Exhibit 10.1

SONIC INNOVATIONS, INC.

MANAGEMENT CONTINUITY AGREEMENT

(Amended May 12, 2006)

This Management Continuity Agreement (this “Agreement”) is made and entered into
effective as of DATE (the “Effective Date”), by and between NAME (“Employee”)
and Sonic Innovations, Inc., a Delaware corporation (the “Company”). Certain
capitalized terms used in this Agreement are defined in Section 1 below.

RECITALS

A. It is expected that the Company from time to time will consider the
possibility of a Change of Control. The Board of Directors of the Company (the
“Board”) recognizes that such consideration can be a distraction to Employee and
can cause Employee to consider alternative employment opportunities.

B. The Board believes that it is in the best interests of the Company and its
stockholders to provide Employee with an incentive to continue Employee’s
employment and to maximize the value of the Company upon a Change of Control for
the benefit of its stockholders.

C. In order to provide Employee with enhanced financial security and sufficient
encouragement to remain with the Company notwithstanding the possibility of a
Change of Control, the Board believes that it is imperative to provide Employee
with certain severance benefits upon Employee’s termination of employment in
connection with a Change of Control.

AGREEMENT

In consideration of the mutual covenants herein contained and the continued
employment of Employee by the Company, the parties agree as follows:

1. Definition of Terms. The following terms referred to in this Agreement shall
have the following meanings:

(a) Cause. “Cause” shall mean (i) any act of personal dishonesty taken by
Employee in connection with Employee’s responsibilities as an employee and
intended to result in personal enrichment of Employee or Employee’s associates
at the expense of the Company or its stockholders, (ii) committing an act of
fraud against the Company, (iii) conviction of, or plea of nolo contendere to, a
felony by Employee, (iv) continued violations of Employee’s employment-related
obligations which are willful and deliberate after there has been delivered to
Employee a written demand from the Board regarding such activities or
(v) willful refusal to carry out legally permissible instructions from the Board
after Employee has been given written notice of a failure to carry out such
instructions and a reasonable opportunity to correct the situation.

(b) Change of Control. “Change of Control” shall mean (i) the sale, lease,
conveyance or other disposition of all or substantially all of the Company’s
assets as an entirety or substantially as an entirety to any “person” (as such
term is used in Section 13(d) of the Securities Exchange Act of 1934, as
amended), entity or group of persons acting in concert; (ii) any “person”
becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act),
directly or indirectly, of

 

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securities of the Company representing 50% or more of the total voting power
represented by the Company’s then-outstanding voting securities; (iii) a merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or its controlling entity) at least 50% of the total voting
power represented by the voting securities of the Company or such surviving
entity (or its controlling entity) outstanding immediately after such merger or
consolidation; (iv) a change in the composition of the Board occurring within a
two (2)-year period, such that a majority of the then-current Board members
ceases to be comprised of individuals who either (A) have been Board members
continuously since the beginning of such period, or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time such election or nomination was approved by the Board.

(c) Disability. “Disability” shall mean Employee’s inability to substantially
perform Employee’s essential job functions as the result of a physical or mental
disability as determined by a qualified physician or incapacity for a period of
180 days, consecutive or otherwise, in any 360-day period.

(d) Involuntary Termination. “Involuntary Termination” shall mean any of the
following without Employee’s written consent: (i) any material diminution or
material adverse change in Employee’s position with the Company, duties,
responsibilities or the positions that report directly to Employee, unless
Employee is provided with comparable duties, position and responsibilities;
provided, however, that a reduction in duties, position or responsibilities
solely by virtue of the Company being acquired and made part of a larger entity
(as, for example, when the Chief Financial Officer of the Company remains as
such following a Change of Control but is not made the Chief Financial Officer
of the combined entity) shall not constitute an “Involuntary Termination”;
(ii) a reduction by the Company in Employee’s base salary in effect immediately
prior to such reduction, (iii) a material reduction in the aggregate program of
employee benefits and perquisites to which Employee is entitled immediately
prior to such reduction, (iv) the conviction of, or plea of nolo contendere to,
a felony by the Company, except where Employee has knowingly participated in
such felony, (v) the failure of the Company to maintain an effective Directors
and Officers indemnification insurance policy that includes Employee under its
coverage (after an opportunity to cure such failure, if such cure will fully
repair any breach), (vi) a change in the primary location of the Employee’s work
of more than 35 miles, or (vii) continued violations of the Company’s
employment-related obligations to Employee which are willful and deliberate
after there has been delivered to the Board a written demand from Employee
regarding such activities. An Involuntary Termination will also include (A) any
purported termination of Employee by the Company which is not effected for
Disability or for Cause, or any purported termination for which the grounds
relied upon are not valid, or (B) the failure of the Company to obtain the
assumption of this agreement by any successors contemplated in Section 6 below.

