Exhibit 10.22
 
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 30, 2006
Between
HearUSA, Inc.,
as Borrower,
and
SIEMENS HEARING INSTRUMENTS, INC.,
as Lender
 
$50,000,000
 
 

 

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TABLE OF CONTENTS

              Page
 
       
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
    1  
 
       
Section 1.01. Defined Terms
    1  
Section 1.02. Computation of Time Periods
    15  
Section 1.03. Accounting Terms
    16  
Section 1.04. Certain Terms
    16  
 
       
ARTICLE II AMOUNTS AND TERMS OF THE LOAN
    16  
 
       
Section 2.01. The Commitments and the Loans
    16  
Section 2.02. Making the Loans
    17  
Section 2.03. Repayments
    18  
Section 2.05. Mandatory Prepayment of Loans
    20  
Section 2.06. Interest
    21  
Section 2.07. Illegality
    22  
Section 2.08. Payments and Computations
    22  
Section 2.09. Taxes
    22  
Section 2.10. Conversion
    23  
 
       
ARTICLE III CONDITIONS PRECEDENT
    30  
 
       
Section 3.01. Conditions Precedent to the Effectiveness of this Agreement
    30  
Section 3.02. Conditions Precedent to Loans Made After the Closing Date
    31  
Section 3.03. Additional Conditions Precedent to Making All Loans
    31  
Section 3.04. Deadline for Satisfaction of Conditions
    32  
 
       
ARTICLE IV REPRESENTATIONS AND WARRANTIES
    32  
 
       
Section 4.01. Corporate Existence; Compliance with Law
    32  
Section 4.02. Corporate Power; Authorization; Enforceable Obligations
    33  
Section 4.03. Full Disclosure
    33  
Section 4.04. Financial Matters
    34  
Section 4.05. Litigation
    34  
Section 4.06. Margin Regulation
    34  
Section 4.07. No Default
    35  
Section 4.08. Investment Company Act
    35  
Section 4.09. Use of Proceeds
    35  
Section 4.10. Pari Passu Obligations
    35  
Section 4.11. Compliance with Agreements
    35  
 
       
ARTICLE V AFFIRMATIVE COVENANTS
    35  
 
       
Section 5.01. Compliance with Laws, Etc.
    35  
Section 5.02. Conduct of Business
    35  
Section 5.03. Preservation of Corporate Existence, Etc.
    36  
Section 5.04. Access
    36  

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              Page
 
       
Section 5.05. Keeping of Books
    36  
Section 5.06. Application of Proceeds
    36  
Section 5.07. Financial Statements
    37  
Section 5.08. Reporting Requirements
    38  
Section 5.09. Insurance
    38  
Section 5.10. Payment of Taxes and Claims
    38  
Section 5.11. Compliance with Agreements
    39  
Section 5.12. Further Documents
    39  
Section 5.13. [Intentionally omitted]
    39  
Section 5.14. Collateral Documents
    39  
 
       
ARTICLE VI NEGATIVE COVENANTS
    39  
 
       
Section 6.01. Liens, Etc.
    39  
Section 6.02. Indebtedness
    41  
Section 6.03. Mergers, Sale of Assets, Etc.
    41  
Section 6.04. Change in Nature of Business
    42  
Section 6.05. Modification of Material Agreements
    42  
Section 6.06. Cancellation of Indebtedness Owed to the Borrower
    42  
Section 6.07. Capital Structure
    42  
Section 6.08. Accounting Changes
    42  
Section 6.09. OFAC Compliance
    43  
Section 6.10. Investments in Other Persons
    43  
 
       
ARTICLE VII EVENTS OF DEFAULT
    43  
 
       
Section 7.01. Events of Default
    43  
Section 7.02. Remedies
    45  
 
       
ARTICLE VIII MISCELLANEOUS
    45  
 
       
Section 8.01. Amendments, Etc.
    45  
Section 8.02. Notices
    45  
Section 8.03. No Waiver; Remedies
    46  
Section 8.04. Costs; Expenses; Indemnities
    46  
Section 8.05. Right of Set-off
    47  
Section 8.06. Binding Effect
    48  
Section 8.07. Governing Law
    48  
Section 8.08. Severability
    48  
Section 8.09. Submission to Jurisdiction; Service of Process
    48  
Section 8.10. Waiver of Jury Trial
    49  
Section 8.11. Section Titles
    49  
Section 8.12. Execution in Counterparts
    49  
Section 8.13. Survival
    49  
Section 8.14. Entire Agreement
    49  

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      EXHIBITS  
 
   
 
Exhibit A-1  
Form of Tranche A Note
Exhibit A-2  
Form of Tranche B Note
Exhibit A-3  
Form of Tranche C Note
Exhibit A-4  
Form of Tranche D Note
Exhibit B  
Form of Notice of Borrowing
Exhibit C  
Security Agreement
Exhibit D  
Form of Conversion Notice
Exhibit E  
Form of Statement of Indebtedness and Trade Payables
   
 
SCHEDULES  
 
   
 
Schedule I  
Acquisition Guidelines
Schedule 1.01  
Potential Transactions
Schedule 2.05  
Existing Warrants
Schedule 6.01  
Existing Liens
Schedule 6.02  
Certain Indebtedness

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          SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 30,
2006, between HearUSA, Inc. (formerly HEARx, Ltd.), a Delaware corporation (the
“Borrower”), and Siemens Hearing Instruments, Inc., a Delaware corporation (the
“Lender”).
WITNESSETH:
          WHEREAS, the Borrower and the Lender have been parties to an Amended
and Restated Credit Agreement dated as of February 10, 2006, and subsequently
amended (as amended, the “Existing Credit Agreement”), pursuant to which the
Lender has made certain loans to the Borrower (the “Existing Loans”) for the
purposes specified in such Existing Credit Agreement, and to an Amended and
Restated Supply Agreement dated as of February 10, 2006, and subsequently
amended (as amended, the “Existing Supply Agreement”) pursuant to which the
Borrower and its Affiliates are purchasing hearing aids from Lender and its
Affiliates; and
          WHEREAS, the Borrower has requested that Lender modify the terms of
the Existing Credit Agreement and enter into certain financing arrangements with
the Borrower; and
          WHEREAS, the parties now desire to fully amend and restate the
Existing Credit Agreement by, among other things, increasing the total
commitment thereunder to $50 million, adding an additional tranche and
consolidating certain existing tranches; and
          WHEREAS, Borrower and the Lender are desirous of extending their
relationship and entering into this Second Amended and Restated Credit Agreement
pursuant to which the Lender will make funds available to the Borrower for such
purposes and upon the terms and subject to the conditions set forth herein; and
          WHEREAS, the Borrower and the Lender are also extending their supplier
relationship and will be parties to an amendment to the Existing Supply
Agreement, which will provide for the sale of hearing aids to the Borrower and
its Affiliates by the Lender or its Affiliates;
          NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
     Section 1.01. Defined Terms.
          As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):

 

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          “Acquisition Target” means a Person that the Borrower acquires in a
Stand-Alone Acquisition.
          “Additional Rebates” means the rebates described in Section 4.6 of the
Supply Agreement.
          “Affiliate” means, as to any Person, any Subsidiary of such Person and
any other Person which, directly or indirectly, controls, is controlled by or is
under common control with such Person and includes each officer or director or
general partner of such Person, and each Person who is the beneficial owner of
10% or more of any class of Voting Stock of such Person. For the purposes of
this definition, “control” means the possession of the power to direct or cause
the direction of management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
          “Agreement” means this Amended and Restated Credit Agreement, together
with all Exhibits and Schedules hereto, as the same may be amended, restated,
supplemented or otherwise modified from time to time.
          “Approved Stock Plan” shall mean any employee benefit plan, stock
incentive plan or other similar plan or arrangement which has been approved by
the board of directors of the Borrower or any authorized committee thereof,
pursuant to which the Borrower’s securities may be issued to any employee,
officer, consultant or director for services provided to the Borrower.
          “Base Rebates” means the rebates described in Section 4.5 of the
Supply Agreement.
          “Business Day” means a day of the year on which banks are not required
or authorized to close in New York City.
          “Cash Equivalents” means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States government or any agency thereof, (b) certificates of deposit,
eurodollar time deposits, overnight bank deposits and bankers’ acceptances of
any lender or by any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia that (i) is
at least “adequately capitalized” (as defined in the regulations of its primary
Federal banking regulator) and (ii) has Tier 1 capital (as defined in such
regulations) of not less than $100,000,000, having maturities of one year or
less from the date of acquisition, (c) commercial paper of an issuer rated at
least “A-1” by Standard & Poors or “P-1” by Moody’s, or carrying an equivalent
rating by a nationally recognized rating agency if both of Standard and Poors
and Moody’s cease publishing ratings of investments, (d) shares of any money
market mutual fund that (i) has substantially all of its assets invested
continuously in the types of investments referred to in clause (a) above,
(ii) has net assets of not less than $500,000,000, and (iii) has the highest
rating obtainable from either S&P or Moody’s; and (e) repurchase obligations of
any lender or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government.

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          “Change of Control” means the happening of any of the following
events:
          (a) 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 Borrower 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 Borrower, (2) any acquisition by the Borrower, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Borrower or any corporation controlled by the Borrower, or
(4) any acquisition by any corporation pursuant to a transaction described in
clauses (A), (B) and (C) of paragraph (c) of this definition; or
          (b) Individuals who, as of the date of this Agreement, constitute the
board of directors of the Borrower (the “Incumbent Board”) cease for any reason
to constitute at least a majority of the board of directors of the Borrower;
provided, however, that any individual becoming a director subsequent to such
effective date whose election, or nomination for election by the stockholders of
the Borrower, was 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 of directors
of the Borrower; or
          (c) Approval by the stockholders of the Borrower 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 Borrower 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 Borrower 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

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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 of directors of the Borrower, providing for such Business
Combination; or
          (d) Approval by the stockholders of the Borrower of (A) a complete
liquidation or dissolution of the Borrower, or (B) the sale or other disposition
of all or substantially all of the assets of the Borrower, 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 Borrower or 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 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 of
directors of the Borrower, providing for such sale or other disposition of
assets of the Borrower or were elected, appointed or nominated by the board of
directors of the Borrower.
          “Closing Date” means the date on which all of the conditions set forth
in Sections 3.01 and 3.03 are satisfied, subject, however, to the provisions of
Section 3.04.
          “Closing Statement” means a statement of the Indebtedness owing to the
Lender as of the Closing Date and of the trade payables owing to the Lender as
of the Closing Date, in each case both prior to and after the consummation of
the transactions that are to occur on the Closing Date, in substantially the
form of Exhibit E attached hereto.
          “Collateral Documents” means the Security Agreement and any other
document or instrument executed and delivered by a Person granting a Lien on any
of its property to secure payment of the Obligations.
          “Commitment Termination Date” means the earlier of (a) thirty
(30) days prior to the Maturity Date and (b) such other date as the Commitments
may terminate pursuant to the provisions of this Agreement.
          “Commitments” means, collectively, the Tranche B Loan Commitment, the
Tranche C Loan Commitment and the Tranche D Loan Commitment.

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          “Common Stock” shall mean and include the Borrower’s common stock,
$0.10 par value, now or hereafter authorized by the Borrower’s certificate of
incorporation.
          “Consolidated Net Income” means, for any period with respect to any
specified Person or operations for which financial statements are prepared, the
Net Income of such Person or operations and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; provided that the
Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its shareholders.
          “Conversion Price” means $3.30, subject to adjustment as set forth in
Section 2.10(g).
          “Convertible Securities” means any convertible securities, Options or
other rights to subscribe for or to purchase or exchange for, shares of Common
Stock.
          “Current Assets” means, with respect to any Person at any date, the
total consolidated current assets of such Person and its Subsidiaries on a
consolidated basis at such date, determined in conformity with GAAP.
          “Current Liabilities” means, with respect to any Person at any date,
the total consolidated current liabilities of such Person and its Subsidiaries
on a consolidated basis at such date, determined in conformity with GAAP.
          “Current Market Price” means the average of the daily closing prices
of one share of Common Stock for the thirty (30) consecutive Trading Days ending
before the day in question and such average will be adjusted for any stock
dividend, split, combination or reclassification that took effect during such
thirty (30) Trading Day period. The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the Principal Market. Notwithstanding the foregoing, if the
Common Stock is not traded in such manner that the prices referred to above are
available for the period required hereunder, the Current Market Price shall be
determined in good faith by the board of directors of the Borrower.
          “Default” means any event which with the passing of time or the giving
of notice or both would become an Event of Default.
          “Distribution Date” has the meaning assigned to such term in the
Rights Agreement.
          “Dollars” and the sign “$” each mean the lawful money of the United
States of America.

