Exhibit 10.1

 

SECOND AMENDMENT TO CREDIT AGREEMENT AND FIRST

AMENDMENT TO INVESTOR RIGHTS AGREEMENT AND SUPPLY AGREEMENT

 

THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND FIRST AMENDMENT TO INVESTOR RIGHTS
AGREEMENT AND SUPPLY AGREEMENT (the “Amendment”) is entered into as of September
24, 2007 (the “Amendment Effective Date”), by and among HEARUSA, INC., a
corporation organized under the laws of the State of Delaware (“Borrower”), and
SIEMENS HEARING INSTRUMENTS, INC., a corporation organized under the laws of the
State of Delaware (“Lender”).

 

R E C I T A L S

 

A.        Borrower and Lender are parties to (a) that certain Second Amended and
Restated Credit Agreement dated as of December 30, 2006, as amended by that
certain First Amendment to Credit Agreement dated as of June 27, 2007 (as
amended, the “Credit Agreement”); (b) that certain Investor Rights Agreement
dated as of December 30, 2006 (the “Investor Rights Agreement”); and (c) that
certain Amended and Restated Supply Agreement dated as of December 30, 2006 (the
“Supply Agreement”). Unless otherwise indicated herein, all terms used with
their initial letter capitalized are used herein with their meaning as defined
in the Credit Agreement, and all Paragraph references are to Paragraphs in this
Amendment.

 

B.        Borrower has requested that Section 2.05(c) be amended to extend the
date by which the mandatory prepayment is required to be made thereunder from
September 24, 2007, to December 19, 2008.

 

C.        Prior to the Amendment Effective Date, the Tranche D Loans accrued
interest at a rate per annum equal at all times to 5.0%, payable on the first
day of each month, commencing February 1, 2007. Borrower and Lender have agreed
to, as of the Amendment Effective Date, retroactively increase the interest
accruing on the Tranche D Loans to a rate per annum equal at all times to 9.5%,
payable on the fifteenth day of each month, commencing January 1, 2007. Pursuant
to this retroactive increase, Borrower shall pay to Lender on October 15, 2007,
in addition to any and all interest accrued on the Tranche D Loans during the
prior month, an amount equal to $217,080, representing the difference between
the interest accrued on the Tranche D Loans between January 1, 2007 and August
31, 2007 at a rate per annum equal at all times to 5.0% and the amount of
interest that would have accrued on the Tranche D Loans at a rate per annum
equal at all times to 9.5% for that same period of time.

 

D.        Subject to and upon the following terms and conditions, Lender is
willing to extend such mandatory prepayment date and to lend up to an additional
$3,000,000 for purposes of funding operating working capital.

 

NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Borrower and Lender agree, as follows:

 

 

 

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1.

Amendments to Credit Agreement.

 

(a)       The definition of “Loans” in Section 1.01 is amended in its entirety
to read as follows:

“Loans” means, collectively, the Tranche A Loan, the Tranche B Loans, the
Tranche C Loans, the Tranche D Loans and the Tranche E Loans.

(b)       The definition of “Notes” in Section 1.01 is amended in its entirety
to read as follows:

“Notes” means, collectively, the Tranche A Note, the Tranche B Note, the Tranche
C Note, the Tranche D Note and the Tranche E Note.

(c)        Section 1.01 of the Credit Agreement is amended by adding the
following new defined terms:

“Tranche E Loan” has the meaning set forth in Section 2.01(h).

“Tranche E Note” means the promissory note of the Borrower payable to the order
of the Lender in substantially the form of Exhibit A-5, evidencing the aggregate
principal amount of the Tranche E Loans by the Lender to the Borrower.

(d)       Section 2.01 of the Credit Agreement is amended by adding the
following new clause (h):

 

(h)       On the terms and subject to the conditions contained in this
Agreement, the Lender shall make loans (“Tranche E Loans”) to the Borrower from
time to time prior to December 19, 2008, in the aggregate principal amount
outstanding of up to $3,000,000.

