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EXHIBIT 4.1

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.


2003 CONVERTIBLE SUBORDINATED
NOTE DUE NOVEMBER 30, 2008



OF



HEARUSA, INC.




	 	 	 
	Note No.:	 	
Original Principal Amount: $500,000
	Issuance Date:	 	 



     This Note (“Note”) is one of a duly authorized issue of Notes of HEARUSA,
INC., a corporation duly organized and existing under the laws of the State of
Delaware (the “Company”), designated as the Company’s 2003 Convertible
Subordinated Notes Due November 30, 2008 (“Maturity
Date”) in an aggregate
principal amount (when taken together with the original principal amounts of
all other Notes) of up to Seven Million Five Thousand U.S. Dollars (U.S.
$7,500,000) (the “Notes”).


     For Value Received, the Company hereby promises to pay to the order of
                         or its registered assigns or successors-in-interest
(“Holder”) the principal sum of Five Hundred Thousand Dollars (U.S. $500,000),
together with all accrued but unpaid interest thereon, if any, on the Maturity
Date, to the extent such principal amount and interest has not been repaid or
converted into the Company’s Common Stock, $0.10 par value per share (the
“Common Stock”), in accordance with the terms hereof. Interest on the unpaid
and unconverted principal balance hereof shall accrue at the rate of 11% per
annum from the date of original issuance hereof (the “Issuance Date”) until the
second anniversary of the Issuance Date and then at the rate of 8% per annum
until the same becomes due and payable on the Maturity Date, or such earlier
date upon acceleration or by conversion, redemption or payment in accordance
with the terms hereof. Interest on this Note shall accrue daily commencing on
the Issuance Date and shall be computed on the basis of a 360-day year, 30-day
months and actual days elapsed and shall be payable in accordance with Section
1 hereof. Notwithstanding anything contained herein, this Note shall bear
interest on the due and unpaid Principal Amount from and after the occurrence
and during the continuance of an Event of Default pursuant to Section 4(a) at
the rate (the “Default Rate”) equal to the lower of eighteen (18%) per annum or
the highest rate permitted by law. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs,
then to unpaid interest and fees and any remaining amount to principal.


 






 


     All payments of principal and interest on this Note shall be made in
lawful money of the United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to time designate
by written notice in accordance with the provisions of this Note or by Company
check. At any time, and from time to time on and after the third anniversary
of the initial Issuance Date, the Company may prepay, in whole or in part, up
to one-half of the Original Principal Amount of this Note, without penalty,
after providing written notice of such prepayment. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day (as defined below), the same shall instead be due on the next
succeeding day which is a Business Day.


     Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Purchase Agreement dated on or about the Issuance
Date pursuant to which the Notes were originally issued (the “Purchase
Agreement”). For purposes hereof the following terms shall have the meanings
ascribed to them below:


     “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 Company or any authorized committee thereof,
pursuant to which the Company’s securities may be issued to any employee,
officer, consultant or director for services provided to the Company.


     “Bankruptcy Event” means any of the following events: (a) the Company
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Company or any
subsidiary thereof; (b) there is commenced against the Company any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the
Company is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company suffers
any appointment of any custodian or the like for it or any substantial part of
its property that is not discharged or stayed within 60 days; (e) the Company
makes a general assignment for the benefit of creditors; (f) the Company fails
to pay, or states that it is unable to pay or is unable to pay, its debts
generally as they become due; (g) the Company calls a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or (h) the Company, by any act or failure to act, expressly indicates
its consent to, approval of or acquiescence in any of the foregoing or takes
any corporate or other action for the purpose of effecting any of the
foregoing.


     “Business Day” shall mean any day other than a Saturday, Sunday or a day
on which commercial banks in the City of New York are authorized or required by
law or executive order to remain closed.


