<PAGE>
As filed with the Securities and Exchange Commission on April 26, 2000
Registration No. 333-30566
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 4 to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
SONIC INNOVATIONS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 2834 87-0494518
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2795 East Cottonwood Parkway, Suite 660
Salt Lake City, UT 84121-7036
(801) 365-2800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Stephen L. Wilson
Chief Financial Officer
Sonic Innovations, Inc.
2795 East Cottonwood Parkway, Suite 660
Salt Lake City, UT 84121-7036
(801) 365-2800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Mark Bonham, Esq. Edwin Williamson, Esq.
Craig Norris, Esq. Sullivan & Cromwell
Steven Liu, Esq. 1701 Pennsylvania Ave., N.W.
Wilson Sonsini Goodrich & Rosati Washington, D.C. 20006-5805
Professional Corporation (202) 956-7505
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
The purpose of this Amendment No. 4 to the Registration Statement is solely
to file certain exhibits to the Registration Statement, as set forth below in
Item 16.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discount and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $15,302
NASD filing fee.................................................... 6,296
Nasdaq National Market listing fee................................. 95,000
Printing and engraving costs....................................... 150,000
Legal fees and expenses............................................ 450,000
Accounting fees and expenses....................................... 215,000
Blue sky fees and expenses......................................... 5,000
Transfer Agent and Registrar fees.................................. 10,000
Miscellaneous expenses............................................. 3,402
--------
Total............................................................ $950,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the registrant's Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
Article 6 of the registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the registrant if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the registrant, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful.
The registrant has entered into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in the
registrant's Bylaws, and intends to enter into indemnification agreements with
any new directors and executive officers in the future.
Item 15. Recent Sales of Unregistered Securities
Within the past three years, the registrant has issued unregistered
securities as follows:
(1) Within the last three years, the registrant has issued stock options to
purchase shares of common stock with exercise prices ranging from $0.27
to $7.60 under its option plan. Of the options, options for 767,878
shares have been exercised, options for 246,172 shares have been
cancelled and options for 1,569,626 shares remain outstanding.
(2) On May 15, 1997 and in October 1997, the registrant issued an aggregate
of 1,314,045 shares of Series B preferred stock ("Series B") or an
aggregate of $1,825,192 in cash to 28 investors.
II-1
<PAGE>
(3) On September 5, 1997, the registrant issued 9,266 shares of Series B
for services performed totaling $24,999.
(4) On October 31, 1997, the registrant issued an aggregate of 4,118,421
shares of Series C preferred stock ("Series C") for an aggregate of
$12,520,000 in cash, to 25 investors.
(5) On February 2, 1998, the registrant issued 20,091 shares of Series C
to one individual as compensation for recruitment services performed
totaling $61,032.
(6) On May 31, 1998, the registrant issued a warrant to purchase 17,258
shares of Series C at $3.04 in connection with an equipment financing.
(7) On August 5, 1998, the registrant issued an aggregate of 5,922 shares
of Series C to a public relations company for services performed
totaling $18,000.
(8) On August 14, 1998, the registrant issued 48,584 shares of Series A
Preferred Stock ("Series A") pursuant to the exercise of an
outstanding warrant with an aggregate exercise price of $60,001.
(9) In October 1998, the registrant issued 3,289,486 shares of Series D
preferred stock ("Series D") for an aggregate of $12,500,000 in cash
to 28 investors.
(10) On November 11, 1998, February 5, 1999 and May 31, 1999, the
registrant issued an aggregate of 14,211 shares of Series D to a
public relations company for services performed totaling $54,000.
(11) In July and August 1999, the registrant issued 6% convertible
promissory notes, convertible into shares of common stock at the
initial public offering price, and warrants to purchase 236,853 shares
of common stock at $3.80 per share to 24 investors.
(12) In December 1999, the registrant issued a $4,000,000 convertible
promissory note bearing interest at 6% per annum to an international
distributor. The principal and interest is convertible into shares of
common stock at 93% of the initial public offering price.
(13) On December 22, 1999, the registrant issued a warrant to purchase
31,058 shares of Series D Preferred Stock at an exercise price of
$3.80 per share in connection with an equipment financing. The number
of shares may be reduced to 20,706 if the registrant completes the IPO
by May 31, 2000.
All shares of Preferred stock are convertible into common stock on a one-for-
one basis. None of the foregoing transactions involved any underwriters or any
public offering. Each transaction was exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under Rule 701.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the registrant.
3.2* Amended and Restated Certificate of Incorporation of the registrant to
be filed upon the closing of the offering made pursuant to this
registration statement.
3.3* Bylaws of the registrant.
3.4* Amended and Restated Bylaws of the registrant to be effective upon the
closing of the offering made pursuant to this registration statement.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of indemnification agreement entered into by the registrant with
each of its directors and executive officers.
10.2* 1993 Stock Plan and form of agreements thereunder.
10.3* 2000 Stock Plan and form of agreements thereunder.
10.4* 2000 Employee Stock Purchase Plan.
10.5* Registration Rights Agreement dated October 23, 1998 between the
registrant and certain stockholders, as amended.
10.6+ OEM Agreement dated April 1, 1999 between the registrant and Starkey
Laboratories, Inc., as amended.
10.7*+ License and Manufacturing Agreement dated February 20, 1997 between
the registrant and Atmel Corporation.
10.8* Amended and Restated License Agreement dated March 21, 2000 between
the registrant and Brigham Young University.
10.9* Amended and Restated Exclusive License Agreement dated March 21, 2000
between the registrant and Brigham Young University.
10.10* Patent License Agreement dated January 1, 1997 between the registrant
and K/S HIMPP, as amended.
10.11*+ Distribution Agreement dated December 30, 1999 between the registrant
and Hoya Healthcare Corporation.
10.12* Lease Agreement dated April 28, 1999 between the registrant and 2795
E. Cottonwood Parkway, L.C.
10.13* Loan and Security Agreement dated December 22, 1999 between the
registrant and Silicon Valley Bank.
10.14* Collateral Assignment, Patent Mortgage and Security Agreement dated
December 22, 1999 between the registrant and Silicon Valley Bank
10.15* Letter Agreement dated December 1, 1997 between the registrant and
Orlando Rodrigues.
10.16* Letter Agreement dated February 8, 1998 between the registrant and
Michael D. Monahan.
10.17* Letter Agreement dated May 4, 1997 between the registrant and Gregory
N. Koskowich.
10.18* Letter Agreement dated September 24, 1999 between the registrant and
Stephen L. Wilson.
10.19* Warrant to purchase stock issued in connection with Silicon Valley
Bank Loan dated December 22, 1999.
21.1* Subsidiaries of Registrant.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Counsel. (Included in Exhibit 5.1).
24.1* Power of Attorney.
24.2* Power of Attorney of Luke B. Evnin.
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+ Confidential treatment requested.
II-3
<PAGE>
Financial Statement Schedules
Schedule II Qualifying and Valuation Accounts
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is presented in the consolidated
financial statements or notes thereto.
Item 17. Undertakings
The registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this registration statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, as amended, the
Registrant has duly caused this Amendment to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Salt Lake City, State of Utah, on the 26th day of April, 2000.
Sonic Innovations, Inc.
/s/ Stephen L. Wilson
By: _________________________________
Stephen L. Wilson
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed by the following persons on April 26,
2000 in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Andrew G. Raguskus
/s/ Stephen L. Wilson Vice President and Chief Financial Officer
___________________________________________ (Principal Financial and Accounting
Stephen L. Wilson Officer)
* Director
___________________________________________
Anthony B. Evnin
* Director
___________________________________________
Luke B. Evnin
* Director
___________________________________________
Kevin J. Ryan
* Director
___________________________________________
G. Gary Shaffer
* Director
___________________________________________
Sigrid Van Bladel
* Director
___________________________________________
Allan M. Wolfe
/s/ Stephen L. Wilson
*By: _________________________________
Stephen L. WIlson, Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the registrant.
3.2* Amended and Restated Certificate of Incorporation of the registrant to
be filed upon the closing of the offering made pursuant to this
registration statement.
3.3* Bylaws of the registrant.
3.4* Amended and Restated Bylaws of the registrant to be effective upon the
closing of the offering made pursuant to this registration statement.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of indemnification agreement entered into by the registrant with
each of its directors and executive officers.
10.2* 1993 Stock Plan and form of agreements thereunder.
10.3* 2000 Stock Plan and form of agreements thereunder.
10.4* 2000 Employee Stock Purchase Plan.
10.5* Registration Rights Agreement dated October 23, 1998 between the
registrant and certain stockholders, as amended.
10.6+ OEM Agreement dated April 1, 1999 between the registrant and Starkey
Laboratories, Inc., as amended.
10.7*+ License and Manufacturing Agreement dated February 20, 1997 between
the registrant and Atmel Corporation.
10.8* Amended and Restated License Agreement dated March 21, 2000 between
the registrant and Brigham Young University.
10.9* Amended and Restated Exclusive License Agreement dated March 21, 2000
between the registrant and Brigham Young University.
10.10* Patent License Agreement dated January 1, 1997 between the registrant
and K/S HIMPP, as amended.
10.11*+ Distribution Agreement dated December 30, 1999 between the registrant
and Hoya Healthcare Corporation.
10.12* Lease Agreement dated April 28, 1999 between the registrant and 2795
E. Cottonwood Parkway, L.C.
10.13* Loan and Security Agreement dated December 22, 1999 between the
registrant and Silicon Valley Bank.
10.14* Collateral Assignment, Patent Mortgage and Security Agreement dated
December 22, 1999 between the registrant and Silicon Valley Bank
10.15* Letter Agreement dated December 1, 1997 between the registrant and
Orlando Rodrigues.
10.16* Letter Agreement dated February 8, 1998 between the registrant and
Michael D. Monahan.
10.17* Letter Agreement dated May 4, 1997 between the registrant and Gregory
N. Koskowich.
10.18* Letter Agreement dated September 24, 1999 between the registrant and
Stephen L. Wilson.
10.19* Warrant to purchase stock issued in connection with Silicon Valley
Bank Loan dated December 22, 1999.
21.1* Subsidiaries of Registrant.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Counsel. (Included in Exhibit 5.1).
24.1* Power of Attorney.
24.2* Power of Attorney of Luke B. Evnin.
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SONIC INNOVATIONS, INC.
