exv10w1



 



EXHIBIT 10.1


PURCHASE AGREEMENT



          THIS
PURCHASE AGREEMENT (“Agreement”) is made as of the 12th/18th day of
December, 2003 by and among HEARUSA, INC., a Delaware corporation (the
“Company”), and the Purchasers set forth on the signature pages affixed hereto
(each a “Purchaser” and collectively the “Purchasers”).



Recitals



          A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) under the Securities Act of 1933, as amended (“1933 Act”) and
the provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the 1933 Act;



          B. The Purchasers wish to purchase, and the Company wishes to sell and
issue to the Purchasers, upon the terms and subject to the conditions stated in
this Agreement up to 15 Units, each Unit consisting of (i) $500,000 in
principal amount of the Company’s 2003 Convertible Subordinated Notes due
November 2008 in the form attached hereto as Exhibit A (the “Notes”), which
Notes shall be convertible into shares of common stock of the Company, par
value $0.10 per share (the “Common Stock”), in accordance with the terms of the
Notes, and (ii) a warrant (“Warrant”) to purchase an aggregate of 142,850
shares of Common Stock, in the form attached hereto as Exhibit B, in each case
in the amount as are set forth on the signature page attached hereto and
executed by each such Purchaser for an aggregate purchase price up to $7.5
million; and



          C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit C (the “Registration Rights Agreement”),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, and applicable state securities laws;



          In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:



     1. Definitions. In addition to those terms defined above and elsewhere in
this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings here set forth:


          1.1. “Affiliate” means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by, or is under common control
with, such Person, where “control” means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.




 






 





          1.2. “Agreements” means this Agreement, the Registration Rights Agreement,
the Notes and the Warrants.



          1.3. The “Company” shall refer to the Company (as defined in the first
paragraph hereof).



          1.4.
“Closing” means the consummation of the transactions contemplated by
this Agreement.



          1.5. “Material Adverse Effect” means a material adverse effect on the (i)
condition (financial or otherwise), business, assets or results of operations
of the Company; (ii) ability of the Company to perform any of its material
obligations under the terms of the Agreements; or (iii) material rights and
remedies of a Purchaser under the terms of the Agreements.



          1.6. “Notes” shall have meaning set forth in the recitals to this
Agreement.



          1.7. “Person” means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.



          1.8. “SEC” means the U.S. Securities and Exchange Commission.



          1.9. “SEC Filings” as defined in Section 4.6.



          1.10. “Securities” means the Notes, Warrants, Underlying Shares and
Warrant Shares.



          1.11. “Underlying Shares” means the shares of Common Stock issued or
issuable upon conversion of, as payment for interest or prepayment of principal
under, or otherwise pursuant to, the Notes.



          1.12. “Warrants” shall have meaning set forth in the recitals to this
Agreement.



          1.13. “Warrant Shares” means the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants.



          1.14. “1933 Act” means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.



          1.15. “1934 Act” means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.



     2. Purchase and Sale of the Notes and Warrants. Subject to the terms and
conditions of this Agreement and on the basis of the representations and
warranties made herein, each of the Purchasers hereby severally, and not
jointly, agrees to purchase, and the Company


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hereby agrees to sell and issue to each of the Purchasers, the number of
Units set forth on such Purchaser’s signature page attached hereto. Each
Purchaser’s aggregate purchase price (the “Purchase Price”) for the Units to be
purchased hereunder is set forth on such Purchaser’s signature page attached
hereto.


     3. Closing.


          3.1. Closing Procedure. Upon receipt by the Company of executed Purchase
Agreement(s) for the purchase of at least $1 million of Units, the Company
shall promptly notify such Purchasers and set a date for the closing of the
sale of those Units (the “Initial Closing Date”). Thereafter, upon receipt by
the Company of additional executed Purchase Agreements, the closing of the sale
of those Units shall occur on the next business day following receipt of such
additional agreement(s) (the “Follow On Closing Date”). The term the “Closing
Date” shall hereafter refer to the Initial Closing Date and the Follow On
Closing Date(s) unless the context provides otherwise.



          3.2. Closing Date Deliveries.




	 	(a)	 	On the Closing Date, the Company shall deliver to the
Purchasers:




	 	(i)	 	Notes in the form
attached as Exhibit A;
	 
	 	(ii)	 	Warrants in the form
attached as Exhibit B;
	 
	 	(iii)	 	The executed
Registration Rights Agreement in the form attached
as Exhibit C;
	 
	 	(iv)	 	The opinion of counsel
referred to in Section 7.2 below; and
	 
	 	(v)	 	An officer’s certificate
executed by an officer of the Company, certifying
as to satisfaction of applicable closing
conditions; the true, correct and complete nature
of the Certificate of Incorporation and By-laws;
good standing; and authorizing resolutions.



