenant or Tenant's Agents, damage to the property of Tenant or Tenant's Agents,
or loss to Tenant's business resulting from any cause, including without
limitation any: (i) failure, interruption or installation of any HVAC or other
utility system or service; (ii) failure to furnish or delay in furnishing any
utilities or services when such failure or delay is caused by fire or other
peril, the elements, labor disturbances of any character, or any other accidents
or other conditions beyond the reasonable control of Landlord; (iii) limitation,
curtailment, rationing or restriction on the use of water or electricity, gas or
any other form of energy or any services or utility serving the Project; (iv)
vandalism or forcible entry by unauthorized persons or the criminal act of any
person; or (v) penetration of water into or onto any portion of the Premises or
the Building through roof leaks or otherwise. Notwithstanding the foregoing but
subject to (P)9.4, Tenant is not releasing Landlord from, and Landlord shall be
liable to Tenant for, any such injury, damage or loss which is proximately
caused by Landlord's or Landlord's Agents willful misconduct or active
negligence.
10.2 Limitation on Tenant's Recourse: If Landlord is a corporation, trust,
-------------------------------
partnership, joint venture, unincorporated association or other form of
business entity: (i) the obligations of Landlord shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals or representatives of such
business entity; and (ii) Tenant shall not have recourse to the assets of such
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, principals or representatives except to the extent of their
interest in the Project (including any net sale proceeds from the sale of the
Project or Building. Tenant shall have recourse only to the interest of
Landlord in the Project and shall not have recourse to any other assets of
Landlord.
10.3 Indemnification: Subject to section 9.4 of this Lease, Tenant shall
---------------
hold harmless, indemnify and defend Landlord, and its employees, agents and
contractors, with competent counsel reasonably satisfactory to Landlord (and
Landlord agrees to accept counsel that any insurer requires be used), from all
liability, penalties, losses, damages, costs, expenses, causes of action, claims
and/or judgments arising by reason of any death, bodily injury, personal injury
or property damage resulting from (i) any cause or causes whatsoever (other than
to the extent caused by the willful misconduct or active negligence of Landlord
or Landlord's Agents) occurring in or about or resulting from an occurrence in
or about the Premises during the Lease Term, or (ii) the negligence or willful
misconduct of Tenant or its agents, employees and contractors, wherever the same
may occur. Landlord shall not be indemnified for and shall indemnify, defend,
protect and hold harmless Tenant against all actions,
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claims, judgments, attorneys fees, demands, damages, liabilities, losses,
penalties, costs or expenses suffered by Tenant by reason of injury to any
person to the extent caused by the willful misconduct or active negligence of
Landlord and Landlord's Agents, except as set forth in section 9.4). The
provisions of this (P)10.3 shall survive the expiration or sooner termination of
this Lease.
ARTICLE 11
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DAMAGE TO PREMISES
------------------
11.1 Landlord's Duty to Restore: If the Premises are damaged by any peril
--------------------------
after the Effective Date, Landlord shall restore the Premises unless the Lease
is terminated by Landlord pursuant to (P)11.2 or by Tenant pursuant to (P)11.3.
All insurance proceeds available from the fire and property damage insurance
carried by Landlord pursuant to (P)9.2 shall be paid to and become the property
of Landlord. If this Lease is not so terminated, then upon receipt of the
insurance proceeds (if the loss is covered by insurance) and the issuance of all
necessary governmental permits, Landlord shall commence and diligently prosecute
to completion the restoration of the Premises, to the extent then allowed by
Law, to substantially the same condition in which the Premises were immediately
prior to such damage. Landlord's obligation to restore shall be limited to the
Premises and the original Tenant Improvements installed as of the Commencement
Date, excluding Tenant's clean room equipment, any Tenant's Alterations, Trade
Fixtures and/or personal property constructed or installed by Tenant in the
Premises. The original Tenant Improvements installed by Tenant shall at all
times be and remain at all times the property of Landlord (excluding the clean
room equipment). Since Landlord will own the original Tenant Improvements
(excluding the clean room equipment), such improvements will be insured under
Landlord's all risk insurance for the Building.
Tenant shall forthwith replace or fully repair all Tenant's
Alterations, Trade Fixtures and clean room equipment installed by Tenant and
existing at the time of such damage or destruction, and all insurance proceeds
received by Tenant from the insurance carried by it pursuant to (P)9.1A(2) shall
be used for such purpose. Tenant's obligations to repair or replace Tenant's
Alterations, Tenant's Trade Fixtures and clean room and clean room equipment
pursuant to this Section shall be limited to the extent of the insurance
proceeds actually received by Tenant and subject to Tenant's right to terminate
the Lease as set forth in Section 11.3 below. Tenant shall be entitled to retain
all insurance proceeds and settlements it receives in connection with the damage
or destruction of Tenant's Trade Fixtures and clean room equipment and any other
property insurance maintained by Tenant.
11.2 Landlord's Right to Terminate: Landlord shall have the right to
-----------------------------
terminate this Lease in the event any of the following occurs, which right may
be exercised only by delivery to Tenant of a written notice of election to
terminate within 30 days after the date of such damage:
A. The Project is damaged by an Insured Peril to such an extent that
the estimated cost to restore in excess of the insurance proceeds received by
Landlord exceeds 50% of the then actual replacement cost thereof, provided,
however that if less than 33% of the Building is damaged or destroyed in
connection with the Project damage, Landlord may not terminate this Lease
(except as provided in section 11.2B below);
B. During the original five year Lease Term, the Building is damaged
by an Insured Peril to such an extent that the estimated cost to restore exceeds
60% of the then actual replacement cost thereof; or during any extension period
beyond the original five year Lease Term, the Building is damaged by an Insured
Period to such an extent that the estimated cost to restore exceeds 33%of the
actual replacement cost thereof,
C. The Building is damaged by an Uninsured Peril to such an extent
that the estimated cost to restore exceeds 10% of the then actual replacement
cost thereof; provided, however, that Landlord may not terminate this Lease
pursuant to this (P)11.2C if one or more tenants of the Building agree in
writing to pay the amount by which the cost to restore the damage exceeds such
amount and subsequently deposit such amount with Landlord within 30 days after
Landlord has notified Tenant of its election to terminate this Lease;
D. The Premises are damaged by any peril within 12 months of the
last day of the Lease Term to such an extent that the estimated cost to restore
equals or exceeds an amount equal to six times the Base Monthly Rent then due;
provided, however, that Landlord may not terminate this Lease pursuant to this
(P)11.2D if Tenant notifies Landlord within 15 days after the date of the
casualty of its desire to extend as provided in Addendum No. 1 (notwithstanding
any time limits in Addendum No. 1 before which Tenant may provide such notice)
and Tenant accepts Landlord's Renewal Terms (as defined in Addendum No. 1)
within five (5) business days after receipt of Landlord's Renewal; or
E. Either the Project or the Building is damaged by any peril and,
because of the Laws then in force, (i) cannot be restored at reasonable cost
(which for purposes hereof shall not exceed the amount of the insurance proceeds
paid to Landlord) to substantially the same condition in which it was prior to
such damage, or (ii) cannot be used for the same use being made thereof before
such damage if restored as required by this Article.
F. As used herein, the following terms shall have the following
meanings: (i) the term "Insured Peril" shall mean a peril actually insured
against (or required by Landlord to be insured against pursuant to this Lease)
and for which the insurance proceeds actually received by Landlord are
sufficient (except for any "deductible" amount specified by such insurance) to
restore at least 80% of the Project under then existing building codes to the
condition existing immediately prior to the damage; and (ii) the term "Uninsured
Peril" shall mean any
14
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peril which is not an Insured Peril. Notwithstanding the foregoing, if the
"deductible" for earthquake or flood insurance exceeds 10% of the replacement
cost of the improvements insured, such peril shall be deemed an "Uninsured
Peril". Notwithstanding anything to the contrary in this Lease, Landlord shall
not be obligated to spend more than the insurance proceeds its receives to
restore any damage to the Premises, Building and/or Project.
G. If Landlord terminates this Lease and to the extent it is
Landlord's obligation to insure the Tenant Improvements under this Lease, Tenant
shall be entitled to a portion of Landlord's insurance proceeds equal to the
unamortized cost of the Tenant Improvements paid for by Tenant (in excess of
Landlord's Allowance as described in Exhibit B attached hereto), amortized on a
---------
straight line basis over the initial five (5) year term if the Lease Term is
terminated during the initial five year term or over the entire Lease Term (as
extended) if the Lease Term is extended, not to exceed ten (10) year
amortization period, less a portion of Landlord's deductible amortized on a
straight line basis over the same period as the improvements (except (i)
deductibles which Landlord already has a right of reimbursement from Tenant, and
(ii) earthquake and flood deductibles. Any payment due Tenant hereunder shall
be limited to the extent of the insurance proceeds actually received by
Landlord.
11.3 Tenant's Right to Terminate: If the Premises are damaged by any
---------------------------
peril and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to (P)11.2, then within thirty (30) days after the
date of the damage, Landlord shall furnish Tenant with the written opinion of
Landlord's architect or construction consultant as to when the restoration work
required of Landlord may be completed. Tenant shall have the right to terminate
this Lease in the event any of the following occurs, which right may be
exercised only by delivery to Landlord of a written notice of election to
terminate within 30 days after Tenant receives from Landlord the estimate of the
time needed to complete such restoration.
A. The Premises or parking lot area for the Building are damaged by
any peril and, in the reasonable opinion of Landlord's architect or construction
consultant, the restoration of the Premises or parking lot cannot be
substantially completed within 180 days after the date of such damage. If
Landlord provides notice that the restoration can be completed within said 180
days and Landlord fails to substantially complete the restoration work to the
condition existing prior to the damage or destruction, except for any delay
caused by Tenant or any of Tenant's Agents or a Force Majeure Delay (as such
terms are defined in Exhibit B attached), then Tenant may again terminate this
Lease; provided, however, that Tenant provides notice of such election to
terminate within 10 days after the earlier of (i) the end of said 180 day time
period, or (ii) after receipt of written notice from Landlord of the delay; or
B. The Premises or parking area by the Building are damaged by any
peril within 12 months of the last day of the Lease Term and, in the reasonable
opinion of Landlord's architect or construction consultant, the restoration of
the Premises cannot be substantially completed within 90 days after the date of
such damage.
11.4 Abatement of Rent: In the event of damage to the Premises which does
-----------------
not result in the termination of this Lease, the Base Monthly Rent and the
Additional Rent shall be temporarily abated during the period of restoration in
proportion to the degree to which Tenant cannot use the Premises for its
intended purpose as a result of such damage. Tenant shall not be entitled to
any compensation or damages from Landlord for loss of Tenant's business or
property or for any inconvenience or annoyance caused by such damage or
restoration. Tenant hereby waives the provisions of California Civil Code
Sections 1932(2) and 1933(4) and the provisions of any similar law hereinafter
enacted.
ARTICLE 12
----------
CONDEMNATION
------------
12.1 Landlord's Termination Right: Landlord shall have the right to
----------------------------
terminate this Lease if, as a result of a taking by means of the exercise of the
power of eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation), (i) all or any part of the Premises is
so taken, or (ii) more than 50% of the Common Area is so taken. Any such right
to terminate by Landlord must be exercised within a reasonable period of time,
to be effective as of the date possession is taken by the condemnor.
12.2 Tenant's Termination Right: Tenant shall have the right to terminate
--------------------------
this Lease if, as a result of any taking by means of the exercise of the power
of eminent domain (including any voluntary sale or transfer by Landlord to any
condemnor under threat of condemnation), (i) 10% or more of the Premises is so
taken and that part of the Premises that remains cannot be restored within a
reasonable period of time and thereby made reasonably suitable for the continued
operation of the Tenant's business, or (ii) there is a taking affecting the
Common Area and, as a result of such taking, Landlord cannot provide parking
spaces within reasonable walking distance of the Premises equal in number to at
least 90% of the number of spaces allocated to Tenant by (P)2.1, whether by
rearrangement of the remaining parking areas in the Common Area (including
construction of multi-deck parking structures or restriping for compact cars
where permitted by Law) or by alternative parking facilities on other land.
Tenant must exercise such right within a reasonable period of time, to be
effective on the date that possession of that portion of the Premises or Common
Area that is condemned is taken by the condemnor.
12.3 Restoration and Abatement of Rent: If any part of the Premises or
---------------------------------
the Common Area is taken by condemnation and this Lease is not terminated, then
Landlord shall restore the remaining portion of the Premises and Common Area,
the interior improvements constructed by Landlord, and the Tenant Improvements
(excluding
15
<PAGE>
the clean room equipment) as they existed as of the Commencement Date, excluding
any Tenant's Alterations, Trade Fixtures, clean room equipment and/or personal
property constructed or installed by Tenant. Thereafter, except in the case of a
temporary taking, as of the date possession is taken the Base Monthly Rent and
Additional rent shall be reduced in the same proportion that the floor area of
that part of the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Premises.
12.4 Temporary Taking: If any portion of the Premises is temporarily
----------------
taken and such taking materially and adversely affects Tenant's ability to use
the Premises for the Permitted Use, then Tenant shall have the right to
terminate this Lease, effective on the date possession is taken by the
condemnor.
12.5 Division of Condemnation Award: Any award made as a result of any
------------------------------
condemnation of the Premises or the Common Area shall belong to and be paid to
Landlord, and Tenant hereby assigns to Landlord all of its right, title and
interest in any such award; provided, however, that Tenant shall be entitled to
receive any condemnation award that is made directly to Tenant for the
following: (i) for the taking of personal property or Trade Fixtures belonging
to Tenant and the unamortize cost of Tenant's Alterations that Tenant has the
right to remove from the Premises (so long as such Tenant's Alterations does not
reduced the amount of Landlord's award), (ii) for the interruption of Tenant's
business or its moving costs, (iii) for loss of Tenant's goodwill; or (iv) for
any temporary taking where this Lease is not terminated as a result of such
taking, (iv) the unamortized cost (on a straight line basis), allocable to the
remainder of the Lease Term, of the initial Tenant Improvements installed at
Tenant's expense (i.e., over the amount of Landlord's Allowance under Exhibit B
---------
attached hereto), which are not removable.. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article, and
each party hereby waives the provisions of California Code of Civil Procedure
Section 1265.130 and the provisions of any similar law hereinafter enacted
allowing either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises.
ARTICLE 13
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DEFAULT AND REMEDIES
--------------------
13.1 Events of Tenant's Default: Tenant shall be in default of its
--------------------------
obligations under this Lease if any of the following events occurs (an "Event of
Tenant's Default"):
A. Tenant shall have failed to pay Base Monthly Rent or Additional
Rent when due, and such failure is not cured within 3 days after delivery of
written notice from Landlord specifying such failure to pay; or
B. Tenant shall have failed to perform any term, covenant, or
condition of this Lease except those requiring the payment of Base Monthly Rent
or Additional Rent, and Tenant shall have failed to cure such breach within 30
days after written notice from Landlord specifying the nature of such breach
where such breach could reasonably be cured within said 30 day period, or if
such breach could not be reasonably cured within said 30 day period, Tenant
shall have failed to commence such cure within said 30 day period and thereafter
continue with due diligence to prosecute such cure to completion; or
C. Tenant shall have sublet the Premises or assigned its interest in
the Lease in violation of the provisions contained in Article 14; or
D. The occurrence of the following: (i) the making by Tenant of any
general arrangements or assignments for the benefit of creditors; (ii) Tenant
becomes a "debtor" as defined in 11 USC (S)101 or any successor statute thereto
(unless, in the case of a petition filed against Tenant, the same is dismissed
within 60 days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within 30 days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within 30 days;
provided, however, in the event that any provision of this Section 13.1E is
contrary to any applicable Law, such provision shall be of no force or effect;
or
E. Tenant shall have failed to deliver documents required of it
pursuant to (P)15.4 or (P)15.6 within the time periods specified therein.
13.2 Landlord's Remedies: If an Event of Tenant's Default occurs,
-------------------
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by any Law or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:
A. Landlord may keep this Lease in effect and enforce by an action
at law or in equity all of its rights and remedies under this Lease, including
(i) the right to recover the rent and other sums as they become due by
appropriate legal action, (ii) the right to make payments required of Tenant or
perform Tenant's obligations and be reimbursed by Tenant for the cost thereof
with interest at the Agreed Interest Rate from the date the sum is paid by
Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of
injunctive relief and specific performance to compel Tenant to perform its
obligations under this Lease and in accordance with applicable law.
