ex10-2



 




EXHIBIT 10.2















SECURITY AGREEMENT




among




HEARX, LTD.,




as Debtor




and




SIEMENS HEARING INSTRUMENTS, INC.,




as Secured Party




Dated as of December 7, 2001












 






 










TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 	 
								Page
	 
	SECTION 1.			DEFINITIONS				1	
	 
	SECTION 2.			ASSIGNMENT; SECURITY INTERESTS; INSURANCE PROCEEDS				2	
	 
		2.01			Assignment; Grant of Security Interests				2	
		2.02			Power of Attorney				4	
		2.03			Costs of Enforcement				5	
	 
	SECTION 3.			GENERAL REPRESENTATIONS AND WARRANTIES				5	
	 
		3.01			Location of Collateral				5	
		3.02			Debtor Organization				5	
		3.03			Enforceability				5	
		3.04			Ownership				6	
		3.05			Business				6	
		3.06			Control				6	
		3.07			Liens				6	
		3.08			Consents				6	
	 
	SECTION 4.			SPECIAL PROVISIONS CONCERNING ACCOUNTS; INSTRUMENTS;	
				CHATTEL PAPER; COMMERCIAL TORT CLAIMS				6	
	 
		4.01			Additional Representations and Warranties				6	
		4.02			Maintenance of Records				7	
		4.03			Direction to Account Debtors; Contracting Parties; etc.				7	
		4.04			Collection				7	
		4.05			Instruments and Chattel Paper				8	
		4.06			Commercial Tort Claims				8	
	 
	SECTION 5.			SPECIAL PROVISIONS CONCERNING PATENTS,
COPYRIGHTS AND TRADEMARKS				8	
	 
		5.01			Additional Representations and Warranties				8	
		5.02			Infringements				8	
		5.03			Other Patents, Copyrights and Trademarks				9	
		5.04			Remedies				9	



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	SECTION 6.			PROVISIONS CONCERNING ALL COLLATERAL;
INSURANCE				9	
	 
		6.01			Protection of the Secured Party's Interests				9	
		6.02			Further Actions				9	
		6.03			Financing Statements				10	
		6.04			Location				10	
		6.05			Adverse Claims				11	
		6.06			Taxes				11	
		6.07			No Other Liens				11	
		6.08			Access				11	
	 
	SECTION 7.			REMEDIES UPON OCCURRENCE OF EVENT OF
DEFAULT				12	
	 
		7.01			Remedies; Obtaining the Collateral Upon Default				12	
		7.02			Remedies; Disposition of the Collateral				13	
		7.03			Waiver of Claims				13	
		7.04			Application of Proceeds				14	
		7.05			Remedies Cumulative				14	
		7.06			Discontinuance of Proceedings				15	
	 
	SECTION 8.			INDEMNITY				15	
	 
	SECTION 9.			MISCELLANEOUS				15	
	 
		9.01			Notices				15	
		9.02			Waiver; Amendment				15	
		9.03			Obligations Absolute				15	
		9.04			Successors and Assigns				16	
		9.05			Headings Descriptive, etc.				16	
		9.06			GOVERNING LAW; SUBMISSION to JURISDICTION and VENUE;	
				WAIVER of JURY TRIAL				16	
		9.07			The Debtor's Duties				17	
		9.08			Termination; Release				17	
		9.09			Counterparts				18	
		9.10			Severability				18	




	 	 	 
	SCHEDULE I		
CHATTEL PAPER AND INSTRUMENTS
	SCHEDULE II		
COMMERCIAL TORT CLAIMS
	SCHEDULE III		
DEBTOR AND COLLATERAL DETAILS
	SCHEDULE IV		
PATENTS, COPYRIGHTS AND TRADEMARKS



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SECURITY AGREEMENT



            SECURITY AGREEMENT, dated as of December 7, 2001 (this “Agreement”), by
and between HEARX, LTD., a Delaware corporation (the “Debtor”), and SIEMENS
HEARING INSTRUMENTS, INC., a Delaware corporation (the “Secured Party”),



W I T N E S S E T H :



            WHEREAS, the Debtor and the Secured Party entered into that certain Credit
Agreement, dated as of December 7, 2001 (as such agreement may be amended,
restated, modified or supplemented from time to time, the “Credit Agreement”);


            WHEREAS, as a condition precedent to the obligations of the Secured Party
under the Credit Agreement, the Debtor is required to execute and deliver this
Agreement and to grant to the Secured Party a continuing security interest in
all of the Collateral (as hereinafter defined);


            NOW, THEREFORE, in consideration of the benefits to the Debtor, the
receipt and sufficiency of which are hereby acknowledged, the Debtor hereby
makes the following assignments, representations and warranties to the Secured
Party and hereby covenants and agrees with the Secured Party as follows:



	 	 	 	 	 
			SECTION 1.		DEFINITIONS



                                
      For all purposes of this Agreement, (i) capitalized terms not otherwise
defined herein shall have the meanings set forth in the Credit Agreement, (ii)
the following terms, which are defined in the UCC are used herein as so
defined: Accession, Account, Chattel Paper, Copyrights, Commercial Tort Claim,
Deposit Account, Document, Equipment, Fixtures, General Intangible, Goods,
Instrument, Inventory, Investment Property, Letter-of-Credit Right, Patent,
Proceeds, Supporting Obligation, Tangible Chattel Paper, and Trademark, and
(iii) the principles of construction set forth in the Credit Agreement shall
apply.


