SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended January 31, 2000
Commission File Number 1-13851
SONUS CORP.
(Exact name of small business issuer as specified in its charter)
Yukon Territory, Canada Not Applicable
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S.W. Fifth Avenue, Suite 1620, Portland, Oregon 97204
(Address of principal executive offices)
Issuer's telephone number, including area code: 503-225-9152
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,106,026 Common Shares, without par
or nominal value, outstanding as of March 1, 2000
Transitional Small Business Disclosure Format. Yes . No X .
--- ---
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FORWARD-LOOKING STATEMENTS
- --------------------------
Statements in this report, to the extent they are not based on
historical events, constitute forward-looking statements. Forward-looking
statements include, without limitation, statements containing the words
"believes," "anticipates," "intends," "expects," and words of similar import.
Investors are cautioned that forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance, or achievements of Sonus Corp. (the "Company") to be
materially different from those described herein. Factors that may result in
such variance, in addition to those accompanying the forward-looking statements,
include economic trends in the Company's market areas, the ability of the
Company to manage its growth and integrate new acquisitions into its network of
hearing care centers, development of new or improved medical or surgical
treatments for hearing loss or of technological advances in hearing instruments,
changes in the application or interpretation of applicable government laws and
regulations, the ability of the Company to complete additional acquisitions of
hearing care centers on terms favorable to the Company, the degree of
consolidation in the hearing care industry, the Company's success in attracting
and retaining qualified audiologists and staff to operate its hearing care
centers, the ability of the Company to attract audiology centers as franchise
licensees under The Sonus Network, product and professional liability claims
brought against the Company that exceed its insurance coverage, and the
availability of and costs associated with potential sources of financing. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
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<TABLE>
SONUS CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<S> <C> <C>
January 31, July 31,
2000 1999
---------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalentS $ 5,651 $ 498
Accounts receivable, net of allowance for doubtful
accounts of $1,080 and $907, respectively 4,838 3,666
Other receivables 683 346
Inventory 458 499
Prepaid expenses 500 340
---------- ---------
Total current assets 12,130 5,349
Property and equipment, net 7,958 6,208
Other assets 59 60
Goodwill and covenants not to compete, net 19,791 19,768
---------- ---------
$ 39,938 $ 31,385
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable-related party $ - $ 500
Accounts payable 3,674 3,727
Accrued payroll 1,555 1,223
Other accrued liabilities 1,948 1,317
Convertible notes payable - 931
Capital lease obligations, current portion 278 129
Long-term debt, current portion 2,445 2,150
---------- ---------
Total current liabilities 9,900 9,977
Capital lease obligations, less current portion 429 96
Long-term debt, less current portion 1,950 2,497
---------- ---------
Total liabilities 12,279 12,570
---------- ---------
Shareholders' equity:
Series A convertible preferred stock, no par
value per share, 2,666,666 shares authorized,
issued, and outstanding (liquidation preference of $19,890) 15,701 15,701
Series B convertible preferred stock, no par
value per share, 2,500,000 shares authorized,
issued, and outstanding (liquidation preference of $10,267) 9,860 ---
Common stock, no par value per share, unlimited
number of shares authorized, 6,106,026 and 6,109,026 shares,
respectively, issued and outstanding 14,951 14,976
Notes receivable from shareholders (93) (93)
Accumulated deficit (12,625) (11,595)
Accumulated other comprehensive loss (135) (174)
---------- ---------
Total shareholders' equity 27,659 18,815
---------- ---------
$ 39,938 $ 31,385
========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
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SONUS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
January 31, January 31,
----------------------- ---------------------
2000 1999 2000 1999
-------- -------- --------- ----------
Revenues:
Product $ 9,088 $ 7,297 $ 17,950 $ 13,943
Service 842 974 1,718 1,894
Other 564 215 968 350
-------- -------- --------- ----------
Net revenues 10,494 8,486 20,636 16,187
Costs and expenses:
Cost of products sold 3,011 2,885 6,062 5,486
Clinical expenses 4,797 4,050 9,683 8,415
General and administrative expenses 2,413 1,738 4,451 3,521
Depreciation and amortization 727 514 1,425 989
-------- -------- --------- ---------
Total costs and expenses 10,948 9,187 21,621 18,411
-------- ------- --------- --------
Loss from operations (454) (701) (985) (2,224)
Other income (expense):
Interest income 120 66 161 170
Interest expense (111) (56) (208) (112)
Other, net - (8) 2 (7)
------- -------- --------- ---------
Net loss $ (445) $ (699) $ (1,030) $ (2,173)
======= -------- --------- ---------
Loss per share of common stock:
Basic and diluted $ (0.07) $ (0.11) $ (0.17) $ (0.36)
Average shares outstanding:
Basic and diluted 6,083 6,096 6,085 6,070
See accompanying notes to consolidated financial statements.
</TABLE>
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SONUS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
January 31, January 31,
-------------------------- ------------------------
2000 1999 2000 1999
Cash flows from operating activities: -------------------------- ------------------------
Net loss $ (445) $ (699) $ (1,030) $ (2,173)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for bad debt expense 86 81 184 149
Depreciation and amortization 727 514 1,425 989
Changes in operating assets and liabilities:
Accounts receivable (677) (1,033) (1,296) (946)
Other receivables (169) (210) (335) (200)
Inventory 61 298 49 246
Prepaid expenses (67) (195) (159) (307)
Accounts payable and accrued liabilities (146) 515 831 748
----------- ------------ ---------- ----------
Net cash used in operating activities (630) (729) (331) (1,494)
----------- ------------ ---------- ----------
Cash flows from investing activities:
Sale of short-term investments --- 1,945 --- 3,815
Purchase of property and equipment (885) (1,120) (2,081) (2,035)
Additional costs related to acquisitions --- 90 --- (26)
Deferred acquisition costs and other, net 37 (12) 3 (102)
Net cash paid on business acquisitions (156) (273) (246) (1,223)
----------- ------------ ---------- ----------
Net cash provided by (used in) investing activities (1,004) 630 (2,324) 429
----------- ------------ ---------- ----------
Cash flows from financing activities:
Net repayments of long term debt
and capital lease obligations (1,133) (284) (1,553) (507)
Deferred financing costs, net --- (16) --- (15)
Repayments of bank loans and
short-term notes payable (500) (123) (500) (296)
Issuance of preferred stock, net of costs (40) --- 9,860
Issuance of common stock, net of costs --- --- --- 248
Repurchase of common stock (15) (11) (25) (11)
----------- ------------ ---------- ----------
Net cash provided by (used in) financing activities (1,688) (434) 7,782 (581)
----------- ------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents (3,322) (533) 5,127 (1,646)
Effect on cash and cash equivalents of changes
in foreign translation rate 10 84 26 53
Cash and cash equivalents, beginning of period 8,963 1,576 498 2,720
----------- ------------ ---------- ----------
Cash and cash equivalents, end of period $ 5,651 $ 1,127 $ 5,651 $ 1,127
=========== ============ ========== ==========
Supplemental disclosure of investing and financing activities:
Interest paid during the period $ 77 $ 56 $ 149 $ 112
Supplemental disclosure of non-cash financing activities:
Issuance and assumption of long-term debt in acquisitions 280 750 280 2,640
Acquisition of clinical equipment and computer hardware with
capital lease obligations --- --- 566 ---
See accompanying notes to consolidated financial statements.
