**EXHIBIT 10.24****HEARUSA, INC.****INVESTOR RIGHTS AGREEMENT**
 

 
**TABLE OF CONTENTS**       **Page** **SECTION 1 GENERAL**  **1**      **1.1 Definitions**  1      **SECTION 2 REGISTRATION**  **3**      **2.1 Restrictions on Transfer**  3      **2.2 Required Registration**  4      **2.3 Piggy-Back Registration**  5      **2.4 Registration Procedures**  6      **2.5 Suspension or Delay**  9      **2.6 Expenses**  10      **2.7 Indemnification and Contribution**  10      **2.8 Changes in Common Stock**  13      **2.9 Assignment of Registration Rights**  13      **2.10 Other Registration Rights**  13      **2.11 Rule 144 Reporting**  13      **SECTION 3 COVENANTS OF THE COMPANY**  **14**      **3.1 Financial Reporting; Additional Information**  14      **SECTION 4 RIGHTS OF FIRST REFUSAL**  **14**      **4.1 Subsequent Offerings of Equity Securities**  14      **4.2 Exercise of Refusal Right for Equity Securities**  15      **4.3 Issuance of Equity Securities to Other Persons**  15      **4.4 Right of First Refusal for Control Transaction**  15      **4.5 Exercise of Refusal Right for Control Transaction**  15      **4.6 Control Transaction with Other Person**  15      **4.7 Assignment of Rights of First Refusal**  16      **SECTION 5 MISCELLANEOUS**  **16**      **5.1 Governing Law**  16      **5.2 Successors and Assigns**  16      **5.3 Entire Agreement**  16      **5.4 Severability**  16      **5.5 Amendment and Waiver**  16 
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       **Page** **5.6 Notices**  16      **5.7 Attorney’s Fees**  16      **5.8 Counterparts**  17      **5.9 Table of Contents; Headings; Rules of Construction**  17      **5.10 No Third Party Beneficiaries**  17      **5.11 Time of the Essence**  17      **5.12 Termination**  17 
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**DEFINED TERMS**     Agreement  1 Board  1 Business Combination  2 Change of Control  1 Commission  3 Common Stock  3 Company  1 Control Transaction  15 Credit Agreement  1 Deferral Period  9 Equity Securities  14 Exchange Act  3 herein  17 hereof  17 hereto  17 Include  17 including  17 Incumbent Board  1 Investor  1 Outstanding Company Common Stock  1 Outstanding Company Voting Securities  1 Person  17 Registrable Securities  3 Registration Effective Date  4 Registration Expenses  10 Registration Statement  3 SEC  3 Securities Act  3 Selling Expenses  10 Shares  3 Shelf Registration Statement  4 State Acts  3 
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**INVESTOR RIGHTS AGREEMENT**     **THIS INVESTOR RIGHTS AGREEMENT**(this “***Agreement***“) is entered into as of the _30th___day ofDecember, 2006, by and between **HEARUSA, INC.**, a Delaware corporation (the “***Company***“) and **SIEMENSHEARING INSTRUMENTS, INC.**, a Delaware corporation (the “***Investor***“).**Recitals**     **WHEREAS,**the Investor is loaning the Company additional funds pursuant to that certain SecondAmendment to the Amended and Restated Credit Agreement dated February 10, 2006 (as amended fromtime to time, the “***Credit Agreement***”) pursuant to which the Investor has the option to convert allor part of the principal and accrued interest thereunder into Common Stock; and     **WHEREAS,**the Credit Agreement requires the execution and delivery of this Agreement.     **NOW, THEREFORE*****,***in consideration of these premises and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged, the parties heretoagree as follows:**SECTION 1 GENERAL.**     **1.1 Definitions.**As used in this Agreement, the following terms shall have the followingmeanings: (a) “***Board***” means the Board of Directors of the Company***.***  (b) “***Change of Control***” means the happening of any of the following events:                    (i) The acquisition, other than in a transaction approved by the Incumbent Board, by anyperson or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) ofbeneficial 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 CommonStock***”) or (B) the combined voting power of the then outstanding voting securities of the Companyentitled to vote generally in the election of directors (the “***Outstanding Company VotingSecurities***”***);***provided, however, that the following acquisitions shall notconstitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisitionby the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored ormaintained by the Company or any corporation controlled by the Company, or (4) any acquisition byany corporation pursuant to a transaction described in clauses (A), (B) and (C) of paragraph (iii)of this Section 1.1(a); or                    (ii) Individuals who, as of the date of this Agreement, constitute the Board (the “***IncumbentBoard***”) cease for any reason to constitute at least a majority of the Board; provided,however, that any individual becoming a director subsequent to such effective date whoseelection, or nomination for election by the stockholders of the Company, was
 

 
approved by a vote ofat least a majority of the directors then comprising the Incumbent Board shall be considered asthough such individual were a member of the Incumbent Board, but excluding, for this purpose, anysuch individual whose initial assumption of office occurs as a result of an actual or threatenedelection contest with respect to the election or removal of directors or other actual or threatenedsolicitation of proxies or consents by or on behalf of a person or group other than the Board; or                    (iii) Approval by the stockholders of the Company of a reorganization, merger, share exchangeor consolidation (a “***Business Combination***”)***,***unless, in each case following such BusinessCombination, (A) all or substantially all of the persons who were the beneficial owners,respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securitiesimmediately prior to such Business Combination beneficially own, directly or indirectly, more than50% of, respectively, the then outstanding shares of common stock and the combined voting power ofthe then outstanding voting securities entitled to vote generally in the election of directors, asthe case may be, of the corporation resulting from such Business Combination (including acorporation that as a result of such transaction owns the Company through one or more subsidiaries)in substantially the same proportions as their ownership, immediately prior to such BusinessCombination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, asthe case may be, (B) no person or group (excluding any employee benefit plan (or related trust) ofthe Company or such corporation resulting from such Business Combination) beneficially owns,directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stockof the corporation resulting from such Business Combination or the combined voting power of thethen outstanding voting securities of such corporation except to the extent that such person orgroup owned 25% or more of the Outstanding Company Common Stock or Outstanding Company VotingSecurities prior to the Business Combination and (C) at least a majority of the members of theboard of directors of the corporation resulting from such Business Combination were members of theIncumbent Board at the time of the execution of the initial agreement, or of the action of theBoard, providing for such Business Combination; or                    (iv) Approval by the stockholders of the Company of (A) a complete liquidation or dissolutionof the Company, or (B) the sale or other disposition of all or substantially all of the assets ofthe Company, other than to a corporation with respect to which, following such sale or otherdisposition, (1) more than 50% of, respectively, the then outstanding shares of common stock ofsuch corporation and the combined voting power of the then outstanding voting securities of suchcorporation 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 Securitiesimmediately prior to such sale or other disposition in substantially the same proportion as theirownership, immediately prior to such sale or other disposition, of the Outstanding Company CommonStock and Outstanding Company Voting Securities, as the case may be, (2) less than 25% of,respectively, the thenoutstanding shares of common stock of such corporation and the combined voting power of thethen outstanding voting securities of such corporation entitled to vote generally in the electionof directors is then beneficially owned, directly or indirectly, by any person or group (excludingany employee benefit plan (or related trust) of the Company or such corporation), except to theextent that such person or group owned 25% or more of the Outstanding Company Common Stock or