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          “EBITDA” means, with respect to any Person or operations for which
financial statements are prepared, at any time, for the then most recently
completed four fiscal quarters of such Person or operations, the sum of the
following amounts (without duplication) in respect of such Person and its
Subsidiaries or such operations, determined on a consolidated basis in
accordance with GAAP:
          (a) Consolidated Net Income for such period;
          (b) all amounts deducted from net revenues in determining such
Consolidated Net Income for such period on account of (i) Interest Expense and
interest on the Loans and (ii) Taxes payable in respect of income of such
Person;
          (c) all charges or deductions for depreciation or amortization for
such period to the extent deducted in determining Consolidated Net Income for
such period; and
          (d) all non-recurring losses and all losses from investments recorded
using the equity method for such period to the extent deducted in determining
Consolidated Net Income for such period;
          less the amount of all non-recurring gains and all gains from
investments recorded using the equity method for such period to the extent
included in determining Consolidated Net Income for such period.
          “Environmental Laws” means all federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including, without limitation, any
judicial or administrative order, consent decree or judgment relating to the
regulation and protection of human health, safety, the environment or natural
resources (including, without limitation, ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation).
          “ERISA” means the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time, and all rules
and regulations from time to time promulgated thereunder.
          “Event of Default” has the meaning specified in Section 7.01.
          “Excess Cash Flow” means, with respect to any Person or operations for
which financial statements are prepared, at any time, for the then most recently
completed four fiscal quarters of such Person or operations, the sum of the
following amounts (without duplication) in respect of such Person and its
Subsidiaries or such operations, determined on a consolidated basis in
accordance with GAAP:
          (a) Consolidated Net Income for such period;

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          (b) all amounts deducted from net revenues in determining such
Consolidated Net Income for such period on account of (i) Interest Expense and
interest on the Loans and (ii) Taxes payable in respect of income of such
Person;
          (c) all charges or deductions for depreciation or amortization for
such period to the extent deducted in determining Consolidated Net Income for
such period;
          (d) all non-recurring losses and all losses from investments recorded
using the equity method for such period to the extent deducted in determining
Consolidated Net Income for such period; and
          (e) all charges or deductions for bad debts for such period to the
extent deducted in determining Consolidated Net Income for such period;
          Less:
          (f) the amount of all non-recurring gains and all gains from
investments recorded using the equity method for such period to the extent
included in determining Consolidated Net Income for such period;
          (g) the amount of all credits or decreases in cost of products sold
for such period to the extent decreased in determining Consolidated Net Income
for such period, pursuant to Section 2.03(d) of this Credit Agreement; and
          (h) scheduled and mandatory cash principal and interest payments on
Indebtedness made by Borrower or any of its Subsidiaries (other than the Loans)
during such period to the extent such other Indebtedness is permitted herein and
such payments are permitted to be made herein.
          “Exchange Act” means the Securities Exchange Act of 1934, as amended.
          “Excluded Issuances” shall mean shares of Common Stock (a) deemed to
have been issued by the Borrower in connection with an Approved Stock Plan;
(b) issued upon exercise of Options or Convertible Securities which are
outstanding on the date immediately preceding the Closing Date, provided that
except in connection with the potential transactions set forth on Schedule 1.01
attached hereto, such issuance of shares of Common Stock upon exercise of such
Options or Convertible Securities (i) is made pursuant to the terms of such
Options or Convertible Securities in effect on the date immediately preceding
the Closing Date, (ii) such Options or Convertible Securities are not amended
after the date immediately preceding the Closing Date other than with respect to
Options originally issued pursuant to an Approved Stock Plan and (iii) the
purchase or exercise price provided for in any such Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or exercise
of any such Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable or exercisable for Common Stock
does not change at any time after the Closing Date; and (c) issued to the public
pursuant to an underwritten offering registered pursuant to the Securities Act
(but in all events excluding offerings pursuant to “equity lines” or similar
products).

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          “Existing Credit Agreement” has the meaning set forth in the Recitals
to this Agreement.
          “Existing Tranche A Loan” means the outstanding “Tranche A Loan” under
the Existing Credit Agreement as of the Closing Date.
          “Existing Tranche B Loan” means the outstanding “Tranche B Loan” under
the Existing Credit Agreement as of the Closing Date.
          “Existing Tranche C Loan” means the Existing Tranche C-1 Loan, the
Existing Tranche C-2 Loan, the Existing Tranche C-3 Loan and the Existing
Tranche C-3 Accrued Interest.
          “Existing Tranche C-1 Loan” means the outstanding “Tranche C-1 Loan”
under the Existing Credit Agreement as of the Closing Date.
          “Existing Tranche C-2 Loan” means the outstanding “Tranche C-2 Loan”
under the Existing Credit Agreement as of the Closing Date.
          “Existing Tranche C-3 Loan” means the outstanding “Tranche C-3 Loan”
under the Existing Credit Agreement as of the Closing Date.
          “Existing Tranche C-3 Accrued Interest” means the accrued and unpaid
and capitalized interest on the Existing Tranche C-3 Loan as of the Closing
Date.
          “Fiscal Quarter” means each of the three month periods ending on the
last Saturday during the months of March, June, September and December.
          “GAAP” means generally accepted accounting principles in the United
States of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board.
          “Governmental Authority” means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
          “Indebtedness” means, as to any Person: (a) indebtedness created,
issued, existing or incurred by such Person for borrowed money (whether by loan
or the issuance and sale of debt securities); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within sixty (60) days from the date Borrower
receives statement for such goods or services and other than trade accounts
payable that are being contested in good faith, by proper proceedings, if
adequate reserves therefor have been established on the books of such Person in
conformity with GAAP; (c) Indebtedness of others secured by a Lien on the
property of such Person, whether or not the respective indebtedness so secured
has been assumed

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by such Person; (d) obligations of such Person in respect of letters of credit
or similar instruments issued or accepted by banks and other financial
institutions for the account of such Person; (e) capital lease obligations of
such Person; and (f) Indebtedness of others guaranteed by such Person.
          “Indemnified Matters” has the meaning specified in Section 8.04(b).
          “Indemnitee” has the meaning specified in Section 8.04(b).
          “Interest Expense” means, for any fiscal period, for any Person or
operations for which financial statements are prepared, all interest expense
calculated on a consolidated basis for such Person and its Subsidiaries or such
operations in respect of Indebtedness, including any commitment, standby, agency
or other fees charged in respect of the provision of any such Indebtedness, any
fee payable in respect of the issuance of any letter of credit or letter of
guarantee, the imputed interest component of any bankers’ acceptance or other
security issued by any such Person or in respect of such operations, the
interest component under any capital lease or under any lease, or under any
interest rate protection agreement entered into by any such Person or in respect
of such operations, all as determined in accordance with GAAP.
          “Investor Rights Agreement” means the Investor Rights Agreement dated
as of the Closing Date, between the Borrower and the Lender, as amended,
supplemented or modified from time to time.
          “Investment” has the meaning specified in Section 6.12.
          “Lien” means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to assure
payment of any indebtedness or other obligation, including, without limitation,
any conditional sale or other title retention agreement, the interest of a
lessor under a capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing, under the UCC or
comparable law of any jurisdiction, of any financing statement evidencing a
valid lien naming the owner of the asset to which such Lien relates as debtor.
          “Loan Balance” means the then outstanding principal plus accrued and
unpaid interest in respect of the Tranche A Loan, Tranche B Loan, Tranche C Loan
or Tranche D Loan, as the context shall specify.
          “Loan Documents” means, collectively, this Agreement, the Notes, the
Collateral Documents and each certificate, agreement or document executed by the
Borrower or any other Person (other than the Lender) and delivered to the Lender
in connection with or pursuant to any of the foregoing.
          “Loan Payment Date” means the Tranche A Loan Payment Date, the Tranche
B Loan Payment Date, the Tranche C Loan Payment Date or the Tranche D Loan
Payment Date, as applicable.

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          “Loans” means, collectively, the Tranche A Loan, the Tranche B Loans,
the Tranche C Loans and the Tranche D Loans.
          “Material Adverse Change” means a material adverse change in any of
(a) the legality, validity or enforceability of any Loan Document, (b) the
ability of the Borrower to repay the Obligations or to perform its obligations
under any Loan Document, (c) the ability of the Lender to obtain recourse to any
of the collateral described in the Collateral Documents, or (d) the rights and
remedies of the Lender under any of the Loan Documents.
          “Material Adverse Effect” means an effect that results in or causes,
or has a reasonable likelihood of resulting in or causing, a Material Adverse
Change.
          “Maturity Date” means February 10, 2013.
          “Maximum Commitment” means $50,000,000.
          “Minimum Issuance Price” means, as of any date of determination,
eighty-five percent (85%) of the Current Market Price as of such date .
          “Minimum Purchase Requirement” as of the end of any Fiscal Quarter,
means the requirement that the number of hearing aids that the Borrower purchase
from the Lender pursuant to the Supply Agreement, net of returns, during the
four (4) consecutive Fiscal Quarters then ended, equal at least ninety percent
(90%) of all hearing aids purchased by the Borrower from all sources, net of
returns, during such period.
          “Net Income (Loss)” means, for any Person for any period, the
aggregate of net income (or loss) of such Person and its Subsidiaries for such
period, determined on a consolidated basis in conformity with GAAP.
          “Notes” means, collectively, the Tranche A Note, the Tranche B Note,
the Tranche C Note and the Tranche D Note.
          “Notice of Borrowing” has the meaning specified in Section 2.02(a).
          “Obligations” means the Loans, the Notes and all other advances,
debts, liabilities, obligations, covenants and duties owing by the Borrower to
the Lender or any Indemnitee, of every type and description, present or future,
whether or not evidenced by any note, guaranty or other instrument, arising
under this Agreement or under any other Loan Document, whether or not for the
payment of money, loan, guaranty, indemnification or in any other manner,
whether direct or indirect (including, without limitation, those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired. The term “Obligations” includes, without
limitation, all interest, charges, expenses, fees, attorneys’ fees and
disbursements and any other sum chargeable to the Borrower under this Agreement
or any other Loan Document.
          “Options” shall mean any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities of the Borrower.

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          “Other Taxes” has the meaning specified in Section 2.09(b).
          “Permit” means any permit, approval, authorization, license, variance
or permission required from a Governmental Authority under an applicable
Requirement of Law.
          “Permitted Acquisition Indebtedness” means subordinated unsecured
Indebtedness of the Borrower that satisfies each of the following conditions:
          (a) the Indebtedness is incurred to finance a portion of the purchase
price of a Stand-Alone Acquisition;
          (b) no Default or Event of Default shall be in existence at the time
of the incurrence of such Indebtedness and no Default or Event of Default would
result from the incurrence of such Indebtedness;
          (c) no less than three (3) days prior to the incurrence of such
Indebtedness, the Borrower shall have delivered to the Lender projections
demonstrating that the incurrence of such Indebtedness would not impair the
Borrower’s ability to make payments owing to the Lender under this Agreement and
the Supply Agreement as and when such payments are due; and
          (d) the other terms and conditions of such Permitted Subordinated
Indebtedness shall be, in Lender’s reasonable opinion, at then prevailing market
standards for companies similarly situated, including limited acceleration
rights, priority in bankruptcy to the Obligations, payover provisions and waiver
of defenses.
          “Permitted Liens” means Liens permitted under Section 6.01 of this
Agreement.
          “Permitted Senior Indebtedness” means senior unsecured Indebtedness of
Borrower to non-Affiliates of the Borrower that satisfies each of the following
conditions:
          (a) in the reasonable judgment of the Lender, the Borrower will be
able to service the Permitted Senior Indebtedness without substantially
jeopardizing the ability of the Borrower to pay all principal and interest on
its Indebtedness under reasonably adverse business circumstances;
          (b) there are no sinking fund or mandatory payments or prepayments of
principal due in respect of such Permitted Senior Indebtedness prior to the
Maturity Date;
          (c) after giving effect to the incurrence of such Permitted Senior
Indebtedness, the Borrower’s ratio of (i) Total Debt to (ii) its Stockholders’
Equity shall be, on a pro forma basis, equal to or less than 2.5:1.0;
          (d) after giving effect to the incurrence of such Permitted Senior
Indebtedness, the Borrower’s ratio of EBITDA to the Borrower’s aggregate
Interest Expense (including, without limitation, interest paid hereunder) shall
be, on a pro forma basis, equal to or greater than 3.0:1.0;

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          (e) the other terms and conditions of such Indebtedness, shall be, in
the Lender’s reasonable judgment, at then prevailing market standards for
companies similarly situated.
For purposes of this definition, “pro forma” means, for any calculation, on the
basis of the most recently completed rolling four-Fiscal Quarter period, but
assuming the incurrence of the proposed Indebtedness on the first day of such
period.
          “Permitted Subordinated Indebtedness” means subordinated unsecured
Indebtedness of the Borrower that satisfies each of the following conditions:
     (a) the final maturity of such Permitted Subordinated Indebtedness is later
than the Maturity Date;
     (b) there are no sinking fund or mandatory payments or prepayments of
principal due in respect of such Permitted Subordinated Indebtedness prior to
the Maturity Date; and
     (c) the other terms and conditions of such Permitted Subordinated
Indebtedness shall be, in Lender’s reasonable opinion, at then prevailing market
standards for companies similarly situated, including limited acceleration
rights, priority in bankruptcy to the Obligations, payover provisions and waiver
of defenses.
          “Person” means an individual, partnership, corporation (including,
without limitation, a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other entity, or a
Governmental Authority.
          “Principal Market” shall mean the American Stock Exchange or such
other principal market or exchange on which the Common Stock is then listed for
trading.
          “Required Tranche A Payment” shall have the meaning specified in
Section 2.03(a).
          “Required Tranche B Payment” shall have the meaning specified in
Section 2.03(b).
          “Required Tranche C Payment” shall have the meaning specified in
Section 2.03(c).
          “Required Tranche D Payment” shall have the meaning specified in
Section 2.03(d).
          “Requirement of Law” means, as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of such
Person, and all federal, state and local laws, rules and regulations, including,
without limitation, federal, state or local securities, antitrust and licensing
laws, all health and safety laws, including, without limitation, Environmental
Laws, and ERISA, and all orders, judgments, decrees or other determinations of
any Governmental Authority or arbitrator, applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.