</TABLE>
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SONUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended July 31, 1999.
All adjustments, consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods presented have been made. The results of operations for an
interim period are not necessarily indicative of the results of operations for a
full year. Certain amounts in the financial statements for the three and
six-month periods ended January 31, 1999, have been reclassified in order to
conform to the presentation for the three and six-month periods ended January
31, 2000.
2. Acquisitions
During the three months ended January 31, 2000, the Company acquired
three hearing care centers in two separate transactions. The aggregate purchase
price for the acquisitions consisted of cash payments of $156,000, promissory
notes issued by the Company of $280,000 payable over three years, and assumed
liabilities of $5,000 . As a result of the acquisitions, the Company recorded
$50,000 in property and equipment, $6,000 in inventory, $353,000 in goodwill,
which included costs related to acquisitions, and $30,000 for a covenant not to
compete.
3. Comprehensive Loss
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
January 31, January 31,
---------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Net loss $(445) $ (699) $(1,030) $ (2,173)
Other comprehensive loss, net of tax:
Foreign currency translation
adjustments (20) 84 (39) 53
------ ------- ------- --------
Comprehensive loss $(465) $ (615) $(1,069) $ (2,120)
======= ======= ======== =========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended January 31, 2000 Compared to Three Months Ended January 31,
1999
Revenues. Total revenues for the three months ended January 31, 2000,
were $10,494,000, representing a 24% increase over revenues of $8,486,000 for
the comparable period in fiscal 1999. The increase was due to the net addition
of 12 hearing care centers that were not owned by the Company at January 31,
1999, as same-store sales remained constant in the second fiscal quarter.
Product revenues were $9,088,000 for the three months ended January 31, 2000, up
25% from $7,297,000 for the same period in fiscal 1999. Audiological service
revenues decreased 14% to $842,000 for the three months ended January 31, 2000,
from $974,000 for the comparable period in fiscal 1999. Audiological service
revenues represented 8% and 11% of total revenues for the three month periods
ended January 31, 2000 and 1999, respectively. The decrease in audiological
service revenues was a result of the Company's continued focus on more
profitable hearing instrument sales. Other revenues increased 162% to $564,000
for the three months ended January 31, 2000, from $215,000 for the three months
ended January 31, 1999. The increase was primarily due to increased revenues
from The Sonus Network, the Company's franchise licensing program, and from the
Company's Hear PO Corp. subsidiary. Hear PO Corp. obtains contracts to provide
hearing care benefits to managed care group and corporate health care
organizations through its approximately 1,100 affiliated audiologists, sells
Hear PO brand private label hearing instruments, and operates as a buying group
for its affiliated audiologists.
Product Gross Profit. Product gross profit for the three months ended
January 31, 2000, was $6,077,000 or 67% of product revenues, compared to
$4,412,000 or 60% of product revenues for the comparable period in fiscal 1999.
The increase in product gross profit percentage was due to increased buying
power with hearing instrument manufacturers, less dependence on sales discounts,
increased utilization of the Company's private-label hearing instruments, and
better price management.
Clinical Expenses. As a percentage of revenues, clinical expenses
decreased to 46% for the three months ended January 31, 2000, compared to 48%
for the three months ended January 31, 1999. The decrease was due to the
Company's continuing efforts to cut costs, streamline its operations, and
eliminate inefficient and duplicative processes. Clinical expenses for the three
months ended January 31, 2000, were $4,797,000, representing an increase of 18%
over clinical expenses of $4,050,000 for the comparable period in fiscal 1999.
The increase in clinical expenses was due to clinical expenses associated with
the additional centers that were operated by the Company during the three months
ended January 31, 2000. Clinical expenses include all personnel, marketing,
occupancy, and other operating expenses at the clinic level.
General and Administrative Expenses. As a percentage of revenues,
general and administrative expenses increased to 23% for the three-month period
ended January 31, 2000, versus 20% for the same period in the prior fiscal year.
General and administrative expenses increased 39% from $1,738,000 for the three
months ended January 31, 1999, to $2,413,000 for the three months ended January
31, 2000. The increase in general and administrative expenses was due to
increased personnel costs and other corporate expenses related to the operation
of a larger
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organization.
Depreciation and Amortization Expense. As a percentage of revenues,
depreciation and amortization expense increased to 7% for the three-month period
ended January 31, 2000, compared to 6% for the three months ended January 31,
1999. Depreciation and amortization expense for the three months ended January
31, 2000, was $727,000, an increase of 41% over the depreciation and
amortization expense of $514,000 for the same period in the prior fiscal year.
The increase resulted from the depreciation of fixed assets and amortization of
goodwill and covenants not to compete associated with the 20 additional centers
acquired by the Company during the twelve-month period ended January 31, 2000.
Interest Income and Expense. Interest income for the three months ended
January 31, 2000, increased to $120,000 from $66,000 for the same period in the
prior fiscal year. The increase was due to higher balances of cash and
short-term investments held by the Company. Interest expense for the three
months ended January 31, 2000, was $111,000 compared to $56,000 for the three
months ended January 31, 1999, reflecting higher balances of long-term debt
incurred in connection with acquisitions.