Sonic Innovations, Inc., a Delaware corporation, hereby certifies as
follows:
The original Certificate of Incorporation for Sonic Innovations, Inc. (the
"Company") was filed in the office of the Secretary of State of the State of
Delaware on November 7, 1997. All amendments to the Certificate of
Incorporation reflected herein have been duly authorized and adopted by the
Company's Board of Directors and stockholders in accordance with the provisions
of Sections 242 and 245 of the Delaware General Corporation Law. The original
name of incorporation was, SONIX TECHNOLOGIES, INC.
This Amended and Restated Certificate of Incorporation restates and
integrates and amends the Certificate of Incorporation of the Company. The text
of the Certificate of Incorporation is amended hereby to read as herein set
forth in full:
ARTICLE I
The name of the corporation is Sonic Innovations, Inc.
ARTICLE II
The nature of the business or purpose to be conducted or promoted by the
corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
ARTICLE III
Immediately upon the filing of this Amended and Restated Certificate of
Incorporation, every 1.9 outstanding shares of the Company's Common Stock,
$0.001 par value, and every 1.9 outstanding shares of Preferred Stock, $0.001
par value, shall be converted, automatically and without further action, into
one share of Common Stock and one share of the same series of Preferred Stock,
respectively. Any fractional shares resulting from such combination or
conversion shall be rounded up to the nearest whole share on a certificate-by-
certificate basis.
The corporation shall have authority to issue shares as follows:
3.1 35,000,000 shares of common stock, par value $0.001 per share. Each
share of common stock shall entitle the holder thereof to one (1) vote on each
matter submitted to a vote at a meeting of shareholders.
3.2 13,907,895 shares of Preferred Stock, par value $0.001 per share, of
which 449,277 shares are designated as Series A Preferred Stock, 4,635,378
shares are designated as Series B
<PAGE>
Preferred Stock, 4,161,692 shares are designated as Series C Preferred Stock and
3,381,579 shares are designated as Series D Preferred Stock, with the remainder
of the Preferred Stock to be issued in the form and manner, with the relative
rights, preferences, qualifications, limitations or restrictions thereon as the
Board of Directors shall determine. The rights and preferences of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock are set forth below.
3.3 DEFINITIONS. As used herein, the following words and expressions have
the respective meanings set out below:
(a) "Certificate of Incorporation" means the Certificate of
Incorporation of the Company as amended and in effect from time to time.
(b) "Common Stock" means the capital stock of the Company designated
as common stock and authorized from time to time and being stock which is junior
to all series of Preferred Stock in respect of dividend payments and of
distributions or payments upon liquidation.
(c) "Preferred Stock" collectively refers to Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock.
(d) "Series A Preferred" means the authorized class of capital stock
of the Company designated as Series A Preferred Stock.
(e) "Series B Preferred" means the authorized class of capital stock
of the Company designated as Series B Preferred Stock.
(f) "Series C Preferred" means the authorized class of capital stock
of the Company designated as Series C Preferred Stock.
(g) "Series D Preferred" means the authorized class of capital stock
of the Company designated as Series D Preferred Stock.
3.4 RIGHTS AND PREFERENCES OF PREFERRED STOCK.
(a) Voting Rights. Except as otherwise provided by law, each holder
of Preferred Stock shall have the right to one vote for each share of Common
Stock into which such holder's Preferred Stock is convertible, and, with respect
to such vote, such holder shall have all voting rights and powers equal to the
voting rights and powers of holders of Common Stock and shall be entitled to
notice of any stockholders meetings in accordance with the Bylaws of the Company
and, except as set forth in subsection (b) below, shall be entitled to vote with
the holders of the Common Stock together as a single class upon any question
affecting the management and affairs of the Company.
(b) Board Representation. The Company shall have eight (8) members of
the Board of Directors. The holders of the Series A Preferred and the holders of
Common Stock, voting together, shall be entitled to elect two (2) members out of
the eight (8) members of the Board of
-2-
<PAGE>
Directors of the Company, one of whom shall be the Chief Executive Officer of
the Company (the "Series A Preferred Representatives"). Such directors shall be
elected by a majority vote of the shares of Series A Preferred and Common Stock
then outstanding, voting on a non-cumulative basis. The holders of the Series B
Preferred shall have the right to vote as a class, and as a class to elect two
(2) members out of the eight (8) members of the Board of Directors of the
Company (the "Series B Preferred Representatives"). Such directors shall be
elected by a majority vote of the shares of Series B Preferred then outstanding,
voting on a non-cumulative basis. The holders of the Series C Preferred shall
have the right to vote as a class, and as a class to elect two (2) members out
of the eight (8) members of the Board of Directors of the Company (the "Series C
Preferred Representatives"). Such directors shall be elected by a majority vote
of the shares of Series C Preferred then outstanding, voting on a non-cumulative
basis. The holders of the Series D Preferred shall have the right to vote as a
class, and as a class to elect one (1) member out of the eight (8) members of
the Board of Directors of the Company (the "Series D Preferred Representative").
Such director shall be elected by a majority vote of the shares of Series D
Preferred then outstanding, voting on a non-cumulative basis. The holders of the
Preferred Stock and the holders of the Common Stock, voting together, shall be
entitled to elect one (1) member out of the eight (8) members of the Board of
Directors of the Company (the "Remaining Representative"), who shall be an
industry executive, as that term is understood by the Board, which director
shall be nominated by the other members of the Board of Directors of the
Company. Such director shall be elected by a majority vote of the shares of
Preferred Stock and Common Stock then outstanding, voting on a non-cumulative
basis.
(c) Protective Provisions. As long as any shares of Series B
Preferred, Series C Preferred or Series D Preferred are outstanding, the Company
shall not, without first obtaining the approval of the holders of at least a
majority of the shares of Common Stock issuable upon conversion of the shares of
Series B Preferred, Series C Preferred and Series D Preferred then outstanding:
(i) pay any dividends to holders of Common Stock; (ii) alter or change the
rights, preferences or privileges of the Series B Preferred, Series C Preferred
or Series D Preferred; (iii) increase the authorized number of shares of Series
B Preferred, Series C Preferred or Series D Preferred of the Company; (iv)
create any new class or series of shares having preference over or being on
parity with the Series B Preferred, Series C Preferred or Series D Preferred;
(v) merge, sell or transfer all of the Common Stock or substantially all the
assets of the Company or engage in any transaction or series of transactions
that effect a change in the control of the Company; (vi) authorize any amendment
to the Certificate of Incorporation which would adversely affect the rights of
the holders of the Series B Preferred, Series C Preferred or Series D Preferred
or reclassify any shares of any class of capital stock into a class ranking
prior to or in parity with the Series B Preferred, Series C Preferred or Series
D Preferred; (vii) change the authorized number of directors of the Company;
(viii) repurchase any equity security except for shares of Common Stock of the
Company issued to or held by employees, officers, directors, contractors or
consultants of the Company or its subsidiaries upon termination of their
employment or services, pursuant to any agreement providing for such a right of
repurchase; or (ix) make any distribution described in Section 305 of the
Internal Revenue Code.
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<PAGE>
(d) Dividends.
1. The holders of Series A Preferred will not be entitled to
receive dividends, and no dividends will accrue or be paid with respect thereto.
The holders of outstanding shares of Series B Preferred, Series C Preferred and
Series D Preferred shall be entitled to receive, when and as declared by the
Board of Directors, out of any assets at the time legally available therefor,
dividends at the annual rate of $0.03737, $0.08421 and $0.10526, respectively,
per share of Series B Preferred, Series C Preferred and Series D Preferred,
payable in preference and priority to any payment of any dividend on the Series
A Preferred and Common Stock of the Company. No dividends or other distributions
shall be made with respect to the Series A Preferred or Common Stock, other than
dividends payable solely in Series A Preferred or Common Stock, respectively,
until all declared dividends on the Series B Preferred, Series C Preferred and
Series D Preferred have been paid or set apart. The right to receive dividends
on shares of Series B Preferred, Series C Preferred and Series D Preferred shall
not be cumulative, and no right to such dividends shall accrue to holders of
Series B Preferred, Series C Preferred or Series D Preferred by reason of the
fact that dividends on said shares are not declared or paid in any year, nor
shall any undeclared or unpaid dividend accrue interest.
2. For purposes of this Section 3.4(d), unless the context
otherwise requires, a "distribution" shall mean the transfer of cash or other
property without consideration whether by way of dividend or otherwise, payable
other than in Common Stock, or the purchase or redemption of shares of the
Company (other than repurchases of Common Stock issued to or held by employees,
officers, directors, contractors or consultants of the Company or its
subsidiaries upon termination of their employment or services pursuant to
agreements providing for the right of said repurchase) for cash or property.
3. Dividends may be paid on the Series A Preferred and Common
Stock as and when declared by the Board of Directors, subject to the prior
dividend rights of the Series B Preferred, Series C Preferred and Series D
Preferred.
(e) Conversion. The holders of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred have conversion rights as
follows (the "Conversion Rights"):
1. Right to Convert.
(A) Right to Convert Series A Preferred. Each share of
Series A Preferred shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share at the office of the Company
or any transfer agent for the Series A Preferred, into such number of fully paid
and nonassessable shares of Common Stock as is determined in the case of the
Series A Preferred by dividing $0.741 by the Series A Conversion Price,
determined as hereinafter provided, in effect at the time of the conversion. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series A Preferred (the "Series A Conversion
-4-
<PAGE>
Price") shall initially be $0.741 per share of Common Stock. Such initial
Conversion Price shall be subject to adjustment as hereinafter provided.
(B) Right to Convert Series B Preferred. Each share of
Series B Preferred shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share at the office of the Company
or any transfer agent for the Series B Preferred, into such number of fully paid
and nonassessable shares of Common Stock as is determined in the case of the
Series B Preferred by dividing $1.349 by the Series B Preferred Conversion
Price, determined as hereinafter provided, in effect at the time of the
conversion. The price at which shares of Common Stock shall be deliverable upon
conversion of the Series B Preferred (the "Series B Conversion Price") shall
initially be $1.349 per share of Common Stock. Such initial Conversion Price
shall be subject to adjustment as hereinafter provided.
(C) Right to Convert Series C Preferred. Each share of
Series C Preferred shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share at the office of the Company
or any transfer agent for the Series C Preferred, into such number of fully paid
and nonassessable shares of Common Stock as is determined in the case of the
Series C Preferred by dividing $3.04 by the Series C Preferred Conversion Price,
determined as hereinafter provided, in effect at the time of the conversion. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series C Preferred (the "Series C Conversion Price") shall initially be
$3.04 per share of Common Stock. Such initial Conversion Price shall be subject
to adjustment as hereinafter provided.