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          “Responsible Officer” means, with respect to any Person, any of the
principal executive officers of such Person.
          “Rights Agreement” means the Amended and Restated Rights Agreement
dated as of July 11, 2002, between the Borrower and The Bank of New York, as
rights agent, as such agreement may be amended, supplemented or modified from
time to time.
          “Securities Act” means the Securities Act of 1933, as amended.
          “Security Agreement” means the Amended and Restated Security Agreement
entered into between Lender and Borrower effective February 10, 2006, as amended
by the Amendment No. 1 dated as of the Closing Date, set out as Exhibit C
hereto, as such agreement may be amended, supplemented or modified from time to
time.
          “Solvent” means, with respect to any Person, that the value of the
assets of such Person (at book value) is, on the date of determination, greater
than the total amount of liabilities (including, without limitation, contingent
and unliquidated liabilities) of such Person as of such date and that, as of
such date, such Person is able to pay all liabilities of such Person as such
liabilities mature and does not have unreasonably small capital. In computing
the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
          “Specified Notes” means the notes designated as such on Schedule 6.02.
          “Stand-Alone Acquisition” means Borrower’s acquisition of or
investment in an Acquisition Target (through the purchase of Stock, other
securities or assets or by merger or consolidation), in which the Acquisition
Target thereafter remains in a separate location and has a separate “ship to”
account with Siemens.
          “Stock” means shares of capital stock, beneficial, membership or
partnership interests, participations or other equivalents (regardless of how
designated) of or in a corporation, limited liability company, partnership or
other entity, whether voting or non-voting, and includes, without limitation,
common stock and preferred stock.
          “Stock Equivalents” means all securities convertible into or
exchangeable for Stock, and all Options or other rights to purchase or subscribe
for any Stock, whether or not presently convertible, exchangeable or
exercisable.
          “Subordinated Notes” means the Indebtedness designated as such on
Schedule 6.02.
          “Subsidiary” means, with respect to any Person, any corporation,
partnership or other business entity of which an aggregate of 50% or more of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors, managers, trustees or other controlling persons, is, at the time,
directly or indirectly, owned or controlled by such Person and/or one or more
Subsidiaries of such Person (irrespective of whether, at the time, Stock of

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any other class or classes of such entity shall have or might have voting power
by reason of the happening of any contingency).
          “Supply Agreement” means, collectively, the Amended and Restated
Supply Agreement, dated as of the Closing Date, between the Borrower and the
Lender, and any other supply or similar agreement entered into by the Lender or
any of its Affiliates and the Borrower or any of its Affiliates for the
provision of hearing aids by the Lender or any of its Affiliates to the Borrower
or any of its Affiliates, in each case, as amended, restated, supplemented or
otherwise modified from time to time.
          “Taxes” has the meaning specified in Section 2.09(a).
          “Tranche A Loan” means the Existing Tranche A Loan, which is continued
under this Agreement pursuant to Section 2.01(a).
          “Tranche A Loan Payment Date” has the meaning specified in
Section 2.03(a).
          “Tranche A Note” means the promissory note of the Borrower payable to
the order of the Lender in an aggregate principal amount equal to the Tranche A
Loan, in substantially the form of Exhibit A-1, evidencing the aggregate
principal amount of the Tranche A Loan by the Lender to the Borrower.
          “Tranche B Loan” means the Existing Tranche B Loan, which is continued
under this Agreement pursuant to Section 2.01(b), together with each additional
loan made by the Lender to the Borrower after the Closing Date pursuant to
Section 2.01(b).
          “Tranche B Loan Commitment” means the agreement of the Lender to
continue the Existing Tranche B Loan on the Closing Date, the agreement of the
Lender to make additional Tranche B Loans to the Borrower after the Closing Date
pursuant to clause (a)(i) of the Acquisition Guidelines and the option of the
Lender to make additional Tranche B Loans to the Borrower after the Closing Date
pursuant to clause (b)(i) of the Acquisition Guidelines, all in an aggregate
principal amount not to exceed $30,000,000 at any time less the aggregate amount
outstanding under the Tranche A Loan and Tranche C Loans at such time.
          “Tranche B Loan Payment Date” has the meaning specified in
Section 2.03(b).
          “Tranche B Note” means the promissory note of the Borrower payable to
the order of the Lender, in substantially the form of Exhibit A-2, evidencing
the aggregate principal amount of the Tranche B Loans by the Lender to the
Borrower.
          “Tranche C Loan” means the Existing Tranche C Loan, which is continued
under this Agreement pursuant to Section 2.01(c), together with each additional
loan made by the Lender to the Borrower after the Closing Date pursuant to
Section 2.01(c).
          “Tranche C Loan Commitment” means the agreement of the Lender to
continue the Existing Tranche C Loan on the Closing Date, the agreement of the
Lender to make additional Tranche C Loans to the Borrower after the Closing Date
pursuant to clause (a)(i) of

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the Acquisition Guidelines and the option of the Lender to make Tranche C Loans
to the Borrower pursuant to clause (a)(ii) and clause (b)(ii) of the Acquisition
Guidelines, all in an aggregate principal amount not to exceed $30,000,000 at
any time less the aggregate amount outstanding under the Tranche A Loan and
Tranche B Loan at such time.
          “Tranche C Loan Payment Date” has the meaning specified in
Section 2.03(c).
          “Tranche C Note” means the promissory note of the Borrower payable to
the order of the Lender in substantially the form of Exhibit A-3, evidencing the
aggregate principal amount of the Tranche C Loans by the Lender to the Borrower.
          “Tranche D Loan” means each loan made by the Lender to the Borrower
pursuant to Section 2.01(d).
          “Tranche D Loan Commitment” means the agreement of the Lender to make
the Tranche D Loan to the Borrower on the Closing Date pursuant to
Section 2.01(d), the agreement of the Lender to make additional Tranche D Loans
to the Borrower after the Closing Date pursuant to clause (a)(i) of the
Acquisition Guidelines and the option of the Lender to make additional Tranche D
Loans to the Borrower after the Closing Date pursuant to clause (a)(ii) and
clause (b) of the Acquisition Guidelines.
          “Tranche D Note” means the promissory note of the Borrower payable to
the order of the Lender in substantially the form of Exhibit A-4, evidencing the
aggregate principal amount of the Tranche D Loans by the Lender to the Borrower.
          “UCC” means the Uniform Commercial Code, as in effect in any
applicable jurisdiction.
          “Voting Stock” means Stock or similar interests, of any class or
classes (however designated), the holders of which at the time entitled, as such
holders to vote for the election of a majority of the directors (or persons
performing similar functions) of the Person involved, whether or not the right
to so vote exists by reason of the happening of a contingency.
          “Working Capital” means, for any Person at any date, the amount by
which the Current Assets of such Person at such date exceeds the Current
Liabilities of such Person at such date.
     Section 1.02. Computation of Time Periods.
          In this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word “from” means “from and
including” and the words “to” and “until” each mean “to but excluding” and the
word “through” means “to and including.”
     Section 1.03. Accounting Terms.
          All accounting terms not specifically defined herein shall be
construed in conformity with GAAP and all accounting determinations required to
be made pursuant hereto shall, unless expressly otherwise provided herein, be
made in conformity with GAAP.

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     Section 1.04. Certain Terms.
          (a) The words “herein,” “hereof” and “hereunder” and other words of
similar import refer to this Agreement as a whole, and not to any particular
Article, Section, subsection or clause in this Agreement. References herein to
an Exhibit, Schedule, Article, Section, subsection or clause refer to the
appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in
this Agreement.
          (b) The term “Lender” includes its successors and assigns.
ARTICLE II
AMOUNTS AND TERMS OF THE LOAN
     Section 2.01. The Commitments and the Loans.
          (a) Tranche A Loan. As of the Closing Date, the outstanding principal
amount of the Existing Tranche A Loan is as set forth on the Closing Statement,
and the accrued and unpaid interest thereon is as set forth on the Closing
Statement. Said outstanding principal and interest shall be continued as the
Tranche A Loan hereunder. The Tranche A Loan shall be repaid pursuant to the
terms hereof but once repaid may not be reborrowed. The Tranche A Loan shall be
evidenced by the Tranche A Note.
          (b) Tranche B Loans. As of the Closing Date, the outstanding principal
balance of the Existing Tranche B Loan is as set forth on the Closing Statement,
and the accrued and unpaid interest thereon is as set forth on the Closing
Statement. Said outstanding principal and interest shall be continued as the
outstanding Tranche B Loans hereunder. On the terms and subject to the
conditions contained in this Agreement, the Lender agrees to make additional
loans to the Borrower as set forth in clause (a)(i) of the Acquisition
Guidelines and in its sole and absolute discretion may make additional loans to
the Borrower as set forth in clause (b)(i) of the Acquisition Guidelines. Each
Tranche B Loan (i) may be made from time to time on any Business Day up to
thirty (30) days prior to the Maturity Date, (ii) shall be repaid pursuant to
the terms hereof and (iii) once repaid may be reborrowed. The aggregate
outstanding principal amount of all Tranche B Loans may not exceed at any time
the amount of the Tranche B Loan Commitment. The aggregate Tranche B Loans shall
be evidenced by the Tranche B Note.
          (c) Tranche C Loans. As of the Closing Date, the outstanding principal
balance of the Existing Tranche C-1 Loan is as set forth on the Closing
Statement and the accrued and unpaid interest thereon is as set forth on the
Closing Statement, the outstanding principal balance of the Existing Tranche C-2
Loan is as set forth on the Closing Statement, the outstanding principal balance
of the Existing Tranche C-3 Loan is as set forth on the Closing Statement, and
the Existing Tranche C-3 Accrued Interest is as set forth on the Closing
Statement. The Existing Tranche C Loans shall be continued as a Tranche C Loan
hereunder. On the terms and subject to the conditions contained in this
Agreement, the Lender agrees to make additional Tranche C Loans to the Borrower
under as set forth in clause (a)(i) of the Acquisition Guidelines and in its
sole and absolute discretion may make additional loans to the Borrower pursuant
to clause (a)(ii) and clause (b)(ii) of the Acquisition Guidelines. Each

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Tranche C Loan (i) may be made from time to time on any Business Day up to
thirty (30) days prior to the Maturity Date, (ii) shall be repaid pursuant to
the terms hereof and (iii) once repaid may be reborrowed. The aggregate
outstanding principal amount of all Tranche C Loans may not exceed at any time
the amount of the Tranche C Loan Commitment. The Tranche C Loans shall be
evidenced by the Tranche C Note.
          (d) Tranche D Loans. On the terms and subject to the conditions
contained in this Agreement, the Lender shall make a loan to the Borrower on the
Closing Date in the amount of $5,000,000, the Lender shall make additional loans
to the Borrower as set forth in clause (a)(i) of the Acquisition Guidelines, and
in its sole and absolute discretion, the Lender may make additional loans to the
Borrower as set forth in clause (a)(ii) and clause (b) of the Acquisition
Guidelines. In addition, up to $2,200,000 in outstanding trade payables owing by
the Borrower to the Lender that are past due as of the Closing Date shall be
converted to a Tranche D Loan. Each Tranche D Loan (i) may be made from time to
time on any Business Day up to thirty (30) days prior to the Maturity Date,
(ii) shall be repaid pursuant to the terms hereof and (iii) once repaid may be
reborrowed. The aggregate outstanding principal amount of all Tranche D Loans
may not exceed at any time the amount of the Tranche D Loan Commitment. The
Tranche D Loans shall be evidenced by the Tranche D Note.
          (e) Aggregate Commitments. In no event may the aggregate outstanding
principal amount of the Tranche A Loan, the Tranche B Loans and the Tranche C
Loans exceed $30,000,000 at any time, and in no event may the aggregate
outstanding principal amount of all of the Loans exceed the Maximum Commitment
at any time.
          (f) Commitment Reductions. The Borrower may, from time to time, upon
at least three Business Days’ prior notice to the Lender, terminate in whole or
reduce in part the unused portions of the Tranche B Loan Commitment, the Tranche
C Loan Commitment or the Tranche D Loan Commitment. Each partial reduction shall
be in an amount of not less than $250,000 or an integral multiple of $250,000 in
excess thereof and shall reduce permanently such Loan commitment then in effect.
          (g) Commitment Termination. The Tranche B Loan Commitment, the Tranche
C Loan Commitment and the Tranche D Loan Commitment shall terminate on the
Commitment Termination Date.
     Section 2.02. Making the Loans.
          (a) Notice of Borrowing. Subject to the terms and conditions hereof,
each Tranche B Loan, Tranche C Loan and Tranche D 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 or
the Tranche D Loan, and (iii) that the Borrower has complied with the applicable
terms and conditions of this Section 2.02 and Article III.