Net Loss. The Company's net loss for the three months ended January 31,
2000, decreased 36% from $699,000 for the three months ended January 31, 1999,
to $445,000 for the three months ended January 31, 2000. The Company had income
from operations before depreciation and amortization for the three months ended
January 31, 2000, of $273,000 compared to a loss from operations before
depreciation and amortization of $187,000 for the three months ended January 31,
1999.
Six Months Ended January 31, 2000 Compared to Six Months Ended January 31, 1999
Revenues. Total revenues for the six months ended January 31, 2000,
were $20,636,000, representing a 27% increase over revenues of $16,187,000 for
the comparable period in fiscal 1999. The increase was due to the net addition
of 12 hearing care centers that were not owned by the Company at January 31,
1999, as well as an increase of 4% in same-store revenue. Product revenues were
$17,950,000 for the six months ended January 31, 2000, up 29% from $13,943,000
for the same period in fiscal 1999. Audiological service revenues decreased 9%
to $1,718,000 for the six months ended January 31, 2000, from $1,894,000 for the
comparable period in fiscal 1999. Audiological service revenues represented 8%
and 12% of total revenues for the six month periods ended January 31, 2000 and
1999, respectively. The Company continued its focus on more profitable hearing
instrument sales resulting in a decrease in audiological service revenues. Other
revenues increased 177% to $968,000 for the six months ended January 31, 2000,
from $350,000 for the six months ended January 31, 1999. The increase was
primarily due to increased revenues from The Sonus Network and Hear PO Corp.
Product Gross Profit. Product gross profit for the six months ended
January 31, 2000, was $11,888,000 or 66% of product revenues, compared to
$8,457,000 or 61% of product revenues for the comparable period in fiscal 1999.
The increase in product gross profit percentage was due to increased buying
power with hearing instrument manufacturers, less dependence on sales discounts,
increased utilization of the Company's private-label hearing instruments, better
price management, and a tiered pricing strategy based on levels of technology
that was introduced in November 1999.
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Clinical Expenses. As a percentage of revenues, clinical expenses
decreased to 47% for the six months ended January 31, 2000, compared to 52% for
the six months ended January 31, 1999. The decrease was due to the Company's
continuing efforts to cut costs, streamline its operations, eliminate
inefficient and duplicative processes, and increase same-store sales. Clinical
expenses for the six months ended January 31, 2000, were $9,683,000,
representing an increase of 15% over clinical expenses of $8,415,000 for the
comparable period in fiscal 1999. The increase in clinical expenses was due to
clinical expenses associated with the additional centers that were operated by
the Company during the six months ended January 31, 2000.
General and Administrative Expenses. As a percentage of revenues,
general and administrative expenses remained level at 22% for the six-month
periods ended January 31, 2000 and 1999. General and administrative expenses
increased 26% from $3,521,000 for the six months ended January 31, 1999, to
$4,451,000 for the six months ended January 31, 2000, due to higher personnel
expenses and other corporate expenses related to the operation of a larger
organization.
Depreciation and Amortization Expense. As a percentage of revenues,
depreciation and amortization expense increased to 7% for the six-month period
ended January 31, 2000, compared to 6% for the six months ended January 31,
1999. Depreciation and amortization expense for the six months ended January 31,
2000, was $1,425,000, an increase of 44% over the depreciation and amortization
expense of $989,000 for the same period in the prior fiscal year. The increase
resulted from the depreciation of fixed assets and amortization of goodwill and
covenants not to compete associated with the 20 additional centers acquired by
the Company during the twelve-month period ended January 31, 2000.
Interest Income and Expense. Interest income for the six months ended
January 31, 2000, decreased slightly to $161,000 from $170,000 for the same
period in the prior fiscal year. Interest expense for the six months ended
January 31, 2000, was $208,000 compared to $112,000 for the six months ended
January 31, 1999, an increase of 86%, reflecting higher balances of long-term
debt incurred in connection with acquisitions.
Net Loss. The Company's net loss for the six months ended January 31,
2000, decreased 53% from $2,173,000 for the six months ended January 31, 1999,
to $1,030,000 for the six months ended January 31, 2000. The Company had income
from operations before depreciation and amortization for the six months ended
January 31, 2000, of $440,000 compared to a loss from operations before
depreciation and amortization of $1,235,000 for the six months ended January 31,
1999.
LIQUIDITY AND CASH RESERVES
For the three months ended January 31, 2000, net cash used in operating
activities was $630,000 compared to $729,000 for the three months ended January
31, 1999. Net cash used in operations for the three months ended January 31,
2000, was attributable to the net loss of $445,000, increases in accounts
receivable, other receivables, and prepaid expenses of $677,000, $169,000, and
$67,000, respectively, and a decrease in accounts payable and accrued
liabilities of $146,000, offset by non-cash depreciation and amortization and
provision for bad debt expense of $727,000 and $86,000, respectively, and a
decrease in inventory of $61,000. Net cash used in operations for the three
months ended January 31, 1999, was attributable to the net loss of $699,000,
increases in accounts receivable, other receivables, and prepaid expenses of
$1,033,000, $210,000, and $195,000, respectively, offset by non-cash
depreciation and
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amortization and provision for bad debt expense of $514,000 and $81,000,
respectively, an increase in accounts payable and accrued liabilities of
$515,000, and a decrease in inventory of $298,000. Net cash used in investing
activities in the three months ended January 31, 2000, was $1,004,000,
consisting primarily of the purchase of property and equipment of $885,000 and
net cash paid on business acquisitions of $156,000. In the three months ended
January 31, 1999, investing activities provided net cash of $630,000, primarily
from the sale of short-term investments of $1,945,000, offset by the purchase of
property and equipment of $1,120,000 and net cash paid on business acquisitions
of $273,000. Net cash used in financing activities was $1,688,000 in the three
months ended January 31, 2000, compared to $434,000 in the three months ended
January 31, 1999. The change was primarily due to increases in repayments of
long-term debt and capital lease obligations and short-term notes payable during
the three months ended January 31, 2000 of $849,000 and $377,000, respectively.