(e)       Sections 2.02(a) of the Credit Agreement is amended in its entirety to
read as follows:

 

(a)        Notice of Borrowing. Subject to the terms and conditions hereof, each
Tranche B Loan, Tranche C Loan, Tranche D Loan and Tranche E Loan shall be made
on notice given by the Borrower to the Lender by 11:00 A.M. (New York City time)
on the third Business Day prior to date of the proposed making of such Loan.
Each such notice (a “Notice of Borrowing”) shall be substantially in the form of
Exhibit B, specifying therein (i) the proposed date for the making of such Loan,
(ii) the amount of Loans constituting the Tranche B Loan, the Tranche C Loan,
the Tranche D Loan or the Tranche E Loan, and (iii) that the Borrower has
complied with the applicable terms and conditions of this Section 2.02 and
Article III.

(f)        Section 2.03 of the Credit Agreement is amended by deleting clause
(c)(ii) in its entirety and substituting therefor the following:

 

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(ii)       on each Tranche C Loan Payment Date thereafter, a principal amount
equal to $500,000, together with accrued and unpaid interest as provided in
Section 2.06(b).

 

(g)       Section 2.03 of the Credit Agreement is amended by adding the
following new clause (i):

 

(i)        Repayment of Tranche E Loans. The Borrower shall pay the entire
aggregate outstanding principal amount of the Tranche E Loans, plus accrued and
unpaid interest, on December 19, 2008.

(h)       Section 2.05 of the Credit Agreement is amended by deleting clause (c)
in its entirety and substituting therefor the following:

 

(c)       On or prior to December 19, 2008, the Borrower shall make a prepayment
of the principal amount of the outstanding Tranche D Loans in the amount of
$4,200,000.

 

(i)        Section 2.06 of the Credit Agreement is amended by deleting the first
sentence of clause (c) in its entirety and substituting therefor the following:

 

(c)       The Tranche D Loans shall accrue interest at a rate per annum equal at
all times to 9.5% and shall be payable on the fifteenth day of each month,
commencing January 1, 2007. On October 15, 2007, the Borrower shall pay to the
Lender, in addition to any and all interest accrued on the Tranche D Loans
during the prior month, an amount equal to $217,080.

 

(j)        Section 2.06 of the Credit Agreement is amended by adding the
following new clause (d):

 

(d)        The Tranche E Loans shall accrue interest at a rate per annum equal
at all times to 9.5% and shall be payable on the fifteenth day of each month,
commencing on the fifteenth day of the month following the first advance of the
Tranche E Loans.

 

(k)       Section 2.10(a) of the Credit Agreement is amended in its entirety to
read as follows:

 

(a)        Conversion Right. Subject to the terms hereof and restrictions and
limitations contained herein, including those in Section 2.10(e), the Lender
shall have the right, at the Lender’s option, at any time and from time to time
to convert to shares of Common Stock the outstanding principal amount of and
accrued interest on the Loans in whole or in part from and after the earliest to
occur of (i) three (3) years after the Closing Date, (ii) the announcement of a
potential Change of Control (provided that any conversion of the Loan pursuant
to this clause (ii) shall occur only if and when such Change of Control is
consummated), (iii) the failure of the Borrower to comply with its obligations

 

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under Section 2.05(c) or Section 2.03(i) (provided that in the event of a cure
of such failure prior to delivery of a Conversion Notice, the Lender no longer
shall have the right to convert under this clause (iii)) and (iv) the Borrower’s
delivery of a notice to the Lender of a notice of prepayment pursuant to Section
2.04, which prepayment would result in a reduction of the outstanding Loan
Balance below an amount that would enable the Lender to convert the Loans to
19.9% of the number of shares of Common Stock outstanding on the Closing Date
(after giving effect to any issuances of Common Stock on the Closing Date). Any
such partial conversion shall be of the Tranche A Loan, the Tranche B Loan, the
Tranche C Loan, the Tranche D Loan or the Tranche E Loan or any combination of
the foregoing in such order as the Borrower shall elect in a written notice to
the Lender delivered not more than three (3) Business Days after the date of
conversion. Upon any conversion of the Loans, the Maximum Commitment shall be
permanently reduced by the aggregate principal amount of the Loans so converted.

 

(l)        Section 5.06 of the Credit Agreement is amended by adding the
following new clause (d):

 

(d)        The Borrower shall use the proceeds of any Tranche E Loans solely to
finance the Borrower’s working capital requirements.