(D) Right to Convert Series D Preferred. Each share of
Series D Preferred shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share at the office of the Company
or any transfer agent for the Series D Preferred, into such number of fully paid
and nonassessable shares of Common Stock as is determined in the case of the
Series D Preferred by dividing $3.80 by the Series D Preferred Conversion Price,
determined as hereinafter provided, in effect at the time of the conversion. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series D Preferred (the "Series D Conversion Price") shall initially be
$3.80 per share of Common Stock. Such initial Conversion Price shall be subject
to adjustment as hereinafter provided.
2. Automatic Conversion. Each share of Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred shall
automatically be converted into shares of Common Stock at the then effective,
applicable Conversion Price upon the earlier of (i) immediately prior to the
closing of an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of securities for the account of the Company to the public at a price per
share of Common Stock of not less than $9.50 per share (subject to proportionate
adjustment in the event of a stock split, reverse stock split, reclassification
or stock dividend) and an aggregate offering price (net of all registration and
selling expenses) of not less than Fifteen Million Dollars ($15,000,000), (ii)
with respect to the Series A Preferred, the affirmative vote or the written
consent of holders of not less than a majority of the then outstanding shares of
Series A Preferred, (iii) with respect to the Series B Preferred, the
affirmative
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vote or the written consent of holders of not less than 66-2/3% of the then
outstanding shares of Series B Preferred, (iv) with respect to the Series C
Preferred, the affirmative vote or the written consent of holders of not less
66-2/3% of the then outstanding shares of Series C Preferred, (v) with respect
to the Series D Preferred, the affirmative vote or the written consent of
holders of not less 66-2/3% of the then outstanding shares of Series D
Preferred.
3. Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series A Preferred, Series B Preferred,
Series C Preferred or Series D Preferred. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall pay cash equal
to such fraction multiplied by the then effective respective Conversion Price.
Before any holder of Series A Preferred, Series B Preferred, Series C Preferred
or Series D Preferred shall be entitled to convert the same into full shares of
Common Stock and to receive certificates therefor, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or of any transfer agent for the Series A Preferred, Series B Preferred,
Series C Preferred or Series D Preferred, as the case may be, and shall give
written notice to the Company at such office that he elects to convert the same.
The Company shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred, as the case may be, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred, as the case may be, to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
4. Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred such number of its shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding shares of the
Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred, in addition to such other remedies as shall be
available to the holder of such Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
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5. Adjustments to Conversion Price.
(A) Special Definitions. For purposes of this subsection 5,
the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Original Issue Date" for the Series C Preferred
and Series D Preferred shall mean the date on which the first share of Series C
Preferred or Series D Preferred, as the case may be, was issued.
(3) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred) or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares (including reissued shares) of Common Stock issued (or, pursuant to
subsection 5(C), deemed to be issued) by the Company after the Original Issue
Date, other than:
a. shares of Common Stock issued upon conversion
of the Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred authorized herein;
b. shares of Common Stock issued to officers,
directors, employees and consultants of the Company pursuant to the Company's
1993 Stock Plan (the "Plan"); provided, however, that the maximum aggregate
number of shares which may be subject to outstanding options or issued under the
Plan may not exceed 2,842,105 shares unless approved by the holders of a
majority of the Series C Preferred and Series D Preferred, voting together as a
class;
c. as a dividend or distribution on Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred or any
event for which adjustment is made pursuant to subsection 5(D) hereof;
d. shares of Common Stock issued or deemed issued
upon exercise of warrants to purchase 92,308 shares of Series A Preferred
outstanding as of the Original Issue Date of the Series C Preferred;
e. shares of Common Stock issued or deemed issued
upon pursuant to a merger, the sole purpose of which was to effect the
reincorporation of the Company from Utah into Delaware outstanding as of the
Original Issue Date of the Series C Preferred; or
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f. shares of Common Stock issued or deemed issued
upon exercise of warrants to purchase 32,789 shares of Series C Preferred
outstanding as of the Original Issue Date of the Series D Preferred.
(B) No Adjustment of Conversion Price. No adjustment in the
Conversion Price of the Series C Preferred or Series D Preferred shall be made
in respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Company is less than the applicable Conversion Price of such
series in effect on the date of and immediately prior to such issue.
(C) Deemed Issue of Additional Shares of Common Stock. In the
event the Company at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number that would result
in an adjustment pursuant to clause (2) below) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to subsection 5(E) hereof) of such Additional Shares of
Common Stock would be less than the Conversion Price of the Series C Preferred
or Series D Preferred, as the case may be, in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(1) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Company, or increase or decrease in
the number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(3) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date
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with respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
a. in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such exercise, or for the
issue of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Company upon such conversion or exchange, and
b. in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clause (2) or (3) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(5) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the manner provided in
clause (3) above.
(D) Adjustment of Conversion Price of Series C Preferred and
Series D Preferred Upon Issuance of Additional Shares of Common Stock. In the
event that after the Original Issue Date the Company shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to subsection 5(C)) without consideration or for a consideration
per share less than the Conversion Price of the Series C Preferred or the Series
D Preferred, as the case may be, in effect on the date of and immediately prior
to such issue, then and in such event, such Conversion Price of such series
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Conversion Price of such series, by
a fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration, if any, received by the Company for the
total number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price of such Series of Preferred Stock; and the denominator of
which shall be the number of shares of
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Common Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; and provided further that, for the
purposes of this subsection (D), all shares of Common Stock issuable upon
conversion of outstanding Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred and outstanding Convertible Securities or
exercise of outstanding Options shall be deemed to be outstanding, and
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to subsection 5(C), such Additional Shares of Common Stock shall be
deemed to be outstanding.
(E) Determination of Consideration. For purposes of this
subsection 5, the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Except as provided in clauses
(2) and (3) below, such consideration shall:
a. insofar as it consists of cash, be deemed to
be the amount of cash received by the Company for such shares (or, if such
shares are offered by the Company for subscription, the subscription price, or,
if such shares are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price), without deducting
therefrom any compensation or discount paid of allowed to underwriters or
dealers or others performing similar services or for any expenses incurred in
connection therewith;
b. insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board; provided, however, that no value shall be
attributed to any services performed by any employee, officer or director of the
Company; and
c. in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received with respect to such Additional Shares of Common
Stock, computed as provided in clauses (a) and (b) above, as determined in good
faith by the Board.
(2) Expenses. In the event the Company pays or incurs
expenses, commissions or compensation, or allows concessions or discounts to
underwriters, dealers or others performing similar services in connection with
such issue, in an aggregate amount in excess of 10% of the aggregate
consideration received by the Company for such issue, as determined in clause
(1) above, consideration shall be computed as provided in clause (1) above after
deducting the aggregate amount in excess of 10% of the aggregate consideration
received by the Company for the issue.
(3) Options and Convertible Securities. The
consideration per share received by the Company for Additional Shares of Common
Stock deemed to have been
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issued pursuant to subsection 5(C), relating to Options and Convertible
Securities, shall be determined by dividing
a. the total amount, if any, received or
receivable by the Company as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
b. the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(F) Adjustments for Stock Dividends, Subdivisions,
Combinations or Consolidations of Common Stock. In the event the outstanding
shares of Common Stock shall be subdivided (by stock dividend, stock split, or
otherwise), into a greater number of shares of Common Stock without a
proportional subdivision of the Series A, Series B, Series C and Series D
Preferred Stock , the Series A, Series B, Series C and Series D Conversion
Prices then in effect shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock without a proportional
combination of consolidation of the Series A, Series B, Series C and Series D
Preferred Stock, the Series A, Series B, Series C and Series D Conversion Prices
then in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(G) Adjustments for Other Distributions. In the event the
Company at any time or from time to time makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive any distribution
payable in securities or assets of the Company other than shares of Common Stock
then and in each such event provision shall be made so that the holders of
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities or assets
of the Company which they would have received had their Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred been converted
into Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities or assets receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this subsection 5 with respect to the rights of the holders of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred.
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(H) Adjustments for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon conversion of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
be changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), then and in each such event the holder of each share of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization or reclassification or other change by holders of the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred immediately before that change, all subject to
further adjustment as provided herein.
6. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of
subsection 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred against impairment.
7. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to subsection 5, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of any holder of Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred, as the
case may be.
8. Notices of Record Date. In the event of any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Company shall mail to each holder of
Preferred Stock at least ten (10) days prior to the date specified herein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
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(f) Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary,
distributions to the stockholders of the Company shall be made in the following
manner:
1. The holders of the Series B Preferred, Series C
Preferred and Series D Preferred shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Company to the holders of the Series A Preferred and the Common Stock by reason
of their ownership of such stock, the amount of $1.374 for each share of Series
B Preferred then held by them, the amount of $3.04 for each share of Series C
Preferred then held by them and the amount of $3.80 for each share of Series D
Preferred then held by them, in each case as adjusted for any subdivisions,
combinations, consolidations or stock distributions or dividends with respect to
such shares of Series B Preferred, Series C Preferred or Series D Preferred and,
in addition, an amount equal to all declared but unpaid dividends on the Series
B Preferred, Series C Preferred and Series D Preferred. If upon the occurrence
of such event the assets and funds thus distributed among the holders of the
Series B Preferred, Series C Preferred and Series D Preferred shall be
insufficient to permit the payment to such holders of the Series B Preferred,
Series C Preferred and Series D Preferred of the full preferential amount, then
the entire assets and funds of the Company legally available for distribution
shall be distributed among the holders of the Series B Preferred, Series C
Preferred and Series D Preferred on a pro rata basis, based on the aggregate
liquidation preference of the shares of Series B Preferred, the aggregate
liquidation preference of the shares of Series C Preferred and the aggregate
liquidation preference of the shares of Series D Preferred then held by each
holder.
2. After setting apart or paying in full the preferential
amounts due pursuant to subsection (f)(1), the remaining assets of the Company
available for distribution to stockholders, if any, shall be distributed to the
holders of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred and Common Stock on a pro rata basis, based on the number of
shares of Common Stock then held by each holder on an as-converted basis.
3. A consolidation or merger of the Company with or into
any other corporation or corporations, or a sale, conveyance or disposition of
all or substantially all of the assets of the Company (except for a merger, the
sole purpose of which is to effect the reincorporation of the Company into
another state) or the effectuation by the Company of a transaction or series of
related transactions in which more than 50% of the voting power of the Company
is disposed of shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this subsection (f).
4. Notwithstanding subsection (f)(1) hereof, the Company
may at any time, out of funds legally available therefor, repurchase shares of
Common Stock of the Company issued to or held by employees, officers, directors,
contractors or consultants of the Company or its subsidiaries upon termination
of their employment or services, pursuant to any agreement providing for such
right of repurchase, whether or not dividends on the Series B Preferred, Series
C Preferred and Series D Preferred shall have been declared and funds set aside
therefor and such repurchases shall not be subject to the liquidation
preferences of the Series B Preferred, Series C Preferred and Series D
Preferred.