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          (b) Order of Priority of Making of Loans. Loans that the Lender makes
after the Closing Date shall be made as Tranche B Loans, Tranche C Loans or
Tranche D Loans as provided in the Acquisition Guidelines.
          (c) Notice of Borrowing Irrevocable. Each Notice of Borrowing shall be
irrevocable and binding on the Borrower. The Borrower shall indemnify the Lender
against any loss, cost or expense incurred by the Lender as a result of any
failure to fulfill on or before the date specified in such Notice of Borrowing
for such proposed Loan, the applicable conditions set forth in Article III,
including, without limitation, any loss (excluding loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by the Lender to fund the Loan, which, as a
result of such failure, is not made on such date.
     Section 2.03. Repayments.
          (a) Repayment of Tranche A Loan. On January 19, 2007 (the “Tranche A
Loan Payment Date”), subject to the provisions of Section 2.03(e) below, the
Borrower shall pay the entire outstanding principal amount of the Tranche A
Loan, plus accrued and unpaid interest as provided in Section 2.06(a) (the
“Required Tranche A Payment”).
          (b) Repayment of Tranche B Loans. On the 20th day after the last day
of each Fiscal Quarter after the Closing Date (a “Tranche B Loan Payment Date”),
commencing on January 19, 2007, subject to the provisions of Section 2.03(f),
(g) and (h) below, the Borrower shall pay down the principal amount of the
aggregate outstanding Tranche B Loans in an amount equal to $65 per hearing aid
for all hearing aids purchased by Borrower from Lender during the Fiscal Quarter
preceding the related Tranche B Loan Payment Date on each new “ship to” account
for each Stand-Alone Acquisition financed with a Tranche B Loan (including
Tranche B Loans outstanding on the Closing Date), plus accrued and unpaid
interest thereon as provided by Section 2.06(a) (such amounts the “Required
Tranche B Payment”). On the Maturity Date, the Borrower shall pay the entire
aggregate outstanding principal amount of the Tranche B Loans, plus accrued and
unpaid interest as provided in Section 2.06(a).
          (c) Repayment of Tranche C Loans. On the 20th day after the last day
of each Fiscal Quarter after the Closing Date (each, a “Tranche C Loan Payment
Date”), commencing on January 19, 2007, subject to the provisions of
Section 2.03(e), (g) and (h) below, the Borrower shall make payments on the
Tranche C Loan as follows (each such amount, a “Required Tranche C Payment”):
(i) on January 19, 2007, a principal amount equal to $730,000 minus the
outstanding principal of Tranche A as of the Closing Date, together with accrued
and unpaid interest as provided in Section 2.06(b) and (ii) on each Tranche C
Loan Payment Date thereafter, a principal amount equal to $730,000, together
with accrued and unpaid interest as provided in Section 2.06(b). In addition,
the entire aggregate unpaid principal balance of the Tranche C Loans, together
with all accrued but unpaid interest thereon, shall be due and payable on the
Maturity Date.
          (d) Repayment of Tranche D Loans. On the Maturity Date, the Borrower
shall pay the entire aggregate outstanding principal amount of the Tranche D
Loans, plus

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accrued and unpaid interest as provided by Section 2.06(c) (such amount, the
“Required Tranche D Payment”).
          (e) Deemed Repayments of Tranche A and Tranche C Loans.
Notwithstanding the provisions of Section 2.03(a) and (c), and provided that no
Event of Default exists on the applicable Tranche A Loan Payment Date or Tranche
C Loan Payment Date, then:
          (i) if, as of the Tranche A Loan Payment Date or any Tranche C Loan
Payment Date, the Borrower has satisfied the Minimum Purchase Requirement, then
the Borrower shall be deemed to have repaid the Required Tranche A Payment and
the Required Tranche C Payment that are due on the applicable Loan Payment Date;
and
          (ii) if, as of any Loan Payment Date, the Borrower has not satisfied
the Minimum Purchase Requirement, then subject to clause (h) below, the Borrower
shall receive no credit against the Required Tranche A Payment or the Required
Tranche C Payment that is due on such Loan Payment Date.
          (f) Deemed Repayment of Tranche B Loans. Notwithstanding the
provisions of Section 2.03(b), and provided that no Event of Default exists on
the applicable Tranche B Loan Payment Date, then:
          (i) if, as of a Tranche B Loan Payment Date, the Borrower has
satisfied the Minimum Purchase Requirement, then the Borrower shall be deemed to
have repaid the Required Tranche B Payment that is due on the applicable Tranche
B Loan Payment Date; and
          (ii) if, as of any Tranche B Loan Payment Date, the Borrower has not
satisfied the Minimum Purchase Requirement, then subject to clause (h) below,
the Borrower shall receive no credit against the Required Tranche B Payment that
is due on such Tranche B Loan Payment Date.
          (g) Loan Reductions from Rebates.
          (i) To the extent that the Borrower is entitled to any Additional
Rebates under the Supply Agreement at a time that any of the Loan Balance is
outstanding, then such Additional Rebates shall not be payable by the Lender to
the Borrower but instead the Loan Balance shall be reduced in the following
order (or in such other order as the parties may agree from time to time): first
the Loan Balance of the Tranche C Loans, second the Loan Balance of the Tranche
D Loans and third the Loan Balance of the Tranche B Loans, in each case first to
accrued but unpaid interest and then to the installments of principal thereof in
the inverse order of the maturities thereof;
          (ii) From and after the payment in full of all outstanding principal
and interest on the Tranche A Loans and the Tranche C Loans, to the extent that
the Borrower is entitled to any Base Rebates under the Supply Agreement at a
time that any Tranche D Loans or Tranche B Loans are outstanding, then such Base
Rebates shall not be payable by the Lender to the Borrower but instead the Loan
Balance shall be reduced in the

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following order (or in such other order as the parties may agree from time to
time): first the Loan Balance of the Tranche D Loans and second the Loan Balance
of the Tranche B Loans, in each case first to accrued but unpaid interest and
then to the installments of principal thereof in the inverse order of the
maturities thereof.
          (h) Cure of Minimum Purchase Requirement. In the event that pursuant
to clause (e) or (f) above, the Borrower fails to satisfy the Minimum Purchase
Requirement as of any Loan Payment Date (the “Original Loan Payment Date”), but
as of the next following Loan Payment Date (the “Subsequent Loan Payment Date”),
the Borrower satisfies the Minimum Purchase Requirement and no Event of Default
exists, then on such Subsequent Loan Payment Date, the Borrower shall be deemed
to have repaid the Required Tranche A Payment, the Required Tranche B Payment
and the Required Tranche C Payment that were due on the applicable Original Loan
Payment Date.
     Section 2.04. Optional Prepayments.
          The Borrower may, upon at least thirty (30) days prior written notice
to the Lender stating the proposed date (which shall be a Business Day) and
aggregate principal amount of the prepayment, prepay the outstanding principal
amount of the Loans, in whole or in part, without premium or penalty, together
with accrued interest to the date of such prepayment on the principal amount of
the Loans prepaid; provided, however, that that each partial prepayment shall be
in an aggregate amount not less than $1,000,000 or integral multiples of
$1,000,000 in excess thereof (or a lesser amount if such lesser amount
constitutes the entire outstanding principal balance of such Loan). Upon the
giving of such notice of prepayment, the principal amount of the Loans specified
to be prepaid, together with accrued interest thereon, shall become due and
payable on the date specified for such prepayment. All optional prepayments made
pursuant to this Section 2.04 shall be applied to the Loans so specified to
reduce the remaining installments thereof in the inverse order of their
maturities.
     Section 2.05. Mandatory Prepayment of Loans.
          (a) The Borrower shall prepay the Loan Balance upon receipt by the
Borrower or any of its Subsidiaries of the net cash proceeds of any issuance of
Stock or Stock Equivalents by the Borrower or any of its Subsidiaries (other
than the cash proceeds received by the Borrower in connection with the issuance
of Stock or Stock Equivalents pursuant to an Approved Stock Plan and other than
cash proceeds received by the Borrower in connection with the exercise of the
warrants listed on Schedule 2.05), in an amount equal to 25% of such net
proceeds.
          (b) The Borrower shall prepay the Loan Balance within 120 days after
the last day of each fiscal year in an amount equal to 20% of Excess Cash Flow
for such fiscal year.
          (c) Within 180 days after the Closing Date, to the extent that the
Borrower has failed to make a prepayment of the principal amount of the
outstanding Tranche D Loans under clause (a) above in an amount of at least
$2,000,000 plus the amount of outstanding trade payables that are converted to a
Tranche D Loan under Section 2.01(d), the Borrower shall make

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a prepayment of the principal amount of the outstanding Tranche D Loans in the
amount of such shortfall.
          (d) Prepayments under 2.05(a), (b) and (c) above shall be applied to
the Loans in the following order (after application of the deemed repayments and
reductions under Section 2.03(e), (f), (g) and (h)): first to the Loan Balance
of the Tranche D Loan, second to the Loan Balance of the Tranche C Loan and
third to the Loan Balance of the Tranche B Loan, in each case first to accrued
but unpaid interest and then to the installments of principal thereof in the
inverse order of the maturities thereof.
     Section 2.06. Interest.
          (a) Interest on each of the Tranche A Loan and Tranche B Loans shall
accrue at a rate per annum equal at all times to 9.5% and shall be payable on
the 20th day after the end of each Fiscal Quarter, commencing January 19, 2007,
subject to the deemed payments credits as contemplated by Section 2.03(e), (f),
(g) and (h) respectively. Accrued interest on the Existing Tranche A Loan and
the Existing Tranche B Loan as of the Closing Date shall be payable on January
19, 2007 with the interest on the Tranche A Loan and the Tranche B Loan that
accrues from and after the Closing Date, subject to the deemed payments and
credits as contemplated by Section 2.03(e), (f) and (g). With respect to the
calculation of interest on the unpaid principal amount of the Tranche B Loans,
each Tranche B Loan shall be deemed to be made on the first day of the Fiscal
Quarter in which such Tranche B Loan is made.
          (b) The Tranche C Loan shall accrue interest at a rate per annum equal
at all times to 9.5% and shall be payable on the 20th day after the end of each
Fiscal Quarter, commencing January 19, 2007, subject to the deemed payments
credits as contemplated by Section 2.03(e), (g) and (h) respectively. Accrued
interest on the Existing Tranche C Loan (other than the Existing Tranche C-3
Accrued Interest) as of the Closing Date shall be payable on January 19, 2007
with the interest on the Tranche C Loan that accrues from and after the Closing
Date, subject to the deemed payments and credits as contemplated by
Section 2.03(e) and (g). With respect to the calculation of interest on the
unpaid principal amount of the Tranche C Loans, each Tranche C Loan shall be
deemed to be made on the first day of the Fiscal Quarter in which such Tranche C
Loan is made.
          (c) The Tranche D Loans shall accrue interest at a rate per annum
equal at all times to 5.0% and shall be payable on the first day of each month,
commencing February 1, 2007. With respect to the calculation of interest on the
unpaid principal amount of the Tranche D Loans, each Tranche D Loan (other than
any Tranche D Loan made on the Closing Date) shall be deemed to be made on the
first day of the month in which such Tranche D Loan is made.
     Section 2.07. Illegality.
          Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other Governmental
Authority shall assert that it is unlawful, for the Lender to make or continue
the Loans, then, on notice thereof and demand therefor by the Lender to the
Borrower, (a) the obligation of the Lender to make or to continue the Loans
shall terminate and

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(b) the Borrower shall forthwith prepay in full the Loans then outstanding,
together with interest accrued thereon.
     Section 2.08. Payments and Computations.
          (a) The Borrower shall make each payment hereunder and under the Notes
not later than 11:00 A.M. (New York City time) on the day when due, in Dollars,
to the Lender at its address referred to in Section 8.02 in immediately
available funds without set-off or counterclaim. Payment received by the Lender
after 1:00 PM (New York City time) shall be deemed to be received on the next
Business Day.
          (b) The Borrower hereby authorizes the Lender, if and to the extent
payment owed to the Lender is not made when due hereunder, to charge from time
to time against any or all of the Borrower’s accounts with the Lender any amount
so due.
          (c) All computations of interest hereunder shall be made by the Lender
on the basis of a year of 365/6 days and number of days elapsed.
          (d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
     Section 2.09. Taxes.
          (a) Any and all payments by the Borrower under each Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Lender taxes
measured by its net income, and franchise taxes imposed on it, by the
jurisdiction of the Lender’s applicable lending office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as “Taxes”).
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder to the Lender (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including, without limitation, deductions applicable to additional sums payable
under this Section 2.09) the Lender receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with applicable law.
          (b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies of the United States or any political subdivision thereof or any
applicable foreign jurisdiction which arise from any payment made under any Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, any Loan Document (collectively, “Other Taxes”).
          (c) The Borrower will indemnify the Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any

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jurisdiction on amounts payable under this Section 2.09) paid by the Lender and
any liability (including, without limitation, for penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be made within 30 days from the date the Lender makes written demand therefor,
accompanied by reasonable supporting documentation and calculations.
          (d) Within 30 days after the date of any payment of Taxes or Other
Taxes, the Borrower will furnish to the Lender, at its address referred to in
Section 8.02, the original or a certified copy of a receipt evidencing payment
thereof.
          (e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.09 shall survive the payment in full of the other Obligations.
Lender agrees that, as promptly as practicable after the officer of Lender
responsible for administering its Loans becomes aware of the occurrence of an
event or the existence of a condition that would entitle Lender to receive
payments under this Section 2.09, it will, to the extent not inconsistent with
the internal policies of such Lender and any applicable legal or regulatory
restrictions, use reasonable efforts to (a) make, issue, fund or maintain its
applicable Commitments or Loans through another office of Lender, or (b) take
such other measures as Lender may deem reasonable, if as a result thereof the
circumstances which would cause the additional amounts which would otherwise be
required to be paid to Lender pursuant to this Section 2.09 would be reduced and
if, as determined by Lender in its reasonable discretion, the making, issuing,
funding or maintaining of such Commitments or Loans through such other office or
in accordance with such other measures, as the case may be, would not otherwise
adversely affect such Commitments or Loans or the interests of Lender.
     Section 2.10. Conversion.
          (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
under Section 2.05(c) (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 or the Tranche D 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