Notwithstanding anything contained in this Lease, in the event of a breach of an
obligation by Tenant which results in a condition which poses an imminent danger
to safety of persons or damage to property, or a threat to insurance
16
<PAGE>
coverage, then if Tenant does not cure such breach within 3 days after delivery
to it of written notice from Landlord identifying the breach, Landlord may cure
the breach of Tenant and be reimbursed by Tenant for the cost thereof with
interest at the Agreed Interest Rate from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant.
B. In accordance with applicable law, Landlord may enter the
Premises and release them to third parties for Tenant's account for any period,
whether shorter or longer than the remaining Lease Term. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in releasing the Premises,
including brokers' commissions, expenses of altering and preparing the Premises
required by the releasing. Tenant shall pay to Landlord the rent and other sums
due under this Lease on the date the rent is due, less the rent and other sums
Landlord received from any releasing. No act by Landlord allowed by this
subparagraph shall terminate this Lease unless Landlord notifies Tenant in
writing that Landlord elects to terminate this Lease. Notwithstanding any
releasing without termination, Landlord may later elect to terminate this Lease
because of the default by Tenant.
C. Landlord may terminate this Lease by giving Tenant written notice
of termination, in which event this Lease shall terminate on the date set forth
for termination in such notice. Any termination under this (P)13.2C shall not
relieve Tenant from its obligation to pay sums then due Landlord or from any
claim against Tenant for damages or rent previously accrued or then accruing.
In no event shall any one or more of the following actions by Landlord, in the
absence of a written election by Landlord to terminate this Lease, constitute a
termination of this Lease: (i) appointment of a receiver or keeper in order to
protect Landlord's interest hereunder; (ii) consent to any subletting of the
Premises or assignment of this Lease by Tenant, whether pursuant to the
provisions hereof or otherwise; or (iii) any other action by Landlord or
Landlord's Agents intended to mitigate the adverse effects of any breach of this
Lease by Tenant, including without limitation any action taken to maintain and
preserve the Premises or any action taken to relet the Premises or any portions
thereof to the extent such actions do not affect a termination of Tenant's right
to possession of the Premises.
D. In the event Tenant breaches this Lease and abandons the
Premises, this Lease shall not terminate unless Landlord gives Tenant written
notice of its election to so terminate this Lease. No act by or on behalf of
Landlord intended to mitigate the adverse effect of such breach, including those
described by (P)13.C, shall constitute a termination of Tenant's right to
possession unless Landlord gives Tenant written notice of termination. Should
Landlord not terminate this Lease by giving Tenant written notice, Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover the rent as it becomes due under the Lease as provided in California
Civil Code Section 1951.4.
E. In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2 as in effect on the Effective Date. For
purposes of computing damages pursuant to California Civil Code Section 1951.2,
(i) an interest rate equal to the Agreed Interest Rate shall be used where
permitted, and (ii) the term "rent" includes Base Monthly Rent and Additional
Rent. Such damages shall include:
(1) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%); and
(2) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom, including the following: (i) expenses for cleaning, repairing
or restoring the Premises; (ii) expenses for altering, remodeling or otherwise
improving the Premises for the purpose of reletting, including installation of
leasehold improvements (whether such installation be funded by a reduction of
rent, direct payment or allowance to a new tenant, or otherwise); (iii) broker's
fees, advertising costs and other expenses of reletting the Premises; (iv) costs
of carrying the Premises, such as taxes, insurance premiums, utilities and
security precautions; (v) expenses in retaking possession of the Premises; and
(vi) attorneys' fees and court costs incurred by Landlord in retaking possession
of the Premises and in releasing the Premises or otherwise incurred as a result
of Tenant's default.
F. Nothing in this (P)13.2 shall limit Landlord's right to
indemnification from Tenant as provided in (P)7.2 and (P)10.3. Any notice given
by Landlord in order to satisfy the requirements of (P)13.1A or (P)13.1B above
shall also satisfy the notice requirements of California Code of Civil Procedure
Section 1161 regarding unlawful detainer proceedings.
13.3 Waiver: One party's consent to or approval of any act by the other
------
party requiring the first party's consent or approval shall not be deemed to
waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any rent
or payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach unless such waiver is in writing
and signed by Landlord. No delay or omission in the exercise of any right or
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any such
breach theretofore or thereafter occurring. The waiver by either party of any
breach of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other provisions herein contained.
17
<PAGE>
13.4 Limitation On Exercise of Rights: At any time that an Event of
--------------------------------
Tenant's Default has occurred and remains uncured, (i) it shall not be
unreasonable for Landlord to deny or withhold any consent or approval requested
of it by Tenant which Landlord would otherwise be obligated to give, and (ii)
Tenant may not exercise any option to extend.
13.5 Waiver by Tenant of Certain Remedies: Tenant waives the provisions
------------------------------------
of Sections 1932(1), 1941 and 1942 of the California Civil Code and any similar
or successor law regarding Tenant's right to terminate this Lease or to make
repairs and deduct the expenses of such repairs from the rent due under this
Lease. Tenant hereby waives any right of redemption or relief from forfeiture
under the laws of the State of California, or under any other present or future
law, including the provisions of Sections 1174 and 1179 of the California Code
of Civil Procedure.
ARTICLE 14
----------
ASSIGNMENT AND SUBLETTING
-------------------------
14.1 Transfer By Tenant: The following provisions shall apply to any
------------------
assignment, subletting or other transfer by Tenant or any subtenant or assignee
or other successor in interest of the original Tenant (collectively referred to
in this (P)14.1 as "Tenant"):
A. Tenant shall not do any of the following (collectively referred
to herein as a "Transfer"), whether voluntarily, involuntarily or by operation
of law, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed: (i) sublet all or any part of the Premises
or allow it to be sublet, occupied or used by any person or entity other than
Tenant; (ii) assign its interest in this Lease; (iii) mortgage or encumber the
Lease (or otherwise use the Lease as a security device) in any manner; or (iv)
materially amend or modify an assignment, sublease or other transfer that has
been previously approved by Landlord. Tenant shall reimburse Landlord for all
reasonable and actual costs and attorneys' fees incurred by Landlord in
connection with the evaluation, processing, and/or documentation of any
requested Transfer, whether or not Landlord's consent is granted, not to exceed
$1,500.00 for any Transfer. Landlord's reasonable costs shall include the cost
of any review or investigation performed by Landlord or consultant acting on
Landlord's behalf of (i) Hazardous Materials (as defined in Section 7.2E of this
Lease) used, stored, released, or disposed of by the potential Subtenant or
Assignee, and/or (ii) violations of Hazardous Materials Law (as defined in
Section 7.2E of this lease) by the Tenant or the proposed Subtenant or Assignee,
provided such costs in addition to the cost set forth in the preceding sentence
do not exceed in the aggregate $1,500.00 for each Transfer. Any Transfer so
approved by Landlord shall not be effective until Tenant has delivered to
Landlord an executed counterpart of the document evidencing the Transfer which
(i) is in a form reasonably approved by Landlord, (ii) contains the same terms
and conditions as stated in Tenant's notice given to Landlord pursuant to
(P)14.1B, and (iii) in the case of an assignment of the Lease, contains the
agreement of the proposed transferee to assume all obligations of Tenant under
this Lease arising after the effective date of such Transfer and to remain
jointly and severally liable therefor with Tenant. Any actual Transfer without
Landlord's consent shall constitute an Event of Tenant's Default under section
13.1.B of this Lease (subject to the notice and cure period set forth therein,
except that the cure period shall be limited to 30 days after Tenant's receipt
of the notice from Landlord) and shall be voidable at Landlord's option.
Landlord's consent to any one Transfer shall not constitute a waiver of the
provisions of this (P)14.1 as to any subsequent Transfer or a consent to any
subsequent Transfer. No Transfer, even with the consent of Landlord, shall
relieve Tenant of its personal and primary obligation to pay the rent and to
perform all of the other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any person shall not be deemed to be a
waiver by Landlord of any provision of this Lease nor to be a consent to any
Transfer.
B. At least 30 days before a proposed Transfer is to become
effective, Tenant shall give Landlord written notice of the proposed terms of
such Transfer and request Landlord's approval, which notice shall include the
following: (i) the name and legal composition of the proposed transferee; (ii) a
current financial statement of the transferee, financial statements of the
transferee covering the preceding three years if the same exist, and (if
available) an audited financial statement of the transferee for a period ending
not more than one year prior to the proposed effective date of the Transfer, all
of which statements are prepared in accordance with generally accepted
accounting principles; (iii) the nature of the proposed transferee's business to
be carried on in the Premises, including without limitation, its proposed use at
the Premises and any Hazardous Materials such transferee's may use, generate or
store in the operation of its business as noted in the completed Hazardous
Materials Questionnaire referred to below; (iv) all consideration to be given on
account of the Transfer; (v) a current financial statement of Tenant; and (vi) a
completed Landlord's standard Hazardous Materials Questionnaire (said
information collectively shall be referred to as the "Transfer Information").
Tenant shall provide to Landlord such other information as may be reasonably
requested by Landlord ("Transfer Supplemental Information") within 5 days after
Tenant's receipt of such notice from Landlord, which request by Landlord for
additional information must be given within 5 days after Landlord's receipt of
the Transfer Information. Landlord shall respond in writing to Tenant's request
for Landlord's consent to a Transfer within the later of (i) 20 days after
Landlord's receipt of such request together with the Transfer Information, or
(ii) 5 days after Landlord's receipt of the Transfer Supplemental Information.
If Landlord fails to respond in writing within said period, Landlord will be
deemed to have consented to such Transfer. Tenant shall immediately notify
Landlord of any material modification to the proposed terms of such Transfer.
If Landlord disapproves a Transfer, Landlord shall set forth its reasons in
writing to Tenant.
C. In the event that Tenant seeks to make any Transfer, Landlord
shall have the right to terminate this Lease or, in the case of a sublease of
less than all of the Premises, terminate this Lease as to that part of the
Premises proposed to be so sublet, upon written notice to Tenant within the time
period provided in Section
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14.1B for Landlord to respond to Tenant's request for consent. Tenant shall have
the right to rescind its request for consent to the Transfer (and thereby
rescind Landlord's election to terminate) upon written notice to Landlord within
ten (10) days after receipt of Landlord's notice to terminate. If Landlord
elects to terminate this Lease (or, in the case of a partial sublease, terminate
this Lease as to the portion to be so sublet), the Lease shall so terminate in
its entirety (or as to the space to be so sublet) thirty (30) days after
Landlord has notified Tenant in writing of such election. Upon such termination,
Tenant shall be released from any further obligation under this Lease if it is
terminated in its entirety, or shall be released from any further obligation
under the Lease with respect to the space proposed to be sublet in the case of a
proposed partial sublease. In the case of a partial termination of the Lease,
the Base Monthly Rent and Tenant's Share shall be reduced to an amount which
bears the same relationship to the original amount thereof as the area of that
part of the Premises which remains subject to the Lease bears to the original
area of the Premises. Landlord and Tenant shall execute a cancellation and
release with respect to the Lease to effect such termination. Tenant
acknowledges that if Landlord elects to terminate as provided above, Landlord is
thereafter free to lease the Premises (or, in the case of a partial sublease,
the portion proposed to be so sublet) to whomever it pleases on whatever terms
are acceptable to Landlord, including, without limitation, any transferee
proposed by Tenant in connection with the request for consent to the Transfer.
D. If Landlord consents to a Transfer proposed by Tenant, Tenant may
enter into such Transfer, and if Tenant does so, the following shall apply:
(1) Tenant shall not be released of its liability for the
performance of all of its obligations under the Lease.
(2) If Tenant assigns its interest in this Lease, then Tenant
shall pay to Landlord 80% of all Subrent (as defined in (P)14.1D(5)) received by
Tenant over and above (i) the Base Monthly Rent and Additional Rent under this
Lease, and (ii) all Permitted Transfer Costs related to such assignment. In the
case of assignment, the amount of Subrent owed to Landlord shall be paid to
Landlord on the same basis, whether periodic or in lump sum, that such Subrent
is paid to Tenant by the assignee.
(3) If Tenant sublets any part of the Premises, then with
respect to the space so subleased, Tenant shall pay to Landlord 80% of the
positive difference, if any, between (i) all Subrent paid by the subtenant to
Tenant, less (ii) the sum of all Base Monthly Rent and Additional Rent allocable
to the space sublet and all Permitted Transfer Costs related to such sublease.
Such amount shall be paid to Landlord on the same basis, whether periodic or in
lump sum, that such Subrent is paid to Tenant by its subtenant. In calculating
Landlord's share of any periodic payments, all Permitted Transfer Costs shall be
first recovered by Tenant.
(4) Tenant's obligations under this (P)14.1D shall survive any
Transfer. At the time Tenant makes any payment to Landlord required by this
(P)14.1D, Tenant shall deliver an itemized statement of the method by which the
amount to which Landlord is entitled was calculated, certified by Tenant as true
and correct. Landlord shall have the right at reasonable intervals to inspect
Tenant's books and records relating to the payments due hereunder. Upon request
therefor, Tenant shall deliver to Landlord copies of all bills, invoices or
other documents upon which its calculations are based. Landlord may condition
its approval of any Transfer upon obtaining a certification from both Tenant and
the proposed transferee of all Subrent and other amounts that are to be paid to
Tenant in connection with such Transfer.
(5) As used in this (P)14.1D, the term "Subrent" shall mean any
consideration of any kind received (from time to time) by Tenant as a result of
the Transfer, if such sums are related to Tenant's interest in this Lease or in
the Premises, including payments from or on behalf of the transferee (in excess
of the book value thereof) for Tenant's fixtures and leasehold improvements.
The term "Subrent" shall not include any payments or other consideration
received by Tenant in connection with Tenant's assets, Tenant's Trade Fixtures,
Tenant's Alterations, the portion of the initial Tenant Improvements paid for by
Tenant (i.e., over the amount of Landlord's Allowance), or any inventory,
accounts, goodwill, equipment, furniture, furnishings or general intangibles of
Tenant, whatsoever. As used in this (P)14.1D, the term "Permitted Transfer
Costs" shall mean (i) all reasonable advertising, leasing commissions and
attorneys' fees paid to third parties not affiliated with Tenant in order to
obtain the Transfer in question, (ii) all reasonable attorneys' fees incurred by
Tenant with respect to the Transfer in question, and (iii) the unamortized cost
on a straight line basis of any of the initial Tenant Improvements paid for by
Tenant (i.e., over the amount of Landlord's Allowance), the cost of any Tenant
Trade Fixtures, any special improvements made to the Premises by Tenant for any
such subtenant or assignee.
E. Except as provided in Section 14.1F, if Tenant is a corporation,
the following shall be deemed a voluntary assignment of Tenant's interest in
this Lease: (i) any dissolution, merger, consolidation, or other reorganization
of or affecting Tenant, whether or not Tenant is the surviving corporation; and
(ii) if the capital stock of Tenant is not publicly traded, the sale or transfer
to one person or entity (or to any group of related persons or entities) stock
possessing more than 50% of the total combined voting power of all classes of
Tenant's capital stock issued, outstanding and entitled to vote for the election
of directors. If Tenant is a partnership, any withdrawal or substitution
(whether voluntary, involuntary or by operation of law, and whether occurring at
one time or over a period of time) of any partner owning 25% or more
(cumulatively) of any interest in the capital or profits of the partnership, or
the dissolution of the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease.
F. Notwithstanding anything contained in (P)14.1, so long as Tenant
otherwise complies with the provisions of (P)14.1 Tenant may enter into any of
the following transfers (a "Permitted Transfer") without
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<PAGE>
Landlord's prior written consent, and Landlord shall not be entitled to
terminate the Lease pursuant to (P)14.1C or to receive any part of any Subrent
resulting therefrom that would otherwise be due it pursuant to (P)14.1D:
(1) Tenant may sublease all or part of the Premises or assign
its interest in this Lease to any corporation which controls, is controlled by,
or is under common control with the original Tenant to this Lease;
(2) Tenant may assign its interest in the Lease to a corporation
which results from a merger, consolidation or other reorganization whether or
not Tenant is the surviving corporation, so long as the surviving corporation
has a net worth at the time of such assignment that is equal to or greater than
the net worth of Tenant immediately prior to such transaction; and
(3) Tenant may assign this Lease to a corporation which
purchases or otherwise acquires all or substantially all of the assets of
Tenant, so long as such acquiring corporation has a net worth at the time of
such assignment that is equal to or greater than the net worth of Tenant
immediately prior to such transaction.
