<PAGE>
SCHEDULE 14A (RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of the
[_] Preliminary Proxy Statement Commission (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SYMPHONIX DEVICES, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
SYMPHONIX DEVICES, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1999
----------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of SYMPHONIX
DEVICES, INC., a Delaware corporation (the "Company"), will be held on
Thursday, May 6, 1999 at 9:00 a.m. local time, at 2331 Zanker Road, San Jose,
California, 95131 for the following purposes:
1. To elect two (2) Class I directors to serve for a three-year term.
2. To approve an amendment of the Company's 1994 Stock Option Plan (the
"Option Plan") to increase the number of shares reserved for issuance
thereunder by 1,500,000 shares to a new total of 3,499,273 shares and to
approve the material terms of the Option Plan, including, but not
limited to, share limitations for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended.
3. To approve an amendment of the Company's 1997 Employee Stock Purchase
Plan to increase the number of shares reserved for issuance thereunder
by 200,000 shares to a new total of 275,000 shares.
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the Annual
Meeting including any motion to adjourn to a later date to permit
further solicitation of proxies if necessary, or before any adjournment
thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close
of business on March 15, 1999 are entitled to notice of and to vote at the
meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
Harry S. Robbins
President and Chief Executive
Officer
San Jose, California
March 31, 1999
YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN
IT IN THE ENCLOSED ENVELOPE.
<PAGE>
SYMPHONIX DEVICES, INC.
----------------
PROXY STATEMENT FOR 1999
ANNUAL MEETING OF STOCKHOLDERS
----------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
SYMPHONIX DEVICES, INC., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held Thursday,
May 6, 1999 at 9:00 a.m. local time, or at any adjournment thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Company's principal
executive offices which are located at 2331 Zanker Road, San Jose, California,
95131. The Company's telephone number at that location is (408) 232-0710.
These proxy solicitation materials and the Annual Report to Stockholders for
the year ended December 31, 1998, including financial statements, were first
mailed on or about March 31, 1999 to all stockholders entitled to vote at the
meeting.
Record Date and Principal Share Ownership
Stockholders of record at the close of business on March 15, 1999 (the
"Record Date") are entitled to notice of and to vote at the meeting. The
Company has one series of common shares outstanding, designated Common Stock,
$.001 par value. At the Record Date, 12,205,793 shares of the Company's Common
Stock were issued and outstanding and held of record by 163 stockholders. No
shares of the Company's Preferred Stock were outstanding as of the Record
Date.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
Voting
Each stockholder is entitled to one vote for each share held as of the
Record Date. Every stockholder voting for the election of directors (Proposal
One) may cumulate such stockholder's votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number
of shares that such stockholder is entitled to vote, or distribute such
stockholder's votes on the same principle among as many candidates as the
stockholder may select, provided that votes cannot be cast for more than two
candidates. However, no stockholder shall be entitled to cumulate votes unless
the candidate's name has been placed in nomination prior to the voting and the
stockholder, or any other stockholder, has given notice, prior to the voting,
of his or her intention to cumulate the stockholder's votes. On all other
matters, each share of Common Stock has one vote.
Solicitation of Proxies
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. The Company may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also
be solicited by certain of the Company's directors, officers and regular
employees, without additional compensation, personally or by telephone or
telegram.
<PAGE>
Quorum; Abstentions; Broker Non-votes
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority of shares present in person or represented by proxy at a
duly held meeting at which a quorum is present is required under Delaware law
for approval of proposals presented to stockholders. In general, Delaware law
also provides that a quorum consists of a majority of shares entitled to vote
and present or represented by proxy at the meeting.
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as
being present and entitled to vote for purposes of determining the presence of
a quorum but will not be treated as votes in favor of approving any matter
submitted to the stockholders for a vote. When proxies are properly dated,
executed and returned, the shares represented by such proxies will be voted at
the Annual Meeting in accordance with the instructions of the stockholder. If
no specific instructions are given, the shares will be voted for the election
of the nominees for the Class I Directors set forth herein; for approval of
the amendment and the material terms of the Company's 1994 Stock Option Plan;
for approval of the amendment of the Company's 1997 Employee Stock Purchase
Plan; for the ratification of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 1999; and
at the discretion of the proxyholders, upon such other business as may
properly come before the Annual Meeting or any adjournment thereof.
If a broker indicates on the enclosed proxy or its substitute that such
broker does not have discretionary authority as to certain shares to vote on a
particular matter ("Broker Non-Votes"), those shares will not be considered as
present with respect to that matter. The Company believes that the tabulation
procedures to be followed by the Inspector are consistent with the general
statutory requirements in Delaware concerning voting of shares and
determination of a quorum.
Deadline for Receipt of Stockholder Proposals
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules established by
the Securities and Exchange Commission. Proposals of stockholders of the
Company that are intended to be presented by such stockholders at the
Company's 2000 Annual Meeting of Stockholders must be received by the Company
no later than December 7, 1999 in order that they may be considered for
inclusion in the proxy statement and form of proxy relating to that meeting.
If such a stockholder fails to comply with the foregoing notice provision the
proxy holders will be allowed to use their discretionary authority when and if
the proposal is raised at the Company's Annual Meeting in 2000.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a stockholder submits a
proposal at the Annual Meeting, notice of which was not provided by such
stockholder in accordance with the requirements set forth in the Securities
Exchange Act of 1934, as amended, the proxy holders will have discretionary
authority to vote on such matter as provided in the proxy card.
2
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of March 15, 1999 as to (i) each
person or entity who is known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each of the Named Executive Officers (as defined below under "Executive
Compensation and Other Matters--Executive Compensation--Summary Compensation
Table") and (iv) all directors and executive officers of the Company as a
group. Except as otherwise noted, the stockholders named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to applicable community property
laws.
<TABLE>
<CAPTION>
Approximate
Common Stock Percentage
Beneficial Owner Beneficially Owned Owned(1)
- ---------------- ------------------ -----------
<S> <C> <C>
Entities Affiliated with Sierra Ventures(2).... 1,957,711 16.0%
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Entities Affiliated with Mayfield(3)........... 1,682,649 13.8%
2800 Sand Hill Road, 2nd Floor
Menlo Park, CA 94025
Harry S. Robbins(4)............................ 1,276,184 10.5%
Symphonix Devices, Inc.