            In addition, the following terms shall have the meanings herein specified:


            “Collateral” has the meaning provided in Section 2.01(a).


            “Collateral Proceeds” shall mean “proceeds” as such term is defined in the
UCC or under other relevant law and, in any event, shall include, but shall not
be limited to, (i) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to the Secured Party or the Debtor from time to time, and
claims for insurance, indemnity, warranty or guaranty effected or held for the
benefit of the Debtor, with respect to any of

 






 




the Collateral, (ii) any and all
payments (in any form whatsoever) made or due and
payable to the Debtor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any person acting
under color of Governmental Authority) and (iii) any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral.


            “Credit Agreement” has the meaning provided in the first whereas clause of
this Agreement.


            “Debtor” has the meaning provided in the preamble of this Agreement.


            “Secured Obligations” shall mean all obligations, fees, charges,
liabilities and indebtedness of every nature of the Debtor from time to time
owing to the Secured Party under the Credit Agreement and/or any other Loan
Document to which the Debtor is a party.


            “Secured Party” has the meaning provided in the preamble of this
Agreement.


            “UCC” shall mean the Uniform Commercial Code as in effect in the State of
New York on the date hereof; provided, however, in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or
priority of the security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New
York, the term “UCC” shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.



	 	 	 	 	 
			SECTION 2.		ASSIGNMENT; SECURITY INTERESTS; INSURANCE
PROCEEDS



            2.01     Assignment; Grant of Security Interests.


            (a)       The Debtor, as security for the prompt and complete payment and
performance when due of the Secured Obligations of the Debtor, does hereby
assign, pledge, convey, set over and transfer unto the Secured Party, and does
hereby grant to the Secured Party a continuing security interest of first
priority in, all of the right, title and interest of the Debtor in, to and
under all of the following, whether now existing, or hereafter from time to
time acquired using proceeds of the Loans (collectively, the “Collateral”):



		
	 	            (i)       all
        Equipment, Inventory, Fixtures and Goods of the
Debtor;



2






 







		
	 	            (ii)      all
        Accounts, Deposit Accounts, Investment Property and
all other cash and currency of the Debtor;
	 
	 	            (iii)     all
        General Intangibles of the Debtor;
	 
	 	            (iv)     all
        Chattel Paper, Documents and Instruments owned by
the Debtor, as specified in Schedule I;
	 
	 	            (v)      all
        Governmental Approvals, to the maximum extent
permitted by applicable law;
	 
	 	            (vi)     all
        property and interests in property of each Debtor
now or hereafter coming into the actual possession, custody or
control of the Secured Party in any way and for any purpose
(whether for safe keeping, deposit, custody, pledge, transmission,
collection or otherwise);
	 
	 	            (vii)    all
        books and records of the Debtor relating to any
Collateral;
	 
	 	            (viii)   all
        other property and interests in property of the
Debtor constituting personal property;
	 
	 	            (ix)    all
        Commercial Tort Claims of the Debtor, as specified
on Schedule II;
	 
	 	            (x)     all
        Letter-of-Credit Rights of the Debtor;
	 
	 	            (xi)    all
        Supporting Obligations of the Debtor; and
	 
	 	            (xii)    all
        Accessions and all Collateral Proceeds and products
of any and all of the foregoing.



            (b)       The
Collateral pledged and the security interest granted by the Debtor
secures the prompt and complete payment and performance of all the Secured
Obligations owed by the Debtor, and the security interest of the Secured Party
held under this Agreement extends to all Collateral which the Debtor may
acquire at any time during the continuation of this Agreement.


            (c)       The
parties agree that a certain promissory note (the “Note”) forming
a part of a certain agreement entitled Credit and Security Agreement dated as
of November 5, 1998 between HEARx, Ltd. and HEARx West, LLC is Collateral
hereunder, but only for so long as the assets of HEARx West LLC are not
Collateral hereunder. If and when such assets become Collateral hereunder, the
Secured Party agrees to release its security interest in the Note.