The term "corporation" as used in this Section 14.1.F shall be
deemed to include any subsidiary, affiliate, division or other entity and the
reference to sale of Tenant's assets refers to those assets located within the
Premises. For the purpose of this Lease, any sale or transfer of Tenant's
capital stock, including without limitation, a transfer in connection with the
merger, consolidation or non-bankruptcy reorganization of Tenant and any sale
through any national market system or public exchange, or any re-incorporation
by Tenant in another state, shall not be deemed an assignment, subletting, or
any other transfer of the Lease or the Premises.
14.2 Transfer By Landlord: Landlord and its successors in interest shall
--------------------
have the right to transfer their interest in this Lease and the Project at any
time and to any person or entity. In the event of any such transfer, the
Landlord originally named herein (and, in the case of any subsequent transfer,
the transferor) from the date of such transfer, shall be automatically relieved,
without any further act by any person or entity, of all liability for the
performance of the obligations of the Landlord hereunder which may accrue after
the date of such transfer. After the date of any such transfer, the term
"Landlord" as used herein shall mean the transferee of such interest in the
Premises.
ARTICLE 15
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GENERAL PROVISIONS
------------------
15.1 Landlord's Right to Enter: Landlord and its agents may enter the
-------------------------
Premises at any reasonable time after giving at least 24 hours' prior notice to
Tenant (and immediately in the case of emergency) for the purpose of: (i)
inspecting the same; (ii) posting notices of non-responsibility; (iii) supplying
any service to be provided by Landlord to Tenant; (iv) showing the Premises to
prospective purchasers, mortgagees or tenants; (v) making necessary alterations,
additions or repairs; (vi) performing Tenant's obligations when Tenant has
failed to do so after written notice from Landlord; (vii) placing upon the
Premises during the last six (6) months of the Lease Term ordinary "for lease"
signs; and (viii) responding to an emergency. Landlord shall have the right to
use any and all means Landlord may deem necessary and proper to enter the
Premises in an emergency. Any entry into the Premises obtained by Landlord in
accordance with this (P)15.1 shall not be a forcible or unlawful entry into, or
a detainer of, the Premises, or an eviction, actual or constructive, of Tenant
from the Premises. Any entry by Landlord and Landlord's Agents shall not impair
Tenant's operations more than reasonably necessary.
15.2 Surrender of the Premises: Upon the expiration or sooner termination
-------------------------
of this Lease, Tenant shall vacate and surrender the Premises to Landlord in the
same condition as existed at the Commencement Date, except for (i) reasonable
wear and tear, (ii) damage caused by any peril or condemnation, and (iii)
contamination by Hazardous Materials for which Tenant is not responsible
pursuant to (P)7.2A or (P)7.2B. In this regard, normal wear and tear shall be
construed to mean wear and tear caused to the Premises by the natural aging
process which occurs in spite of prudent application of the best standards for
maintenance, repair and janitorial practices, and does not include items of
neglected or deferred maintenance. In any event, Tenant shall cause the
following to be done prior to the expiration or the sooner termination of this
Lease: (i) all interior walls shall be painted or cleaned so that they appear
freshly painted; (ii) all tiled floors shall be cleaned and waxed; (iii) all
carpets shall be cleaned and shampooed; (iv) all broken, marred, stained or
nonconforming acoustical ceiling tiles shall be replaced; (v) all windows shall
be washed; (vi) the HVAC system shall be serviced by a reputable and licensed
service firm and left in good operating condition and repair as so certified by
such firm; and (vii) the plumbing and electrical systems and lighting shall be
placed in good order and repair (including replacement of any burned out,
discolored or broken light bulbs, ballasts, or lenses). If Landlord so requests,
Tenant shall, prior to the expiration or sooner termination of this Lease,
remove any Tenant's Alterations which Tenant is required to remove pursuant to
(P)5.2 and repair all damage caused by such removal. If the Premises are not so
surrendered at the termination of this Lease, Tenant shall be liable to Landlord
for all costs incurred by Landlord in returning the Premises to the required
condition, plus interest on all costs incurred at the Agreed Interest Rate.
Tenant shall indemnify Landlord against loss or liability resulting from delay
by Tenant in so surrendering the Premises, including, without limitation, any
claims made by any succeeding tenant or losses to Landlord due to lost
opportunities to lease to succeeding tenants.
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15.3 Holding Over: This Lease shall terminate without further notice at
------------
the expiration of the Lease Term. Any holding over by Tenant after expiration
of the Lease Term shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the Premises except as expressly provided in
this Lease. Any holding over after such expiration with the written consent of
Landlord shall be construed to be a tenancy from month to month on the same
terms and conditions herein specified insofar as applicable except that Base
Monthly Rent shall be increased to an amount equal to 150% of the Base Monthly
Rent payable during the last full calendar month of the Lease Term.
15.4 Subordination: The following provisions shall govern the relationship
-------------
of this Lease to any Security Instrument:
A. The Lease is subject and subordinate to all Security Instruments
existing as of the Effective Date. However, if any Lender so requires, this
Lease shall become prior and superior to any such Security Instrument.
B. At Landlord's election, this Lease shall become subject and
subordinate to any Security Instrument created after the Effective Date.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in default and performs
all of its obligations under this Lease, unless this Lease is otherwise
terminated pursuant to its terms.
C. Tenant shall upon request execute any document or instrument
reasonably required by any Lender to make this Lease either prior or subordinate
to a Security Instrument, which may include such other matters as the Lender
customarily and reasonably requires in connection with such agreements,
including provisions that the Lender not be liable for (i) the return of any
security deposit unless the Lender receives it from Landlord, and (ii) any
defaults on the part of Landlord occurring prior to the time the Lender takes
possession of the Project in connection with the enforcement of its Security
Instrument. Tenant's failure to execute any such document or instrument within
10 days after written demand therefor shall constitute an Event of Tenant's
Default. Tenant approves as reasonable the form of subordination agreement
attached to this Lease as Exhibit G.
---------
15.5 Mortgagee Protection and Attornment: In the event of any default on
-----------------------------------
the part of the Landlord, Tenant will use reasonable efforts to give notice by
registered mail to any Lender whose name has been provided to Tenant and shall
offer such Lender a reasonable opportunity to cure the default, including time
to obtain possession of the Premises by power of sale or judicial foreclosure or
other appropriate legal proceedings, if such should prove necessary to effect a
cure. Tenant shall attorn to any purchaser of the Premises at any foreclosure
sale or private sale conducted pursuant to any Security Instrument encumbering
the Premises, or to any grantee or transferee designated in any deed given in
lieu of foreclosure.
15.6 Estoppel Certificates and Financial Statements: At all times during
----------------------------------------------
the Lease Term, each party agrees, following any request by the other party,
promptly to execute and deliver to the requesting party within 15 days following
delivery of such request an estoppel certificate: (i) certifying that this Lease
is unmodified and in full force and effect or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in full
force and effect, (ii) stating the date to which the rent and other charges are
paid in advance, if any, (iii) acknowledging that there are not, to the
certifying party's knowledge, any uncured defaults on the part of any party
hereunder or, if there are uncured defaults, specifying the nature of such
defaults, and (iv) certifying such other information about the Lease as may be
reasonably required by the requesting party. A failure to deliver an estoppel
certificate within 15 days after delivery of a request therefor shall be a
conclusive admission that, as of the date of the request for such statement: (i)
this Lease is unmodified except as may be represented by the requesting party in
said request and is in full force and effect, (ii) there are no uncured defaults
in the requesting party's performance, and (iii) no rent has been paid more than
30 days in advance. At any time during the Lease Term Tenant shall, upon 15
days' prior written notice from Landlord, provide Tenant's most recent financial
statement and financial statements covering the 24 month period prior to the
date of such most recent financial statement to any existing Lender or to any
potential Lender or buyer of the Premises. Such statements shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified public
accountant.
15.7 Reasonable Consent: Whenever any party's approval or consent is
------------------
required by this Lease before an action may be taken by the other party, such
approval or consent shall not be unreasonably withheld or delayed.
15.8 Notices: Any notice required or desired to be given regarding this
-------
Lease shall be in writing and may be given by personal delivery, by courier
service, or by mail. A notice shall be deemed to have been given (i) on the
third business day after mailing if such notice was deposited in the United
States mail, certified or registered, postage prepaid, addressed to the party to
be served at its Address for Notices specified in Section Q or Section R of the
--------- ---------
Summary (as applicable), (ii) when delivered if given by personal delivery, and
(iii) in all other cases when actually received at the party's Address for
Notices. Either party may change its address by giving notice of the same in
accordance with this (P)15.8, provided, however, that any address to which
notices may be sent must be a California address.
15.9 Attorneys' Fees: In the event either Landlord or Tenant shall bring
---------------
any action or legal proceeding for an alleged breach of any provision of this
Lease, to recover rent, to terminate this Lease or otherwise to enforce, protect
or establish any term or covenant of this Lease, the prevailing party shall be
entitled to recover as a part of such action or proceeding, or in a separate
action brought for that purpose, reasonable attorneys' fees, court costs, and
experts' fees as may be fixed by the court.
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15.10 Corporate Authority: If Tenant is a corporation, Tenant represents
-------------------
and warrants that the person signing this Lease is duly authorized to execute
and deliver this Lease on behalf of such corporation in accordance with the by-
laws of such corporation (or partnership in accordance with the partnership
agreement of such partnership) and that this Lease is binding upon such
corporation (or partnership) in accordance with its terms. Tenant is a duly
authorized and existing corporation, it is qualified to do business in
California, and has full right and authority to enter into this Lease.
15.11 Miscellaneous: Should any provision of this Lease prove to be
-------------
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. The captions used in this Lease are for convenience only and shall not
be considered in the construction or interpretation of any provision hereof.
Any executed copy of this Lease shall be deemed an original for all purposes.
This Lease shall, subject to the provisions regarding assignment, apply to and
bind the respective heirs, successors, executors, administrators and assigns of
Landlord and Tenant. "Party" shall mean Landlord or Tenant, as the context
implies. If Tenant consists of more than one person or entity, then all members
of Tenant shall be jointly and severally liable hereunder. This Lease shall be
construed and enforced in accordance with the laws of the State of California.
The language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Landlord or Tenant. When the context of this Lease requires, the neuter gender
includes the masculine, the feminine, a partnership or corporation or joint
venture, and the singular includes the plural. The terms "shall", "will" and
"agree" are mandatory. The term "may" is permissive. When a party is required
to do something by this Lease, it shall do so at its sole cost and expense
without right of reimbursement from the other party unless a provision of this
Lease expressly requires reimbursement. Landlord and Tenant agree that (i) the
gross leasable area of the Premises includes any atriums, depressed loading
docks, covered entrances or egresses, and covered loading areas, (ii) each has
had an opportunity to determine to its satisfaction the actual area of the
Project and the Premises, (iii) all measurements of area contained in this Lease
are conclusively agreed to be correct and binding upon the parties, even if a
subsequent measurement of any one of these areas determines that it is more or
less than the amount of area reflected in this Lease, and (iv) any such
subsequent determination that the area is more or less than shown in this Lease
shall not result in a change in any of the computations of rent, improvement
allowances, or other matters described in this Lease where area is a factor.
Where a party hereto is obligated not to perform any act, such party is also
obligated to restrain any others within its control from performing said act,
including the Agents of such party. Landlord shall not become or be deemed a
partner or a joint venturer with Tenant by reason of the provisions of this
Lease.
15.12 Termination by Exercise of Right: If this Lease is terminated
--------------------------------
pursuant to its terms by the proper exercise of a right to terminate
specifically granted to Landlord or Tenant by this Lease, then this Lease shall
terminate 30 days after the date the right to terminate is properly exercised
(unless another date is specified in that part of the Lease creating the right,
in which event the date so specified for termination shall prevail), the rent
and all other charges due hereunder shall be prorated as of the date of
termination, and neither Landlord nor Tenant shall have any further rights or
obligations under this Lease except for those that have accrued prior to the
date of termination or those obligations which this Lease specifically provides
are to survive termination. This (P)15.12 does not apply to a termination of
this Lease by Landlord as a result of an Event of Tenant's Default.
15.13 Brokerage Commissions: Each party hereto (i) represents and
---------------------
warrants to the other that it has not had any dealings with any real estate
brokers, leasing agents or salesmen, or incurred any obligations for the payment
of real estate brokerage commissions or finder's fees which would be earned or
due and payable by reason of the execution of this Lease, other than to the
Retained Real Estate Brokers described in Section S of the Summary, and (ii)
---------
agrees to indemnify, defend, and hold harmless the other party from any claim
for any such commission or fees which result from the actions of the
indemnifying party. Landlord shall be responsible for the payment of any
commission owed to the Retained Real Estate Brokers pursuant to the separate
written commission agreement between Landlord and the Retained Real Estate
Brokers for the payment of a commission as a result of the execution of this
Lease.
15.14 Force Majeure: Any prevention, delay or stoppage due to strikes,
-------------
lock-outs, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of the party obligated to
perform (except financial inability) shall excuse the performance, for a period
equal to the period of any said prevention, delay or stoppage, of any obligation
hereunder except the obligation of Tenant to pay rent or any other sums due
hereunder.
15.15 Entire Agreement: This Lease constitutes the entire agreement
----------------
between the parties, and there are no binding agreements or representations
between the parties except as expressed herein. Tenant acknowledges that
neither Landlord nor Landlord's Agents has made any legally binding
representation or warranty as to any matter except those expressly set forth
herein, including any warranty as to (i) whether the Premises may be used for
Tenant's intended use under existing Law, (ii) the suitability of the Premises
or the Project for the conduct of Tenant's business, or (iii) the condition of
any improvements. There are no oral agreements between Landlord and Tenant
affecting this Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings, if any,
between Landlord and Tenant or displayed by Landlord to Tenant with respect to
the subject matter of this Lease. This instrument shall not be legally binding
until it is executed by both Landlord and Tenant. No subsequent change or
addition to this Lease shall be binding unless in writing and signed by Landlord
and Tenant.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with
the intent to be legally bound thereby, to be effective as of the Effective
Date.
LANDLORD: TENANT:
SILICON VALLEY PROPERTIES, L.L.C. SYMPHONIX DEVICES, INC.
a Delaware limited liability company a California corporation
By: Divco SVP Group, LLC, By: /s/ Harry Robbins
---------------------------
a Delaware limited liability company Harry Robbins
Its Manager Title: President
By: /s/ Scott Smithers Dated: October 29, 1997
-------------------------------
Name: Scott Smithers
Its: President
Dated: October 28, 1997
23
<PAGE>
EXHIBIT A
SITE PLAN OF THE PROJECT AND OUTLINE OF
PREMISES
<PAGE>
EXHIBIT B
IMPROVEMENT AGREEMENT
<PAGE>
EXHIBIT B
---------
IMPROVEMENT AGREEMENT
---------------------
1. Defined Terms. All defined terms referred to in this Exhibit B shall
-------------
have the same meaning as defined in that certain Lease by and between Silicon
Valley Properties, L.L.C., as Landlord, and Symphonix Devices, Inc., as Tenant
(the "Lease") to which this Exhibit is a part, except where expressly defined to
the contrary.
2. Additional Definitions. Each of the following terms shall have the
----------------------
following meaning:
Architect: Ambiance Associates, HPC or CAS Architects, or another
---------
architectural firm approved in writing by Landlord in its reasonable discretion
to prepare the "Preliminary Plans" and "Construction Plans" (as such terms are
hereinafter defined).
Contractor: The general contractor selected by Tenant and approved by
----------
Landlord in its reasonable discretion to construct the Tenant Improvements.
Landlord hereby approves of Hollander Smith, Devcon Construction, South Bay
Construction and Permian Builders. Tenant may select as the Contractor any one
of these specified contractors to construct the Tenant Improvements without any
further approval of Landlord. The contractor selected and approved by the
parties under this paragraph shall be referred to as the "Contractor" in this
Exhibit.
Construction Contract: The construction contract to be entered into
---------------------
by Tenant and its Contractor in form, scope and substance satisfactory to Tenant
and approved in writing by Landlord in its reasonable discretion in accordance
with section 4.1 of this Exhibit.