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	 	(b)	 	On the Closing Date, the Purchasers
shall deliver to the Company




	 	(i)	 	The Purchase Price set
forth on the Purchasers’ signature page hereto;
and
	 
	 	(ii)	 	The executed Registration
Rights Agreement.



     4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers that:


          4.1. Organization, Good Standing and Qualification. The Company is a
corporation validly existing and in good standing under the laws of Delaware
and has all requisite corporate power and authority to carry on its business as
now conducted and own its properties. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
makes such qualification or licensing necessary unless the failure to so
qualify would not result in a Material Adverse Effect.



          4.2. Authorization. The Company has full corporate power and authority
and has taken all requisite action on the part of the Company necessary for (i)
the authorization, execution and delivery of the Agreements, (ii) authorization
of the performance of all obligations of the Company hereunder and thereunder,
and (iii) the authorization, issuance (or reservation for issuance) and
delivery of the Securities. The Agreements constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.



          4.3. Capitalization.
Set forth on Schedule 4.3 hereto is (a) a
description of the authorized capital stock of the Company on the date hereof;
(b) the number of shares of capital stock issued and outstanding on the date
hereof; (c) the number of shares of capital stock issuable pursuant to the
Company’s stock plans; and (d) the number of shares of capital stock issuable
and reserved for issuance pursuant to securities (other than the Notes and the
Warrants) exercisable for, or convertible into or exchangeable for any shares
of capital stock. All of the issued and outstanding shares of the Company’s
capital stock have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth on Schedule 4.3, no Person is entitled
to preemptive or similar statutory or contractual rights with respect to any
securities of the Company.



          4.4. Valid Issuance. As of the Closing, the Company has reserved a
sufficient number of shares of Common Stock for the issuance upon conversion
of, as payment for interest on or repayment of principal of, and otherwise
pursuant to, the Notes, and upon exercise of or otherwise pursuant to the
Warrants. The Notes, Warrants, Underlying Shares and Warrant Shares are duly
authorized, and such Securities, when issued in accordance herewith and, in
respect of the Underlying Shares and Warrant Shares, pursuant to the terms of
the Notes and Warrants, respectively, will be validly issued, fully paid,
non-assessable and free and clear of all encumbrances and restrictions, except
for restrictions on transfer imposed by applicable securities laws.




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          4.5. Consents. Except as set forth on Schedule 4.5, the execution,
delivery and performance by the Company of the Agreements and, subject to the
truth and accuracy of the representations made by the Purchasers in Sections 5
of this Agreement, the offer, issuance and sale of the Securities, require no
consent of, action by or in respect of, or filing with, any Person, agency, or
official, other than filings that have been made pursuant to applicable state
securities laws and post-sale filings pursuant to applicable state and federal
securities laws and the requirements of the American Stock Exchange, which the
Company undertakes to file within the applicable time periods.



          4.6. SEC Filings; Business. Since January 1, 2001, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the
foregoing filed prior to or on the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC
Filings”). As of the date of filing of such SEC Filings, each such SEC Filing,
as it may have been subsequently amended by filings made by the Company with
the SEC prior to the date hereof, complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Filing. None of the SEC Filings,
as of the date filed and as they may have been subsequently amended by filings
made by the Company with the SEC prior to the date hereof, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Filings complied as to form in all material respects with applicable
accounting requirements and published rules and regulations of the
SEC with respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). The Company is
not aware of any fact or circumstance that would result or reasonably be likely
to result in the Company receiving a “going concern” opinion or qualification
from its independent auditor’s with respect to the Company’s financial position
for the year ended December 31, 2002. The Company is engaged only in the
business described in the SEC Filings and the SEC Filings contain a complete
and accurate description of the business of the Company in all material
respects.



          4.7. Use of Proceeds. The proceeds of the sale of the Securities
hereunder shall be used by the Company for the repayment of outstanding Notes
due 2004, payment of other outstanding liabilities, working capital and general
corporate purposes. In addition, 25% of the net proceeds of this offering must
be paid to Siemens Hearing Instruments, Inc. (“Siemens”) pursuant to the terms
of the Company’s credit facility with Siemens.




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          4.8.  No Material Adverse Change. Except as disclosed and described in the
Company’s SEC Filings, there has not been:



               (a) any change in the consolidated assets, liabilities, financial
condition or operating results of the Company, except changes in the ordinary
course of business which have not had, in the aggregate, a Material Adverse
Effect;



               (b) any declaration or payment of any dividend, or any authorization or
payment of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company;



               (c) any material damage, destruction or loss, whether or not covered by
insurance, to any assets or properties of the Company or any of its
subsidiaries;



               (d) any waiver by the Company of a material right or of a material debt
owed to it;



               (e) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company taken as a whole (as
such business is presently conducted and as it is proposed to be conducted);



               (f) any material change or amendment to or breach or default of a material
contract or arrangement by which the Company or any of its assets or properties
is bound or subject;



               (g) any material labor difficulties or labor union organizing activities
with respect to employees of the Company;



               (h) any transaction entered into by the Company other than in the ordinary
course of business; or



               (i) any other event or condition of any character that the Company
believes will have a Material Adverse Effect.



