<PAGE>
 
                                                                   EXHIBIT 10.16

                        EXCLUSIVE DISTRIBUTOR AGREEMENT

     This EXCLUSIVE DISTRIBUTOR AGREEMENT, including the attached Exhibits (the
"Agreement"), is made and entered into as of November 20, 1998 (the "Effective
Date"), by and between Somnus Medical Technologies, Inc., a Delaware corporation
with offices at 285 North Wolfe Road, Sunnyvale, California ("Somnus"), and Carl
Zeis Canada, a corporation with offices at 45 Valleybrook Drive, Ontario M3B3S6,
Canada ("Distributor").

     A.  Somnus is engaged in the business of manufacturing, distributing, and
selling Products (as defined below) and desires to engage a marketing and
distribution partner in the Territory (as defined below);

     B.  Distributor desires to solicit orders for Products from customers in
the Territory, and desires to be Somnus' sole marketing and distribution partner
in the Territory for Products solely for use within the Field (as defined
below); and

     C.  Distributor desires to purchase, and Somnus desires to sell to
Distributor, such Products for the purpose of resale to customers in the
Territory; and

     NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:

     1.  DEFINITIONS
         -----------

         1.1  "Affiliate" shall mean any entity which controls, is controlled by
               --------- 
or is under common control with Somnus or Distributor. An entity shall be
regarded as in control of another entity for purposes of this definition if it
owns or controls more than fifty percent (50%) of the shares of the subject
entity entitled to vote in the election of directors (or, in the case of an
entity that is not a corporation, for the election of the corresponding managing
authority).

         1.2  "Field" shall mean use of radiofrequency energy for the treatment
               -----
of upper airway medical conditions.

         1.3  "House Accounts" means those accounts in the Territory on attached
               --------------
Exhibit A.

         1.4  "Products" means those products listed in Exhibit B, as amended
               --------
from time to time. Products may be changed, discontinued or added by Somnus, at
its sole discretion.

         1.5 "Territory" means the geographic area set forth in Exhibit C
              ---------
hereto, including any Territory and province under the direct governmental
control of the government(s) of such geographic area.


[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE 
OMITTED PORTIONS.
<PAGE>
 
     2.  GRANT OF DISTRIBUTION RIGHTS
         ----------------------------

         2.1  Appointment. Subject to the terms and conditions of this
              -----------
Agreement, Somnus hereby grants to Distributor the exclusive right to market,
sell and distribute Products in the Territory solely for use in the Field.
Distributor agrees not to market, promote or distribute any Product for use
outside the Field or outside the Territory. Notwithstanding anything herein to
the contrary, Distributor shall market, promote, sell, and otherwise distribute
Products in accordance with all applicable law and regulations. Distributor's
sole authority shall be to purchase Products from Somnus and to promote, market
and resell such Products for delivery to customers in accordance with the terms
of this Agreement. Distributor may authorize subdistributors to market, sell or
distribute any Product in accordance with this Section 2.1, provided that
Distributor obtains Somnus' prior written authorization for such assignment to
subdistributors, and uses best efforts to ensure that such subdistributors
comply with the applicable provisions of this Agreement.

         2.2  Reservation of Rights. Notwithstanding the exclusive rights to
              ---------------------
distribute and market granted under this Agreement, nothing in this Agreement
will prevent Somnus from using the Products or intellectual property therein to
make, have made, develop, sell, license, distribute and/or market new products.
Somnus further reserves the right to market its products directly within the
Territory. For direct sales to House Accounts (as listed on Exhibit A hereto),
Somnus shall pay no compensation to Distributor. Somnus reserves the right to
appoint other authorized distributors or resellers outside the Territory without
restriction as to number and location, provided such other distributors or
resellers are prohibited from selling in the Territory.

         2.3 No Rights Beyond Products. Nothing in this Agreement shall be
             -------------------------
deemed to grant to Distributor rights in products or technology other than the
Products; nor shall any provision of this Agreement be deemed to restrict
Somnus' right to exploit Products, or patents or any other intellectual property
rights, outside the Field, outside the Territory or in products other than
Products.

         2.4 Sale Conveys No Right to Manufacture or Copy. The Products are
             --------------------------------------------
offered for sale and are sold by Distributor subject in every case to the
condition that such sale does not convey any license, expressly or by
implication, to manufacture, duplicate or otherwise copy or reproduce any of the
Products.

         2.5 Conflict of Interest. Distributor agrees that any efforts by
             --------------------
Distributor to sell competing products in the Territory would constitute a
conflict of interest with respect to Distributor's obligations to market the
Products, and Distributor warrants to Somnus that it does not currently
represent or promote any lines or products that compete with the Products.
During the term of this Agreement, in the event that Distributor represents,
promotes or otherwise tries to sell within the Territory any lines or products
that, in Somnus' judgment, compete with either the Products covered by this
Agreement, or other Somnus products in the Field, Somnus shall have the right to
terminate this Agreement upon thirty (30) days prior written notice to
Distributor pursuant to Section 9.2 below.

                                      -2-
<PAGE>
 
         2.6 Changes to Territory. The Territory may be amended from time to
             --------------------
time by Somnus at its sole discretion. Somnus shall give Distributor thirty (30)
days notice of any amendment to the Territory. Such amendment shall not
significantly diminish or otherwise alter the nature of the territory.

     3.  PRICE AND PAYMENT
         -----------------

         3.1 Prices. The difference between Somnus' transfer price and
             ------
Distributor's price to its customers shall be Distributor's sole remuneration
for the sale of the Products. The transfer price paid by Distributor for each
Product shall be as set forth in Exhibit D. Additionally, the list price at or
below which the Distributor shall be permitted to sell each Product also shall
be as set forth in Exhibit D. List Price will be mutually agreed upon by Somnus
and the Distributor. Distributor agrees not to sell products above the agreed
upon list price.

         3.2 Price Changes. Somnus may revise the transfer prices on Exhibit D
             -------------
at any time upon thirty (30) days prior written notice to Distributor. Upon
notice of a change in such prices and prior to the effective date of such
change, Distributor shall have the right to order a quantity of Product greater
than the amount already forecasted by the Distributor and as agreed to by Somnus
in writing within thirty (30) days of the date on which Somnus notified
Distributor of such change.