Construction Costs- All costs and expenses to construct the Tenant
------------------
Improvements, including, without limitation, and only to the extent applicable
or deemed necessary by Tenant to construct the Tenant Improvements, all fees and
expenses for:
(a) architectural/space planning services utilized by Tenant in
the preparation of any space plan;
(b) architects, engineers and consultants in the preparation of
the Preliminary Plans, Construction Plans, including mechanical, electrical,
plumbing and structural drawings and of all other aspects of the Construction
Plans, and for processing governmental applications and applications for
payment, observing construction of the work, and other customary engineering,
architectural, interior design and space planning services;
(c) surveys, reports, environmental and other tests and
investigations of the site and any improvements thereon;
(d) labor, materials, equipment and fixtures supplied by the
general contractor, its subcontractors and/or materialmen;
(e) the furnishing and installation of all heating, ventilation
and air conditioning duct work, terminal boxes, distributing defusers and
accessories required for completing the heating, ventilation and air-
conditioning system in the Premises (including costs of meter control for after-
hour usage, if required by Landlord in its reasonable discretion);
(f) all electrical circuits, wiring, lighting fixtures, and tube
outlets furnished and installed throughout the Premises, including costs of
meter and key control for after-hour electrical power usage;
(g) all window and floor coverings in the Premises;
(h) all fire and life safety control systems, such as fire
walls, sprinklers and fire alarms, including piping, wiring and accessories
installed within the Premises;
(i) all plumbing, fixtures, pipes and accessories installed
within the Premises;
(j) fees charged by the city and/or county where the Building is
located (including, without limitation, fees for building permits and plan
checks) required for the Tenant Improvements;
(k) supervision and administration fee payable to Landlord's
agent and property manager and/or representative, which fee shall not exceed in
the aggregate five percent (5%) of the amount of Landlord's Allowance or
$7,615.00;
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(l) all taxes, fees, charges and levies by governmental and
quasi-governmental agencies for authorization, approvals, licenses and permits;
and all sales, use and excise taxes for the materials supplied and services
rendered in connection with the installation and construction of the Tenant
Improvements;
(m) all costs and expenses incurred to comply with all laws,
rules, regulations or ordinances of any governmental authority for any work at
the Building in order to construct the Tenant Improvements, excluding all
Construction Costs incurred to comply with ADA as defined below, which ADA work
constitutes Special Work as described below, the cost of which shall be paid for
by Landlord, at its sole cost and expense as provided in this Exhibit B; and
(n) all other costs and expenses incurred by Tenant in
connection with the construction of the Tenant Improvements.
The term Construction Costs shall not include any fees, costs,
expenses of Tenant's furniture, trade fixtures, telephone and computer systems
and related facilities, or equipment. Notwithstanding the foregoing, the
foregoing definition of Construction Costs is not meant to impose an obligation
on Tenant to construct such items, but merely to define and include such costs
in the event such costs are actually incurred in the construction of the Tenant
Improvements.
Design Problem: shall mean when the preliminary plans or Working
--------------
Drawings (or any revision to any) for the Tenant Improvements that have been
submitted to Landlord for its approval are reasonably determined by Landlord's
architect (i) to have a material adverse effect on the structure of the Building
or to the Building's electrical, plumbing, life safety, mechanical, heating,
air-conditioning and ventilation systems that serves other space in the Building
other than the Premises; (ii) not be in compliance with any applicable federal,
state and local laws, ordinances, rules, regulations and building codes
(collectively, the "Applicable Laws"); or (iii) to have an adverse effect on the
exterior appearance of the Building (each, a "Design Problem").
Electrical Upgrade shall consist of upgrading the electrical service
------------------
to the Premises from 800 amps, 277/480 volts, 3 phase, to 1200 amps, 277/480
volts, 3 phase.
Force Majeure Delay: shall mean any delay by reason of (i)
-------------------
governmental preemption of priorities or other controls in connection with a
national or other public emergency, civil disturbance or riot, or (ii)
earthquake, fire and flood, or (iii) a delay with Landlord and Tenant in
approving the Preliminary Plans or Construction Plans beyond the time periods
set forth in sections 3.1 and 3.2, respectively, unless due to a Design Problem.
Tenant shall notify Landlord within five (5) days after Tenant knows of an event
constituting a Force Majeure Delay and of the length of the delay as reasonably
determined by the Architect (except no notice shall be required in the event of
a delay under clause (iii) of this definition).
Landlord's Allowance: The amount of $152,300.00 to be paid by
--------------------
Landlord for the Construction Costs for the Tenant Improvements, excluding from
the total cost of the Tenant Improvements all costs incurred for the Electrical
Upgrade and the Special Work (hereinafter defined). Any unused portion of
Landlord's Allowance for the Tenant Improvements (exclusive of the Electrical
Upgrade and the Special Work) shall remain the property of Landlord, and Tenant
shall have no interest in said funds. If the Construction Costs for the Tenant
Improvements (excluding all costs incurred for the Electrical Upgrade and the
Special Work) exceed $152,300.00, Tenant shall be solely responsible for payment
of such excess costs, subject to the terms of this Exhibit, which require
Landlord to pay for any such costs.
Landlord Delay: shall mean a delay incurred by Tenant in
--------------
Substantially Completing the Tenant Improvements due to (a) a delay by Landlord
or its architect in providing written notice of approval or disapproval of the
Preliminary Plans and Construction Plans within the time periods and as provided
in section 3 of this Exhibit B ("Plan Response Delay"), or any delay by Landlord
or Landlord's Agents in approving the Preliminary Budget or Construction Budget
beyond the time period set forth in section 4.5 of this Exhibit, (b) any changes
required by Landlord in or to previously approved work as shown in the
Construction Plans, or (c) unreasonable interference with the construction of
the Tenant Improvements by Landlord or Landlord's Agents. Tenant shall notify
Lessor within five (5) days after Tenant knows of an event constituting such a
Landlord Delay (except for any under clause (a) above for which no such notice
shall be required) and of the length of the delay as reasonably determined by
the Architect.
Special Work: Special Work consists of the following work:
------------
1. The removal of the floor covering and equipment in the computer
room to leave the floor in a slab condition in the areas noted as No. 1 in
Exhibit B-1;
2. The installation of a grade level door (which shall be of Building
standard quality) in the area noted as No. 2 in Exhibit B-1;
3. Remove the walls marked by "xxx" as noted in the vault area in
Exhibit B-1;
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4. Remove the Halon System in the vault and computer room areas shown
in Exhibit B-1
5. Install a sprinkler system (which shall be of Building standard
quality) in the vault and computer room areas shown in Exhibit B-1;
6. Remove the second set of double doors (interior set) at the front
entrance of the Premises in the area noted as No. 4 in Exhibit B-1; and
7. All improvements, alterations, changes and other work to the
Premises to comply with the current requirements of the Americans With
Disabilities Act , 42 U.S.C. (S)(S) 12101-12213 ("ADA") as it applies as of the
Effective Date of the Lease excluding any changes required based on Tenant's
particular use of the Premises or any of Tenant's Alterations. Attached hereto
as Exhibit B-2 is a list of the ADA alterations that Landlord hereby agrees to
-----------
pay for, at its sole cost and expense, and which shall constitute items of
Special Work, to bring the Building into compliance with ADA. All improvements
and installations under this paragraph shall be with materials of at least
Building standard quality.
Substantial Completion, Substantially Complete, and Substantially
-----------------------------------------------------------------
Completed (or similar phrase): The foregoing shall mean when the following have
- -----------------------------
occurred:
(a) the Tenant has delivered to Landlord a certificate from the
Architect, in a form approved by Landlord in its reasonable discretion, that the
Tenant Improvements have been Substantially Completed substantially in
accordance with the Construction Plans, except "punch list" items which may be
completed within thirty (30) days without impairing Tenant's use of the Premises
or a material portion thereof; and
(b) Tenant has obtained and delivered to Landlord a final
certificate of occupancy (or all building permits with all inspections
approved), if applicable, and all other approvals and permits for the Premises
from the appropriate governmental authority permitting occupancy of the
Premises.
Tenant Improvements: The improvements to be constructed in accordance
-------------------
with the Construction Plans. The Tenant Improvements shall comply in all
respects with all applicable laws, statutes, ordinances, building codes and
regulations (collectively, "Applicable Laws"). Landlord acknowledges and agrees
that part of the Tenant Improvements will consist of the installation of HVAC
equipment and exhaust vents on the roof of the Building and making minor
penetrations in the roof in connection with such installation such HVAC
equipment and exhaust vents. Landlord hereby acknowledges that Tenant intends
to construct a clean room in the Premises and approves of Tenant's construction
of said clean room as part of the Tenant Improvements, subject to Landlord's
right to approve the Preliminary Plans and Construction Plans, as described
below.
3. Preparation of Plans.
--------------------
3.1 Preliminary Plans. As soon as is reasonably possible after the
-----------------
Effective Date of the Lease, Tenant shall submit to its Architect all additional
information, including occupancy requirements for the Premises ("Information"),
necessary to enable the Architect to prepare preliminary plans for the Tenant
Improvements showing, among other things, all demising walls, corridors,
entrances, exits, doors, interior design and partition, clean room, and the
locations of all display and storage rooms and bathrooms. Tenant shall cause
the Architect to prepare preliminary plans for the Tenant Improvements and shall
deliver two copies of same to Landlord for its review and written approval in
its reasonable discretion. Within five (5) business days after receipt of the
preliminary plans, Landlord shall notify Tenant in writing that (i) Landlord
approves of such preliminary plans or (ii) Landlord disapproves of such
preliminary plans, the basis for disapproval and the changes requested by
Landlord. If Landlord disapproves of the preliminary plans in any respect, the
parties shall confer and negotiate in good faith to reach written agreement on
the preliminary plans within five (5) business days thereafter for the first
(1/st/) disapproval and three (3) business days thereafter. Upon such
agreement, Tenant shall cause the preliminary plans to be revised and shall
submit the revised plans to Landlord for its review and approval as provided in
this section. Landlord shall approve or reasonably disapprove such revised
preliminary plans within three (3) business days after Landlord's receipt of
such preliminary plans. If Landlord disapproves the preliminary plans, the
parties shall again meet and confer in accordance with this paragraph until the
parties agree on the preliminary plans. If Landlord fails to approve the second
set of revised preliminary plans within said three (3) business day time period,
then each day after the end of said three (3) business day time period shall
constitute a Force Majeure Delay (which will delay the Commencement Date in the
Lease one (1) day for each day of delay), unless such disapproval or failure to
agree is based on a Design Problem. If Landlord disapproves of the second set
of preliminary plans due to a Design Problem, Tenant may terminate this Lease
upon delivery of written notice to Landlord within five (5) business days after
Landlord's disapproval of such second set of preliminary plans, whereupon this
Lease shall terminate and shall be null and void. After approval of the
preliminary plans as provided above, the preliminary plans shall be referred to
as the " Preliminary Plans." If Landlord fails to approve or disapprove of the
preliminary plans within the time periods set forth above, Landlord shall be
deemed to have approved the proposed preliminary plans. Landlord shall not
unreasonably withhold its approval or consent to any preliminary plans.
3
<PAGE>
3.2 Construction Plans. Tenant shall cause the Architect to prepare
------------------
final working drawings, which shall be consistent with the Preliminary Plans,
compatible with the design, construction and equipment of the Building, comply
with all Applicable Laws and contain all such information as may be required for
obtaining all permits and other governmental approvals for the construction of
the Tenant Improvements (the "Working Drawings"). Tenant shall submit two
copies of the Working Drawings to Landlord for its review and approval in its
reasonable discretion. Within five (5) business days after receipt of the
Working Drawings, Landlord shall notify Tenant in writing that (i) Landlord
approves of such Working Drawings, or (ii) Landlord disapproves of such Working
Drawings, the basis for disapproval and the changes requested by Landlord. If
Landlord disapproves of the Working Drawings in any respect, the parties shall
confer and negotiate in good faith to reach written agreement on the Working
Drawings within five (5) business days thereafter for the first (1/st/)
disapproval and three (3) business days thereafter. Upon such agreement, Tenant
shall cause the Working Drawings to be revised and shall submit the revised
Working Drawings to Landlord for its review and approval as provided in this
section. Landlord shall approve or reasonably disapprove of such revised
Working Drawings within three (3) business days after delivery of such Working
Drawings to Landlord. If Landlord disapproves the revised Working Drawings, the
parties shall again meet and confer in accordance with this paragraph until the
parties agree on the Working Drawings. If Landlord disapproves of the second
set of Working Drawings within said three (3) business day time period, then
each day after the end of said three (3) business day time period shall
constitute a Force Majeure Delay (which will delay the Commencement Date in the
Lease one (1) day for each day of delay), unless such disapproval or failure to
agree is based on a Design Problem. If Landlord disapproves of the second
(2/nd/) set of Working Drawings due to a Design Problem, Tenant may terminate
this Lease upon deliver of written notice to Landlord within five (5) business
days after Landlord's disapproval of such second set of preliminary plans,
whereupon this shall terminate and shall be null and void. If Landlord fails to
approve or disapprove of the Working Drawings within the time periods set forth
above, Landlord shall be deemed to have approved the proposed Working Drawings.
The Working Drawings approved in writing by the parties shall be referred to as
the "Construction Plans."
3.3 General. It is the responsibility of Tenant to assure that the
-------
Construction Plans and the Tenant Improvements constructed thereunder conform to
all of the Applicable Laws, subject to Tenant's right to reimbursement from
Landlord for the cost incurred to bring the Premises into compliance with the
ADA (as described in the definition of Special Work). Tenant shall submit to
Landlord one (1) reproducible and two (2) prints of the Construction Plans.
4. Construction of Tenant Improvements.
-----------------------------------
4.1 Construction Contract. Tenant shall enter into the Construction
---------------------
Contract with Contractor to construct the Tenant Improvements. In addition, any
subcontractor performing any work on the life safety or alarm systems or work
affecting the roof shall be subject to Landlord's prior written approval in its
good faith discretion and Landlord may require the Tenant use Landlord's
contractor or a specific subcontractor for any such work. The Construction
Contract shall require, among other things, that the Contractor (a) obtain and
deliver to Landlord evidence of insurance required by Landlord as specified in
section 5.3 of this Exhibit B, and (b) execute, obtain and deliver to Tenant
lien waivers in the form required under Applicable Law from the Contractor and
all of its subcontractors and suppliers, and (c) monthly progress payments, with
a ten percent (10%) retention, and (d) provide for a guaranteed maximum price
for the Special Work and the Electrical Upgrade. The Construction Contract as
it applies to the Special Work and the Electrical Upgrade shall be subject to
the prior written approval of Landlord in its reasonable discretion. Landlord
shall provide written notice of approval or disapproval within three (3)
business days after Tenant's request for such approval. If Landlord disapproves
of the portion of the Construction Contract in which it is permitted to approve
or disapprove of, Landlord shall set forth its reasons for disapproval in
writing within said three (3) business day period and shall follow the
disapproval procedure set forth in Section 3.1 and3.2 of this Exhibit. If
Landlord fails to approve or disapprove within the applicable time period set
forth herein, Landlord shall be deemed to have approved the Construction
Contract.
4.2 Information Provided by Landlord. Acceptance or approval of any
--------------------------------
plan, drawing or specification, including, without limitation, the Preliminary
Plans and the Construction Plans, by Landlord shall not constitute the
assumption of any responsibility by Landlord for the accuracy or sufficiency of
such plans and material, and Tenant shall be solely responsible therefor.
Tenant agrees and understands that the review of all plans pursuant to the Lease
or this Exhibit by Landlord is to protect the interests of Landlord in the
Building, and Landlord shall not be the guarantor of, nor responsible for, the
correctness, completeness or accuracy of any such plans or compliance of such
plans with Applicable Laws.
4.3 No Responsibility of Landlord. Landlord's approval of any plans,
-----------------------------
including, without limitation, the Preliminary Plans or the Construction Plans,
shall not: (i) constitute an opinion or agreement by Landlord that such plans
and Tenant Improvements are in compliance with all Applicable Laws, (ii) impose
on Landlord any responsibility for a design and/or construction defect or fault
in the Tenant Improvements, or (iii) constitute a representation or warranty
regarding the accuracy, completeness or correctness thereof.