     “Change in Control Transaction” will be deemed to exist if (i) there
occurs any consolidation, merger or other business combination of the Company
with or into any other corporation or other entity or person (whether or not
the Company is the surviving corporation), or any other corporate
reorganization or transaction or series of related transactions in which in any
of such events the voting stockholders of the Company prior to such event cease
to own 50% or more of the voting power, or corresponding voting equity
interests, of the surviving corporation after such event (including without
limitation any “going private” transaction under Rule 13e-3
promulgated pursuant to the Exchange Act or tender offer by the Company
under Rule 13e-4


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promulgated pursuant to the Exchange Act for 20% or more of
the Company’s Common Stock), (ii) any person (as defined in Section 13(d) of
the Exchange Act), together with its affiliates and associates (as such terms
are defined in Rule 405 under the Act), beneficially owns or is deemed to
beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of 50% of the Company’s voting
power, (iii) there is a replacement of more than one-half of the members of the
Company’s Board of Directors which is not approved by those individuals who are
members of the Company’s Board of Directors on the date thereof, (iv) in one or
a series of related transactions, there is a sale or transfer of all or
substantially all of the assets of the Company, determined on a consolidated
basis, or (v) the Company enters into any agreement providing for an event set
forth in (i), (ii), (iii) or (iv) above.


     “Conversion Price” shall equal $1.75 (which Conversion Price shall be
subject to adjustment as set forth herein).


     “Convertible Securities” means any convertible securities, warrants,
options or other rights to subscribe for or to purchase or exchange for, shares
of Common Stock.


     “Effective Date” means the date on which a Registration Statement covering
all the Underlying Shares and other Registrable Securities (as defined in the
Registration Rights Agreement) is declared effective by the SEC.


     “Effective Registration” shall mean (i) the resale of all Registrable
Securities (as defined in the Registration Rights Agreement) is covered by an
effective registration statement in accordance with the terms of the
Registration Rights Agreement which registration statement is not subject to
any suspension or stop order; (ii) the resale of such Registrable Securities
may be effected pursuant to a current and deliverable prospectus that is not
subject at the time to any blackout or similar circumstance; (iii) such
Registrable Securities are listed, or approved for listing prior to issuance,
on the American Stock Exchange, the New York Stock Exchange or the Nasdaq
National or Small-Cap Market, and are not subject to any trading suspension
(nor shall trading generally have been suspended on such exchange or market),
and the Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock on any of such
markets on which the Common Stock is then traded or listed; and (iv) the
requisite number of shares of Common Stock shall have been duly authorized and
reserved for issuance as required by the terms of the Purchase Agreement and
this Note.


     “Excluded Issuances” shall mean shares of Common Stock (a) deemed to have
been issued by the Company in connection with an Approved Stock Plan; (b)
deemed to have been issued upon issuance of the Notes or the Warrants, or
issued upon conversion of the Notes or exercise of the Warrants; (c) issued
upon exercise of Options or Convertible Securities which are outstanding on the
date immediately preceding the Issuance Date, provided that such issuance of
shares of Common Stock upon exercise of such Options or Convertible Securities
is made pursuant to the terms of such Options or Convertible Securities in
effect on the date immediately preceding the Issuance Date, such Options or
Convertible Securities are not amended after the date immediately preceding the
Issuance Date other than with respect to Options originally issued pursuant to
an Approved Stock Plan and 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


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exchangeable or exercisable for Common Stock
does not change at any time after the Issuance Date; (d) 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); and (e) issued pursuant to a Strategic Financing.


     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.


     “Market Price” shall equal 90% of the average closing price of the Common
Stock as reported on the AMEX for the twenty (20) Trading Days immediately
preceding the date of determination of such Market Price.


     “Options” shall mean any rights, warrants or options to subscribe for or
purchase common stock or Convertible Securities of the Company.


     “Payment Date” shall mean each March 25, June 25, September 25 and
December 25 of each year, provided that if any such day is not a Trading Day,
then such Payment Date shall mean the next succeeding day which is a Trading
Day.


     “Principal Amount” shall refer to (i) the original principal amount of
this Note, plus (ii) any default payments owing under the Agreements but not
previously paid or added to the Principal Amount, less (iii) all amounts of
principal previously repaid or converted.


     “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.


     “Registration Statement” shall have the meaning set forth in the
Registration Rights Agreement.


     “Securities Act” shall mean the Securities Act of 1933, as amended.