2331 Zanker Road
San Jose, CA 95131
Coral Partners IV, Limited Partnership......... 1,099,965 9.0%
60 South Sixth Street, Suite 3510
Minneapolis, MN 55402
Geoffrey R. Ball............................... 602,239 4.9%
Symphonix Devices, Inc.
2331 Zanker Road
San Jose, CA 95131
Petri T. Vainio(2)............................. 1,957,711 16.0%
Michael J. Levinthal(3)........................ 1,682,649 13.8%
B.J. Cassin(5)................................. 358,290 2.9%
James M. Corbett(6)............................ 60,000 *
Bob H. Katz.................................... 162,792 1.3%
Alfred G. Merriweather(7)...................... 122,967 1.0%
R. Michael Crompton(8)......................... 120,588 *
Patrick J. Rimroth(9).......................... 119,534 *
All directors and executive officers as a group
(12 persons) (2)(3)(4)(5)(6)(7)(8)(9)(10)..... 6,587,954 52.4%
</TABLE>
- --------
* Less than 1%
(1) Applicable percentage ownership is based on 12,205,793 shares of Common
Stock outstanding as of March 15, 1999 together with applicable options
or warrants for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission,
based on factors including voting and investment power with respect to
shares subject to the applicable community property laws. Shares of
Common Stock subject to options or warrants currently exercisable or
exercisable within
3
<PAGE>
60 days after March 15, 1999 are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.
(2) Consists of 1,850,892 shares held by Sierra Ventures IV, 74,116 shares
held by Sierra Ventures IV International and an option to purchase up to
32,703 shares exercisable within 60 days after March 15, 1999 held by
Petri T. Vainio. Dr. 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 1,567,446 shares held by Mayfield VII, 82,499 shares held by
Mayfield Associates Fund II and 32,704 shares held by Mayfield VII
Management Partners. Mr. Levinthal is a General Partner of Mayfield VII
Management Partners, which is the 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.
(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) 230,200 shares held in the name of the Cassin Family
Trust, over which Mr. Cassin holds voting and dispositive power, (ii)
95,387 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 32,703 shares exercisable within 60
days after March 15, 1999.
(6) Includes an option to purchase up to 50,000 shares exercisable within 60
days after March 15, 1999.
(7) Includes an option to purchase up to 10,000 shares exercisable within 60
days after March 15, 1999. All such shares are held in the name of the
Merriweather Family Trust. Mr. Merriweather holds voting and dispositive
power over all such shares.
(8) Includes options to purchase up to 104,474 shares exercisable within 60
days after March 15, 1999.
(9) Includes an option to purchase up to 10,000 shares exercisable within 60
days after March 15, 1999. 109,314 of such shares are held in the name of
the Rimroth Family Trust. Mr. Rimroth holds voting and dispositive power
over all such shares.
(10) Includes options to purchase up to 125,000 shares exercisable within 60
days after March 15, 1999.
4
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Pursuant to the Company's Restated Certificate of Incorporation, the
Company's Board of Directors currently consists of six persons, divided into
three classes serving staggered terms of three years. Currently, there are two
directors in Class I, two directors in Class II and two directors in Class
III. Two Class I directors are to be elected at the Annual Meeting. The Class
II and Class III directors will be elected at the Company's 2000 and 2001
Annual Meetings of Stockholders, respectively. Each of the Class I directors
will hold office until the 2002 Annual Meeting of Stockholders or until his
successor has been duly elected and qualified.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's two nominees named below, both of whom are
presently directors of the Company. In the event that any nominee of the
Company is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. The Company is not aware
of any nominee who will be unable or will decline to serve as a director. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner (in
accordance with cumulative voting) as will assure the election of as many of
the nominees listed below as possible, and, in such event, the specific
nominees to be voted for will be determined by the proxy holders.
Vote Required
If a quorum is present and voting, the two nominees receiving the highest
number of votes will be elected to the Board of Directors. Abstentions and
"broker non-votes" are not counted in the election of directors.
Information Concerning the Nominees and Incumbent Directors
The following table sets forth the name and age of each nominee and each
director of the Company whose term of office continues after the Annual
Meeting, the principal occupation of each during the past five years, and the
period during which each has served as a director of the Company.
<TABLE>
<CAPTION>
Principal Occupation During the Director
Name Past Five Years Age Since
---- ------------------------------- --- --------
<C> <S> <C> <C>
Nominees for Class I Directors:
James M. Corbett............... James M. Corbett has served as 40 1999
a director of the Company
since March 1999. Mr. Corbett
is currently the President and
Chief Executive Officer of
Home Diagnostics, Inc., a
medical device company.
Previously, he held several
international sales and
marketing management positions
with Boston Scientific
Corporation, Scimed Life
Systems, Inc. and Baxter
Healthcare. Mr. Corbett holds
a B.S. degree from Kansas
University.
Geoffrey R. Ball............... Geoffrey R. Ball co-founded the 35 1994
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 from
the University of Southern
California and a B.S. degree
from the University of Oregon.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation During the Director
Name Past Five Years Age Since
---- ------------------------------- --- --------
<C> <S> <C> <C>
Continuing Class II Directors:
Michael J. Levinthal........... Michael J. Levinthal has served 44 1994
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 Focal,
Inc., a medical device
company, and Concur
Technologies, Inc., a software
company. Mr. Levinthal holds a
B.S., an M.S. and an M.B.A.
degree from Stanford
University.
Petri T. Vainio................ Petri T. Vainio has served as a 39 1994
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.
Continuing Class III Directors:
B.J. Cassin.................... B.J. Cassin has served as a 65 1994
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 Cerus
Corporation, a medical device
company (of which he is
Chairman). Mr. Cassin holds an
A.B. degree from Holy Cross
College.
Harry S. Robbins............... Harry S. Robbins co-founded the 51 1994
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 from Pennsylvania
State University.