         3.3 Payment Terms. Distributor shall make payments to Somnus under this
             -------------
Agreement by wire transfer in United States dollars in immediately available
funds to a bank account designated by Somnus.  Except as provided in Section 4.2
below, payment for Products supplied hereunder shall be made net thirty (30)
days after the date of shipment.  Any payments due hereunder which are not paid
on the date such payments are due shall bear interest at the lesser of one and
one-half percent (1.5%) per month or the maximum rate permitted by California
law, calculated on the number of days such payment is delinquent.  In the event
that Distributor's payments due hereunder are delinquent, Distributor shall
provide Somnus with a letter of credit.  This Section 3.3 shall in no way limit
any other remedies available to Somnus.

         3.4 Taxes. Any and all amounts payable hereunder do not include any
             -----
government taxes (including without limitation, withholding, sales, use, excise,
and value added taxes) or duties imposed by any governmental agency that are
applicable to the export, import, or purchase of the Products (other than taxes
on the net income of Somnus), and Distributor shall bear all such taxes and
duties. When Distributor has the legal obligation to collect and/or pay such
taxes, the appropriate amount shall be added to Somnus invoice and paid by
Distributor, unless Somnus provides Distributor with a valid tax exemption
certificate authorized by the appropriate taxing authority.

         4.  TERMS OF PURCHASE AND SALE
             --------------------------

         4.1 Terms and Conditions. All Product purchases hereunder shall be
             --------------------
subject to the terms and conditions of this Agreement. Nothing contained in any
purchase order submitted pursuant to this Agreement shall in any way modify or
add any terms or conditions to said purchases, unless otherwise agreed in
writing by the parties.

                                      -3-
<PAGE>
 
         4.2 Initial Stocking Order. An initial stocking order placed by
             ----------------------
Distributor on the Effective Date is attached hereto as Exhibit E. Such initial
stocking order will be Distributor's minimum performance requirements for the
first calendar year of this Agreement.

         4.3  Forecasts and Cycle Counts.  Beginning on the Effective Date, and
              --------------------------                                       
thereafter on or before the first day of each month, Distributor shall provide
to Somnus a good faith, monthly written forecast of the number of units of each
Product, on a Product-by-Product basis, that Distributor expects to purchase
over the following twelve (12) months ("Forecasts").  Distributor shall submit
purchase orders for Products in accordance with the number of units of Products
forecasted in the first calendar month of each Forecast, and Somnus shall supply
Products in accordance with the first calendar month of the Forecast.  The
parties acknowledge that the last eleven (11) calendar months included in each
Forecast are for planning purposes only and shall not be binding upon the
parties.  Somnus reserves the right to assist Distributor in determining their
forecast requirements to meet minimum stocking levels and to prevent
overstocking of any product.  Somnus and Distributor shall meet no less
frequently than once per Calendar quarter to review Forecasts and cycle counts.

         4.4  Order and Acceptance. All orders shall be by means of signed
              --------------------
written purchase orders by an agent designated by Distributor to a Somnus
employee designated by Somnus, sent to Somnus at Somnus' address for notice
hereunder and requesting a delivery date that is consistent with the Forecasts
and not less than thirty (30) days after Somnus' receipt of such purchase order.
Orders shall be placed by a signed written purchase order which may be provided
to Somnus by fax. Somnus shall use reasonable efforts to fulfill purchase orders
submitted in accordance with Somnus' standard lead times, it being understood
that no purchase order shall be binding upon Somnus until accepted by Somnus by
fax or in writing. No partial shipment of an order shall constitute, the
acceptance of the entire order, absent the written acceptance of such entire
order. Distributor may cancel or reschedule purchase orders for Products only
with Somnus' prior written approval, and may be subject to a penalty for any
such cancellation.

         4.5  Invoicing. Somnus shall submit an invoice to Distributor upon
              ---------
shipment of each Product ordered by Distributor. Each such invoice shall state
Distributor's aggregate and unit purchase price for Products in a given
shipment, plus any freight, taxes or other costs incident to the purchase or
shipment initially paid by Somnus but to be borne by Distributor hereunder.

         4.6  Shipping. All Products delivered pursuant to the terms of this
              --------
Agreement shall be suitably packed for surface or air shipment, in Somnus'
discretion, in Somnus' standard shipping cartons, and delivered to Distributor
or its carrier agent F.O.B. Somnus' manufacturing plant, or such other shipping
location as Somnus may designate at its sole discretion, at which time risk of
loss shall pass to Distributor. Somnus shall ship Products using the carrier
specified in Distributor's purchase order provided that if Distributor does not
provide instructions with respect to the carrier to be used, Somnus shall select
the carrier. All freight, insurance, and other shipping expenses, as well as any
special packing expenses, shall be paid by Distributor. Distributor shall also
bear all applicable taxes, duties and similar charges that may be assessed
against the Products after delivery to the carrier F.O.B. the shipping location.
All shipments and freight charges shall be

                                      -4-
<PAGE>
 
deemed correct unless Somnus receives from Distributor, no later than ten (10)
days after the shipping date of a given shipment, a written notice specifying
the shipment, the purchase order number, and the exact nature of the discrepancy
between the order and shipment or discrepancy in the freight cost, as
applicable.

         4.7  Product Returns. Except as set forth in Article 6 below,
              ---------------
Distributor may only return Products within [*] days of receipt. Such
Products shall be subject to a restocking fee in an amount equal to [*]
of the transfer price paid by Distributor to Somnus for such Products and
shall be returned F.O.B. the destination point designated by Somnus. Products
may not be returned to Somnus after more than [*] days.

     5.  ACCEPTANCE
         ----------

     Distributor shall inspect all Products promptly upon receipt thereof and
may reject any Product that fails to conform to the warranties set forth in
Article 6 below at the time of delivery to Distributor, provided that
Distributor complies with the provisions of Section 6.2 below.  Except as set
forth in Section 4.7, Article 5 and Article 6 below, Distributor shall return
Products to Somnus only with Somnus' prior written approval.

     6.  WARRANTY
         --------

         6.1  Product Warranty. Somnus warrants to Distributor that at the time
              ----------------
of delivery to Distributor the Products purchased by Distributor shall (i) meet
the specifications for the Products as the same may be amended from time to
time, and (ii) be free from defects in materials or workmanship, all applicable
laws in the place of manufacture. This warranty is contingent upon proper use of
Products in the application for which they were intended as indicated in the
Product label claims, and Somnus makes no warranty (express, implied, or
statutory) for Products that are modified (except as expressly contemplated
herein), or subjected to accident, misuse, neglect, unauthorized repair, or
improper testing or storage.