     “Strategic Financing” shall mean the issuance of common stock, Options or
other Convertible Securities of the Company in connection with any acquisition
by the Company, by whatever means, of any business, assets or technologies, or
to any strategic investor, vendor, customer, lease or similar arrangement, the
primary purpose of which is not to raise equity capital, provided that the
aggregate number of shares of Common Stock which the Company may issue pursuant
to this definition shall not exceed (i) 25% of the total outstanding equity on
the Closing Date (as defined in the Purchase Agreement) in connection with any
one or more related issuances to strategic investors, vendors, customers,
lessors or similar parties or (ii) 40% of the total outstanding equity on the
Closing Date (as defined in the Purchase Agreement) in connection with all
issuances to strategic investors, vendors, customers, lessors or similar
parties (in each case, subject to adjustment for stock splits, stock dividends,
stock combination and similar transactions).


     “Trading Day” shall mean a day on which there is trading on the Principal
Market.


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     The following terms and conditions shall apply to this Note:


     Section 1.
Payments
of Principal and Interest.


          (a) Interest Only Payments. On each Payment Date beginning on March 25,
2004, and ending on December 25, 2005, the Company shall pay to the Holder all
interest accrued to date on the entire Principal Amount of this Note (“Interest
Amount”), in accordance with this Section 1.



          (b) Quarterly Payments. On each Payment Date beginning on March 25, 2006,
the Company shall repay one-twelfth (1/12) of the original Principal Amount,
together with interest accrued but unpaid on that date (collectively,
“Quarterly Amount”), in accordance with this Section 1.



          (c) Cash or Common Stock. Subject to the terms hereof, the Company shall
have the right to satisfy payment of the Interest Amount or Quarterly Amount in
full on each Payment Date either in cash or in shares of Common Stock (but not
both) at the Company’s option. If the Company elects or is required to pay any
Interest Amount or Quarterly Amount in cash on a Payment Date, then on such
Payment Date the Company shall pay to the Holder an amount equal to such
Interest Amount or Quarterly Amount in satisfaction of such obligation. If the
Company elects or is required to pay any Interest Amount or Quarterly Amount in
shares of Common Stock, the number of such shares to be issued for such Payment
Date shall be the number determined by dividing (x) the Interest Amount or
Quarterly Amount, as the case may be, by (y) the Market Price, as applicable,
as of such Payment Date. Such shares shall be issued and delivered within five
(5) Trading Days following such Payment Date and shall be duly authorized,
validly issued, fully paid, non-assessable and free and clear of all
encumbrances. If any Holder does not receive the requisite number of shares of
Common Stock in the form required above within such three Trading Day period,
the Holder shall have the option of either (a) requiring the Company to issue
and deliver all or a portion of such shares or (b) canceling such election to
pay such Interest Amount or Quarterly Amount in Common Stock (in whole or in
part), in which case the Company shall immediately pay in cash the full such
Interest Amount or Quarterly Amount due hereunder or such portion as the Holder
specifies is to be paid in cash instead of Common Stock. Except as otherwise
provided in this Section 1, all holders of Notes must be treated the same with
respect to such payment of the Interest Amount and Quarterly Amount in shares
of Common Stock.



          (d) No Payment in Stock. Notwithstanding anything to the contrary herein,
the Company shall be prohibited from paying the Interest Amount or Quarterly
Amount in shares of Common Stock (and must deliver cash in respect thereof) on
the applicable Payment Date if at any time from the Payment Date until the time
at which the Holders receive such shares (i) there fails to exist Effective
Registration, or (ii) the Company is subject to any Bankruptcy Event, unless
otherwise waived in writing by the Holder in whole or in part at the Holder’s
option.



          (e) Ownership/Issuance Limitations. Notwithstanding anything to the
contrary herein, the Company shall be prohibited from paying the Interest
Amount or Quarterly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Payment Date to the extent, and only to the
extent, that such payment in shares of Common Stock would result in the Holder
hereof exceeding the limitations contained in Section 3(i) below. In such




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event, then the Company on the Payment Date shall pay such portion of the
Interest Amount or Quarterly Amount, as the case may be, in shares of Common
Stock as may be effected without exceeding such limitations, and (ii) if such
stock payment cannot be made only because it would violate Section 3(i) below,
the Payment Date for the balance of the Interest Amount or Quarterly Amount, as
the case may be, shall be extended until such time as such stock payment can be
made without violating Section 3(i), or such balance shall be paid in cash. If
any portion of any Quarterly Amount remains unpaid as of the Maturity Date
hereof, such amount shall be repaid in cash on the Maturity Date.


