<PAGE>

                                                                   EXHIBIT 10.13

Silicon Valley Bank

                          Loan and Security Agreement


Borrower:  Sonic Innovations, Inc.
Address:   2795 East Cottonwood Parkway, Suite 660
           Salt Lake City, Utah  84121

Date:      December 22, 1999


THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK,  COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California  95054 and the borrower(s) named
above (jointly and severally, the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address").  The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a part of this
Agreement, and the same is an integral part of this Agreement.  (Definitions of
certain terms used in this Agreement are set forth in Section 8 below.)

1.  LOANS.

  1.1  Loans.  Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing, and subject to deduction of any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.

  1.2  Interest.  All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement.  Interest shall be payable monthly, on the last
day of the month.  Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans.  Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon.  Regardless of the amount
of Obligations that may be outstanding from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").

  1.3  Overadvances.  If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand.  Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.

  1.4  Fees.  Borrower shall pay Silicon the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Silicon and are not
refundable.

  1.5  Letters of Credit.  At the request of Borrower, Silicon may, in its sole
discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit").  The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder.  Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit.  Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made.  Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date regarding the Revolving Loans facility.  Borrower hereby agrees to
indemnify, save, and hold Silicon harmless from any loss, cost, expense, or
liability, including payments made by Silicon, expenses, and reasonable
attorneys' fees incurred by Silicon arising out of or in connection with any
Letters of Credit.  Borrower agrees to be bound by

                                      -1-
<PAGE>

      Silicon Valley Bank                     Loan and Security Agreement
   -------------------------------------------------------------------------

the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto. Borrower understands that
Letters of Credit may require Silicon to indemnify the issuing bank for certain
costs or liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify and hold Silicon harmless with respect
to any loss, cost, expense, or liability incurred by Silicon under any Letter of
Credit as a result of Silicon's indemnification of any such issuing bank. The
provisions of this Loan Agreement, as it pertains to Letters of Credit, and any
other present or future documents or agreements between Borrower and Silicon
relating to Letters of Credit are cumulative.

2.  SECURITY INTEREST.

  2.1  Security Interest.  To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located:  All Inventory, Equipment, Receivables, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Silicon's possession (including claims and credit balances), and all proceeds
(including proceeds of any insurance policies, proceeds of proceeds and claims
against third parties), all products and all books and records related to any of
the foregoing (all of the foregoing, together with all other property in which
Silicon may now or in the future be granted a lien or security interest, is
referred to herein, collectively, as the "Collateral").

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.

  In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:

  3.1  Corporate Existence and Authority.  Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation.  Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any  material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.

  3.2  Name; Trade Names and Styles.  The name of Borrower set forth in the
heading to this Agreement is its correct name.  Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name.  Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.

  3.3  Place of Business; Location of Collateral.  The address set forth in the
heading to this Agreement is Borrower's chief executive office.  In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule.  Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.

  3.4  Title to Collateral; Permitted Liens.  Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower.  The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens.  Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others.  None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an
interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien
or otherwise), Borrower shall, whenever

                                      -2-
<PAGE>

       Silicon Valley Bank                  Loan and Security Agreement
   -------------------------------------------------------------------------

requested by Silicon, use its best efforts to cause such third party to execute
and deliver to Silicon, in form acceptable to Silicon, such waivers and
subordinations as Silicon shall specify, so as to ensure that Silicon's rights
in the Collateral are, and will continue to be, superior to the rights of any
such third party. Borrower will keep in full force and effect, and will comply
with all the terms of, any lease of real property where any of the Collateral
now or in the future may be located.

  3.5  Maintenance of Collateral.  Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose.  Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.

  3.6  Books and Records.  Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.

  3.7  Financial Condition, Statements and Reports.  All financial statements
now or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated.  Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no material adverse change in the financial condition or business
of Borrower.  Borrower is now and will continue to be solvent.

  3.8  Tax Returns and Payments; Pension Contributions.  Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower.  Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral.  Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower.  Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.

  3.9  Compliance with Law.  Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.

  3.10  Litigation.  Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted.  Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000  or more in the aggregate.

  3.11  Use of Proceeds.  All proceeds of all Loans shall be used solely for
lawful business purposes.  Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."

4.  RECEIVABLES.

  4.1  Representations Relating to Receivables.  Borrower represents and
warrants to Silicon as follows:  Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in  Section 8 below.

  4.2  Representations Relating to Documents and Legal Compliance.  Borrower
represents and warrants to Silicon as follows:  All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records

                                      -3-
<PAGE>

        Silicon Valley Bank                Loan and Security Agreement
   -------------------------------------------------------------------------

are and shall be genuine and in all respects what they purport to be, and all
signatories and endorsers have the capacity to contract. All sales and other
transactions underlying or giving rise to each Receivable shall fully comply
with all applicable laws and governmental rules and regulations. All signatures
and endorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.