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Outstanding Company Voting Securities prior to the sale or disposition and (3) at least a majorityof the members of the board of directors of such corporation were members of the Incumbent Board atthe time of the execution of the initial agreement, or of the action of the Board, providing forsuch sale or other disposition of assets of the Company or were elected, appointed or nominated bythe Board.          (c) “***Common Stock***” means the $0.10 par value common stock of the Company.          (d) “***Exchange Act***” means the Securities Exchange Act of 1934, as amended.          (e) “***Registrable Securities***” means (i) the Shares and (ii) any Common Stock issued as adividend or other distribution with respect to, or in exchange for or in replacement of, theShares. Notwithstanding the foregoing, Registrable Securities shall not include any securities (i)sold by a person to the public either pursuant to a registration statement or Rule 144, or (ii)sold in a private transaction in which the transferor’s rights under Section 2 are not assigned.          (f) “***SEC***” or “***Commission***” means the Securities and Exchange Commission.          (g) “***Securities Act***” shall mean the Securities Act of 1933, as amended.          (h) “***Shares***” shall mean the Common Stock issued pursuant to conversion under the terms of theCredit Agreement held from time to time by the Investor and its permitted assigns.          (i) “***State Acts***” shall mean the applicable securities or “blue sky” laws of the States of theUnited States, as amended, and the rules and regulations thereunder, all as the same shall be ineffect at the time.**SECTION 2 REGISTRATION.**     **2.1 Restrictions on Transfer**.          (a) The Investor shall not make any disposition of all or any portion of the Shares orRegistrable Securities other than to an “affiliate” as that term is defined in SEC Rule 144 unlessand until:               (i) there is then in effect a registration statement (a “***Registration Statement***”) under theSecurities Act covering such proposed disposition and such disposition is made in accordance withsuch registration statement; or               (ii) if reasonably requested by the Company, the Investor shall have furnished the Companywith an opinion of counsel, reasonably satisfactory to the Company, that such disposition will notrequire registration of such shares under the Securities Act. Notwithstanding the foregoing, theCompany will not require opinions of counsel for transactions made pursuant to Rule 144.
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          (b) Each certificate representing Shares or Registrable Securities shall be stamped orotherwise imprinted with legends substantially similar to the following:THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933 (THE “ACT”) AND ANY APPLICABLE STATESECURITIES LAWS (THE “STATE ACTS”) AND MAY NOT BE OFFERED, SOLD OROTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS ANDUNTIL REGISTERED UNDER THE ACT AND THE STATE ACTS OR UNLESS THECOMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THECOMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIESREPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS ANDCONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT. A COPY OF SUCHAGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OFTHE COMPANY.          (c) The Company shall be obligated to reissue promptly unlegended certificates at the requestof the Investor if the Investor shall have obtained an opinion of counsel (which counsel may becounsel to the Company) reasonably acceptable to the Company to the effect that the securitiesproposed to be disposed of may lawfully be so disposed of without registration, qualification andlegend.          (d) Any legend endorsed on an instrument pursuant to the State Acts and the stop-transferinstructions with respect to such securities shall be removed upon receipt by the Company of anorder of the appropriate blue sky authority authorizing such removal.     **2.2 Required Registration**.          (a) The Company will, (i) within ninety (90) days following the date of this Agreement,prepare and file with the Commission a Registration Statement on Form S-3 or, if not available,Form S-1, or any equivalent form for registration by issuers in accordance with theSecurities Act, to permit the resale from time to time of the Registrable Securities under theSecurities Act on a delayed or continuous basis pursuant to Rule 415 (the “***Shelf RegistrationStatement***”), (ii) use reasonable best efforts to cause the Shelf Registration Statement to bedeclared effective (the “***Registration Effective Date***”) as soon as reasonably practicable and in anyevent within one hundred eighty (180) days after the date of this Agreement, and (iii) usereasonable best efforts to cause the Shelf Registration Statement to remain effective until thedate on which all of the Registrable Securities covered by the Shelf Registration Statement havebeen sold to the public pursuant to such registration statement in accordance with the intendedmethods of distribution thereof. The plan of distribution contemplated by the Shelf RegistrationStatement shall permit resales of Registrable Securities in the manner or manners designated by theInvestor, including offers and sales through underwriters or agents, offers and sales directly
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toinvestors, block trades and such other methods of offer and sale as the Investor shall request.The Company shall not permit any securities other than Registrable Securities to be included in theShelf Registration Statement.          (b) Subject to Section 2.2(c), if, following the Registration Effective Date, the Investordesires to sell Registrable Securities in an underwritten offering pursuant to the ShelfRegistration Statement, it may request in writing that the Company file an amendment to the ShelfRegistration Statement, stating the number of shares of Registrable Securities proposed to be soldand describing the plan of distribution, and the Company shall file such an amendment to the ShelfRegistration Statement as soon as reasonably practicable and use reasonable best efforts to causesuch amended Shelf Registration Statement to become effective as soon as reasonably practicable.          (c) In any underwritten offering pursuant to this Section 2.2, the Investor shall have theright to select one managing underwriter, and such managing underwriter shall be the sole managingunderwriter for any such offering. The Company (together with the Investor) shall enter into anunderwriting agreement in customary form with the underwriter or underwriters selected for suchunderwriting, as well as all other documents customary in similar offerings, includingquestionnaires, custody agreements, powers of attorney, lockup agreements and indemnificationagreements, as applicable.          (d) The parties acknowledge and agree that although the Company is obligated to use its bestefforts to effect the registration of the Registrable Securities in accordance with the termshereof, the Company will not be liable to the Investor for liquidated damages or penalties in theevent its best efforts are insufficient to accomplish the intent of the foregoing.     **2.3 Piggy-Back Registration**.          (a) If at any time, the Company proposes to register (other than pursuant to Section 2.2)any of the Common Stock under the Securities Act for sale to the public, (i) either for its ownaccount only or for both its account and the account of other security holders, or (ii) if when theRegistration Statement contemplated by Section 2.2 is not effective, either for itsaccount, the account of other security holders or both (except with respect to RegistrationStatements on Forms S-4, S-8 or another form not available for registering the RegistrableSecurities for sale to the public or any successor thereto), each such time the Company will giveprompt written notice to the Investor of its intention to do so and of the Investor’s rights underthis Section 2.3, at least ten (10) business days prior to the anticipated filing date of theregistration statement relating to such registration. Upon the written request of the Investor,received by the Company within five (5) business days after receipt of the Company’s notice by theInvestor, to register any of its Registrable Securities, the Company will use reasonable bestefforts to cause the Registrable Securities as to which registration shall have been so requestedto be included in the securities to be covered by the Registration Statement proposed to be filedby the Company. The Investor may elect, prior to the anticipated effective date of theregistration statement filed in connection with such registration, not to register such securitiesin connection with such registration.
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          (b) In the event that any registration pursuant to this Section 2.3 shall be, in whole or inpart, an underwritten public offering of Common Stock, the number of shares of RegistrableSecurities to be included in such an underwriting may be reduced if and to the extent that themanaging underwriter notifies the Company in writing that, in its opinion, such inclusion wouldexceed the largest number of securities which can be sold without reasonably expecting to have anadverse effect on such offering, including the price at which such securities can be sold by theCompany therein. The reduction referred to in the immediately preceding sentence shall be appliedas follows: (i) the reduction shall be applied first, to the securities of security holdersof the Company, if any, with registration rights other than the Investor, that are entitled to, andare requested to be included in, such registration, pro rata among all such security holders, basedon the number of securities held by such security holders, second, to the RegistrableSecurities, and third, to the securities included in such registration by the Company;provided, however, that if the time period set forth in Section 2.2(a) has expiredwithout the Shelf Registration Statement pursuant to Section 2.2(a) having been filed or havingbeen declared effective, the reduction shall be applied first, to the securities included in suchregistration by the Company, second, to the securities of security holders of the Companyother than the Investor, if any, which are entitled to, and are requested to be included in, suchregistration prorata among all such security holders, based on the number ofsecurities held by such security holders, and third, to the Registrable Securities.Notwithstanding the foregoing, the Company may withdraw any Registration Statement referred to inthis Section 2.3 without thereby incurring any liability to the holder or holders of RegistrableSecurities.          (c) In any underwritten offering pursuant to this Section 2.3 in which no less thantwenty-five percent (25%) of the Registrable Securities are proposed to be sold, the Investor andthe Company shall each have the right to select one managing underwriter and such managingunderwriters shall be the sole managing underwriters for any such offering. The Company (togetherwith the participating shareholders) shall enter into an underwriting agreement in customary formwith the underwriter or underwriters selected for such underwriting, as well as all other documentscustomary in similar offerings, including questionnaires, custody agreements, powers of attorney,lockup agreements and indemnification agreements, as applicable.     **2.4 Registration Procedures**.          (a) If and whenever the Company is required by the provisions of Section 2.2 or 2.3 toeffect the registration of any shares of Registrable Securities, the Company will, as expeditiouslyas reasonably practicable:               (i) prepare and file with the Commission a Registration Statement with respect to suchsecurities and use commercially reasonable best efforts to cause such Registration Statement tobecome and remain effective for the period of the distribution contemplated by Section 2.2(a) or2.4(b), as applicable;               (ii) prepare and file with the Commission such amendments and supplements to such RegistrationStatement and the prospectus used in connection therewith as may be necessary to keep suchRegistration Statement effective for the period specified by Section 2.2(a) or 2.4(b), asapplicable, and comply with the provisions of the Securities Act and
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the State Acts with respectto the disposition of all Registrable Securities covered by such Registration Statement inaccordance with the sellers’ intended method of disposition set forth in such RegistrationStatement for such period;               (iii) furnish to each seller of Common Stock and to each underwriter such number of copies ofthe Registration Statement and the prospectus included therein (including each preliminaryprospectus), copies of any correspondence with the Commission or its staff relating to suchRegistration Statement and such other documents as such persons reasonably may request in order tofacilitate the public sale or other disposition of the Common Stock covered by such RegistrationStatement;               (iv) use reasonable best efforts to register or qualify the Common Stock covered by suchRegistration Statement under such State Acts as the sellers of Common Stock or, in the case of anunderwritten public offering, the managing underwriter reasonably shall request; provided,however, that the Company shall not for any such purpose be required to qualify generallyto transact business as a foreign corporation in any jurisdiction where it is not so qualified orto consent to general service of process in any such jurisdiction;               (v) use reasonable best efforts to list the Common Stock covered by such RegistrationStatement with a national securities exchange (if such shares are not already listed) and with eachadditional securities exchange on which the similar securities of the Company are then listed;               (vi) immediately notify each seller of Common Stock and each underwriter under suchRegistration Statement, at any time when a prospectus relating thereto is required to be deliveredunder the Securities Act, of the happening of any event of which the Company has knowledge as aresult of which the prospectus contained in such Registration Statement, as then in effect,includes an untrue statement of