          (f) Deemed Conversions. Any payment of the Quarterly Amount in shares of
Common Stock pursuant to the terms hereof shall constitute and be deemed a
conversion of such portion of the Principal Amount of this Note for all
purposes under this Note and the other Agreements (except that such conversion
shall be at the Market Price and except as otherwise provided herein).



          (g) Certain Additional Payments by the Company. Any payment by the
Company to the Holder hereunder, whether for principal, interest or otherwise,
shall not be subject to any deduction, withholding or offset for any reason
whatsoever except to the extent required by law, and the Company represents
that to its best knowledge no deduction, withholding or offset is so required
for any tax or any other reason.



     Section 2.
Subordinated/Subsequent Debt. The Notes are and shall be
subordinated to the debt owned by the Company to Siemens Hearing Instruments,
Inc., pursuant to the agreements in effect on the Issuance Date. So long as
any Principal Amount of Notes is outstanding, the Company and its subsidiaries
shall not directly or indirectly, without the affirmative vote of the holders
of at least 75% of the outstanding Principal Amount of the Notes then
outstanding, incur or permit to exist additional indebtedness which is senior
to the Notes, or incur, assume or permit to exist any lien, mortgage, security
interest or encumbrance (other than statutory liens imposed by law incurred in
the ordinary course of business for sums not yet delinquent or being contested
in good faith, if such reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made in respect thereof) on any of its
assets, except for indebtedness and liens to Siemens Hearing Instruments, Inc.
pursuant to the agreements currently in effect on the Issuance Date and except
for capital leases, financing for equipment and purchase money security
interests.


     Section 3. Conversion.

          (a) Conversion
Right. Subject to the terms hereof and restrictions and
limitations contained herein, the Holder shall have the right, at such Holder’s
option, at any time and from time to time after the second anniversary of the
Issuance Date to convert the outstanding Principal Amount under this Note in
whole or in part by delivering to the Company a fully executed notice of
conversion in the form of conversion notice attached hereto as
Exhibit A (the
“Conversion Notice”), which may be transmitted by facsimile. Notwithstanding
anything to the contrary herein, this Note and the outstanding Principal Amount
hereunder shall not be convertible into Common Stock to the extent that such conversion would result in the
Holder hereof exceeding the limitations contained in, or otherwise violating
the provisions of, Section 3(i) below. For clarification purposes, any
conversions of the outstanding Principal Amount under this Note in part





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pursuant to this Section 3(a) shall not affect the Company’s obligation to
repay the Quarterly Amount as provided in Section 1 above.


          (b) Common Stock Issuance upon Conversion.



               (i) Conversion Date Procedures. Upon conversion of this Note pursuant to
Section 3(a) above, the outstanding Principal Amount hereunder 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 by dividing the outstanding Principal Amount being converted by the
Conversion Price. The date of any Conversion Notice hereunder and any Payment
Date shall be referred to herein as the “Conversion Date”. If a conversion
under this Note cannot be effected in full in accordance with the terms hereof,
or if the Holder is converting less than all of the outstanding Principal
Amount hereunder pursuant to a Conversion Notice, the Company shall promptly
deliver to the Holder (but no later than five Trading Days after the Conversion
Date) a Note (containing the same terms as the Note herein) for such
outstanding Principal Amount as has not been converted if this Note has been
surrendered to the Company for partial conversion. The Holder shall surrender
this Note to the Company upon any conversion. The Company shall return a Note
of lesser principal amount, having taken the conversion amount out of the face
amount of the surrender Note, if any.



               (ii) Stock Certificates or DWAC. The Company will deliver to the Holder
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 of this Note. In lieu of delivering physical certificates
representing the shares of Common Stock issuable upon conversion of this Note,
provided the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon
request of the Holder, the Company shall use commercially reasonable efforts to
cause its transfer agent to electronically transmit such shares issuable upon
conversion to the Holder (or its designee), by crediting the account of the
Holder’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 Holder by the fifth Trading Day after the Conversion Date, the Holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return this Note
tendered for conversion. If the Company fails to deliver to the Holder such
certificate or certificates (or shares through DTC) pursuant to this Section
3(b) (free of any restrictions on transfer or legends, if such shares have been
registered) in accordance herewith, prior to the sixth Trading Day after the
Conversion Date, the Company shall pay to the Holder, in cash, an amount equal
to 0.3% of the Principal Amount subject to such conversion for each trading day
thereafter until such certificate(s) or shares through DTC are delivered to the
Holder or until the conversation is rescinded by the Holder, whichever shall
first occur.