(e) Termination Date. “Termination Date” shall mean the effective date of any
notice of termination delivered by one party to the other hereunder.

 

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2. Term of Agreement. This Agreement shall terminate upon the date that all
obligations of the parties hereto under this Agreement have been satisfied or,
if earlier, on the date, prior to a Change of Control, Employee is no longer
employed by the Company.

3. At-Will Employment. The Company and Employee acknowledge that Employee’s
employment is and shall continue to be at-will, as defined under applicable law.
If Employee’s employment terminates for any reason, Employee shall not be
entitled to any payments, benefits, damages, awards or compensation other than
(a) as provided by this Agreement (b) under the terms of any employment
agreement between Employee and the Company in force on the date of this
Agreement (but only if that employment agreement is in force at the date of the
termination) or (c) as may otherwise be established under the Company’s then
existing employee benefit plans or policies at the time of termination.

4. Severance Benefits.

(a) Termination Following A Change of Control. If Employee’s employment with the
Company terminates as a result of an Involuntary Termination at any time
beginning twenty (20) days before and ending twelve (12) months after a Change
of Control, then, subject to Employee executing and not revoking a standard form
of mutual release of claims with the Company, Employee shall be entitled to the
following severance benefits:

(i) Twelve (12) months of Employee’s base salary as in effect as of the date of
such termination, less applicable withholding, payable either (A) in a lump sum
at present value (based on the prime rate then published by the Wall Street
Journal) within thirty (30) days of the Involuntary Termination or (B) according
to normal payroll procedures over such 12-month period, in the Company’s sole
discretion;

(ii) Employee’s annual target bonus (i.e., base salary times target bonus
percentage) in effect as of the date of such termination, less applicable
withholding, payable in a lump sum within thirty (30) days of the Involuntary
Termination;

(iii) all stock options granted by the Company to Employee prior to the Change
of Control shall become fully vested and exercisable as of the date of the
termination to the extent such stock options are outstanding and unexercisable
at the time of such termination and all stock subject to a right of repurchase
by the Company (or its successor) that was purchased prior to the Change of
Control shall have such right of repurchase lapse with respect to all of the
shares;

(iv) the same level of health (i.e., medical, vision and dental) coverage and
benefits as in effect for Employee, and, if applicable, Employee’s dependents,
on the day immediately preceding the day of Employee’s termination of
employment; provided, however, that (A) Employee constitutes a qualified
beneficiary, as defined in Section 4980B(g)(1) of the Internal Revenue Code of
1986, as amended; and (B) Employee elects continuation coverage pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
within the time period prescribed pursuant to COBRA. The Company shall continue
to provide Employee with health coverage until the earlier of (x) the date
Employee is no longer eligible to receive continuation

 

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coverage pursuant to COBRA, (y) twelve (12) months from the termination date or
(z) until Employee obtains substantially similar coverage under another
employer’s group insurance plan.

(b) Termination Apart from a Change of Control. If Employee’s employment with
the Company terminates other than as a result of an Involuntary Termination
within the twelve (12) months following a Change of Control, then Employee shall
not be entitled to receive severance or other benefits hereunder, but may be
eligible for those benefits (if any) as may then be established under the
Company’s then existing severance and benefits plans and policies at the time of
such termination.

(c) Accrued Wages and Vacation; Expenses. Without regard to the reason for, or
the timing of, Employee’s termination of employment: (i) the Company shall pay
Employee any unpaid base salary due for periods prior to the Termination Date;
(ii) the Company shall pay Employee all of Employee’s accrued and unused
vacation through the Termination Date; and (iii) following submission of proper
expense reports by Employee, the Company shall reimburse Employee for all
expenses reasonably and necessarily incurred by Employee in connection with the
business of the Company prior to the Termination Date. These payments shall be
made promptly upon termination and within the period of time mandated by law.

5. Limitation on Payments. In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to the Employee
(i) constitute “parachute payments” within the meaning of Section 280G of the
Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the
Code (the “Excise Tax”), then Employee’s benefits under this Agreement shall be
either

(a) delivered in full, or

(b) delivered to such lesser extent as would result in no portion of such
benefits being subject to the Excise Tax,

whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by
Employee on an after-tax basis of the greatest amount of benefits,
notwithstanding that all or some portion of such benefits may be taxable under
Section 4999 of the Code.

Unless the Company and Employee otherwise agree in writing, any determination
required under this Section shall be made in writing by a tax advisor selected
by the Company and reasonably acceptable to Employee (“Tax Advisor”), whose
determination shall be conclusive and binding upon Employee and the Company for
all purposes. For purposes of making the calculations required by this Section,
Tax Advisor may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Section 280G and 4999 of the Code. The Company and
Employee shall furnish to Tax Advisor such information and documents as Tax
Advisor may reasonably request in order to make a determination under this
Section. The Company shall bear all costs of hiring Tax Advisor in connection
with any calculations contemplated by this Section.