a material fact or omits to state a material fact required to bestated therein or necessary to make the statements therein not misleading in light of thecircumstances then existing and the Company will prepare asupplement or amendment to such prospectus so that, as thereafter delivered to the purchasersof such Common Stock, such prospectus will not contain an untrue statement of a material fact oromit to state any fact necessary to make the statements therein, in light of the circumstancesunder which they were made, not misleading;               (vii) if the offering is underwritten and at the request of any seller of Common Stock, usereasonable best efforts to furnish on the date that Common Stock is delivered to the underwritersfor sale pursuant to such registration: (A) an opinion dated such date of counsel representing theCompany for the purposes of such registration, addressed to the underwriters, stating that suchRegistration Statement has become effective under the Securities Act and that (1) to the knowledgeof such counsel, no stop order suspending the effectiveness thereof has been issued and noproceedings for that purpose have been instituted or are pending or contemplated under theSecurities Act, (2) the Registration Statement, the related prospectus and each amendment orsupplement thereof comply as to form in all material respects with the requirements of theSecurities Act (except that such counsel need not express any opinion as to financial statementscontained therein), and (3) to such other matters as reasonably may be requested by counsel for theunderwriters, and (B) a letter dated such date from the independent
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public accountants retained bythe Company, addressed to the underwriters, stating that they are independent public accountantswithin the meaning of the Securities Act and that, in the opinion of such accountants, thefinancial statements of the Company included in the Registration Statement or the prospectus, orany amendment or supplement thereof, comply as to form in all material respects with the applicableaccounting requirements of the Securities Act, and such letter shall additionally cover such otherfinancial matters (including information as to the period ending no more than five business daysprior to the date of such letter) with respect to such registration as such underwriters reasonablymay request;               (viii) make available for inspection by each seller of Common Stock, any underwriterparticipating in any distribution pursuant to such Registration Statement, and any attorney,accountant or other agent retained by such seller or underwriter, all financial and other records,pertinent corporate documents and properties of the Company, and cause the Company’s officers,directors and employees to supply all information reasonably requested by any such seller,underwriter, attorney, accountant or agent in connection with such Registration Statement;               (ix) after the filing of the Registration Statement and any amendment or supplement thereto,the Company will promptly notify each seller of Common Stock covered by such Registration Statementand any amendment or supplement thereto of any order suspending the effectiveness of suchRegistration Statement issued or threatened by the Commission and, as promptly as practicable, useits commercially reasonable best efforts to prevent the entry of such stop order or to remove it ifentered;               (x) cooperate with the shareholders and the managing underwriters, if any, to facilitate thetimely preparation and delivery of certificates representing Common Stock to be sold and notbearing any restrictive legends, and enable such Common Stock to be in such denominations andregistered in such names as the managing underwriters may request prior to any sale of the CommonStock to the underwriters;               (xi) with respect to an underwritten offering, make appropriate members of senior managementof the Company available (subject to consulting with them in advance as to schedule) for customaryparticipation in telephonic, in-person conferences or “road show” presentations to potentialinvestors;               (xii) promptly notify the shareholders, counsel to the shareholders and the managingunderwriter or agent, (i) when the Registration Statement, or any post-effective amendment to theRegistration Statement, shall have become effective, or any supplement to the prospectus or anyamendment to the prospectus shall have been filed, (ii) of the receipt of any comments from theCommission, and (iii) of any request of the Commission to amend the Registration Statement or amendor supplement the prospectus or for additional information; and               (xiii) otherwise use its reasonable best efforts to comply with all applicable rules andregulations of the Commission, and make available to its security holders, within the required timeperiods, an earnings statement covering a period of at least twelve (12) months, beginning with thefirst fiscal quarter of the Company after the effective date of the Registration Statement (as theterm “effective date” is defined in Rule 158(c) under the
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Securities Act), which earnings statementshall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder or anysuccessor provisions thereto.          (b) For purposes of Sections 2.2 and 2.3, the period of distribution of Common Stock in a firmcommitment underwritten public offering shall be deemed to extend until each underwriter hascompleted the distribution of all securities purchased by it or a period of one hundred eighty(180) days, which ever first occurs.          (c) In connection with each registration pursuant to Section 2.2 or 2.3, the sellers of CommonStock will furnish to the Company in writing such information with respect to themselves, theirbeneficial ownership of Common Stock, and the proposed distribution by them as reasonably shall benecessary in order to assure compliance with federal securities laws, Commission rules and StateActs. The Company’s obligation to register the Common Stock held by any shareholder in anyRegistration Statement shall be contingent on such shareholder furnishing to the Company theinformation required by this Section 2.4(c). Moreover, no shareholder may participate in anyunderwritten offering hereunder unless such shareholder (i) provides the information required bythis Section 2.4(c); (ii) agrees to sell such shareholder’s Common Stock on the basis provided inany underwriting arrangements approved by the Company or the participating shareholders, asapplicable; and (iii) completes and executes all questionnaires, custody agreements, powers ofattorney, lockup agreements, indemnification agreements, underwriting agreements and otherdocuments reasonably required under the terms of such underwriting arrangements.          (d) In connection with each registration pursuant to Section 2.2 or 2.3 covering anunderwritten public offering, the Company and each selling shareholder shall (i) enter into awritten agreement with the managing underwriters selected in the manner herein provided in suchform and containing such provisions as are customary in the securities business for such anarrangement between such underwriter and companies of the Company’s size and investment stature,(ii) regardless of whether the agreement is entered into, make such representations and warrantiesto the selling shareholders and each of the underwriters in form,substance and scope as are customarily made in connection with an offering pursuant to anyappropriate agreement or such Registration Statement, (iii) deliver such documents andcertificates, including officers’ certificates, as may be customary in the circumstances andreasonably requested by the selling shareholders or the underwriters, (iv) undertake suchobligations relating to expense reimbursement, indemnification and contribution as are provided inSections 2.6 and 2.7 and (v) take such other actions as are reasonably required in order toexpedite or facilitate the disposition of the securities covered thereby.     **2.5 Suspension or Delay.**Notwithstanding anything to the contrary in this Agreement, theCompany may delay filing a Registration Statement or an amendment thereto, and may withhold effortsto cause a Registration Statement or amendment thereto to become effective if: (i) the Boarddetermines in good faith after consultation with counsel that such action is required by applicablelaw; or (ii) the Company determines in good faith after consultation with counsel that the filingor use of the Registration Statement or amendment thereto would require the Company to disclosematerial information, including the fact that the Company is engaged in confidential negotiationsregarding, or is in the process of completing, any significant business transaction, the disclosureof which would not be required in the absence
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of such Registration Statement, and the Boarddetermines in good faith that such disclosure would be materially detrimental to the Company andits shareholders. Each period referred to above during which the use of a Registration Statementor amendment thereto is delayed in accordance with this Section 2.5 shall be referred to herein asa “***Deferral Period***”. Notwithstanding the foregoing, in no event shall the Company be entitled tomore than one (1) Deferral Period of up to ninety (90) days in any 365-day period without theconsent of the Investor. The Company shall terminate a Deferral Period as soon as practicableafter the circumstances giving rise to the Company’s right to declare such Deferral Period cease toexist. The Company shall promptly give the Investor written notice of a determination to commencea Deferral Period, which notice shall contain a general statement of the reasons for such DeferralPeriod and the anticipated length of such Deferral Period, and shall notify the Investor upon thetermination of each Deferral Period. Subject to the foregoing, if, after a Registration Statementbecomes effective, the Company advises the holders of registered shares that the Company hasdetermined in good faith that the Registration Statement is required to be amended to comply withapplicable law or regulation, the holders of such registered shares shall suspend any further salesof their registered shares until the Company advises them that the Registration Statement has beenamended.     **2.6 Expenses.**All expenses incurred by the Company and the selling holders of Common Stock incomplying with Sections 2.2 and 2.3, including all registration and filing and review fees,printing expenses, fees and disbursements of counsel to the Company and $30,000 of the fees ofcounsel to the Investor, fees and disbursements to independent public accountants for the Company,fees and expenses incurred in connection with complying with State Acts, fees of the NationalAssociation of Securities Dealers, Inc., fees of any securities exchange, transfer taxes, fees oftransfer agents and registrars, costs of insurance, messenger, telephone and delivery expenses, butexcluding any Selling Expenses, are called “***Registration Expenses***.” Registration Expenses shallnot include underwriting discounts,selling commissions and fees of the counsel to the Investor in excess of $30,000, and all suchfees and expenses are referred to as “***Selling Expenses***.” The Company will pay all RegistrationExpenses in connection with each Registration Statement under Sections 2.2 and 2.3. All SellingExpenses in connection with each Registration Statement under Sections 2.2 and 2.3 shall be borneby the participating shareholders in proportion to the number of shares of Common Stock sold byeach, or by such participating shareholders as they may agree, except that fees of the counsel tothe Investor in excess of $30,000 shall be borne by the Investor.     **2.7 Indemnification and Contribution**.          (a) In the event of a registration of any of the Common Stock under the Securities Actpursuant to Section 2.2 or 2.3, the Company will indemnify and hold harmless each seller of suchCommon Stock thereunder, each underwriter of such Common Stock thereunder and each other person,if any, who controls such seller or underwriter within the meaning of the Securities Act, againstany losses, claims, damages or liabilities (including any legal or other expenses reasonablyincurred by such shareholder or any such controlling person in connection with defending orinvestigating any such action or claim), joint or several, to which such seller, underwriter orcontrolling person may become subject under the Securities Act or otherwise, insofar as suchlosses, claims, damages or liabilities (or actions in respect thereof) arise out of or are basedupon any untrue statement or alleged untrue statement of any
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material fact contained in anyRegistration Statement under which such Common Stock was registered under the Securities Actpursuant to Section 2.2 or 2.3, any preliminary prospectus or final prospectus contained therein,or any amendment or supplement thereof, or arise out of or are based upon the omission or allegedomission to state therein a material fact required to be stated therein or necessary to make thestatements therein not misleading, and will reimburse each such seller, each such underwriter andeach such controlling person for any legal or other expenses reasonably incurred by them inconnection with investigating or defending any such loss, claim, damage, liability or action,provided, however, that the Company will not be liable in any such case if and tothe extent that any such loss, claim, damage or liability arises out of or is based upon an untruestatement or alleged untrue statement or omission or alleged omission so made in conformity withinformation furnished by any such seller, any such underwriter or any such controlling person inwriting specifically for use in such Registration Statement or prospectus. The indemnity agreementcontained in this Section 2.7 shall not apply to amounts paid in settlement of any such loss,claim, damage, liability or action if such settlement is effected without the consent of theCompany (which consent shall not be unreasonably withheld, conditioned or delayed).          (b) As a condition precedent to the right of the Investor to sell Registrable Securities in aregistration pursuant to this Agreement, in the event of a registration of any of the RegistrableSecurities under the Securities Act pursuant to Section 2.2 or 2.3, the Investor will indemnify andhold harmless the Company, each person, if any, who controls the Company within the meaning of theSecurities Act, each officer of the Company who signs the Registration Statement, each director ofthe Company, each underwriter and each person who controls any underwriter within the meaning ofthe Securities Act, against all losses, claims, damages orliabilities, joint or several, to which the Company or such officer, director, underwriter orcontrolling person may become subject under the Securities Act or otherwise, insofar as suchlosses, claims, damages or liabilities (or actions in respect thereof) arise out of or are basedupon any untrue statement or alleged untrue statement of any material fact contained in theRegistration Statement under which such Registrable Securities were registered under the SecuritiesAct pursuant to Section 2.2 or 2.3, any preliminary prospectus or final prospectus containedtherein, or any amendment or supplement thereof, or arise out of or are based upon the omission oralleged omission to state therein a material fact required to be stated therein or necessary tomake the statements therein not misleading, and will reimburse the Company and each such officer,director, underwriter and controlling person for any legal or other expenses reasonably incurred bythem in connection with investigating or defending any such loss, claim, damage, liability oraction; provided, however, that the Investor will be liable hereunder in any suchcase if and only to the extent that any such loss, claim, damage or liability arises out of or isbased upon an untrue statement or alleged untrue statement or omission or alleged omission made inreliance upon and in conformity with information pertaining to the Investor, as such, furnished inwriting to the Company by the Investor specifically for use in such Registration Statement orprospectus; and provided, further, that the liability of the Investor hereundershall not in any event exceed the net proceeds received by the Investor from the sale ofRegistrable Securities covered by such Registration Statement. The indemnity agreement containedin this Section 2.7(b) shall not apply to amounts paid in settlement of any such loss, claim,damage, liability or action if such settlement is effected without the consent of the Investor(which consent shall not be unreasonably withheld, conditioned or delayed).
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          (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement ofany action, such indemnified party shall, if a claim in respect thereof is to be made against theindemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission soto notify the indemnifying party shall not relieve it from any liability which it may have to suchindemnified party other than under this Section 2.7 and shall only relieve it from any liabilitywhich it may have to such indemnified party under this Section 2.7 if and to the extent theindemnifying party is prejudiced by such omission. In case any such action shall be broughtagainst any indemnified party and it shall notify the indemnifying party of the commencementthereof, the indemnifying party shall be entitled to participate in and, to the extent it shallwish, to assume and undertake the defense thereof with counsel reasonably satisfactory to suchindemnified party, and, after notice from the indemnifying party to such indemnified party of itselection so to assume and undertake the defense thereof, the indemnifying party shall not be liableto such indemnified party under this Section 2.7 for any legal expenses subsequently incurred bysuch indemnified party in connection with the defense thereof other than reasonable costs ofinvestigation and of liaison with counsel so selected; provided, however, that, ifthe defendants in any such action include both the indemnified party and the indemnifying party andthe indemnified party shall have reasonably concluded that there may be reasonable defensesavailable to it which are different from or additional to those available to the indemnifying partyor if the interests of the indemnified party reasonably may be deemed to conflict with theinterests of the indemnifying party, the indemnified party shall have the right to select aseparate counsel and to assume such legal defenses and otherwise to participate in the defense ofsuch action, with the expenses and fees of such separate counsel and other expenses related to suchparticipation to be reimbursed by the indemnifying party as incurred.          (d) In order to provide for just and equitable contribution to joint liability under theSecurities Act in any case in which either (i) any holder of Registrable Securities exercisingrights under this Agreement, or any controlling person of any such holder, makes a claim forindemnification pursuant to this Section 2.7 but it is judicially determined (by the entry of afinal judgment or decree by a court of competent jurisdiction and the expiration of time to appealor the denial of the last right of appeal) that such indemnification may not be enforced in suchcase notwithstanding the fact that this Section 2.7 provides for indemnification in such case, or(ii) contribution under the Securities Act may be required on the part of any such selling holderor any such controlling person in circumstances for which indemnification is provided under thisSection 2.7; then, and in each such case, the Company and such holder will contribute to theaggregate losses, claims, damages or liabilities to which they may be subject (after contributionfrom others) in such proportion so as to reflect the relative fault of each indemnifying party;provided, however, that, in any such case, (A) no such holder will be required tocontribute any amount in excess of the net proceeds received by it pursuant to such RegistrationStatement; and (B) no person guilty of fraudulent misrepresentation (within the meaning of Section11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty ofsuch fraudulent misrepresentation. The relative fault of the Company, on the one hand, and of eachselling shareholder, on the other, shall be determined by reference to, among other things, whetherthe untrue or alleged untrue statement of a material fact or the omission to state a material factrelates to information supplied by such party, and the parties’ relative intent, knowledge, accessto information and opportunity to correct or prevent such statement or omission. The Company andthe Investor agree that it would not be just or
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equitable if contribution pursuant to this Section2.7 were determined by pro rata allocation or by any other method of allocation that does not takeaccount of the equitable considerations referred to above. The amount paid or payable as a resultof the losses, claims, damages and liabilities referred to above shall be deemed to include,subject to the limitations set forth above, any legal or other expenses reasonably incurred by suchindemnified party in connection with investigating or defending any such action or claim.          (e) The indemnity and contribution provisions contained in this Section 2.7 shall remainoperative and in full force and effect regardless of (i) any termination of this Agreement, (ii)any investigation made by or on behalf of any shareholder or any person controlling anyshareholder, or by or on behalf of the Company, its officers or directors or any person controllingthe Company, and (iii) any sale of Registrable Securities pursuant to any Registration Statement.          (f) The obligations of the parties under this Section 2.7 shall be in addition to anyliability which any party may otherwise have to any other party.          (g) The indemnification and contribution required under this Section 2.7 shall be made byperiodic payments of the amount thereof during the course of the investigation or defense, as andwhen bills are received or expense, loss, damage or liability is incurred.     **2.8 Changes in Common Stock.**If there is any change in the Shares by way of a stock split,stock dividend, combination or reclassification, or through a merger, consolidation, reorganizationor recapitalization, or byany other means, appropriate adjustment shall be made in the provisions hereof so that therights and privileges granted hereby shall continue with respect to the Shares as so changed.     **2.9 Assignment of Registration Rights.**The rights to cause the Company to registerRegistrable Securities pursuant to this Section 2 may be assigned in whole or in part by theInvestor to any “affiliate” of the Investor as that term is defined in Rule 144 which receivesShares from the Investor.     **2.10 Other Registration Rights.**The Company covenants that it has not entered into, and,without the prior written consent of the Investor, shall not enter into, any agreement with anyholder or prospective holder of any securities of the Company that grants such holder orprospective holder registration rights that would, in any case, reduce the number of sharesincludable by the Investor in a registration statement as provided for herein or otherwiseadversely effect any material rights of the Investor under this Agreement.     **2.11 Rule 144 Reporting**.          (a) With a view to making available the benefits of certain rules and regulations of theCommission which may at any time permit the sale of the Registrable Securities to the publicwithout registration, the Company shall:               (i) make and keep public information available, as those terms are understood and defined inRule 144 under the Securities Act;