  4.3  Schedules and Documents relating to Receivables.  Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon's standard forms
*; provided, however, that Borrower's failure to execute and deliver the same
shall not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein.  Loan requests received after 12:00 Noon will not be considered by
Silicon until the next Business Day.  Together with each such schedule and
assignment, or later if requested by Silicon, Borrower shall furnish Silicon
with copies (or, at Silicon's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and
Borrower warrants the genuineness of all of the foregoing.  Borrower shall also
furnish to Silicon an aged accounts receivable trial balance in such form and at
such intervals as Silicon shall  request.  In addition, Borrower shall deliver
to Silicon the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, immediately upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse.  Borrower
shall also provide Silicon with copies of all credit memos within two days after
the date issued.

  * with the understanding that, until an Event of Default has occurred, the
required reporting of the Borrower shall consist of those items set forth in
Section 5.3 of the Schedule to Loan Agreement together with a weekly borrowing
base report, on Silicon's standard form, delivered in a timeframe that is
consistent with the other weekly reporting items set forth in such section

  4.4  Collection of Receivables.  Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and * Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine.  Silicon may *, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.

 * , upon the occurrence of an Event of Default,

  4.5.  Remittance of Proceeds.  All proceeds arising from the disposition of
any Collateral * shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred, Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete equipment disposed of by Borrower
in good faith in an arm's length transaction for an aggregate purchase price of
$25,000 or less (for all such transactions in any fiscal year).  Borrower agrees
that it will not commingle proceeds of Collateral with any of Borrower's other
funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Silicon.  Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.

  * (other than, prior to an Event of Default, proceeds of Receivables that
Borrower is permitted to retain pursuant to section 4.4 hereof and other
proceeds of any other Collateral that Borrower is otherwise permitted to retain
pursuant to the terms and conditions hereof)

  4.6  Disputes.  Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables.  Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit.  Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.

                                      -4-
<PAGE>

         Silicon Valley Bank               Loan and Security Agreement
   -------------------------------------------------------------------------

  4.7  Returns.  Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon).  In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.

  4.8  Verification.  Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.

  4.9  No Liability.  Silicon shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable.  Nothing herein shall, however, relieve Silicon from liability for
its own gross negligence or willful misconduct.

5.  ADDITIONAL DUTIES OF THE BORROWER.
  5.1  Financial and Other Covenants.  Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.

  5.2  Insurance.  Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance to
Silicon, so that Silicon is satisfied that such insurance is, at all times, in
full force and effect.  All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon.  Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid.  Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used.  If Borrower fails to provide or pay for any insurance, Silicon may, but
is not obligated to, obtain the same at Borrower's expense.  Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.

  5.3  Reports.  Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time reasonably
specify.

  5.4  Access to Collateral, Books and Records.  At reasonable times, and on one
Business Day's notice, Silicon, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records *.
Silicon shall take reasonable steps to keep confidential all information
obtained in any such inspection or, but Silicon shall have the right to disclose
any such information to its auditors, regulatory agencies, and attorneys, and
pursuant to any subpoena or other legal process.  The foregoing inspections and
audits shall be at Borrower's expense and the charge therefor shall be $600 per
person per day (or such higher amount as shall represent Silicon's then current
standard charge for the same), plus reasonable out of pocket expenses.  Borrower
will not enter into any agreement with any accounting firm, service bureau or
third party to store Borrower's books or records at any location other than
Borrower's Address, without first obtaining Silicon's written consent, which may
be conditioned upon such accounting firm, service bureau or other third party
agreeing to give Silicon the same rights with respect to access to books and
records and related rights as Silicon has under  this Loan Agreement.  Borrower
waives the benefit of any accountant-client privilege or other evidentiary
privilege precluding or limiting the disclosure, divulgence or delivery of any
of its books and records (except that Borrower does not waive any attorney-
client privilege).

 * , with such audits to be conducted no less than one time per quarter

  5.5  Negative Covenants.  Except as may be permitted in the Schedule, Borrower
shall not, without Silicon's prior written consent, do any of the following:
(i) merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except for the sale of finished Inventory in the ordinary course of
Borrower's business, and except for

                                      -5-
<PAGE>

      Silicon Valley Bank                     Loan and Security Agreement
   -------------------------------------------------------------------------

the sale of obsolete or unneeded Equipment in the ordinary course of business;
(v) store any Inventory or other Collateral with any warehouseman or other third
party; (vi) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis; (vii) make any loans of any money or
other assets; (viii) incur any debts, outside the ordinary course of business,
which would have a material, adverse effect on Borrower or on the prospect of
repayment of the Obligations; (ix) guarantee or otherwise become liable with
respect to the obligations of another party or entity; (x) pay or declare any
dividends on Borrower's stock (except for dividends payable solely in stock of
Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock; (xii) make any change in Borrower's capital
structure which would have a material adverse effect on Borrower or on the
prospect of repayment of the Obligations; or (xiii) or (xiv) dissolve or elect
to dissolve. Transactions permitted by the foregoing provisions of this Section
are only permitted if no Default or Event of Default would occur as a result of
such transaction.