          4.9.  Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under
the 1933 Act.



          4.10.  No Conflict, Breach, Violation or Default; Compliance with Law. (a)
The execution, delivery and performance of the Agreements by the Company and
the issuance and sale of the Securities will not conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under (i) the Company’s Certificate of Incorporation (including any
certificates of designation) or the Company’s Bylaws, both as in effect on the
date hereof, (ii) except where it would not have a Material Adverse Effect,
any statute, rule, regulation or order of




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any governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any of its properties; or (iii) except as set
forth on Schedule 4.10 or where it would not have a Material Adverse Effect,
any contract by which the company or its property is bound. (b) Except where
it would not have a Material Adverse Effect, to the Company’s knowledge, it (i)
is not in violation of any statute, rule or regulation applicable to the
Company or its assets or its activities, and (ii) is not in violation of any
judgment, order or decree applicable to the Company or its assets. (c) The
Company has not received notice from any Person of any claim, investigation or
inquiry, that, if adversely determined, would render the preceding sentence
untrue or incomplete and the Company is aware of no facts or circumstances
which could give rise to such a claim, investigation or inquiry.


          4.11. Tax Matters. The Company has timely prepared and filed all tax
returns required to have been filed by the Company with all appropriate
governmental agencies and timely paid all taxes owed by it, in each case taking
into account permitted extensions. The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company nor, to the knowledge of the Company, any basis for the assessment of
any additional taxes, penalties or interest for any fiscal period or audits by
any federal, state or local taxing authority except such as which are not
material. All material taxes and other assessments and levies that the Company
is required to withhold or to collect for payment have been duly withheld and
collected and paid to the proper governmental entity or third party when due.
There are no tax liens or claims pending or threatened against the Company or
any of its respective assets or property. There are no outstanding tax sharing
agreements or other such arrangements between the Company and any other
corporation or entity.



          4.12. Title to Properties and Securities. Except as disclosed in the SEC
Filings, the Company has good and marketable title to all real properties and
all other properties and assets owned by it and material to its operations, in
each case free from liens, encumbrances and defects that would materially
affect the value thereof or materially interfere with the use made or currently
planned to be made thereof by them; and except as disclosed in the SEC Filings,
the Company holds any leased real or personal property material to the
Company’s operations under valid and enforceable leases with no exceptions that
would materially interfere with the use made or currently planned to be made
thereof by them.



          4.13. Certificates, Authorities and Permits. The Company possesses
adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by it and has not received any notice of proceedings relating to the revocation
or modification of any such certificate, authority or permit that, if
determined adversely to the Company, would individually or in the aggregate
have a Material Adverse Effect.



          4.14. No Labor Disputes. No material labor dispute with the employees of
the Company exists or, to the knowledge of the Company, is imminent.



          4.15.  Intellectual Property. The Company owns or possesses adequate
rights or licenses to the inventions, know-how, patents, patent rights,
copyrights, trademarks, trade names, licenses, approvals, governmental
authorizations, trade secrets confidential information and other intellectual
property rights necessary to conduct the business now operated by it and
presently




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contemplated to be operated by it (collectively, “Intellectual Property
Rights”), free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims, and the Company has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any Intellectual Property Rights except as disclosed in
the SEC Filings and except as to any such claims that would not have a Material
Adverse Effect. Except as set forth on Schedule 4.15 hereto, none of the
Company’s Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate within three years from the date of this
Agreement, except where such expirations or termination would not result,
either individually or in the aggregate, in a Material Adverse Effect. To the
knowledge of the Company, the Company’s patents and other Intellectual Property
Rights and the present activities of the Company do not infringe any patent,
copyright, trademark, trade name or other proprietary rights of any third party
where such infringement may cause a Material Adverse Effect on the Company, and
there is no claim, action or proceeding being made or brought against, or to
the Company’s knowledge, being threatened against, the Company regarding its
Intellectual Property Rights, and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company has
no knowledge of the material infringement of its Intellectual Property Rights
by third parties and has no reason to believe that any of its Intellectual
Property Rights is unenforceable, and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company has
taken commercially reasonable security measures to protect the secrecy,
confidentiality and value of all of its intellectual properties.


          4.16. Environmental Matters. The Company is not in violation of any
statute, rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, “Environmental Laws”), does not own or operate any real property
contaminated with any substance that is subject to any Environmental Laws, is
not liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and is not subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the
Company is not aware of any pending investigation that might lead to such a
claim.