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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.
          (b) Number of Shares Issuable Upon Conversion. The number of shares
issuable upon conversion pursuant to clause (a) shall be equal to the principal
of and accrued interest on Loans as to which the Lender elects conversion
divided by the conversion rate per share determined pursuant to clause
(c) below.
          (c) Conversion Rate. The conversion rate per share shall be the
Conversion Price, except that (i) if the Lender converts all or a portion of the
Loans pursuant to Section 2.10(a)(ii), then the conversion rate per share shall
be at the lower of (A) the Conversion Price and (B) the Current Market Price of
the Common Stock as of the date of conversion plus ten percent (10%), and
(ii) if the Lender converts all or a portion of the Loans pursuant to Section
2.10(a)(iii), then the conversion rate per share shall be at the lower of
(A) the Conversion Price or (B) the Current Market Price of the Common Stock as
of the date of conversion.
          (d) Conversion Notice. Any conversion shall be effected by delivering
to the Borrower a fully executed notice of conversion in the form of conversion
notice attached hereto as Exhibit D (the “Conversion Notice”), which may be
transmitted by facsimile. The date of any Conversion Notice shall be referred to
herein as the “Conversion Date.”
          (e) Limitation on Conversion Right. The conversion rights set forth in
this Section 2.10 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 Borrower will not be required to obtain
shareholder approval for any acquisition by the Lender of Common Stock upon
exercise of the conversion rights provided in this Section 2.10.
          (f) Common Stock Issuance upon Conversion.
          (i) Conversion Date Procedures. Upon conversion pursuant to
Section 2.10(a), the outstanding principal amount and accrued interest to be
converted shall be converted into such number of fully paid, validly issued and
non-assessable shares of Common Stock, free of any liens, claims and
encumbrances as is determined pursuant to clause (b) above. In addition, to the
extent that the Commitment of any Tranche is reduced pursuant to Section
2.10(a), the Borrower shall deliver to the Lender a new Note or Notes reflecting
the reduced Commitment amounts with respect to such Tranche, and the Lender
shall surrender to the Borrower the applicable existing Note or Notes.
          (ii) Stock Certificates or DWAC. Unless no registration statement
covering the Common Stock is then effective, the Borrower will deliver to the
Lender not later than five (5) Trading Days after the Conversion Date, a
certificate or certificates which shall be free of restrictive legends and
trading restrictions, representing the number of shares of Common Stock being
acquired upon the conversion. In lieu of delivering physical certificates
representing the shares of Common Stock issuable upon conversion, provided the
Borrower’s transfer agent is participating in the Depository Trust Borrower

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(“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the
Lender, the Borrower shall use commercially reasonable efforts to cause its
transfer agent to electronically transmit such shares issuable upon conversion
to the Lender (or its designee), by crediting the account of the Lender’s (or
such designee’s) prime broker with DTC through its Deposit Withdrawal Agent
Commission system (provided that the same time periods herein as for stock
certificates shall apply). If in the case of any conversion hereunder, such
certificate or certificates are not delivered to or as directed by the Lender by
the fifth (5th) Trading Day after the Conversion Date, the Lender shall be
entitled by written notice to the Borrower at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such conversion. If
the Borrower fails to deliver to the Lender such certificate or certificates (or
shares through DTC) pursuant to this Section 2.10(f) (free of any restrictions
on transfer or legends, if such shares have been registered) in accordance
herewith, prior to the sixth (6th) Trading Day after the Conversion Date, the
Borrower shall pay to the Lender, in cash, an amount equal to 0.3% of the
principal amount subject to such conversion for each Trading Day thereafter
until such certificates or shares through DTC are delivered to the Lender or
until the conversation is rescinded by the Lender, whichever shall first occur.
          (g) Conversion Price Adjustments.
          (i) Stock Dividends, Splits and Combinations. If the Borrower, at any
time while the Loans are outstanding (A) shall pay a stock dividend or otherwise
make a distribution or distributions on any equity securities (including
instruments or securities convertible into or exchangeable for such equity
securities) in shares of Common Stock, (B) subdivide outstanding Common Stock
into a larger number of shares, or (C) combine outstanding Common Stock into a
smaller number of shares, then the Conversion Price in effect immediately prior
to such event shall be adjusted to a number equal to such Conversation Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding before such event and the denominator of which shall
be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 2.10(g)(i) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
          (ii) Distributions. If the Borrower or any of its Subsidiaries, at any
time while the Loans are outstanding, shall distribute to all holders of Common
Stock evidences of its indebtedness or assets or cash or rights or warrants to
subscribe for or purchase any security of the Borrower or any of its
Subsidiaries, then concurrently with such distributions to the holders of Common
Stock, the Borrower shall distribute to the Lender the amount of such
indebtedness, assets, cash or rights or warrants which the Lender would have
received had all the Loans been converted into Common Stock at the Conversion
Price immediately prior to the record date for such distribution.
          (iii) Anti-dilution Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the Closing Date, the Borrower issues
or

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sells, or in accordance with this Section 2.10 is deemed to have issued or sold,
any shares of Common Stock, with the exception of Excluded Issuances, for a
consideration per share less than the Minimum Issuance Price (each such sale or
issuance, a “Dilutive Issuance”), then concurrent with such Dilutive Issuance,
the Conversion Price then in effect shall be reduced to an amount equal to the
following:
(FORMULA) [w32651w3265102.gif]
where:
CP’ = the adjusted Conversion Price per share
CP = the Conversion Price per share prior to such reduction
MIP = the Minimum Issuance Price per share
IP = the consideration per share for which such Common Stock is issued or sold
or deemed issued or sold
CMP = the Current Market Price per share as of the date of such issuance or sale
or deemed issuance or sale
By way of example, if the Conversion Price per share prior to reduction is
$3.30, the Current Market Price per share is $1.40, the Minimum Issuance Price
per share is $1.19 (85% of the Current Market Price), and the consideration per
share for which such Common Stock is issued or sold or deemed issued or sold is
$1.05, then the adjusted Conversion Price would be $2.97:
(FORMULA) [w32651w3265103.gif]
For purposes of determining the adjusted Conversion Price under this
Section 2.10, the following shall be applicable:
          (A) Issuance of Options. If the Borrower in any manner grants or sells
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion, exchange or
exercise of any Convertible Securities issuable upon exercise of such Option is
less than the Minimum Issuance Price in effect immediately prior to such
Dilutive Issuance, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Borrower at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 2.10(g)(iii)(A), the “lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such

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Option or upon conversion, exchange or exercise of any Convertible Securities
issuable upon exercise of such Option” shall be equal to the sum of (x) the
lowest amounts of consideration (if any) received or receivable by the Borrower
with respect to any one share of Common Stock upon granting or sale of the
Option, plus (y) the lowest amounts of consideration (if any) received or
receivable by the Borrower with respect to any one share of Common Stock upon
exercise of the Option and upon conversion, exchange or exercise of any
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion,
exchange or exercise of such Convertible Securities.
          (B) Issuance of Convertible Securities. If the Borrower in any manner
issues or sells any Convertible Securities and the lowest price per share for
which one share of Common Stock is issuable upon such conversion, exchange or
exercise thereof is less than the Minimum Issuance Price in effect immediately
prior to such Dilutive Issuance, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Borrower at the time
of the issuance of sale of such Convertible Securities for such price per share.
For the purposes of this Section 2.10(g)(iii)(B), the “lowest price per share
for which one share of Common Stock is issuable upon such conversion, exchange
or exercise” shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Borrower with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion, exchange or exercise of such Convertible Security. No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such Common Stock upon conversion, exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the Conversion Price had
been or are to be made pursuant to other provisions of this Section 2.10(g), no
further adjustment of the Conversion Price shall be made by reason of such issue
or sale.
          (C) Change in Option Price or Rate of Conversion. If the purchase or
exercise price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 2.10(g)(iii)(C),
if the terms of any Option or Convertible Security that was outstanding as of
the Closing Date are changed in the manner described in the immediately
preceding

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sentence, then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in effect.
          (D) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the Borrower,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, then solely
for purposes of this Section 2.10(g), the Options will be deemed to have been
issued for a consideration of $0.01. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the gross amount
received by the Borrower therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Borrower will be the fair
value of such consideration, except where such consideration consists of
marketable securities, in which case the amount of consideration received by the
Borrower will be the arithmetic average of the Closing Sale Prices of such
securities during the ten (10) consecutive Trading Days ending on the date of
receipt of such securities. The fair value of any consideration other than cash
or securities will be determined jointly by the Borrower and the Lender. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five Business Days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
selected by the Borrower and the Lender. The determination of such appraiser
shall be deemed binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Borrower.
          (E) Adjustment in Other Securities. If as a result of any event or for
any other reason, any adjustment is made in the number of shares of Common Stock
issuable upon conversion, exercise or exchange of, or in the conversion or
exercise price or exchange ratio applicable to, any outstanding securities of
the Borrower that are convertible into, or exercisable or exchangeable for,
Common Stock, then a corresponding adjustment shall be made to the Conversion
Price to the extent that no adjustment is explicitly provided for under
Section 2.10(g) hereof with respect to such event or for such other reason.
          (iv) Rounding of Adjustments. All calculations under this Section 2.10
shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be.
          (v) Notice of Adjustments. Whenever any Conversion Price is adjusted
as provided herein, the Borrower shall promptly deliver to the Lender, a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment, provided that any
failure to so provide

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such notice shall not affect the automatic adjustment hereunder.
          (vi) Need for Additional Authorized Shares of Common Stock. The
foregoing notwithstanding, in the event the Conversion Price is adjusted as
provided herein, giving the Lender the right to acquire more shares of Common
Stock than are authorized and reserved for issuance by the Borrower for such
purpose, the Borrower will promptly convene a meeting of the stockholders and
solicit the approval of the stockholders to an increase in the number of shares
of authorized Common Stock so as to facilitate conversions at the adjusted
Conversion Price.
          (vii) Notice of Certain Events. If at any time when the Loan or Loans
are convertible or would thereby become convertible:
               (A) the Borrower shall declare a dividend (or any other
distribution) on the Common Stock; or
               (B) the Borrower shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; or
               (C) the Borrower shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
               (D) the approval of any stockholders of the Borrower shall be
required in connection with any reclassification of the Common Stock of the
Borrower, any consolidation or merger to which the Borrower is a party, any sale
or transfer of all or substantially all of the assets of the Borrower, of any
compulsory share of exchange whereby the Common Stock is converted into other
securities, cash or property; or
               (E) the Borrower shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Borrower; or
               (F) the Borrower shall issue securities constituting a Dilutive
Issuance;
          then the Borrower shall cause to be mailed to the Lender at its last
address as it shall appear upon the books of the Borrower, on or prior to the
date notice to the Borrower’s stockholders generally is given, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, securities issuance,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash

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or other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange.
          (h) Reservation and Issuance of Underlying Securities. The Borrower
covenants that it will at all times reserve and keep available out of its
authorized and unissued Common Stock solely for the purpose of issuance upon
conversion of the Loans, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Lender, not less than such
number of shares of Common Stock as shall be issuable (taking into account the
adjustments under this Section 2.10 but without regard to any ownership
limitations contained herein). The Borrower covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly authorized, validly
issued, fully paid, nonassessable, freely tradeable and free of any liens,
claims and encumbrances.
          (i) No Fractions. Upon a conversion hereunder the Borrower shall not
be required to issue stock certificates representing fractions of shares of
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the closing price of a share of Common
Stock at such time. If the Borrower elects not, or is unable, to make such a
cash payment, the Lender shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
          (j) Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon any conversion shall be made without charge to the Lender
hereof for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificate, all of which taxes and expenses shall be paid
by the Borrower, and such certificates shall be issued in the name of the Lender
or in such name or names as may be directed by the Lender.
ARTICLE III
CONDITIONS PRECEDENT
     Section 3.01. Conditions Precedent to the Effectiveness of this Agreement.
          The effectiveness of this Agreement and the obligation of the Lender
to make the Loans on the Closing Date is subject to satisfaction of the
conditions precedent that the Lender shall have received, on the Closing Date,
the following, each dated the Closing Date unless otherwise indicated, in form
and substance satisfactory to the Lender:
          (a) The Notes, duly executed by the Borrower.
          (b) The Supply Agreement and the Investor Rights Agreement, each duly
executed by the parties thereto.
          (c) Copies of (i) the resolutions of the board of directors of the
Borrower approving each Loan Document to which it is a party, (ii) all documents
evidencing other necessary corporate action and required governmental and third
party approvals, licenses and consents with respect to each Loan Document and
the transactions contemplated thereby and (iii) a copy of the Certificate of
Incorporation and the By-laws of the Borrower certified by a

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Secretary or an Assistant Secretary of the Borrower as being true and correct
and in full force and effect as of the Closing Date.
          (d) A certificate of the Secretary of State of the State of Delaware
as to the existence and good standing of the Borrower.
          (e) A certificate of the Secretary or an Assistant Secretary of the
Borrower certifying the names and true signatures of each officer of the
Borrower who has been authorized to execute and deliver any Loan Document or
other document required hereunder to be executed and delivered by or on behalf
of the Borrower.
          (f) The amendment to the Security Agreement in the form attached
hereto as Exhibit C, duly executed by the Borrower.
          (g) A certificate, signed by a Responsible Officer of the Borrower,
stating that each of the conditions specified in Section 3.01 and Section 3.03,
if applicable, has been satisfied.
          (h) An opinion letter of Borrower’s counsel, in form and substance
reasonably satisfactory to Lender.
          (i) Evidence that the all Loans outstanding on the Closing Date and
advanced after the Closing Date qualify as senior indebtedness under all of the
Subordinated Notes.
          (j) The Closing Statement, duly executed by the Borrower and the
Lender.
          (k) Such additional documents, information and materials as the Lender
may reasonably request.
     Section 3.02. Conditions Precedent to Loans Made After the Closing Date.
          No Loan shall be made hereunder after the Closing Date unless each of
the following conditions is satisfied as of the date of such Loan:
          (a) Each of the conditions precedent set forth in Section 3.01 shall
have been satisfied as of such date.
          (b) The application of the proceeds of the Loan shall comply with the
Acquisition Guidelines.
     Section 3.03. Additional Conditions Precedent to Making All Loans.
          No Loan shall be made hereunder (including the Loans to be made on the
Closing Date) unless each of the following conditions is satisfied as of the
date of such Loan:
          (a) The following statements shall be true on the date of such Loan,
before and after giving effect to the making of such Loan and to the application
of the proceeds