         6.2  Exclusive Remedy. In the event that any Product purchased by
              ----------------
Distributor from Somnus fails to conform to the warranty set forth in Section
6.1 above or is recalled pursuant to Section 7.9.2, Distributor's sole and
exclusive liability and Distributor's exclusive remedy shall be, at Somnus' sole
election, to repair or replace the Product, or component thereof or credit
Distributor's account for the amount actually paid for any such Product, or
component thereof, provided that (i) Distributor promptly notifies Somnus in
writing that such Product failed to conform and furnishes an explanation of any
reported nonconformity and requests a return material authorization number; (ii)
such Product is returned to Somnus by Distributor F.O.B. the address designated
by Somnus during the warranty period with the return material authorization
number affixed prominently to the outside packaging; and (iii) the reported
nonconformities actually exist and were not caused by accident, misuse, neglect,
alteration, repair or improper testing or storage. If such Product fails to so
conform, Somnus will reimburse Distributor for shipment charges for return of
the nonconforming Product.

         6.3 Exclusion of Other Warranties. EXCEPT FOR THE LIMITED WARRANTIES
             -----------------------------
PROVIDED IN SECTION 6.1 ABOVE, SOMNUS GRANTS NO OTHER

                                      -5-



[**]  Certain information on this page has been omitted and filed separately 
with the Securities and Exchange Commission. Confidential treatment has been 
requested with respect to the omitted portions.

<PAGE>
 
WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE, IN ANY COMMUNICATION
WITH DISTRIBUTOR OR ITS CUSTOMERS, OR OTHERWISE, REGARDING THE PRODUCTS OR
VALIDITY OF SOMNUS' TECHNOLOGY, AND SOMNUS SPECIFICALLY DISCLAIMS THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. SOMNUS NEITHER
ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME ANY OTHER LIABILITIES ARISING
OUT OF OR IN CONNECTION WITH THE SALE OR USE OF ANY SOMNUS PRODUCT.

     7.  ADDITIONAL OBLIGATIONS OF DISTRIBUTOR
         -------------------------------------

         7.1  Marketing Approval. The Distributor and Somnus shall mutually
              ------------------
agree who is responsible for costs associated with preparation and filing of all
regulatory documents, product clinical trials, registering, licensing and
permits required to comply with the laws of regulations of the Territory for
sale and distribution of Products. If either party determines that these costs
are prohibitive to doing business within the Territory then the contract would
be terminated.

         7.2  Minimum Performance Requirements. Distributor shall use reasonable
              --------------------------------
efforts to (i) maximize Product sales for use in the Field in the Territory and
(ii) ensure that Somnus gains appropriate market access in the Territory. During
each calendar year Distributor shall meet the minimum performance requirements
set forth in Exhibit F (collectively, "Minimum Performance Requirements"). If
Distributor does not meet the Minimum Performance Requirements at any time
during the Term, Somnus shall have the right to terminate Distributor's rights
under this Agreement pursuant to Section 9.2 below. It is understood and agreed
that notwithstanding any other provision of this Agreement, Somnus shall be
under no obligation to continue the production of any Product. In the event that
Somnus abandons or discontinues production of any Product, the Minimum
Performance Requirements under this Section 7.2 with respect to such Product
shall no longer apply to such Product.

         7.3  Inventory. Distributor shall maintain a quantity of each Product
              ---------
at all times during the Term (as defined in Section 9.1, below) of this
Agreement as reasonably necessary in order to meet the demand of Distributor's
customers and potential customers.

         7.4  Translation. Distributor shall at its cost provide any and all
              -----------
resources necessary to translate all required manuals, instructions, literature,
and package insert data sheets for use in the Territory, and shall provide
Somnus and the applicable regulatory authorities sufficient quantities of such
materials to meet governmental and/or regulatory, and market support
requirements.

         7.5  Reports. Distributor shall provide Somnus, within ten (10) working
              -------
days after the end of each calendar quarter, a general description of
Distributor's activities in promoting the Products in the Territory during the
previous calendar quarter. Such report shall also list all of Distributor's
agents and employees engaged in the sales and marketing of the Products.
Additionally, Distributor shall provide Somnus, within five (5) working days
after the end of each month, a monthly inventory roll forward by product in
units and in United States dollars, including,

                                      -6-
<PAGE>
 
but not limited to, the following information: beginning inventory, sales in,
sales out (including a listing of all product shipments by customer for each
month), and ending inventory. Distributor shall also provide inventory aging and
cycle count reports. Somnus, at Somnus' own expense with ten (10) days notice to
Distributor, reserves the right to conduct a physical inventory, perform cycle
counts, have independent auditors observe or perform the inventory, or otherwise
request independent confirmation of Distributor's inventory. Further,
Distributor shall provide Somnus with non-confidential financial reports on an
annual basis unless mutually agreed otherwise in writing.

         7.6  Product Packaging and Labeling. Distributor shall not repackage
              ------------------------------
Products supplied to Distributor by Somnus hereunder without the prior written
consent of Somnus. In addition, except for the addition of information required
by applicable laws and regulations, Distributor shall not relabel Products
supplied to Distributor by Somnus hereunder without the prior written consent of
Somnus.

         7.7  Market Research. Distributor shall assist Somnus in assessing
              ---------------
customer requirements for the Products, including modifications and improvements
thereto, in terms of quality, design, functional capability, and other features.
Distributor shall advise Somnus on market conditions as reasonably requested by
Somnus.

         7.8  Training. Distributor shall maintain knowledgeable sales and
              --------
marketing personnel to provide instructions to customers in the use of the
Products. Distributor agrees that each of Distributor's employees or agents who
will be selling or marketing any of the Products shall first, at Somnus'
expense, attend a hands-on sales training session provided by Somnus with
respect to the Products as set forth in Section 8.3, unless such training is
waived in advance in writing by Somnus. Somnus reserves the right to limit the
number of Distributor's personnel present at each training session.

    7.9  Other Reporting.
         --------------- 

         7.9.1  Somnus shall provide, at Somnus' expense, within sixty (60) days
after publication, copies of any and all articles, manuscripts, abstracts or
other literature relating to the Products generated by investigators or others
in the Territory in each case to the extent reasonably available to Somnus.