  5.6  Litigation Cooperation.  Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.

  5.7  Further Assurances.  Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.

6.   TERM.
  6.1  Maturity Date.  This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"), subject to
Section 6.3 below.

  6.2  Early Termination.  This Agreement may be terminated prior to the
Maturity Date as follows:  (i) by Borrower, effective three Business Days after
written notice of termination is given to Silicon; or (ii) by Silicon at any
time after the occurrence of an Event of Default, without notice, effective
immediately.  If this Agreement is terminated by Borrower or by Silicon under
this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount
equal to two percent (2.0%) of the Maximum Credit Limit *, provided that no
termination fee shall be charged if the credit facility hereunder ** is replaced
with a new facility from another division of Silicon Valley Bank ***.  The
termination fee shall be due and payable on the effective date of termination
and thereafter shall bear interest at a rate equal to the highest rate
applicable to any of the Obligations.

 * regarding Revolving Loans

 ** and all other amounts owing to Silicon are

 *** , provided, further, that no termination fee shall be payable by Borrower
       --------  -------
if the entire credit facility hereunder and all other amounts owing to Silicon
are repaid with proceeds of an equity financing transaction of the Borrower

  6.3  Payment of Obligations.  On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable.  Without
limiting the generality of the foregoing, if on the Maturity Date,  or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement.  Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination.  No termination shall in any way affect or impair any right
or remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full.  Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.

7.  EVENTS OF DEFAULT AND REMEDIES.

  7.1  Events of Default.  The  occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or

                                      -6-
<PAGE>

      Silicon Valley Bank                     Loan and Security Agreement
   -------------------------------------------------------------------------

delivered to Silicon by Borrower or any of Borrower's officers, employees or
agents, now or in the future, shall be untrue or misleading in a material
respect; or (b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or (c) the total Loans and other
Obligations outstanding at any time shall exceed the Credit Limit; or (d)
Borrower shall fail to comply with any of the financial covenants set forth in
the Schedule or shall fail to perform any other non-monetary Obligation which by
its nature cannot be cured; or (e) Borrower shall fail to perform any other non-
monetary Obligation, which failure is not cured within 5 Business Days after the
date due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within 10 days after the occurrence of the same; or (g) any default
or event of default occurs under any obligation secured by a Permitted Lien,
which is not cured within any applicable cure period or waived in writing by the
holder of the Permitted Lien; or (h) Borrower breaches any material contract or
obligation, which has or may reasonably be expected to have a material adverse
effect on Borrower's business or financial condition; or (i) Dissolution,
termination of existence, insolvency or business failure of Borrower; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding by Borrower under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding against Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 30 days
after the date commenced; or (k) revocation or termination of, or limitation or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing, or commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or against
any such third party under any bankruptcy or insolvency law; or (m) Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations terminates or in any way limits his subordination agreement; or
(n) there shall be a change in the record or beneficial ownership of an
aggregate of more than 20% of the outstanding shares of stock of Borrower, in
one or more transactions, compared to the ownership of outstanding shares of
stock of Borrower in effect on the date hereof, without the prior written
consent of Silicon; or (o) Borrower shall generally not pay its debts as they
become due, or Borrower shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a
material adverse change in Borrower's business or financial condition; or (q)
Silicon, acting in good faith and in a commercially reasonable manner, deems
itself insecure because of the occurrence of an event prior to the effective
date hereof of which Silicon had no knowledge on the effective date or because
of the occurrence of an event on or subsequent to the effective date. Silicon
may cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred.

  7.2  Remedies.  Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and Borrower, and to remove the Collateral to such locations as Silicon
may deem advisable; (e)

                                      -7-
<PAGE>

      Silicon Valley Bank                     Loan and Security Agreement
   -------------------------------------------------------------------------

Complete the processing, manufacturing or repair of any Collateral prior to a
disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use Borrower's premises, vehicles, hoists,
lifts, cranes, equipment and all other property without charge; (f) Sell, lease
or otherwise dispose of any of the Collateral, in its condition at the time
Silicon obtains possession of it or after further manufacturing, processing or
repair, at one or more public and/or private sales, in lots or in bulk, for
cash, exchange or other property, or on credit, and to adjourn any such sale
from time to time without notice other than oral announcement at the time
scheduled for sale. Silicon shall have the right to conduct such disposition on
Borrower's premises without charge, for such time or times as Silicon deems
reasonable, or on Silicon's premises, or elsewhere and the Collateral need not
be located at the place of disposition. Silicon may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse
or sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Silicon's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face value;
(h) Offset against any sums in any of Borrower's general, special or other
Deposit Accounts with Silicon; and (i) Demand and receive possession of any of
Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto. All reasonable
attorneys' fees, expenses, costs, liabilities and obligations incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations. Without limiting
any of Silicon's rights and remedies, from and after the occurrence of any Event
of Default, the interest rate applicable to the Obligations shall be increased
by an additional four percent per annum.

