Pursuant to the terms of the proposed Settlement, Defendants' insurance carriers have paid into an escrow account cash in the amount of $7,000,000 for the benefit of the Class. A hearing (the "Settlement Hearing") to determine, among other things, whether the proposed settlement is fair, reasonable and adequate was held on May 25, 2004. Judge Paul G. Cassell issued orders that same day granting final approval of the settlement, approving the plan of allocation and awarding attorneys’ fees and reimbursement of expenses.

On October 27, 2003, Sonic Innovations issued a press release stating that an agreement in principle to settle the action for $7,000,000 has been reached. The parties entered into a Stipulation of Settlement dated as of February 25, 2004. On March 1, 2004, a motion for Preliminary Approval of the proposed settlement was filed with the court and Judge Cassell signed an order granting Preliminary Approval that same day.

Lead Plaintiffs filed a motion for class certification on May 27, 2003, and on September 8, 2003, the Judge issued an order certifying the class as those "persons who purchased or otherwise acquired Sonic Innovation Inc.'s...publicly traded common stock between May 2, 2000 and October 24, 2000, including those who purchased or acquired Sonic's common stock pursuant or traceable to [Sonic's] May 2, 2000 initial public offering...."

Lead Plaintiffs filed an Amended Complaint on March 16, 2001, which Defendants moved to dismiss on April 30, 2001. On November 9, 2001, the Court granted Defendants' Motions to Dismiss with leave for Lead Plaintiffs to file a Second Amended Class Action Complaint (the "2nd Amended Complaint"), which was filed on December 21, 2001. Defendants' filed their Motions to Dismiss this complaint on February 28, 2002. Lead Plaintiffs filed their opposition to the Defendants' motions on May 7, 2002. On November 7, 2002, a hearing on Defendants' motions was held and on February 11, 2003, Judge Paul G. Cassell issued a Memorandum Decision denying Defendants' Motions to Dismiss the 2nd Amended Complaint. Thereafter, on March 19, 2003, Defendants filed their Answer to the Second Amended Complaint.

A motion for the appointment of Lead Plaintiff and Lead Counsel was filed on December 26, 2000 and a Stipulation to consolidate all related cases was filed on January 2, 2001. On January 29, 2001, the Court granted the stipulation to consolidate the cases into one class action lawsuit, captioned Steinbeck v. Sonic Innovations, Inc., and on January 31, 2001, appointed Lead Plaintiffs and Lead Counsel.

The original complaint charges Sonic Innovations and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Sonic Innovations designs, manufacturers and markets digital hearing aids and hearing aid components. The complaint alleges that from May 2, 2000 through October 24, 2000, Sonic Innovations saw its stock price soar from its IPO price of $14 per share to as high as $25 per share as Sonic Innovations misrepresented the true status of its relationship with Starkey Laboratories, Inc. ("Starkey"), concealing the fact that Starkey, one of Sonic Innovations's largest customers: (a) had millions of dollars worth of Sonic Innovations's product in its inventory that it could not sell; (b) was refusing to pay for product previously shipped to it by Sonic Innovations; and (c) considered the April 19, 1999 OEM Agreement to be void as Sonic Innovations had materially breached the OEM Agreement due to, among other things, materially breaching the quality control provisions. The complaint further alleges that the defendants knowingly concealed the fact that they were informed prior to the IPO that the IC-1 chips the company was shipping to Starkey were defective which would jeopardize its contract with Starkey but would allow defendants to complete the IPO and artificially inflate Sonic Innovation's Q2 projections, its Q2 results and its Q3 projections/results. As a result of defendants' alleged false statements/omissions, Sonic Innovations's stock traded at inflated levels during the Class Period, increasing to as high as $25 on June 20, 2000 and tumbled to $5-1/2 on October 25, 2000 as defendants began to partially reveal the true status of the Company's relationship with Starkey.