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5. In any sale of assets of the Company, if the
consideration received by the Company is other than cash, its value will be
deemed to be its fair market value. In the case of publicly traded securities
received in a merger, consolidation or sale of the Company, fair market value
shall mean the closing market price for such securities on the last trading date
prior to such consolidation, merger or sale is consummated. If the consideration
is in a form other than publicly traded securities, its value shall be
determined by the Board of Directors of the Company.
(g) Redemption Rights of Series B Preferred, Series C Preferred
and Series D Preferred.
1. Upon the written request of the holders of 66-2/3% of
the then outstanding Series B Preferred at any time on or after the fifth
anniversary of the date on which the first share of Series D Preferred was
issued (the "Series D Original Issue Date"), to the extent the shares of Series
B Preferred have not been redeemed or converted prior to such date, the Company
shall redeem an amount equal to one-third of the issued, outstanding and
unconverted shares of Series B Preferred, on a pro rata basis with respect to
each holder thereof, in each of three annual installments beginning forty-five
(45) days after the date of receipt of such request (the "Series B Initial
Redemption Date"), from any source of funds legally available therefor (but in
any event, funds expended to effect such redemption shall not exceed in any one
year an aggregate amount equal to the greater of one-third of the working
capital of the Company or one-quarter of the net worth of the Company, in each
case determined as of the close of the prior fiscal year, as computed in
accordance with generally accepted accounting principles pursuant to the
Company's audited financial statements for the prior fiscal year). Not less than
30 and not more than 60 days before the fourth anniversary of the Series D
Original Issue Date, the Company shall send to each holder of Series B Preferred
the audited financial statements of the Company for the prior fiscal year
together with a notice advising such holders of their rights under this
subsection. If, and only if, no funds or insufficient funds are available to the
Company at any time to meet the Company's redemption obligations pursuant to
this subsection, then the Company's obligations to redeem shares of Series B
Preferred for which holders of a majority of the outstanding Series B Preferred
have delivered a written request for redemption to the Company, shall be carried
over to the succeeding year (subject to the same limitations on payment as set
forth above) until all shares entitled to be redeemed and qualifying for
redemption hereunder have been redeemed. The shares of Series B Preferred that
have not been redeemed shall continue to be entitled to the dividend, conversion
and other rights, preferences, privileges and restrictions of the Series B
Preferred.
2. Upon the request of the holders of 66-2/3% of the then
outstanding Series C Preferred at any time on or after the fifth anniversary of
the Series D Original Issue Date, to the extent the shares of Series C Preferred
have not been redeemed or converted prior to such date, the Company shall redeem
an amount equal to one-third of the issued, outstanding and unconverted shares
of Series C Preferred, on a pro rata basis with respect to each holder thereof,
in each of three annual installments beginning forty-five (45) days after the
date of receipt of such request (the "Series C Initial Redemption Date"), from
any source of funds legally available therefor (but in any event, funds expended
to effect such redemption shall not exceed in any one year an aggregate amount
equal to the greater of one-third of the working capital of the Company or one-
quarter of the
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net worth of the Company, in each case determined as of the close of the prior
fiscal year, as computed in accordance with generally accepted accounting
principles pursuant to the Company's audited financial statements for the prior
fiscal year). Not less than 30 and not more than 60 days before the fourth
anniversary of the Series D Original Issue Date, the Company shall send to each
holder of Series C Preferred the audited financial statements of the Company for
the prior fiscal year together with a notice advising such holders of their
rights under this subsection. If, and only if, no funds or insufficient funds
are available to the Company at any time to meet the Company's redemption
obligations pursuant to this subsection, then the Company's obligations to
redeem shares of Series C Preferred for which holders of a majority of the
outstanding Series C Preferred have delivered a written request for redemption
to the Company, shall be carried over to the succeeding year (subject to the
same limitations on payment as set forth above) until all shares entitled to be
redeemed and qualifying for redemption hereunder have been redeemed. The shares
of Series C Preferred that have not been redeemed shall continue to be entitled
to the dividend, conversion and other rights, preferences, privileges and
restrictions of the Series C Preferred.
3. Upon the request of the holders of 66-2/3% of the then
outstanding Series D Preferred at any time on or after the fifth anniversary of
the Series D Original Issue Date, to the extent the shares of Series D Preferred
have not been redeemed or converted prior to such date, the Company shall redeem
an amount equal to one-third of the issued, outstanding and unconverted shares
of Series D Preferred, on a pro rata basis with respect to each holder thereof,
in each of three annual installments beginning forty-five (45) days after the
date of receipt of such request (the "Series D Initial Redemption Date"), from
any source of funds legally available therefor (but in any event, funds expended
to effect such redemption shall not exceed in any one year an aggregate amount
equal to the greater of one-third of the working capital of the Company or one-
quarter of the net worth of the Company, in each case determined as of the close
of the prior fiscal year, as computed in accordance with generally accepted
accounting principles pursuant to the Company's audited financial statements for
the prior fiscal year). Not less than 30 and not more than 60 days before the
fourth anniversary of the Series D Original Issue Date, the Company shall send
to each holder of Series D Preferred the audited financial statements of the
Company for the prior fiscal year together with a notice advising such holders
of their rights under this subsection. If, and only if, no funds or insufficient
funds are available to the Company at any time to meet the Company's redemption
obligations pursuant to this subsection, then the Company's obligations to
redeem shares of Series D Preferred for which holders of a majority of the
outstanding Series D Preferred have delivered a written request for redemption
to the Company, shall be carried over to the succeeding year (subject to the
same limitations on payment as set forth above) until all shares entitled to be
redeemed and qualifying for redemption hereunder have been redeemed. The shares
of Series D Preferred that have not been redeemed shall continue to be entitled
to the dividend, conversion and other rights, preferences, privileges and
restrictions of the Series D Preferred.
4. The redemption price for each share of Series B
Preferred repurchased shall be equal to $1.349 plus 7% per year compounded
annually and any declared but unpaid dividends. The redemption price for each
share of Series C Preferred repurchased shall be equal to $3.04 plus 7% per year
compounded annually and any declared but unpaid dividends. The
-15-
<PAGE>
redemption price for each share of Series D Preferred repurchased shall be equal
to $3.80 plus 7% per year compounded annually and any declared but unpaid
dividends.
5. Upon receipt of a request for redemption from the
holders of Series B Preferred pursuant to Section (g)(1), Series C Preferred
pursuant to Section (g)(2) or Series D Preferred pursuant to Section (g)(3), as
the case may be (the "Initiating Series"), the Company shall notify in writing
within 10 days the holders of the Series D Preferred, Series C Preferred or
Series B Preferred, as the case may be (the "Remaining Series"), of the request
of redemption made by the holders of the Initiating Series. If a request for
redemption is received by the Company from the holders of 66-2/3% of the then
outstanding shares of the Remaining Series within 15 days, then the Initial
Redemption Date of the Remaining Series shall be the same date as the Initial
Redemption Date of the Initiating Series.
6. In the event insufficient funds are available to redeem
all shares of Series B Preferred, Series C Preferred, and Series D Preferred
entitled and electing to be redeemed pursuant to Sections (g)(1), (g)(2) and
(g)(3), the Company shall effect each such redemption pro rata among the holders
of the series electing redemption based upon the liquidation preference of the
shares of such series then held by each holder.
7. The Company may not redeem any shares of capital stock
(except for shares of Common Stock of the Company issued to or held by
employees, officers, contractors or consultants of the Company or its
subsidiaries upon termination of their employment or services, pursuant to any
agreement providing for a right of repurchase) prior to the Series B Preferred,
Series C Preferred and Series D Preferred without the prior written consent of
the holders of a majority of the Series B Preferred, Series C Preferred and
Series D Preferred, voting together.
8. Upon redemption pursuant to this Article, the shares of
Series B Preferred, Series C Preferred and Series D Preferred so redeemed shall
be cancelled and not subject to reissuance.
ARTICLE IV
The address of the corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, zip code 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
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<PAGE>
ARTICLE VII
The election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
To the fullest extent permitted by the Delaware General Corporation Law or
any other applicable law as now in effect or as it may hereafter be amended, a
director of the corporation shall not be personally liable to the corporation or
its shareholders for monetary damages for any action taken, or any failure to
take any action, as a director.
The corporation shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he
or she or his or her testator or intestate is or was a director or officer of
the corporation or any predecessor of the corporation or serves or served any
other enterprise as a director, officer, employee or agent at the request of the
corporation or any predecessor to the corporation.
Neither any amendment nor repeal of this Article IX, nor the adoption of
any provision of this corporation's Certificate of Incorporation inconsistent
with this Article IX, shall eliminate or reduce the effect of this Article IX in
respect of any matter occurring, or any cause of action, suit or claim accruing
or arising or that, but for this Article IX, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
Except as provided in Article IX above, the corporation reserves the right
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
Andrew G. Raguskus, the President of the Company. The signatures below shall
constitute the affirmation or acknowledgment, under penalties of perjury, that
the facts herein stated are true.
Dated: April 26, 2000
/s/ Andrew G. Raguskus
-----------------------
Andrew G. Raguskus
President
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<PAGE>
EXHIBIT 10.6
SONIC INNOVATIONS, INC.
AND
STARKEY LABORATORIES, INC.
OEM AGREEMENT
April 19, 1999
[ * ]= CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
OEM AGREEMENT
This OEM AGREEMENT, including the attached Exhibits (the "Agreement"),
---------
made and entered into as of April 1, 1999 (the "Effective Date"), is by and
--------------
between Sonic Innovations, Inc. ("Sonic"), a Delaware corporation with an office
-----
at 5330 S 900 East, Ste. 240, Salt Lake City, Utah 84117, and Starkey
Laboratories, Inc. ("Starkey"), a Minnesota corporation with an office at 6600
-------
Washington Ave., So., Eden Prairie, Minnesota 55344 (each of Sonic and Starkey,
a "Party"; together, the "Parties").
----- -------
BACKGROUND
----------
A. Sonic is engaged in the business of manufacturing, distributing,
and selling Hybrids (as defined below) for use in hearing aid devices and other
products; and
B. Starkey desires to purchase Hybrids from Sonic, and distribute and
sell Products (as defined below) to, customers in the Territory (as defined
below); and
C. Starkey desires to purchase from Sonic, and Sonic desires to sell
to Starkey, such Hybrids for the purpose of incorporating the same into Products
for resale to customers in the Territory.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Parties agree as follows:
1. DEFINITIONS.
-----------
1.1 "Date Code" shall mean the date of manufacture of each Hybrid
---------
manufactured and sold by Sonic.