          (c) Conversion Price Adjustments.



               (i) Stock Dividends, Splits and Combinations. If the Company, at any time
while the Notes are outstanding (A) shall pay a stock dividend or otherwise
make a distribution




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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 3(c)(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 Company or any of its subsidiaries, at any
time while the Notes 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 Company or any of its
subsidiaries (excluding those referred to in Section 3(c)(i) above), then
concurrently with such distributions to holders of Common Stock, the Company
shall distribute to holders of the Notes the amount of such indebtedness,
assets, cash or rights or warrants which the holders of Notes would have
received had all their Notes 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 Issuance Date, the Company issues or
sells, or in accordance with this Section 3 is deemed to have issued or sold,
any shares of Common Stock, with the exception of Excluded Issuances, for a
consideration per share (the “New Securities Issuance Price”) less than the
Conversion Price in effect immediately prior to such time (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
New Securities Issuance Price. For purposes of determining the adjusted
Conversion Price under this Section 3, the following shall be applicable:



                    (A) Issuance
of Options. If the Company 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 Conversion 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 Company at the time of the granting or sale
of such Option for such price per share. For purposes of this Section
3(c)(iii)(A), 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” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the Option, 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




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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 Company 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 Conversion 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 Company at the time of
the issuance of sale of such Convertible Securities for such price per share.
For the purposes of this Section 3(c)(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 Company 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 3(c),
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
3(c)(iii)(C), if the terms of any Option or Convertible Security that was
outstanding as of the Issuance Date are changed in the manner described in the
immediately preceding 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 Company, 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 6, 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 Company 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 Company 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 Company will be





9






 




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 Company and the holders of
at least 75% of the Outstanding Principal Amount of the Notes then outstanding.
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 Company and the holders of at least 75% of the
Outstanding Principal Amount of the Notes then outstanding. 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
Company.


               (iv) Rounding of Adjustments. All calculations under this Section 3 or
Section 1 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 Company shall promptly deliver to each holder of the
Notes, 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 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 as adjusted as provided
herein, giving the Holder the right to acquire more shares of Common Stock than
are authorized and reserved for issuance by the Company for such purpose, the
Company will promptly convene a meeting of the shareholders and solicit the
approval of the shareholders to an increase in the number of shares of
authorized Common Stock so as to facilitate conversions at the adjusted
Conversion Price.



               (vii) Change in Control Transactions. In case of any Change in Control
Transaction, the Holder shall have the right thereafter to, at its option, (A)
convert this Note, in whole or in part, at the Conversion Price into the shares
of stock and other securities, cash and/or property receivable upon or deemed
to be held by holders of Common Stock following such Change in Control
Transaction, and the Holder shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Company into which this Note could have been converted immediately prior to
such Change in Control Transaction would have been entitled if such conversion
were permitted, subject to such further applicable adjustments set forth in
this Section 3; or (B) require the Company or its successor to redeem this
Note, in whole but not in part, at a redemption price equal to 120% of the
outstanding Principal Amount being redeemed. The terms of any such Change in
Control Transaction shall include such terms so as to continue to give to the
Holders the right to receive the amount of securities, cash and/or property
upon any conversion or redemption following such Change in Control Transaction
to which a holder of the number of shares of Common Stock deliverable upon such
conversion would have been entitled in such Change in Control Transaction, and
interest payable hereunder shall be in cash or such new securities and/or
property, at the Holder’s option. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or
share exchanges.




10






 





               (viii) Notice of Certain Events. If:




	 	A.	 	the Company
shall declare a dividend (or any other
distribution) on its Common Stock; or
	 
	 	B.	 	the Company
shall declare a special nonrecurring cash
dividend on or a redemption of its Common
Stock; or
	 
	 	C.	 	the Company
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 Company shall be
required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, of any compulsory
share of exchange whereby the Common Stock
is converted into other securities, cash or
property; or
	 
	 	E.	 	the Company
shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of
the affairs of the Company,
	 
	 	F.	 	the Company
shall issue securities constituting a
Dilutive Issuance,



then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Note, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the books of the Company, on
or prior to the date notice to the Company’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 or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange.