4.4 Changes. After approval of the Construction Plans by Landlord
-------
and Tenant, any changes in the Construction Plans shall require the prior
written consent of Landlord and Tenant which shall not be unreasonably withheld
and the parties shall follow the same process as was required under sections 3.2
for
4
<PAGE>
approval of the change in the Construction Plans, unless the change is required
by Applicable Law in which case each party shall provide its written approval or
disapproval (including the basis therefor) within three (3) business days after
receipt of request of the change together with the applicable construction
drawing showing the change. If Landlord disapproves of the change required to
comply with Applicable Law and the parties do not resolve the matter within five
(5) business days after Tenant's receipt of written notice of Landlord's
disapproval, then Tenant shall have the right to terminate this Lease upon
delivery of written notice to Landlord within five (5) business days after the
end of such five (5) business day time period. Any change requested by Tenant
that is approved in writing by Landlord shall be prepared by the Architect and
shall be subject to the review and approval of Landlord in its reasonable
discretion. If a change is requested by Landlord to the Tenant Improvements
following completion and approval by the parties of the Construction Plans,
Landlord shall pay any increased Construction Costs to effectuate such change,
at Landlord's sole cost and expense in addition to the Landlord's Allowance and
Landlord's obligation to pay for its share of the Electrical Upgrade and the
entire cost of the Special Work as set forth in this Agreement. If a change is
requested by Tenant to the Tenant Improvements following the completion and
approval of the Construction Plans or if required under the Applicable Laws
(except with respect to ADA cost described in section 2 under the definition of
Special Work which shall be at Landlord's sole cost and expense, unless the
change is required due to a change in the Tenant Improvements made by Tenant
after approval of the Construction Plans), Tenant shall pay for any increased
Constructed Costs to effectuate the change, at its sole cost and expense.
4.5 Construction Budget for Tenant Improvements. As soon as is
-------------------------------------------
reasonably possible, Tenant and its Architect shall prepare a preliminary
construction budget for the Construction Costs to construct the Special Work and
the Electrical Upgrade, if applicable. The preliminary construction budget
shall be subject to the prior written approval of Landlord within three (3)
business days after its receipt, which shall not be unreasonably withheld, and
when approved shall be referred to herein as the "Preliminary Budget."
The bid from the selected Contractor shall be used to prepare the
final construction budget for all Construction Costs for the Special Work and
the Electrical Upgrade. Landlord and Tenant shall agree on a construction
budget (the "Construction Budget") for all costs to be incurred in connection
with completion of the Special Work and the Electrical Upgrade work, only.
Landlord shall not have the right to approve or disapprove of Tenant's
construction budget for the rest of the Tenant Improvements, which budget shall
be approved by Tenant, in its reasonable discretion. If the actual Construction
Costs for the Special Work or Electrical Upgrade is more than ten percent (10%)
of the cost provided in the Construction Budget for said work, Tenant shall
notify Landlord in writing of said increase and Landlord shall pay for such
increase to the extent such increase in cost is permitted under the Construction
Contract and is not due to a change order by Tenant or otherwise caused by
Tenant or Tenant's Agents. By approving the Construction Budget, Landlord shall
be deemed to have consented to pay for the entire cost of the Special Work set
forth in the Construction Budget and one half of the cost of the Electrical
Upgrade set forth in the Construction Budget, plus any actual increases in said
Construction Budget, not to exceed ten percent (10%) of the Construction Budget
for the Special Work and the Electrical Upgrade, if any, to the extent such
increase in cost is permitted under the Construction Contact and is not due to a
change order by Tenant or otherwise caused by Tenant or Tenant's Agents. For
example, if the Construction Budget for the Special Work is $20,000, Landlord's
obligation to pay for the Special Work shall be the actual cost of such work,
not to exceed $22,000.
Pursuant to the terms of the Lease, Landlord is obligated to insure
the Tenant Improvements (except for the clean room equipment) under Landlord's
casualty policy from and after the Commencement Date. Notwithstanding anything
to the contrary in this Exhibit B, Tenant shall provide written notice of the
total costs to construct the Tenant Improvements (excluding the clean room
equipment), together with such supporting information that Landlord's insurer
may request, prior to the Commencement Date (or at least an estimate if the
Tenant Improvements are not Substantially Completed prior to the Commencement
Date with a final statement of such costs after all work is completed).
4.6 Building Permits and Approvals. After approval by Landlord and
------------------------------
Tenant of the Construction Plans, Tenant or its Contractor shall submit the
Construction Plans to the appropriate governmental body for plan checking and
all building permits and other governmental and quasi-governmental approvals.
4.7 Conduct of Work. Tenant shall confine the construction activity
---------------
to within the Premises as much as possible and shall work in an orderly manner
removing trash and debris from the Premises on a daily basis. At no time will
pipes, wires, boards or other construction materials cross public areas where
harm could be caused to the public. All such work shall be undertaken in strict
compliance with all Applicable Laws. If Tenant fails to comply with these
requirements, Landlord shall have the right, but not the obligation, to remedy
such problem (at Tenant's cost) as deemed reasonably necessary by Landlord to
protect the public. Tenant shall complete construction of the Tenant
Improvements free and clear of all liens, security interests and encumbrances of
any kind caused to be recorded against all or any portion of the Project by
Tenant in connection with the construction of the Tenant Improvements.
(a) Pre-construction Submittals to Landlord. A minimum of two
---------------------------------------
(2) days prior to the commencement of construction, Tenant shall submit the
following items to Landlord:
5
<PAGE>
(1) A certificate setting forth the proposed commencement
date of construction and the estimated completion dates;
(2) Certificates of all insurance required under the Lease
and this Exhibit;
(3) Copies of all building permits, and all other permits
and approvals required by governmental agencies to construct the Tenant
Improvements; provided, however, that Tenant may commence demolition work in the
Premises prior to obtaining all necessary building permits to construct the
Tenant Improvements; and
(4) A copy of the signed construction contract with the
Contractor;
(b) Delays. Tenant shall with reasonable diligence prosecute
------
construction of the Tenant Improvements to complete all work by the outside date
of January 1, 1998 for the Commencement Date. Any delay in completing such
work, including any delay as a result of governmental delays, acts of God and
other events beyond the control of Tenant, shall not extend or delay the time
for the commencement of payment Rent or any other sum under the Lease, except as
expressly provided to the contrary in this Exhibit B for a Landlord Delay or
Force Majeure Delay or a casualty.
(c) Correction of Work. Landlord may reject any portion of the
------------------
Tenant Improvements which is not in conformity with the Construction Plans.
Landlord shall not be responsible for correcting the portions of the Tenant
Improvements which were defective or not in compliance with the Construction
Plans, as the same may be amended by change order approved by the Landlord and
Tenant; all such work shall be the responsibility of Tenant at its sole cost and
expense.
4.8 Notice of Completion; Copy of Record set of Plans. Within ten
-------------------------------------------------
(10) days after completion of construction of the Tenant Improvements, Tenant
shall cause a notice of completion (or the equivalent notice required under
local law to provide notice to all contractors, subcontractors and materialmen
that the work is completed and the time for filing any mechanic's lien is
running) to be recorded in the Official Records of the County where the Building
is located, and shall furnish a copy thereof to Landlord upon such recordation.
If Tenant fails to do so within such period and after ten (10) days written
notice from Landlord, Landlord may execute and file the same on behalf of Tenant
as Tenant's agent for such purpose, at Tenant's sole cost and expense. At the
conclusion of construction: (i) Tenant shall cause the Architect and Contractor
(A) to update the Construction Plans as necessary to reflect all changes made to
the Construction Plans during the course of construction, (B) to certify to the
best of their knowledge that the "record-set" of Construction Plans are true and
correct, which certification shall survive the expiration or termination of this
Lease, and (C) to deliver to Landlord two (2) sets of copies of such record set
of Construction Plans within ninety (90) days following issuance of a
certificate of occupancy for the Premises; and (ii) Tenant shall deliver to
Landlord a copy of all signed building permits and certificates of occupancy,
and all warranties, guaranties, and operating manuals and information relating
to the improvements, equipment and systems in the Premises.
4.9 Storage During Construction. Storage of construction material,
---------------------------
tools, equipment and debris shall be confined to the Premises and any other
areas which may be designated for such purposes by Landlord. Landlord shall not
be responsible for any loss or damage to Tenant's and/or Tenant's contractors'
equipment.
4.10 Miscellaneous. Construction shall comply in all respects with
-------------
the Applicable Laws. Tenant shall apply and pay for all utility services
furnished to the Premises. The Tenant Improvements shall be subject to the
inspection of Landlord and its supervisory personnel, provided such inspection
shall not unreasonably interfere with the construction of the Tenant
Improvements.
5. Tenant's Construction Parties and Insurance. The Contractor and all
-------------------------------------------
subcontractors, laborers, materialmen, and suppliers used by Tenant collectively
shall be referred to as "Tenant's Construction Parties."
5.1 Indemnity. Tenant's indemnity of Landlord as set forth in
---------
section 10.3 of the Lease shall also apply with respect to any and all costs,
losses, damages, injuries and liabilities related in any way to any act or
omission of Tenant's Construction Parties, or anyone directly or indirectly
employed by any of them, arising in connection with the construction of the
Tenant Improvements.
5.2 Requirements of Tenant's Construction Parties. Tenant's
---------------------------------------------
Contractor shall warrant to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible shall be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion thereof. Tenant's Contractor shall be
responsible for the replacement or repair, without additional charge, of all
work done or furnished in accordance with its contract that shall become
defective within one (1) year after the later to occur of (i) completion of the
work performed by such contractor or subcontractors, or (ii) the date when the
Tenant Improvements have been Substantially Completed. The correction of such
work shall include, without additional charge, all additional expenses and
damages incurred in connection with such removal or replacement of all or any
part of the Tenant Improvements, and/or the Building and/or Common Areas that
may
6
<PAGE>
be damaged or disturbed thereby. All such warranties as to material or
workmanship of or with respect to the Tenant Improvements shall be contained in
the Construction Contract or subcontract and shall be written such that such
warranties shall inure to the benefit of both Landlord and Tenant, as their
respective interests may appear, and can be directly enforced by either. Tenant
covenants to give to Landlord any assignment which may be necessary to effect
such right of direct enforcement.
5.3 Insurance Requirements. In addition to the insurance
----------------------
requirements set forth in the Lease, Tenant shall comply with the following
requirements:
(1) General Coverages. Tenant's Contractor shall carry worker's
-----------------
compensation insurance covering all of their respective employees, and shall
also carry commercial liability insurance, including property damage, all with
limits, in form and with companies as are required to be carried by Tenant as
set forth in the section 9.1.A(1), 9.1.A(3) and 9.1.B of the Lease.
(2) Special Coverage. Tenant shall carry "Builder's All Risk"
----------------
insurance in an amount equal to the cost of the Tenant Improvements. Such
insurance shall include an extended coverage endorsement for excess liability
and Products and Completed Operation Coverage insurance, in an amount equal to,
or not less than $1,000,000 per incident, $2,000,000 in aggregate, and with
companies with a rating at least equal to the rating of companies required to be
carried by Tenant as set forth in section 9.1B of the Lease.
(3) General Terms. Certificates for all insurance carried
-------------
pursuant to the foregoing sections shall be delivered to Landlord before the
commencement of construction of the Tenant Improvements and before the
Contractor's equipment is moved onto the site. All such policies of insurance
must contain a provision that the company writing said policy will give Landlord
thirty (30) days' prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance. Tenant's
Contractor shall maintain all of the foregoing insurance coverage in force until
the Tenant Improvements are fully completed and accepted by Landlord, except for
any Products and Completed Operation Coverage insurance required by Landlord,
which is to be maintained for three (3) years following completion of the work
and acceptance by Landlord and Tenant. All policies carried under this section
shall insure Landlord and Tenant, as their interests may appear. All insurance,
except Workers' Compensation, maintained by Tenant's Construction Parties shall
preclude or waive subrogation claims by the insurer against anyone insured
thereunder. To the extent required under the Construction Contract, Landlord
hereby releases Tenant's Contractor and waives all right of recovery by way of
subrogation in accordance with Section 9.4 of the Lease that Landlord's
insurance company may or could have against Tenant's Contractor with respect to
any insurance maintained by Landlord in connection with the Project, except
worker's compensation insurance. To the extent required under the Construction
Contract, Landlord shall obtain waivers of subrogation in favor of Tenant's
Construction Parties for Landlord's fire and property damage policy. Such
insurance shall provide that it is primary insurance as respects the Landlord
and that any other insurance maintained by Landlord is excess and
noncontributing with the insurance required hereunder. The requirements for the
foregoing insurance shall not derogate from the provisions for indemnification
of Landlord by Tenant under the Lease or this Exhibit.
(4) Casualty. In addition to the provisions of Article 11 of the
--------
Lease regarding a casualty to the Premises, Building or Project, the following
provisions shall apply with respect to any casualty at the Premises or Building
prior to the Commencement Date or Substantial Completion of the Tenant
Improvements, if later. If the Premises or any portion of the Building (which
will materially interfere with Tenant's use of the Premises or construction of
the Tenant Improvements) is damaged or destroyed prior to the Commencement Date
of the Lease, Tenant shall have the right to terminate the Lease if Landlord's
architect or contractor estimate in its reasonable opinion of the time to
restore is more than 90 days. Tenant shall provide written notice of termination
within ten (10) days after receipt of Landlord's notice of the estimated time to
restore. If the Lease is so terminated, Tenant shall be entitled to the proceeds
of all of Tenant's builder's risk insurance, but Landlord shall not have to pay
for Landlord's Allowance or the cost of the Special Work or its share of the
Electrical Upgrade. In such event, Tenant shall also be responsible for payment
of all claims from the Contractor for payments due under the Construction
Contract. If the Premises or Building is damaged or destroyed prior to the
Commencement Date or Substantial Completion of the Tenant Improvements if later,
and the Lease is not terminated pursuant to this Section, Landlord shall
promptly and diligently complete construction of the Building, and Tenant shall
cause its Contractor to restore and complete the Tenant Improvements. Under no
circumstances shall Landlord be obligated to expend more than the amount of the
insurance proceeds received by Landlord for such casualty. In the event of a
casualty and the Lease is not terminated, the Commencement Date shall be
postponed one day for each day of delay caused by such casualty.
6. Payments.
--------
6.1 Basic Tenant Improvements. Tenant shall pay for the Tenant
-------------------------
Improvements, minus the Landlord's Allowance, Landlord's share of the Electrical
Upgrade and the entire cost of the Special Work, which Landlord shall pay as
hereinafter provided. Since the Construction Costs for the Tenant Improvements
(excluding the Electrical Upgrade and the Special Work) will exceed the amount
of Landlord's Allowance, Tenant shall be solely responsible for such additional
costs, except for additional costs resulting from change orders required by
Landlord and any Landlord Delay (other than a Plan Response Delay as defined in
clause (a) of the definition of
7
<PAGE>
Landlord Delay). Landlord shall make one payment of the Landlord's Allowance
within fifteen (15) days after receipt by Landlord of (i) the final certificate
of occupancy, if applicable, for the Premises, (ii) copies of all applicable
building permits reflecting final sign-off by the local governmental authority,
(iii) a copy of the as-built or marked Construction Plans for the Tenant
Improvements, (iv) unconditional lien waivers from the general contractor and
all subcontractors and suppliers and (v) receipt and approval by Landlord of the
Architect's certificate referred to in the definition of Substantial Completion
in this Exhibit, which approval shall not be unreasonably withheld.
6.2 Electrical Upgrade. Tenant shall have the option to elect not to
------------------
construct the Electrical Upgrade. If Tenant elects to construct the Electrical
Upgrade, such election must be made and the work done before the commencement of
the fourth (4/th/) year of the Lease Term and any budget and the contractor to
perform such work shall be subject to the written approval of Landlord and
Tenant. Tenant's right to construct the Electrical Upgrade shall be conditioned
upon no Event of Tenant's Default existing at such time. Landlord and Tenant
shall each pay for one-half (1/2) of the Construction Costs for the Electrical
Upgrade. Landlord shall pay to Tenant, within fifteen (15) days after request
from Tenant and after completion of the Electrical Upgrade, Landlord's share of
the Construction Costs for the Electrical Upgrade.