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            2.02     Power of Attorney. The Debtor hereby irrevocably appoints the
Secured Party as its attorney-in-fact with right of substitution, so that the
Secured Party or any other Person empowered by the Secured Party shall be
authorized, without need of further authorization from the Debtor, at any time
upon the occurrence of and during the continuance of an Event of Default (but
not otherwise), in the Secured Party’s discretion to take any and all actions
authorized or permitted to be taken by the Secured Party under this Agreement
or by law, including but not limited to the power:



		
	 	            (i)       to effect the sale of any of the Collateral in one or
more transactions to the extent permitted by law and in such other
manner as may be determined by the attorney-in-fact, including the
direct sale without public auction of any such Collateral at such
price, and upon such terms as may be determined by the
attorney-in-fact;
	 
	 	            (ii)      to enter upon any premises where the Collateral or any
part thereof may be located without the need for a court order or
other form of authority otherwise than upon the authority granted
herein;
	 
	 	            (iii)     to take and retain actual possession and control of any
such Collateral as receivers without bond or otherwise, and
transport any of it to any location as determined by such
attorney-in-fact;
	 
	 	            (iv)    to make any repairs, additions and improvements on the
Collateral as such attorney-in-fact shall deem proper or
necessary;
	 
	 	            (v)      to administer, manage and use any of the Collateral;
	 
	 	            (vi)     to conclude any agreement and collect any monies
thereunder or otherwise due to the Debtor in respect of, or
generated through the usage of, any of the Collateral;
	 
	 	            (vii)    to institute and maintain such suits and proceedings as
such attorney-in-fact shall deem expedient to prevent any
impairment of the Collateral or to preserve and protect such
attorney-in-fact’s interest therein;
	 
	 	            (viii)    to execute and deliver such deeds of conveyance or
sale as may be necessary or proper for the purpose of conveying
full title and ownership, free from any claims and rights of the
Debtor, to any of the Collateral, after foreclosure thereof; and
	 
	 	            (ix)    in general, to sign such agreements and documents and
perform such acts and things required, necessary or, in the
opinion of such attorney-in-fact, advisable, to fully accomplish
the purpose hereof.



4






 




            The Debtor hereby confirms and ratifies any and all actions and things
performed or done by the Secured Party as the Debtor’s attorney-in-fact or any
of its representatives in each case pursuant to the powers granted hereunder.


            This special power of attorney shall be deemed coupled with an interest,
and cannot be revoked by the Debtor until all of the Secured Obligations have
been paid in full and all Commitments have been terminated.


            2.03     Costs of Enforcement. All reasonable costs, expenses, charges and fees
paid or incurred by the Secured Party in the exercise of any of the rights,
remedies or powers granted under this Agreement shall be for the account of the
Debtor, and the Debtor undertakes promptly on demand to pay the same or, as the
case may be, to reimburse the Secured Party therefor.



	 	 	 	 	 
			SECTION 3.
		GENERAL REPRESENTATIONS AND WARRANTIES



            The Debtor represents and warrants, which representations and warranties
shall survive execution and delivery of this Agreement and the payment in full
of the Secured Obligations, as follows:


            3.01     Location of Collateral. All material amounts of the Inventory and
Equipment are located at the places specified on Schedule III. The office
where the Debtor keeps its records concerning Accounts and other Collateral is
located at the address specified on Schedule III for the Debtor. None of the
Accounts is evidenced by an Instrument or by Chattel Paper, except as those
which may be disclosed on Schedule I.


            3.02     Debtor Organization. The Debtor’s exact legal name, state of
incorporation or formation, principal place of business and chief executive
office are (and for the four months prior to the date hereof has been) as set
forth on Schedule III. The Debtor is qualified to do business and in good
standing in all states and other jurisdictions in which the failure to be so
qualified and in good standing would have a Material Adverse Effect or a
material adverse effect on the ability of the Debtor to enforce the collection
of Accounts due from customers residing in such locations.


            3.03     Enforceability. This Agreement has been duly executed and delivered
by the Debtor and constitutes a legal, valid and binding obligation of the
Debtor enforceable in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights
generally and by general principles of equity (whether enforcement is sought by
proceedings in equity or at law).


            3.04     Ownership. The Debtor is the legal, record and beneficial owner of,
and has good and marketable title to, the Collateral, free and clear of any
Lien whatsoever, except for (A) the Lien created hereby, and (B) any other
Permitted Lien. To Debtor’s knowledge, no financing statement or other
security instrument is on file in any

5






 




jurisdiction covering any of the Collateral, other than such as have been
filed with respect to either (i) the Lien created hereby or (ii) another
Permitted Lien.


            3.05     Business. The Debtor does not conduct any business under any name or
trade name other than those set forth on Schedule III. The taxpayer
identification number of the Debtor is set forth on Schedule III.


            3.06     Control. Except for Inventory in transit in the ordinary course of
the Debtor’s business, the Debtor has exclusive possession and control of the
Inventory and Equipment.


            3.07     Liens. This Agreement creates a continuing Lien in the Collateral,
securing the payment of the Secured Obligations.


            3.08     Consents. No consent or authorization of, filing with, notice to, or
other act by or in respect of, any Governmental Authority or any other Person
is required with respect to the Debtor in connection with either (i) the grant
by the Debtor of the Lien created hereby or the execution, delivery or
performance of this Agreement by the Debtor or (ii) for the perfection of or
the exercise by the Secured Party of its rights and remedies hereunder, other
than the filing of financing statements and continuing statements with the
Secretary of State of the State of Delaware.



	 	 	 	 	 
			SECTION 4.		SPECIAL PROVISIONS CONCERNING ACCOUNTS; INSTRUMENTS;
CHATTEL PAPER;
COMMERCIAL TORT CLAIMS



            4.01     Additional Representations and Warranties. As of the time when each
material Account arises, the Debtor shall be deemed to have represented and
warranted, to the best of its knowledge and belief and unless otherwise
disclosed by the Debtor in writing to the Secured Party, that such Account, and
all records, papers and documents relating thereto (if any) are genuine and in
all respects what they purport to be, will evidence true and valid obligations,
enforceable in accordance with their respective terms and will be in compliance
and will conform with all applicable law.


            4.02     Maintenance of Records. The Debtor will keep and maintain at its own cost
and expense satisfactory and complete records of the Accounts, including, but
not limited to, the originals of all documentation with respect thereto,
records of all payments received, all credits granted thereon (subject to
customary record retention policies) and all other dealings therewith, and the
Debtor will make the same available to the Secured Party for inspection at all
reasonable times upon reasonable prior written notice. The Debtor shall, at
its own cost and expense, deliver all tangible evidence of the Accounts
(including, without limitation, all documents evidencing the Accounts) and such
books and records to the Secured Party or to its representatives (copies of
which evidence and books and records may be retained by the Debtor) upon its
demand at any time after the occurrence of and during the continuance of an
Event of Default. If the Secured Party so directs, the Debtor shall legend, in
form and manner reasonably

6






 




satisfactory to the Secured Party, the Accounts, as well as books, records and
documents of the Debtor evidencing or pertaining to the same with an
appropriate reference to the fact that the Accounts have been assigned to the
Secured Party and that the Secured Party has a security interest therein.


            4.03     Direction to Account Debtors; Contracting Parties; etc. The Debtor agrees
that upon the occurrence of and during the continuance of an Event of Default,
the Secured Party may, at its option, directly notify the obligors with respect
to any Accounts to make payments with respect thereto as directed by Secured
Party and (ii) the Secured Party may apply, without notice to or assent by the
Debtor, any or all such amounts in the manner provided in the Credit Agreement.


            4.04     Collection. The Debtor shall endeavor to cause to be collected from the
account debtor named in the Debtor’s Accounts, as and when due (including,
without limitation, amounts which are delinquent, such amounts to be collected
in accordance with generally accepted lawful collection procedures) any and all
amounts owing under or on account of such Account, and apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding balance
of such Account, except that, unless an Event of Default shall have occurred
and be continuing (and shall not have been waived by an appropriate vote or
other action by the Lender), the Debtor may, subject to compliance with the
Credit Agreement and other Loan Documents, allow in the ordinary course of
business as adjustments to amounts owing under the Debtor’s Accounts (i) an
extension or renewal of the time or times of payment, or settlement for less
than the total unpaid balance, which the Debtor finds appropriate in accordance
with sound business judgment and (ii) a refund or credit due as a result of
returned or damaged merchandise or improperly performed services.


            4.05     Instruments and Chattel Paper. If any Collateral shall be evidenced by
any Instrument or Chattel Paper, the Debtor shall within 10 Business Days of
Debtor’s receipt thereof either (i) deliver or pay over or otherwise credit to
the account of the Secured Party such Instrument or Chattel Paper; or (ii)
notify the Secured Party thereof, and shall upon request by the Secured Party
promptly deliver such Instrument or Chattel Paper to the Secured Party
appropriately endorsed to the order of the Secured Party as further security
hereunder.


            4.06     Commercial Tort Claims. If the Debtor becomes involved, or becomes aware
of a reasonable likelihood of becoming involved, in a Commercial Tort Claim,
the Debtor shall within 10 Business Days thereof provide the Secured Party with
reasonable details thereof such that Schedule II may be appropriately updated.



	 	 	 	 	 
			SECTION 5.		SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND

TRADEMARKS



            5.01     Additional Representations and Warranties. The Debtor represents and
warrants as follows:

7






 




            (a)        As of the Closing Date, the Debtor owns the Patents, Copyrights and
Trademarks set forth on Schedule IV.


            (b)        The Debtor is licensed to practice under or use all technology that it
now uses or practices under.


            (c)        It is aware of no third party claim that any aspect of the Debtor’s
present or contemplated business operations infringes or will infringe any
Patent, Copyright, trade secret or Trademark.


            5.02     Infringements. Promptly upon learning thereof, the Debtor shall notify
the Secured Party in writing of all pertinent details available thereto, with
respect to any infringement or other violation of the Debtor’s rights in any
Patent, Copyright or Trademark that could reasonably be expected to have a
Material Adverse Effect, whether or not such right is presently held by the
Debtor. As to each such instance, to the extent deemed appropriate by the
Debtor in its commercially reasonable judgement, and to the extent permitted by
all requirements of law, the Debtor shall diligently pursue a remedy. Promptly
upon learning thereof, the Debtor shall notify the Secured Party in writing of
any claim that any activity of the Debtor infringes or otherwise violates the
right of any third party with respect to any patent, copyright or trademark.


            5.03     Other Patents, Copyrights and Trademarks. If the Debtor hereafter
acquires rights in any material Patent, Copyright or Trademark, the Debtor
shall deliver to the Secured Party within 30 days of such acquisition, a copy
of such Patent, Copyright or Trademark.


            5.04     Remedies. If an Event of Default shall occur and be continuing (and
shall not have been waived by an appropriate vote or other action by the
Lender), the Secured Party, acting pursuant to and in accordance with the terms
of the Credit Agreement, by written notice to the Debtor may (a) take and
practice or use or sell any or all of such Patents, Copyrights or Trademarks,
or take and use or sell the Debtor’s rights in such Patents, Copyrights or
Trademarks, along with the goodwill and all other elements of the Debtor’s
ongoing business symbolized by such assets and secured under this Agreement,
and the right to carry on the business of the Debtor in connection with which
such assets have been used, and (b) direct the Debtor to refrain, in which
event the Debtor shall refrain, from practicing under such Patent and Copyright
rights directly or indirectly, or from using the Trademarks in any manner,
directly or indirectly, and if requested by the Secured Party, the Debtor shall
change its name to eliminate therefrom any use of any Trademarks, and execute
any other and further documents which the Secured Party may request further to
confirm the foregoing and to permit the Secured Party to enforce its remedies
relating to such trademarks, patents and/or copyrights.


8






 






	 	 	 	 	 
			SECTION 6.		PROVISIONS CONCERNING ALL COLLATERAL; INSURANCE



            6.01     Protection of the Secured Party’s Interests. The Debtor will do nothing
to impair the rights of the Secured Party in the Collateral; provided, however,
that nothing herein shall prevent the Debtor, prior to the exercise by the
Secured Party of any such rights, from undertaking the Debtor’s operations in
the ordinary course of business. The Debtor assumes all liability and
responsibility in connection with the Collateral which it owns and the
liability of the Debtor with respect to the Secured Obligations shall in no way
be affected or diminished by reason of the fact that such Collateral may be
lost, destroyed, stolen, damaged or for any reason whatsoever be unavailable to
the Debtor.


            6.02     Further Actions. The Debtor will, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to the Secured Party from time to
time such lists, descriptions and designations of the Collateral, warehouse
receipts, receipts in the nature of warehouse receipts, bills of lading,
documents of title, vouchers, invoices, schedules, confirmatory assignments,
conveyances, financing statements, transfer endorsements, powers of attorney,
certificates, reports and other assurances or instruments and take such further
steps relating to the Collateral and other property or rights covered by the
interests hereby granted, which the Secured Party, upon written direction,
deems reasonably appropriate or advisable to perfect, preserve or protect its
security interests in the Collateral.


            6.03     Financing Statements. The Debtor agrees to sign and deliver to the
Secured Party such financing statements (or similar statement or instrument of
registration under the law of any jurisdiction), in form acceptable to the
Secured Party as it may from time to time reasonably request or as are
necessary or desirable in its reasonable opinion to establish and maintain the
security interests contemplated hereunder as valid, enforceable giving effect
to first priority security interests as provided herein and the other rights
and security contemplated herein, all in accordance with the UCC or any other
applicable law. The Debtor will pay any applicable filing fees and related
expenses in connection with such financing statements (or similar statement or
instrument of registration). The Debtor authorizes the Secured Party to file
any such financing statements without the signature of the Debtor to the extent
permitted by law. In addition, the Debtor hereby irrevocably makes,
constitutes and appoints the Secured Party (and all Persons designated by the
Secured Party for that purpose) the Debtor’s true and lawful attorney-in-fact
to sign the name of the Debtor on any financing statement or other writing
necessary or requested by the Secured Party to perfect its Lien on or in any of
the Collateral or to maintain the perfection thereof. The Secured Party agrees
to provide the Debtor with a copy of any financing statement filed without the
signature of the Debtor.


            6.04     Location. The Debtor shall not, without at least thirty (30) days’
prior written notice to the Secured Party, (i) change the location of its chief
executive

9






 




office/chief place of business from that specified on Schedule III or
remove its books and records from the location specified on Schedule III, (ii)
change its name (including the
adoption of any new trade name), jurisdiction of incorporation, identity
or corporate structure, or (iii) change the location of any other Collateral to
a location not listed on Schedule III; provided, however, this Section 6.04
shall not restrict the Debtor from disposing of or removing any Collateral for
repairs or similar purposes in the ordinary course of its business. The Debtor
shall from time to time notify the Secured Party of each location at which any
material portion of the Collateral or such books and records are to be kept for
temporary processing, storage, repair or similar purposes. No action requiring
notice to the Secured Party under this paragraph shall be effected until such
filings and other measures as may be required under applicable law to continue
uninterrupted the perfected Lien of the Secured Party on and in the Collateral
affected thereby shall have been taken.


            6.05     Adverse Claims. The Debtor shall defend the Collateral against all
claims and demands of all Persons (other than the Secured Party and holders of
Permitted Liens) claiming an interest therein. The Debtor shall pay promptly
when due all property and other taxes, assessments and governmental charges or
levies imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Collateral, except to the extent that (i) the Debtor is,
in good faith and by appropriate proceedings, contesting the validity thereof
and (ii) the Collateral that is the subject thereof is not in imminent risk of
seizure, levy, sale, execution or other process.


            6.06     Taxes. The Debtor confirms to the Secured Party that any and all
taxes or fees relating to its business, including, but not limited to, the
Accounts and all goods relating thereto, are its sole responsibility and shall
be paid by the Debtor when due and that none of said taxes or fees represent a
Lien on the Collateral. The Debtor shall maintain its status as a validly
existing legal entity, and shall remain qualified to do business and in good
standing in all states and other jurisdictions in which the failure to be so
qualified and in good standing would have a Material Adverse Effect or a
material adverse effect on the ability of the Debtor to enforce collection of
the Accounts due from customers residing in such locations.


            6.07     No Other Liens. The Debtor shall not grant, create or permit to
exist any Lien upon all or any portion of the Collateral, or any proceeds
thereof, in favor of any other Person other than the Secured Party; and shall
not create, or permit to exist, any obligations, other than those secured by
the Permitted Liens (as defined in the Credit Agreement of even date), that are
secured thereby. Notwithstanding the generality of the foregoing sentence,
Debtor may grant a security interest in its accounts receivable in order to
incur Senior Permitted Indebtedness (as defined in said Credit Agreement) and
the Secured Party agrees to do such acts, and to execute such documents, as to
permit Debtor to grant such security interest, all at no charge to the Debtor,
but at Debtor’s sole expense.

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            6.08     Access. The Debtor shall permit the Secured Party, or its
representatives, to have access to the Inventory and the Equipment, and other
tangible Collateral for purposes of inspection during normal business hours and
upon reasonable notice to the Debtor; and shall promptly notify the Secured
Party in writing of any material loss or damage to the Inventory, Equipment or
other Collateral.



	 	 	 	 	 
			SECTION 7.		REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT



            7.01     Remedies; Obtaining the Collateral Upon Default. The Debtor agrees that,
if any Event of Default shall have occurred and be continuing (and shall not
have been waived by an appropriate vote or other action by the Lender), then
and in every such case, subject to the terms and provisions of the Credit
Agreement and any applicable law, the Secured Party, in addition to any rights
now or hereafter existing under any applicable law, shall have all rights as a
secured creditor under the UCC or other any applicable law in all relevant
jurisdictions and may, acting pursuant to and in accordance with the terms of
the Credit Agreement and other Loan Documents:


            (a)        personally, or by agents or attorneys, immediately retake possession
of the Collateral or any part thereof, from the Debtor or any other Person who
then has possession of any part thereof with or without notice or process of
law, and for that purpose may enter upon the Debtor’s premises where any of the
Collateral is located and remove the same and use in connection with such
removal any and all services, supplies, aids and other facilities of the
Debtor; and


            (b)        instruct the obligor or obligors on any agreement, instrument or other
obligation, and the Accounts constituting the Collateral to make any payment
required by the terms of such instrument or agreement directly to Secured
Party; and


            (c)        sell, assign or otherwise liquidate, or direct the Debtor to sell,
assign or otherwise liquidate, any or all of the Collateral or any part
thereof, and take possession of the proceeds of any such sale or liquidation;
and


            (d)        take possession of the Collateral or any part thereof, by directing
the Debtor in writing to deliver the same to the Secured Party at any place or
places designated by the Secured Party, in which event the Debtor shall at its
own expense:



		
	 	            (i)       forthwith cause the same, to the extent reasonably
feasible, to be moved to the place or places so designated by the
Secured Party and there delivered to the Secured Party,




		
	 	            (ii)      store and keep any Collateral so delivered to the
Secured Party (to the extent not physically delivered to the
Secured Party) at such place or places pending further action by
the Secured Party as provided in Section 7.02, and



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	 	            (iii)     while such Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be necessary
to protect the same and to preserve and maintain them in good
condition;




		
	 	it being understood that the Debtor’s obligation to so deliver the
Collateral is of the essence of this Agreement and that,
accordingly, upon application
to a court having jurisdiction, the Secured Party shall be
entitled to a decree requiring specific performance by the Debtor
of such obligation.



            7.02     Remedies; Disposition of the Collateral. Any Collateral repossessed by
the Secured Party under or pursuant to Section 7.01, and any other Collateral
whether or not so repossessed by the Secured Party, may be sold, assigned,
leased or otherwise disposed of under one or more contracts or as an entirety,
and without the necessity of gathering at the place of sale the property to be
sold, and in general in such manner, at such time or times, at such place or
places and on such terms as the Secured Party may, upon written direction in
compliance with all applicable law, determine to be commercially reasonable.
Any of the Collateral may be sold, leased or otherwise disposed of, in the
condition in which the same existed when taken by the Secured Party or after
any overhaul or repair which the Secured Party shall determine to be
commercially reasonable. Any such disposition which shall be a private sale or
other private proceeding permitted by such requirements shall be made upon not
less than ten days’ written notice to the Debtor specifying the time at which
such disposition is to be made and the intended sale price or other
consideration therefor, and shall be subject, for the ten days after the giving
of such notice, to the right of the Debtor or any nominee of the Debtor to
acquire the Collateral involved at a price or for such other consideration at
least equal to the intended sale price or other consideration so specified. To
the extent permitted by all requirements of law, the Secured Party may bid for
and become the purchaser of the Collateral or any item thereof, offered for
sale in accordance with this Section 7.02. If, under any applicable law, the
Secured Party shall be required to make disposition of the Collateral within a
period of time which does not permit the giving of notice to the Debtor as
hereinabove specified, the Secured Party shall give the Debtor only such notice
of disposition as shall be reasonably practicable in view of such applicable
law.


            7.03     Waiver of Claims. Except as otherwise provided in this Agreement,
THE DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY ALL REQUIREMENTS OF LAW,
NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE SECURED PARTY TAKING
POSSESSION OR THE SECURED PARTY’S DISPOSITION OF ANY OF THE COLLATERAL, IN EACH
CASE IF AND AS PERMITTED BY ALL REQUIREMENTS OF LAW, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT WHICH THE DEBTOR WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION

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THEREOF, and the Debtor hereby further waives, to the extent permitted by all
applicable law:



		
	 	            (i)       all damages occasioned by such taking of possession
except any damages which are the direct result of the gross
negligence or willful misconduct of the Secured Party or any
Person acting on its behalf or instruction;
	 
	 	            (ii)      all other requirements as to the time, place and terms
of sale or other requirements with respect to the enforcement of
the Secured Party’s rights hereunder; and




		
	 	            (iii)     all rights of redemption, appraisement, valuation,
stay, extension or moratorium now or hereafter in force under any
applicable law in order to prevent or delay the enforcement of
this Agreement (including, without limitation, any right to claim
that such enforcement should be stayed pending the outcome of any
other action or proceeding (including any arbitration proceeding))
or the absolute sale of the Collateral or any portion thereof,
and the Debtor, for itself and all who may claim under it, insofar
as it or they now or hereafter lawfully may, hereby waives the
benefit of all such applicable of law.



Any sale of, or the grant of options to purchase, or any other realization
upon, any Collateral shall operate to divest all right, title, interest, claim
and demand, either at law or in equity, of the Debtor therein and thereto, and
shall be a perpetual bar both at law and in equity against the Debtor and
against any and all Persons claiming or attempting to claim the Collateral so
sold, optioned or realized upon, or any part thereof, from, through and under
the Debtor.


            7.04     Application of Proceeds. The proceeds of any Collateral obtained
pursuant to Section 7.01 or disposed of pursuant to Section 7.02 shall be
applied in accordance with Section 7.01 of the Credit Agreement.


For the avoidance of doubt, it is understood that the Debtor shall remain
liable to the extent of any deficiency between the amount of the proceeds of
the Collateral pledged by the Debtor and the aggregate amount of the Secured
Obligations owed by the Debtor.


            7.05     Remedies Cumulative. No failure or delay on the part of the Secured
Party in exercising any right, power or privilege hereunder or under any other
Loan Document and no course of dealing between the Debtor and the Secured Party
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Loan Document expressly provided are cumulative
and not exclusive of any rights, powers or remedies which the Secured Party
would otherwise have. No notice to or demand on the Debtor in

13






 




any case shall
entitle the Debtor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Secured Party to any
other or further action in any circumstances without notice or demand.


            7.06     Discontinuance of Proceedings. In case the Secured Party shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been
determined adversely to the
Secured Party, then and in every such case the Debtor, Secured Party shall
be restored to their former positions and rights hereunder with respect to the
Collateral subject to the security interest created under this Agreement, and
all rights, remedies and powers of the Secured Party shall continue as if no
such proceeding had been instituted.



	 	 	 	 	 
			
SECTION 8.
		INDEMNITY



            The provisions of Section 8.04(b) of the Credit Agreement are incorporated
herein by reference.



	 	 	 	 	 
			
SECTION 9.
		MISCELLANEOUS



            9.01     Notices. All notices hereunder, unless otherwise specified, shall be
provided as specified in Section 8.02 of the Credit Agreement. Promptly after
the execution of any and all amendments, supplements and waivers, of and to the
Collateral, originals, if reasonably available and, if not, copies of such
amendments, supplements and waivers shall be delivered to the Secured Party.


            9.02     Waiver; Amendment. This Agreement may be amended, waived,
discharged, or (except as provided in Section 9.08) terminated only by an
instrument in writing.


            9.03     Obligations Absolute. The obligations of the Debtor under this
Agreement shall be absolute and unconditional and shall remain in full force
and effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (i) any renewal, extension, amendment or
modification of, or addition or supplement to or deletion from, the Credit
Agreement or any of the Loan Documents or any other instrument or agreement
referred to therein, or any assignment or transfer of any thereof; (ii) any
waiver, consent, extension, indulgence or other action or inaction under or in
respect of any such instrument or agreement or this Agreement or any exercise
or non-exercise of any right, remedy, power or privilege under or in respect of
this Agreement or any other Loan Documents; (iii) any furnishing of any
additional security (including, without limitation, any assets, whether now
owned or hereafter acquired, upon which a Lien is created or granted from time
to time) to the Secured Party or any acceptance thereof or any sale, exchange,
release, surrender or realization of or upon any security by the Secured Party;
or (iv) any invalidity, irregularity or unenforceability of all or part of the
Secured Obligations or of any security therefor. In

14






 




the event of any
inconsistency between this Agreement and the Credit Agreement, the Credit
Agreement shall govern.


            9.04     Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Debtor may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of the Secured Party. The Secured Party may transfer, assign
or grant all or such relevant part of its rights
hereunder in accordance with the provisions of the Credit Agreement. All
agreements, statements, representations and warranties made by the Debtor
herein or in any certificate or other instrument delivered by the Debtor or on
its behalf under this Agreement shall be considered to have been relied upon by
the Secured Party and shall survive the execution and delivery of this
Agreement, the Credit Agreement and the other Loan Documents regardless of any
investigation made by the Secured Party or on its behalf.


            9.05     Headings Descriptive, etc. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not
in any way affect the meaning or construction of any provision of this
Agreement.


            9.06     GOVERNING LAW; SUBMISSION to JURISDICTION and VENUE; WAIVER of JURY
TRIAL. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAW PRINCIPLES (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW), EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.


            (b)        The Debtor and the Secured Party, to the extent that they may lawfully
do so, hereby consent to service of process, and to be sued, in the Borough of
Manhattan, City and State of New York, and consent to the nonexclusive
jurisdiction of the courts of the State of New York located in such Borough and
the United States District Court for the Southern District of New York, as well
as to the jurisdiction of all courts to which an appeal may be taken from such
courts, for the purpose of any suit, action, or other proceeding arising out of
any of their obligations hereunder or with respect to the transactions
contemplated hereby, and expressly waive any and all objections they may have
as to venue in any such courts.


            (c)        The Debtor consents to receive all service of process in the State of
New York via registered mail at its respective address set forth in Section
8.02 of the Credit Agreement. Such service of process shall be deemed
completed upon the date of delivery to the Debtor, or, if later, upon the
earliest of any other date permitted by applicable law.

15






 




            (d)        EACH PARTY HERETO HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OR CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE DEBTOR OR THE SECURED
PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO
THIS AGREEMENT.


            9.07     The Debtor’s Duties. It is expressly agreed, anything herein contained to
the contrary notwithstanding, that the Debtor shall remain liable to perform
all of the obligations, if any, assumed by it with respect to the Collateral
and the Secured Party shall have no obligations or liabilities with respect to
any Collateral by reason of or arising out of or in connection with this
Agreement, nor shall the Secured Party be required or obligated in any manner
to perform or fulfill any of the obligations of the Debtor under or with
respect to any Collateral.


            9.08     Termination; Release. This Agreement shall terminate when all
Secured Obligations have been paid in full and all Commitments have been
terminated, and the Secured Party, at the expense of the Debtor, will promptly
execute and deliver to the Debtor the proper instruments (which shall include
UCC termination statements on form UCC-3) acknowledging the termination of this
Agreement, and will promptly duly assign, transfer and deliver to the Debtor
(without recourse and without any representation or warranty) free from any
interest of the Secured Party or Lien granted hereunder such of the Collateral
as may be in possession of the Secured Party and has not theretofore been sold
or otherwise applied or released pursuant to this Agreement together with such
notices to third parties as may be necessary to countermand any notices
previously sent to them pursuant hereto.


            9.09     Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but both of which
shall together constitute one and the same instrument.


            9.10     Severability. In case any one or more of the provisions contained in
this Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected and/or impaired thereby. In addition,
the Debtor and the Secured Party undertake to negotiate in good faith with a
view to replacing such invalid, illegal or unenforceable provision with another
provision not so invalid, illegal or unenforceable with the same or similar
effect.



[SIGNATURE PAGE FOLLOWS]



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




	 	HEARx, LTD.







	 	By : /s/ Stephen J. Hansbrough

Name: Stephen J. Hansbrough

Title: President and Chief Operating Officer







	 	SIEMENS HEARING INSTRUMENTS, INC.







	 	By : /s/ John R. Krauter

Name: John R. Krauter

Title: President and Chief Financial Officer