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               (ii) use reasonable best efforts to file with the Commission in a timely manner all reportsand other documents required of the Company under the Securities Act and the Exchange Act; and               (iii) furnish to each holder of Registrable Securities forthwith upon request a writtenstatement by the Company as to its compliance with the reporting requirements of Rule 144 and ofthe Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report ofthe Company, and such other reports and documents so filed by the Company as such holder mayreasonably request in availing itself of any rule or regulation of the Commission allowing suchholder to sell any Registrable Securities without registration.          (b) The Company shall take such further action and shall offer all reasonable and necessaryassistance including the delivery of a legal opinion letter and instructions to the Company’s stocktransfer agent to enable the sale by the Investor of Registrable Securities pursuant to Rule 144 orany similar rule or regulation.**SECTION 3 COVENANTS OF THE COMPANY.**     **3.1 Financial Reporting; Additional Information**.          (a) The Company will and will cause each of its subsidiaries to maintain true books andrecords of account in which full and correct entries will be made of all its business transactionspursuant to a system of accounting established and administered in accordance with generallyaccepted accounting principles consistently applied (except as noted therein), and will set asideon its books all such proper accruals and reserves as shall be required under generally acceptedaccounting principles consistently applied.          (b) If the Company ceases to be a public company filing reports and other documents under theExchange Act, and if the Investor then owns at least five percent (5%) of the outstanding CommonStock, the Company and the Investor will negotiate in good faith to provide the Investor withappropriate information and other rights.**SECTION 4 RIGHTS OF FIRST REFUSAL.**     **4.1 Subsequent Offerings of Equity Securities.**Subject to applicable securities laws, theInvestor shall have a right of first refusal to purchase all or any portion of the EquitySecurities that the Company may, from time to time, propose to sell and issue in a capital raisingtransaction after the date of this Agreement. Notwithstanding the foregoing, this right of firstrefusal shall be limited as may be necessary to comply with the applicable shareholder approvalrules of the American Stock Exchange or any other national securities exchange or national marketsystem on which the Common Stock may be listed such that the Company will not be required to obtainshareholder approval for such purchase of Equity Securities by the Investor. The term “***EquitySecurities***” shall mean (i) any Common Stock, preferred stock or other security of the Company, (ii)any security convertible into or exercisable or exchangeable for, with or without consideration,any Common Stock, preferred stock or other security (including any option to purchase such aconvertible security), (iii) any security carrying any warrant or
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right to subscribe to or purchaseany Common Stock, preferred stock or other security or (iv) any such warrant or right.     **4.2 Exercise of Refusal Right for Equity Securities.**If the Company proposes to issue anyEquity Securities, it shall give the Investor written notice of its intention, describing theEquity Securities, the price and the terms and conditions thereof and referring to the Investor’sright of first refusal hereunder. The Investor shall have ten (10) days from the receiving of suchnotice to agree to purchase all or any portion of the Equity Securities for the price and upon theterms and conditions specified in the notice by giving written notice to the Company and statingtherein the quantity of Equity Securities to be purchased, provided such purchase is consistentwith the limitations of Section 4.1.     **4.3 Issuance of Equity Securities to Other Persons.**The Company shall have ninety (90) days thereafter to sell the Equity Securities in respectof which the Investor’s rights were not exercised, at a price not lower and upon general terms andconditions not materially more favorable to the purchasers thereof than specified in the Company’snotice to the Investor pursuant to Section 4.2. If the Company has not sold such Equity Securitieswithin ninety (90) days of the notice provided pursuant to Section 4.2, the Company shall notthereafter issue or sell any Equity Securities, without first offering such securities to theInvestor in the manner provided above.     **4.4 Right of First Refusal for Control Transaction.**In the event the Company proposes anytransaction that would constitute a Change of Control with, or primarily involving, a person whichderives a material portion of its revenue from the research, development, manufacturing, marketingor sale of hearing aids (a “***Control Transaction***”), the Investor shall have a right of first refusalwith respect to the Control Transaction.     **4.5 Exercise of Refusal Right for Control Transaction.**If the Company proposes to enter intoa Control Transaction, it shall give the Investor written notice of its intention, describing theControl Transaction, and the price and the terms and conditions thereof and referring to theInvestor’s right of first refusal hereunder. The Investor shall have sixty (60) days from thereceiving of such notice to agree to enter into the Control Transaction for the price and upon theterms and conditions specified in the notice by giving written notice to the Company.     **4.6 Control Transaction with Other Person.**If the Investor does not exercise its right offirst refusal with respect to the Control Transaction, the Company shall have one hundred twenty(120) days after the earlier of (a) the expiration of such sixty (60) day period or (b) the date ofthe Company’s receipt of written notice from the Investor that it does not intend to enter into theControl Transaction, to consummate the Control Transaction in respect of which the Investor’srights were not exercised, at a price not lower and upon general terms and conditions notmaterially more favorable to the other party than specified in the Company’s notice to the Investorpursuant to Section 4.5. If the Company has not consummated the Control Transaction within onehundred twenty (120) days of the notice provided pursuant to Section 4.2, the Company shall notthereafter consummate a Control Transaction without first offering such securities to the Investorin the manner provided above.