The Company believes that its cash and short-term investments, along
with cash generated from operations, will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures for at least the next 12
months. Thereafter, the Company anticipates that additional funding will be
needed to fund the Company's strategy of acquiring additional hearing care
centers. These funding requirements may result in the Company incurring
long-term and short-term indebtedness and in the public or private issuance,
from time to time, of additional equity or debt securities. Any such issuance of
equity may be dilutive to current shareholders and debt financing may impose
significant restrictive covenants on the Company. There can be no assurance that
any such financing will be available to the Company or will be available on
terms acceptable to the Company.
YEAR 2000
The Company undertook a review of the potential effects of the Year
2000 problem regarding date recognition on its business on a system by system
basis. With respect to its information technology ("IT") systems, the Company
surveyed all of its software, servers, personal computers, and network hardware
to determine compliance with Year 2000 standards. The Company also reviewed its
non-IT systems (primarily voice communications) for Year 2000 compliance. All IT
and non-IT systems that were found to be non-compliant with Year 2000 standards
were replaced at a cost of less than $100,000. The Company does not expect to
incur any additional costs related to the Year 2000 problem.
To date, the Company has not experienced any significant Year 2000
problems with its IT and non-IT systems, nor has it detected any significant
Year 2000 problems affecting its vendors or customers. The Company will continue
to monitor the effect of the Year 2000 problem on its internal systems and on
its significant suppliers. Although the Company believes that its efforts to
address the Year 2000 problem have been adequate, unexpected problems may arise
that could have a negative impact on the Company's operations.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual and special general meeting of the Company's shareholders
was held on December 15, 1999 (the "Annual Meeting"). At the Annual Meeting, the
number of directors of the Company was fixed at eight (until such time as the
directors of the Company determine by resolution to appoint one or more
additional directors in accordance with the Company's Articles) by the following
vote: 9,635,577 for; 9,740 against or withheld; 1,560 abstentions and broker
non-votes.
The following directors were elected at the Annual Meeting to serve
until the next annual general meeting:
Abstentions
and Broker
For Withheld Non-votes
--- -------- -----------
Joel Ackerman 9,634,822 12,055 0
Haywood D. Cochrane, Jr. 9,634,822 12,055 0
Brandon M. Dawson 9,634,822 12,055 0
William DeJong 9,634,822 12,055 0
Gregory J. Frazer 9,634,822 12,055 0
Hugh T. Hornibrook 9,634,822 12,055 0
Scott E. Klein 9,634,822 12,055 0
David J. Wenstrup 9,634,822 12,055 0
At the Annual Meeting, KPMG LLP was approved as independent auditors of
the Company and the board of directors was authorized to fix the auditors'
remuneration by the following vote: 9,639,797 for; 700 against or withheld; and
6,380 abstentions and broker non-votes. In addition, a resolution approving the
amendment of the Company's Articles amending and restating the terms of the
Company's Series A Convertible Preferred Shares was approved by the following
vote: 7,353,074 for; 23,935 against or withheld; and 2,269,868 abstentions and
broker non-votes.
ITEM 5. OTHER INFORMATION.
On January 1, 2000, Leslie H. Cross was appointed to the board of
directors of the Company, filling the vacancy created by the resignation of
William DeJong. Mr. Cross is President and Chief Executive Officer of dj
Orthopedics, LLC, a manufacturer and distributor of orthopedic and
sports-related products.
On February 11, 2000, Paul C. Campbell was appointed Senior Vice
President and Chief Financial Officer of the Company. Prior to joining the
Company, Mr. Campbell was Chief Financial Officer for Famous Dave's of America,
Inc., an operator and franchisor of full-service and counter-style restaurants.
From 1995 to 1999, Mr. Campbell served as Senior Vice President and Chief
Financial Officer of Cucina! Cucina!, a restaurant chain.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits filed as part of this report or incorporated by
reference herein are listed in the accompanying exhibit index.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the fiscal quarter ended January 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SONUS CORP.
By: /s/ Scott E. Klein
-----------------------------
Scott E. Klein
President and Chief Operating Officer
By: /s/ Douglas A Pease
-----------------------------
Douglas A Pease
Controller
(Chief Accounting Officer)
DATED: March 15, 2000
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EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibit
- -------- ----------------------
10 Employment Agreement between Sonus Corp. and Paul C. Campbell
dated February 11, 2000.
27 Financial Data Schedule.
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 11th day of
February, 2000, between SONUS CORP., a Yukon Territory, Canada, corporation
("Corporation"), and PAUL C. CAMPBELL ("Executive").
RECITALS
A. Corporation is hiring Executive as Senior Vice President and Chief
Financial Officer.
B. Corporation and Executive are entering into this Agreement to
confirm the terms of Executive's employment with Corporation and Executive's
compensation and benefits package.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms have the meanings set
forth in this Section 1:
"AFFILIATE" - Any person, firm, corporation, association, organization,
or unincorporated trade or business that, now or hereinafter, directly or
indirectly, controls, is controlled by, or is under common control with
Corporation.
"BOARD" - The board of directors of Corporation.
"CAUSE" - Cause for termination of employment means:
(i) A material act of fraud or dishonesty by Executive within
the course of performing his duties for Corporation or its Affiliates;
(ii) Gross negligence or intentional misconduct by Executive in
performing material duties for Corporation or its Affiliates, or
unjustifiable neglect by Executive of the performance of material
duties for Corporation or its Affiliates;
(iii) Commission of an act (or failure to take an action)
intentionally against the interest of Corporation or its Affiliates
that causes Corporation or an Affiliate material injury; or
(iv) An act of serious moral turpitude that causes
Corporation or an Affiliate material injury.
- 1 -
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Notwithstanding the foregoing, Executive will not be deemed to have
been terminated for Cause unless and until there has been delivered to Executive
a copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board (excluding Executive if at the
time he is member of the Board), at a meeting of the Board called and held for
that purpose, finding that, in the good faith opinion of the Board, Executive
was guilty of conduct constituting Cause as defined in this Agreement and
specifying the particulars thereof in detail. Executive must have been given
reasonable notice of such meeting and Executive, together with his counsel, must
have been given an opportunity to be heard before the Board at the meeting. This
provision will not be deemed to restrict the authority, discretion, or power of
the Board, by any action taken in compliance with Corporation's articles of
incorporation and bylaws, to remove Executive as an officer or director of
Corporation, with or without Cause. Rather, the foregoing provisions merely
define, for purposes of Executive's contractual rights and remedies under this
Agreement, the circumstances in which termination of Executive's employment will
constitute termination for Cause.