6.3 Special Work. Landlord shall be solely responsible for payment
------------
of all the Construction Costs for the Special Work in addition to Landlord's
Allowance and Landlord's share of the Electrical Upgrade; provided, however,
that any additional costs for the Special Work due to any delay caused by Tenant
or changes requested by Tenant following approval of the Construction Plans
shall be paid by Tenant. Landlord shall pay to Tenant, within fifteen (15) days
after request from Tenant and after completion of the Special Work, all
Construction Costs for the Special Work.
6.4 Security for Payment: If Landlord fails to make any payment
--------------------
required by Landlord under this Exhibit B within fifteen (15) days after
Landlord's receipt of written notice from Tenant that such payment is due (which
shall be in addition to the initial notice and 15-day grace period under section
6.1 or 6.2) pursuant to the terms of this Exhibit B, such payment shall accrue
interest at the Agreed Interest Rate from the date due until the date paid. If
Landlord fails to make any payment required hereunder within said time period,
notwithstanding anything to the contrary in the Lease or this Exhibit, Tenant
shall be entitled to deduct from the Rent an amount equal to the amount then
owed by Landlord under the terms of this Exhibit until Landlord's obligations
under this Exhibit have been paid in full.
7. HVAC Work. There are currently three (3) air-conditioning units
---------
servicing the Premises. At the request of Tenant, Landlord has agreed to
replace two (2) of the air-conditioning units at this time with air-conditioning
units of the same tonnage capacity (i.e., 30-ton air-conditioning units) and the
cost of such work shall be amortized and paid by Tenant as provided in section
5.4A. and 5.4B of the Lease. Landlord will also be performing certain repair
and maintenance work to the third HVAC unit in order for such HVAC unit to be in
good working order as of the Commencement Date, and the cost of such work shall
be borne by Landlord. All such work shall be substantially completed by the
Commencement Date subject to any Force Majeure Delay and any delay caused by
Tenant or Tenant's Agents. The vendor or contractor to perform such work shall
be selected by Landlord in its sole and absolute discretion. As of the date
hereof, Landlord anticipates using Air Com Mechanical to perform such work, but
Landlord reserves the right to select any other vendor or contractor.
8. Exterior Lighting. The electricity for the exterior lighting at the
-----------------
Building is currently connected to the meter serving the Premises. Landlord has
agreed to split the electricity for the Building's exterior lighting so that the
Building exterior lighting for the Premises will be connected to Tenant's meter
and the Building's exterior lighting for the remainder of the Building will be
connected to the other meter for the remaining space in the Building. Such work
shall be completed by the Commencement Date, subject to any Force Majeure Delay
and any delay caused by Tenant or Tenant's Agents. The cost of such work shall
be treated as a Common Operating Expenses for calendar year 1997.
8
<PAGE>
EXHIBIT B-1
-----------
PREMISES' FLOOR PLAN WITH NOTATION FOR SPECIAL WORK
---------------------------------------------------
[FLOOR PLAN APPEARS HERE]
7
<PAGE>
EXHIBIT B-2
-----------
LIST OF ADA WORK
----------------
A. Main Entry Doors.
1. 10" kickplate is missing from existing pair of doors.
2. Adjust door closing hardware to appropriate force.
B. Handicapped Parking Adjacent to Main Entry.
1. Provide a van stall and adjacent stripped zone.
2. Provide a total of four handicapped parking stalls (including the van
stall described in paragraph 1 above).
3. Provide access to main entry door without walking behind another
parked vehicle.
C. Site.
1. Provide appropriate signage indicating "handicapped accessibility."
D. Exterior Exit Doors.
1. Provide new lever hardware at all existing doors.
2. Modify thresholds at all existing doors to provide level landing
on both sides of door.
E. Interior Doors.
1. Provide new lever hardware at all existing doors.
F. Toilet Rooms.
1. Provide accessible toilet stalls with correct floor clearances and
fixture height.
2. Modify countertops and sinks with correct clearances and fixture
hardware.
3. Modify urinals with correct floor clearance and fixture height.
G. Coffee Bars.
1. Modify countertop and base cabinets with correct clearances.
<PAGE>
EXHIBIT C
INTENTIONALLY DELETED
<PAGE>
EXHIBIT D
ACKNOWLEDGMENT OF COMMENCEMENT DATE
<PAGE>
EXHIBIT "D"
-----------
ACKNOWLEDGMENT OF COMMENCEMENT DATE
This Acknowledgment of Commencement Date is made as of _______________,
19___, by and between the parties hereto with regard to that certain Lease dated
as of October 27, 1997, by and between Silicon Valley Properties, L.L.C., a
Delaware limited liability company as Landlord ("Landlord"), and Symphonix
Devices, Inc., a California corporation, as Tenant ("Tenant"), affecting those
premises located at 2331 Zanker Road, San Jose, California 95131. The parties
hereto agree as follows:
1. The "Tenant Improvements" required to be constructed by Tenant have been
"Substantially Completed" (as such terms are defined in Exhibit B to the
Lease), subject to the completion of the following punchlist items:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
2. The Commencement Date of the Lease Term is _______________, 19___, and the
Lease Term shall expire on __________________, ____, unless sooner
terminated or extended according to the terms of the Lease.
LANDLORD:
TENANT:
SILICON VALLEY PROPERTIES, L.L.C.
a Delaware limited liability company SYMPHONIX DEVICES, INC.
a California corporation
By: Divco SVP Group, LLC,
a Delaware limited liability company By: _____________________
Its Manager Harry Robbins
Title: President
By: __________________________
Name: Scott Smithers Dated: ________________
Its: President
Dated: ____________________
1
<PAGE>
EXHIBIT E
INTENTIONALLY DELETED
<PAGE>
EXHIBIT F
SIGN CRITERIA
<PAGE>
EXHIBIT "F"
-----------
SIGN CRITERIA
-------------
These criteria have been established for the purpose of assuring an outstanding
business complex and for the mutual benefits of all tenants. Conformance will be
strictly enforced, and any installed non-conforming or unapproved signs must be
brought into conformance at the expense of the tenant.
A. GENERAL REQUIREMENTS
--------------------
1. The Lessee shall submit a sketch of his proposed utilization of the
Orchard Park designated sign to Silicon Valley Properties for written
approval.
2. Lessee's sign base and frame shall be constructed by Silicon Valley
Properties' agent. The sign base shall be installed by Silicon Valley
Properties' agent at Lessee's expense. All tenant lettering shall be
done by the agent at Lessee's expense.
3. Lessee shall be responsible for the fulfillment of all requirements of
these criteria.
B. GENERAL SPECIFICATIONS
----------------------
1. No electrical or audible signs will be permitted. Internally
illuminated signs may be installed by modification of the existing or
designated sign base. Final details for modification and installation
must be given written approval by the Lessor.
2. If the sign is lighted, the light source for the illumination of the
sign shall be concealed from view, and the light source shall not
travel from such light source straight to the viewers eye. Instead, it
shall be visible only from a reflecting or diffusing surface. No part
of the sign's light shall revolve, rotate, move or create the illusion
of same.
3. The sign's dimensions will be in accordance with the established sign
program for the building.
4. Placement of the sign and method of attachment will be directed by
Silicon Valley Properties. Sign copy will be restricted to company
name, logo & address numbers. The style, color and size of the
individual company's name may vary.
5. Upon the removal of any sign, any damage to the building or sign base
must be repaired by the Lessee, unless such removal is *** by Landlord
or Landlord's Agent.
6. Tenants may place gold leaf lettering on the interior window area,
not to exceed more than 144 square inches (gross area). The letters
are not to exceed 3 inches in height.
7. Except as provided herein, no advertising placards, banners, pennants,
names, insignia, trademarks or other descriptive material shall be
affixed or maintained upon the glass panes or exterior walls of the
building.
<PAGE>
[ILLUSTRATION OF SAN JOSE ORCHARD BUSINESS PARK STANDARD DIRECTIONAL SIGN]
<PAGE>
[ILLUSTRATION OF STANDARD DIRECTIONAL SIGN]
<PAGE>
REAR MAN DOORS
--------------
In order to insure uniformity in the printing of company names or receiving and
shipping signs on rear man doors, we have made the following specifications:
1. The business name is to be the same as the name used on the tenant
identification sign. In addition to the names, the words "shipping" and
"receiving" and the tenant's logo may be used.
2. The letters will be 2 inches high, black or white and in a specified
uniform style.
3. The proposed sign is to be approved by Silicon Valley Properties, L.L.C.
prior to installation to insure conformance.
<PAGE>
[ILLUSTRATION OF UNAUTHORIZED PARKING SIGN]
<PAGE>
SPECIFICATIONS FOR ADDRESS NUMBERS ON BUILDINGS
-----------------------------------------------
1. Height: S
2. Color: Contrasting to background of building and matching accent trim on
building.
3. Location: Viewable from the street upper corner of building.
4. Example: IBM building at the corner of Brokaw Road and Zanker Road.
5. Composition: Metal
6. Print: Primer plus two costs of finish paint.
7. Approval: By Silicon Valley Properties in writing previous to installation.
May desire approval from San Jose Fire Department, Station #5 on
North Tenth Street, telephone 277-4363.
<PAGE>
VISITOR PARKING SPACE DESIGNATION
---------------------------------
Signs designating visitor parking spaces are allowed in parking areas of single
user buildings only and conform to the following criteria:
1. A maximum of 3 inches high and consisting of only the word "Visitor".
2. Painted with a flat white exterior paint.
3. Applied to either the curb or bumpers of the approved designated
spaces.
4. Painted by the tenant at tenant's expense but with the prior written
approval of Silicon Valley Properties, L.L.C.
5. Repainted a minimum of every three years.
6. Upon request from Silicon Valley Properties, L.L.C., removed at the
termination of the Lease.
No other designated parking signs are acceptable.
<PAGE>
[ILLUSTRATION OF TYPICAL NO PARKING SIGN]
<PAGE>
[ILLUSTRATION TO TENANT IDENTIFICATION SIGN]
<PAGE>
EXHIBIT H
HAZARDOUS MATERIALS QUESTIONNAIRE
<PAGE>
EXHIBIT "H"
-----------
Hazardous Materials Questionnaire
ACKNOWLEDGEMENT
---------------
THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT IT (Mark One):
_________ Does not use any hazardous materials other than minor amounts of
reproduction and janitorial chemicals consistent with routine office
uses.
(No need to fill out the attached Hazardous Material Questionnaire.)
_________ Does not use hazardous materials in a manner or in a quantity
requiring the preparation of a hazardous material management plan or
any other documents under California Health and Safety Code Section
25503.5. (Please fill out the attached Hazardous Material
Questionnaire.)
_________ Uses only those chemicals identified in the attached questionnaire in
accordance with the provisions of the attached hazardous materials
management plan, which has been approved by the Fire Department of the
City of _____________ and is in full force and effect.
(Please fill out the attached Hazardous Material Questionnaire and
attach copy of your Hazardous Materials Management Plan.)
THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT IT HAS COMPLIED IN ALL RESPECTS TO THE
PROVISIONS OF LOCAL, STATE AND FEDERAL LAW AND THE HAZARDOUS MATERIALS
MANAGEMENT PLAN ATTACHED HERETO IN CONNECTION WITH ITS STORAGE, USE AND DISPOSAL
OF HAZARDOUS MATERIALS AND THAT IT HAS DISPOSED OF HAZARDOUS MATERIALS ONLY BY
(1) DISCHARGE TO APPROPRIATELY TREATED WASTE TO A PUBLICLY OWNED TREATMENT WORK
IN ACCORDANCE WITH A VALID AND ENFORCEABLE WASTE DISCHARGE PERMIT AND (2)
DELIVERY OF HAZARDOUS WASTES TO A PROPERLY LICENSED WASTE DISPOSAL AGENT.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the afformentioned
company has executed this acknowledgement as of the date written below.
___________________________
Company
a _________________________
By: _______________________
___________________________
(Print Name and Title)
<PAGE>
1. BUSINESS ACTIVITY
-----------------
Type of Business Activity(ies): Hazardous Materials Activities
- ------------------------------- -------------------------------
(check all that apply) check all that apply)
_________ machine shop ________ degreasing
_________ light assembly ________ chemical etching
_________ research and development ________ wastewater treatment
_________ product service or repair ________ painting
_________ photographic processing ________ stripping
_________ vehicle maintenance or repair ________ metal treatment or finishing
_________ auto/body ________ printing:
_________ engine/drive train type: ______________________
_________ manufacturing: ________ warehouse
product:_____________________ ________ analytical wet chemistry lab
_________ integrated circuit: ________ plating
_________ manufacturing ________ chemical mixing/synthesis
_________ assembly ________ lathe/mill machining
_________ chemical/pharmaceutical products
______ manufacturing
______ distribution
_________ printed circuit: _______ manufacturing
_______ assembly
_____ other:______________________ _____ other: ____________
2. HAZARDOUS MATERIALS USAGE/STORAGE AND PRODUCTION
------------------------------------------------
What chemicals, if any, are involved in your operations (please list the types
of products, the maximum quantity stored on-site and the annual quantity used).
================================================================================
MATERIAL MAX. QUANTITY ON-SITE ANNUAL QTY. USED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
If this table provides insufficient space, please see additional pages as
necessary.
2
<PAGE>
2.1 Is it intended that operations at the proposed facility would involve
Hazardous Materials manufacturing? Do not include hazardous wastes. see
Section 5.
Yes ____ No ____
2.2 Is it intended that operations at the proposed facility would include
Hazardous Materials use and/or storage that would require completion of a
Hazardous Materials Business Plan?
Yes ____ No ____ If YES, please attach copies of HMMP/HMBP in process or
plan for currentformer facility.
2.3 Is it intended that operations at the proposed facility would include
installation of any aboveground or underground storage tanks (including
fuel tanks)?
Yes ____ No ____
3. WASTEWATER DISCHARGES
---------------------
3.1 Is it intended that operations at the proposed facility would discharge
wastes to any sanitation systems or body of water, or that the facility
would otherwise be required to obtain a wastewater discharge Permit, a
NPDES Permit, or any other permit or approval from a Governmental Agency
concerning wastewater discharges?
Yes ____ No ____ If YES, please attach copies of each such permit and
complete Schedule 3.
4. AIR EMISSIONS
-------------
4.1 Is it intended that operations at the proposed facility would emit any air
contaminant (including, but not limited to volatile organic compounds,
sulfur oxides, carbon monoxide, nitrogen oxides, lead, particulate matter,
toxic air contaminants regulated by the California Air Resources Board, or
hazardous air pollutants listed under Section 112 of the federal Clean Air
Act)?
Yes ____ No ____ If YES, please complete Schedule 4 for each emission and
each source.
4.2 Is it intended that operations at the proposed facility would require
obtaining an air emissions permit or other permit or approval from a
Governmental Agency concerning air emissions in order to conduct its
business?
Yes ____ No ____ If YES, please attach copies of each such permit and
approval and complete Schedule 4.
<PAGE>
5. HAZARDOUS WASTE
---------------
5.1 Is it intended that operations at the proposed facility would generate any
"hazardous waste" as defined in RCRA. California Code of Regulations, Title
22, or other government regulations?
Yes _____ No _____ If YES, please complete Schedule 3.
5.2 Is it intended that operations at the proposed facility would file with any
local, state or federal environmental agency a generator's notification of
hazardous waste (e.g., an RCRA 3010 notification) and hazardous waste
generator's reports?
Yes _____ No _____ If YES, please attach a copy of such notification.
5.3 Is it intended that operations at the proposed facility would require
obtaining an EPA hazardous waste generator's identification number?
Yes _____ No _____
5.4 Is it intended that operations at the proposed facility would require
retention of copies of hazardous waste manifests for hazardous waste
transported off-site?
Yes _____ No _____
5.5 Is it intended that operations at the proposed facility would require
obtaining a "Part A" or "Part B" Application for a hazardous waste
treatment, storage or disposal facility ("TSD") permit with any
Governmental Agency under RCRA or any similar state or local Law for the
proposed Facility?
Yes _____ No _____ If YES, please attach a copy of each application in
progress.
5.6 Is it intended that operations at the proposed facility would require a
permit under California Code of Regulations Title 22 Tiered Permitting
Program, including a standardized permit, conditional authorization,
conditional exemption, or variance?
Yes _____ No _____ If Yes, please attach a copy of the disclosure or
application in progress.
<PAGE>
6. GOVERNMENT COMPLIANCE AND HAZARDOUS MATERIAL RELEASES AND SPILLS AT
-------------------------------------------------------------------
EXISTING FACILIT(IES)
---------------------
6.1 Has the Company ever received from any Governmental Agency any notice of
violation of any environmental law?