</TABLE>
Board Meetings and Committees
The Board of Directors of the Company held a total of five meetings during
fiscal 1998. No director attended fewer than 75% of the meetings of the Board
of Directors held during the period he was a director. The Board of Directors
has an Audit Committee and a Compensation Committee. The Board of Directors
has no nominating committee or any committee performing such function.
The Audit Committee, which consists of directors Cassin, Levinthal and
Vainio is responsible for overseeing actions taken by the Company's
independent accountants and reviewing the Company's internal financial
controls. The Audit Committee met three times during fiscal 1998 and, except
for Mr. Levinthal, no director attended fewer than 75% of the meetings of the
Audit Committee held during the period he sat on such committee.
6
<PAGE>
The Compensation Committee, which consists of directors Cassin, Levinthal
and Vainio, is responsible for determining salaries, incentives and other
forms of compensation for directors, officers and other employees of the
Company and administering various incentive compensation and benefit plans.
The Compensation Committee held no formal meetings during fiscal 1998.
Compensation of Directors
Members of the Company's Board of Directors do not receive compensation for
their services as directors but are eligible to receive grants of stock
options under the Company's 1994 Stock Option Plan. There were no grants to
non-employee directors pursuant to the Company's 1994 Stock Option Plan during
fiscal 1998.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of directors Cassin, Levinthal and
Vainio. There were no reportable transactions with any members of the
Compensation Committee in fiscal 1998.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
7
<PAGE>
PROPOSAL TWO
AMENDMENT OF THE 1994 STOCK OPTION PLAN
At the Annual Meeting, the stockholders are being asked to approve an
amendment of the Company's 1994 Stock Option Plan (the "Option Plan") to
increase the number of shares of Common Stock reserved for issuance thereunder
by 1,500,000 shares and to approve the material terms of the Option Plan,
including, but not limited to, share limitations for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended.
As of the Record Date a total of 1,999,273 shares of Common Stock have been
reserved for issuance under the Option Plan. As of the Record Date 1,171,660
shares had been issued upon the exercise of stock options granted under the
Option Plan, 658,713 options were outstanding and 241,574 shares remained
available for future grant. An additional 1,500,000 shares will be authorized
and available for future grants under the Option Plan for a new total of
3,499,273 shares.
The Option Plan is structured to allow the Board of Directors broad
discretion in creating equity incentives in order to assist the Company in
attracting, retaining and motivating the best available personnel for the
successful conduct of the Company's business. The Company has had a
longstanding practice of linking key employee compensation to corporate
performance because it believes that this increases employee motivation to
improve stockholder value. The Company has, therefore, consistently included
equity incentives as a significant component of compensation for a broad range
of the Company's employees. This practice has enabled the Company to attract
and retain the talent that it continues to require.
The Board of Directors believes that the remaining shares available for
grant under the Option Plan are insufficient to accomplish the purposes of the
Option Plan described above. The Company anticipates there will be a need to
hire additional technical and management employees during fiscal 1999 and it
will be necessary to offer equity incentives to attract and motivate these
individuals, particularly in the extremely competitive job market in Silicon
Valley. In addition, in order to retain the services of valuable employees as
the Company matures and its employee base grows larger, it will be necessary
to grant additional options to current employees as older options become fully
vested.
The essential terms of the Option Plan are summarized as follows:
Purpose
The purposes of the Option Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees and consultants of the Company and to promote the
success of the Company's business.
Administration
The Option Plan provides for administration by the Board of Directors of the
Company or one of its committees. The Option Plan is currently being
administered by the Board of Directors. The Board of Directors is referred to
in this description as the "Administrator." The Administrator determines the
terms of options granted including, but not limited to, the exercise price,
number of shares subject to the option and the exercisability thereof. All
questions of interpretation are determined by the Administrator and its
decisions are final and binding upon all participants. Members of the Board of
Directors receive no additional compensation for their services in connection
with the administration of the Option Plan.
Eligibility
The Option Plan provides that either incentive or nonqualified stock options
may be granted to employees (including officers and employee directors) of the
Company or any of its designated subsidiaries. In addition, the Option Plan
provides that nonqualified stock options may be granted to non-employee
directors and consultants
8
<PAGE>
of the Company or any of its designated subsidiaries. The Administrator elects
the optionees and determines the number of shares to be subject to each
option. In making such determination, there are taken into account the duties
and responsibilities of the optionee, the value of the optionee's services,
the optionee's present and potential contribution to the success of the
Company and other relevant factors. The Option Plan provides a limit of
$100,000 on the aggregate fair market value of shares subject to all incentive
options which become exercisable for the first time in any one calendar year.
Terms of Options
Each option is evidenced by a stock option agreement between the Company and
the optionee to whom such option is granted and is subject to the following
additional terms and conditions:
(1) Exercise of the Option: The Administrator determines when options
granted under the Option Plan may be exercised. An option is exercised when
the optionee gives written notice of exercise to the Company, specifying
the number of shares of Common Stock to be purchased and tenders payment to
the Company of the purchase price. Payment for shares issued upon exercise
of an option may consist of cash, check, promissory note, delivery of
already-owned shares of the Company's Common Stock (subject to certain
conditions), a reduction in the amount of any liability the Company may
have to the optionee or any combination of the foregoing methods. Payment
may also be made by a cashless exercise procedure under which the optionee
provides irrevocable instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale proceeds, an amount
equal to the exercise price plus all applicable withholding taxes or such
other consideration as determined by the Administrator and as permitted by
the Delaware General Corporation Law.
Options may be exercised at any time on or following the date the options
are first exercisable. An Option may not be exercised for a fraction of a
share.
(2) Option Price: The option price of all incentive stock options and
nonqualified stock options under the Option Plan is determined by the
Administrator but, in the case of incentive stock options, in no event will
it be less than the fair market value of the Company's Common Stock on the
date the option is granted. For purposes of the Option Plan, fair market
value is defined as the closing price per share of the Company's Common
Stock on the date of grant as reported on The Nasdaq National Market. In
the case of an option granted to an optionee who at the time of grant owns
stock representing more than 10% of the voting power of all classes of
stock of the Company, the option price must be not less than 110% of the
fair market value on the date of grant.