1.2 "Hybrid" shall mean Sonic's proprietary integrated circuit for
------
digital signal processing as it exists as of the Effective Date.
1.3 "Product(s)" shall mean Starkey's proprietary hearing aid product
----------
which incorporates a Hybrid.
1.4 "Reliability Specification" shall mean the reliability
-------------------------
specification documents numbers 99012-008 (Effective Date 7/9/95), Rev. A and
99012-006 (Effective Date 7/9/95), Rev. A, as provided by Starkey to Sonic and
attached hereto as Exhibit C.
1.5 "Specifications" shall mean the specifications for the use and
--------------
operation of the Hybrid as set forth in Exhibit A.
-1-
<PAGE>
1.6 "Starkey Affiliate" shall mean, with respect to Starkey, a
-----------------
corporation, company or other entity that is owned or controlled by Starkey by
virtue of Starkey's direct or indirect ownership or control of more than fifty
percent (50%) of the outstanding shares or securities (representing the right to
vote for the election of directors or other managing authority) of such
corporation, company or other entity, but such corporation, company or other
entity shall be deemed to be a Starkey Affiliate only so long as such ownership
or control exists.
1.7 "Term" shall have the meaning set forth in Section 11.1.
----
1.8 "Territory" shall mean, until October 1, 1999, any country
---------
outside the United States of America and its territories in which Starkey
operates wholly-owned manufacturing or distribution facilities; provided,
however, that after October 1, 1999, the Territory shall expand to include such
entities within the United States of America and its territories.
2. GRANT OF OEM RIGHTS.
-------------------
2.1 Appointment. Subject to the terms and conditions of this
-----------
Agreement, Sonic hereby grants to Starkey and Starkey Affiliates the non-
exclusive rights to (i) manufacture Products, and (ii) market, sell and
distribute Products to end user customers in the Territory.
2.2 Sale Conveys No Right to Manufacture or Modify. The Hybrids are
----------------------------------------------
offered for sale and are sold by Sonic subject in every case to the condition
that (i) except as necessary to program such Hybrid for a particular end-user,
such sale does not convey any license, expressly or by implication, to modify,
duplicate, reverse engineer or otherwise copy or reproduce any of the Hybrids,
(ii) Starkey and Starkey Affiliates shall use each Hybrid only as incorporated
into and sold as part of a Product and for no other purpose whatsoever, (iii)
Starkey and Starkey Affiliates shall not use Hybrids for any purpose except to
manufacture and service Products, and (iv) Starkey and Starkey Affiliates will
not sell or otherwise distribute Hybrids except incorporated into a Product.
2.3 Reservation of Rights; No Rights Beyond OEM Rights. Except as
--------------------------------------------------
expressly provided in this Article 2, (i) no right, title, or interest is
granted, whether express or implied, by Sonic to Starkey or a Starkey Affiliate,
(ii) nothing in this Agreement shall be deemed to grant to Starkey or a Starkey
Affiliate rights in any products or technology other than the Hybrids, and (iii)
no provision of this Agreement shall be deemed to restrict Sonic's right to
exploit technology, know-how, patents, or any other intellectual property
rights.
3. PRICE AND PAYMENT.
-----------------
3.1 Hybrid Prices. Starkey shall pay to Sonic the sum of [ * ]
-------------
for each Hybrid that it receives from Sonic.
[ * ]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-2-
<PAGE>
3.2 Payment.
-------
(a) Sonic shall invoice Starkey and Starkey shall make payments
to Sonic under this Agreement in United States dollars in immediately available
funds to a bank account designated by Sonic by wire transfer as follows: [Sonic
to provide]. All payments made hereunder shall be paid in full, without any
deduction of taxes or charges of any kind, except to the extent that a
governmental authority imposes income taxes or other taxes on payments made to
Sonic pursuant to this Agreement. In the event that such taxes must be paid by
Starkey, then Starkey may deduct such taxes from the payment and send Sonic tax
payment certificates, receipts, and other such supporting data and to take other
reasonable acts as may be requested by Sonic to establish that such taxes have
been deducted and paid by Starkey on behalf of Sonic. Starkey shall cooperate
with Sonic to aid Sonic to recover any such taxes paid.
(b) Payment for Hybrids supplied subject to Section 3.1 shall be
made net thirty (30) days after the date of shipment of the relevant Hybrids by
Sonic to Starkey.
(c) Any payments due hereunder which are not paid within five (5)
days of the date such payments are due in accordance with Section 3.2(b) shall
bear interest at the lesser of one and one-half percent (1-1/2%) per month or
the maximum rate permitted by law, calculated on the number of days such payment
is delinquent. This Section 3.2(c) shall in no way limit any other remedies
available to Sonic.
4. TERMS OF PURCHASE AND SALE.
---------------------------
4.1 Minimum Annual Order. Upon Starkey's successful evaluation
--------------------
of the Hybrid and calibration test systems, which evaluation period will end no
later than May 31, 1999, Starkey shall place a binding purchase order with Sonic
for a minimum of [ * ] Hybrids to be delivered no later than twelve (12) months
after the Effective Date.
4.2 Forecasts. On the ninetieth (90/th/) day prior to the first
---------
(1/st/) anniversary of the Effective Date, and every year thereafter during the
Term, Starkey shall provide to Sonic a [non-binding] written forecast of the
number of Hybrids that Starkey expects to purchase over the subsequent twelve
(12) months ("Forecasts").
4.3 Order and Acceptance. All orders for Hybrids shall be made
by signed written purchase orders by Starkey to a Sonic employee designated in
writing by Sonic, sent to Sonic at Sonic's address for notice hereunder and
proposing a delivery date that is consistent with the Forecasts and not less
than sixty (60) days after Sonic's receipt of such purchase order. To the extent
that any one purchase order exceeds [ * ] Hybrids, such purchase order must be
submitted to Sonic at least ninety (90) days in advance of any requested
delivery date. Orders shall be placed by a signed written purchase order, which
may be provided to Sonic by fax. Sonic shall accept or reject purchase orders by
fax or in writing within seven (7) days of receipt, it being understood that no
purchase order shall be binding upon Sonic until accepted by Sonic. Sonic shall
fulfill purchase orders accepted by Sonic pursuant to the terms and conditions
of this Agreement.
[ * ]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-3-
<PAGE>
No partial shipment of an order shall constitute the acceptance of the entire
order, absent the written acceptance of such entire order. Once accepted by
Sonic, Starkey may cancel or reschedule purchase orders for Hybrids only with
Sonic's prior written approval.
4.4 Invoicing. Sonic shall submit an invoice to Starkey upon shipment by
---------
Sonic of Hybrids ordered by Starkey. Each such invoice shall state Starkey's
aggregate price for Hybrids in a given shipment, plus any freight, taxes or
other costs incident to the purchase or shipment initially paid by Sonic but to
be borne by Starkey hereunder.
4.5 Shipping. All Hybrids delivered pursuant to the terms of this
--------
Agreement shall be suitably packed for surface or air shipment, in Starkey's
discretion, in Sonic's standard shipping cartons, and delivered, at Starkey's
direction, to Starkey or a carrier agent FCA (per Incoterms, ICC Ed. 1990) the
shipping location designated by Starkey (the "Shipping Location"), at which time
-----------------
risk of loss shall pass to Starkey. Sonic shall ship Hybrids using the carrier
specified in Starkey's purchase order provided that if Starkey does not provide
instructions with respect to the carrier to be used, Sonic shall select the
carrier. All freight, insurance, and other shipping expenses, as well as any
special packing expenses incurred by Sonic at the request of Starkey, shall be
paid by Starkey. Starkey shall also bear all applicable taxes, export taxes,
duties and similar charges, and any charges that may be assessed against the
Hybrids after delivery to Starkey or the carrier at the Shipping Location. All
shipments and freight charges shall be deemed correct unless Sonic receives from
Starkey, no later than forty-five (45) days after the shipping date of a given
shipment, a written notice specifying the shipment, the purchase order number,
and the exact nature of the discrepancy between the order and shipment or
discrepancy in the freight cost, as applicable. To the extent that there is any
conflict between any invoice or purchase order delivered hereunder and the terms
and conditions of this Agreement, the terms and conditions of this Agreement
shall control as to such conflict.
4.6 Returns. Except as set forth in Article 5 below, Starkey may return
-------
Hybrids only with Sonic's prior written approval. Hybrids returned to Sonic
other than under Article 7 shall be returned FCA (per Incoterms, ICC Ed. 1990)
the destination point designated by Sonic and shall be subject to a restocking
fee in an amount equal to five percent (5%) of the price paid by Starkey to
Sonic for such Hybrid as set forth in Section 3.1. Starkey shall also bear all
applicable taxes, export taxes, duties and similar charges, and any charges that
may be assessed against the Products in connection with such delivery to Sonic
at the destination point.
5. ACCEPTANCE. Starkey shall inspect all Hybrids promptly upon receipt thereof
----------
and may reject any Hybrid [that fails to conform to the warranties set forth in
Article 7 below at the time of delivery to Starkey,] provided that Starkey
notifies Sonic of such non-conformity within thirty (30) days of delivery.
Except as set forth in this Article 5 and Article 7 below, Starkey shall return
Hybrids to Sonic only with Sonic's prior written approval.
6. SONIC MANUFACTURING CALIBRATION SYSTEM. In order to permit Starkey to test
--------------------------------------
and calibrate Products, Sonic shall sell to Starkey units of its Sonic
Manufacturing Calibration System at Sonic's cost. Such sale is made subject to
the condition that (i) such sale does not convey
-4-
<PAGE>
any license, expressly or by implication, to modify, duplicate, reverse
engineer, or otherwise copy or reproduce the Sonic Manufacturing Calibration
System, and (ii) Starkey shall not make any other use of the Sonic Manufacturing
Calibration System other than to test Hybrids sold by Sonic to Starkey pursuant
to this Agreement.