 

(m)      The Credit Agreement is amended by adding a new Exhibit A-5 in the form
attached hereto as Exhibit A-5.

 

(n)       Exhibit B to the Credit Agreement is amended in its entirety to read
as set forth in Exhibit B attached hereto.

 

 

2.

Amendments to Supply Agreement.

 

(a)       Section 4.1 of the Supply Agreement is amended by deleting the last
sentence of the Section in its entirety and substituting therefor the following:

 

New acquisitions completed by HearUSA after the Closing Date will be included
under the Minimum Purchase Requirement starting on the three-month anniversary
of the last calendar day of the month of such acquisition.

 

(b)       Section 4.5 of the Supply Agreement is amended by deleting clause (b)
in its entirety and substituting therefor the following:

 

(b)       If the loans under the Credit Agreement are fully repaid by HearUSA
before the Maturity Date (as defined in the Credit Agreement), then SHI shall
credit to HearUSA hereunder substantially equivalent rebates in cash of
$2,000,000 in each calendar year of the Term provided that HearUSA meets the
Minimum Purchase Requirement, or cures any failure during the Purchase
Requirement Cure Period, for all Fiscal Quarters of such calendar year.

 

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(c)       The Supply Agreement is amended by adding the following new Section
4.7:

 

4.7.      Marketing Allowance. HearUSA will earn a marketing allowance, the
funds from which will only be used to reimburse HearUSA’s advertising expenses.
The marketing allowance is designed to help promote HearUSA’s practice and SHI’s
products in their respective markets. It may only be used for these purposes,
and SHI reserves the right to directly pay the advertising vendor (e.g. print or
electronic media, mailing houses) that HearUSA uses. The marketing allowance
will be credited to the HearUSA's account on the fifteenth day of the month
following the month it applies to, provided HearUSA's trade payables with SHI
are within terms and documentation for the advertising expenses is provided to
SHI. The maximum base marketing allowance shall be $200,000 per month. In
addition, for so long as the Tranche D Loans are outstanding, on each interest
payment date on the Tranche D Loans, SHI shall credit to HearUSA’s account as an
additional marketing allowance an amount, if any, equal to the interest paid by
HearUSA on the Tranche D Loans on such date minus the amount of interest that
would be payable on such Tranche D Loans if such interest were calculated using,
prior to a prepayment of the principal amount of the outstanding Tranche D Loans
in an amount of at least $4,200,000, a 6.0% per annum interest rate, and, after
such prepayment, a 5.0% per annum interest rate. In addition, on October 15,
2007, SHI shall credit to Hear USA’s account as an additional marketing
allowance an amount of $217,080.

 

 

3.

Amendments to Investor Rights Agreement.

 

The Investor shall have the Requisite Period (as defined below) from the
receiving of such notice to agree to purchase all or any portion of the Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company and stating therein the quantity
of Equity Securities to be purchased, provided such purchase is consistent with
the limitations of Section 4.1. As used herein, “Requisite Period” means (a)
sixty (60) days, in the case of the issuance of Equity Securities to a person
which derives a material portion of its revenue from the research, development,
manufacturing, marketing or sale of hearing aids; (b) thirty (30) days, in the
case of the issuance of Equity Securities representing 20% or more of either (A)
the then outstanding shares of Common Stock of the Company or (B) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors; or (c) fifteen (15) days, in all
other cases.

 

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4.

Representations and Warranties.

 

(a)       after giving effect to this Amendment, the representations and
warranties in the Credit Agreement, the Investor Rights Agreement, the Supply
Agreement and in all other Loan Documents are true and correct on the date
hereof in all material respects, as though made on the date hereof, except to
the extent that such representations and warranties expressly relate solely to
an earlier date (in which case such representations and warranties shall have
been true and accurate as of such earlier date);

 

(b)       after giving effect to this Amendment, no Default or Event of Default
exists under the Loan Documents;

 

(c)       Borrower has the right and power, and has taken all necessary action
to authorize it to execute, deliver, and perform this Amendment in accordance
with its terms and to consummate the transaction contemplated hereby;

 

(d)       this Amendment has been duly executed and delivered by the duly
authorized officers of Borrower, and is a legal, valid, and binding obligation
of Borrower, enforceable against it in accordance with its terms; and

 

(e)       the execution, delivery and performance of this Amendment in
accordance with its terms, do not and will not, by the passage of time, the
giving of notice, or otherwise: (i) conflict with, result in a breach of, or
constitute a default under the articles of incorporation or the bylaws of
Borrower, or any indenture, agreement, or other instrument to which Borrower is
a party or by which it or any of its respective properties may be bound; or (ii)
result in or require the creation or imposition of any Lien upon or with respect
to any property now owned or hereafter acquired by Borrower.