(3) Termination of Employment: The Option Plan provides that if the
optionee's employment by the Company is terminated for any reason, other
than death or disability, options may be exercised within three months (or
such other period of time not exceeding three months as determined by the
Administrator) after such termination and may be exercised only to the
extent the options were exercisable on the date of termination.
(4) Death: If an optionee should die while an employee or a consultant of
the Company, options may be exercised at any time within twelve months
after the date of death but only to the extent that the options were
exercisable on the date of death and in no event later than the expiration
of the term of such option.
(5) Disability: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within twelve months from
the date of such termination, but only to the extent that the options were
exercisable on the date of termination of employment and in no event later
than the expiration of the term of such option.
(6) Termination of Options: Options granted under the Option Plan have a
term as is determined by the Administrator, with incentive stock options
expiring no later than ten years from the date of grant. However, incentive
stock options granted to an optionee who immediately before the grant of
such option owns more than 10% of the voting power of all classes of stock
of the Company or a parent or subsidiary
9
<PAGE>
corporation may not have a term of more than five years. No option may be
exercised by any person after such expiration.
(7) Nontransferability of Options: An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution or a
qualified domestic relations order and is exercisable only by the optionee
(or in the event of death by a person who acquires the right to exercise
the option by bequest or inheritance or by reason of the death of the
optionee).
Adjustment Upon Changes in Capitalization
In the event any change such as a stock split or dividend is made in the
Company's capitalization which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration
by the Company, an appropriate adjustment will be made in the option price and
in the number of shares subject to each option. In the event of the proposed
dissolution or liquidation of the Company, the Administrator may in its
discretion provide for an optionee to have the right to exercise his or her
option until 10 days prior to such transaction, including shares as to which
the option would not otherwise be exercisable. To the extent it has not been
previously exercised, an option will terminate immediately prior to the
consummation of such proposed action. In the event of a merger of the Company
with or into another corporation or sale of substantially all of the assets of
the Company, all outstanding options will be assumed or an equivalent option
substituted by the successor corporation. In the event that the successor
refuses to assume or substitute for an option, the optionee shall fully vest
in and have the right to exercise such option in full, including shares as to
which such option would not otherwise be exercisable for a period of 15 days
from the date the Administrator gives notice to the optionee.
Performance-Based Compensation Limitations
No employee will be granted, in any fiscal year of the Company, options to
purchase more than 500,000 shares of Common Stock. The foregoing limitation,
which will be adjusted proportionately in connection with any change in the
Company's capitalization, is intended to satisfy the requirements applicable
to options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code. In the event that the Administrator
determines that such limitation is not required to qualify options as
performance-based compensation, the Administrator may modify or eliminate such
limitation.
Amendment and Termination
The Board of Directors may amend the Option Plan at any time or from time to
time or may terminate it without approval of the stockholders; provided,
however, that stockholder approval is required for any amendment which
increases the number of shares which may be issued under the Option Plan or as
necessary to remain in compliance with Rule 16b-3 of the Securities Exchange
Act of 1934, as amended, or Section 422 of the Code. However, no action by the
Board of Directors or stockholders may alter or impair any option previously
granted under the Option Plan without the consent of the optionee. In any
event, the Option Plan will terminate in June 2004.
Tax Information
Options granted under the Option Plan may be either incentive stock options
(as defined in Section 422 of the Code) or nonqualified options. An optionee
who is granted an incentive stock option will not recognize taxable income
either at the time the option is granted or upon its exercise, although the
exercise may subject the optionee to the alternative minimum tax. Upon the
sale or exchange of the shares more than two years after grant of the option
and one year after exercising the option, any gain or loss will be treated as
long-term capital gain or loss. If these holding periods are not satisfied,
the optionee will recognize ordinary income at the time of sale or exchange
equal to the difference between the exercise price and the lower of (i) the
fair market value of the shares at the date of the option exercise or (ii) the
sale price of the shares. A different rule for measuring
10
<PAGE>
ordinary income upon such a premature disposition may apply if the optionee is
also an officer, director or 10% stockholder of the Company. Generally, the
Company will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain
or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonqualified options. An optionee will not recognize any
taxable income at the time he or she is granted a nonqualified option.
However, upon its exercise, the optionee will recognize ordinary income
generally measured as the excess of the then fair market value of the shares
purchased over the purchase price. Any taxable income recognized in connection
with an option exercise by an optionee who is also an employee of the Company
will be subject to tax withholding by the Company. Upon resale of such shares
by the optionee, any difference between the sales price and the optionee's
purchase price to the extent not recognized as taxable income as described
above will be treated as long-term or short-term capital gain or loss
depending on the holding period.
Generally, the Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the optionee with respect to
shares acquired upon exercise of a nonqualified option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Option Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
Participation in the Option Plan
The grant of options under the Option Plan to executive officers, including
the officers named in the Summary Compensation Table below, is subject to the
discretion of the Administrator. As of the date of this proxy statement, there
has been no determination by the Administrator with respect to future awards
under the Option Plan. Accordingly, future awards are not determinable. The
table of option grants under "Executive Compensation and Other Matters--Option
Grants in Last Fiscal Year" provides information with respect to the grant of
options to the Named Executive Officers during fiscal 1998. Information
regarding options granted to Outside Directors pursuant to the Option Plan
during fiscal 1998 is set forth under the heading "Proposal One--Election of
Directors--Compensation of Directors." During fiscal 1998, all current
executive officers as a group and all other individuals as a group received
options to purchase 80,000 shares and 201,754 shares, respectively, pursuant
to the Option Plan. As of the Record Date, approximately 80 employees,
directors and consultants were eligible to participate in the Option Plan.
Vote Required
The affirmative vote of a majority of the shares of the Company's Common
Stock present and voting at the Annual Meeting will be required to approve the
amendment of the Option Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
APPROVAL OF THE AMENDMENT OF THE OPTION PLAN.
11
<PAGE>
PROPOSAL THREE
AMENDMENT OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the stockholders are being asked to approve an
amendment of the Company's 1997 Employee Stock Purchase Plan (the "Purchase
Plan") to increase the number of shares reserved for issuance thereunder by
200,000 shares. Exclusive of the 200,000 shares for which approval is sought
hereunder, a total of 75,000 shares of Common Stock have been reserved for
issuance under the Purchase Plan. As of the Record Date, a total of 24,346
shares had been issued to employees at an average purchase price of $3.08 per
share pursuant to two offerings under the Purchase Plan and, exclusive of the
200,000 shares for which approval is sought hereunder, 50,654 shares remain
available for future issuance.
The fair market value of the Common Stock of the Company on the first day of
the most recent offering period was $3 9/16 per share. See "Purchase Price."
The essential terms of the Purchase Plan, as amended, are summarized as
follows:
Purpose
The purpose of the Purchase Plan is to provide employees of the Company and
of any subsidiary which is designated by the Board of Directors to participate
in the Purchase Plan with an opportunity to purchase Common Stock of the
Company through accumulated payroll deductions. The Purchase Plan is intended
to qualify under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
Administration
The Purchase Plan provides for administration by the Board of Directors of
the Company or a committee appointed by the Board. The Purchase Plan is
currently administered by the Board. All questions of interpretation or
application of the Purchase Plan are determined by the Board of Directors or
its appointed committee, and its decisions are final and binding upon all
participants. No charge for administrative or other costs may be made against
the payroll deductions of a participant in the Purchase Plan. Members of the
Board of Directors receive no additional compensation for their services in
connection with the administration of the Purchase Plan.
Offering Periods
The Purchase Plan has offering periods of approximately twenty-four months,
each divided into four six-month purchase periods. The offering periods
commence on or after May 1 and November 1 of each year. The Board of Directors
has the power to alter the duration of the offering periods without
stockholder approval.
Eligibility
Any person who (i) is a regular employee scheduled to work at least twenty
hours per week and at least five months per calendar year and (ii) was
employed by the Company on the first day of the offering period (or by any
subsidiary designated from time to time by the Board of Directors) is eligible
to participate in the Purchase Plan.
Eligible employees become participants in the Purchase Plan by delivering to
the Company's payroll office a subscription agreement authorizing payroll
deductions. An employee who becomes eligible to participate in the Purchase
Plan after the commencement of an offering may not participate in the Purchase
Plan until the commencement of the next offering period.
12
<PAGE>
Purchase Price
The price at which shares are sold to participating employees is equal to
eighty-five percent (85%) of the lower of the fair market value per share of
the Common Stock on (i) the first day of the offering period or (ii) the last
day of the purchase period. For purposes of the Purchase Plan, fair market
value is defined as the closing price per share of the Company's Common Stock
on either (i) or (ii) above as reported on The Nasdaq National Market. The
closing sale price per share of the Company's Common Stock on The Nasdaq
National Market on the Record Date was $2 7/16.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions over
the duration of the offering period. The deductions may not exceed 10% of a
participant's compensation. A participant may discontinue his or her
participation in the Purchase Plan and may decrease the rate of his or her
payroll deductions at any time during the offering period. Payroll deductions
commence on the first payday following the beginning of the offering period
and will continue at the same rate until the end of the offering period until
terminated or changed as provided in the Purchase Plan.
Purchase of Stock; Exercise of Option
By executing a subscription agreement to participate in the Purchase Plan,
an employee is granted an option to purchase shares of Common Stock. The
maximum number of shares which a participant has an option to purchase in a
particular purchase period is that number arrived at by dividing the amount of
his or her compensation which he or she has elected to have withheld for the
purchase period by the lower of (i) 85% of the fair market value of a share of
Common Stock on the first day of the offering period, or (ii) 85% of the fair
market value of a share of Common Stock on the last day of the purchase period
as long as the total number of shares issued to a participant for any purchase
period does not exceed a number determined by dividing $12,500 by the market
value of a share of Common Stock at the beginning of the offering period.
Unless the employee's participation is discontinued, the option for the
purchase of shares will be exercised automatically at the end of the purchase
period at the applicable price.
Notwithstanding the foregoing, no employee is permitted to subscribe for
shares under the Purchase Plan (a) if, immediately after the grant of the
option, the employee would own, and/or hold outstanding options to purchase,
5% or more of the combined voting power or value of all classes of the capital
stock of the Company or (b) which permits his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries to
accrue 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. Furthermore, if the number of shares which would otherwise be
placed under option at the beginning of an offering period exceeds the number
of shares then available under the Purchase Plan, a pro rata allocation of the
shares remaining will be made in as equitable a manner as is practicable.
Withdrawal
A participant's interest in a given offering may be determined in whole, but
not in part, by signing and delivering to the Company a notice of withdrawal
from the Purchase Plan. Such withdrawal may be elected at any time prior to
the end of the applicable offering period. Any withdrawal by the employee
during a given offering automatically terminates the employee's interest in
that offering. If a participant withdraws from an offering period, payroll
deductions will not resume at the beginning of the next offering period (as
they otherwise would) unless the participant delivers a new subscription
agreement to the Company.
Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the Purchase Plan
immediately. In such event, the payroll deductions credited to the
participant's
13
<PAGE>
account will be returned without interest to such participant, or, in the case
of death, to the person or persons entitled thereto as specified by the
employee in the subscription agreement.
Capital Changes
In the event of any changes in the capitalization of the Company, such as
stock splits or stock dividends, resulting in an increase or decrease in the
number of shares of Common Stock, effected without receipt of consideration by
the Company, appropriate adjustments will be made by the Company in the number
of shares subject to purchase and in the purchase price per share.
Dissolution, Liquidation, Merger or Asset Sale
In the event of the proposed dissolution or liquidation of the Company, the
current offering periods will terminate immediately prior to the consummation
of such proposed action, unless otherwise provided by the Board of Directors.
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,
the purchase period then in progress will be shortened by setting a new
exercise date (which date will be before the date of the Company's proposed
sale or merger) and the offering period then in progress will end on such new
exercise date, unless the successor corporation assumes all outstanding
options under the Purchase Plan.
Nonassignability
No rights or accumulated payroll deductions of an employee under the
Purchase Plan may be pledged, assigned, transferred or otherwise disposed of
in any way by the participant and any such attempt may be treated by the
Company as an election to withdraw funds from the current offering period.