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therefrom (and the acceptance by the Borrower of the proceeds of such Loan shall
constitute a representation and warranty by the Borrower that on such date such
statements are true):
     (i) The representations and warranties of the Borrower contained in
Article IV and in each of the other Loan Documents are true and correct in all
material respects on and as of such date as though made on and as of such date;
     (ii) No Default or Event of Default is continuing or will result from the
Loan being made on such date; and
     (iii) All necessary governmental and material third party approvals
required to be obtained by the Borrower and its Subsidiaries in connection with
the transactions contemplated hereby and by each of the other Loan Documents
have been obtained and remain in full force and effect.
          (b) All costs and accrued and unpaid fees and expenses required to be
paid to the Lender on or before such date, to the extent then due and payable,
shall have been paid.
          (c) The making of Loans on such date does not violate any Requirement
of Law and is not enjoined, temporarily, preliminarily or permanently.
          (d) The Borrower shall be in compliance with its obligations under
Section 2.05(c).
     Section 3.04. Deadline for Satisfaction of Conditions.
          In the event that the Closing Date shall not occur on or prior to
January 31, 2007, then this Agreement shall not become effective and shall be
null and void with the same effect as if it had not ever been executed.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
          To induce the Lender to enter into this Agreement, the Borrower
represents and warrants to the Lender that:
     Section 4.01. Corporate Existence; Compliance with Law.
          The Borrower and each of its Subsidiaries (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where such
qualification is necessary, except for failures which in the aggregate have no
Material Adverse Effect; (c) has all requisite corporate power and authority and
the legal right to own, pledge, mortgage and operate its properties, to lease
the property it operates under lease and to conduct its business as now or
currently proposed to be conducted; (d) is in compliance with its Certificate of
Incorporation and By-laws; (e) is in compliance with all other applicable
Requirements of Law except for such non-compliances as in the aggregate have no
Material

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Adverse Effect; and (f) has all Permits or consents from or by, has made all
necessary filings with, and has given all necessary notices to, each
Governmental Authority having jurisdiction, to the extent required for such
ownership, operation and conduct, except for Permits or consents which can be
obtained by the taking of ministerial action to secure the grant or transfer
thereof or failures which in the aggregate have no Material Adverse Effect.
     Section 4.02. Corporate Power; Authorization; Enforceable Obligations.
          (a) The execution, delivery and performance by the Borrower of the
Loan Documents and the consummation of the transactions related to the
transactions contemplated hereby and thereby:
          (i) are within such Person’s corporate powers;
          (ii) have been duly authorized by all necessary corporate action;
          (iii) do not and will not (A) contravene such Person’s Certificate of
Incorporation or By-laws or other comparable governing documents, (B) violate
any other applicable Requirement of Law (including, without limitation,
Regulations T, U and X of the Board of Governors of the Federal Reserve System),
or any order or decree of any Governmental Authority or arbitrator, (C) conflict
with or result in the breach of, or constitute a default under, or result in or
permit the termination or acceleration of, any contractual obligation of such
Person, or (D) result in the creation or imposition of any Lien upon any of the
property of such Person, other than Liens for the benefit of the Lender; and
          (iv) do not require the consent of, authorization by, approval of,
notice to, or filing or registration with, any Governmental Authority or any
other Person, other than those which have been obtained or made and copies of
which have been or will be delivered to the Lender pursuant to Section 3.01, and
each of which on the Closing Date and on each subsequent lending date will be in
full force and effect.
          (b) This Agreement and the Supply Agreement have been, and each of the
other Loan Documents will be upon delivery thereof, duly executed and delivered
by the Borrower. This Agreement and the Supply Agreement are, and the other Loan
Documents will be, when delivered hereunder, the legal, valid and binding
obligation of the Borrower enforceable against it in accordance with its terms.
     Section 4.03. Full Disclosure.
          No written statement prepared or furnished by or on behalf of the
Borrower or any of its Affiliates in connection with any of the Loan Documents
or the consummation of the transactions contemplated thereby, and no financial
statement delivered pursuant hereto or thereto, contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.

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     Section 4.04. Financial Matters.
          (a) Each of the financial statements described below (copies of which
have heretofore been provided to the Lender), have been prepared in accordance
with GAAP consistently applied throughout the periods covered thereby, are
complete and correct in all material respects and present fairly the financial
condition and results from operations of the entities and for the periods
specified (subject in the case of interim company-prepared statements to normal
year-end adjustments and the absence of footnotes):
          (i) The consolidated balance sheet of the Borrower and its
Subsidiaries as of December 31, 2005, and the related consolidated statements of
income, retained earnings and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, audited by BDO Seidman, LLP, copies of which
have been furnished to the Lender, fairly present the consolidated financial
condition of the Borrower and its Subsidiaries as of and for such dates and the
consolidated results of the operations of the Borrower and its Subsidiaries for
the period ended on such dates, all in conformity with GAAP.
          (ii) after the Closing Date, the annual and quarterly financial
statements provided in accordance with Sections 5.07(a) and 5.07(b).
          (b) Since December 31, 2005, there has been no Material Adverse
Change, and there have been no events or developments that in the aggregate have
had a Material Adverse Effect.
          (c) The Borrower is, and on a consolidated basis the Borrower and its
Subsidiaries are, Solvent.
     Section 4.05. Litigation.
          (a) The performance of any action by the Borrower or any of its
Subsidiaries required or contemplated by any of the Loan Documents is not
restrained or enjoined (either temporarily, preliminarily or permanently), and
no material adverse condition has been imposed by any Governmental Authority or
arbitrator upon any of such transactions.
          (b) There are no pending or, to the knowledge of the Borrower,
threatened actions, investigations or proceedings affecting the Borrower or any
of its Subsidiaries before any court, arbitrator or other Governmental
Authority, other than those that in the aggregate, if adversely determined,
would have no Material Adverse Effect.
     Section 4.06. Margin Regulation.
          The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Loan will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.

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     Section 4.07. No Default.
          No Default or Event of Default has occurred and is continuing.
     Section 4.08. Investment Company Act. —
          The Borrower is not an “investment company” or an “affiliated person”
of, or “promoter” or “principal underwriter” for, an “investment company”, as
such terms are defined in the Investment Company Act of 1940, as amended. The
making of the Loans by the Lender, the application of the proceeds and repayment
thereof by the Borrower and the consummation of the transactions contemplated by
the Loan Documents will not violate any provision of such Act or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder.
     Section 4.09. Use of Proceeds.
          The Borrower has used the proceeds of all loans made under the
Existing Credit Agreement solely as required by the terms of the Existing Credit
Agreement.
     Section 4.10. Pari Passu Obligations.
          The Obligations constitute the direct, unconditional and general
obligations of the Borrower, and rank at least pari passu with all other
Indebtedness and other obligations of the Borrower and rank senior to all of the
Borrower’s Subordinated Notes.
     Section 4.11. Compliance with Agreements.
          The Borrower and each of its Subsidiaries is in compliance with all
material indentures, material agreements (including the Supply Agreement) and
other material instruments binding upon it or any of their respective property.
ARTICLE V
AFFIRMATIVE COVENANTS
          As long as any of the Obligations or the Commitments remain
outstanding, the Borrower agrees with the Lender that:
     Section 5.01. Compliance with Laws, Etc.
          The Borrower shall comply, and shall cause each of its Subsidiaries to
comply, in all material respects, with all Requirements of Law, contractual
obligations, commitments, instruments, licenses, permits and franchises,
including, without limitation, all Permits.
     Section 5.02. Conduct of Business.
          The Borrower shall (a) conduct, and shall cause each of its
Subsidiaries to conduct, its business in the ordinary course and consistent with
past practice, and (b) perform and observe, in all material respects, and cause
each of its Subsidiaries to perform and observe,

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in all material respects, all the terms, covenants and conditions required to be
performed and observed by it under its contractual obligations, and do, and
cause its Subsidiaries to do, all things necessary to preserve and to keep
unimpaired its rights under such contractual obligations; provided, however,
that the foregoing shall not require Borrower nor any of its Subsidiaries to
perform or observe any contractual obligation the nonperformance or
nonobservation of which would have no Material Adverse Effect.
     Section 5.03. Preservation of Corporate Existence, Etc.
          The Borrower shall, and shall cause each of its Subsidiaries to,
preserve and maintain its corporate existence, rights (charter and statutory)
and franchises; provided, however, that the foregoing shall not require Borrower
nor any of its Subsidiaries to preserve or maintain any rights or franchises
which are no longer used by Borrower or its Subsidiaries in the conduct of their
respective businesses or where the preservation or maintenance of such rights or
franchises is no longer economically feasible, in Borrower’s reasonable
discretion.
     Section 5.04. Access.
          The Borrower shall, at any reasonable time and from time to time, with
reasonable prior notice permit the Lender or representatives thereof, to
(a) examine and make copies of and abstracts from the records and books of
account of the Borrower and each of its Subsidiaries, (b) visit the properties
of the Borrower and each of its Subsidiaries, (c) discuss the affairs, finances
and accounts of the Borrower and each of its Subsidiaries with any of their
respective officers or directors, and (d) communicate directly with the
Borrower’s independent certified public accountants; provided that the Borrower
is present during such communications or has given its consent (such consent not
to be unreasonably withheld) for such communications to occur without the
presence of the Borrower. The Borrower shall authorize its independent certified
public accountants to disclose to the Lender any and all financial statements
and other information of any kind, including, without limitation, copies of any
management letter, or the substance of any oral information that such
accountants may have with respect to the business, financial condition, results
of operations or other affairs of the Borrower or any of its Subsidiaries,
subject to the Lender’s agreement to preserve the confidentiality of such
information.
     Section 5.05. Keeping of Books.
          The Borrower shall keep, and shall cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Borrower and each such Subsidiary.
     Section 5.06. Application of Proceeds.
          (a) The Borrower shall use a portion of the proceeds of the Tranche D
Loan made on the Closing Date sufficient to repay certain Indebtedness under the
Specified Notes that is outstanding after giving effect to any exercise of the
related warrants. Borrower shall use its best efforts to obtain the agreement of
the holders of the Specified Notes to agree to accept repayments of at least
$1,500,000 and shall deliver to the Lender an accounting, in form and

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substance reasonably acceptable to the Lender, detailing the application of the
proceeds of the Tranche D Loan to such repayment.
          (b) The Borrower shall use the remaining proceeds of the Tranche D
Loan made on the Closing Date solely to finance the purchase of an Acquisition
Target in a Stand-Alone Acquisition and to finance the integration of
Acquisition Targets, including Acquisition Targets acquired prior to the Closing
Date in Stand-Alone Acquisitions.
          (c) The Borrower shall use the proceeds of any Tranche B Loans,
Tranche C Loans and Tranche D Loans made after the Closing Date solely to pay a
portion of the purchase price in connection with the purchase or acquisition of
Acquisition Targets in Stand-Alone Acquisitions in accordance with the
Acquisition Guidelines.
     Section 5.07. Financial Statements.
          The Borrower shall furnish to the Lender:
          (a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, an audited consolidated balance sheet
of the Borrower and its Subsidiaries as of the end of such year and the related
audited consolidated statements of income, retained earnings and cash flows of
the Borrower and its Subsidiaries for such fiscal year, all prepared in
conformity with GAAP and the independent auditor’s report thereon without
qualification by BDO Seidman, LLP or other independent public accountants of
recognized national standing, together with a certificate of such accounting
firm stating that in the course of the regular audit of the consolidated
financial statements of the Borrower and its Subsidiaries, which audit was
conducted by such accounting firm in accordance with generally accepted auditing
standards, such accounting firm has obtained no knowledge that a Default or
Event of Default has occurred and is continuing, or, if in the opinion of such
accounting firm, a Default or Event of Default (insofar as they relate to
accounting and auditing matters) has occurred and is continuing, a statement as
to the nature thereof.
          (b) as soon as available and in any event within 75 days after the end
of each of the first three fiscal quarters of each fiscal year, a consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such quarter
and consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous fiscal year
and ending with the end of such fiscal quarter, all prepared in conformity with
GAAP (subject to normal year-end adjustments) and certified by the chief
financial officer of the Borrower as fairly presenting the financial condition
and results of operations of the Borrower and its Subsidiaries as of such date
and for such period, together with (i) a certificate of said officer stating
that no Default or Event of Default has occurred and is continuing or, if a
Default or an Event of Default has occurred and is continuing, a statement as to
the nature thereof and the action which the Borrower proposes to take with
respect thereto, and (ii) a written discussion and analysis by the management of
the Borrower of the financial statements furnished in respect of such fiscal
quarter.

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     Section 5.08. Reporting Requirements.
          The Borrower shall furnish to the Lender:
          (a) Promptly, and in any event within ten Business Days after receipt
of written notice of the commencement thereof, notice of all actions, suits and
proceedings before any domestic or foreign Governmental Authority or arbitrator,
affecting the Borrower or any of its Subsidiaries, except those which in the
aggregate, if adversely determined, would have no Material Adverse Effect;
          (b) promptly and in any event within ten Business Days after the
Borrower becomes aware of the existence of (i) any Default or Event of Default,
(ii) any breach or non-performance of, or any default under, any contractual
obligation which is material to the business, prospects, operations or financial
condition of the Borrower and its Subsidiaries taken as one enterprise, or
(iii) any Material Adverse Change after the Closing Date or any event,
development or other circumstance which has any reasonable likelihood of causing
or resulting in a Material Adverse Change, telephonic notice in reasonable
detail specifying the nature of the Default, Event of Default, breach,
non-performance, default, event, development or circumstance, including, without
limitation, the anticipated effect thereof, which notice shall be promptly
confirmed in writing within five days;
          (c) as soon as available and in any event within 30 days after the end
of each fiscal year, an update of the existing five year forecast of annual
purchases, sales, earnings, capital expenditures, working capital requirements
and projected cash flow results of the Borrower and its Subsidiaries on a
consolidated basis through the Maturity Date; and
          (d) promptly such other information as the Lender may reasonably
request from time to time.
     Section 5.09. Insurance.
          The Borrower shall maintain or cause to be maintained with financially
sound and reputable insurers, insurance with respect to its properties and
business, and the properties and business of its Subsidiaries, against loss or
damage of the kinds customarily insured against by reputable companies in the
same or similar businesses, such insurance to be of such types and in such
amounts (with such deductible amounts) as is customary for such companies under
similar circumstances, and furnish the Lender on request full information as to
all such insurance.
     Section 5.10. Payment of Taxes and Claims.
          The Borrower shall pay, and cause each of its Subsidiaries to pay,
(a) all Taxes, assessments and governmental charges imposed upon it or upon its
property, and (b) all genuine claims (including claims for labor, materials,
supplies or services) that might, if unpaid, become a Lien upon its property or
assets, unless, in each case, the validity or amount thereof is being contested
in good faith by appropriate proceedings and the Borrower or such Subsidiary has
maintained adequate reserves in accordance with GAAP with respect thereto or has
posted a bond in respect thereof satisfactory to the Lender.

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     Section 5.11. Compliance with Agreements.
          The Borrower shall, and shall cause each of its Subsidiaries to,
(i) perform and observe all the terms, covenants and conditions required to be
performed and observed by it under its contractual obligations and (ii) do all
things necessary to preserve and keep unimpaired its rights under such
contractual obligations; provided, however, that the foregoing shall not require
Borrower nor any of its Subsidiaries to perform or observe any contractual
obligation the nonperformance or nonobservation of which would have no Material
Adverse Effect.
     Section 5.12. Further Documents.
          The Borrower shall, and shall cause each of its Subsidiaries to,
execute and deliver or to cause to be executed and delivered to the Lender from
time to time such consents and such other documents, instruments or agreements
as the Lender may reasonably request, that are, in the Lender’s reasonable
judgment, necessary or desirable to obtain or preserve for the Lender the
benefit of the Loan Documents.
     Section 5.13. [Intentionally omitted]
     Section 5.14. Collateral Documents.
          The Borrower, at its sole cost and expense, shall take all actions
necessary or reasonably requested by the Lender to maintain each Collateral
Document in full force and effect and enforceable in accordance with its terms,
including (i) making filings and recordations, (ii) making payments of fees and
other charges, (iii) issuing, and if necessary, filing or recording supplemental
documentation, including continuation statements, (iv) discharging all claims or
other Liens (other than Liens permitted by Section 6.01) adversely affecting the
rights of the Lender in the Collateral, and (v) publishing or otherwise
delivering notice to third parties.
ARTICLE VI
NEGATIVE COVENANTS
          As long as any of the Obligations or the Commitments remain
outstanding, the Borrower agrees with the Lender that:
     Section 6.01. Liens, Etc.
          The Borrower shall not create or suffer to exist, and shall not permit
any of its Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of its or such Subsidiary’s properties, whether now owned or
hereafter acquired, or assign any right to receive income, except for:
          (a) Liens created pursuant to the Loan Documents;
          (b) Purchase money Liens or purchase money security interests upon or
in any property acquired or held by the Borrower or any such Subsidiary of the
Borrower in the ordinary course of business to secure the purchase price of such
property or to secure

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Indebtedness incurred solely for the purpose of financing the acquisition of
such property (and any refinancings thereof), and Liens existing on such
property at the time of its acquisition (other than any such Lien created in
contemplation of such acquisition); provided, however, that the aggregate
principal amount of the Indebtedness secured by the Liens referred to in this
clause (b) and in clause (h) below shall not exceed $75,000,000 in the aggregate
at any time outstanding;
          (c) Liens arising by operation of law (statutory or common) in favor
of materialmen, mechanics, warehousemen, carriers, lessors or other similar
Persons incurred by the Borrower or any such Subsidiary in the ordinary course
of business which secure its obligations to such Person; provided, however, that
(i) the Borrower or such Subsidiary is not in default with respect to such
payment obligation to such Person, unless the Borrower or such Subsidiary is in
good faith and by appropriate proceedings diligently contesting such obligation
and adequate provision is made for the payment thereof, and (ii) all such
defaults in the aggregate have no Material Adverse Effect;
          (d) Liens (excluding environmental liens) securing taxes, assessments
or governmental charges or levies; provided, however, that (i) neither the
Borrower nor any such Subsidiary is in default in respect of any payment
obligation with respect thereto unless the Borrower or such Designated
Subsidiary is in good faith and by appropriate proceedings diligently contesting
such obligation and adequate provision is made for the payment thereof and
(ii) all such defaults in the aggregate have no Material Adverse Effect;
          (e) Liens incurred or pledges and deposits made in the ordinary course
of business in connection with workers’ compensation, unemployment insurance,
old-age pensions and other social security benefits;
          (f) Liens securing the performance of bids, tenders, leases, contracts
(other than for the repayment of borrowed money), statutory obligations, surety
and appeal bonds and other obligations of like nature, incurred as an incident
to and in the ordinary course of business, and judgment liens; provided,
however, that all such Liens in the aggregate have no Material Adverse Effect;
          (g) Zoning restrictions, easements, licenses, reservations,
restrictions on the use of real property or minor irregularities incident
thereto which do not in the aggregate materially detract from the value or use
of the property or assets of the Borrower or any such Subsidiary or impair, in
any material manner, the use of such property for the purposes for which such
property is held by the Borrower or any such Subsidiary; and
          (h) Liens to secure capitalized lease obligations; provided, however,
that: (i) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including, without limitation, the cost of construction) of the property
subject thereto, (ii) the principal amount of the Indebtedness secured by such
Lien does not exceed 100% of such cost, and (iii) such Lien does not extend to
or cover any other property other than such item of property and any
improvements on such item and (iv) the aggregate principal amount of
Indebtedness secured by the Liens referred to in this clause (h) and in clause
(b) above shall not exceed $75,000,000 in the aggregate at any time outstanding.

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          (i) Those existing Liens set forth on Schedule 6.01.
     Section 6.02. Indebtedness.
          The Borrower shall not create or suffer to exist, or permit any of the
Subsidiaries to create or suffer to exist, any Indebtedness except:
          (a) the Obligations;
          (b) current liabilities in respect of taxes, assessments and
governmental charges or levies incurred, or claims for labor, materials,
inventory, services, supplies and rentals incurred, or for goods or services
purchased, in the ordinary course of business consistent with the past practice
of the Borrower and such Subsidiaries;
          (c) Permitted Subordinated Indebtedness incurred by the Borrower;
          (d) Permitted Senior Indebtedness incurred by the Borrower;
          (e) Permitted Acquisition Indebtedness incurred by the Borrower;
          (f) Indebtedness secured by Permitted Liens;
          (g) Indebtedness of any Subsidiary to Borrower or to any other
Subsidiary;
          (h) Indebtedness which may be deemed to exist pursuant to any
guaranties, performance bonds, surety bonds, statutory, appeal or similar
obligations incurred in the ordinary course of business;
          (i) Indebtedness of Borrower to any Subsidiary incurred in the
ordinary course of business; and
          (j) Indebtedness of Borrower existing on the Closing Date and
disclosed on Schedule 6.02 and extensions or renewals of such Indebtedness that
do not increase the principal amount thereof.
     Section 6.03. Mergers, Sale of Assets, Etc.
          The Borrower shall not, other than in the ordinary course of its
business, and shall not permit any of its Subsidiaries to, (a) merge with any
Person, (b) consolidate with any Person or (c) sell, lease, transfer or
otherwise dispose of, whether in one transaction or in a series of transactions
all or substantially all of its assets.

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     Section 6.04. Change in Nature of Business.
          The Borrower shall not, and shall not permit any of its Subsidiaries
to, make any material change in the nature or conduct of its business as carried
on at the date hereof.
     Section 6.05. Modification of Material Agreements.
          The Borrower shall not, and shall not permit any of its Subsidiaries
to, alter, amend, modify, rescind, terminate or waive any of their respective
rights under, or fail to comply in all material respects with, any of its
material contractual obligations; provided, however, that, with respect to any
contractual obligation, the Borrower shall not be deemed in default of this
Section if all such alterations, amendments, modifications, rescissions,
terminations, waivers or failures in the aggregate have no Material Adverse
Effect; and provided, further, that in the event of any breach or event of
default by a Person other than the Borrower or any of its Subsidiaries, the
Borrower shall promptly notify the Lender of any such breach or event of default
and take all such action as may be reasonably necessary in order to endeavor to
avoid having such breach or event of default have a Material Adverse Effect.
     Section 6.06. Cancellation of Indebtedness Owed to the Borrower.
          The Borrower shall not cancel, or permit any of its Subsidiaries to
cancel, any claim or material Indebtedness owed to it except for adequate
consideration and in the ordinary course of business; provided that Indebtedness
not exceeding $100,000 shall not be deemed to be “material” for purposes hereof
and provided, further, that neither the Borrower nor its Subsidiaries shall
cancel claims or material Indebtedness more than one time in any Fiscal Quarter
and provided further that the foregoing shall not in any way limit the
Borrower’s or its Subsidiaries’ ability to negotiate and effect adjustments to
trade accounts receivable or other customer payables, including the granting of
credits, rebates and adjustments, in the ordinary course of business.
     Section 6.07. Capital Structure.
          The Borrower shall not make, and shall not permit any of its
Subsidiaries to make, any change in its capital structure (including, without
limitation, in the terms of its outstanding Stock) or amend its Certificate of
Incorporation or By-laws other than for amendments which in the aggregate have
no Material Adverse Effect.
     Section 6.08. Accounting Changes.
          The Borrower shall not make, nor permit any of its Subsidiaries to
make, any change in accounting treatment and reporting practices or tax
reporting treatment, except as required by GAAP or law and disclosed to the
Lender.

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     Section 6.09. OFAC Compliance.
          The Borrower shall not enter into contracts or otherwise do business
with any Person whose name appears on any of the various lists maintained by the
Office of Foreign Asset Control of the United States Department of Treasury.
     Section 6.10. Investments in Other Persons.
          The Borrower shall not, directly or indirectly, make or permit any of
its Subsidiaries to make, any loan or advance to any Person, or purchase or
otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any Stock, Stock Equivalents, other equity interests, obligations or
other securities of, or any assets constituting the purchase of a business or
line of business, or make, or permit any of its Subsidiaries to make, any
capital contribution to, or otherwise invest in, any Person (including, without
limitation, any Subsidiary of the Borrower) (any such transaction being an
“Investment”), except (a) Investments in Cash Equivalents, (b) in the ordinary
course of the Borrower’s business, and (c) unless as is otherwise permitted or
provided for in this Agreement.
ARTICLE VII
EVENTS OF DEFAULT
     Section 7.01. Events of Default.
          Each of the following events shall be an “Event of Default”:
          (a) The Borrower shall fail to pay any principal (including, without
limitation, mandatory prepayments of principal) of, or interest on, the Loans,
any other amount due hereunder or under the other Loan Documents or any other
Obligations hereunder when the same becomes due and payable (other than payments
required under Section 2.05(c)); or
          (b) Any representation or warranty made or deemed made by the Borrower
in any Loan Document or by the Borrower (or any of its officers) in connection
with any Loan Document shall prove to have been materially incorrect when made
or deemed made; or
          (c) (i) The Borrower or any of its Subsidiaries shall fail to perform
or observe any term, covenant or agreement contained in Articles V or VI, or
(ii) the Borrower or any of its Subsidiaries shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement or in any
other Loan Document if such failure under this clause (ii) shall remain
unremedied for 30 days after the earlier of the date on which (A) a Responsible
Officer of the Borrower becomes aware of such failure or (B) written notice
thereof shall have been given to the Borrower by the Lender; or
          (d) The Borrower or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Indebtedness of the Borrower or any
such Subsidiary having a