 

 

5.

Miscellaneous.

 

(a)       Effect on Loan Documents. The Credit Agreement, the Investor Rights
Agreement, the Supply Agreement and all related Loan Documents shall remain
unchanged and in full force and effect, except as provided in this Amendment,
and are hereby ratified and confirmed. On and after the Amendment Effective
Date, all references to the “Credit Agreement” or the “Agreement”, the “Investor
Rights Agreement” or the “Agreement” and the “Supply Agreement” or the
“Agreement” shall be to the Credit Agreement, the Investor Rights Agreement and
the Supply Agreement, as applicable, as herein amended, provided an Event of
Default has not occurred hereunder and Lender has cancelled this Amendment. The
execution, delivery, and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any rights of the Lender under
the Credit Agreement, the Investor Rights Agreement, the Supply Agreement or any
Loan Documents, nor constitute a waiver under the

 

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Credit Agreement, the Investor Rights Agreement, the Supply Agreement or any
other provision of the Loan Documents.

 

(b)       Reference to Miscellaneous Provisions. This Amendment and the other
documents delivered pursuant to this Amendment are part of the Loan Documents
referred to in the Credit Agreement, and the provisions relating to Loan
Documents set forth in Article VIII of the Credit Agreement are incorporated
herein by reference the same as if set forth herein verbatim.

 

(c)       Costs and Expenses. Each party hereto shall pay its own expenses in
connection with the preparation, negotiation, reproduction, execution, and
delivery of this Amendment.

 

(d)       Counterparts. This Amendment may be executed in a number of identical
counterparts, each of which shall be deemed an original for all purposes, and
all of which constitute, collectively, one agreement; but, in making proof of
this Amendment, it shall not be necessary to produce or account for more than
one such counterpart. It is not necessary that all parties execute the same
counterpart so long as identical counterparts are executed by Borrower and
Lender.

 

(e)       Parties. This Amendment is binding on and inures to the benefit of
Borrower, Lender, and their respective successors and assigns.

 

REMAINDER OF THIS PAGE INTENTIONALLY BLANK.

SIGNATURE PAGE FOLLOWS

 

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            IN WITNESS WHEREOF, the parties hereto have executed this Amendment
in multiple counterparts as of the Amendment Effective Date.

 

 

HEARUSA, INC., as Borrower

 

 

 

 

 

 

 

By:

/s/ Stephen J. Hansbrough

 

 

Name:   Stephen J. Hansbrough

 

 

Title:      CEO/President

 

 

9/28/07

 

 

 

 

 

 

 

SIEMENS HEARING INSTRUMENTS, INC., as Lender

 

 

 

 

 

 

 

By:

/s/ Christi M. Pedra     /s/ Nicolau Gaeta

 

 

Name:   C. M. Pedra     N. Gaeta

 

 

Title:     CEO                CFO

 

 

9/28/07             9/28/07

 

 

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EXHIBIT A-5

 

FORM OF TRANCHE E NOTE

 

U.S. $3,000,000

Dated: September [___], 2007

 

FOR VALUE RECEIVED, the undersigned, HearUSA, INC., a Delaware corporation (the
“Borrower”), HEREBY PROMISES TO PAY to the order of SIEMENS HEARING INSTRUMENTS,
INC. (the “Lender”) the principal sum of THREE MILLION United States Dollars
($3,000,000), or, if less, the aggregate unpaid principal amount of Tranche E
Loans (as defined in the Credit Agreement referred to below) of the Lender to
the Borrower, payable at such times, and in such amounts, as are specified in
the Credit Agreement.

The Borrower promises to pay interest on the unpaid principal amount of the
Tranche E Loan from the date made until such principal amount is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.