Amendment and Termination of the Purchase Plan
The Board of Directors may at any time and for any reason amend or terminate
the Purchase Plan, except that such termination will not affect options
previously granted nor may any amendment make any changes in an option granted
prior thereto which adversely affects the rights of any participant. No
amendment may be made to the Purchase Plan without prior approval of the
stockholders of the Company if such amendment would increase the number of
shares reserved under the Purchase Plan, materially modify the eligibility
requirements, or materially increase the benefits which may accrue to
participants under the Purchase Plan. In any event, the Purchase Plan will
terminate in March 2007.
Use of Funds
All payroll deductions received or held by the Company under the Purchase
Plan may be used in the Company for any corporate purpose. No interest will
accrue on the payroll deductions of a participant in the Purchase Plan.
Automatic Transfer to Low Price Offering Period
To the extent permitted by federal securities law, if the fair market value
of a share of Common Stock of the Company on the last day of a purchase period
is lower than the fair market value of a share of Common Stock of the Company
on the first day of an offering period, then all participants in such offering
period will immediately be automatically withdrawn after the exercise of their
option and automatically re-enrolled in the next offering period.
Tax Consequences of Purchase Plan Transactions.
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 423 of the
Code. Under these provisions, no income is taxable to a participant until the
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<PAGE>
shares purchased under the Plan are sold or otherwise disposed of. Upon sale
or other disposition of the shares, the participant will generally be subject
to tax, depending in part on how long the shares are held by the participant.
If the shares are sold or otherwise disposed of more than two years from the
first day of the offering period, the participant will recognize ordinary
income measured as the lesser of (a) the excess of the fair market value of
the shares at the time of such sale or disposition over the purchase price, or
(b) an amount equal to 15% of the fair market value of the shares as of the
first day of the offering period. Any additional gain will be treated as long-
term capital gain. If the shares are sold or otherwise disposed of before the
expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares were purchased by the participant over the
participant's purchase price. Any additional gain or loss on the sale or
disposition will be capital gain or loss. the Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a
participant except to the extent of ordinary income recognized by participants
upon a sale or disposition of shares prior to the expiration of the holding
period described above.
Participation in the 1997 Purchase Plan
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable. Nonemployee directors are not eligible to
participate in the Purchase Plan.
The following table sets forth certain information regarding shares
purchased during the fiscal year ended December 31, 1998 by each of the
executive officers named in the Summary Compensation Table below, all current
executive officers as a group, all nonemployee directors as a group and all
other employees who participated in the Purchase Plan as a group:
<TABLE>
<CAPTION>
Number of Dollar
Shares Value
Name of Individual or Identity of Group and Position Purchased (#) ($)(1)
---------------------------------------------------- ------------- -------
<S> <C> <C>
Alfred G. Merriweather, Vice President of Finance,
Chief Financial Officer and Assistant Secretary.... 321 $ 175
R. Michael Crompton, Vice President of Regulatory
Affairs and Quality Assurance...................... 1,579 859
Patrick J. Rimroth, Vice President of Operations.... 302 164
All executive officers as a group (8 persons)....... 2,202 1,198
All nonemployee directors........................... * *
All other employees as a group...................... 22,144 12,046
</TABLE>
- --------
* Not eligible to participate in the Purchase Plan.
(1) Market value of shares on date of purchase minus the purchase price under
the Purchase Plan.
Vote Required
The affirmative vote of a majority of the shares of the Company's Common
Stock present and voting at the Annual Meeting will be required to approve the
amendment of the Purchase Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT OF THE PURCHASE PLAN.
15
<PAGE>
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
accountants, to audit the consolidated financial statements of the Company for
the fiscal year ending December 31, 1999. Although action by stockholders is
not required by law, the Board of Directors has determined that it is
desirable to request approval of this selection by the stockholders.
Notwithstanding the selection, the Board of Directors, in its discretion, may
direct the appointment of new independent accountants at any time during the
year, if the Board of Directors feels that such a change would be in the best
interest of the Company and its stockholders. In the event of a negative vote
on ratification, the Board of Directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited the Company's financial statements
annually since 1994. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the meeting with the opportunity to make a statement
if they desire to do so and are expected to be available to respond to
appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
16
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
Executive Compensation
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth certain information
regarding the compensation of the Chief Executive Officer of the Company, the
four next most highly compensated executive officers in the fiscal year ended
December 31, 1998 (collectively, the "Named Executive Officers") of the
Company for services rendered in all capacities to the Company for the fiscal
years indicated.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Number of
Compensation Securities
----------------- Underlying
Name and Principal Fiscal Salary Bonus Other Annual Options
Position Year ($) ($) Compensation ($) (#)(1)
------------------ ------ -------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Harry S. Robbins........ 1998 $259,615 $100,000 $ -- --
President and Chief 1997 224,327 105,750 -- --
Executive Officer 1996 199,039 82,000 -- 250,602
Alfred G. Merriweather.. 1998 158,011 39,000 -- 10,000
Vice President of 1997 138,832 39,389 -- 14,534
Finance, Chief 1996 73,212 21,617 -- 98,109
Financial Officer and
Assistant
Secretary
R. Michael Crompton..... 1998 155,253 38,390 -- 10,000
Vice President of 1997 122,627 33,865 -- 29,069
Regulatory Affairs 1996 59,538 15,930 -- 79,940
and Quality Assurance
Bob H. Katz............. 1998 153,678 31,539 -- --
Vice President of 1997 121,706 32,533 -- 43,603
Research and 1996 116,473 29,208 -- 14,534
Development
Patrick J. Rimroth...... 1998 149,128 37,037 -- 10,000
Vice President of 1997 120,665 33,347 -- 29,068
Operations 1996 115,008 33,961 13,920(2) 14,534
</TABLE>
- --------
(1) These shares are subject to exercise under stock options granted pursuant
to the Company's 1994 Stock Option Plan. See "--Option Grants in Last
Fiscal Year."
(2) Consists of moving and relocation expenses.