         7.9.2  Pursuant to the FDA's Medical Device Reporting (MDR)
Regulations, Somnus may be required to report to the FDA information that
reasonably suggests that a Product may have caused or contributed to the death
or serious injury or has malfunctioned and that the device would be likely to
cause or contribute to a death or serious injury if the malfunction were to
recur. Each of Somnus and Distributor agree to supply to the other any such
information promptly after becoming aware of it so that each of Somnus and
Distributor can comply with governmental reporting requirements. It is
understood and agreed that reporting to Somnus shall be within twenty-four (24)
hours after notification to Distributor to enable Somnus to comply with FDA
reporting requirements. In the event that Somnus is required by any regulatory
agency to recall the Products or if Somnus voluntarily initiates a recall of the
Products, Distributor shall cooperate with and assist Somnus in locating and
retrieving if necessary, the recalled Products from Somnus' customers.

                                      -7-
<PAGE>
 
Distributor shall maintain records of sales of Products to customer by lot
number, and/or Distributor shall make such records available to Somnus in the
event of a Product recall or other quality related issue, upon reasonable
request from Somnus. Distributor shall be responsible for obtaining all records
of Distributor's sales to end users in the event of a Product recall or other
quality related issue. During the time that the Products are commercially
marketed, distributed, or sold by Distributor, Distributor also shall, within
five (5) business days, forward all Product complaints which it receives to
Somnus. Distributor shall make available to Somnus for inspection, Distributor's
process and records for adverse event and other regulatory reporting purposes at
mutually agreed upon times and further shall ensure that Distributor's processes
comply with all applicable laws and regulations in the United States and the
Territory.

         7.10  Business Obligations. Any and all obligations associated with
               --------------------
Somnus' business shall remain the sole responsibility of Somnus. Any and all
sales and other agreements between Distributor and its customers are and shall
remain Distributor's exclusive responsibility and shall have no affect on
Somnus' obligations pursuant to this Agreement.

         7.11  Copyright and Trademark Protection. Distributor shall, at Somnus'
               ----------------------------------
request and at Somnus' expense, promptly notify Somnus of the requirements for
copyright and trademark protection and registration for the Products in the
Territory and at Somnus' request shall assist Somnus in fulfilling such
requirements.

         7.12  Advertising and Promotions. Distributor shall be responsible for
               --------------------------
all Product marketing commitments and procedures in the Territory in the Field.
Distributor shall list the Products in its catalogs and make such Products
available to its customers. Distributor shall vigorously advertise and promote
the Products and shall transmit Product information and promotional materials to
its customers, as reasonably necessary in order to maximize Product sales in the
Territory. Such advertising and promotion may take the form of, but shall not be
limited to, magazine advertising, direct mail promotion, trade show displays,
educational seminars and other activities related to promoting Products.

         7.13  Materials. Distributor shall provide to Somnus for purposes of
               ---------
review, comment and prior approval by Somnus all promotional, advertising, and
educational materials and programs, package data sheets, and other literature
relating to the Products at least thirty (30) days prior to the commercial
release of such materials or commencement of such programs.

     8.  ADDITIONAL OBLIGATIONS OF SOMNUS
         --------------------------------

         8.1  Samples. Somnus at its discretion and at its Products expense
              -------
shall provide to Distributor samples of its Disposable Handpieces for
Distributor's use in obtaining marketing approval.

         8.2  Promotional Materials. Somnus, at Somnus' expense, shall provide
              ---------------------
to Distributor English language samples of promotional support materials for the
Products. Such materials shall include, without limitation, brochures and
advertising literature.

                                      -8-
<PAGE>
 
         8.3  Training. Somnus will provide training for Distributor personnel
              -------- 
in connection with the marketing, sale, installation, maintenance and support of
Products. All reasonable expenses, as determined by Somnus, incurred by
Distributor's personnel in connection with all training including, without
limitation, travel and lodging expenses, shall be borne by Somnus. Somnus
reserves the right to limit the number of Distributor's personnel present at
each training session. Training shall be conducted at mutually agreed
facilities.

         8.4  Technical Support. During the Term of the Agreement, Somnus shall
              -----------------
provide technical support to Distributor in respect of the Products, as
reasonably requested by Distributor; provided, however, that Somnus shall not be
obligated to provide Distributor with more than eight (8) hours of such support
during any calendar month. In the event Distributor reasonably requests more
than eight (8) hours of technical support in a given month, Somnus shall have
the right to receive payment with respect thereto, in accordance with its
standard rates and conditions of support.

         8.5  Scientific and Technical Information. Somnus shall provide to
              ------------------------------------
Distributor scientific and technical information required to obtain and maintain
registrations, licenses and permits required for sale and distribution of the
Products in the Territory, or to respond to inquiries from customers, or
governmental or regulatory authorities.

     9.  TERM AND TERMINATION
         --------------------

         9.1  Term. This Agreement shall become effective as of the Effective
              ----
Date and shall continue in full force and effect for a period of one (1) year
from the Effective Date ("Initial Term"), unless earlier terminated in
accordance with this Article 9. Thereafter, this Agreement will automatically
renew for two additional renewal terms of one (1) year each (each a "Renewal
Term"), unless earlier terminated by either party pursuant to this Article 9
below by written notice to the other party at least sixty (60) days prior to the
expiration of the Initial Term or any Renewal Term. The Initial Term and Renewal
Terms are referred to collectively herein as the "Term."

         9.2  Termination for Cause. In addition to Somnus' right to terminate
              --------------------- 
this Agreement pursuant to Sections 2.5 or 7.2 above, either Somnus or
Distributor may terminate this Agreement by written notice stating each party's
intent to terminate in the event the other shall have breached or defaulted in
the performance of any of its material obligations hereunder, and such default
shall have continued for thirty (30) days after written notice thereof was
provided to the breaching party by the non-breaching party.

         9.3  Termination for Bankruptcy. Either party may terminate this
              -------------------------- 
Agreement effective upon written notice to the other party in the event the
other party declares bankruptcy or becomes the subject of any voluntary or
involuntary proceeding under the U.S. Bankruptcy Code, foreign equivalent or
state insolvency proceeding and such proceeding is not terminated within ten
(10) days of its commencement.