"CHANGE IN CONTROL" - A change in control of Corporation means:
(i) The acquisition by any Person of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 50 percent or more of the combined voting power of the then
outstanding Voting Securities; provided, however, that for purposes of
this paragraph (i), the following acquisitions will not constitute a
Change of Control: (A) any acquisition directly from Corporation, (B)
any acquisition by Corporation, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by Corporation
or any corporation controlled by Corporation, (D) any acquisition by
Warburg, Pincus Ventures, L.P. ("WPV") or by any Person that, now or
hereinafter, directly or indirectly controls, is controlled by, is
under common control with, or is otherwise an affiliate of, WPV, or (E)
any acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B), and (C) of paragraph (iii) below; or
(ii) individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date of this
Agreement whose election, or nomination for election by Corporation's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(iii) consummation of a reorganization, merger, or consolidation
or sale or other disposition of all or substantially all of the assets
of Corporation (a "Business Combination") in each case, unless,
following such Business Combination, (A) all or substantially all of
the individuals and entities who were the beneficial owners of the
Voting Securities outstanding immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50
percent of, respectively, the then
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<PAGE>
outstanding shares of common stoc and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns Corporation or
all or substantially all of Corporation's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of
the Voting Securities, (B) no Person (excluding any employee benefit
plan (or related trust) of Corporation or such corporation resulting
from such Business Combination) beneficially owns, directly or
indirectly, 50 percent or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (C) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Combination were members of Incumbent Board at the
time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination.
"CODE" - The Internal Revenue Code of 1986, as amended.
"COMPENSATION PLAN" - Any compensation plan such as a plan providing
for incentive or deferred compensation, stock options or other stock or
stock-related grants or awards, or any employee benefit plan such as a thrift,
investment, savings, pension, profit sharing, medical, disability, accident,
life insurance, cafeteria, or relocation plan or any other plan, policy, or
program of Corporation providing similar types of benefits to employees of
Corporation.
"COMPETITIVE ENTITY" - A Person, firm, or entity primarily engaged (in
the United States or Canada) in the national or regional retail provision or
franchising of audiology services and/or dispensing of hearing aids or in any
managed-care for hearing health benefits.
"DISABILITY" OR "DISABLED" - Inability to perform duties with
Corporation on a full-time basis by reason of "Total Disability" within the
meaning of Corporation's Group Long Term Disability Insurance Plan or any
successor plan or program maintained by Corporation. In the event Corporation no
longer maintains a similar plan or program, Disability or Disabled means
inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment.
"EFFECTIVE DATE" - February 11, 2000.
"EXCESS PARACHUTE PAYMENT" - Has the meaning given in Section 280G(b)
of the Code.
"EXCHANGE ACT" - The Securities Exchange Act of 1934, as amended.
"EXCISE TAX" - A tax imposed by Section 4999(a) of the Code, or any
successor provision, with respect to an Excess Parachute Payment.
- 3 -
<PAGE>
"GOOD REASON" - For all purposes of this Agreement, termination by
Executive of his employment with Corporation for "Good Reason" during the Term
means termination based on any of the following:
(a) A change in Executive's status or position or positions
with Corporation that represents a material demotion from Executive's
status or position or positions as of the date of this Agreement or a
material change in Executive's duties or responsibilities that is
inconsistent with such status or position or positions;
(b) A reduction by Corporation in Executive's Base Salary (as
in effect on the date of this Agreement or as increased at any time
during the Term of this Agreement); or
(c) The failure of Corporation to continue Executive's
participation (on terms comparable to those for other key executives of
Corporation) in any Plans and vacation programs or arrangements in
which other key executives of Corporation are participants (unless such
failure to continue is caused by an action or status of Executive).
"OTHER AGREEMENT" - A plan, arrangement, or agreement pursuant to
which an Other Payment is made.
"OTHER PAYMENT" - Any payment or benefit payable to Executive in
connection with a Change in Control of Corporation pursuant to any plan,
arrangement, or agreement (other than this Agreement) with Corporation, any
person whose actions result in a change in control of Corporation, or any person
affiliated with Corporation or such person.
"OUTSIDE TAX COUNSEL" - Outside tax counsel selected by Corporation and
reasonably acceptable to Executive.
"PARACHUTE PAYMENT" - A payment or benefit payable to Executive in
connection with a Change in Control of Corporation that is treated as a
parachute payment within the meaning of Code Section 280G(b)(2).
"PERSON" - Any individual, corporation, partnership, limited liability
company, group, association, or other "person," as such term is used in Section
13(d)(3) or Section 14(d) of the Exchange Act, other than Corporation or any
employee benefit plan or plans sponsored by Corporation.
"SEVERANCE PAYMENTS" - The severance payments described in Section 5.4
of this Agreement.
"TERM" - The period commencing on the Effective Date and ending on May
31, 2002.
"TERMINATION BENEFITS" - The payments and benefits described in Section
5 of this Agreement.
"TERMINATION DATE" - The date Executive's employment with Corporation
is terminated for any reason by Corporation or by Executive.
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<PAGE>
"TOTAL PAYMENTS" - All payments or benefits payable to Executive in
connection with a Change in Control of Corporation, including Severance Payments
and Other Payments.
"VOTING SECURITIES" - Corporation's issued and outstanding securities
ordinarily having the right to vote at elections of Corporation's Board.
2. EMPLOYMENT.
Corporation hereby agrees to employ Executive, and Executive
hereby accepts employment with Corporation during the Term on the terms and
conditions set forth in this Agreement. Notwithstanding any other provision of
this Agreement, Executive is an employee at will of Corporation and Corporation
reserves the right to terminate Executive's employment at any time for any
reason or for no reason. The provisions of this Agreement dealing with
termination without Cause or for Good Reason are intended to provide contractual
benefits and do not limit Corporation's power to treat Executive as an employee
at will.