7. LIMITED WARRANTY.
----------------
7.1 Hybrid Limited Warranty. Sonic warrants to Starkey that, subject
-----------------------
to the exclusions set forth in this Section 7.1 and in Section 7.2 below, for a
period of one hundred twenty (120) days following delivery to Starkey, Hybrids
manufactured and delivered hereunder shall: (i) substantially conform to the
Specifications and the Reliability Specification; (ii) be manufactured in
accordance with good manufacturing practices and standards established in the
trade; and (iii) be manufactured in accordance with all applicable laws,
regulations, rules and governmental directives. The foregoing warranty is
contingent upon proper use of the Hybrid in the applications for it was intended
as indicated in the Specifications. The above limited warranty applies only to
defects reported to Sonic in accordance with Sonic's standard reporting
procedures [described in the Specifications] and does not apply to any Hybrid
which after dispatch from the Shipping Location (i) has been altered or subject
to undue electrical or mechanical force or stresses, (ii) has not been
maintained in accordance with any transportation, storage, handling or
maintenance instructions supplied by Sonic, (iii) has been damaged by negligence
or accident, or (iv) has been damaged by acts of nature, vandalism, burglary,
neglect, or misuse. In the event of any breach of the above limited warranty
and provided that the Parties agree to upon a Return Merchandise Authorization
(an "RMA"), Starkey's exclusive remedy and Sonic's sole and exclusive liability
---
shall be, at Sonic's sole election, to replace the Hybrid at Sonic's expense or
to provide Starkey with a credit or refund in the amount of the price paid by
Starkey for the non-conforming Hybrid(s) properly assigned an RMA.
7.2 Disclaimer of Other Warranties. EXCEPT FOR THE LIMITED
------------------------------
WARRANTIES PROVIDED IN SECTION 7.1 ABOVE, SONIC GRANTS NO OTHER WARRANTIES OR
CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE, OR OTHERWISE, REGARDING THE HYBRID,
AND SONIC SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, MERCHANTABILITY, AND NONINFRINGEMENT. SONIC DISCLAIMS ANY
WARRANTY THAT OPERATION OF THE HYBRID WILL BE UNINTERRUPTED OR ERROR-FREE. ANY
OTHER REPRESENTATIONS OR WARRANTIES MADE BY ANY PERSON OR ENTITY, INCLUDING
EMPLOYEES OR REPRESENTATIVES OF SONIC, THAT ARE INCONSISTENT HEREWITH SHALL BE
DISREGARDED AND SHALL NOT BE BINDING UPON SONIC.
8. EXCHANGE OF DATA; GOVERNMENTAL APPROVAL.
---------------------------------------
8.1 Exchange. Starkey shall promptly provide to Sonic all [technical
--------
and/or clerical] data made, developed, or acquired by or for Starkey with
respect to the Hybrid. Sonic shall provide to Starkey access to data from
Hybrid studies that Sonic possesses as of the Effective Date, or develops or
acquires during the Term, and that is reasonably necessary for Starkey to obtain
those
-5-
<PAGE>
governmental approvals that Starkey is responsible for obtaining pursuant to
this Article 8 below, to the extent that Sonic has the right to disclose such
data to Starkey for the foregoing purposes and subject to Article 13 below.
8.2 Disclosure. Starkey will only use, reference, and disclose Data
----------
relating to the Hybrid to third parties as required to obtain governmental
approval to market and distribute Products pursuant to this Article 8, as
required by law, or, to the extent Sonic has the right to authorize Starkey to
do so and only with Sonic's prior written approval which shall not be
unreasonably withheld, to market and promote the Products, in each case subject
to Article 13 below.
8.3 Health Regulatory Approval. Starkey, at Starkey's expense, shall
--------------------------
be responsible for obtaining regulatory approvals from [the U.S. Food and Drug
Administration] and its foreign equivalents in the Territory to the extent
required by the foregoing regulatory authorities to sell and distribute the
Products in the Territory.
8.4 Registrations, Licenses and Permits. Starkey, at Starkey's
-----------------------------------
expense, shall obtain all registrations, licenses, and permits required to
comply with the laws and regulations within the Territory for sale and
distribution of the Products.
9. ADDITIONAL OBLIGATIONS OF STARKEY.
---------------------------------
9.1 Translation. Starkey shall at its cost provide any and all
-----------
resources necessary to translate all manuals, instructions, literature, and
package insert data sheets relating to the Hybrid for use in the Territory.
9.2 Business Obligations. Any and all obligations associated with
--------------------
Starkey's business shall remain the sole responsibility of Starkey. Any and all
sales and other agreements between Starkey and its customers are and shall
remain Starkey's exclusive responsibility and shall have no effect on Starkey's
obligations pursuant to this Agreement.
9.3 Foreign Corrupt Practices Act. In conformity with the United
-----------------------------
States Foreign Corrupt Practices Act, Starkey and its employees and agents shall
not directly or indirectly make any offer, payment, promise to pay, or authorize
payment, or offer a gift, promise to give, or authorize the giving of anything
of value for the purpose of influencing an act or decision of an official of any
government within the Territory or the United States Government (including a
decision not to act) or inducing such official to use his influence to affect
any such governmental act or decision in order to assist Sonic in obtaining,
retaining, or directing any such business.
9.4 Custom Fitting. Except as otherwise permitted in this Agreement,
--------------
Starkey shall not, nor allow any third party to, make any use of or otherwise
attempt to copy Sonic's proprietary Best Fit Fast/TM/ and ExpressFit/TM/ custom
fitting system.
-6-
<PAGE>
9.5 Advertising and Promotions. Starkey shall not make any reference
--------------------------
in its marketing or sales literature to the following: Natura/TM/, Sonic
innovations, or Best Fit Fast/TM/, ExpressFit/TM/ or any other promotional
materials used by Sonic in the sales and marketing of the Natura/TM/.
9.6 Product Packaging, Patent Marking, and Labeling. Starkey shall
-----------------------------------------------
label the Products with the Starkey tradename and trademarks and the Starkey
tradename and trademarks only, and Starkey shall not label the Products with any
of the following proprietary Sonic marks: Natura/TM/, Sonic innovations, or
Best Fit Fast/TM/, ExpressFit/TM/ or any other trademark of Sonic unless
required by applicable law. Starkey shall mark all Products it sells or
distributes pursuant to this Agreement in accordance with the applicable patent
statute or regulations in the country or countries of manufacture and sale
thereof, including with those patent numbers listed on Exhibit B.
9.7 No Reverse Engineering. Starkey shall not, nor shall it allow
----------------------
any third party to, disassemble or reverse engineer the Hybrid or decompile or
otherwise attempt to obtain to the source code from the object code of any
software embedded on any Hybrid.
10. REPORTS. Pursuant to the FDA's Medical Device Reporting (MDR)
-------
Regulations, Sonic and/or Starkey may be required to report to the FDA
information that reasonably suggests that a Hybrid may have caused or
contributed to a death or serious injury or has malfunctioned and that the
device would be likely to cause or contribute to a death or serious injury if
the malfunction were to recur. The Parties agree to supply to each other any
such information regarding Hybrids used in Products promptly after becoming
aware of it so that each party can comply with its own governmental reporting
requirements.
11. TERM AND TERMINATION.
--------------------
11.1 Term. The term of this Agreement shall commence on the
----
Effective Date and continue in full force and effect until three (3) years from
the Effective Date, unless earlier terminated pursuant to this Article 11 (such
period, the "Term"); provided that after the Term, the Agreement will
----
automatically renew for additional one (1) year periods unless either Party
provides written notice of its intent not to renew at least one hundred eighty
(180) days prior to the expiration of the Term or such additional one (1) year
period.
11.2 Termination for Convenience. Either party may terminate this
---------------------------
Agreement for its convenience upon one hundred eighty (180) days written notice
to the other.
11.3 Termination for Cause. Either Sonic or Starkey may terminate
---------------------
this Agreement by written notice stating its intent to terminate in the event
the other shall have breached or defaulted in the performance of any of its
material obligations hereunder, and such default shall have continued for sixty
(60) days after written notice thereof was provided to the breaching party by
the non-breaching party. In addition, Sonic may terminate this Agreement by
written notice in the event Starkey does not pay Sonic in accordance with the
provisions of Section 3.2 and such failure shall have continued for ten (10)
days after written notice thereof was provided to Starkey by Sonic.
-7-
<PAGE>
Further, Sonic may terminate this Agreement immediately upon written notice in
the event of any breach or threatened breach by Starkey of any of Sections 2,
9.4, 9.5, 9.6, or 9.7.
11.4 Termination for Infringement. Starkey may terminate this
----------------------------
Agreement immediately upon notice if (i) a court of competent jurisdiction
determines in a non-appealable final judgment that the Hybrid infringes the
Intellectual Property rights of a third party, or (ii) the use, manufacture,
sale, offer for sale or import of Hybrids is enjoined as the result of such
Hybrid's infringement of a third party's Intellectual Property rights.
11.5 Termination for Bankruptcy. Either party may terminate this
--------------------------
Agreement effective upon written notice to the other party in the event the
other party declares bankruptcy or becomes the subject of any voluntary or
involuntary proceeding under the U.S. Bankruptcy Code or any state insolvency
proceeding, and such proceeding is not terminated within one hundred twenty
(120) days of its commencement.
11.6 Effect of Termination.
---------------------
(a) Expiration or termination of this Agreement for any reason
shall not release any party hereto from any liability which, at the time of such
termination, has already accrued to the other party or which is attributable to
a period prior to such termination nor preclude either party from pursuing any
rights and remedies it may have hereunder or at law or in equity with respect to
any breach of this Agreement. It is understood and agreed that monetary damages
may not be a sufficient remedy for any breach of this Agreement and that the
non-breaching party may be entitled to injunctive relief as a remedy for any
such breach. Such remedy shall not be deemed to be the exclusive remedy for any
such breach of this Agreement, but shall be in addition to all other remedies
available at law or in equity.
(b) Within thirty (30) days after the effective date of
termination of this Agreement, Starkey shall use its reasonable efforts to
provide Sonic with a complete inventory of Hybrids in Starkey's possession, in
transit to Starkey from Sonic or otherwise in Starkey's control. Starkey's
rights under Article 2 shall survive to the extent reasonably necessary for
Starkey to dispose of all such Hybrids pursuant to the terms and conditions of
this Agreement. Upon any expiration or other termination of this Agreement,
Sonic may inspect Starkey's Hybrid inventory. [Sonic may at cost repurchase any
inventory of Hybrids in Starkey's possession.]
(c) Repairs or Replacement. Upon termination of this Agreement
----------------------
and for five (5) years thereafter, Sonic shall agree to provide repair or
replacement Hybrids for sale to Starkey; provided that, (i) such repair or
replacement Hybrid is distributed to Starkey or a Starkey Affiliate end-user
customer who purchased a Product prior to the end of the Term and solely for the
purpose of repairing, replacing or servicing such Product.