          (d) Reservation
and Issuance of Underlying Securities. The Company
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 this Note (including repayments in stock), free from preemptive
rights or any other actual contingent purchase rights of




11






 





persons other than the holders of the Notes, not less than such number of
shares of Common Stock as shall (subject to any additional requirements of the
Company as to reservation of such shares set forth in the Purchase Agreement)
be issuable (taking into account the adjustments under this Section 3 but
without regard to any ownership limitations contained herein) upon the
conversion of this Note hereunder in Common Stock (including repayments in
stock). The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully paid,
nonassessable and freely tradeable.


          (e) No Fractions. Upon a conversion hereunder the Company 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 Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.



          (f) Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the conversion of this Note (including repayment in stock)
shall be made without charge to the holder 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 Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
Holder, this Note when surrendered for conversion shall be accompanied by an
assignment form; and provided further, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any such transfer.



          (g) Cancellation. After all of the Principal Amount (including accrued
but unpaid interest and default payments at any time owed on this Note) have
been paid in full or converted into Common Stock, this Note shall automatically
be deemed canceled and the Holder shall promptly surrender the Note to the
Company at the Company’s principal executive offices.



          (h) Notices Procedures. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered
personally, by confirmed facsimile, or by a nationally recognized overnight
courier service to the Company at the facsimile telephone number or address of
the principal place of business of the Company as set forth in the Purchase
Agreement. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, or by a nationally recognized overnight courier service addressed
to the Holder at the facsimile telephone number or address of the Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed delivered
(i) upon receipt, when delivered personally, (ii) when sent by facsimile, upon
receipt if received on a Business Day prior to 5:00 p.m. (Eastern Time), or on
the first Business Day following such receipt if received on a Business Day
after 5:00 p.m. (Eastern Time) or (iii) upon receipt, when deposited with a
nationally recognized overnight courier service.




12






 





               (i) Conversion Limitations. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon conversion pursuant to the terms hereof shall not exceed a
number that, when added to the total number of shares of Common Stock deemed
beneficially owned by such Holder (other than by virtue of the ownership of
securities or rights to acquire securities (including the Notes and Warrants)
that have limitations on the Holder’s right to convert, exercise or purchase
similar to the limitation set forth herein), together with all shares of Common
Stock deemed beneficially owned at such time (other than by virtue of the
ownership of securities or rights to acquire securities that have limitations
on the right to convert, exercise or purchase similar to the limitation set
forth herein) by the holder’s “affiliates” at such time (as defined in Rule 144
of the Act) (“Aggregation Parties”) that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities Exchange Act
of 1934 as amended, exists, would exceed 9.9% of the total issued and
outstanding shares of the Common Stock (the “Restricted Ownership Percentage”).
Each holder shall have the right (w) at any time and from time to time to
reduce its Restricted Ownership Percentage immediately upon notice to the
Company and (x) (subject to waiver) at any time and from time to time, to
increase its Restricted Ownership Percentage immediately in the event of the
announcement as pending or planned, of a Change in Control Transaction.



     Section 11. Defaults and Remedies.


          (a) Events of Default. An “Event of Default” is: (i) a default in payment
of any amount due hereunder which default continues for more than 5 business
days after the due date thereof; (ii) a default in the timely issuance of
Underlying Shares upon and in accordance with terms hereof, within ten days
following the Conversion Date; (iii) failure by the Company for seven (7) days
after written notice has been received by the Company to comply with any
material provision of any of the Notes, the Purchase Agreement, the
Registration Rights Agreement or the Warrants (including without limitation the
failure to issue the requisite number of shares of Common Stock upon conversion
hereof and the failure to redeem Notes upon the Holder’s request following a
Change in Control Transaction pursuant to Section 4(f); (iv) a material breach
by the Company of its covenants, representations or warranties in the Purchase
Agreement, Registration Rights Agreement or Warrants; (v) if the Company is
subject to any Bankruptcy Event; or (vi) a violation of section 2 hereof.