Yes _____ No _____ If YES describe fully:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
6.2 Has there ever been an occasion in any of the existing facilities when a
liquid or solid waste material, fuel or other Hazardous Material was
accidentally or intentionally spilled or released:
Outside of the building?
Yes _____ No _____
Within the building?
Yes _____ No _____
If you have answered "yes" to any of the foregoing, please describe the
events(s) in detail, including the Hazardous Materials involved, whether
the event was reported to any Governmental Agency, the responsive action
taken any claim(s) that have resulted from the event, and all other
relevant information concerning the spill or release. Attach additional
sheets, as necessary.
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
SILICON VALLEY PROPERTIES, L.L.C.
PRE-LEASE HAZARDOUS MATERIALS QUESTIONNAIRE
General Instructions: Please provide all requested information, based on review
of the Company's records and interviews with Company personnel likely to possess
the information requested. If there is insufficient space to respond to a
question, please attach a separate page referring to the question number. Use
"N/A" if the question is not applicable to your facility, or write "Unknown" if
the information is not available in the Company's files and is not known by the
person completing this questionnaire.
As used herein, the term "Government Agency" shall mean any local, state, or
federal governmental or quasi-governmental agency, authority, entity,
subdivision or court. The term "Hazardous Material" shall mean any chemical,
substance, vapor, smoke, radiation, or material which is listed as "hazardous"
or "toxic" under any Law or which is otherwise regulated or prohibited under any
Law, including petroleum hydrocarbons and substances regulated under Proposition
65. The term "Law" shall mean any local, state, or federal regulation, statute,
law, order, or ordinance.
Tenant/Company Name ____________________________________________________________
Address of Former/Current Facility:
________________________________________________________________________________
________________________________________________________________________________
Main Address of New Premises leased from Silicon Valley Properties, L.L.C.:
________________________________________________________________________________
________________________________________________________________________________
(This questionnaire should address all activities to be conducted at the New
Premises including multiple buildings leased by Tenant within the same Project.)
Description of products manufactured and/or activities to be conducted on the
Property:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The undersigned acknowledges that the information contained within this
Hazardous Materials Questionnaire is true and correct to the best of his/her
knowledge and belief. The undersigned further acknowledges that the Company has
complied in all respects to the provisions of local, state and federal law and
the Hazardous Materials Management Plan attached (if applicable) in connection
with its storage, use, and disposal of hazardous materials and that is has
disposed of hazardous materials only by (1) discharge of appropriately treated
waste in accordance with a valid and enforceable waste discharge permit and (2)
delivery of hazardous wastes to a properly licensed waste disposal agent.
By: ___________________________________ ____________________________________
Signature of individual completing Print Name and Title
questionnaire
Date: _________________________________ Phone Number: ______________________
Address (if different from above): _____________________________________________
<PAGE>
SCHEDULE 2.1
[TABLE FOR IDENTIFYING ON-SITE HAZARDOUS MATERIALS STORAGE AREAS]
<PAGE>
SCHEDULE 2.2
[TABLE FOR IDENTIFYING STORAGE TANKS]
<PAGE>
SCHEDULE 3
[TABLE FOR IDENTIFYING DISCHARGES TO SEWERS OR WATER BODIES]
<PAGE>
SCHEDULE 4
AIR EMISSIONS
-------------
[TABLE FOR IDENTIFYING AIR EMISSIONS]
<PAGE>
SCHEDULE 5
[TABLE FOR IDENTIFYING HAZARDOUS WASTE GENERATION]
<PAGE>
ADDENDUM NO. 1
<PAGE>
ADDENDUM NO. 1
This ADDENDUM NO. 1 (this "Addendum") is made in connection with and is a
part of that certain Lease, dated as of October 27, 1997, by and between SILICON
VALLEY PROPERTIES, L.L.C., a Delaware limited liability company, as Landlord,
and SYMPHONIX DEVICES, INC., as Tenant, (the "Lease").
1. Definitions and Conflict. All capitalized terms referred to in this
------------------------
Addendum shall have the same meaning as provided in the Lease, except as
expressly provided to the contrary in this Addendum. In case of any conflict
between any term or provision of the Lease and any exhibits attached thereto and
this Addendum, this Addendum shall control.
2. Letter of Credit Security Deposit. Pursuant to the terms of the Lease,
---------------------------------
a Security Deposit of $299,216.48 is required from Tenant. In lieu of
depositing cash for the full amount of the Security Deposit, Tenant shall have
the right to deposit a letter of credit for up to $243,680.00 (with the balance
of the Security Deposit in the form of cash). Said letter of credit shall be in
the form of an irrevocable, unconditional and clean standby letter of credit and
otherwise in the form set forth below (the "Letter of Credit"). The initial
amount of the Security Deposit that may be in the form of the Letter of Credit
(the "Maximum Letter of Credit Amount") is subject to reduction as provided in
section 2.2 below. The term Security Deposit shall mean the cash portion of the
Security Deposit and the Letter of Credit.
2.1 Form of Letter of Credit. The Letter of Credit shall be issued
-------------------------
by Silicon Valley Bank or a national bank acceptable to Landlord in its
reasonable discretion, with offices in the San Francisco Bay Area that will
accept and pay on any draw on the Letter of Credit. The Letter of Credit shall
be issued for a term of at least twelve (12) months (with a term during the last
year of the Lease Term of at least one full month following the expiration of
the Lease Term) and shall be in a form and with such content acceptable to
Landlord in its sole and absolute discretion. Any Letter of Credit that Tenant
delivers to Landlord in replacement of an existing Letter of Credit shall be in
an amount equal to the replaced Letter of Credit (prior to any draws) so that
the cash and Letter of Credit together equal the amount of the Security Deposit
specified in the Lease under section M of the Summary of Basic Lease Terms
(subject to reduction as provided in section 2.2 below). Any such replacement
Letter of Credit shall be delivered to and received by Landlord no later than
thirty (30) days prior to the expiration of the term of the Letter of Credit
then in effect. If Tenant fails to deposit a replacement Letter of Credit or
renew the expiring Letter of Credit, Landlord shall have the right to draw upon
the expiring Letter of Credit for the full amount thereof and hold the same as
Security Deposit; provided, however, that if Tenant provides a replacement
Letter of Credit that meets the requirements of this section, Landlord shall
promptly return to Tenant in cash that amount of the Letter of Credit that had
been drawn upon by Landlord. The Letter of Credit shall expressly permit full
and partial draws. If for any reason the Letter of Credit does not permit
partial draws, then Landlord shall have the right to make a full draw on the
Letter of Credit, notwithstanding that the full amount may not be required to
cure any Event of Tenant's Default. The Letter of Credit shall designate
Landlord as beneficiary and shall be transferable by beneficiary to any
transferee, successor, and assign (including any lender of Landlord) at no cost
or expense to beneficiary. The Letter of Credit shall provide that it may be
drawn by Landlord (or its assignee) upon presentation by Landlord to the issuing
bank (at its offices in the San Francisco Bay Area) of a sight draft(s),
together with a written statement executed by a duly authorized officer,
partner, member or manager of Landlord stating that (i) an Event of Tenant's
Default under the Lease has occurred, (ii) Landlord has given Tenant written
notice and opportunity to cure the Event of Tenant's Default in accordance with
the Lease and such Event of Tenant's Default has not be cured by Tenant. The
amount of the draw requested by Landlord shall be payable by the bank without
further inquiry or any other documentation or further action required of the
bank, Landlord, or Tenant. All costs and expenses to obtain the Letter of
Credit and all renewals shall be borne by Tenant.
If the Letter of Credit is drawn upon by Landlord, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to amount required under
the Lease and this Addendum. Subject to the reduction in section 2.2 hereof, at
all times the Security Deposit, whether in the form of cash and/or Letter of
Credit, shall be in the amount specified in section M of the Summary of Basic
1
<PAGE>
Lease Terms. The use, application or retention of the Letter of Credit, or any
portion thereof, by Landlord shall not prevent Landlord from exercising any
other right or remedy provided by this Lease or by law, it being intended that
Landlord shall not first be required to use all or any part of the Letter of
Credit or cash portion of the Security Deposit, and such use shall not operate
as a limitation on any recovery to which Landlord may otherwise be entitled.
Tenant shall not be entitled to any interest on the cash portion of the Security
Deposit. The exercise of any rights of Landlord to the Security Deposit shall
not constitute a waiver of nor relieve Tenant from any liability or obligation
for any Event of Tenant's Default. If the Letter of Credit permits partial
draws, Landlord shall only draw upon the Letter of Credit in the actual amount
necessary to remedy a cure of said default, and not any excess. If Landlord
draws upon the entire amount of the Letter of Credit, Tenant may deliver a
replacement Letter of Credit to Landlord, instead of depositing cash with
Landlord, equal to the original amount of the Letter of Credit (subject to
reduction as provided in section 2.2 of this Addendum).
2.2 Reduction after Time. So long as Tenant has not committed any
--------------------
Event of Tenant's Default under this Lease, then (i) the amount of the Maximum
Letter of Credit Amount may be reduced twenty percent (20%) after each
anniversary of the Commencement Date; provided that an Event of Tenant's Default
or breach by Tenant of any provision of the Lease does not exist and no such
event or breach occurred during the year immediately prior to the effective date
of the reduction under this section. If Tenant is entitled to reduce the amount
of the Letter of Credit pursuant to this paragraph and Tenant delivers to
Landlord written notice of its request to so reduce the amount of the Letter of
Credit, then Tenant may, not less than (10) days after Landlord's receipt of
such notice, either obtain and deliver a new or amended Letter of Credit to
replace or amend, as the case may be, the then existing Letter of Credit, in an
amount required under this section.
2.3 Return or Transfer of Letter of Credit. Within thirty (30) days
--------------------------------------
after the expiration or earlier termination of the Lease, Landlord shall
promptly return the refundable portion of the Security Deposit, including the
Letter of Credit, to Tenant. In the event of a transfer of the Premises,
Building or Project by Landlord, Landlord or any subsequent transferor shall
deliver the refundable portion of the Security Deposit, including both the cash
portion and the Letter of Credit, to the successor landlord or transferee.
3. Extension Opportunity. Subject to the provisions of this section 3 and
---------------------
its subsections, Tenant shall have the first opportunity to extend the initial
Lease Term for one additional period of five (5) years commencing immediately
following the expiration of the initial Lease Term (the "Extension Period"). As
one of the conditions precedent for the Extension Period, Tenant must provide
written notice of its desire to extend the Lease Term for the Extension Period,
which notice must be received by Landlord no later than 180 days nor more than
240 days prior to the end of the initial Lease Term (the "Extension Notice").
All of the terms and provisions of the Lease will apply during the Extension
Period, except that the Base Monthly Rent will be increased as hereinafter
provided and any allowance, credit or payment by Landlord for any tenant or
other improvements that may have been paid or granted or work done by Landlord
in connection with the commencement of the Lease Term shall not apply.
After receipt of Tenant's Extension Notice, Landlord within a
reasonable period of time not to exceed 15 days shall notify Tenant of the Base
Monthly Rent that would be applicable during the Extension Period ("Landlord's
Renewal Terms"). Landlord's Renewal Terms shall be based on the projected fair
market rent for the Premises as of the commencement date for the Extension
Period but not less than the Base Monthly Rent payable during the last month of
the initial Lease Term. Landlord shall base its determination of fair market
rent based on the base monthly rent generally applicable to similar leases in
like buildings for space of comparable size, age, quality of the Premises in the
San Jose, California area within the boundaries of Highways 237, 880 and 101,
determined as of the first day of the Extension Period by giving due
consideration for the quality of the Premises and improvements therein, for a
term comparable to the Extension Period at the time the commencement of the
Extension Period is scheduled to commence, without any deduction for
amortization or cost of Tenant improvements or commissions whether or not
incurred by Landlord, and otherwise subject to the terms and conditions of this
Lease that will be applicable during the Extension Period. In determining the
2
<PAGE>
fair market rent, Landlord shall not consider the initial Tenant Improvements s
paid for by Tenant (i.e., the amount in excess of the Landlord's Allowance), and
any Tenant Alterations made to the Premises by Tenant (which Tenant is required
to remove at the expiration or earlier termination of the Lease.
Tenant shall have a period of five (5) business days after receipt of
Landlord Renewal Terms to provide written notice of acceptance or rejection of
the Landlord's Renewal Terms. The failure of Tenant to provide such notice
within said time or to provide a notice with different terms shall be deemed a
rejection. Tenant acknowledges and agrees that any right to extend is expressly
limited to the terms and provisions of this section 3 and its subsections,
including, without limitation, the provisions regarding the change in Base
Monthly Rent. No court, arbitrator, mediator, appraiser or other third party
shall have the right to determine the terms and conditions for any extension or
renewal, including, without limitation the increase in Base Monthly Rent or the
then fair market rent for the Premises.
3.1 Effect of Rejection. If Tenant rejects or is deemed to have
-------------------
rejected Landlord's Renewal Terms, then Tenant shall not have any right to renew
or extend the Lease Term and Landlord may lease all or any part of the Premises
to any other party on the same or different terms that proposed in Landlord's
Renewal Terms. Tenant expressly acknowledges and agrees that Landlord shall not
in any manner be restricted to offering the Premises on the same or similar
terms as contained in Landlord's Renewal Terms.
3.2 Effect of Acceptance. If Tenant accepts the Landlord's Renewal
--------------------
Terms as provided above the parties shall execute an amendment to this Lease
within ten (10) days after Tenant's notice of acceptance.
3.3 Right Personal. The provisions of this section 3 and its
--------------
subsections are personal to the original party signing this Lease as Tenant and
any transferee under a Transfer permitted under Section 14.1F of the Lease, but
shall not apply to any assignee or sublessee or any other party.
3.4 No Defaults. If an Event of Tenant's Default has occurred three
-----------
(3) or more times during initial Lease Term (including any applicable Extension
Period), or if there exists an Event of Tenant's Default under any term or
provision of this Lease on the date of giving Tenant's Extension Notice, or if
there exists an Event of Tenant's Default under any term or provision of this
Lease on the date of the applicable Extension Period is to commence, the
Extension Period at the option of Landlord in its sole and absolute discretion
shall not commence and this Lease shall expire at the end of the initial Lease
Term.
4. Surrender and Removal of Tenant Improvements. Notwithstanding anything
--------------------------------------------
to the contrary in the Lease, Tenant shall not be required to remove the initial
Tenant Improvements constructed by Landlord pursuant to Exhibit B to the Lease.
---------
The removal by Tenant of any Tenant's Alterations shall be governed by Article 5
of the Lease. Tenant's obligations with respect to surrender of the Premises
shall be fulfilled if Tenant surrenders possession of the Premises in the
condition existing at the completion of construction of the initial Tenant
Improvements as described on Exhibit B attached to this Lease, excepting
---------
ordinary wear and tear, acts of God, casualties, condemnation, Hazardous
Materials (other than those released, emitted or stored by Tenant or Tenant's
Agents during the Lease Term in violation of applicable Hazardous Materials
Laws), Tenant's Alterations and initial Tenant Improvements (to the extent
removal of Tenant's Alterations and initial Tenant Improvements are not required
as provided in the Lease).
5. Notices of Event of Tenant's Default. The cure periods set forth in
------------------------------------
the Lease for any default, breach, requirement for compliance or Event of
Tenant's Default, including, without limitation, those cure or time periods for
performance set forth in Sections 13.1, 15.4 and 15.6 of the Lease, shall not
start to run until written notice of such event or matter has been delivered (or
deemed delivered) to Tenant in accordance with the notice provision set forth in
Section 15.8 of this Lease or applicable Law. Any reference in the Lease to the
term "default" used in the context of whether or not Tenant is in default, shall
be deemed to refer to an Event of Tenant's
3
<PAGE>
Default as defined in Article 13 of the Lease, so that Tenant is given the
required notice and opportunity to cure as set forth therein.
6. Breach by Landlord. In the event Landlord fails to perform any of its
------------------
obligations under the Lease within thirty (30) days after receipt of written
notice from Tenant (or such longer period of time if such default cannot
reasonably be cured within said thirty (30) day period, provided, Landlord
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion), except in the case of an emergency, in
which event no cure period shall be permitted, Tenant may cure any default of
Landlord, at Landlord's cost, and Landlord shall pay to Tenant the cost of such
cure, plus interest at the Agreed Interest Rate, within thirty (30) days after
demand by Tenant.