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principal amount of $100,000 or more (excluding indebtedness evidenced by the
Notes), when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure to pay
continues for a period of 45 days; or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Indebtedness,
if the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall become or be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), or the Borrower or
any of its Subsidiaries shall be required to repurchase or offer to repurchase
such Indebtedness, prior to the stated maturity thereof; or
          (e) The Borrower or any of its Subsidiaries shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against any
the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a custodian,
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceedings instituted against the
Borrower or any of its Subsidiaries (but not instituted by it), either such
proceedings shall remain undismissed or unstayed for a period of 30 days or any
of the actions sought in such proceedings shall occur; or the Borrower or any of
its Subsidiaries shall take any corporate action to authorize any of the actions
set forth above in this subsection (e); or
          (f) One or more judgments or order for the payment of money in excess
of $100,000 in the aggregate to the extent not fully covered by insurance shall
be rendered against the Borrower or any of its Subsidiaries and either
(i) enforcement proceedings shall have been commenced by any creditor upon any
such judgment or order, or (ii) there shall be any period of 10 consecutive days
during which a stay of enforcement of any such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
          (g) The Borrower shall be in default under the Supply Agreement beyond
any grace or cure period specified therein, or the Supply Agreement shall be
cancelled, terminated, revoked or rescinded in accordance with the terms thereof
other than due to the (i) breach thereof by the Lender, (ii) mutual agreement of
the parties thereto or (iii) the expiration of the term thereof, or any action
at law, suit or in equity or other legal proceeding to cancel, revoke or rescind
the Supply Agreement shall be commenced by or on behalf of the Borrower, or any
court or any other governmental or regulatory authority or agency of competent
jurisdiction shall make a determination that, or issue a judgment, order, decree
or ruling to the effect that, the Supply Agreement is illegal, invalid or
unenforceable in any material respect in accordance with the terms thereof; or
          (h) There shall occur a Change of Control; or
          (i) The Borrower fails to pay the trade payables owing to the Lender
in accordance with their terms; or

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          (j) The Borrower commits a willful breach of its obligations under
Section 4 of the Investor Rights Agreement.
     Section 7.02. Remedies.
          If there shall occur and be continuing any Event of Default, the
Lender may (a) by notice to the Borrower, cancel the Commitments and declare the
obligation of the Lender to make the Loans to be terminated, whereupon the same
shall forthwith be canceled and terminated; and (b) by notice to the Borrower,
declare the Loans, all interest thereon and all other amounts and Obligations
payable under this Agreement to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts and Obligations shall become and
be forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided, however, that upon the occurrence of the Event of Default specified in
subparagraph 7.01(e), (i) the Commitments shall automatically be canceled and
the obligation of the Lender to make the Loans shall automatically be terminated
and (ii) the Loans, all such interest and all such amounts and Obligations shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower. In addition to the remedies set forth above, the Lender may
exercise any remedies provided by applicable law or in equity.
ARTICLE VIII
MISCELLANEOUS
     Section 8.01. Amendments, Etc.
          No amendment or waiver of any provision of this Agreement nor consent
to any departure by the Borrower therefrom shall in any event be effective
unless the same shall be in writing and signed by the Lender and the Borrower,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
     Section 8.02. Notices.
          Except as otherwise provided herein, all notices and other
communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or
sent by telecopy, as follows:

  (i)   if to the Borrower:

HearUSA, Inc.
1250 Northpoint Parkway
West Palm Beach, FL 33407
Attention: President
Telecopy No. (561) 688-8893

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With a copy to:
LaDawn Naegle, Esq.
Bryan Cave LLP
700 13th Street, N.W., Suite 700
Washington, DC 20005
Telecopy No. (202) 508-6200

  (ii)   if to the Lender:

Siemens Hearing Instruments, Inc.
10 Constitution Avenue
Piscataway, New Jersey 08855
Attention: President
Telecopy No. (732) 562-6688
With a copy to:
James Ruger, Esq.
c/o Siemens Medical Solutions USA, Inc.
Legal Department
51 Valley Stream Parkway
Malvern, PA 19355-1406
          Any party hereto may change its address or telecopy number for notices
and other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
     Section 8.03. No Waiver; Remedies.
          No failure on the part of the Lender to exercise, and no delay in
exercising, and no course of dealing with respect to, any right hereunder or
under any other Loan Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law or in
equity.
     Section 8.04. Costs; Expenses; Indemnities.
          (a) Each of the parties hereto shall bear its own expenses (including,
without limitation, fees and expenses of the counsel, accountants, appraisers,
consultants or industry experts or other experts) incurred by it in connection
with the preparation, negotiation, execution, delivery, administration,
modification and amendment of this Agreement, each of the other Loan Documents
and each of the other documents to be delivered hereunder and thereunder and the
transactions contemplated hereby and thereby.

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          (b) The Borrower agrees to indemnify and hold harmless the Lender and
its Affiliates, and the directors, officers, employees, agents, attorneys,
consultants and advisors of or to any of the foregoing (each of the foregoing
being an “Indemnitee”) from and against any and all claims, damages,
liabilities, obligations, losses, penalties, actions, judgments, suits, costs,
disbursements and expenses of any kind or nature (including, without limitation,
fees and disbursements of counsel to any such Indemnitee) which may be imposed
on, incurred by or asserted against any such Indemnitee in connection with or
arising out of any investigation, litigation or proceeding, whether or not any
such Indemnitee is a party thereto, whether direct, indirect, or consequential
and whether based on any federal, state or local law or other statutory
regulation, securities or commercial law or regulation, or under common law or
in equity, or on contract, tort or otherwise, in any manner relating to or
arising out of this Agreement, any other Loan Document, any Obligation, or any
act, event or transaction related or attendant to any thereof, (collectively,
the “Indemnified Matters”); provided, however, that the Borrower shall not have
any obligation under this Section 8.04(b) to an Indemnitee with respect to any
Indemnified Matter caused by or resulting from the gross negligence or willful
misconduct of that Indemnitee.
          (c) The Borrower, at the request of any Indemnitee, shall have the
obligation to defend against such investigation, litigation or proceeding, and
the Borrower, in any event, may participate in the defense thereof with legal
counsel of the Borrower’s choice. In the event that such Indemnitee requests the
Borrower to defend against such investigation, litigation or proceeding, the
Borrower shall promptly do so, and such Indemnitee shall have the right to have
legal counsel of its choice participate in such defense, and all costs and
expenses of such counsel shall be borne by the Borrower. No action taken by
legal counsel chosen by such Indemnitee in defending against any such
investigation, litigation or proceeding, shall vitiate or in any way impair the
Borrower’s obligation and duty hereunder to indemnify and hold harmless such
Indemnitee.
          (d) The Borrower agrees that any indemnification or other protection
provided to any Indemnitee pursuant to this Agreement (including, without
limitation, pursuant to this Section 8.04) or any other Loan Document shall
(i) survive payment of the Obligations and (ii) inure to the benefit of any
Person who was at any time an Indemnitee under this Agreement or any other Loan
Document.
     Section 8.05. Right of Set-off.
          Upon the occurrence and during the continuance of any Event of Default
the Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Lender to or for the credit or the
account of the Borrower against any and all of the Obligations now or hereafter
existing whether or not the Lender shall have made any demand under this
Agreement, the Notes or any other Loan Document and although such Obligations
may be unmatured. The Lender agrees promptly to notify the Borrower after any
such set-off and application made by the Lender; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section are in addition to the
other rights and remedies (including, without limitation, other rights of
set-off) which the Lender may have.

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     Section 8.06. Binding Effect.
          This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights or delegate its
obligations hereunder or any interest herein without the prior written consent
of the Lender. The Lender shall have the right to assign its rights or delegate
its obligations hereunder or any interest herein without the prior written
consent of the Borrower.
     Section 8.07. Governing Law.
          THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO 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).
     Section 8.08. Severability.
          Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
     Section 8.09. Submission to Jurisdiction; Service of Process.
          (a) Any legal action or proceeding with respect to this Agreement or
the Notes or any other Loan Document may be brought in the courts of the State
of New York or of the United States of America for the Southern District of New
York, and, by execution and delivery of this Agreement, each of the Borrower and
the Lender hereby accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. The parties
hereto hereby irrevocably waive any objection, including, without limitation,
any objection to the laying of venue or based on the grounds of forum non
conveniens, which any of them may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions.
          (b) Each of the Borrower and the Lender irrevocably consents to the
service of process of any of the aforesaid courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Borrower, or the Lender, as the case may be, at its
address provided herein.

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          (c) Nothing contained in this Section 8.09 shall affect the right of
the Lender or any holder of the Notes to serve process in any other manner
permitted by law or commence legal proceedings or otherwise proceed against the
Borrower in any other jurisdiction.
     Section 8.10. Waiver of Jury Trial.
          EACH OF THE PARTIES HERETO WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR ACTION OF ANY PARTY
HERETO.
     Section 8.11. Section Titles.
          The Section titles contained in this Agreement are and shall be
without substantive meaning or content of any kind whatsoever and are not a part
of the agreement between the parties hereto.
     Section 8.12. Execution in Counterparts.
          This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original, and both of which taken together
shall constitute one and the same agreement.
     Section 8.13. Survival.
          The representations and warranties of the Borrower contained in each
of the Loan Documents shall survive the execution and delivery of the Loan
Documents and the making of the Loans.
     Section 8.14. Entire Agreement.
This Agreement, together with the Exhibits and Schedules hereto and all of the
other Loan Documents and all certificates and documents delivered hereunder or
thereunder, embody the entire agreement of the parties and supersedes all prior
agreements and understandings, either oral or written, relating to the subject
matter hereof.

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          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                  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    

Signature Page to
Second Amended and Restated Credit Agreement

 

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EXHIBIT A-1
FORM OF TRANCHE A NOTE

      U.S. $                       Dated: December ___, 2006

          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
[                    ] United States Dollars ($[                    ]), or, if
less, the aggregate unpaid principal amount of the Tranche A Term Loan (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 A 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. The Tranche A Loan made by the Lender to the Borrower, and all
payments made on account of the principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on this Tranche A Note.
          This Note is the Tranche A 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 A 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 A Loan being evidenced by this Tranche A Note, and (b) contains
provisions for acceleration of the maturity of the unpaid principal amount of
this Tranche A 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.

A-1-1

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          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:        

A-1-2

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EXHIBIT A-2
FORM OF TRANCHE B NOTE

      U.S. $30,000,000   Dated: December [___], 2006

          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 THIRTY MILLION
United States Dollars ($30,000,000), or, if less, the aggregate unpaid principal
amount of the Tranche B Loan (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 B 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 B Loan shall be conclusive evidence of the amounts outstanding under
this Note in the absence of manifest error.
          This Note is the Tranche B 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 B 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 B Loan being evidenced by this Tranche B Note, and (b) contains
provisions for acceleration of the maturity of the unpaid principal amount of
this Tranche B 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.

A-2-1

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          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:        

A-2-2

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EXHIBIT A-3
FORM OF TRANCHE C NOTE

      U.S. $30,000,000   Dated: December [___], 2006

          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 THIRTY MILLION
United States Dollars ($30,000,000), or, if less, the aggregate unpaid principal
amount of the Tranche C Loan (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 C 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 C Loan shall be conclusive evidence of the amounts outstanding under
this Note in the absence of manifest error
          This Note is the Tranche C 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 C 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 C Loan being evidenced by this Tranche C Note, and (b) contains
provisions for acceleration of the maturity of the unpaid principal amount of
this Tranche C 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.

A-3-1

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          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:        

A-3-2

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EXHIBIT A-4
FORM OF TRANCHE D NOTE

      U.S. $50,000,000   Dated: December [___], 2006

          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 FIFTY MILLION
United States Dollars ($50,000,000), or, if less, the aggregate unpaid principal
amount of the Tranche D Loan (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 D 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 D Loan shall be conclusive evidence of the amounts outstanding under
this Note in the absence of manifest error
          This Note is the Tranche D 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 D 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 D Loan being evidenced by this Tranche D Note, and (b) contains
provisions for acceleration of the maturity of the unpaid principal amount of
this Tranche D 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.

A-4-1

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          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:        

A-4-2

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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(b)/2.02(c)/2.02(d)] of the Credit Agreement that the undersigned
hereby requests a [Tranche B Loan/Tranche C Loan/Tranche D 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] (the “Proposed
Borrowing”) as required by Section 2.02 of the Credit Agreement:
     (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] 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:
     (a) 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;
     (b) No Default or Event of Default is continuing or will result from the
Proposed Borrowing;
     (c) 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;
     (d) 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;
     (e) The making of the Loan on such date does not violate any Requirement of
Law and is not enjoined, temporarily, preliminarily or permanently; and
     (f) 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.

                  Very truly yours,    
 
                HearUSA, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:        

A-4-2

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EXHIBIT D
FORM OF
CONVERSION NOTICE
     The undersigned hereby elects to convert the aggregate outstanding
principal amount of the Loan or Loans indicated below into shares of Common
Stock of HearUSA, Inc. (the “Company”) according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Lender for any conversion, except for such transfer taxes, if
any.

             
Date to Effect Conversion:
                     
 
           
Total Amount of Loans Being Converted:
  Principal:        
 
           
 
  Accrued Interest:        
 
           

              Siemens Hearing Instruments, Inc.
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

 

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EXHIBIT E
FORM OF
CLOSING STATEMENT
CLOSING STATEMENT
This Closing Statement is delivered pursuant the Second Amended and Restated
Credit Agreement dated as of December 30, 2006, between HearUSA, Inc. and
Siemens Hearing Instruments, Inc.

                                      Pre-Closing   Post-Closing
Past Due Trade Payables to Be Converted
                          $ 0.00  

                                  Siemens Loans:   Interest   Principal   Total
       
Tranche A
                  $ 0.00     $ 0.00  
Tranche B
                  $ 0.00     $ 0.00  
Tranche C1
                  $ 0.00          
Tranche C2
  $ 0.00             $ 0.00          
Tranche C3
                  $ 0.00          
 
                               
Total Tranche C
  $ 0.00     $ 0.00     $ 0.00     $ 0.00  
 
                               
Tranche D
                               
 
                               
Total Outstanding Loans
                  $ 0.00     $ 0.00  

Dated:                                         

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

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