17
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended December
31, 1998. All such options were awarded under the Company's 1994 Stock Option
Plan.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------------ Value at Assumed
Number of Percent of Rates of Stock Price
Securities Total Options Exercise Appreciation for
Underlying Granted to Price Per Options Term(1)
Options Employees in Share Expiration ---------------------
Name Granted (#)(2) Fiscal 1998 (%)(3) ($)(4)(5) Date 5% ($) 10% ($)
- ---- -------------- ------------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alfred G. Merriweather.. 10,000 3.5 $3.125 08/31/2008 $19,653 $49,804
R. Michael Crompton..... 10,000 3.5 3.125 08/31/2008 19,653 49,804
Patrick J. Rimroth...... 10,000 3.5 3.125 08/31/2008 19,653 49,804
</TABLE>
- --------
(1) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.
(2) Each of the options listed above vests as follows: The options are
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 of the Company at the rate of one forty-eighth ( 1/48) of the total
number of shares subject to each option at the end of each full month
beginning on the grant date for each option.
(3) Based on an aggregate of 281,754 options granted by the Company in the
year ended December 31, 1998 to employees of and consultants to the
Company, including the Named Executive Officers.
(4) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the date of grant.
(5) Exercise price may be paid in cash, check, promissory note, by delivery of
already-owned shares of the Company's Common Stock subject to certain
conditions, delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company
amount of sale or loan proceeds required to pay the exercise price, a
reduction in the amount of any Company liability to an optionee, or any
combination of the foregoing methods of payment or such other
consideration or method of payment to the extent permitted under
applicable law.
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<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise of
stock options by the Named Executive Officers during the fiscal year ended
December 31, 1998 and the value of stock options held as of December 31, 1998
by the Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
Value December 31, 1998 (#) December 31, 1998 ($)(2)
Shares Acquired Realized ------------------------- -------------------------
Name on Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harry S. Robbins........ -- -- -- -- $ -- --
Alfred G. Merriweather.. -- -- 10,000 -- 10,000 --
R. Michael Crompton..... -- -- 104,474 -- 288,009 --
Bob H. Katz............. -- -- -- -- -- --
Patrick J. Rimroth...... -- -- 10,000 -- 10,000 --
</TABLE>
- --------
(1) Fair market value of the Company's Common Stock on the date of exercise
minus the exercise price.
(2) Fair market value of the Company's Common Stock at fiscal year-end ($4.125
based on the last reported sale price of the Company's Common Stock on
December 31, 1998) minus the exercise price.
Employment Contracts and Change-in-Control Arrangements
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.
Certain Transactions
Transactions with Directors, Executive Officers and Others
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 sonically enhanced drug delivery with micro
electromechanical machining. Harry S. Robbins, the Company's President and
Chief Executive Officer, is the President, sole director and sole stockholder
of VibRx. Independent and disinterested members of the Company's Board of
Directors negotiated the terms of such transfer with Mr. Robbins, who
negotiated on behalf of VibRx. Such terms provide that immediately prior to
the closing of an initial financing in which VibRx receives at least
$500,000, VibRx will issue Symphonix that number of shares of common stock
equal to 20% of the then outstanding capital stock of VibRx (including
reserved shares).
In fiscal 1998, the Company purchased furniture and fixtures totaling
$242,000 from Business Resource Group ("BRG"). Mr. Robbins, is currently a
member of the board of directors of BRG. As of December 31, 1998, the Company
had no remaining financial obligations to BRG.
19
<PAGE>
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors, and will
continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
During the fiscal year ended December 31, 1998 the Company's executive
compensation program was approved by the Board's Compensation Committee and
the Board of Directors. The following is the report of the Compensation
Committee with respect to the compensation paid to the Company's executive
officers during fiscal 1998. Actual compensation earned during the fiscal year
by the Named Executive Officers is shown in the Summary Compensation Table
above.
Compensation Philosophy
The Company's philosophy in setting its compensation policies for executive
officers is to maximize stockholder value over time. The primary goal of the
Company's executive compensation program is therefore to closely align the
interests of the executive officers with those of the Company's stockholders.
To achieve this goal the Company attempts to (i) offer compensation
opportunities that attract and retain executives whose abilities are critical
to the long-term success of the Company, motivate individuals to perform at
their highest level and reward outstanding achievement, (ii) maintain a
significant portion of the executive's total compensation at risk, tied to
achievement of financial, organizational and management performance goals, and
(iii) encourage executives to manage from the perspective of owners with an
equity stake in the Company.
The compensation program for the Company's executive officers consists of
the following components: base salary, annual cash incentives and long-term
stock option incentives.
Base Salary
The Compensation Committee reviewed and approved fiscal 1998 base salaries
for the Chief Executive Officer and other executive officers at the beginning
of the fiscal year and as necessary at various times during the fiscal year.
Base salaries were established by the Compensation Committee based upon
competitive compensation data for similarly situated companies in the medical
device industry, the executive's job responsibilities, level of experience,
individual performance and contribution to the business. Executive officer
salaries have been targeted at or above the average rates paid by competitors
to enable the Company to attract, motivate, reward and retain highly skilled
executives. In order to evaluate the Company's competitive posture in the
industry, the Compensation Committee reviewed and analyzed the compensation
packages, including base salary levels, offered by other medical device
companies. The competitive information was obtained from surveys prepared by
reputable consulting companies or industry associations. In making base salary
decisions, the Compensation Committee exercised its discretion and judgment
based upon these factors. No specific formula was applied to determine the
weight of each factor.
Annual Cash Incentives
Annual cash incentives are established to provide a direct linkage between
individual pay and annual corporate performance. The Company generally
provides annual bonus payments to its executive officers based on achieving a
set of specific corporate and individual goals established at the beginning of
the fiscal year. Target bonuses are established based on a percentage of each
officer's salary and the portion of that target that is paid is based on the
committee's determination of the extent to which each officer's predetermined
goals were accomplished. In establishing bonus payments for fiscal 1998, the
Committee measured progress in the Company's product development programs,
clinical trials and manufacturing operations during the year, as well as
financial performance.
20
<PAGE>
Long-Term Stock Option Incentives
The Company generally provides its executive officers with long-term
incentive compensation through grants of stock options under the Company's
1994 Stock Option Plan. The Compensation Committee believes that stock options
provide the Company's executive officers with the opportunity to purchase and
maintain an equity interest in the Company and to share in the appreciation of
the value of the Company's Common Stock. The Compensation Committee believes
that stock options directly motivate an executive to maximize long-term
stockholder value. The options also utilize vesting periods that encourage key
executives to continue in the employ of the Company. All options granted to
executive officers in fiscal 1998 were granted at an exercise price that was
at the fair market value of the Company's Common Stock on the date of grant.
The Compensation Committee considers the grant of each option subjectively,
considering factors such as the individual performance of the executive
officer and the anticipated contribution of the executive officer to the
attainment of the Company's long-term strategic performance goals. Long-term
incentives granted in prior years are also taken into consideration.
Section 162(m)
The Board has considered the potential future effects of Section 162(m) of
the Internal Revenue Code on the compensation paid to the Company's executive
officers. Section 162(m) disallows a tax deduction for any publicly-held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the proxy statement, unless
compensation is performance-based. The Company has adopted a policy that,
where reasonably practicable, the Company will seek to qualify the variable
compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m). As a result, the stockholders are
being requested at the Annual Meeting to approve certain amendments to the
Company's 1994 Stock Option Plan intended to preserve the Company's ability to
deduct the compensation expense relating to stock options granted under the
1994 Stock Option Plan. In approving the amount and form of compensation for
the Company's executive officers, the Compensation Committee will continue to
consider all elements of the cost to the Company of providing such
compensation, including the potential impact of Section 162(m).
Respectfully submitted by:
B. J. Cassin
Michael J. Levinthal
Petri T. Vainio
21
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of The Nasdaq National Market, U.S. index and of the Nasdaq
Medical Devices, Instruments and Supplies index for the period commencing
February 19, 1998 (the date the Company's Common Stock commenced trading on
the Nasdaq National Market) and ending on December 31, 1998. Returns for the
indices are weighted based on market capitalization at the beginning of each
fiscal year.
Comparison of Cumulative Total Return
among Symphonix Devices, Inc.,
The Nasdaq National Market, U.S. Index and
the Nasdaq Medical Devices, Instruments and Supplies Index
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Nasdaq Nasdaq Medical
National Devices,
Market, Instruments
Measurement Period Symphonix U.S. and Supplies
(Fiscal Year Covered) Devices, Inc. Index Index
- ------------------- ------------- --------- ----------
<S> <C> <C> <C>
2/19/98 $100 $100 $100
12/31/98 $ 34 $127 $106
</TABLE>
The information contained above under the captions "Report of the Board of
Directors on Executive Compensation" and "Performance Graph" shall not be
deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act of 1933, as amended, or
Securities Exchange Act of 1934, as amended (the "Exchange Act"), except to
the extent that the Company specifically incorporates it by reference into
such filing.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers, Inc. Executive officers, directors and
greater than ten percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by it, or written
representations from reporting persons, the Company believes that, during the
fiscal year ended December 31, 1998, all such forms were filed on a timely
basis except for a Form 4 pursuant to an open market purchase of 220 shares of
Common Stock by Patrick J. Rimroth, the Company's Vice President of
Operations, in December 1998, which was reported on a Form 5.
22
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent
as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: March 31, 1999
23
<PAGE>
1702-PS-99
<PAGE>
APPENDIX A
SYMPHONIX DEVICES, INC.
1994 STOCK OPTION PLAN
(as amended and restated effective February 19, 1998)
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 3,499,273 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.
(ii) 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;
<PAGE>
(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 (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.
<PAGE>
(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 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
<PAGE>
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime 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
<PAGE>
period. For the purposes of this paragraph, the Option shall be considered
assumed if, following the 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>
Appendix B
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 Symphonix Devices, Inc. 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 April 30,
2000. 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
-----------
and 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
April 30, 2000. 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 and by opening an account at a brokerage firm
designated by the Company.
(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 ten percent (10%) 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
-4-
<PAGE>
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, 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. In no event shall an Employee
be permitted to purchase during each Purchase Period more than $12,500 worth of
Common Stock valued at the Fair Market Value on the first day of such Offering
Period; provided, however, 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 with drawal 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 deposit the purchased
shares in the participants' brokerage account.
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
-5-
<PAGE>
be made for such Offering Period. If a participant withdraws from an Offering
Period, payroll deductions 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 two hundred seventy-
five thousand (275,000) 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.
-6-
<PAGE>
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 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 partici pant'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.
-7-
<PAGE>
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 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.
-8-
<PAGE>
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 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.
-9-
<PAGE>
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 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 Symphonix Devices, Inc. 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 (not to exceed 10%) 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
<PAGE>
over the price which I paid for the shares. I hereby agree to notify the
----------------------------
Company in writing within 30 days 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
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SYMPHONIX DEVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Symphonix
Devices, Inc. 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 termi nated. 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:__________________________
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SYMPHONIX DEVICES, INC.
1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Symphonix Devices, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement each dated March 31, 1999 and hereby appoints
Harry S. Robbins and Alfred G. Merriweather or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned to represent the undersigned at the 1999 Annual Meeting
of Stockholders of Symphonix Devices, Inc. to be held on May 6, 1999 at 9:00
a.m., local time, at the Company's principal executive offices located at 2331
Zanker Road, San Jose, CA 95131 and at any postponement or adjournment thereof,
and to vote all shares of Common Stock which the undersigned would be entitled
to vote if then and there personally present, on the matters forth below:
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SEE REVERSE SIDE
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[X] Please mark your
votes as in
this example
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED "FOR" PROPOSALS 1, 2, 3, AND 4 AND AS THE PROXY HOLDERS DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
1. Election of Class I Directors
FOR WITHHELD
James M. Corbett [_] [_]
Geoffrey R. Ball [_] [_]
MARK
[_] HERE
-------------------------------------- FOR
For all nominees except as noted above ADDRESS [_]
CHANGE
AND NOTE
BELOW
2. Proposal to approve an amendment of the Company's 1994 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,500,000 shares.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Proposal to approve an amendment of the Company's 1997 Employee Stock
Purchase Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 200,000 shares.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending
December 31, 1999.
FOR AGAINST ABSTAIN
[_] [_] [_]
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Signature: Date: Signature: Date:
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