          4.17. Absence of Litigation. Except as disclosed in the section titled
“Legal Proceedings” in (i) the Company’s Annual Report on Form 10-K for the
year ended December 31, 2002 or (ii) any of the Company’s SEC Filings filed
since the filing of such Form 10-K, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of
the Company or any of its Subsidiaries, threatened in writing against the
Company or any of the Company’s Subsidiaries or any of the Company’s or the
Company’s Subsidiaries’ officers or directors in their capacities as such, that
would reasonably be expected to result in judgments against the Company or any
of its Subsidiaries in an amount, individually or in the aggregate, in excess
of $250,000.



          4.18. Financial Statements. The financial statements included in each SEC
Filings present fairly and accurately in all material respects the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with generally




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accepted accounting principles applied on a consistent basis. Except as
set forth in the financial statements of the Company included in the SEC
Filings filed prior to the date hereof, the Company has no liabilities,
contingent or otherwise, except those which individually or in the aggregate
are not material to the financial condition or operating results of the
Company.


          4.19. Insurance Coverage. The Company maintains in full force and effect
insurance coverage that the Company reasonably believes to be adequate against
all liabilities, claims and risks against which it is customary for comparably
situated companies to insure.



          4.20.  Compliance with AMEX Continued Listing Requirements. There are no
proceedings pending or to the Company’s knowledge threatened against the
Company relating to the continued listing of the Company’s Common Stock on the
American Stock Exchange.



          4.21. Brokers and Finders. The Purchasers shall have no liability or
responsibility for the payment of any commission or finder’s fee to any third
party in connection with or resulting from this agreement or the transactions
contemplated by this Agreement by reason of any agreement of or action taken by
the Company. Upon Closing, the Company shall pay to any finder in connection
with the transactions contemplated hereby any finder’s fee(s) owing to such
finder pursuant to a separate agreement or arrangement with the Company entered
into concurrently herewith or prior to such Closing.



          4.22. No General Solicitation. Neither the Company nor any Person acting
on its behalf has conducted any general solicitation or general advertising (as
those terms are used in Regulation D) in connection with the offer or sale of
any of the Securities.



          4.23. Issuance of Securities. The Securities are duly authorized and,
upon issuance in accordance with the terms of the applicable agreements, shall
be (i) validly issued, fully paid and non-assessable and (ii) free from all
taxes, liens and charges with respect to the issuance thereof (other than any
such taxes, liens and charges created by any Buyer or assignee or transferee),
and shall not be subject to pre-emptive rights or other similar rights of
shareholders of the Company. As of the Closing, a sufficient number of shares
of Common Stock will have been duly authorized and reserved for issuance upon
conversion of the Notes and exercise of the Warrants as of the Closing. Upon
conversion or issuance in accordance with the Notes or the Warrants, as
applicable, the Conversion Shares and the Warrant Shares, as the case may be,
will be validly issued, fully paid and non-assessable and free from all taxes,
liens and charges with respect to the issue thereof (other than any such taxes,
liens and charges created by any Buyer or any assignee or transferee), with the
holders being entitled to all rights accorded to a holder of Common Stock.



     5. Representations and Warranties of the Purchaser. Each of the
Purchasers hereby severally, and not jointly, represents and warrants to the
Company that:


          5.1.  Organization and Existence. The Purchaser is a validly existing
corporation, partnership, limited liability company or individual and has all
requisite corporate, partnership, limited liability company or personal power
and authority, as the case may be, to invest in the Securities pursuant to this
Agreement.




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          5.2. Authorization. The execution, delivery and performance by the
Purchaser of this Agreement and the Registration Rights Agreement have been
duly authorized and this Agreement and the Registration Rights Agreement will
each constitute the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally.



          5.3. Purchase Entirely for Own Account. The Securities to be received by
the Purchaser hereunder will be acquired for the Purchaser’s own account, not
as nominee or agent, and not with a view to the resale or distribution of any
part thereof and the Purchaser has no present intention of selling, granting
any participation in, or otherwise distributing the same. The Purchaser is not
a registered broker dealer or an entity engaged in the business of being a
broker dealer.



          5.4. Investment Experience. The Purchaser acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters and in private
placement transactions of companies similar to the Company so that it is
capable of evaluating the merits and risks of the purchase contemplated hereby.



          5.5. Disclosure of Information. The Purchaser has had an opportunity to
receive documents related to the Company and to ask questions of and receive
answers from the Company regarding the Company, its business and the terms and
conditions of the offering of the Securities and has received and read the SEC
Filings filed via EDGAR. Neither such inquiries nor any other due diligence
investigation conducted by the Purchaser shall modify, amend or affect the
Purchaser’s right to rely on the Company’s representations and warranties
contained in this Agreement or made pursuant to this Agreement.