 

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6. Successors.

(a) Company’s Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company’s business or assets shall
assume the Company’s obligations under this Agreement and agree expressly in
writing to perform the Company’s obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term “Company” shall include any successor to the Company’s
business or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.

(b) Employee’s Successors. Without the written consent of the Company, Employee
shall not assign or transfer this Agreement or any right or obligation under
this Agreement to any other person or entity. Notwithstanding the foregoing, the
terms of this Agreement and all rights of Employee hereunder shall inure to the
benefit of, and be enforceable by, Employee’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.

7. Notices.

(a) General. Notices and all other communications contemplated by this Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or when mailed by U.S. registered or certified mail, return receipt
requested and postage prepaid. In the case of Employee, mailed notices shall be
addressed to Employee at the home address which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary. Notices may also be delivered by
facsimile or electronic mail if evidence of receipt is given by the recipient
and shall be effective when so received.

(b) Notice of Termination. Any termination by the Company for Cause or by
Employee as a result of a voluntary resignation or an Involuntary Termination
shall be communicated by a notice of termination to the other party hereto given
in accordance with this Section. Such notice shall indicate the specific
termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the Termination
Date (which shall be not more than 30 days after the giving of such notice). The
failure by Employee to include in the notice any fact or circumstance which
contributes to a showing of Involuntary Termination shall not waive any right of
Employee hereunder or preclude Employee from asserting such fact or circumstance
in enforcing his rights hereunder.

8. Arbitration.

(a) Any dispute or controversy arising out of, relating to, or in connection
with this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof, shall be settled by binding arbitration to be
held in Salt Lake City, Utah, in accordance with

 

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the National Rules for the Resolution of Employment Disputes then in effect of
the American Arbitration Association (the “Rules”). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator’s decision in any court
having jurisdiction.

(b) The arbitrator(s) shall apply Utah law to the merits of any dispute or
claim, without reference to conflicts of law rules. The arbitration proceedings
shall be governed by federal arbitration law and by the Rules, without reference
to state arbitration law. Employee hereby consents to the personal jurisdiction
of the state and federal courts located in Utah for any action or proceeding
arising from or relating to this Agreement or relating to any arbitration in
which the parties are participants.

(c) Employee understands that nothing in this Section modifies Employee’s
at-will employment status. Either Employee or the Company can terminate the
employment relationship at any time, with or without Cause.

(d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION.
EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR
IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION
CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE
RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:

(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT,
BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING,
BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL
DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL
INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.

(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL, STATE OR MUNICIPAL STATUTE
OF ANY JURISDICTION, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL
RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE FAIR CREDIT REPORTING ACT, EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, THE FAMILY AND MEDICAL LEAVE ACT, THE WORKER ADJUSTMENT
AND RETRAINING NOTIFICATION ACT, THE OLDER WORKERS BENEFIT PROTECTION ACT, THE
UTAH ANTI-DISCRIMINATION ACT (AND ALL UTAH LABOR RULES AND REGULATIONS), THE
CALIFORNIA FAMILY RIGHTS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT,
AND THE CALIFORNIA LABOR CODE.

 

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(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING
TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

9. Miscellaneous Provisions.

(a) No Duty to Mitigate. Employee shall not be required to mitigate the amount
of any payment contemplated by this Agreement, nor shall any such payment be
reduced by any earnings that Employee may receive from any other source.

(b) Waiver. No provision of this Agreement may be modified, waived or discharged
unless the modification, waiver or discharge is agreed to in writing and signed
by Employee and by an authorized officer of the Company (other than Employee).
No waiver by either party of any breach of, or of compliance with, any condition
or provision of this Agreement by the other party shall be considered a waiver
of any other condition or provision or of the same condition or provision at
another time.

(c) Integration. This Agreement and any outstanding stock option agreements and
restricted stock purchase agreements represent the entire agreement and
understanding between the parties as to the subject matter herein and supersede
all prior or contemporaneous agreements, whether written or oral, with respect
to this Agreement and any stock option agreement or restricted stock purchase
agreement.

(d) Choice of Law. The validity, interpretation, construction and performance of
this Agreement shall be governed by the internal substantive laws, but not the
conflicts of law rules, of the State of Utah.

(e) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.

(f) Employment Taxes. All payments made pursuant to this Agreement shall be
subject to withholding of applicable income and employment taxes.

(g) Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together will constitute one and
the same instrument.

[Signature page follows]

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer, as of the day and year first
above written.

 

COMPANY:     SONIC INNOVATIONS, INC.       By:            Title:   President and
CEO

 

EMPLOYEE:                    Signature                Printed Name

 

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