11.7 No Renewal, Extension or Waiver. Acceptance of any order from,
-------------------------------
or sale of, any Hybrid to Starkey after the date of termination of this
Agreement or pursuant to Section 11.6(c) shall not be construed as a renewal or
extension hereof, or as a waiver of termination by Sonic.
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<PAGE>
11.8 Limitation of Liability Upon Termination. In the event of termination
----------------------------------------
by either party in accordance with any of the provisions of this Agreement,
neither party shall be liable to the other, because of such termination, for
compensation, reimbursement or damages on account of the loss of prospective
profits or anticipated sales or on account of expenditures, inventory,
investments, leases or commitments in connection with the business or goodwill
of Sonic or Starkey.
11.9 Survival of Certain Terms. The provisions of Articles 7, 12, 13, 14,
-------------------------
15, and Sections 11.6, 11.8, and 11.9 shall survive termination for any reason.
12. LIMITATION OF LIABILITY.
-----------------------
SONIC'S ENTIRE LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR THE SALE OF
HYBRIDS SHALL BE LIMITED TO THE AGGREGATE AMOUNTS PAID BY STARKEY TO SONIC FOR
THE PRODUCTS UNDER THIS AGREEMENT. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
COSTS OF PROCUREMENT OF SUBSTITUTE GOODS BY ANYONE. IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY SPECIAL,
CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY ARISING OUT OF THIS AGREEMENT, AND WHETHER OR NOT SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED
HEREIN. NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS ARTICLE 12, THE
FOREGOING LIMITATIONS OF LIABILITY SET FORTH IN THIS ARTICLE 12 SHALL NOT APPLY
TO LIABILITY ARISING UNDER ARTICLES 13 OR 14 OR SECTION 2.3, AND SHALL NOT
DIMINISH THE REMEDIES EXPRESSLY PROVIDED IN ARTICLE 7.
13. CONFIDENTIALITY.
---------------
13.1 Confidential Information. Except as expressly provided herein, the
------------------------
parties agree that, for the Term of this Agreement and for seven (7) years
thereafter, the receiving party shall not publish or otherwise disclose and
shall not use for any purpose, except as expressly permitted herein any
information furnished to it by the other party hereto pursuant to this Agreement
which if disclosed in tangible form is marked "Confidential" or with other
similar designation to indicate its confidential or proprietary nature, or if
disclosed orally is confirmed as confidential or proprietary by the party
disclosing such information at the time of such disclosure or within thirty (30)
days thereafter ("Confidential Information"). Notwithstanding the foregoing, it
is understood and agreed that Confidential Information shall not include
information that, in each case as demonstrated by written documentation:
(a) was already known to the receiving party, other than under
an obligation of confidentiality, at the time of disclosure;
-9-
<PAGE>
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving party
by a person other than a party hereto or developed by the receiving party
without reference to any information or materials disclosed by the disclosing
party.
13.2 Confidentiality of Agreement. Each Party agrees that the terms
----------------------------
and conditions, but not the existence, of this Agreement shall be treated as the
other's Confidential Information and that no reference to the terms and
conditions of this Agreement or to activities pertaining thereto can be made in
any form of public or commercial advertising without the prior written consent
of the other Party; provided, however, that each Party may disclose the terms
-------- -------
and conditions of this Agreement: (i) as required by any court or other
governmental body; (ii) as otherwise required by law; (iii) to legal counsel of
the Parties; (iv) in connection with the requirements of an initial public
offering or securities filing; (v) in confidence, to accountants, banks, and
financing sources and their advisors; (vi) in confidence, in connection with the
enforcement of this Agreement or rights under this Agreement; or (vii) in
confidence, in connection with a merger or acquisition or proposed merger or
acquisition, or the like.
13.3 Compelled Disclosure. If a Receiving Party believes that it
--------------------
will be compelled by a court or other authority to disclose Confidential
Information of the Disclosing Party, it shall give the Disclosing Party prompt
written notice so that the Disclosing Party may take steps to oppose such
disclosure.
14. INDEMNIFICATION.
---------------
14.1 Indemnification of Starkey.
--------------------------
(a) Sonic shall indemnify, defend, and hold harmless Starkey and
the Starkey Affiliates and their respective directors, officers, employees, and
agents, and the successors and assigns of any of the foregoing (the "Starkey
Indemnitees") from and against all claims, losses, costs, and liabilities
(including, without limitation, payment of reasonable attorneys' fees and other
expenses of litigation), and shall pay any damages (including settlement
amounts) finally awarded with respect to claims, suits, or proceedings (any of
the foregoing, a "Claim") brought by third parties against a Starkey Indemnitee,
caused by (a) a failure by Sonic to manufacture the Hybrid in accordance with
the Specifications, (b) breach of any representation made by Sonic hereunder, or
(c) the negligence or willful misconduct of Sonic, except to the extent such
Claim is covered under Section 14.2 below or is caused by the negligence or
willful misconduct of a Starkey Indemnitee.
-10-
<PAGE>
(b) Starkey agrees that Sonic has the right to defend, or at its
option to settle, and Sonic agrees, at its own expense, to defend or at its
option to settle, any claim, suit or proceeding brought against Starkey by any
third party for infringement of any U.S. or foreign patents or copyright by the
Hybrid arising out of or in connection with this Agreement, and Sonic agrees to
indemnify, defend and hold harmless the Starkey Indemnitees (as defined in
Section 14.1(a) above) from and against any and all claims, losses, damages,
costs and liabilities (including payment of reasonable attorneys fees and other
expenses of litigation) arising from such infringement claim and shall pay any
damages finally awarded with respect to such a claim, suit or proceeding.
Notwithstanding the provisions of this Section 14.1(b), Sonic assumes no
liability for (i) any combination of Hybrid with other products not provided by
Sonic, which infringement would not arise from the Hybrid standing alone, or
(ii) the modification of the Hybrid by Starkey or any third party where such
infringement would not have occurred but for such modifications.
Notwithstanding the foregoing, if it is adjudicatively determined that the
Hybrid infringes, or in Sonic's sole opinion, may be found to infringe a third
party's patent or copyright, or if the sale or use of the Products is, as a
result of such infringement, enjoined, then Sonic may, at its sole option and
expense either: (i) replace the Hybrid with other noninfringing functionally
equivalent integrated circuits; or (ii) modify the Hybrid to make the Hybrid
functionally equivalent and noninfringing; or (iii) if (i) - (ii) are deemed
commercially impracticable by Sonic, discontinue sales of the Hybrid to Starkey
under this Agreement. THE FOREGOING PROVISIONS OF THIS SECTION 14.1(b) STATE
THE ENTIRE LIABILITY OF SONIC AND THE EXCLUSIVE REMEDY OF STARKEY WITH RESPECT
TO ANY ALLEGED INFRINGEMENT OF THIRD PARTY PATENTS, COPYRIGHTS, TRADEMARKS OR
OTHER INTELLECTUAL PROPERTY RIGHTS BY THE HYBRID OR ANY PART THEREOF OR THE USE
OF EITHER.
14.2 Indemnification of Sonic. Starkey shall indemnify, defend, and
------------------------
hold harmless Sonic, and its Affiliates and their respective directors,
officers, employees and agents, and the successors, and assigns of any of the
foregoing (the "Sonic Indemnitees") from and against all claims, losses, costs,
and liabilities (including, without limitation, payment of reasonable attorneys'
fees and other expenses of litigation), and shall pay any damages (including
settlement amounts) finally awarded with respect to a Claim brought by third
parties against a Sonic Indemnitee, arising out of or relating to (a) acts or
omissions of Starkey in the distribution or marketing of Products; (b) breach of
any of the representations or warranties made by Starkey hereunder, (c) a claim
that the Product infringes any intellectual property rights of a third party,
except in each case to the extent such claim is covered under Section 14.1, (d)
any failure by Starkey to obtain any applicable governmental approvals or
licenses required for the marketing and distribution of the Products, (e) a
claim relating to the manufacture or operation of the Product to the extent that
such claim is not due solely to a manufacturing defect in the Hybrid, or (f) the
negligence or willful misconduct of Starkey, except, in each case, to the extent
such claim is covered under Section 14.1 or is caused by the negligence or
willful misconduct of a Sonic Indemnitee.
14.3 Indemnification Procedures. A party (the "Indemnitee") that
--------------------------
intends to claim indemnification under this Article 14 shall promptly notify the
other party (the "Indemnitor") in writing of any claim in respect of which the
Indemnitee or any of its directors, officers, employees,
-11-
<PAGE>
agents, successors, or assigns intends to claim such indemnification, and the
Indemnitor shall have sole control of the defense and/or settlement thereof,
provided that the indemnified party may participate in any such proceeding with
counsel of its choice at its own expense. The indemnity agreement in this
Article 14 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the consent of the Indemnitor, which consent
shall not be withheld unreasonably. The failure to deliver written notice to the
Indemnitor within a reasonable time after the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitee under this Article 14, but the
omission to so deliver written notice to the Indemnitor shall not relieve the
Indemnitor of any liability that it may otherwise have to any Indemnitee than
under this Article 14. The Indemnitee under this Article 14, its employees and
agents, shall cooperate fully with the Indemnitor and its legal representatives
and provide full information in the investigation of any Claim covered by this
indemnification. Notwithstanding anything to the contrary contained in this
Article 14, neither party shall be liable for any costs or expenses incurred
without its prior written authorization.
15. MISCELLANEOUS PROVISIONS.
------------------------
15.1 Independent Contractors. The relationship of Sonic and Starkey
-----------------------
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party the
power to direct or control the day-to-day activities of the other, (ii)
constitute the parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking, or (iii) allow a party to create
or assume any obligation on behalf of the other party for any purpose
whatsoever.
15.2 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Utah, without reference to rules of conflicts or choice of laws. This Agreement
shall not be governed by the 1980 United Nations Convention on Contracts for the
International Sale of Goods.
15.3 Arbitration. If a dispute arises between the parties relating to the
-----------
interpretation or performances of this Agreement or the grounds for the
termination thereof, representatives of the parties with decision-making
authority shall meet to attempt in good faith to negotiate a resolution of the
dispute prior to pursuing other available remedies. If within thirty (30) days
after such meeting the parties have not succeeded in negotiating a resolution of
the dispute, such dispute shall be submitted to final and binding arbitration
under the then current Commercial Arbitration Rules of the American Arbitration
Association ("AAA") by one (1) arbitrator in Salt Lake City, Utah. Such
arbitrator shall be selected by the mutual agreement of the parties or, failing
such agreement, shall be selected according to the aforesaid AAA rules. The
arbitrator will be instructed to prepare and deliver a written, reasoned opinion
stating his decision within thirty (30) days of the completion of the
arbitration. Such arbitration shall be concluded within nine (9) months
following the filing of the initial request for arbitration. The parties shall
bear the costs of arbitration equally and shall bear
-12-
<PAGE>
their own expenses, including professional fees. The decision of the arbitrator
shall be final and non-appealable and may be enforced in any court of competent
jurisdiction.