  7.3  Standards for Determining Commercial Reasonableness. Borrower and Silicon
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v)
Payment of the purchase price in cash or by cashier's check or wire transfer is
required; (vi) With respect to any sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Silicon shall be free
to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.

  7.4  Power of Attorney. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens

                                      -8-
<PAGE>

       Silicon Valley Bank                   Loan and Security Agreement
   -------------------------------------------------------------------------

therefor, or both; (i) Settle and adjust, and give releases of, any insurance
claim that relates to any of the Collateral and obtain payment therefor; (j)
Instruct any third party having custody or control of any books or records
belonging to, or relating to, Borrower to give Silicon the same rights of access
and other rights with respect thereto as Silicon has under this Agreement; and
(k) Take any action or pay any sum required of Borrower pursuant to this
Agreement and any other present or future agreements. Any and all reasonable
sums paid and any and all reasonable costs, expenses, liabilities, obligations
and attorneys' fees incurred by Silicon with respect to the foregoing shall be
added to and become part of the Obligations, shall be payable on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations. In no event shall Silicon's rights under the foregoing
power of attorney or any of Silicon's other rights under this Agreement be
deemed to indicate that Silicon is in control of the business, management or
properties of Borrower.

  7.5  Application of Proceeds.  All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations, and third to the principal of the Obligations, in such
order as Silicon shall determine in its sole discretion.  Any surplus shall be
paid to Borrower or other persons legally entitled thereto; Borrower shall
remain liable to Silicon for any deficiency.  If, Silicon, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.

  7.6  Remedies Cumulative.  In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive.  Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies.  The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.

8.DEFINITIONS.  As used in this Agreement, the following terms have the
following meanings:

  "Account Debtor" means the obligor on a Receivable.
   --------------

  "Affiliate" means, with respect to any Person, a relative, partner,
   ---------
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.

  "Business Day" means a day on which Silicon is open for business.
   ------------

  "Code" means the Uniform Commercial Code as adopted and in effect in the
   ----
State of California  from time to time.

  "Collateral" has the meaning set forth in Section 2.1 above.
   ----------

  "Default" means any event which with notice or passage of time or both, would
   -------
constitute an Event of Default.

  "Deposit Account" has the meaning set forth in Section 9105 of the Code.
   ---------------

  "Eligible Inventory"  [NOT APPLICABLE].
   ------------------

  "Eligible Receivables" means Receivables arising in the ordinary course of
   --------------------
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate.  Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "Minimum
                                                                   -------
Eligibility Requirements") are the minimum requirements for a Receivable to be
------------------------
an Eligible Receivable:  (i) the Receivable must not be outstanding for more
than 90 days from its invoice date, (ii) the Receivable must not represent
progress billings, or be due under a fulfillment or requirements contract with
the Account Debtor, (iii) the Receivable must not be subject to any
contingencies (including Receivables arising from sales on consignment,
guaranteed sale or other terms pursuant to which payment by the Account Debtor
may be conditional), (iv) the Receivable must not be owing from an Account
Debtor with whom the Borrower has any dispute (whether or not relating to the
particular Receivable), (v) the Receivable must not be owing from an Affiliate
of Borrower, (vi) the Receivable must not be owing from an Account Debtor which
is subject to any insolvency or bankruptcy proceeding, or whose financial
condition is not acceptable to Silicon, or which, fails or goes out of a
material portion of its business, (vii) the Receivable must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Silicon's satisfaction, with the United States
Assignment of Claims Act), (viii) the Receivable

                                      -9-
<PAGE>

       Silicon Valley Bank                   Loan and Security Agreement
   -------------------------------------------------------------------------

must not be owing from an Account Debtor located outside the United States or
Canada (unless pre-approved by Silicon in its discretion in writing, or backed
by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to
Silicon)*, (ix) the Receivable must not be owing from an Account Debtor to whom
Borrower is or may be liable for goods purchased from such Account Debtor or
otherwise. Receivables owing from one Account Debtor will not be deemed Eligible
Receivables to the extent they exceed 25% of the total Receivables outstanding
**. In addition, if more than 50% of the Receivables owing from an Account
Debtor are outstanding more than 90 days from their invoice date (without regard
to unapplied credits) or are otherwise not eligible Receivables, then all
Receivables owing from that Account Debtor will be deemed ineligible for
borrowing. Silicon may, from time to time, in its discretion, revise the Minimum
Eligibility Requirements, upon written notice to the Borrower.

  * , it being agreed that Hoya Health Care Corporation and Rion Co. Ltd. are
approved Account Debtors located outside of the United Stated provided that the
Accounts relating thereto are other eligible for borrowing hereunder

  ** , provided that the foregoing percentage shall be considered to be 40% with
respect to Starkey Labs, Inc. only

  "Equipment" means all of Borrower's present and hereafter acquired machinery,
   ---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.

  "Event of Default" means any of the events set forth in Section 7.1 of this
   ----------------
Agreement.

  "General Intangibles" means all general intangibles of Borrower, whether now
   -------------------
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security  and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).

  "Inventory" means all of Borrower's now owned and hereafter acquired goods,
   ---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.

  "Obligations" means all present and future Loans, advances, debts,
   -----------
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and
Silicon.

  "Permitted Liens" means the following:  (i) purchase money security interests
   ---------------
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens consented to in writing by Silicon, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the

                                     -10-
<PAGE>

       Silicon Valley Bank                   Loan and Security Agreement
   -------------------------------------------------------------------------

property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.

  "Person" means any individual, sole proprietorship, partnership, joint
   ------
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.

  "Receivables" means all of Borrower's now owned and hereafter acquired
   -----------
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, securities accounts, investment
property, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, all merchandise returned
to or repossessed by Borrower, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.

  "Reserves" means, as of any date of determination, such amounts as Silicon may
   --------
from time to time establish and revise in good faith reducing the amount of
Loans, Letters of Credit and other financial accommodations which would
otherwise be available to Borrower under the lending formula(s) provided in the
Schedule:  (a) to reflect events, conditions, contingencies or risks which, as
determined by Silicon in good faith, do or may affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation any increase in delinquencies of Receivables), (ii) the
assets, business or prospects of Borrower or any Guarantor, or (iii) the
security interests and other rights of Silicon in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Silicon's
good faith belief that any collateral report or financial information furnished
by or on behalf of Borrower or any Guarantor to Silicon is or may have been
incomplete, inaccurate or misleading in any material respect; or (c) in respect
of any state of facts which Silicon determines in good faith constitutes an
Event of Default or may, with notice or passage of time or both, constitute an
Event of Default.

  Other Terms.  All accounting terms used in this Agreement, unless otherwise
  -----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied.  All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.

9.  GENERAL PROVISIONS.

  9.1  Interest Computation.  In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day.  Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.

  9.2  Application of Payments.  All payments with respect to the Obligations
may be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.

  9.3  Charges to Accounts.  Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans.  Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.

  9.4  Monthly Accountings.  Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement.  Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.

  9.5  Notices.  All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Silicon or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party.  Notices to Silicon shall be directed to the

                                     -11-
<PAGE>

       Silicon Valley Bank                   Loan and Security Agreement
   ------------------------------------------------------------------------

Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.

   9.6    Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.

   9.7    Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
                                                                      ---------
no oral understandings, representations or agreements between the parties which
--------------------------------------------------------------------------------
are not set forth in this Agreement or in other written agreements signed by the
--------------------------------------------------------------------------------
parties in connection herewith.
------------------------------
   9.8    Waivers. The failure of Silicon at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Silicon shall not waive
or diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.

   9.9    No Liability for Ordinary Negligence. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.

   9.10   Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.

   9.11   Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.

   9.12   Attorneys Fees and Costs. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. In satisfying Borrower's obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
only Silicon and not Borrower in connection with this Agreement. If either
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. All attorneys' fees and
costs to which Silicon may be entitled pursuant to this Paragraph shall
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.

   9.13   Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall

                                      -12-
<PAGE>

       Silicon Valley Bank                   Loan and Security Agreement
   ------------------------------------------------------------------------

be void. No consent by Silicon to any assignment shall release Borrower from its
liability for the Obligations.

   9.14   Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.

   9.15   Limitation of Actions. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Silicon, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of an
action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon which
such claim or cause of action, or any part thereof, is based, and the service of
a summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.

   9.16   Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.

   9.17   Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.

                                      -13-
<PAGE>

       Silicon Valley Bank                   Loan and Security Agreement
   ------------------------------------------------------------------------

   9.18 Mutual Waiver of Jury Trial.  BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

   Borrower:

         SONIC INNOVATIONS, INC.


         By /s/ Andrew G. Raguskus
            ---------------------------------------
                  President or Vice President

         By /s/ Stephen L. Wilson
            ---------------------------------------
                  Secretary or Ass't Secretary

   Silicon:

         SILICON VALLEY BANK


         By /s/ illegible
            ---------------------------------------
         Title
               ------------------------------------

                                      -14-
<PAGE>

Silicon Valley Bank
                                   Schedule to

                           Loan and Security Agreement

Borrower:                  Sonic Innovations, Inc.
Address:                   2795 East Cottonwood Parkway, Suite 660
                           Salt Lake City, Utah 84121

Date:                      December 22, 1999

This Schedule forms an integral part of the Loan and Security  Agreement between
Silicon Valley Bank and the above-borrower of even date.

================================================================================

1.  CREDIT LIMIT
    (Section 1.1):              I.  Revolving Facility.

                                An amount (the "Revolving Loans") not to exceed:

                                (A) the lesser of: (i) $4,000,000 at any one
                                time outstanding (the "Maximum Credit Limit");
                                or (ii) 60% of the amount of Borrower's Eligible
                                Receivables (as defined in Section 8 above);

                                LESS (B) the amount of all outstanding Letters
                                of Credit (including drawn but unreimbursed
                                Letters of Credit),

                                LESS (C) the aggregate amount of the FX
                                Reserves; and

                                LESS (D) $500,000.

                                PLUS

                                II. Existing Term Loan.

                                Silicon has extended a term loan to the Borrower
                                and the current principal outstanding thereof is
                                $1,311,319.93 (the "Term Loan"). Borrower shall
                                repay the principal amount of the Term Loan in
                                48 equal monthly installments thereof beginning
                                on April 1, 2000 and the payment of such
                                installments shall continue on the first day of
                                each succeeding month until March 1, 2004, at
                                which all remaining unpaid Term Loan principal
                                amounts, all accrued and unpaid interest thereon
                                and all other unpaid remaining Obligations
                                relating thereto shall be paid in full. Further,
                                interest on the Term Loan shall be paid monthly
                                in arrears on the first day of each month
                                commencing immediately at the


<PAGE>

LEVY, SMALL, LALLAS
TRANSMITTAL NOTE

________________________________________________________________
                                                                          Page 2

                                interest rate per annum as is set forth below in
                                the Interest Rate section.

                                PLUS

                                III.  Existing Lease Facility

                                The obligations under the Lease Agreement. As
                                used herein the term "Lease Agreement" shall
                                mean that certain Master Lease Agreement dated
                                as of May 12, 1998 between Silicon and Borrower,
                                as amended from time to time. Nothing herein
                                shall be deemed to modify the terms and
                                conditions of the Lease Agreement. Any default
                                or event of default under the Lease Agreement
                                shall constitute an Event of Default hereunder.

     Foreign Exchange Sublimit  If there is availability under the Revolving
                                Loans facility then Borrower may enter in
                                foreign exchange forward contracts with Silicon
                                under which Borrower commits to purchase from or
                                sell to Silicon a set amount of foreign currency
                                more than one business day after the contract
                                date (the "FX Forward Contract"). Bank will
                                subtract 10% of each outstanding FX Forward
                                Contract (such 10% amount being the "FX
                                Reserve") from the foreign exchange reserve
                                aggregate sublimit which is a maximum of
                                $4,000,000. The total FX Forward Contracts at
                                any one time may not exceed 10 times the amount
                                of the FX Reserve. Bank may terminate the FX
                                Forward Contracts if an Event of Default occurs.

                                Borrower shall execute all standard form
                                applications and agreements of Silicon in
                                connection with the FX Forward Contracts, and
                                without limiting any of the terms of such
                                applications and agreements, Borrower shall pay
                                all standard fees and charges of Silicon in
                                connection with the FX Forward Contracts.

                                Without limiting any of the other terms of this
                                Loan Agreement or any such standard form
                                applications and agreements of Silicon, Borrower
                                agrees to indemnify Silicon and hold it
                                harmless, from and against any and all claims,
                                debts, liabilities, demands, obligations,
                                actions, costs and expenses (including, without
                                limitation, attorneys' fees of counsel of
                                Silicon's choice), of every nature and
                                description, which it may sustain or incur,
                                based upon, arising out of, or in any way
                                relating to any of the FX Forward Contracts or
                                any transactions relating thereto or
                                contemplated thereby.

     Credit Card Sublimit       Borrower may use up to $50,000 Silicon's
                                services consisting of business credit cards
                                (the "Cash Management Services"). All amounts
                                Silicon pays in connection with any such
                                services shall be treated as an Loan under the
                                Revolving Loans facility.
<PAGE>

LEVY, SMALL, LALLAS
TRANSMITTAL NOTE

_________________________________________________________________
                                                                          Page 3

    Letter of Credit Sublimit
    (Section 1.5):                      $4,000,000

================================================================================

2.  INTEREST.

          Interest Rate (Section 1.2):

                                        Revolving Loans:  A rate equal to the
                                        ---------------
                                        "Prime Rate" in effect from time to
                                        time, plus 2.00% per annum. Interest
                                        shall be calculated on the basis of a
                                        360-day year for the actual number of
                                        days elapsed. "Prime Rate" means the
                                        rate announced from time to time by
                                        Silicon as its "prime rate;" it is a
                                        base rate upon which other rates charged
                                        by Silicon are based, and it is not
                                        necessarily the best rate available at
                                        Silicon. The interest rate applicable to
                                        the Obligations shall change on each
                                        date there is a change in the Prime
                                        Rate.

                                        Term Loan:  A rate equal to the "Prime
                                        ---------
                                        Rate" in effect from time to time, plus
                                        2.50% per annum. Interest shall be
                                        calculated on the basis of a 360-day
                                        year for the actual number of days
                                        elapsed. "Prime Rate" means the rate
                                        announced from time to time by Silicon
                                        as its "prime rate;" it is a base rate
                                        upon which other rates charged by
                                        Silicon are based, and it is not
                                        necessarily the best rate available at
                                        Silicon. The interest rate applicable to
                                        the Obligations shall change on each
                                        date there is a change in the Prime
                                        Rate.

          Minimum Monthly
          Interest (Section 1.2):       Not Applicable.


================================================================================

3.  FEES (Section 1.4):

          Loan Fee:                     $24,111.11, payable concurrently
                                        herewith.

          Collateral Monitoring
          Fee:                          $1,000, per month, payable in arrears
                                        (prorated for any partial month at the
                                        beginning and at termination of this
                                        Agreement).

================================================================================

4.  MATURITY DATE
    (Section 6.1):                      See Section 10 below.
<PAGE>

LEVY, SMALL, LALLAS
TRANSMITTAL NOTE

________________________________________________________
                                                                          Page 4

================================================================================

5.  FINANCIAL COVENANTS
    (Section 5.1):                      Borrower shall comply with each of the
                                        following covenant. Compliance shall be
                                        determined as of the end of each month,
                                        except as otherwise specifically
                                        provided below:

          Minimum Tangible
          Net Worth:                    Borrower shall maintain a Tangible Net
                                        Worth of not less than - $3,500,000
                                        (that is, negative $3,500,000).

          Definitions.                  For purposes of the foregoing financial
                                        covenants, the following term shall have
                                        the following meaning:

                                        "Current assets", "current liabilities"
                                        and "liabilities" shall have the meaning
                                        ascribed thereto by generally accepted
                                        accounting principles.

                                        "Tangible Net Worth" shall mean the
                                        excess of total assets over total
                                        liabilities, determined in accordance
                                        with generally accepted accounting
                                        principles, with the following
                                        adjustments:

                                            (A)  there shall be excluded from
                                            assets: (i) notes, accounts
                                            receivable and other obligations
                                            owing to the Borrower from its
                                            officers or other Affiliates, and
                                            (ii) all assets which would be
                                            classified as intangible assets
                                            under generally accepted accounting
                                            principles, including without
                                            limitation goodwill, licenses,
                                            patents, trademarks, trade names,
                                            copyrights, capitalized software and
                                            organizational costs, licenses and
                                            franchises

                                            (B)  there shall be excluded from
                                            liabilities: all indebtedness which
                                            is subordinated to the Obligations
                                            under a subordination agreement in
                                            form specified by Silicon or by
                                            language in the instrument
                                            evidencing the indebtedness which is
                                            acceptable to Silicon in its
                                            discretion.

================================================================================

6.  REPORTING.
    (Section 5.3):

                                        Borrower shall provide Silicon with the
                                        following:

                                     1. Weekly Receivable agings, aged by
                                        invoice date to be received by Silicon
                                        by Tuesday of each week with respect to
                                        the immediately preceding week.

                                     2. Weekly accounts payable agings, aged by
                                        invoice date, to be received by Silicon
                                        by Tuesday of each week with respect to
                                        the immediately preceding week. At
                                        Silicon's request, upon an Event of
                                        Default,
<PAGE>

LEVY, SMALL, LALLAS
TRANSMITTAL NOTE

_________________________________________________________________
                                                                          Page 5

                                        Borrower shall also deliver to Silicon
                                        outstanding or held check registers, if
                                        any.

                                     3. Monthly reconciliations of Receivable
                                        agings (aged by invoice date),
                                        transaction reports, and general ledger,
                                        within fifteen days after the end of
                                        each month, provided that Borrower shall
                                        be required to provide the foregoing
                                        only if Borrower is converted to
                                        daily/weekly transaction reporting.

                                     4. [Reserved]

                                     5. Monthly unaudited financial statements,
                                        as soon as available, and in any event
                                        within thirty days after the end of each
                                        month.

                                     6. Monthly Compliance Certificates, within
                                        thirty days after the end of each month,
                                        in such form as Silicon shall reasonably
                                        specify, signed by the Chief Financial
                                        Officer of Borrower, certifying that as
                                        of the end of such month Borrower was in
                                        full compliance with all of the terms
                                        and conditions of this Agreement, and
                                        setting forth calculations showing
                                        compliance with the financial covenants
                                        set forth in this Agreement and such
                                        other information as Silicon shall
                                        reasonably request, including, without
                                        limitation, a statement that at the end
                                        of such month there were no held checks.

                                    7.  Quarterly unaudited financial
                                        statements, as soon as available, and in
                                        any event within forty-five days after
                                        the end of each fiscal quarter of
                                        Borrower.

                                    8.  Annual operating budgets (including
                                        income statements, balance sheets and
                                        cash flow statements, by month) for the
                                        upcoming fiscal year of Borrower within
                                        thirty days prior to the end of each
                                        fiscal year of Borrower.

                                    9.  Annual financial statements, as soon as
                                        available, and in any event within 120
                                        days following the end of Borrower's
                                        fiscal year, certified by independent
                                        certified public accountants acceptable
                                        to Silicon.

================================================================================

7.  Compensation
     (Section 5.5):                     [Reserved.]

================================================================================

8.  Borrower Information:

         Prior Names of
         Borrower
         (Section 3.2):                 None
<PAGE>

LEVY, SMALL, LALLAS
TRANSMITTAL NOTE

_________________________________________________________________
                                                                          Page 6

         Prior Trade
         Names of Borrower
         (Section 3.2):                 ______________

         Existing Trade
         Names of Borrower
         (Section 3.2):                 ______________

         Other Locations and
         Addresses (Section 3.3):       See Exhibit A hereto

         Material Adverse
         Litigation (Section 3.10):     None

================================================================================

9.  Other Covenants
     (Section 5.1):                     Borrower shall at all times comply with
                                        all of the following additional
                                        covenants:

                                        (1) Banking Relationship. Borrower shall
                                            at all times maintain its primary
                                            banking relationship with Silicon.

                                        (2) Subordination of Inside Debt. All
                                            present and future indebtedness of
                                            the Borrower to its officers,
                                            directors and shareholders ("Inside
                                            Debt") shall, at all times, be
                                            subordinated to the Obligations
                                            pursuant to a subordination
                                            agreement on Silicon's standard
                                            form, other than that Inside Debt
                                            relating to which Silicon has agreed
                                            in writing need not be so
                                            subordinated. Prior to incurring any
                                            Inside Debt in the future, Borrower
                                            shall cause the person to whom such
                                            Inside Debt will be owed to execute
                                            and deliver to Silicon a
                                            subordination agreement on Silicon's
                                            standard form.
<PAGE>

                                        (3) Warrants. Borrower shall provide
                                            Silicon with five-year warrants to
                                            purchase 59,009 shares of Series D
                                            Preferred stock of the Borrower, at
                                            $2.00 per share, on terms acceptable
                                            to Silicon, as set forth in the
                                            Warrant to Purchase Stock and
                                            related documents (including but not
                                            limited to an Anti-Dilution
                                            Agreement and Registration Rights
                                            Agreement) being executed
                                            concurrently with this Agreement,
                                            provided that the number of shares
                                            shall be reduced to 39,340 shares of
                                            Series D Preferred stock of the
                                            Borrower under the conditions set
                                            forth in the Warrant only. Said
                                            warrants shall be deemed fully
                                            earned on the date hereof, shall be
                                            in addition to all interest and
                                            other fees, and shall be non-
                                            refundable.

10.  TERM OF REVOLVING LOAN FACILITY AND TERM OF AGREEMENT.

                                        (a) Term of Revolving Loan Facility. The
                                            -------------------------------
                                            period during which Revolving Loans
                                            will be made (the "Revolving Loan
                                            Period") shall be from the date of
                                            this Agreement to June 30, 2000 (the
                                            "Revolving Loan Maturity Date"),
                                            unless sooner terminated in
                                            accordance with the terms of this
                                            Agreement. On the Revolving Loan
                                            Maturity Date or on any earlier
                                            termination of this Agreement, no
                                            further Revolving Loans will be
                                            made, and Borrower shall pay in full
                                            all outstanding Revolving Loans and
                                            all Obligations relating thereto.

                                        (b) Term of Agreement. The term of this
                                            -----------------
                                            Agreement shall be from the date of
                                            this Agreement to the later of the
                                            following (the "Maturity Date"): (i)
                                            the termination of the Revolving
                                            Loan Period, or (ii) the latest date
                                            the last installment of principal on
                                            the Term Loan is due.

                                        (c) Payment of Obligations.
                                            ----------------------
                                            Notwithstanding anything herein to
                                            the contrary, Borrower shall have no
                                            right to terminate this Agreement at
                                            any time that any principal of, or
                                            interest on any of the Loans or any
                                            other monetary Obligations are
                                            outstanding, except upon prepayment
                                            of all Obligations and the
                                            satisfaction of all other conditions
                                            set forth in the Loan Agreement,
                                            including, without limitation, the
                                            obligations outstanding under the
                                            Lease Agreement.
<PAGE>

LEVY, SMALL, LALLAS
TRANSMITTAL NOTE

_________________________________________________________________
                                                                          Page 8

Borrower:                                     Silicon:

 Sonic Innovations, Inc.                      SILICON VALLEY BANK


 By /s/ Andrew Raguskus, CEO                  By /s/ illegible
   -------------------------------              -------------------------------
      President or Vice President             Title
                                                   _____________________________
 By /s/ Stephen L. Wilson
   _____________________________
      Secretary or Ass't Secretary