                                      -9-
<PAGE>
 
     9.4  Effect of Termination.
          --------------------- 

          9.4.1  In the event of termination by either party in accordance with
any of the provisions of this Agreement, neither party shall be liable to the
other, because of such termination, for compensation, reimbursement or damages
on account of the loss of prospective profits or anticipated sales or on account
of expenditures, inventory, investments, leases or commitments in connection
with the business or goodwill of Somnus or Distributor. Expiration or
termination of this Agreement for any reason shall not release any party hereto
from any liability which, at the time of such termination, has already accrued
to the other party or which is attributable to a period prior to such
termination nor preclude either party from pursuing any rights and remedies it
may have hereunder or at law or in equity with respect to any breach of this
Agreement. It is understood and agreed that monetary damages may not be a
sufficient remedy for any breach of this Agreement and that the non-breaching
party may be entitled to injunctive relief as a remedy for any such breach. Such
remedy shall not be deemed to be the exclusive remedy for any such breach of
this Agreement, but shall be in addition to all other remedies available at law
or in equity.

         9.4.2 Within ten (10) days after the effective date of termination of
this Agreement, Distributor shall provide Somnus with a complete list of all
individuals or entities that, during the ninety (90) days preceeding
termination, Distributor had contacted regarding the purchase of a Somnus
Generator (the "Prospects List"). With regard to any Generators sold by Somnus
within sixty (60) days of termination to individuals or entities identified on
the Prospects List, Somnus shall compensate Distributor [*] of the difference
between the net sales price and the transfer price, (a "Commission"). Somnus'
obligation to pay Distributor any such Commission is subject to and conditional
upon Distributor's cooperation with any replacement Distributor. Somnus may
withhold, for up to six (6) months, the payment of any Commission if Somnus
determines that there may be sufficient credits or other adjustments which
warrant such action. If Somnus is owed any amounts by Distributor, Somnus shall
have the right, in its absolute discretion, to offset any Commission payable by
Somnus to Distributor by such obligation owed to Somnus by Distributor.

         9.4.3 Within ten (10) days after the effective date of termination of
this Agreement, Distributor shall use its reasonable efforts to provide Somnus
with a complete inventory of unsold, resalable Products in the Territory, and in
transit to Somnus from Distributor.

         9.4.4 Upon expiration or any termination of this Agreement, Somnus or
its designee may, at its sole option, repurchase and Distributor shall sell to
Somnus or its designee, all of Distributor's inventory of Products existing on
the effective date of termination. The price of inventory repurchased upon
termination of this Agreement pursuant to Section 9.2 shall be the transfer
price paid by Distributor net of any prior price adjustment, credits or other
allowances. If Somnus terminates this Agreement pursuant to Section 7.2 or 9.2,
then a restocking charge of [*] of the repurchase price shall be added to the
transfer price for Products repurchased upon termination. Products repurchased
from Distributor by Somnus pursuant to this Section 9.6.3 shall be shipped
promptly by Distributor, at Distributor's expense, to a location specified by
Somnus. Aged inventory over 6 months will be valued at [*] of original transfer
cost.


[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE 
OMITTED PORTIONS.

                                      -10-
<PAGE>
 
         9.4.5 Upon expiration or any termination of this Agreement,
Distributor shall transfer any ownership not then residing in Somnus of any and
all Product authorizations, registrations, permits, and approvals of any kind
with respect to Products and applications therefor, including without limitation
marketing approval applications, and any other governmental approvals,
registrations and the like to Somnus, at Somnus' cost and expense and shall
execute such documents and perform such acts as may be necessary, useful, or
convenient to perfect such transfer. It is understood that Somnus may use and
disclose the foregoing for any purpose.

         9.4.6 Upon termination of this Agreement, Distributor will fill orders
received by Distributor prior to the date of notice of such termination.

         9.4.7 Return of Materials. All trademarks, marks, trade names,
               -------------------
patents, copyrights, designs, drawings, formulas or other data, photographs,
samples, literature, and sales and promotional aids of every kind relating to
the Products shall remain the property of Somnus except those items Distributor
has solely developed or translated. Effective upon the termination of this
Agreement, Distributor shall cease to use all trademarks and trade names of
Somnus.

         9.4.8  No Renewal, Extension or Waiver. Acceptance of any order from,
                -------------------------------
or sale of, any Product to Distributor after the date of termination of this
Agreement shall not be construed as a renewal or extension hereof, or as a
waiver of termination by Somnus.

         9.4.9  Survival of Certain Terms. The provisions of Articles 6, 10, 12,
                -------------------------
13, 14 and Sections 2.3, 2.4, and 9.4, shall survive the expiration or
termination of this Agreement for any reason.

     10. CONFIDENTIALITY
         ---------------

         10.1  Confidential Information. Except as expressly provided herein,
               ------------------------
the parties agree that, for the term of this Agreement and for three (3) years
thereafter, the receiving party shall not publish or otherwise disclose and
shall not use for any purpose, except as expressly permitted herein any
information furnished to it by the other party hereto pursuant to this Agreement
which if disclosed in tangible form is marked "Confidential" or with other
similar designation to indicate its confidential or proprietary nature, or if
disclosed orally is confirmed as confidential or proprietary by the party
disclosing such information at the time of such disclosure or within thirty (30)
days thereafter ("Confidential Information"). Notwithstanding the foregoing, it
is understood and agreed that Confidential Information shall not include
information that, in each case as demonstrated by written documentation:

               a. was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;

               b. was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;

                                      -11-
<PAGE>
 
               c. became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; or

               d. was subsequently lawfully disclosed to the receiving party by
a person other than a party hereto or developed by the receiving party without
reference to any information or materials disclosed by the disclosing party.

         10.2 Permitted Disclosures. Notwithstanding the provisions of Section
              ---------------------
10.1 above, each party hereto may disclose the other's Confidential Information
to the extent such disclosure is reasonably necessary in prosecuting or
defending litigation, complying with applicable governmental regulations, or
submitting information to tax or other governmental authorities provided that if
a party is required to make any such disclosure of another party hereto's
Confidential Information, to the extent it may legally do so, it will give
reasonable advance written notice to the latter party of such disclosure and
will use its reasonable efforts to secure confidential treatment of such
Confidential Information prior to its disclosure (whether through protective
orders or otherwise). If the party whose Confidential Information is to be
disclosed has not filed a patent application with respect to such Confidential
Information, it may require the other party to delay the proposed disclosure (to
the extent the disclosing party may legally do so), for up to thirty (30) days
after receipt of written notice from the disclosing party of its intent to
disclose, to allow for the filing of such an application. In addition, Somnus
may disclose the existence of this Agreement and the terms and conditions hereof
to advisors, prospective investors, and others under circumstances that
reasonably ensure the confidentiality thereof.

     11.  TRADEMARKS AND TRADE NAMES
          --------------------------

         11.1 Marks. During the term of this Agreement, Distributor shall have
              -----
the right and agrees to, advertise and promote the Products in the Territory
under Somnus' trademarks and trade names identified on Exhibit G as modified by
Somnus pursuant to this Section 11.1 ("Marks"). Somnus reserves the right to
modify Marks or substitute alternative marks for any or all of the Marks at any
time upon ten (10) days prior written notice, provided that Somnus shall not
modify the Marks unreasonably after the filing of the Marketing Approval
Application. The rights granted under this Section 11.1 shall automatically
terminate on termination or expiration of this Agreement. Somnus shall endeavor
to register the Marks with the European Patent Office as trademarks in the
appropriate classes and maintain the registrations of such Marks, and
Distributor shall cooperate and upon Somnus' reasonable request, provide full
information and reasonable assistance to Somnus in registering and maintaining
the Marks, including without limitation providing evidence of use of the Marks
as reasonably required to renew registrations or defend actions for
cancellations.

         11.2  Use. Distributor shall not remove, modify, or obscure Marks
               ---
affixed to Products without the prior written consent of Somnus, unless required
by law. Except as set forth in this Section 11.2, nothing contained in this
Agreement shall grant to Distributor any right, title or interest in or to Marks
whether or not specifically recognized or perfected under applicable laws of the
Territory, and Distributor irrevocably assigns to Somnus all such right, title
and interest, if any,

                                      -12-
<PAGE>
 
in any Marks. At no time during or after the term of this Agreement shall
Distributor challenge or assist others to challenge Marks or the registration
thereof or attempt to register any trademarks, marks or trade names confusingly
similar to Marks. All representations of Marks that Distributor intends to use
shall first be submitted to Somnus for review of design, color, and other
details or shall be exact copies of those used by Somnus. In addition,
Distributor shall fully comply with all reasonable guidelines, if any,
communicated by Somnus concerning the use of Marks.

         11.3  Foreign Corrupt Practices Act. In conformity with the United
               -----------------------------
States Foreign Corrupt Practices Act and with Somnus' established corporate
policies regarding foreign business practices, Distributor and its employees and
agents shall not directly or indirectly make any offer, payment, promise to pay,
or authorize payment, or offer a gift, promise to give, or authorize the giving
of anything of value for the purpose of influencing an act or decision of an
official of any government within the Territory or the United States Government
(including a decision not to act) or inducing such a person to use his influence
to affect any such governmental act or decision in order to assist Somnus in
obtaining, retaining or directing any such business in violation of the Foreign
Corrupt Practices Act.

     12.  INTELLECTUAL PROPERTY
          ---------------------

          12.1  Somnus Defense. Distributor agrees that Somnus has the right to
                -------------- 
defend, or at its option to settle, and Somnus agrees, at its own expense, to
defend or at its option to settle, any claim, suit or proceeding brought against
Distributor by any third party for infringement of any patent by the Products.
Somnus shall have sole control of any such action or settlement negotiations,
and Somnus agrees to pay, subject to the limitations hereinafter set forth, any
final judgment entered against Distributor on such issue in any such claim, suit
or proceeding defended by Distributor. Distributor agrees that Somnus, at its
sole option, shall be relieved of the foregoing obligations unless Distributor
(i) notifies Somnus promptly in writing of such claim, suit or proceeding; (ii)
gives Somnus authority to proceed as contemplated herein; and (iii) at Somnus'
expense, gives Somnus proper and full information and assistance to settle or
defend any such claim, suit or proceeding for infringement of any patent.
Notwithstanding the foregoing, Somnus' obligation to defend Distributor under
this Section 12.1 shall not apply to any claims, suits, or proceedings to the
extent they allege infringement of third party components. Somnus shall not be
liable for any costs or expenses incurred without its prior written
authorization. Notwithstanding the provisions of this Article 12, Somnus assumes
no infringement liability for (x) combination of Products with other products
not provided by Somnus, which infringement would not arise from such Products
standing alone, or (y) the modification of such Products, where such
infringement would not have occurred but for such modifications.

          12.2  Remedy.  Notwithstanding the foregoing, if it is adjudicatively
                ------
determined that any Product infringes, or in Somnus sole opinion, may be found
to infringe a third party's patent, or if the sale or use of the Products is, as
a result, enjoined, then Somnus may, at its option and expense, either: (i)
procure for Distributor the right under such patent to sell or use, as
appropriate, the Products; or (ii) replace the Products with other non-
infringing functionally equivalent products; or (iii) modify the Products to
make the Products functionally equivalent and non-infringing; or

                                      -13-
<PAGE>
 
(iv) if the use of the Products is prevented by injunction, discontinue Product
sales under the Agreement and remove any Products in Distributor's inventory and
refund the aggregate payments paid therefor by Distributor.

          12.3  DISCLAIMER. THE FOREGOING PROVISIONS OF THIS ARTICLE 12 STATE
                ----------
THE ENTIRE LIABILITY OF SOMNUS AND THE EXCLUSIVE REMEDY OF DISTRIBUTOR AND ITS
CUSTOMERS, WITH RESPECT TO ANY ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHTS,
TRADEMARKS OR OTHER INTELLECTUAL PROPERTY RIGHTS BY THE PRODUCTS OR ANY PART
THEREOF.

     13.  INDEMNIFICATION
          ---------------

          13.1 Indemnification of Distributor. Somnus shall indemnify, defend,
               ------------------------------
and hold harmless Distributor, and its directors, officers, employees, and
agents and the successors and assigns of any of the foregoing (the "Distributor
Indemnitees") from and against all claims, losses, costs, and liabilities
(including, without limitation, payment of reasonable attorneys' fees and other
expenses of litigation), and shall pay any damages (including settlement
amounts) finally awarded with respect to claims, suits, or proceedings (any of
the foregoing, a "Claim") brought by third parties against a Distributor
Indemnitee, alleging bodily injury, death or property damage caused by (a) a
breach by Somnus of warranties and representations, or (b) the negligence or
willful misconduct of Somnus, its employees or agents, except to the extent such
Claim is covered under Section 13.2 below or is caused by the negligence or
willful misconduct of a Distributor Indemnitee.

          13.2  Indemnification of Somnus. Distributor shall indemnify, defend,
                -------------------------
and hold harmless Somnus, and its directors, officers, employees and agents, and
the successors, and assigns of any of the foregoing (the "Somnus Indemnitees")
from and against all claims, losses, costs, and liabilities (including, without
limitation, payment of reasonable attorneys' fees and other expenses of
litigation), and shall pay any damages (including settlement amounts) finally
awarded with respect to a Claim brought by third parties against a Somnus
Indemnitee, arising out of or relating to (a) Products used, sold, or otherwise
distributed by Distributor, except to the extent such claim is covered under
Section 13.1 above; (b) breach of any of the representations or warranties made
by Distributor hereunder, or (c) the negligence or willful misconduct of
Distributor, its employees or agents.

         13.3  Indemnification Procedures. A party (the "Indemnitee") that
               --------------------------
intends to claim indemnification under this Article 13 shall promptly notify the
other party (the "Indemnitor") in writing of any claim in respect of which the
Indemnitee or any of its directors, officers, employees, agents, licensors,
successors, or assigns intends to claim such indemnification, and the Indemnitor
shall have sole control of the defense and/or settlement thereof, provided that
the indemnified party may participate in any such proceeding with counsel of its
choice at its own expense. The indemnity agreement in this Article 13 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the consent of the Indemnitor, which consent shall not be withheld
unreasonably. The failure to deliver written notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve

                                      -14-
<PAGE>
 
such Indemnitor of any liability to the Indemnitee under this Article 13, but
the omission to so deliver written notice to the Indemnitor shall not relieve
the Indemnitor of any liability that it may otherwise have to any Indemnitee
than under this Article 13. The Indemnitee under this Article 13, its employees
and agents, shall cooperate fully with the Indemnitor and its legal
representatives and provide reasonable information in the investigation of any
Claim covered by this indemnification. Notwithstanding anything to the contrary
contained in this Article 13, neither party shall be liable for any costs or
expenses incurred without its prior written authorization.

     14.  LIMITATION OF LIABILITY
          -----------------------

     EXCEPT FOR LIABILITY ARISING UNDER SECTION 13.1 AND ARTICLE 12, SOMNUS'
LIABILITY ARISING OUT OF THIS AGREEMENT, THE TERMINATION THEREOF, AND/OR SALE OF
THE PRODUCTS SHALL BE LIMITED TO THE AMOUNT PAID BY DISTRIBUTOR FOR THE PRODUCT.
IN NO EVENT SHALL SOMNUS BE LIABLE TO DISTRIBUTOR FOR COSTS OF PROCUREMENT OF
SUBSTITUTE GOODS, LOST PROFITS, OR ANY OTHER SPECIAL, CONSEQUENTIAL, OR
INCIDENTAL DAMAGES, HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY ARISING OUT
OF THIS AGREEMENT WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), OR
OTHERWISE.  THESE LIMITATIONS SHALL APPLY WHETHER OR NOT SOMNUS HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN.

     15.  DISPUTE RESOLUTION
          ------------------

          15.1 Disputes. If Somnus and Distributor are unable to resolve any
               --------  
dispute between them, either Somnus or Distributor may, by written notice to the
other, have such dispute referred to the chief executive officers (or
equivalent) of Somnus and Distributor, for attempted resolution by good faith
negotiations within thirty (30) days after such notice is received. Unless
otherwise mutually agreed, the negotiations between the designated officers
shall be conducted by telephone, within ten (10) days, and at times within the
period stated above as offered by the designated officers of Somnus to the
designated officer of Distributor for consideration.

          15.2  Arbitration. Any dispute, controversy or claim arising out of or
                -----------
relating to the validity, construction, enforceability or performance of this
Agreement, including disputes relating to alleged breach or to termination of
this Agreement, shall be settled by final, binding arbitration in the manner
described in this Section 15.2. The arbitration shall be conducted pursuant to
the Commercial Arbitration Rules of the American Arbitration Association then in
effect ("Rules"). Notwithstanding those Rules, the following provisions shall
apply to arbitration hereunder:

               1.  Arbitrators. The arbitration shall be conducted by a panel of
                   -----------
three (3) arbitrators ("the Panel"). Each party shall have the right to appoint
one (1) member of the Panel, with the third member to be mutually agreed by the
two (2) Panel members appointed by the parties or appointed in accordance with
the rules of the American Arbitration Association. The arbitrators shall be
persons in the medical device industry with experience in the matters in
dispute.

                                      -15-
<PAGE>
 
     2.  Proceedings.  The parties and the arbitrators shall use their best
         -----------                                                       
efforts to complete the arbitration within one (1) year after the appointment of
the Panel under Section 15.2.1 above, unless a party can demonstrate to the
Panel that the complexity of the issues or dispute other reasons warrant the
extension of the time table.  In such case, the Panel may extend such time table
as reasonably required.  Notwithstanding the foregoing, any arbitration of
whether a payment is due under Article 3 above shall be completed and a decision
reached within thirty (30) days after the appointment of the Panel.  The Panel
shall, in rendering its decision, apply the substantive law of the State of
California, without regard to its conflict of laws provisions, except that the
interpretation of and enforcement of this Article 15 shall be governed by the
U.S. Federal Arbitration Act.  The proceeding shall take place in the city of
San Francisco, California.  The fees of the Panel shall be paid by the losing
party which party shall be designated by the Panel.  If the Panel is unable to
designate a losing party, it shall so state and the fees shall be shared equally
between the parties.

     16.  MISCELLANEOUS PROVISIONS
          ------------------------

          16.1 Independent Contractors. The relationship of Somnus and
               -----------------------
Distributor established by this Agreement is that of independent contractors,
and nothing contained in this Agreement shall be construed to (i) give either
party the power to direct or control the day-to-day activities of the other,
(ii) constitute the parties as partners, joint venturers, co-owners or otherwise
as participates in a joint or common undertaking, or (iii) allow a party to
create or assume any obligation on behalf of the other party for any purpose
whatsoever.

          16.2  Notices. Any notice required or permitted by this Agreement
                -------
shall be in writing and shall be sent by prepaid registered or certified mail,
return receipt requested, internationally-recognized courier or personal
delivery, addressed to the other party at the address shown at the beginning of
this Agreement or at such other address for which such party gives notice
hereunder. Such notice shall be deemed to have been given when delivered:

                If to Somnus:        Stuart D. Edwards
                                     Somnus Medical Technologies, Inc.
                                     285 North Wolfe Road
                                     Sunnyvale, California 94086
                                     United States of America

                If to Distributor:   Robert Wehkamp
                                     Carl Zeis Canada
                                     45 Valleybrook Drive
                                     Ontario M3B3S6
                                     Canada

          16.3 Force Majeure. Nonperformance of any party hereto (except for
               -------------
payment obligations) shall be excused to the extent that performance is rendered
impossible by strike, fire, earthquake, flood, governmental acts or orders or
restrictions, delay or failure of suppliers, or any

                                      -16-
<PAGE>
 
other reason where failure to perform is beyond the reasonable control and not
caused by the gross negligence or willful misconduct of the nonperforming party.

          16.4  Assignment. This Agreement shall not be assignable by either
                ----------
party to any third party hereto without the written consent of the other party
hereto, except that either party will assign this Agreement without the other
party's consent to an entity that acquires all or substantially all of the
business or assets of the assigning party pertaining to the subject matter
hereof, in each case whether by merger, acquisition, or otherwise.

          16.5  No Implied Waivers; Rights Cumulative. No failure on the part of
                -------------------------------------
Somnus or Distributor to exercise and no delay in exercising any right under
this Agreement, or provided by statute or at law or in equity or otherwise,
shall impair, prejudice or constitute a waiver of any such right, nor shall any
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right.

          16.6  Partial Invalidity. If any provision of this Agreement is held
                ------------------
to be invalid by a court of competent jurisdiction, then the remaining
provisions shall remain, nevertheless, in full force and effect. The parties
agree to renegotiate in good faith any term held invalid and to be bound by the
mutually agreed substitute provision in order to give the most approximate
effect intended by the parties.

          16.7  No Implied Licenses. Except as expressly provided herein, no
                -------------------
party hereto grants to any other party hereto any rights or licenses under such
party's patent rights, trade secrets or other intellectual property rights.

          16.8  Language. This Agreement is in the English language, which
                --------
language shall be controlling in all respects, and all versions hereof in any
other language shall be for accommodation only and shall not be binding upon the
parties hereto. All communications and notices to be made or given pursuant to
this Agreement shall be in the English language.

          16.9  Counterparts. This Agreement may be executed in two or more
                ------------  
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

          16.10  Entire Agreement. This Agreement, including the Exhibits
                 ----------------  
attached hereto, constitutes the entire agreement of the parties with respect to
the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between Somnus and
Distributor with respect to such subject matter. No amendment or modification
hereof shall be valid or binding upon the parties unless made in writing and
signed by the duly authorized representatives of both parties.

                                      -17-
<PAGE>
 
     IN WITNESS WHEREOF, the undersigned are duly authorized to execute this
Agreement on behalf of Somnus and Distributor as applicable effective as of the
Effective Date.

Somnus Medical Technologies, Inc.      Carl Zeis Canada
("Somnus")                             ("Distributor")

By: /s/ Stuart D. Edwards              By:    /s/ R. Wehkamp
   ------------------------------         --------------------------------

Print Name: Stuart D. Edwards          Print Name: R. Wehkamp
            ---------------------                 ------------------------   

Title: President and CEO               Title:  Sales Manager
       --------------------------            -----------------------------

Date:                                   Date: NOV. 20 1998
     ----------------------------            -----------------------------

                                      -18-
<PAGE>
 
                                   Exhibit A
                                   ---------

                                 HOUSE ACCOUNTS

     None

                                      -19-
<PAGE>
 
                                   Exhibit B
                                   ---------

                                    PRODUCTS

     Model 1010

     Reusable Cable - 2 (RC-2)

     Model 1100

     Reusable Cable - 1 (RC- 1)

     Model S2

     Associated Accessories

                                      -20-
<PAGE>
 
                                   Exhibit C
                                   ---------

                                   TERRITORY

     Canada

                                      -21-
<PAGE>
 
                                   Exhibit D
                                   ---------

                            TRANSFER AND LIST PRICES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
             PRODUCT                          TRANSFER PRICE                          LIST PRICE
------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                   <C>
Model 1010 (min. quantity of 5                [*]                                   [*]
 boxes per order)                              
------------------------------------------------------------------------------------------------------------
Reusable Cable - 2 (RC-2)                     [*]                                   [*]
------------------------------------------------------------------------------------------------------------
Model 1110 (min. quantity of 5                [*]                                   [*]
 boxes per order)                           
------------------------------------------------------------------------------------------------------------
Reusable Cable - 1 (RC-1)                     [*]                                   [*]
------------------------------------------------------------------------------------------------------------
Model S2                                      [*]                                   [*]
------------------------------------------------------------------------------------------------------------
</TABLE>


[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE 
OMITTED PORTIONS.
                                      -22-
<PAGE>
 
                                   Exhibit E
                                   ---------

                             INITIAL STOCKING ORDER


-------------------------------------------------------------------------------
Year 1          [*] System Sales per Quarter; [*] System Sales for the Year
-------------------------------------------------------------------------------


[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE 
OMITTED PORTIONS.
                                      -23-
<PAGE>
 
                                   Exhibit F
                                   ---------

                        MINIMUM PERFORMANCE REQUIREMENTS


-------------------------------------------------------------------------------
Year 1               [*] System Sales per Quarter; [*] System Sales for the Year
-------------------------------------------------------------------------------
Year 2               To Be Determined
-------------------------------------------------------------------------------
Year 3               To Be Determined
-------------------------------------------------------------------------------


[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE 
OMITTED PORTIONS.
                                      -24-
<PAGE>
 
                                   Exhibit G
                                   ---------

                                     MARKS

Somnus and the Somnus Medical Technologies, Inc. logo are trademarks of Somnus
Medical Technologies, Inc.

Somnoplasty is a servicemark of Somnus Medical Technologies, Inc.

"Sound sleep without the sound" is a trademark of Somnus Medical Technologies,
Inc.

                                      -25-