7. Subordination, Recognition and Attornment. As a condition precedent to
-----------------------------------------
this Lease for the benefit of Tenant, within 60 days after the Effective Date of
the Lease, Landlord shall obtain from any holder of a Security Instrument a
written agreement in a form reasonable acceptable to Tenant providing for the
recognition of Tenant's rights, interests and options under the Lease in the
event of a foreclosure or termination of the holder's Security Instrument (the
"NDA"). Tenant shall execute reasonable documents subordinating its interest in
the Lease in accordance with Section 15.4 provided any such Lender agrees to
recognize all of Tenant's rights, interests and options under this Lease in
writing. Tenant shall also attorn to a purchaser of the Premises at any
foreclosure or private sale or to any grantee or transferee, in the event such
party agrees to recognize Tenant's rights, interests and options under this
Lease in writing. If Landlord does not obtain the NDA within said time period,
Tenant shall have the right, as its sole and exclusive remedy, to elect upon
written notice to Landlord within ten (10) days after the end of said time
period to obtain the NDA, to terminate the Lease, in which case neither party
shall have any liability to the other.
8. Utilities. Landlord represents and warrants to its best knowledge that
---------
the Premises are separately metered for electricity and gas; however, the
electricity for the Premises also provides electricity for the exterior lighting
of the Building, which Landlord is changing as provided in Exhibit B to the
Lease.
9. Outdoor Patio. As outlined in Exhibit A to the Lease, there is a small
-------------
outdoor patio area in the rear of the Premises (the "Outdoor Patio"). The
Outdoor Patio is not considered part of the Premises but Tenant agrees at its
expense to maintain the Outdoor Patio during the Lease Term. Landlord shall have
the right, after at least thirty (30) days prior written notice to Tenant, to
elect to maintain the Outdoor Patio as part of the Common Area.
4
<PAGE>
Exhibit 10.10
OPTION VESTING AGREEMENT
This Agreement is made and entered into effective as of ______, 19__, by
and between Symphonix Devices, Inc. (the Company) and the employee whose name
appears at the end of this Agreement (the "Employee").
The Company has reviewed the current vesting provisions contained in the
stock option agreements issued to the Employee.
The Company desires to amend each stock option agreement granted by the
Company under the 1994 Stock Option Plan (the "Option") prior to the date of
this Agreement in order to add additional provisions relating to the exercise of
shares of Common Stock (the "Shares") subject to each Option.
NOW, THEREFORE, the parties agree as follows.
1. Definitions. The following terms referred to in this Agreement shall have
-----------
the following meanings:
(a) Change of Control. "Change of Control" shall mean (i) the closing of
-----------------
a merger, reorganization, sale of shares or sale of substantially all of the
assets of the Company in which the shareholders of the Company immediately prior
to the closing of the transaction own less than 50% of the voting power of the
surviving or controlling entity (or its parent) immediately after the
transaction, or (ii) the date of the approval by the Shareholders of the Company
of a plan of complete liquidation of the Company.
(b) Involuntary Termination. "Involuntary Termination" shall mean (i)
-----------------------
without the Employee's express written consent, the assignment to the Employee
of any duties, or the removal from or reduction or elimination of the Employee's
duties or responsibilities which in either case is inconsistent with the
Employee's position, organization level, duties, responsibilities, compensation
and status with the Company immediately prior to the Change of Control; (ii)
without the Employee's express written consent, a substantial reduction of the
facilities and prerequisites (including office space and location) available to
the Employee immediately prior to such reduction; (iii) a reduction by the
Company in the base cash salary of the Employee as in effect immediately prior
to such reduction; (iv) a major reduction by the Company in the kind or level of
employee benefits to which the Employee is entitled immediately prior to such
reduction with the result that the Employee's overall benefits package is
significantly reduced; (v) the relocation of the Employee to a facility or a
location more than thirty miles from the employee's then-present location,
without the Employee's express written consent; (vi) any purported termination
of the Employee by the Company; or (vii) the failure of the Company to obtain
the assumption of this Agreement by any successors as required by Section 1(c).
<PAGE>
(c) Company Successors. Any successor to the Company (whether direct or
------------------
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) or to all or substantially all of the Company's business and assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and assets which executes and
delivers the assumption agreement described in this section or which becomes
bound by the terms of this Agreement by operation of law.
(d) Option. "Option" shall mean any option exercisable for Common Stock
------
of the Company which was granted to the Employee under the 1994 Stock Option
Plan prior to the date of this Agreement.
(e) Shares. "Shares" shall mean shares of Common Stock of the Company
------
issuable upon exercise of an Option.
2. Accelerated Vesting.
-------------------
(a) Twelve months following a Change of Control all of the Shares subject
to each Option held by the Employee shall vest and become exercisable and the
Employee shall have the right to exercise all or any portion of the Shares
subject to each Option.
(b) If there is an Involuntary Termination of the Employee during the
twelve months following a Change of Control, then all of the Shares subject to
each Option held by the Employee shall vest and become exercisable and the
Employee shall have the right to exercise all or any portion of the Shares
subject to each Option.
(c) This Agreement will not apply to options or other securities issued by
the Company to the Employee after the date of this Agreement.
3. Miscellaneous.
-------------
(a) This Agreement shall be governed by the internal laws of the State of
California. The parties expressly consent to the personal jurisdiction of state
and federal courts located in California for any lawsuit filed there and arising
from or relating to this Agreement.
(b) This Agreement sets forth the entire agreement and understanding
between the Company and the optionee relating to the subject matter herein and
merges all prior discussions between them.
-2-
<PAGE>
The parties have executed this Agreement as of the date set forth above.
SYMPHONIX DEVICES, INC. ______________________________________
(Name of Optionee)
______________________________________
(Signature of Optionee)
By:_________________________
Title: Chief Executive Officer
-3-
<PAGE>
Exhibit 10.11
LICENSE AGREEMENT
-----------------
THIS AGREEMENT, made and effective this 1st day of June, 1995, by and
between
BAPTIST MEDICAL CENTER OF OKLAHOMA, INC., a corporation of
the State of Oklahoma, having its principal office and place
of business at 3300 Northwest Expressway, Oklahoma City,
Oklahoma 73112 (hereinafter referred to as "BAPTIST")
and
SYMPHONIX DEVICES, INC., a corporation of the State of
California, having its principal office and place of
business at 3047 Orchard Parkway, San Jose, California 95134
(hereinafter referred to as "LICENSEE").
WITNESSETH THAT:
WHEREAS, BAPTIST represents that it owns certain Patent Rights
(hereinafter defined) relating to a magnetic transcutaneous mount for external
device of an associated implant;
WHEREAS, BAPTIST desires to grant to LICENSEE, under the terms, covenants,
conditions and limitations hereinafter set forth, a non-exclusive license for a
specific field under the Patent Rights; and
WHEREAS, LICENSEE is desirous of taking such license under BAPTIST's Patent
Rights under the terms, covenants, conditions and limitations hereinafter set
forth;
<PAGE>
NOW, THEREFORE, in consideration of the mutual and reciprocal agreements
and promises hereinafter set forth and for other good and valuable
consideration, the parties hereto agree and have agreed as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
(A) "Patent Rights" shall mean United States Patent No. Re.32,947 and, if
any, any reissue or reexamination application filed on said United States
Patent, any reissue or reexamined patent issuing thereon, and any extension of
said United States Patent.
(B) "Licensed Products" shall mean any article, apparatus, device or method
claimed in the Patent Rights and used or usable in the field of implantable
auditory prostheses for the mechanical stimulation of the middle ear and
cochlea.
ARTICLE II
WARRANTY
--------
BAPTIST hereby warrants that it has the right to grant the license herein
granted.
ARTICLE III
GRANT
-----
BAPTIST hereby grants to LICENSEE, subject to the terms, covenants,
conditions and limitations set forth in this Agreement,
<PAGE>
a non-exclusive license to make, have made for it, use, lease and sell Licensed
Products under the Patent Rights. The non-exclusive license hereby granted is
without any right to sublicense. BAPTIST retains all rights of enforcement of
the Patent Rights.
ARTICLE IV
LICENSING FEE
-------------
At the time LICENSEE sends executed duplicate originals of this Agreement
to BAPTIST for execution by BAPTIST, LICENSEE shall send with said executed
duplicate originals payment to BAPTIST of Twenty Thousand Dollars ($20,000.00),
to be kept in escrow by BAPTIST's attorneys until receipt by LICENSEE of a fully
executed original of this Agreement. Upon receipt of the payment by BAPTIST,
LICENSEE shall have a fully paid-up license, subject to the other terms of this
Agreement.
ARTICLE V
TERM AND TERMINATION
--------------------
(A) This Agreement shall expire with the expiration of the last to expire
of the patent(s) within the Patent Rights.
(B) Upon default by either party hereto in the performance of any
obligation hereunder to be performed by such party, the other party shall give
notice in writing to the party in default specifying the thing or matter in
default. Unless such default be cured within two (2) months following the
giving of such notice, the party giving such notice may give further written
notice to the other party terminating this Agreement; in such event, this
Agreement shall terminate on the date specified in such further
<PAGE>
notice, which date shall be no earlier than two (2) months from the date of such
further notice.
(C) No expiration or termination of this Agreement shall relieve either
party of any obligation accrued to the date of expiration or termination or
relieve the party in default from liability for damages for breach of this
Agreement. Waiver by either party of a single default or breach or a succession
of defaults or breaches shall not deprive such party of any right to terminate
this Agreement arising by reason of any subsequent default or breach.
ARTICLE VI
PATENT MARKING
--------------
LICENSEE agrees to use reasonable efforts to mark every Licensed Product
made, or sold, or leased by it under this Agreement; the format of such marking
shall be in accordance with the statutes of the United States relating to the
marking of patented articles.
ARTICLE VII
INDEMNIFICATION
---------------
LICENSEE agrees to defend, indemnify and hold harmless, and LICENSEE hereby
does indemnify and hold harmless, BAPTIST against any and all claims of
liability arising from the manufacture or use or sale or lease by LICENSEE of
Licensed Products, excluding claims of liability for acts exclusively within the
control of BAPTIST.
<PAGE>
This indemnification shall survive expiration or termination of this Agreement.
ARTICLE VIII
MISCELLANEOUS
-------------
(A) This Agreement shall be construed in accordance with the laws of the
State of Oklahoma.
(B) The provisions of this Agreement shall be deemed separable. Therefore,
if any part of this Agreement is rendered void, invalid or unenforceable, such
rendering shall not affect the validity and enforceability of the remainder of
this Agreement unless the part or parts which are void, invalid or unenforceable
as aforesaid shall substantially impair the value of the whole Agreement to
either party.
(C) This Agreement sets forth the entire agreement between the parties
relating to the subject matter contained herein and may not be modified, amended
or discharged except as expressly stated in this Agreement or by a written
agreement signed by the parties hereto.
(D) This Agreement is personal to the parties. This Agreement and the
rights and obligations herein granted to and undertaken by LICENSEE shall not be
assignable by act of LICENSEE or by operation of law. This Agreement and the
rights and obligations herein granted to and undertaken by BAPTIST shall not be
assignable by act of BAPTIST or by operation of law. The
<PAGE>
foregoing notwithstanding, this Agreement and any rights and powers created
herein may be assigned with any assignment of the Patent Rights or with any
transfer of either party's business or entire assets. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, LICENSEE's
successors, trustee(s) or receiver(s) in bankruptcy, and permitted assigns, and
BAPTIST's successors, trustee(s) or receiver(s) in bankruptcy and permitted
assigns.
(E) Nothing herein shall prohibit BAPTIST from granting other licenses
under the Patent Rights.
(F) The relationship between BAPTIST and LICENSEE is that of independent
contractors. BAPTIST and LICENSEE are not joint venturers, partners, principal
and agent, master and servant, employer or employee, and have no relationship
other than as independent contracting parties. BAPTIST shall have no power to
bind or obligate LICENSEE in any manner, except as is expressly set forth in
this Agreement. Likewise, LICENSEE shall have no power to bind or obligate
BAPTIST in any manner, except as is expressly set forth in this Agreement.
(G) Any matter or disagreement under this Agreement shall be resolved by
arbitration submitted to a mutually selected single arbitrator to decide any
such matter or disagreement. The arbitrator shall conduct the arbitration in
accordance with the Rules of the American Arbitration Association, unless the
parties agree otherwise. If the parties are unable to mutually select an
<PAGE>
arbitrator, the arbitrator shall be selected in accordance with the procedures
of the American Arbitration Association. The decision and award rendered by the
arbitrator shall be final and binding. Judgment upon the award may be entered in
any court having jurisdiction thereof. Any arbitration pursuant to this section
shall be held in Oklahoma City, Oklahoma, or such other place as may be mutually
agreed upon in writing by the parties.
(H) Any and all communications required as provided for in this Agreement
shall be in writing and sent by First Class mail, postage prepaid, and addressed
to the last known address of the parties to be served therewith. Notice sent by
Certified Mail - Return Receipt Requested shall be presumed to have been
received. Any notice to be given to LICENSEE shall be addressed to:
Symphonix Devices, Inc.
3047 Orchard Parkway
San Jose, California 95134
Any notice to be given to BAPTIST shall be addressed to:
President
Baptist Medical Center of Oklahoma, Inc.
3300 Northwest Expressway
Oklahoma City, Oklahoma 73112
Any change in address shall be promptly communicated in writing from either
party to the other party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate effective as of the date and year first shown above.
BAPTIST MEDICAL CENTER
OF OKLAHOMA, INC.
("BAPTIST")
By /s/ Thomas N. Lynn
----------------------------
Attest
/s/ Barbara Jones
- ----------------------
SYMPHONIX DEVICES, INC.
("LICENSEE")
BY /s/ Harry S. Robbins
---------------------------
PRESIDENT
Attest:
/s/ Geoffrey R. Ball
- ---------------------------
<PAGE>
EXHIBIT 11.1
SYMPHONIX DEVICES, INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM PERIOD FROM CUMULATIVE
MAY 17, 1994 MAY 17, 1994 PERIOD FROM
(DATE OF (DATE OF MAY 17, 1994
INCEPTION) YEAR ENDED INCEPTION) NINE MONTHS ENDED (DATE OF
TO DECEMBER 31, TO SEPTEMBER 30, INCEPTION) TO
DECEMBER 31, ------------------------ DECEMBER 31, ------------------------ SEPTEMBER 30,
1994 1995 1996 1996 1996 1997 1997
------------ ----------- ----------- ------------ ----------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding for
the period............. 1,770,726 1,961,551 2,190,040 2,021,812 2,104,243 2,546,285 2,145,509
Common equivalent shares
pursuant to Staff
Accounting Bulleting
No. 83................. 851,441 851,441 851,441 851,441 851,441 851,441 851,441
Shares used in per share
calculation............ 2,622,167 2,812,992 3,041,481 2,873,253 2,955,684 3,397,726 2,996,950
========= =========== =========== ============ =========== =========== ============
Net loss................ $(752,224) $(3,651,811) $(6,108,556) $(10,512,591) $(4,392,914) $(5,624,976) $(16,137,567)
========= =========== =========== ============ =========== =========== ============
Net loss per share...... $ (0.29) $ (1.30) $ (2.01) $ (3.66) $ (1.49) $ (1.66) $ (5.38)
</TABLE>
There is no difference between primarily and fully dilutive loss per share for
each period.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARY OF REGISTRANT
Symphonix Devices AG
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 6,539,156 4,980,136
<SECURITIES> 4,570,723 6,547,994
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,186,573 11,842,144
<PP&E> 1,394,339 1,695,249
<DEPRECIATION> 637,228 1,000,959
<TOTAL-ASSETS> 11,951,404 12,557,356
<CURRENT-LIABILITIES> 1,117,562 1,496,880
<BONDS> 0 0
0 0
8,445 9,195
<COMMON> 2,384 2,714
<OTHER-SE> 10,227,441 10,642,681
<TOTAL-LIABILITY-AND-EQUITY> 11,951,404 12,557,356
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 6,446,132 5,973,570
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 86,113 80,250
<INCOME-PRETAX> (6,108,556) (5,624,976)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,108,556) (5,624,976)
<EPS-PRIMARY> (2.01) (1.66)
<EPS-DILUTED> 0 0
</TABLE>