          (b) Remedies. If an Event of Default occurs and is continuing with
respect to any of the Notes, the Holder may declare all of the then outstanding
Principal Amount of this Note and all other Notes held by the Holder, including
any interest due thereon, to be due and payable immediately, except that in the
case of an Event of Default arising from events described in clause (v) of
Section 11(a), this Note shall become due and payable without further action or
notice. In the event of such acceleration, the amount due and owing to the
Holder shall be 120% of the outstanding Principal Amount of the Notes held by
the Holder (plus all accrued and unpaid interest, if any). The Company shall
pay interest on such amount in cash at the Default Rate to the Holder if such
amount is not paid within 7 days of Holder’s request. The remedies under this
Note shall be cumulative.




13






 





     Section 12.
General.


          (a) Payment of Expenses. The Company agrees to pay all reasonable charges
and expenses, including attorneys’ fees and expenses, which may be incurred by
the Holder in successfully enforcing this Note and/or collecting any amount due
under this Note.



          (b) Savings Clause. In case any provision of this Note is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not
in any way be affected or impaired thereby. In no event shall the amount of
interest paid hereunder exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is collected
in excess of the applicable maximum rate, the excess collected shall be applied
to reduce the principal debt. If the interest actually collected hereunder is
still in excess of the applicable maximum rate, the interest rate shall be
reduced so as not to exceed the maximum allowable under law.



          (c) Amendment. Neither this Note nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the Company and the Holder.



          (d) Assignment, Etc. The Holder may assign or transfer this Note to any
transferee. The Holder shall notify the Company of any such assignment or
transfer promptly. This Note shall be binding upon the Company and its
successors and shall inure to the benefit of the Holder and its successors and
assigns.



          (e) No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.



          (f) Governing
Law; Jurisdiction.



               (iii) Governing Law. THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE
APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.



               (iv) NO JURY TRIAL. THE COMPANY HERETO KNOWINGLY AND VOLUNTARILY
WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
NOTE.




14






 





          (g) Replacement Notes. This Note may be exchanged by Holder at any time
and from time to time for a Note or Notes with different denominations
representing an equal aggregate outstanding Principal Amount, as reasonably
requested by Holder, upon surrendering the same. No service charge will be
made for such registration or exchange. In the event that Holder notifies the
Company that this Note has been lost, stolen or destroyed, a replacement Note
identical in all respects to the original Note (except for registration number
and Principal Amount, if different than that shown on the original Note), shall
be issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with the Note.



[Signature Page Follows]



15






 





               IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed
on the day and in the year first above written.



	 	 	 	 	 
	 	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	


	 	 	
Name:
	 	 	
Title:



Attest:


	 	 	 
	Sign:	



	Print Name:



16






 



EXHIBIT A



FORM OF CONVERSION NOTICE



(To be executed by the Holder

in order to convert a Note)




	 	 	Re: Note (this “Note”) issued by HearUSA, Inc. to                          on
or about December       , 2003 in the original principal amount of $500,000.



The undersigned hereby elects to convert the aggregate outstanding Principal
Amount (as defined in the Note) indicated below of this Note into shares of
Common Stock, $0.10 par value per share (the “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 holder for any conversion, except for such transfer taxes, if any.


Conversion information:




	 	 	 
	 	 	


Date to Effect Conversion
	 	 	 
	 	 	


Aggregate Principal Amount of Note Being Converted
	 	 	 
	 	 	


Number of Shares of Common Stock to be Issued
	 	 	 
	 	 	


Conversion Price
	 	 	 
	 	 	


Signature
	 	 	 
	 	 	


Name
	 	 	 
	 	 	


Address








 



EXHIBIT B



FORM OF REPAYMENT ELECTION NOTICE



To:         [Holder at Holder’s Address]




	Date:  	
 	 




Pursuant to Section 1 of Note No.
                       of HEARUSA, INC. issued to you (or
your assignor or predecessor-in-interest) on December
       , 2003, we hereby
notify you that we are irrevocably electing to repay the outstanding Interest
Amount/Quarterly Amount (as defined in the Note) due on the Payment Date (as
defined in the Note) which occurs on                            , 200     (check one):


                                             In full in cash on such Payment Date.



	
	                                             In full in shares of the Company’s Common Stock within
     three (3) Trading Days following such Payment Date.




	 	 	 	 	 
	 	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	

	 	 	
Name:
	 	 	
Title: