EXHIBIT 10.24
HEARUSA, INC.
INVESTOR RIGHTS AGREEMENT

 

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TABLE OF CONTENTS

              Page  
SECTION 1 GENERAL
    1  
 
       
1.1 Definitions
    1  
 
       
SECTION 2 REGISTRATION
    3  
 
       
2.1 Restrictions on Transfer
    3  
 
       
2.2 Required Registration
    4  
 
       
2.3 Piggy-Back Registration
    5  
 
       
2.4 Registration Procedures
    6  
 
       
2.5 Suspension or Delay
    9  
 
       
2.6 Expenses
    10  
 
       
2.7 Indemnification and Contribution
    10  
 
       
2.8 Changes in Common Stock
    13  
 
       
2.9 Assignment of Registration Rights
    13  
 
       
2.10 Other Registration Rights
    13  
 
       
2.11 Rule 144 Reporting
    13  
 
       
SECTION 3 COVENANTS OF THE COMPANY
    14  
 
       
3.1 Financial Reporting; Additional Information
    14  
 
       
SECTION 4 RIGHTS OF FIRST REFUSAL
    14  
 
       
4.1 Subsequent Offerings of Equity Securities
    14  
 
       
4.2 Exercise of Refusal Right for Equity Securities
    15  
 
       
4.3 Issuance of Equity Securities to Other Persons
    15  
 
       
4.4 Right of First Refusal for Control Transaction
    15  
 
       
4.5 Exercise of Refusal Right for Control Transaction
    15  
 
       
4.6 Control Transaction with Other Person
    15  
 
       
4.7 Assignment of Rights of First Refusal
    16  
 
       
SECTION 5 MISCELLANEOUS
    16  
 
       
5.1 Governing Law
    16  
 
       
5.2 Successors and Assigns
    16  
 
       
5.3 Entire Agreement
    16  
 
       
5.4 Severability
    16  
 
       
5.5 Amendment and Waiver
    16  

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              Page  
5.6 Notices
    16  
 
       
5.7 Attorney’s Fees
    16  
 
       
5.8 Counterparts
    17  
 
       
5.9 Table of Contents; Headings; Rules of Construction
    17  
 
       
5.10 No Third Party Beneficiaries
    17  
 
       
5.11 Time of the Essence
    17  
 
       
5.12 Termination
    17  

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DEFINED TERMS

         
Agreement
    1  
Board
    1  
Business Combination
    2  
Change of Control
    1  
Commission
    3  
Common Stock
    3  
Company
    1  
Control Transaction
    15  
Credit Agreement
    1  
Deferral Period
    9  
Equity Securities
    14  
Exchange Act
    3  
herein
    17  
hereof
    17  
hereto
    17  
Include
    17  
including
    17  
Incumbent Board
    1  
Investor
    1  
Outstanding Company Common Stock
    1  
Outstanding Company Voting Securities
    1  
Person
    17  
Registrable Securities
    3  
Registration Effective Date
    4  
Registration Expenses
    10  
Registration Statement
    3  
SEC
    3  
Securities Act
    3  
Selling Expenses
    10  
Shares
    3  
Shelf Registration Statement
    4  
State Acts
    3  

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INVESTOR RIGHTS AGREEMENT
     THIS INVESTOR RIGHTS AGREEMENT (this “Agreement“) is entered into as of the
_30th___day of December, 2006, by and between HEARUSA, INC., a Delaware
corporation (the “Company“) and SIEMENS HEARING INSTRUMENTS, INC., a Delaware
corporation (the “Investor“).
Recitals
     WHEREAS, the Investor is loaning the Company additional funds pursuant to
that certain Second Amendment to the Amended and Restated Credit Agreement dated
February 10, 2006 (as amended from time to time, the “Credit Agreement”)
pursuant to which the Investor has the option to convert all or part of the
principal and accrued interest thereunder into Common Stock; and
     WHEREAS, the Credit Agreement requires the execution and delivery of this
Agreement.
     NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1 GENERAL.
     1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings:

  (a)   “Board” means the Board of Directors of the Company.     (b)   “Change
of Control” means the happening of any of the following events:

                    (i) The acquisition, other than in a transaction approved by
the Incumbent Board, by any person or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (A) the then outstanding shares of Common Stock (the “Outstanding
Company Common Stock”) or (B) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that
the following acquisitions shall not constitute a Change of Control: (1) any
acquisition directly from the Company, (2) any acquisition by the Company,
(3) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or
(4) any acquisition by any corporation pursuant to a transaction described in
clauses (A), (B) and (C) of paragraph (iii) of this Section 1.1(a); or
                    (ii) Individuals who, as of the date of this Agreement,
constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to such effective date whose election, or
nomination for election by the stockholders of the Company, was

 

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approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
person or group other than the Board; or
                    (iii) Approval by the stockholders of the Company of a
reorganization, merger, share exchange or consolidation (a “Business
Combination”), unless, in each case following such Business Combination, (A) all
or substantially all of the persons who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including a corporation that as a result of such transaction owns
the Company through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no person or group (excluding any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or indirectly, 25%
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such person or group owned 25% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities prior to the
Business Combination and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
                    (iv) Approval by the stockholders of the Company of (A) a
complete liquidation or dissolution of the Company, or (B) the sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation with respect to which, following such sale or other
disposition, (1) more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the persons who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) less than 25% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by any person or group (excluding
any employee benefit plan (or related trust) of the Company or such
corporation), except to the extent that such person or group owned 25% or more
of the Outstanding Company Common Stock or

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Outstanding Company Voting Securities prior to the sale or disposition and
(3) at least a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such sale or
other disposition of assets of the Company or were elected, appointed or
nominated by the Board.
          (c) “Common Stock” means the $0.10 par value common stock of the
Company.
          (d) “Exchange Act” means the Securities Exchange Act of 1934, as
amended.
          (e) “Registrable Securities” means (i) the Shares and (ii) any Common
Stock issued as a dividend or other distribution with respect to, or in exchange
for or in replacement of, the Shares. Notwithstanding the foregoing, Registrable
Securities shall not include any securities (i) sold by a person to the public
either pursuant to a registration statement or Rule 144, or (ii) sold in a
private transaction in which the transferor’s rights under Section 2 are not
assigned.
          (f) “SEC” or “Commission” means the Securities and Exchange
Commission.
          (g) “Securities Act” shall mean the Securities Act of 1933, as
amended.
          (h) “Shares” shall mean the Common Stock issued pursuant to conversion
under the terms of the Credit Agreement held from time to time by the Investor
and its permitted assigns.
          (i) “State Acts” shall mean the applicable securities or “blue sky”
laws of the States of the United States, as amended, and the rules and
regulations thereunder, all as the same shall be in effect at the time.
SECTION 2 REGISTRATION.
     2.1 Restrictions on Transfer.
          (a) The Investor shall not make any disposition of all or any portion
of the Shares or Registrable Securities other than to an “affiliate” as that
term is defined in SEC Rule 144 unless and until:
               (i) there is then in effect a registration statement (a
“Registration Statement”) under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement; or
               (ii) if reasonably requested by the Company, the Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Securities Act. Notwithstanding the foregoing, the Company will
not require opinions of counsel for transactions made pursuant to Rule 144.

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          (b) Each certificate representing Shares or Registrable Securities
shall be stamped or otherwise imprinted with legends substantially similar to
the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE “ACT”) AND ANY APPLICABLE STATE SECURITIES LAWS (THE “STATE
ACTS”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND THE STATE ACTS OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTOR
RIGHTS AGREEMENT. A COPY OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST
TO THE SECRETARY OF THE COMPANY.
          (c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of the Investor if the Investor shall have obtained
an opinion of counsel (which counsel may be counsel to the Company) reasonably
acceptable to the Company to the effect that the securities proposed to be
disposed of may lawfully be so disposed of without registration, qualification
and legend.
          (d) Any legend endorsed on an instrument pursuant to the State Acts
and the stop-transfer instructions with respect to such securities shall be
removed upon receipt by the Company of an order of the appropriate blue sky
authority authorizing such removal.
     2.2 Required Registration.
          (a) The Company will, (i) within ninety (90) days following the date
of this Agreement, prepare and file with the Commission a Registration Statement
on Form S-3 or, if not available, Form S-1, or any equivalent form for
registration by issuers in accordance with the Securities Act, to permit the
resale from time to time of the Registrable Securities under the Securities Act
on a delayed or continuous basis pursuant to Rule 415 (the “Shelf Registration
Statement”), (ii) use reasonable best efforts to cause the Shelf Registration
Statement to be declared effective (the “Registration Effective Date”) as soon
as reasonably practicable and in any event within one hundred eighty (180) days
after the date of this Agreement, and (iii) use reasonable best efforts to cause
the Shelf Registration Statement to remain effective until the date on which all
of the Registrable Securities covered by the Shelf Registration Statement have
been sold to the public pursuant to such registration statement in accordance
with the intended methods of distribution thereof. The plan of distribution
contemplated by the Shelf Registration Statement shall permit resales of
Registrable Securities in the manner or manners designated by the Investor,
including offers and sales through underwriters or agents, offers and sales
directly

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to investors, block trades and such other methods of offer and sale as the
Investor shall request. The Company shall not permit any securities other than
Registrable Securities to be included in the Shelf Registration Statement.
          (b) Subject to Section 2.2(c), if, following the Registration
Effective Date, the Investor desires to sell Registrable Securities in an
underwritten offering pursuant to the Shelf Registration Statement, it may
request in writing that the Company file an amendment to the Shelf Registration
Statement, stating the number of shares of Registrable Securities proposed to be
sold and describing the plan of distribution, and the Company shall file such an
amendment to the Shelf Registration Statement as soon as reasonably practicable
and use reasonable best efforts to cause such amended Shelf Registration
Statement to become effective as soon as reasonably practicable.
          (c) In any underwritten offering pursuant to this Section 2.2, the
Investor shall have the right to select one managing underwriter, and such
managing underwriter shall be the sole managing underwriter for any such
offering. The Company (together with the Investor) shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting, as well as all other documents customary in
similar offerings, including questionnaires, custody agreements, powers of
attorney, lockup agreements and indemnification agreements, as applicable.
          (d) The parties acknowledge and agree that although the Company is
obligated to use its best efforts to effect the registration of the Registrable
Securities in accordance with the terms hereof, the Company will not be liable
to the Investor for liquidated damages or penalties in the event its best
efforts are insufficient to accomplish the intent of the foregoing.
     2.3 Piggy-Back Registration.
          (a) If at any time, the Company proposes to register (other than
pursuant to Section 2.2) any of the Common Stock under the Securities Act for
sale to the public, (i) either for its own account only or for both its account
and the account of other security holders, or (ii) if when the Registration
Statement contemplated by Section 2.2 is not effective, either for its account,
the account of other security holders or both (except with respect to
Registration Statements on Forms S-4, S-8 or another form not available for
registering the Registrable Securities for sale to the public or any successor
thereto), each such time the Company will give prompt written notice to the
Investor of its intention to do so and of the Investor’s rights under this
Section 2.3, at least ten (10) business days prior to the anticipated filing
date of the registration statement relating to such registration. Upon the
written request of the Investor, received by the Company within five
(5) business days after receipt of the Company’s notice by the Investor, to
register any of its Registrable Securities, the Company will use reasonable best
efforts to cause the Registrable Securities as to which registration shall have
been so requested to be included in the securities to be covered by the
Registration Statement proposed to be filed by the Company. The Investor may
elect, prior to the anticipated effective date of the registration statement
filed in connection with such registration, not to register such securities in
connection with such registration.

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          (b) In the event that any registration pursuant to this Section 2.3
shall be, in whole or in part, an underwritten public offering of Common Stock,
the number of shares of Registrable Securities to be included in such an
underwriting may be reduced if and to the extent that the managing underwriter
notifies the Company in writing that, in its opinion, such inclusion would
exceed the largest number of securities which can be sold without reasonably
expecting to have an adverse effect on such offering, including the price at
which such securities can be sold by the Company therein. The reduction referred
to in the immediately preceding sentence shall be applied as follows: (i) the
reduction shall be applied first, to the securities of security holders of the
Company, if any, with registration rights other than the Investor, that are
entitled to, and are requested to be included in, such registration, pro rata
among all such security holders, based on the number of securities held by such
security holders, second, to the Registrable Securities, and third, to the
securities included in such registration by the Company; provided, however, that
if the time period set forth in Section 2.2(a) has expired without the Shelf
Registration Statement pursuant to Section 2.2(a) having been filed or having
been declared effective, the reduction shall be applied first, to the securities
included in such registration by the Company, second, to the securities of
security holders of the Company other than the Investor, if any, which are
entitled to, and are requested to be included in, such registration pro rata
among all such security holders, based on the number of securities held by such
security holders, and third, to the Registrable Securities. Notwithstanding the
foregoing, the Company may withdraw any Registration Statement referred to in
this Section 2.3 without thereby incurring any liability to the holder or
holders of Registrable Securities.
          (c) In any underwritten offering pursuant to this Section 2.3 in which
no less than twenty-five percent (25%) of the Registrable Securities are
proposed to be sold, the Investor and the Company shall each have the right to
select one managing underwriter and such managing underwriters shall be the sole
managing underwriters for any such offering. The Company (together with the
participating shareholders) shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting, as well as all other documents customary in similar offerings,
including questionnaires, custody agreements, powers of attorney, lockup
agreements and indemnification agreements, as applicable.
     2.4 Registration Procedures.
          (a) If and whenever the Company is required by the provisions of
Section 2.2 or 2.3 to effect the registration of any shares of Registrable
Securities, the Company will, as expeditiously as reasonably practicable:
               (i) prepare and file with the Commission a Registration Statement
with respect to such securities and use commercially reasonable best efforts to
cause such Registration Statement to become and remain effective for the period
of the distribution contemplated by Section 2.2(a) or 2.4(b), as applicable;
               (ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the period specified by Section 2.2(a) or 2.4(b), as applicable, and comply with
the provisions of the Securities Act and

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the State Acts with respect to the disposition of all Registrable Securities
covered by such Registration Statement in accordance with the sellers’ intended
method of disposition set forth in such Registration Statement for such period;
               (iii) furnish to each seller of Common Stock and to each
underwriter such number of copies of the Registration Statement and the
prospectus included therein (including each preliminary prospectus), copies of
any correspondence with the Commission or its staff relating to such
Registration Statement and such other documents as such persons reasonably may
request in order to facilitate the public sale or other disposition of the
Common Stock covered by such Registration Statement;
               (iv) use reasonable best efforts to register or qualify the
Common Stock covered by such Registration Statement under such State Acts as the
sellers of Common Stock or, in the case of an underwritten public offering, the
managing underwriter reasonably shall request; provided, however, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
               (v) use reasonable best efforts to list the Common Stock covered
by such Registration Statement with a national securities exchange (if such
shares are not already listed) and with each additional securities exchange on
which the similar securities of the Company are then listed;
               (vi) immediately notify each seller of Common Stock and each
underwriter under such Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing and the Company will
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Common Stock, such prospectus will not
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
               (vii) if the offering is underwritten and at the request of any
seller of Common Stock, use reasonable best efforts to furnish on the date that
Common Stock is delivered to the underwriters for sale pursuant to such
registration: (A) an opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters, stating
that such Registration Statement has become effective under the Securities Act
and that (1) to the knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act, (2) the
Registration Statement, the related prospectus and each amendment or supplement
thereof comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as to
financial statements contained therein), and (3) to such other matters as
reasonably may be requested by counsel for the underwriters, and (B) a letter
dated such date from the independent

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public accountants retained by the Company, addressed to the underwriters,
stating that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the Registration Statement or the
prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters
(including information as to the period ending no more than five business days
prior to the date of such letter) with respect to such registration as such
underwriters reasonably may request;
               (viii) make available for inspection by each seller of Common
Stock, any underwriter participating in any distribution pursuant to such
Registration Statement, and any attorney, accountant or other agent retained by
such seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company’s officers,
directors and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
Registration Statement;
               (ix) after the filing of the Registration Statement and any
amendment or supplement thereto, the Company will promptly notify each seller of
Common Stock covered by such Registration Statement and any amendment or
supplement thereto of any order suspending the effectiveness of such
Registration Statement issued or threatened by the Commission and, as promptly
as practicable, use its commercially reasonable best efforts to prevent the
entry of such stop order or to remove it if entered;
               (x) cooperate with the shareholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Common Stock to be sold and not bearing any
restrictive legends, and enable such Common Stock to be in such denominations
and registered in such names as the managing underwriters may request prior to
any sale of the Common Stock to the underwriters;
               (xi) with respect to an underwritten offering, make appropriate
members of senior management of the Company available (subject to consulting
with them in advance as to schedule) for customary participation in telephonic,
in-person conferences or “road show” presentations to potential investors;
               (xii) promptly notify the shareholders, counsel to the
shareholders and the managing underwriter or agent, (i) when the Registration
Statement, or any post-effective amendment to the Registration Statement, shall
have become effective, or any supplement to the prospectus or any amendment to
the prospectus shall have been filed, (ii) of the receipt of any comments from
the Commission, and (iii) of any request of the Commission to amend the
Registration Statement or amend or supplement the prospectus or for additional
information; and
               (xiii) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders, within the required time periods, an earnings statement
covering a period of at least twelve (12) months, beginning with the first
fiscal quarter of the Company after the effective date of the Registration
Statement (as the term “effective date” is defined in Rule 158(c) under the

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Securities Act), which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder or any successor
provisions thereto.
          (b) For purposes of Sections 2.2 and 2.3, the period of distribution
of Common Stock in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it or a period of one hundred eighty (180) days, which
ever first occurs.
          (c) In connection with each registration pursuant to Section 2.2 or
2.3, the sellers of Common Stock will furnish to the Company in writing such
information with respect to themselves, their beneficial ownership of Common
Stock, and the proposed distribution by them as reasonably shall be necessary in
order to assure compliance with federal securities laws, Commission rules and
State Acts. The Company’s obligation to register the Common Stock held by any
shareholder in any Registration Statement shall be contingent on such
shareholder furnishing to the Company the information required by this
Section 2.4(c). Moreover, no shareholder may participate in any underwritten
offering hereunder unless such shareholder (i) provides the information required
by this Section 2.4(c); (ii) agrees to sell such shareholder’s Common Stock on
the basis provided in any underwriting arrangements approved by the Company or
the participating shareholders, as applicable; and (iii) completes and executes
all questionnaires, custody agreements, powers of attorney, lockup agreements,
indemnification agreements, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
          (d) In connection with each registration pursuant to Section 2.2 or
2.3 covering an underwritten public offering, the Company and each selling
shareholder shall (i) enter into a written agreement with the managing
underwriters selected in the manner herein provided in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such underwriter and companies of the Company’s size and
investment stature, (ii) regardless of whether the agreement is entered into,
make such representations and warranties to the selling shareholders and each of
the underwriters in form, substance and scope as are customarily made in
connection with an offering pursuant to any appropriate agreement or such
Registration Statement, (iii) deliver such documents and certificates, including
officers’ certificates, as may be customary in the circumstances and reasonably
requested by the selling shareholders or the underwriters, (iv) undertake such
obligations relating to expense reimbursement, indemnification and contribution
as are provided in Sections 2.6 and 2.7 and (v) take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
securities covered thereby.
     2.5 Suspension or Delay. Notwithstanding anything to the contrary in this
Agreement, the Company may delay filing a Registration Statement or an amendment
thereto, and may withhold efforts to cause a Registration Statement or amendment
thereto to become effective if: (i) the Board determines in good faith after
consultation with counsel that such action is required by applicable law; or
(ii) the Company determines in good faith after consultation with counsel that
the filing or use of the Registration Statement or amendment thereto would
require the Company to disclose material information, including the fact that
the Company is engaged in confidential negotiations regarding, or is in the
process of completing, any significant business transaction, the disclosure of
which would not be required in the absence

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of such Registration Statement, and the Board determines in good faith that such
disclosure would be materially detrimental to the Company and its shareholders.
Each period referred to above during which the use of a Registration Statement
or amendment thereto is delayed in accordance with this Section 2.5 shall be
referred to herein as a “Deferral Period”. Notwithstanding the foregoing, in no
event shall the Company be entitled to more than one (1) Deferral Period of up
to ninety (90) days in any 365-day period without the consent of the Investor.
The Company shall terminate a Deferral Period as soon as practicable after the
circumstances giving rise to the Company’s right to declare such Deferral Period
cease to exist. The Company shall promptly give the Investor written notice of a
determination to commence a Deferral Period, which notice shall contain a
general statement of the reasons for such Deferral Period and the anticipated
length of such Deferral Period, and shall notify the Investor upon the
termination of each Deferral Period. Subject to the foregoing, if, after a
Registration Statement becomes effective, the Company advises the holders of
registered shares that the Company has determined in good faith that the
Registration Statement is required to be amended to comply with applicable law
or regulation, the holders of such registered shares shall suspend any further
sales of their registered shares until the Company advises them that the
Registration Statement has been amended.
     2.6 Expenses. All expenses incurred by the Company and the selling holders
of Common Stock in complying with Sections 2.2 and 2.3, including all
registration and filing and review fees, printing expenses, fees and
disbursements of counsel to the Company and $30,000 of the fees of counsel to
the Investor, fees and disbursements to independent public accountants for the
Company, fees and expenses incurred in connection with complying with State
Acts, fees of the National Association of Securities Dealers, Inc., fees of any
securities exchange, transfer taxes, fees of transfer agents and registrars,
costs of insurance, messenger, telephone and delivery expenses, but excluding
any Selling Expenses, are called “Registration Expenses.” Registration Expenses
shall not include underwriting discounts, selling commissions and fees of the
counsel to the Investor in excess of $30,000, and all such fees and expenses are
referred to as “Selling Expenses.” The Company will pay all Registration
Expenses in connection with each Registration Statement under Sections 2.2 and
2.3. All Selling Expenses in connection with each Registration Statement under
Sections 2.2 and 2.3 shall be borne by the participating shareholders in
proportion to the number of shares of Common Stock sold by each, or by such
participating shareholders as they may agree, except that fees of the counsel to
the Investor in excess of $30,000 shall be borne by the Investor.
     2.7 Indemnification and Contribution.
          (a) In the event of a registration of any of the Common Stock under
the Securities Act pursuant to Section 2.2 or 2.3, the Company will indemnify
and hold harmless each seller of such Common Stock thereunder, each underwriter
of such Common Stock thereunder and each other person, if any, who controls such
seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (including any legal or other expenses
reasonably incurred by such shareholder or any such controlling person in
connection with defending or investigating any such action or claim), joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any

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material fact contained in any Registration Statement under which such Common
Stock was registered under the Securities Act pursuant to Section 2.2 or 2.3,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each such seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action, provided, however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any such
seller, any such underwriter or any such controlling person in writing
specifically for use in such Registration Statement or prospectus. The indemnity
agreement contained in this Section 2.7 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld, conditioned or delayed).
          (b) As a condition precedent to the right of the Investor to sell
Registrable Securities in a registration pursuant to this Agreement, in the
event of a registration of any of the Registrable Securities under the
Securities Act pursuant to Section 2.2 or 2.3, the Investor will indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
Registration Statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement under which such Registrable
Securities were registered under the Securities Act pursuant to Section 2.2 or
2.3, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Investor will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to the Investor, as such,
furnished in writing to the Company by the Investor specifically for use in such
Registration Statement or prospectus; and provided, further, that the liability
of the Investor hereunder shall not in any event exceed the net proceeds
received by the Investor from the sale of Registrable Securities covered by such
Registration Statement. The indemnity agreement contained in this Section 2.7(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Investor (which consent shall not be unreasonably withheld, conditioned or
delayed).

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          (c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 2.7 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 2.7 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 2.7 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected;
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
          (d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 2.7 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.7 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 2.7; then, and in each such case, the Company and
such holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so as to reflect the relative fault of each indemnifying party;
provided, however, that, in any such case, (A) no such holder will be required
to contribute any amount in excess of the net proceeds received by it pursuant
to such Registration Statement; and (B) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The relative fault of the Company, on the one
hand, and of each selling shareholder, on the other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by such party, and the parties’ relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Investor agree that it would not be just or

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equitable if contribution pursuant to this Section 2.7 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to above. The amount paid or payable as
a result of the losses, claims, damages and liabilities referred to above shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
          (e) The indemnity and contribution provisions contained in this
Section 2.7 shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any shareholder or any person controlling any shareholder, or by or on
behalf of the Company, its officers or directors or any person controlling the
Company, and (iii) any sale of Registrable Securities pursuant to any
Registration Statement.
          (f) The obligations of the parties under this Section 2.7 shall be in
addition to any liability which any party may otherwise have to any other party.
          (g) The indemnification and contribution required under this
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
     2.8 Changes in Common Stock. If there is any change in the Shares by way of
a stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Shares
as so changed.
     2.9 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 2 may be assigned in
whole or in part by the Investor to any “affiliate” of the Investor as that term
is defined in Rule 144 which receives Shares from the Investor.
     2.10 Other Registration Rights. The Company covenants that it has not
entered into, and, without the prior written consent of the Investor, shall not
enter into, any agreement with any holder or prospective holder of any
securities of the Company that grants such holder or prospective holder
registration rights that would, in any case, reduce the number of shares
includable by the Investor in a registration statement as provided for herein or
otherwise adversely effect any material rights of the Investor under this
Agreement.
     2.11 Rule 144 Reporting.
          (a) With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
Registrable Securities to the public without registration, the Company shall:
               (i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;

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               (ii) use reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
               (iii) furnish to each holder of Registrable Securities forthwith
upon request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Registrable Securities without
registration.
          (b) The Company shall take such further action and shall offer all
reasonable and necessary assistance including the delivery of a legal opinion
letter and instructions to the Company’s stock transfer agent to enable the sale
by the Investor of Registrable Securities pursuant to Rule 144 or any similar
rule or regulation.
SECTION 3 COVENANTS OF THE COMPANY.
     3.1 Financial Reporting; Additional Information.
          (a) The Company will and will cause each of its subsidiaries to
maintain true books and records of account in which full and correct entries
will be made of all its business transactions pursuant to a system of accounting
established and administered in accordance with generally accepted accounting
principles consistently applied (except as noted therein), and will set aside on
its books all such proper accruals and reserves as shall be required under
generally accepted accounting principles consistently applied.
          (b) If the Company ceases to be a public company filing reports and
other documents under the Exchange Act, and if the Investor then owns at least
five percent (5%) of the outstanding Common Stock, the Company and the Investor
will negotiate in good faith to provide the Investor with appropriate
information and other rights.
SECTION 4 RIGHTS OF FIRST REFUSAL.
     4.1 Subsequent Offerings of Equity Securities. Subject to applicable
securities laws, the Investor shall have a right of first refusal to purchase
all or any portion of the Equity Securities that the Company may, from time to
time, propose to sell and issue in a capital raising transaction after the date
of this Agreement. Notwithstanding the foregoing, this right of first refusal
shall be limited as may be necessary to comply with the applicable shareholder
approval rules of the American Stock Exchange or any other national securities
exchange or national market system on which the Common Stock may be listed such
that the Company will not be required to obtain shareholder approval for such
purchase of Equity Securities by the Investor. The term “Equity Securities”
shall mean (i) any Common Stock, preferred stock or other security of the
Company, (ii) any security convertible into or exercisable or exchangeable for,
with or without consideration, any Common Stock, preferred stock or other
security (including any option to purchase such a convertible security),
(iii) any security carrying any warrant or

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right to subscribe to or purchase any Common Stock, preferred stock or other
security or (iv) any such warrant or right.
     4.2 Exercise of Refusal Right for Equity Securities. If the Company
proposes to issue any Equity Securities, it shall give the Investor written
notice of its intention, describing the Equity Securities, the price and the
terms and conditions thereof and referring to the Investor’s right of first
refusal hereunder. The Investor shall have ten (10) days 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.
     4.3 Issuance of Equity Securities to Other Persons. The Company shall have
ninety (90) days thereafter to sell the Equity Securities in respect of which
the Investor’s rights were not exercised, at a price not lower and upon general
terms and conditions not materially more favorable to the purchasers thereof
than specified in the Company’s notice to the Investor pursuant to Section 4.2.
If the Company has not sold such Equity Securities within ninety (90) days of
the notice provided pursuant to Section 4.2, the Company shall not thereafter
issue or sell any Equity Securities, without first offering such securities to
the Investor in the manner provided above.
     4.4 Right of First Refusal for Control Transaction. In the event the
Company proposes any transaction that would constitute a Change of Control with,
or primarily involving, a person which derives a material portion of its revenue
from the research, development, manufacturing, marketing or sale of hearing aids
(a “Control Transaction”), the Investor shall have a right of first refusal with
respect to the Control Transaction.
     4.5 Exercise of Refusal Right for Control Transaction. If the Company
proposes to enter into a Control Transaction, it shall give the Investor written
notice of its intention, describing the Control Transaction, and the price and
the terms and conditions thereof and referring to the Investor’s right of first
refusal hereunder. The Investor shall have sixty (60) days from the receiving of
such notice to agree to enter into the Control Transaction for the price and
upon the terms and conditions specified in the notice by giving written notice
to the Company.
     4.6 Control Transaction with Other Person. If the Investor does not
exercise its right of first refusal with respect to the Control Transaction, the
Company shall have one hundred twenty (120) days after the earlier of (a) the
expiration of such sixty (60) day period or (b) the date of the Company’s
receipt of written notice from the Investor that it does not intend to enter
into the Control Transaction, to consummate the Control Transaction in respect
of which the Investor’s rights were not exercised, at a price not lower and upon
general terms and conditions not materially more favorable to the other party
than specified in the Company’s notice to the Investor pursuant to Section 4.5.
If the Company has not consummated the Control Transaction within one hundred
twenty (120) days of the notice provided pursuant to Section 4.2, the Company
shall not thereafter consummate a Control Transaction without first offering
such securities to the Investor in the manner provided above.

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     4.7 Assignment of Rights of First Refusal. The rights of first refusal
under this Section 4 may be assigned in whole or in part by the Investor to any
“affiliate” of the Investor as such term is defined in Rule 144.
SECTION 5 MISCELLANEOUS.
     5.1 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware in all respects as such laws are applied to
agreements among Delaware residents entered into and to be performed entirely
within Delaware, without reference to conflicts of laws or principles thereof.
Any action brought by either party under or in relation to this Agreement,
including to interpret or enforce any provision of this Agreement, shall be
brought in, and each party does hereby submit to the jurisdiction and venue of,
any state or federal court located in Manhattan, New York. The parties hereby
irrevocably waives any and all right to trial by jury or any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby.
     5.2 Successors and Assigns. The provisions hereof shall inure to the
benefit of, and be binding upon, the parties hereto and their respective
successors and assigns, and shall be enforceable by the parties hereto and their
respective permitted successors and assigns; without limiting the foregoing, the
rights and obligations of the Investor may be assigned to any person to whom the
Credit Agreement is assigned, whether by operation of law or otherwise.
     5.3 Entire Agreement. This Agreement, together with the Credit Agreement
and the agreements related thereto, constitute the full and entire understanding
and agreement between the parties with regard to the subject matter hereof and
supersede any prior agreements and understandings between the parties with
respect to those matters.
     5.4 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
     5.5 Amendment and Waiver Any modification or amendment of this Agreement
shall be effective only if made in writing and signed by each of the parties.
Any waiver of any provision of this Agreement shall be effective only if made in
writing and signed by the party against whom such waiver is sought to be
enforced. Waiver by either party of any breach or default by the other party
shall not be deemed a waiver of any other breach or default.
     5.6 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by electronic mail or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the

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signature pages hereof or at such other address as such party may designate by
ten (10) days advance written notice to the other party hereto.
     5.7 Attorney’s Fees. In the event that any suit or action is instituted in
relation to this Agreement, including to enforce any provision in this
Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party in relation to this Agreement, including such reasonable
fees and expenses of attorneys and accountants, which shall include all fees,
costs and expenses of appeals.
     5.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
     5.9 Table of Contents; Headings; Rules of Construction.
          (a) The Table of Contents and headings contained herein are for
convenience of reference only, do not constitute a part of this Agreement, and
shall not be deemed to limit or affect any of the provisions hereof.
          (b) “Include” and “including” and similar expressions are not
expressions of limitation and shall be construed as if followed by the words
“without limitation.”
          (c) The words “herein,” “hereto,” “hereof’ and words of similar import
refer to this Agreement as a whole and not to any particular provision of this
Agreement.
          (d) The word “person” means any individual, sole proprietorship,
partnership, joint venture, corporation, estate, trust, unincorporated
organization, association, limited liability company, institution or other
entity, including any that is a governmental authority.
          (e) Words importing the singular will also include the plural, and
vice versa.
          (f) References to any gender shall be deemed to be references to the
other genders.
          (g) The parties have participated jointly in the negotiation and
drafting of this Agreement, so if an ambiguity or question of intent or
interpretation arises as to any aspect of this Agreement, it will be construed
as if drafted jointly by the parties and no presumption or burden of proof will
arise favoring or disfavoring either party by virtue of the authorship of any
provision of this Agreement.
     5.10 No Third Party Beneficiaries. Nothing in this Agreement shall create
or be deemed to create any third party beneficiary rights in any person.
     5.11 Time of the Essence. Time is of the essence of each and every
provision of this Agreement.
     5.12 Termination. This Agreement shall terminate and be of no further force
or effect upon the termination of the Credit Agreement, except that the
provisions of Sections 2 and 5

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shall continue in effect until the later of one hundred eighty (180) days after
the termination of the Credit Agreement or the date on which the Investor no
longer owns at least 50,000 of the Shares (adjusted for stock splits and
dividends, reverse stock splits and similar recapitalizations).

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     In witness whereof, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.

            HearUSA, Inc.
      By:   /s/ Stephen J. Hansbrough       Name:   Stephen J. Hansbrough     
Title:   President and CEO     

            Siemens Hearing Instruments, Inc.
      By:   /s/ William J. Lankenau       Name:   William J. Lankenau     
Title:   President and CEO     

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