3. EXECUTIVE DUTIES.
3.1 Position and Duties. Executive agrees to render services to
Corporation as Senior Vice President and Chief Financial Officer of Corporation
and as an executive officer of such of Corporation's Affiliates as the parties
to this Agreement mutually agree, including Affiliates that may be formed or
acquired subsequent to the Effective Date. As Chief Financial Officer of
Corporation, Executive will have responsibility for all financial aspects of
Corporation's business and will have such executive and managerial duties as
Corporation's Chairman and Chief Executive Officer or President and Chief
Operating Officer prescribes from time to time. Executive will report directly
to Corporation's President and Chief Operating Officer.
3.2 Exclusive Employment. Executive agrees that during the Term:
(a) Executive will devote substantially all his regular
business time solely and exclusively to the business of Corporation,
whether such business is operated directly by Corporation or through
one or more Affiliates of Corporation;
(b) Executive will diligently carry out his responsibilities
under this Agreement;
(c) Executive will not, directly or indirectly, without the
prior approval of the Board, provide services on behalf of any
Competitive Entity or on behalf of any subsidiary or affiliate of any
such Competitive Entity, as an employee, consultant, independent
contractor, agent, sole proprietor, partner, member, joint venturer,
corporate officer, or director;
(d) Executive will not acquire by reason of purchase the
ownership of more than 1 percent of the outstanding equity interest in
any Competitive Entity; and
(e) Except as expressly set forth above, Executive may engage
in personal business and investment activities.
- 5 -
<PAGE>
3.3 Corporation Reserved Rights. Corporation reserves, on its own
behalf and on behalf of its shareholders, the right to elect, from time to time,
any person to its Board, to appoint any person as an officer of Corporation, and
to remove any officer or director, including Executive, in any manner and upon
the basis or bases presently or subsequently provided for by its articles of
incorporation and bylaws. Nothing in this Agreement will be deemed to constitute
any restriction on the authority, discretion, or power of the Board, but rather
will only give Executive contractual rights and remedies.
3.4 Proprietary Information. Executive acknowledges in the course of
Executive's employment with Corporation, Executive will learn trade secrets and
confidential information of Corporation, which if known to competitors could
damage the business of Corporation. Such confidential information includes, but
is not limited to, some or all of the following categories of non-public
information ("Proprietary Information"):
(a) Financial information including, but not limited to
information relating to assets, revenues, expenses, prices, pricing
structures, volume of purchases or sales or other financial data of
Corporation, or to particular products, services, geographic areas, or
time periods;
(b) Supply and service information including, but not limited
to information relating to suppliers' names and addresses, terms of
supply and service contracts or of particular transactions, and related
information about potential suppliers to the extent that such
information is not generally known to the public, and to the extent
that the combination of suppliers or use of a particular supplier,
though generally known or available, yields advantages to Corporation
the details of which are not generally known;
(c) Marketing information including, but not limited to
information relating to details of ongoing or proposed marketing
programs or agreements by or on behalf of Corporation, sales forecasts,
advertising formats and methods or results of marketing efforts or
information about impending transactions;
(d) Personnel information including, but not limited to
information relating to personal or medical histories, compensation or
other terms of employment, actual or proposed promotions, hirings,
resignations, disciplinary actions, terminations or reasons therefore,
training methods, performance, or other information concerning
Executives of Corporation; and
(e) The names and addresses, and all background information
regarding affiliated audiologists and managed care organizations having
relationships with Corporation and the terms and conditions of
agreements with such parties.
Executive agrees to keep all Proprietary Information confidential.
Except as may be necessary in the performance of Executive's duties on behalf of
Corporation, Executive will make no use of and will not communicate or divulge
to any party whatsoever any Proprietary Information. Executive will not at any
time after Executive's employment with Corporation terminates use any
Proprietary Information for Executive's own benefit or on behalf of any person,
firm, partnership, association, corporation, or other party whatsoever. This
covenant
- 6 -
<PAGE>
shall not apply to any information that by means other than Executive's
deliberate or inadvertent disclosure becomes well known to the public or to
disclosure compelled by judicial or administrative proceedings after Executive
notifies and affords Corporation the opportunity to seek confidential treatment
of compelled disclosures.
4. COMPENSATION AND BENEFITS.
4.1 Base Salary. As compensation for the performance of Executive's
services during the Term, inclusive of services as an officer and director of
Corporation's Affiliates, Corporation will pay to Executive in accordance with
its normal payroll practices (i) $1,000 until Executive begins his duties on a
full-time basis in Portland, Oregon (the "Start Date"), which shall not be later
than March 20, 2000, and (ii) from and after the Start Date an annual salary
(the "Base Salary") of $166,000 per year, subject to such increases (but not
decreases) as are determined from time to time by the Board, or a compensation
committee designated by the Board.
4.2 Incentive Bonuses.
4.2.1 Initial Bonus. Upon execution of this Agreement, Corporation
agrees to pay Executive a first year bonus ( the "Initial Bonus") for services
to be performed in Corporation's fiscal year ending July 31, 2000, in an amount
equal to $10,312.50, payable in two installments (without interest) on the first
day of May 2000 and August 2000. Notwithstanding any provision of Section 5, a
prorated portion of the Initial Bonus will be payable even if Executive dies,
becomes disabled, or is terminated without Cause or for Good Reason within such
fiscal year. Executive will be eligible to receive an additional bonus amount
(the "Additional Initial Bonus") of up to $10,312.50 for services to be
performed in Corporation's fiscal year ending July 31, 2000. The amount of the
Additional Initial Bonus will be determined by Corporation's Chairman and Chief
Executive Officer in his sole discretion based on his evaluation of Executive's
performance. The Additional Initial Bonus will be payable no later than August
31, 2000.
4.2.2 Annual Bonus. During the Term of this Agreement, beginning
with Corporation's fiscal year beginning August 1, 2000, Executive will be
entitled to participate in such bonus and profit-sharing plans as Corporation
may provide for its senior executive employees generally.
4.3 Stock Options
4.3.1 Option Awards. Corporation will grant Executive nonqualified
stock option awards for 200,000 shares of Corporation's common stock (the
"Option") under Corporation's Stock Award Plan (the "Plan").
The Option will have the following additional features:
* The option purchase price per share will be the Fair Market Value
(as defined in the Plan) on the Effective Date or $4.00, whichever is
greater;
* The Option will have a term of 10 years, commencing on the
Effective Date;
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<PAGE>
* The Option will be exercisable as follows:
- The Option will be immediately exercisable as to 50,000
shares; and
- The Option will become exercisable as to an additional 50,000
shares on the first, second and third anniversaries of the
Effective Date.
* The Option will become immediately and fully exercisable in the
event that, at any time following a Change in Control of Corporation,
Executive is terminated without Cause or one of the events described in
the definition of Good Reason in Section 1 of this Agreement occurs
(provided, however, that for this purpose, an acquisition of more than
50 percent of the Voting Securities by WPV, or any person that directly
or indirectly controls, is controlled by, is under common control with,
or is otherwise affiliated with WPV, will constitute a Change in
Control);
* The Option will be governed by an Award Agreement (as defined in
the Plan) as approved by the Board; and
* Vested Options will remain exercisable for 90 days after
termination of employment or, in the case of termination due to death
or Disability, for one year.
4.4 Other Benefits. During the term of this Agreement, Executive will
be entitled to participate in all Compensation Plans (including Compensation
Plans adopted following the Effective Date) covering Corporation's key executive
and managerial employees (as described in Corporation's employee manual, as
amended from time to time), including, without limitation, Compensation Plans
providing medical, disability, and life insurance benefits, and vacation pay.
4.5 Temporary Living and Moving Expenses. Corporation will reimburse
Executive up to $1,500 per month for temporary living expenses through June 2000
or until Executive has relocated his primary residence to Portland, Oregon,
whichever first occurs. In addition, Corporation will reimburse up to $40,000 in
moving expenses for Executive and his family, including amounts actually paid
for travel costs associated with selecting a new home, closing costs and real
estate commissions related to sale of Executive's prior residence and purchasing
a new residence in Portland, and moving and transfer costs.
4.6 Expenses. Executive is authorized to incur on behalf of
Corporation, and Corporation will directly pay or will fully reimburse Executive
for all customary and reasonable out-of-pocket expenses incurred for promoting,
pursuing, or otherwise furthering the business of Corporation or its affiliates.
- 8 -
<PAGE>
5. TERMINATION OF AGREEMENT.
5.1 Death. If Executive dies during the Term, Corporation will pay to
Executive's representative his Base Salary through the date of death. All
benefits, including death benefits, to which Executive is then entitled under
Compensation Plans in which Executive is a participant will be payable as
provided in those Compensation Plans. This Agreement will terminate as of the
date of death and Corporation will have no further obligations to Executive
under this Agreement.
5.2 Disability. In the event Executive becomes Disabled during the
Term, Executive will remain an employee of Corporation and be entitled to
receive his Base Salary until Executive becomes eligible to receive benefits
under Corporation's Group Long Term Disability Insurance Policy (the "Disability
Benefits Date"). All benefits, including disability benefits, to which Executive
is then entitled under Compensation Plans in which Executive is a participant
will be payable as provided in those Compensation Plans. The Agreement will
terminate as of the Disability Benefits Date and Corporation will have no
further obligations to Executive under this Agreement.
5.3 Termination for Cause or Voluntary Termination Without Good
Reason. DurinG the Term of this Agreement, pending the determination by the
Board whether or not Cause exists for termination of Executive's employment
pursuant to the definition of Cause in Section 1, the Board may suspend
Executive or relieve Executive of his duties as an officer, but may not
terminate Executive's employment. Upon such determination that Cause exists,
Corporation may terminate Executive's employment. If during the Term Corporation
terminates Executive's employment for Cause or Executive voluntarily terminates
employment other than for Good Reason, Corporation will pay Executive his Base
Salary through the effective date of such termination. Executive will not be
entitled to any Annual Bonus, or any prorated portion of any Annual Bonus, for
the fiscal year in which the Termination Date occurs. This Agreement will
terminate as of the Termination Date, and Corporation will have no further
obligations to Executive under this Agreement. All accrued benefits to which
Executive is then entitled under Compensation Plans in which he is a participant
will be payable as provided in those Compensation Plans.
5.4 Termination Without Cause or With Good Reason. If Executive's
employment with Corporation is terminated (other than for Disability or upon
Executive's death) during the Term by Corporation without Cause or by Executive
with Good Reason, Corporation will pay Executive the following amounts
("Severance Payments"):
(a) Executive's Base Salary through the Termination Date; and
(b) An amount of severance pay equal to Executive's Base
Salary.
5.5 No Mitigation. Executive will not be required to mitigate the
amount of any payment provided for in this Section 5 by seeking other employment
or otherwise. However, except in the case of a termination of Executive without
Cause or with Good Reason following a Change in Control of Corporation, the
amount of any payment or related benefit provided for in this Section 5 will be
reduced by any compensation earned or related benefit received by
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<PAGE>
Executive as a result of either employment by another employer or
self-employment after the Termination Date. Executive agrees to provide
Corporation with any information reasonably necessary to determine the amount of
such reduction.
5.6 Noncompetition Following Termination. Executive acknowledges that
the agreements and covenants contained in this Section 5.6 are essential to
protect the value of Corporation's business and assets and that, by his
employment with Corporation and its subsidiaries, Executive will obtain such
knowledge, contacts, know-how, training and experience, and that such knowledge,
contacts, know-how, training and experience could be used to the substantial
advantage of a Competitive Entity and to Corporation's substantial detriment.
Therefore Executive agrees that:
(a) In the event Executive's employment is terminated (whether
by Corporation or by Executive) for any reason, Executive will not, for
a period of one year from the Termination Date, participate (as an
owner, employee, officer, partner, member, shareholder, director,
consultant, or otherwise) in any Competitive Entity. The benefits
payable under this Agreement, including without limitation
Corporation's obligation to pay Severance Benefits pursuant to Section
5.4 of this Agreement are in consideration of Executive's performance
of the covenants in this Section 5.6.
(b) Executive acknowledges that this Agreement is being entered
into in connection with the initial employment of Executive with
Corporation. Executive further acknowledges that he is receiving
consideration under this Agreement in addition to such consideration as
to which he would be entitled in the absence of this Agreement, and he
acknowledges that his agreement to the provisions of this Section 5.6
is a necessary condition for Corporation to enter into this Agreement
and pay the consideration provided for in this Agreement.
(c) Executive acknowledges that Corporation's remedy at law for
a breach by him of the provisions of this Section 5.6 will be
inadequate. Accordingly, in the event of the breach or threatened
breach by Executive of any provision of this Section 5.6, Corporation
will be entitled to injunctive relief in addition to any other remedy
it may have. If any of the provisions of, or covenants contained in,
this Section 5.6 are hereafter construed to be invalid or unenforceable
in any jurisdiction, the same will not affect the remainder of the
provisions or the enforceability thereof in any other jurisdiction,
which will be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. If any of the provisions
of, or covenants contained in, this Section 5.6 are held to be
unenforceable in any jurisdiction because of the duration or
geographical scope of such provision or covenant, Executive and
Corporation agree that the court making such determination will have
the power to reduce the duration or geographical scope of such
provision or covenant and that, in its reduced form, such provision or
covenant will be enforceable; provided, however, that the determination
of such court will not affect the enforceability of this Section 5.6 in
any other jurisdiction.
- 10 -
<PAGE>
6. EFFECT OF CHANGE IN CONTROL.
The Severance Payments payable under Section 5.4 of this Agreement are
not conditioned upon a Change in Control of Corporation but are payable upon any
termination described in that Section, whether or not a Change in Control has
occurred. Thus, it is the parties' mutual intention that the Severance Payments
are not to be treated as Total Payments.
7. SUCCESSORS; BINDING EFFECT.
7.1 Corporation. This Agreement will inure to the benefit of, and be
binding upon, any corporate or other successor or assignee of Corporation that
acquires, directly or indirectly, by merger, consolidation or purchase, or
otherwise, all or substantially all the business or assets of Corporation.
Corporation will require any such successor, by an agreement in form and
substance reasonably satisfactory to Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as Corporation
would be required to perform if no such succession had taken place.
7.2 Executive. This Agreement will inure to the benefit of and be
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If
Executive should die while any amount would still be payable to Executive
hereunder if Executive had continued to live, all such amounts, unless otherwise
provided herein, will be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee or, if there is no such
designee, to Executive's estate.
8. WAIVER AND MODIFICATION.
Any waiver, alteration, or modification of any of the terms of this
Agreement will be valid only if made in writing and signed by the parties to
this Agreement. No waiver by either of the parties of its rights under this
Agreement will be deemed to constitute a waiver with respect to any subsequent
occurrences or transactions hereunder unless the waiver specifically states that
it is to be construed as a continuing waiver.
9. GOVERNING LAW; SEVERABILITY.
The validity, interpretation, construction, and performance of this
Agreement will be governed by and construed in accordance with the laws of the
state of Oregon. Any provision of this Agreement that is prohibited or
unenforceable will be ineffective only to the extent of that prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement.
10. NOTICES.
For the purposes of this Agreement, notices and all communications
provided for in this Agreement must be in writing and will be deemed to have
been given upon the earlier of (i) personal delivery or (ii) three business days
after being mailed by United States registered mail, return receipt requested,
with postage prepaid, addressed to the respective party at the address set forth
below (or to such other address as either party may have furnished to the other
in writing in
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<PAGE>
accordance with this Section 10, except that notices of change of address will
be effective only upon receipt):
To Corporation: Sonus Corp.
111 S.W. Fifth Avenue
Suite 1620
Portland, Oregon 97204
Attn: General Counsel
To Executive: Paul C. Campbell
19101 N.E. 51st Street
Redmond, Washington 98053
11. HEADINGS.
Headings herein are for convenience only, are not a part of this
Agreement, and are not to be used in construing this Agreement.
12. ARBITRATION.
Any dispute or claim that arises out of or that relates to this
Agreement or to the interpretation, breach, or enforcement of this Agreement,
must be resolved by mandatory arbitration in accordance with the then effective
arbitration rules of the American Arbitration Association and any judgment upon
the award rendered pursuant to such arbitration may be entered in any court
having jurisdiction thereof.
13. ATTORNEYS' FEES.
In the event of any suit or action or arbitration proceeding to enforce
or interpret any provision of this Agreement (or which is based on this
Agreement), the prevailing party will be entitled to recover, in addition to
other costs, reasonable attorneys' fees in connection with such suit, action,
arbitration, and in any appeal. The determination of who is the prevailing party
and the amount of reasonable attorneys' fees to be paid to the prevailing party
will be decided by the arbitrator or arbitrators (with respect to attorneys'
fees incurred prior to and during the arbitration proceedings) and by the court
or courts, including any appellate courts, in which the matter is tried, heard,
or decided, including the court which hears any exceptions made to an
arbitration award submitted to it for confirmation as a judgment (with respect
to attorneys' fees incurred in such confirmation proceedings).
14. EFFECT OF TERMINATION OF AGREEMENT.
If this Agreement is terminated, all rights and benefits that have
become vested hereunder prior to termination will remain in full force and
effect, and the termination of the Agreement will not be construed as relieving
any party from the performance of any accrued obligation incurred to the other
under this Agreement.
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<PAGE>
15. ENTIRE AGREEMENT.
This Agreement constitutes and embodies the entire understanding and
agreement of the parties hereto relating to the matters addressed in this
Agreement. Except as otherwise provided in this Agreement, there are no other
agreements or understandings, written or oral, in effect between the parties
relating to the matters addressed herein.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
effective as of the Effective Date.
CORPORATION: SONUS CORP.
By /s/ Scott E. Klein
--------------------------------------
Scott E. Klein
President and Chief Operating Officer
/s/ Paul C. Campbell
EXECUTIVE: -------------------------------------------
Paul C. Campbell
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S CONSOLIDATED BALANCE SHEETS AND RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED JANUARY 31, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 5,651
<SECURITIES> 0
<RECEIVABLES> 5,918
<ALLOWANCES> (1,080)
<INVENTORY> 458
<CURRENT-ASSETS> 12,130
<PP&E> 7,958
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,938
<CURRENT-LIABILITIES> 9,900
<BONDS> 2,379
0
25,561
<COMMON> 14,951
<OTHER-SE> (12,853)
<TOTAL-LIABILITY-AND-EQUITY> 39,938
<SALES> 17,950
<TOTAL-REVENUES> 20,636
<CGS> 6,062
<TOTAL-COSTS> 6,062
<OTHER-EXPENSES> 15,559
<LOSS-PROVISION> 184
<INTEREST-EXPENSE> 208
<INCOME-PRETAX> (1,030)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,030)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
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