15.4 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be sent by prepaid registered or certified mail,
return receipt requested, internationally recognized courier or personal
delivery, or by fax with confirming letter mailed or otherwise delivered under
the conditions described above in each case addressed to the other party at the
address shown below or at such other address for which such party give notice
hereunder. Such notice shall be deemed to have been given when delivered:
If to Starkey: Starkey Laboratories, Inc.
6600 Washington Ave., South
Eden Prairie, Minnesota 55344
Attn: Jerome Ruzicka
Tel.: (612) 941-6401
Fax: (612) 828-9262
If to Sonic: Sonic Innovations, Inc.
5330 S 900 East, Ste. 240
Salt Lake City, Utah 84117
Attn.: Jorgen Heide
Tel.: (801) 288-0993
Fax: (801) 288-0998
15.5 Force Majeure. Nonperformance of any party hereto (except for
-------------
payment obligations) shall be excused to the extent that performance is rendered
impossible by strike, fire, earthquake, flood, governmental acts or orders or
restrictions, delay or failure of suppliers, or any other reason where failure
to perform is beyond the reasonable control and not caused by the gross
negligence or willful misconduct of the nonperforming party.
15.6 Assignment. This Agreement shall not be assignable by either
----------
party to any third party hereto without the written consent of the other party
hereto, except that either party may assign this Agreement without the other
party's consent to an entity that acquires all or substantially all of the
business or assets of the assigning party pertaining to the subject matter
hereof, in each case whether by merger, acquisition, or otherwise. Any assignee
shall agree to perform the obligations of the assignor of this Agreement, and
this Agreement shall be binding on and inure to the benefit of any permitted
assignee.
15.7 Partial Invalidity. If any provision of this Agreement is held
------------------
to be invalid by a court of competent jurisdiction, then the remaining
provisions shall remain, nevertheless, in full force and effect. The parties
agree to renegotiate in good faith any term held invalid and to be bound by the
mutually agreed substitute provision in order to give the most approximate
effect originally intended by the parties.
-13-
<PAGE>
15.8 Publicity. The parties may agree upon a press release to
---------
announce the execution of this Agreement, together with a corresponding question
and answer outline for use in responding to inquiries about the Agreement;
thereafter, Sonic and Starkey may each disclose to third parties the information
contained in such press release and question and answer outline without the need
for further approval by the other. From time to time during the term of this
Agreement, the Parties may agree upon additional press releases.
Notwithstanding the foregoing, neither party may issue any press release or
other publicity or use the name of the other party without both parties' express
written consent.
15.9 Export Laws. Notwithstanding anything to the contrary
-----------
contained herein, all obligations of Sonic and Starkey are subject to prior
compliance with United States and foreign export regulations and such other
United States and foreign laws and regulations as may be applicable, and to
obtaining all necessary approvals required by the applicable agencies of the
government of the United States and the governments in the Territory. Sonic and
Starkey shall cooperate with each other and shall provide assistance to the
other as reasonably necessary to obtain any required approvals.
15.10 No Waiver. No waiver of any term or condition of this
---------
Agreement shall be valid or binding on either party unless agreed in writing by
the party to be charged. The failure of either party to enforce at any time any
of the provisions of the Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement, shall
in no way be construed to be a present or future waiver of such provisions, nor
in any way affect the validity of either party to enforce each and every such
provision thereafter.
15.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
15.12 Entire Agreement. This Agreement, including the Exhibits
----------------
attached hereto, constitutes the entire agreement of the parties with respect to
the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between Sonic and Starkey
with respect to such subject matter. The terms of any purchase order are
expressly excluded. No amendment or modification hereof shall be valid or
binding upon the parties unless made in writing and signed by the duly
authorized representatives of both parties.
-14-
<PAGE>
IN WITNESS WHEREOF, the undersigned are duly authorized to execute
this Agreement on behalf of Sonic and Starkey as applicable.
SONIC INNOVATIONS, INC. STARKEY LABORATORIES, INC.
("Sonic") ("Starkey")
By: /s/ Jorgen Heide By: /s/ Jerome C. Ruzicka
-------------------------------------- --------------------------
Print Name: Jorgen Heide Print Name: Jerome C. Ruzicka
------------------------------ -------------------
Title: Vice President Business Development Title: President
----------------------------------- -----------------------
-15-
<PAGE>
EXHIBIT A
---------
SPECIFICATION
[*]
<PAGE>
EXHIBIT B
---------
Patent Numbers
United States Patent No. 5,500,902
United States Patent No. 5,848,171
<PAGE>
EXHIBIT C
RELIABILITY SPECIFICATION
<PAGE>
TITLE: Solder Stress testing SPEC.NO.99012-006
Purpose
1.0 Purpose
- -----------
This document describes the test methods for performing soldering stress
simulation on hearing aid amplifiers. This test simulates thermal shock effects
subjected to amplifiers during hearing aid production. Thermal shock effects
can cause delamination of encapsulation epoxy on thickfilm hybrids, cause
blistering or delamination in FR4 epoxy boards, or cause failure due to poor
electrical connections. This testing determines if the amplifier under test is
prone to the above types of failures or any other type of failure.
2.0 Equipment/Materials
- ------------------------
Soldering iron
Solder pot
Flux
Tweezers
Microscope with range of 30X-200X
Amplifier print (for reference)
3.0 Procedure
- --------------
Check that all test circuits have been electrically tested and an
electrical response representing each is available for later review. Mark the
test circuits so they may be easily identified after solder stress testing and
submitted for electrical re-test.
Method 1 (Glencoe wiring simulation)
------------------------------------
Hybrid amplifier circuits: Inspect closely under 200X magnification for any
evidence of delamination.
Surface Mount amplifiers: Inspect closely at 30X for any evidence of kapton
separation or FR4 damage.
Do not perform Glencoe wiring simulation on any test sample that exhibits
any evidence of delamination or damage. Report results to QE before
continuing test.
Set-up
------
. Install new tip into soldering iron.
. Set soldering iron tip to approximately 700F.
. Apply flux (as needed) to amplifier circuit.
<PAGE>
TITLE: Solder Stress testing SPEC.NO.99012-006
Glencoe Solder Stress test:
--------------------------
. Apply soldering iron to solder pad #1 on test circuit #1 and dwell for
about three seconds. Remove iron for about three seconds. Repeat
solder/desolder cycle twice more for a total of three cycles.
. Apply soldering iron to solder pad #1 on test circuit #2 and dwell for
about three seconds. Remove iron for about three seconds. Repeat
solder/desolder cycle twice more for a total of three cycles.
. Return to test circuit #1 and apply soldering iron to solder pad #2
and apply three cycles of solder/desolder, as described in the previous
step. Repeat procedure on test circuit #2 with pad #2.
. Repeat three cycles of solder/desolder as described in the steps above
for every pad on all test circuits.
Note: Any sequence of applying three cycles of solder/desolder is
acceptable as long as the circuit under test does not encounter consecutive
-----------
applications of solder/desolder cycling to different pads on the same
circuit. Using circuit pairs for the test, as described in this procedure,
is the simplest and most time effective method.
Post-test visual inspection:
---------------------------
Hybrid circuits: Inspect closely at 200X for any evidence of delamination.
Surface Mount circuits: Inspect closely at 30X for any evidence of damage.
Electrical re-test
------------------
Submit all samples to hybrid lab for electrical retest. Compare post-test
response with pre-test response for each test circuit. Note any
significant shift in response.
Method 2 (Solder pot method)
----------------------------
Note: This method applies only to hybrid thickfilm circuit amplifiers.
Inspect closely under 200X magnification for any evidence of delamination.
Do not perform Glencoe wiring simulation on any test sample that exhibits
any evidence of delamination or damage. Report result to QE before
continuing test.
. If not otherwise directed by QE, set solder pot temperature to
approximately 238C.
. Use tweezers and dip hybrid into solder pot for a duration of three
seconds. Allow to cool for about thirty seconds, and repeat solder pot
dips.
. After three dips, look closely for delamination at 200X magnification.
Observe for any evidence of delamination. Three dips is the minimum
exposure required for method 2 of Solder Stress Testing.
<PAGE>
TITLE: Solder Stress testing SPEC.NO.99012-006
. If required, remove any solder bridges with soldering iron.
Electrical re-test
------------------
Submit all samples to hybrid lab for electrical test. Compare post-test
response with pre-test response for each test circuit. Note any
significant shift in response.
4.0 Reference Documents
- ------------------------
None
5.0 Records
- ------------
Test Information compiled in reliability lab evaluation report.
<PAGE>
Amendment to OEM Agreement Dated April 19, 1999
Between
SONIC Innovations, Inc. ("SONIC") and
Starkey Laboratories, Inc. ("Starkey")
SONIC and Starkey agree to amend their OEM Agreement as follows:
DATE OF AMENDMENT
------------------
December 14, 1999
GENERAL
-------
Starkey agrees to provide SONIC a two-year, guaranteed, non-cancelable
blanket purchase order for the purchase of SONIC Hybrids.
TERM
----
January 1, 2000 through December 31, 2001.
QUANTITY
--------
Starkey agrees to purchase a minimum of [ * ] Hybrids per calendar year in
each of 2000 and 2001.
CURRENT GENERATION HYBRID PRICING
---------------------------------
For the current generation Hybrid, part number 2000444, the pricing for the
first [ * ] Hybrids ordered shall be $185.00 each.
For quantities above [ * ] Hybrids, pricing shall be $[ * ] each.
NEW GENERATION HYBRID PRICING
-----------------------------
For new generation Hybrids, the pricing for the first [ * ] Hybrids shall
be [ * ] each.
For Hybrid quantities [ * ] through [ * ], pricing shall be $[ * ] each.
For Hybrid quantities [ * ] through [ * ], pricing shall be $[ * ] each.
For Hybrid quantities [ * ] through [ * ], pricing shall be $[ * ] each.
For Hybrid quantities greater than [ * ], pricing shall be negotiated.
/s/ Jorgen Heide /s/ Jerome C. Ruzicka
- --------------------------- ---------------------
Jorgen Heide Jerome C. Ruzicka
VP International & Licensing Division President, Starkey Laboratories, Inc.
SONIC Innovations, Inc.
[ * ]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