          5.6. Restricted Securities. The Purchaser understands that the Securities
are characterized as “restricted securities” under the U.S. federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable state laws
and regulations such securities may be resold without registration under the
1933 Act only in certain limited circumstances.



          5.7. Legends. It is understood that, until registration for resale
pursuant to the Registration Rights Agreement or until sales under Rule 144(k)
are permitted, certificates evidencing the Securities may bear one or all of
the following legends or legends substantially similar thereto:




		
	 	     (a) “The shares represented by this certificate may not be
transferred without (i) the opinion of counsel reasonably
satisfactory to the corporation that such transfer may lawfully be
made without registration under the Securities Act of 1933 or
qualification under applicable state securities laws; or (ii) such
registration or qualification.”




		
	 	     (b) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by
such state authority.



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          Upon registration for resale pursuant to the Registration Rights Agreement
or upon Rule 144(k) under the 1933 Act becoming available, the Company shall
promptly cause certificates evidencing the Underlying Shares and Warrant Shares
previously issued to be replaced with certificates which do not bear such
restrictive legends, and all Underlying Shares and Warrant Shares subsequently
issued shall not bear such restrictive legends and each Purchaser will certify
to the Company that it will thereafter sell the Common Stock evidenced by such
unlegended certificates only pursuant to the Prospectus (as defined in the
Registration Rights Agreement) as permitted under the Registration Rights
Agreement or pursuant to Rule 144(k).



          5.8.  Accredited Investor. The Purchaser is an “accredited investor” as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.



          5.9.  No General Solicitation. The Purchaser did not learn of the
investment in the Securities as a result of any public advertising or general
solicitation.



     6. Closing Documents. The parties acknowledge and agree that part of the
inducement for the Purchasers to enter into this Agreement is the Company’s
execution and delivery of the Registration Rights Agreement. The parties
acknowledge and agree that on or prior to the Closing, the Registration Rights
Agreement will be duly executed and delivered by the parties thereto.


     7. Covenants and Agreements of the Company.


          7.1. 19.9% Cap; Rule 144.



               (a) Cap Regulations. If at any point in time and from time to time the
number of shares of Common Stock issued pursuant to conversion of the Notes and
exercise of the Warrants, together with the number of shares of Common Stock
that would then be issuable by the Company upon conversion of all the Notes and
exercise of all the Warrants then outstanding, would violate the Cap
Regulations of the American Stock Exchange (those regulations relating to the
issuance of an amount of shares of Common Stock requiring shareholder approval)
or of any other principal securities exchange or market on which the common
stock is or may become traded, then the Company shall promptly call a
shareholders meeting to obtain shareholder approval for the issuance of shares
of Common Stock hereunder.



               (b) Rule 144. The Company agrees that, for purposes of determining the
holding period under Rule 144 of the 1933 Act for Underlying Shares issued upon
conversion of the Notes, the holding period of the Purchasers for such
Underlying Shares shall be tacked to the holding period of the Purchasers for
the Notes. The Company agrees to make publicly available on a timely basis the
information necessary to enable Rule 144 under the 1933 Act to be available for
resale.



          7.2. Opinion of Counsel. On or prior to the Closing Date, the Company
will deliver to the Purchasers the opinions of legal counsel to the Company
substantially in the form and substance attached hereto as
Exhibit 7.2.



          7.3.  Reservation of Common Stocks issuable upon Conversion of Notes and
Exercise of Warrants. The Company hereby agrees at all times to reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for the full




11






 





conversion of Notes (including payment of interest and principal thereon)
and the exercise of the Warrants, such number of shares of Common Stock as
shall equal the number of shares sufficient to permit the full conversion of
Notes (including payment of interest and principal thereon) and to permit the
full exercise of the Warrants in accordance with the terms of the Warrants.


          7.4. Press Releases. Any press release or other publicity concerning this
Agreement or the transactions contemplated by this Agreement shall be submitted
to the Purchasers for comment one business day prior to issuance, unless the
release is required to be issued within a shorter period of time by law or
pursuant to the rules of the American Stock Exchange or another national
securities exchange or market.



          7.5. No Conflicting Agreements. The Company will not take any action,
enter into any agreement or make any commitment that would conflict or
interfere in any material respect with the obligations to the Purchasers under
the Agreements.



          7.6.  Insurance. For so long as any Purchaser beneficially owns any of the
Securities, the Company shall have in full force and effect (a) insurance
reasonably believed by the Company to be adequate on all assets and activities,
covering property damage and loss of income by fire or other casualty, and (b)
insurance reasonably believed to be adequate protection against all
liabilities, claims and risks against which it is customary for companies
similarly situated as the Company to insure.



          7.7. Compliance with Laws. So long as the Purchasers beneficially own any
Securities, the Company will use reasonable efforts to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) would not have a Material Adverse Effect.



          7.8. Listing of Underlying Shares and Related Matters. The Company hereby
agrees, promptly following the last of the Closing Dates of the transactions
contemplated by this Agreement, to take such action to cause the Underlying
Shares and the Warrant Shares to be listed on the American Stock Exchange as
promptly as possible but no later than the effective date of the registration
contemplated by the Registration Rights Agreement. The Company further agrees
that if the Company applies to have its Common Stock or other securities traded
on any other principal stock exchange or market, it will include in such
application the Underlying Shares and Warrant Shares and will take such other
action as is necessary to cause such Common Stock to be so listed. For so long
as any Notes remain outstanding, the Company will take all action necessary to
continue the listing and trading of its Common Stock on the American Stock
Exchange, the New York Stock Exchange, the Nasdaq National Market or the Nasdaq
Small-Cap Market (collectively, “Approved Markets”), and will comply in all
respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of such exchange or market, as applicable, to ensure the
continued eligibility for trading of the Underlying Shares and the Warrant
Shares thereon.



          7.9.  Corporate Existence. So long as any Notes or Warrants remain
outstanding, the Company shall maintain its corporate existence, except in the
event of a merger, consolidation or sale of all or substantially all of the
Company’s assets so long as the surviving or successor entity in such
transaction (a) assumes the Company’s obligations hereunder and under the
agreements and instruments entered into in connection herewith, regardless of
whether or not the Company would




12






 





have had a sufficient number of shares of Common Stock authorized and
available for issuance in order to fulfill its obligations hereunder and effect
the conversion (including payment on) and exercise in full of all Notes and
Warrants outstanding as of the date of such transaction; (b) has no legal,
contractual or other restrictions on its ability to perform the obligations of
the Company hereunder and under the agreements and instruments entered into in
connection herewith; and (c)(i) is a publicly traded corporation whose common
stock and the shares of capital stock issuable upon conversion and exercise of
the Notes and Warrants are (or would be upon issuance thereof) listed for
trading on an Approved Market or (ii) if not such a publicly traded
corporation, then the buyer agrees that it will, at the election of the
Purchasers, purchase such Purchasers’ Securities at a price equal to the
greater of (a) 120% of the Purchase Price of such Securities or (b) the fair
market value of such Securities on an as-converted and as-exercised basis based
on the closing price immediately preceding such transaction or the redemption
date, whichever is greater.


     8. Survival. All representations and warranties contained in this
Agreement shall survive for one year following the Closing of the transactions
contemplated hereby.


     9. Miscellaneous.


          9.1. Successors and Assigns. This Agreement may not be assigned by the
Company. A Purchaser may assign its rights and delegate its duties hereunder in
whole or in part to any Person (who is not a competitor or vendor of the
Company) to which such Purchaser has transferred or assigned all or part of its
Notes or Warrants in accordance with the terms of the Notes and Warrants,
provided in each case that such transferee or assignee acknowledges in writing
to the Company that the representations and warranties contained in Section 5
hereof shall apply to such transferee or assignee. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.



          9.2. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.



          9.3.  Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.



          9.4. Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given only upon delivery to each party to be notified by (i) personal delivery,
(ii) facsimile, with electronic confirmation of transmittal, (iii) certified
mail, return receipt requested, or (iv) an internationally recognized overnight
air courier, addressed to the party to be notified at the address as follows,
or at such other address as such party may designate by ten days’ advance
written notice to the other party:




13






 






	 	 	 
	 	 	
If to the Company:
	 	 	 
	 	 	
HearUSA, Inc.
	 	 	
1250 Northpoint Parkway
	 	 	
West Palm Beach, FL 33407
	 	 	
Fax: 561/688-8893
	 	 	
Attention: CEO
	 	 	 
	 	 	
With a copy to:
	 	 	 
	 	 	
Bryan Cave LLP
	 	 	
700 Thirteenth Street, N.W.
	 	 	
Washington, D.C. 20005-3960
	 	 	
Fax: (202) 508-6200
	 	 	
Attention: LaDawn Naegle, Esq.
	 	 	 
	 	 	
If to the Purchasers, to the addresses set forth on the

signature pages hereto.



          9.5. Expenses. The parties hereto shall pay their own costs and expenses
in connection herewith. The Company shall pay all fees and expenses of any
placement agents or finders in connection with the transactions contemplated by
this Agreement pursuant to a separate agreement between such parties and the
Company.



          9.6. Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and each Purchaser
to be bound by such amendment or waiver.



          9.7. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.



          9.8. Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, the Registration Rights Agreement, the Notes and the Warrants
and the other documents contemplated hereby constitute the entire agreement
among the parties hereof with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and thereof.



          9.9. Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.



          9.10. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to
principles of conflicts of laws.




14






 





          9.11. 
 Remedies. The Purchasers shall be entitled to specific performance
of the Company’s obligations under the Agreements.



          9.12.
Like Treatment of Purchasers and Holders. The Company shall not,
directly or indirectly, redeem any Securities unless such offer of redemption
is made pro rata to all Purchasers or holders of Securities, as the case may
be, on identical terms. For clarification purposes, this provision constitutes
a separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.



          9.13.  Actions of Purchasers. The obligations of each Purchaser hereunder
and under the documents contemplated hereby are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall in any way be
responsible for the performance of the obligations of any other Purchaser under
any such document. Nothing contained herein or in any other document
contemplated hereby, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute any of the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated hereby or
thereby. Each Purchaser confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Purchaser shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of any other document contemplated hereby,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.



[REMAINDER OF PAGE INTENTIONALLY BLANK]



15






 





IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	The Company:	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	   /s/ Paul A. Brown
	 	 	 	 	

	 	 	Name: Paul A. Brown, M.D.
	 	 	Title: Chairman
	 	 	 	 	 
	 	 	The Purchasers:
	 	 	 	 	 
	 	 	Sherleigh Associates Inc. Profit Sharing Plan
	 	 	Name
	 	 	 	 	 
	 	 	/s/ Jack Silver
	 	 	

	 	 	
By:	 	 
	 	 	 	 	 
	 	 	Trustee
	 	 	

	 	 	Title
	 	 	 	 	 
	Number of Units:	 	2
	Purchase Price:	 	$1,000,000
	Principal Amount of Notes:	 	$1,000,000
	No. of Warrants:	 	285,700
	 	 	 	 	 
	Residence:	 	 	 	 
	 	 	 	 	 
	Address for Notices:	 	920 Fifth Avenue, #3B
	 	 	New York, NY 10021
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	 	 	 
	 	 	with a copy to:
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	




16






 



IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	The Company:	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	   /s/ Paul A. Brown
	 	 	 	 	

	 	 	Name: Paul A. Brown, M.D.
	 	 	Title: Chairman
	 	 	 	 	 
	 	 	The Purchasers:
	 	 	 	 	 
	 	 	Sherleigh Associates Inc. Profit Sharing Plan
	 	 	Name
	 	 	 	 	 
	 	 	/s/ Jack Silver
	 	 	

	 	 	
By:	 	 
	 	 	 	 	 
	 	 	Trustee
	 	 	

	 	 	Title
	 	 	 	 	 
	Number of Units:	 	2
	Purchase Price:	 	$1,000,000
	Principal Amount of Notes:	 	$1,000,000
	No. of Warrants:	 	285,700
	 	 	 	 	 
	Residence:	 	 	 	 
	 	 	 	 	 
	Address for Notices:	 	920 Fifth Avenue, #3B
	 	 	New York, NY 10021
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	 	 	 
	 	 	with a copy to:
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	




17






 



IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	The Company:	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	   /s/ Paul A. Brown
	 	 	 	 	

	 	 	Name: Paul A. Brown, M.D.
	 	 	Title: Chairman
	 	 	 	 	 
	 	 	The Purchasers:
	 	 	 	 	 
	 	 	Atlas Capital Master Fund, L.P.
	 	 	Name
	 	 	 	 	 
	 	 	By: Atlas Capital Offshore Fund, Ltd.
	 	 	 	 	 
	 	 	/s/ Robert H. Alpert, Director
	 	 	

	 	 	 	 	 
	 	 	By: Atlas Capital, L.P., its General Partner
	 	 	By: RHA, Inc., its General Partner
	 	 	 	 	 
	 	 	/s/ Robert H. Alpert, President
	 	 	

	 	 	 	 	 
	Number of Units:	 	
4	 	 
	Purchase Price:	 	$2,000,000
	Principal Amount of Notes:	 	$2,000,000
	No. of Warrants:	 	571,400
	 	 	 	 	 
	Residence:	 	 	 	 
	 	 	 	 	 
	Address for Notices:	 	100 Crescent Court #880
	 	 	Dallas, TX 75201
	 	 	

	 	 	 	 	 
	 	 	with a copy to:
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	




18






 



IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	The Company:	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	   /s/ Paul A. Brown
	 	 	 	 	

	 	 	Name: Paul A. Brown, M.D.
	 	 	Title: Chairman
	 	 	 	 	 
	 	 	The Purchasers:
	 	 	 	 	 
	 	 	Flyline Holdings, Ltd.
	 	 	Name
	 	 	 	 	 
	 	 	W.
Forrest Tempel
	 	 	
By	 	 
	 	 	 	 	 
	 	 	Member
	 	 	Title
	Number of Units:	 	
1	 	 
	Purchase Price:	 	$500,000
	Principal Amount of Notes:	 	$500,000
	No. of Warrants:	 	142,850
	 	 	 	 	 
	Residence:	 	 	 	 
	 	 	 	 	 
	Address for Notices:	 	115 W.
2nd Street
	 	 	Suite 103
	 	 	Fort Worth, TX 76102
	 	 	


	 	 	 	 	 
	 	 	with a copy to:
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	




19






 



IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	The Company:	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	   /s/ Paul A. Brown
	 	 	 	 	

	 	 	Name: Paul A. Brown, M.D.
	 	 	Title: Chairman
	 	 	 	 	 
	 	 	The Purchasers:
	 	 	 	 	 
	 	 	Micro Capital Fund LP
	 	 	Name
	 	 	 	 	 
	 	 	/s/ Christopher P. Swenson
	 	 	

	 	 	
By	 	 
	 	 	 	 	 
	 	 	Vice President, MicroCapital LLC
	 	 	Title
	 	 	 	 	 
	Number of Units:	 	
1	 	 
	Purchase Price:	 	$500,000
	Principal Amount of Notes:	 	$500,000
	No. of Warrants:	 	142,850
	 	 	 	 	 
	Residence:	 	 	 	 
	 	 	 	 	 
	Address for Notices:	 	Micro Capital LLC
	 	 	410 Jessie Street, Suite 1002
	 	 	San Francisco, CA 94103
	 	 	Attn: Christopher P. Swenson
	 	 	


	 	 	

	 	 	

	 	 	 	 	 
	 	 	with a copy to:
	 	 	


	 	 	

	 	 	

	 	 	




20






 



IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	The Company:	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	   /s/ Stephen J. Hansbrough
	 	 	 	 	

	 	 	Name: Stephen J. Hansbrough
	 	 	Title: Chief Executive Officer
	 	 	 	 	 
	 	 	The Purchasers:
	 	 	 	 	 
	 	 	Millicom 2002 Grat
	 	 	Name
	 	 	 	 	 
	 	 	Lisa P. Selz
	 	 	
By	 	 
	 	 	 	 	 
	 	 	Trustee
	 	 	

	 	 	Title
	 	 	 	 	 
	Number of Units:	 	
2	 	 
	Purchase Price:	 	$1,000,000
	Principal Amount of Notes:	 	$1,000,000
	No. of Warrants:	 	285,700
	 	 	 	 	 
	Residence:	 	 	 	 
	 	 	 	 	 
	Address for Notices:	 	600
Fifth Avenue, 25th Floor
	 	 	New York, NY 10020-2302
	 	 	Atten: Bernard Selz
	 	 	


	 	 	 	 	 
	 	 	with a copy to:
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	




21






 




IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	The Company:	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	   /s/ Stephen J. Hansbrough
	 	 	 	 	

	 	 	Name: Stephen J. Hansbrough
	 	 	Title: Chief Executive Officer
	 	 	 	 	 
	 	 	The Purchasers:
	 	 	 	 	 
	 	 	Alexandra Global Master Fund
	 	 	Name
	 	 	 	 	 
	 	 	/s/
	 	 	

	 	 	
By	 	 
	 	 	 	 	 
	 	 	Principal
	 	 	Title
	 	 	 	 	 
	Number of Units:	 	
2	 	 
	Purchase Price:	 	$1,000,000
	Principal Amount of Notes:	 	$1,000,000
	No. of Warrants:	 	285,700
	 	 	 	 	 
	Residence:	 	 	 	 
	 	 	 	 	 
	Address for Notices:	 	Alexandra Investment Management
	 	 	767
Third Avenue, 39th Floor
	 	 	New
York, NY 20021
	 	 	Attn:
Slava Volman
	 	 	 	 	 
	 	 	with a copy to:
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	




22






 



IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	The Company:	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:
	 	  /s/ Stephen J. Hansbrough
	 	 	 	 	

	 	 	Name: Stephen J. Hansbrough
	 	 	Title: Chief Executive Officer
	 	 	 	 	 
	 	 	The Purchasers:
	 	 	 	 	 
	 	 	  Kennebec Resources Inc.
	 	 	Name
	 	 	 	 	 
	 	 	  /s/ R.P. Solomon


	 	 	By
	 	 	 	 	 
	 	 	  President
& CEO
	 	 	Title
	 	 	 	 	 
	Number of Units:	 	  1

	Purchase Price:	 	$500,000
	Principal Amount of Notes:	 	$500,000
	No. of Warrants:	 	142,850
	 	 	 	 	 
	Residence:	 	 	 	 
	 	 	 	 	 
	Address for Notices:	 	P.O. Box 163
	 	 	Chappaqua,
NY 10514
	 	 	 	 	 
	 	 	

	 	 	

	 	 	 	 	 
	 	 	with a copy to:
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	





23