Document:

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                                                                   EXHIBIT 10.40

                     SETTLEMENT AGREEMENT AND MUTUAL RELEASE

     This Settlement Agreement and Mutual Release (together with all exhibits
and other attachments hereto)(the "Settlement Agreement") is made and entered
into as of June 7, 2002 by and among U.S.I. Holdings Corporation, a Delaware
corporation ("USI") and Royal Indemnity Company, a Delaware corporation
("Royal").

                                    RECITALS

     WHEREAS, USI and Royal entered into that certain Strategic Alliance
Agreement dated March 29, 2000 (the "Agreement");

     WHEREAS, pursuant to letters dated March 31, 2000 and December 22, 2000,
from Bernard H. Mizel, Chairman and Chief Executive Officer of USI to Paul
Stewman, Executive Vice President of Royal (collectively, the "Letter
Agreement"), Royal and USI entered into an Agreement and that certain Bogdanoff
claim;

     WHEREAS, as of June 30, 2001, the Agreement terminated pursuant to a notice
of termination by Royal to USI dated April 23, 2001;

     WHEREAS, Royal and USI disagree as to the meaning of the certain provisions
in the Agreement and the Letter Agreement;

     WHEREAS, both USI and Royal desire to resolve and conclude their
differences with regard to the Agreement and the Letter Agreement;

     WHEREAS, Royal and USI have deemed it advisable to execute this Settlement
Agreement, in which they resolve the outstanding matters between them with
respect to the Agreement and the Letter Agreement; and

     WHEREAS, all capitalized terms used herein and not defined have meanings
used in the Agreement.

     NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions contained herein, the receipt and sufficiency of which are hereby
acknowledged and confessed, USI and Royal hereby agree as follows:

     1. Closing. The closing of the release of claims under the terms set forth
in this Settlement Agreement (the "Closing") shall take place on June 26, 2002,
or at such other date after satisfaction or waiver of all conditions precedent
set forth in Section 6

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hereof as the parties may agree (the "Closing Date"). At the Closing, USI shall
deliver to Royal stock certificates evidencing the Preferred Stock (defined
herein).

     2. Settlement Amount. USI shall cause the following payments to be made to
Royal in consideration for the releases set forth herein:

        (a) Within three (3) days of this Settlement Agreement, USI agrees to
cause to be paid to Royal Two Hundred Fifty Thousand dollars ($250,000.00)
(the"Initial Payment");

        (b) Ninety (90) days following the closing date of USI's initial public
offering of its common stock as currently described in USI's Form S-1 filed with
the U.S. Securities and Exchange Commission (the "SEC") on April 30, 2001 (the
"USI IPO"), or the closing date of a recapitalization of USI (the
"Recapitalization"), USI agrees to cause to be paid to Royal One Million Two
Hundred Thirty Seven Thousand Five Hundred Dollars ($1,237,500.00)(the "Second
Installment");

        (c) One hundred eighty (180) days following the closing date of USI's
IPO, or the effective date of a Recapitalization, USI agrees to pay to Royal One
Million, Two Hundred Thirty Seven Thousand, Five Hundred Dollars
($1,237,500.00)(the "Final Installment"); and

        (d) On the Closing Date, USI agrees to issue to Royal 353,572 shares of
USI Series Y convertible preferred shares at a $7.00 per share value
($2,475,000)(the "Preferred Stock") as described in the Certificate of
Designation attached hereto as Exhibit A. (the Initial Payment, the Second
Installment the Final Installment and the Preferred Stock, hereinafter
collectively referred to as the "Settlement Amount".)

     3. Ceridian Corporation. Without the introduction of an additional
incentive payment arrangement, USI agrees to continue to work with Royal in good
faith to explore the development of insurance programs for potential
introduction to the marketing opportunity represented by the USI/Ceridian
Corporation customer referral agreement.

     4. Firemans Fund Insurance Company ("FFIC") Releases. On the date of this
Settlement Agreement, Royal and FFIC and USI and FFIC shall enter into mutual
releases in connection with the Initial Payment.

     5. Covenants of USI and Royal Prior to the Closing.

        (a) USI will use commercially reasonable efforts to obtain all the
necessary consents, approvals and agreements of the shareholders of USI to
issue the Preferred Stock necessary to permit the consummation of this
Settlement Agreement;

        (b) Royal and USI shall have entered into or shall enter into at the
time of Closing a Subscription Agreement and Shareholder's Agreement
substantially in the form attached hereto as Exhibit B (the "Ancillary
Agreements");

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          (c) USI shall receive at the time of Closing from Royal consents
     substantially in the form attached hereto as Exhibit C (the "Consents")
     subject to the following:

               (i) USI agrees that the actions authorized by Royal in the
          Consents shall not be taken until such time as reasonably necessary to
          effect the IPO;

               (ii) USI agrees that no action shall be taken with respect to the
          Consents if the IPO is no longer being considered by USI. In any case,
          if USI's IPO has not been declared effective by the SEC prior to
          November 1, 2002, these consents shall become null and void unless
          otherwise agreed by Royal and USI;

     6. Conditions to Closing. The obligations of the parties to consummate the
Closing are subject to the following conditions;

          (a) The consents required to be obtained from the USI shareholders to
     issue the Preferred Shares shall be in full force and effect.

          (b) Royal and USI shall have executed and delivered the Ancillary
     Agreements on the Closing Date.

          (c) Royal shall have executed and delivered the Consents to USI on the
     date of this Settlement Agreement.

     Neither Royal nor USI may rely on the failure of any condition set forth in
this Section 6 to be satisfied if such failure was caused by such party's
failure to act in good faith or to use its reasonable efforts to cause the
Closing to occur.

     7. Termination. This Settlement Agreement may be terminated.

          (a) By Royal, in the event that USI does not issue the Preferred
     Shares to Royal at the Closing;

          (b) By USI or Royal, in the event that USI does not issue the
     Preferred Shares to Royal prior to the USI IPO or Recapitalization;

          (c) By Royal, if the USI IPO or the Recapitalization has not closed by
     December 31, 2002;

          (d) By Royal or USI, if there is a failure of any conditions set forth
     in Section 6, that shall not have been waived by the other party (a party
     cannot claim a termination pursuant this Section 7(d) if said failure was
     caused by such party's failure to act in good faith or to use its
     reasonable efforts to cause the Closing to occur); or

          (e) By the mutual written consent of USI and Royal.

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     In the event of termination of this Settlement Agreement as provided
herein, this Settlement Agreement shall become void and of no further force or
effect and the parties shall be returned to their original positions as if this
Agreement never existed, including Royal refunding the Initial Payment to USI.

     8. Royal Release. Effective upon the Closing, Royal, on behalf of itself
and each of its respective directors, managers, officers, shareholders,
partners, agents, employees, attorneys, insurers, controlling persons, parent
corporations, subsidiaries, divisions, affiliates, successors and assigns
(collectively, "Related Persons"), shall hereby expressly release and forever
discharge USI and its Releases (as defined below), and each of them, separately
and collectively, from any and all obligations, liabilities, claims, damages,
charges, rights, suits in equity, actions or causes of action (now known or
which may be discovered in the near future) arising under, relating to, or in
connection with, the Agreement, Letter Agreement and the Bogdanoff claim
including, without limitation, claims for contract tort or statutory remedies
seeking damages of any kind, and rights to or claims for injunctive relief,
expenses, costs, attorney's fees, losses or damages, of any kind or nature
whatsoever; provided that nothing contained herein may or shall be construed or
deemed as an admission of liability or wrongdoing. "Releasees," individually and
collectively, shall mean a party's respective and present directors, managers,
officers, shareholders, partners, agents, employees, attorneys, controlling
person, parent corporations, subsidiaries, divisions, affiliates, successors,
and assigns, and each of them, separately and collectively. In the event of a
termination of this Settlement Agreement pursuant to Section 7 above, Royal's
release hereunder will be deemed cancelled and of no further force and effect,
and any and all of USI's obligations under the Agreement and the Letter of
Agreement shall continue in full force and effect.

     9. USI Release. Effective upon the Closing, USI, on behalf of itself and
each of its respective Related Persons hereby expressly release and forever
discharge Royal and its Releasees, and each of them, separately and
collectively, from any and all obligations, liabilities, claims, damages,
charges, rights, suits in equity, actions or causes of action (now known or
which may be discovered in the future) arising under, relating to, or in
connection with, the Agreement, Letter Agreement and the Bogdanoff claim,
including, without limitation, claims for contract, tort or statutory remedies
seeking damages or any kind, and rights to or claims for injunctive relief,
expenses, costs, attorney's fees, losses or damages of any kind or nature
whatsoever, provided that nothing contained herein may or shall be construed or
deemed as an admission of liability or wrongdoing. In the event of a termination
of this Settlement Agreement pursuant to Section 7 above, USI's release
hereunder will be deemed cancelled and of no further force and effect, and any
and all of Royal's obligations under the Agreement and the Letter Agreement
shall be reinstated and shall not be deemed released and shall continue in full
force and effect.

     10. Failure to Complete the IPO or the Recapitalization. USI agrees that if
this Settlement Agreement is terminated pursuant to Section 7 above, it will
promptly and in good faith attempt negotiate a payment schedule with Royal for
the Settlement Amount.

     11. No Other Claim Holders. Each of Royal and USI represent and warrant
that no other person had or has or claims any interest in the matters referred
to herein; that each of them has the sole right and exclusive authority to
execute this Settlement Agreement, and that each of them has not sold, assigned,
transferred, conveyed or

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otherwise disposed of any claim or demand relating to any matter covered by
this Settlement Agreement.

     12. Breach of this Settlement Agreement. In the event either party to this
Settlement Agreement breaches its obligations hereunder, the other party shall
be entitled to reimbursement for all reasonable fees and expenses, including
interest and reasonable attorney's fees, incurred by the other party in
connection with any action brought to enforce the terms of this Settlement
Agreement.

     13. Successors and Assigns. This Settlement Agreement was the result of any
arms' length negotiation between the settling parties and shall not be construed
in favor of or against any party hereto. This Settlement Agreement shall be
binding upon and inure to the benefit of the parties hereto and each of its
respective successors and assigns.

     14. Proceeding Against Release. Each of Royal and USI hereby irrevocably
convenants to refrain from, directly or indirectly, causing to be commenced, any
proceeding of any kind against any of Royal and USI and any Releasee, separately
and collectively, based upon matters purported to be released hereby.

     15. Counterparts. This Settlement Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Settlement Agreement
may be executed and delivered by facsimile transmission, with each party mailing
original signatures to the other as soon as possible thereafter.

     16. Entire Agreement. This Settlement Agreement and any exhibits attached
hereto contain the entire agreement between Royal and USI relating to the
subject matter hereof and supersedes any and all previous agreements, written or
oral, between Royal and USI relating to the settlement and release of the
subject matter hereof. No amendment or modification of the terms of this
Settlement Agreement shall be binding upon Royal or USI unless reduced to
writing and signed by Royal and USI.

     17. Notice. All notices and other communications hereunder shall be in
writing sent via certified mail with return receipt requested and shall be
deemed to have been given when received, in all cases addressed to the Party to
be notified as set forth below or to such other address as may be amended or
modified only in writing to the other party.

               If to Royal at:  Royal Indemnity Company
                                9300 Arrowpoint Blvd. - MS 2218
                                Chartlotte, North Carolina 28273
                                Attn: John Bartlett

               With a copy to:  Royal Indemnity Company
                                9300 Arrowpoint Blvd. - MS 1313
                                Charlotte, North Carolina 28273
                                Attn: Joyce W. Wheeler, Esq.

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               If to USI at:    USI Holdings Corporation
                                50 California Street -- 24/th/ Floor
                                San Francisco, CA 94111
                                Attn: David L. Eslick

               With a copy to:  USI Holdings Corporation
                                50 California Street -- 24/th/ Floor
                                San Francisco, CA 94111
                                Attn: Ernest Newborn, Esq.

     18. Governing Law. This Settlement Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to conflict of law rules.

     19. Assignment. Neither Party may assign or delegate this Settlement
Agreement or any rights or obligations hereunder to a third party (by operation
of law or otherwise), without the prior written consent of the other Party,
which consent will not be unreasonably withheld. Subject to the foregoing, this
Settlement Agreement shall insure to the benefit of and bind the successors and
assigns of the Parties.

     20. Severability; Waiver. If any term, provision, covenant or condition of
this Settlement, or any application thereof, should be held by a court of
competent jurisdiction to be valid, void or unenforceable, that provision shall
be deemded severable and all provisions, covenants and conditions of this
Settlement Agreement, and all applications thereof not held invalid, void or
unenforceable, shall continue in full force and effect and shall in no way be
affected, impaired or invalidated thereby. The waiver of a breach of any
provision of this Settlement Agreement by any party hereto or the failure of any
part hereto to insist upon the strict performance of any provision hereof shall
not constitute a waiver of any subsequent failure to perform.

     21. Additional Documents and Actions. The parties agree to execute such
additional document and take such further actions as may be necessary to execute
the terms of this Settlement Agreement.

     22. Headings. This section headings in this Settlement Agreement are for
convenience only, and shall not be considered a part of, or affect the
interpretation of, any provision of this Settlement Agreement.

     23. Third Party Beneficiary. This Settlement Agreement is not intended to
confer upon any person which is not a party hereto any rights or remedies
hereunder.

PLEASE READ CAREFULLY. THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE INCLUDES A
MUTUAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

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     IN WITNESS WHEREOF, Royal and USI have executed this Settlement Agreement
as of the date first above written.

                ROYAL INDEMNITY COMPANY

                By:  /s/ Joyce W. Wheeler

                Name:  Joyce W. Wheeler
                       _______________________

                Title:  Senior Vice President
                       _______________________

                U.S.I. HOLDINGS CORPORATION

                By:___________________________

                Name: ________________________

                Title: _______________________

SWORN to before me this

7th day of June 2002

/s/ Susan P. Van Allen
_____________________
     Notary

My Commission Expires:  10/04/04

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     IN WITNESS WHEREOF, Royal and USI have executed this Settlement Agreement
as of the date first above written.

                ROYAL INDEMNITY COMPANY

                By:  _________________________

                Name:________________________

                Title:
                       _______________________

                U.S.I. HOLDINGS CORPORATION

                By: /s/ Ernest J. Newborn, II

                Name:  Ernest J. Newborn, II
                      ________________________

                Title: SVP & General Counsel
                      ________________________

SWORN to before me this

7th day of June 2002

/s/ Donna J. Doxey-Bowers
_________________________
     Notary

My Commission Expires:  10/01/2005

                                       8Prepared by R.R. Donnelley Financial -- 2002 Nonstatutory Stock Option Plan

  
 Exhibit 4.1 
  
 SYMPHONIX DEVICES, INC. 
  
 2002 NONSTATUTORY
STOCK OPTION PLAN 
  
 1.    Purposes of the Plan.    The purposes
of this Nonstatutory 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 will be Nonstatutory Stock Options. 
  
 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, Inc., 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. 
  
 (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, 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. 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; 
  
 (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)    “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. 
  
 (o)    “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. 
  
 (p)    “Option” means a nonstatutory stock option granted pursuant to the Plan, that
is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. 
  
 (q)    “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. 
  
 (r)    “Option Exchange Program” means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price. 
 

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 (s)    “Optioned Stock”
means the Common Stock subject to an Option. 
  
 (t)    “Optionee” means the holder of an outstanding Option granted under the Plan. 
  
 (u)    “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code. 
  
 (v)    “Plan” means this 2001 Nonstatutory Stock Option Plan. 

 
 (w)    “Service Provider” means an Employee including an Officer,
Consultant or Director. 
  
 (x)    “Share” means a share of the
Common Stock, as adjusted in accordance with Section 12 of the Plan. 
  
 (y)    “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 12 of the Plan, the maximum aggregate number of
Shares which may be optioned and sold under the Plan is 750,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. 
  
 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). 
  
 4.
    Administration of the Plan. 
  
 (a)    Administration.    The Plan shall be administered by (i) the Board or (ii) 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 of the Common Stock; 
  
 (ii)    to select the Service Providers to whom Options may be granted hereunder; 
  

(iii)    to determine whether and to what extent Options are granted hereunder; 
  
 (iv)    to determine the number of shares of Common Stock to be covered by each Option granted
hereunder; 
 

 -3- 

  
 (v)    to approve forms of agreement for use
under the Plan; 
  
 (vi)    to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award 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 or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall
determine; 
  
 (vii)    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; 
  
 (viii)    to institute an Option Exchange Program; 
  
 (ix)    to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; 
  
 (x)    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; 
  
 (xi)    to modify or amend each Option (subject to Section 14(b) 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; 
  
 (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 determine the terms and restrictions applicable to Options; 
  
 (xiv)    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; and 
  
 (xv)    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. 
 

 -4- 

  
 5.    Eligibility.    Options may
be granted to Service Providers. 
  
 6.    Limitation.    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. 
  
 7.    Term of
Plan.    The Plan shall become effective upon its adoption by the Board. It shall continue in effect for ten (10) years, unless sooner terminated under Section 14 of the Plan. 
  
 8.    Term of Option.    The term of each Option shall be stated in the Option Agreement.

  
 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. 
  
 (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. Such consideration may
consist entirely of: 
  
 (i)    cash; 
  
 (ii)    check; 
  
 (iii)    promissory note; 
  
 (iv)    other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (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)    such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or 
  
 (viii) any combination of the foregoing methods of payment. 
 

 -5- 

  
 10.    Exercise of Option. 
  
 (a)    Procedure for Exercise; Rights as a Shareholder.    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. 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 shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such 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 12 of the Plan. 
  
 Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. 

 
 (b)    Termination of Relationship as a Service Provider.    If
an Optionee ceases to be a Service Provider, other than upon the Optionee’s death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Option Agreement, and only 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. 
 

 -6- 

 (d)    Death of Optionee.    If an Optionee dies while a
Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee’s
estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee’s termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to
the Plan. The Option may be exercised by the executor or administrator of the Optionee’s estate or, if none, by the person(s) entitled to exercise the Option under the Optionee’s will or the laws of descent or distribution. If the Option
is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 
  
 (e)    Buyout Provisions.    The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 
  
 11.    Non-Transferability of Options.    Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime 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 shareholders 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. 
 

 -7- 

  
 (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 or right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option
shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock, 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 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. 
 

 -8- 

  
 (b)    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 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. 
 

 -9- 

  
 SYMPHONIX DEVICES, INC. 
  
 2002 NONSTATUTORY STOCK OPTION PLAN 
  
 STOCK
OPTION AGREEMENT 
  
 Unless otherwise defined herein, the terms defined in the Plan shall have the same defined
meanings in this Option Agreement. 
  

	I.
	 
	NOTICE OF STOCK OPTION GRANT 
 

  
 [Optionee’s Name and Address] 
  
 You have been granted
an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: 
  
 
	 Grant Number
 	 	 ___________________________________________
 
	 
	 Date of Grant
 	 	 ___________________________________________
 
	 
	 Vesting Commencement Date
 	 	 ___________________________________________
 
	 
	 Exercise Price per Share
 	 	 $__________________________________________
 
	 
	 Total Number of Shares Granted
 	 	 ___________________________________________
 
	 
	 Total Exercise Price
 	 	 $__________________________________________
 
	 
	 Type of Option:
 	 	 Nonstatutory Stock Option
 
	 
	 Term/Expiration Date:
 	 	 ___________________________________________
 
	 
	 Vesting Schedule:
 	 	  

 
  
 Subject to the Optionee continuing to be a Service Provider on such
dates, this Option shall vest and become exercisable in accordance with the following schedule: 
  
 [25% of the
Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48th of the Shares subject to the Option shall vest each month thereafter.] 

  
 Termination Period: 
  

This Option may be exercised for thirty (30) days after Optionee ceases to be a Service Provider, or such longer period as may be applicable upon death or disability
of the Optionee as provided in the Plan, but in no event later than the Term/Expiration Date as provided above. 
  

	II.
	 
	AGREEMENT 
 

  
 1.    Grant of Option.    The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the
“Optionee”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms
and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(b) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail. 
  
 2.    Exercise of Option. 

 
 (a)    Right to Exercise.    This Option is exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. 
  
 (b)    Method of Exercise.    This Option is exercisable by delivery of an exercise notice, in the form
attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations
and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the Secretary of the Company. The Exercise Notice shall be accompanied by payment of the
aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. 
  
 No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws.
Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 
  

3.    Method of Payment.    Payment of the aggregate Exercise Price shall be by any of the following, or a combination
thereof, at the election of the Optionee: 
  
 (a) cash; 
  
 (b) check; 
  
 (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or 
 

 -2- 

  
 (d)    surrender of other Shares which (i) in
the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares. 
  
 4.    Non-Transferability of Option.    This
Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the Optionee. 
  
 5.    Term of Option.    This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the
terms of this Option Agreement. 
  
 6.    Tax Consequences.    Some of
the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. 
  
 (a)    Exercising the Option.    The Optionee may incur regular federal income tax liability upon exercise of an NSO. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will
be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. 
  
 (b)    Disposition of Shares.    If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for
federal income tax purposes. 
  
 7.    Entire Agreement; Governing
Law.    The Plan is incorporated herein by reference. The Plan and this Option Agreement con­sti­tute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all
prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This
agreement is governed by the internal substantive laws, but not the choice of law rules, of California. 
  
 8.    NO GUARANTEE OF CONTINUED SERVICE.    OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE
COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. 
 

 -3- 

  
 By your signature and the signature of the Company’s representative below,
you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain
the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. 
  
 
	 OPTIONEE
 	    	 SYMPHONIX DEVICES, INC.
 
	 
	  
                                      
                                        
                      
 Signature
 	    	  
                                      
                                        
                    
 By
 
	 
	  
                                      
                                        
                      
 Print Name
 	    	  
                                      
                                        
                    
 Title
 
	 
	  
                                      
                                        
                      
 Residence Address
 	    	  
	 
	  
                                      
                                        
                      
 	    	  

 
 

 -4- 

  
 EXHIBIT A 
  
  
 SYMPHONIX DEVICES, INC. 
  
 2002 NONSTATUTORY STOCK OPTION PLAN 
  
 EXERCISE NOTICE 
  
 Symphonix Devices, Inc. 
 2331 Zanker Road 
 San Jose, CA 95131-1109 
  
  
 Attention: Chief Financial Officer 
  
 1.    Exercise of Option.    Effective as of today, ________________, _____, the undersigned (“Purchaser”) hereby
elects to purchase ______________ shares (the “Shares”) of the Common Stock of Symphonix Devices, Inc. (the “Company”) under and pursuant to the Company’s 2002 Nonstatutory Stock Option Plan (the “Plan”) and the
Stock Option Agreement dated, _________, ___ (the “Option Agreement”). The purchase price for the Shares shall be $________, as required by the Option Agreement. 
  
 2.    Delivery of Payment.    Purchaser herewith delivers to the Company the full purchase price for the Shares.

  
 3.    Representations of Purchaser.    Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 
  
 4.    Rights as Shareholder.    Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 12 of the Plan. 
  
 5.    Tax Consultation.    Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice. 
 

  
 6.    Entire Agreement; Governing
Law.    The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the
Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. 
  
 
	 Submitted by:
 	    	 Accepted by:
 
	 
	 PURCHASER
 	    	 SYMPHONIX DEVICES, INC.
 
	 
	  
                                      
                                        
                      
 Signature
 	    	  
                                      
                                        
                    
 By
 
	 
	  
                                      
                                        
                      
 Print Name
 	    	  
                                      
                                        
                    
 Title
 
	 
	  	    	  
                                      
                                        
                    
 Date
Received
 
	 
	  
 Address:                                   
                                        
       
  
                                      
                                        
   
  
                                      
                                        
   
 	    	  
 Address:
 

 
 

 -2-

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