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     **4.7 Assignment of Rights of First Refusal.**The rights of first refusal under this Section 4may be assigned in whole or in part by the Investor to any “affiliate” of the Investor as such termis defined in Rule 144.**SECTION 5 MISCELLANEOUS.**     **5.1 Governing Law.**This Agreement shall be governed by and construed under the laws of the State of Delawarein all respects as such laws are applied to agreements among Delaware residents entered into and tobe performed entirely within Delaware, without reference to conflicts of laws or principlesthereof. Any action brought by either party under or in relation to this Agreement, including tointerpret or enforce any provision of this Agreement, shall be brought in, and each party doeshereby submit to the jurisdiction and venue of, any state or federal court located in Manhattan,New York. The parties hereby irrevocably waives any and all right to trial by jury or any legalproceeding arising out of or relating to this Agreement or the transactions contemplated hereby.     **5.2 Successors and Assigns.**The provisions hereof shall inure to the benefit of, and bebinding upon, the parties hereto and their respective successors and assigns, and shall beenforceable by the parties hereto and their respective permitted successors and assigns; withoutlimiting the foregoing, the rights and obligations of the Investor may be assigned to any person towhom the Credit Agreement is assigned, whether by operation of law or otherwise.     **5.3 Entire Agreement.**This Agreement, together with the Credit Agreement and the agreementsrelated thereto, constitute the full and entire understanding and agreement between the partieswith regard to the subject matter hereof and supersede any prior agreements and understandingsbetween the parties with respect to those matters.     **5.4 Severability.**In the event one or more of the provisions of this Agreement should, forany reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity,illegality or unenforceability shall not affect any other provisions of this Agreement, and thisAgreement shall be construed as if such invalid, illegal or unenforceable provision had never beencontained herein.     **5.5 Amendment and Waiver**Any modification or amendment of this Agreement shall be effectiveonly if made in writing and signed by each of the parties. Any waiver of any provision of thisAgreement shall be effective only if made in writing and signed by the party against whom suchwaiver is sought to be enforced. Waiver by either party of any breach or default by the otherparty shall not be deemed a waiver of any other breach or default.     **5.6 Notices.**All notices required or permitted hereunder shall be in writing and shall bedeemed effectively given: (a) upon personal delivery to the party to be notified; (b) when sent byelectronic mail or facsimile if sent during normal business hours of the recipient; if not, then onthe next business day; (c) five (5) days after having been sent by registered or certified mail,return receipt requested, postage prepaid; or (d) one (1) day after deposit with a nationallyrecognized overnight courier, specifying next day delivery, with written verification of receipt.All communications shall be sent to the party to be notified at the address as set forth on the
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signature pages hereof or at such other address as such party may designate by ten (10) daysadvance written notice to the other party hereto.     **5.7 Attorney’s Fees.**In the event that any suit or action is instituted in relation to thisAgreement, including to enforce any provision in this Agreement, the prevailing party in suchdispute shall be entitled to recover from the losing party all fees, costs and expenses ofenforcing any right of such prevailing party in relation to this Agreement, including suchreasonable fees and expenses of attorneys and accountants, which shall include all fees, costs andexpenses of appeals.     **5.8 Counterparts.**This Agreement may be executed in any number of counterparts, each of whichshall be an original, but all of which together shall constitute one instrument.     **5.9 Table of Contents; Headings; Rules of Construction**.          (a) The Table of Contents and headings contained herein are for convenience of referenceonly, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any ofthe provisions hereof.          (b) “***Include***” ***and***“***including***” and similar expressions are not expressions of limitation andshall be construed as if followed by the words “without limitation.”          (c) The words “***herein***,” “***hereto***,” “***hereof’***and words of similar import refer to this Agreementas a whole and not to any particular provision of this Agreement.          (d) The word “***person***” means any individual, sole proprietorship, partnership, joint venture,corporation, estate, trust, unincorporated organization, association, limited liability company,institution or other entity, including any that is a governmental authority.          (e) Words importing the singular will also include the plural, and vice versa.          (f) References to any gender shall be deemed to be references to the other genders.          (g) The parties have participated jointly in the negotiation and drafting of this Agreement,so if an ambiguity or question of intent or interpretation arises as to any aspect of thisAgreement, it will be construed as if drafted jointly by the parties and no presumption orburden of proof will arise favoring or disfavoring either party by virtue of the authorship ofany provision of this Agreement.     **5.10 No Third Party Beneficiaries.**Nothing in this Agreement shall create or be deemed tocreate any third party beneficiary rights in any person.     **5.11 Time of the Essence.**Time is of the essence of each and every provision of thisAgreement.     **5.12 Termination.**This Agreement shall terminate and be of no further force or effect uponthe termination of the Credit Agreement, except that the provisions of Sections 2 and 5
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shallcontinue in effect until the later of one hundred eighty (180) days after the termination of theCredit Agreement or the date on which the Investor no longer owns at least 50,000 of the Shares(adjusted for stock splits and dividends, reverse stock splits and similar recapitalizations).
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     In witness whereof, the parties hereto have executed this Agreement as of the dateset forth in the first paragraph hereof.      **HearUSA, Inc.**