Both principal and interest are payable in lawful money of the United States of
America to the Lender at Wachovia Bank, National Association, in Atlanta, GA (or
such other bank as may be deemed by Lender), in immediately available funds.
Lender shall record in its books and records the date and amount of all payments
made under this note. Lender’s books and records of the Tranche E Loan shall be
conclusive evidence of the amounts outstanding under this Note in the absence of
manifest error

This Note is the Tranche E Note referred to in, and is entitled to the benefits
of, the Second Amended and Restated Credit Agreement, dated as of December 30,
2006 (said agreement, as it may be amended, supplemented or otherwise modified
from time to time, being the “Credit Agreement”), between the Borrower and the
Lender, and the other Loan Documents referred to therein and entered into
pursuant thereto. The Credit Agreement, among other things, (a) provides for the
making of the Tranche E Loan by the Lender to the Borrower in an aggregate
amount not to exceed at any time outstanding the United States Dollar amount
first above mentioned (as the same may be adjusted pursuant to the terms of the
Credit Agreement), the indebtedness of the Borrower resulting from such Tranche
E Loan being evidenced by this Tranche E Note, and (b) contains provisions for
acceleration of the maturity of the unpaid principal amount of this Tranche E
Note upon the happening of certain stated events and also for prepayments on
account of the principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.

Demand, presentment, protest and notice of nonpayment and protest are hereby
waived by the Borrower.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW
PRINCIPLES (OTHER THAN SECTIONS 5-1401 and 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).

 

 

HearUSA, INC.

 

 

 

 

 

By:   

 

 

Name:   

 

 

Title:      

 

 

 

 

 

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EXHIBIT B

FORM OF

NOTICE OF BORROWING

 

 

[  

], 20__

 

Siemens Hearing Instruments, Inc.

10 Constitution Avenue

Piscataway, New Jersey 08855

Attention: Chief Financial Officer

 

 

Re:

HearUSA, Inc.

Ladies and Gentlemen:

Reference is made to that certain Second Amended and Restated Credit Agreement,
dated as of December 30, 2006 (as the same may be amended, supplemented or
otherwise modified from time to time, the “Credit Agreement”), by and between
the undersigned and Siemens Hearing Instruments, Inc. (the “Lender”).
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to such terms in the Credit Agreement.

The undersigned hereby gives you notice, irrevocably, pursuant to Section
2.02(a) of the Credit Agreement that the undersigned hereby requests a [Tranche
B Loan/Tranche C Loan/Tranche D/Tranche E Loan] under the Credit Agreement, and
in that connection sets forth below the information relating to such [Tranche B
Loan/Tranche C Loan/Tranche D Loan/Tranche E Loan] (the “Proposed Borrowing”):

(a)        The Business Day of the Proposed Borrowing is [________ __], 200[_]
(the “Borrowing Date”).

 

(b)       The aggregate amount of the [Tranche B Loan/Tranche C Loan/Tranche D
Loan/Tranche E Loan] is $[__________].

 

The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the Borrowing Date, before and after giving
effect thereto and to the application of the proceeds therefrom:

(c)        The representations and warranties of the Borrower contained in
Article IV of the Credit Agreement and in each of the other Loan Documents are
true and correct in all material respects on and as of the Borrowing Date;

 

(d)       No Default or Event of Default is continuing or will result from the
Proposed Borrowing;

 

(e)        All necessary governmental and material third party approvals
required to be obtained by the Borrower and its Subsidiaries in connection with
the Proposed Borrowing and the transactions contemplated thereby and by each of
the other Loan Documents have been obtained and remain in full force and effect;

 

(f)        All costs and accrued and unpaid fees and expenses (including,
without limitation, legal fees and expenses) required to be paid to the Lender
on or before the Borrowing Date, to the extent then due and payable, have been
paid;

 

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(g)       The making of the Loan on such date does not violate any Requirement
of Law and is not enjoined, temporarily, preliminarily or permanently; and

 

(h)       The terms of the purchase or acquisition and the Acquisition Target to
which the [Tranche B Loan/Tranche C Loan/Trance D Loan] complies with the
Acquisition Guidelines.

 

 

 

HearUSA, INC.

 

 

 

 

 

By:   

 

 

Name:   

 

 

Title: