Document:

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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:
	 	 	 	 	 
	 	 	

	 	 	

	 	 	

	 	 	

23exv10w2

 

EXHIBIT 10.2

REGISTRATION RIGHTS
AGREEMENT

     This Registration Rights Agreement (this “Agreement”) is made and entered
into as of this      day of
           , 20      by and among HEARUSA, INC., a
corporation organized under the laws of Delaware (the “Company”), and the
persons identified as Purchasers pursuant to that certain Purchase Agreement of
even date herewith by and among the Company and such Purchasers (the “Purchase
Agreement”).

     The parties hereby agree as follows:

          1. Definitions.

          Capitalized terms used herein but not otherwise defined shall have the
meaning ascribed thereto in the Purchase Agreement and/or the Warrants or Notes
issued pursuant to the Purchase Agreement. As used in this Agreement, the
following terms shall have the following meanings:

          “Additional Registrable Securities” shall mean any shares of Common Stock
which are included within the definition of Registrable Securities but not
included in any Registration Statement filed pursuant to Section 2(a)(i) below.

          “Common Stock” shall mean the Company’s Common Stock $0.10 per share.

          “Conversion Price” shall have the meaning set forth in the Notes.

          “Filing Date” shall mean the date which is thirty (30) days following the
date on which the Company files (or is required to file, if earlier) its Form
10-K for the year ended on or about December 28, 2003.

          “Prospectus” shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities or Additional Registrable Securities covered by such Registration
Statement and by all other amendments and supplements to the prospectus,
including post-effective amendments and all material incorporated by reference
in such prospectus.

          “Purchasers” shall mean the purchasers identified in the Purchase
Agreement and any subsequent holder of any Notes, Warrants, Registrable
Securities or Additional Registrable Securities as a result of a transfer of
such securities.

          “Register,” “registered” and “registration” refer to a registration made
by preparing and filing a registration statement or similar document in
compliance with the 1933 Act (as defined below), and the declaration or
ordering of effectiveness of such registration statement or document.

 

 

          “Registrable Securities” shall mean (i) the Underlying Shares, the Warrant
Shares and any other shares of Common Stock issued or issuable (a) upon
conversion of, or payment of interest or repayment of principal under, the
Notes, and upon the exercise of the Warrants, or (b) upon any distribution with
respect to, any exchange for or any replacement of such Notes or Warrants, or
(c) upon any conversion, exercise or exchange of any securities issued in
connection with any such distribution, exchange or replacement; (ii) securities
issued or issuable upon any stock split, stock dividend, recapitalization or
similar event with respect to such shares of Common Stock; and (iii) any other
security issued as a dividend or other distribution with respect to, in
exchange for, or in replacement of, the securities referred to in the preceding
clauses.

          “Registration Statement” shall mean any registration statement of the
Company filed under the 1933 Act that covers the resale of any of the
Registrable Securities or Additional Registrable
Securities pursuant to the provisions of this Agreement, amendments and
supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.

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

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

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

     2.     Registration.

          (a) Registration Statements.

               (i) Registrable
Securities. On or prior to the Filing Date, the Company
shall prepare and file with the SEC one Registration Statement on Form S-3
(or, if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for
resale of the Registrable Securities, subject to the Purchasers’ consent),
covering the resale of the Registrable Securities in an amount equal to 100%
of the number of Underlying Shares issuable upon full conversion of the Notes
at the Conversion Price as of the filing date plus 100% of the number
of shares of Common Stock necessary to permit the exercise in full of the
Warrants (in each case without regard to any restrictions on beneficial
ownership). Such Registration Statement also shall cover, to the extent
allowable under the 1933 Act and the rules promulgated thereunder (including
Rule 416), such indeterminate number of additional shares of Common Stock
resulting from stock splits, stock dividends, Dilutive Issuances, or similar
transactions with respect to the Registrable Securities. No securities shall
be included in the Registration Statement without the consent of the
Purchasers other than the Registrable Securities. The Registration Statement
(and each amendment or supplement thereto) shall be provided in

2

 

\

accordance with Section 3(c) to the Purchasers and their counsel prior to
its filing or other submission.

               (ii) Additional Registrable Securities. At any time and from time to
time upon the written demand of any Purchaser following the existence of any
Additional Registerable Securities, and in any event within thirty (30) days
following such demand, the Company shall prepare and file with the SEC one
Registration Statement on Form S-3 (or, if Form S-3 is not then available to
the Company, on such form of registration statement as is then available to
effect a registration for resale of the Additional Registrable Securities)
covering the resale of the Additional Registrable Securities in an amount
equal to the number of Additional Registrable Securities. Such Registration
Statement also shall cover, to the extent allowable under the 1933 Act and the
rules promulgated thereunder (including Rule 416), such indeterminate number
of additional shares of Common Stock resulting from stock splits, stock
dividends, Dilultive Issuances, or similar transactions with respect to the
Additional Registrable Securities. The Registration Statement (and each
amendment or supplement thereto) shall be provided in accordance with Section
3(c) to the Purchaser and its counsel prior to its filing or other submission.

          (b) Expenses. The Company will pay all expenses associated with each
registration, including the Purchasers’ reasonable expenses (including
reasonable attorneys fees up to $5,000), in connection with the registration
but excluding discounts, commissions, fees of underwriters, selling brokers,
dealer managers or similar securities industry professionals.

          (c) Effectiveness.

               (i) The Company shall use its best efforts to have each Registration
Statement declared effective as soon as possible after filing. If (A) the
Registration Statement covering Registrable Securities is not declared
effective by the SEC within three (3) months following the Filing Date (or
within 30 days of the Filing Date in the event the SEC does not review the
Registration Statement), or the Registration Statement covering Additional
Registrable Securities is not declared effective by the SEC within three (3)
months following demand of a Purchaser relating to the Additional Registrable
Securities to be covered thereby (each of the foregoing deadlines, a
“Registration Date”), (B) except as maybe provided in subparagraph (c)(ii)
below for an Allowed Delay, after a Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to such Registration
Statement for any reason (including without limitation by reason of a stop
order, or the Company’s failure to update the Registration Statement) but
except as excused pursuant to subparagraph (ii) below, (C) the Registrable
Securities (or Additional Registrable Securities after issuance and
registration) specifically are not listed or included for quotation on the
Nasdaq National Market System, the Nasdaq Small-Cap Market, the New York Stock
Exchange or the American Stock Exchange (each an “Approved Market”) or trading
of the Common Stock is suspended or halted thereon, or (D) the Company fails,
refuses or is otherwise unable to timely issue Underlying Shares upon
conversion of the Notes or Warrant Shares upon exercise of the Warrants, in
accordance with the terms of the Notes and Warrants, in each case within
twenty (20) days

3

 

following the Purchaser’s written demand for issuance of such Underlying
Shares or Warrant Shares or certificates, then the Company will make pro-rata
payments to the Purchaser as liquidated damages and not as a penalty, in an
amount equal to 2% of the sum of the aggregate principal amount then
outstanding under the Notes for each month (or portion thereof) following the
Registration Date during which any of the events described in (A), (B), (C) or
(D) above occurs and is continuing (the “Blackout Period”). Each such payment
shall be due and payable within five (5) days of the end of each month (or
ending portion thereof) of the Blackout Period until the termination of the
Blackout Period. The Blackout Period shall terminate upon (x) the
effectiveness of the applicable Registration Statement in the case of (A) and
(B) above; (y) listing or inclusion and/or trading of the Registrable
Securities on an Approved Market in the case of (C) above; and (z) delivery of
such shares in the case of (D) above.

               (ii) For not more than ten (10) consecutive trading days or for a total
of not more than thirty (30) trading days in any consecutive twelve (12) month
period, the Company may delay the disclosure of material non-public
information concerning the Company, by terminating or suspending effectiveness
of any registration contemplated by this Section, the disclosure of which at
the time is not, in the good faith opinion of the Company, in the best
interests of the Company (an “Allowed Delay”); provided, that the Company
shall promptly (a) notify the Purchasers in writing of the existence of (but
in no
event, without the prior written consent of a Purchaser, shall the
Company disclose to such Purchaser any of the facts or circumstances
regarding) material non-public information giving rise to an Allowed Delay,
and (b) advise the Purchasers in writing to cease all sales under the
Registration Statement until the end of the Allowed Delay. No payments under
subparagraph (c)(i) shall be required in the event and for the duration of an
Allowed Delay.

          (d) Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering,
the Company shall have the right to select an investment banker and manager to
administer the offering, which investment banker or manager shall be reasonably
satisfactory to the Purchasers.

     3.     Company Obligations. The Company will use its best efforts to effect
the registration of the Registrable Securities and Additional Registrable
Securities in accordance with the terms hereof, and pursuant thereto the
Company will, as expeditiously as possible:

          (a) use its best efforts to cause such Registration Statement to become
effective and to remain continuously effective for a period (the “Registration
Period”) that will terminate upon the earlier of (i) the date on which all
Registrable Securities or Additional Registrable Securities have been sold (and
no Notes or Warrants remain outstanding), and (ii) the date on which all
Registrable Securities or Additional Registrable Securities, as the case may
be, may be sold pursuant to Rule 144(k).

          (b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement and the Prospectus as may be necessary
to keep the Registration Statement effective for the period specified in
Section 3(a) and to comply with the provisions of the 1933 Act and the 1934 Act
with respect to the distribution of all

4

 

Registrable Securities and Additional Registrable Securities; provided
that, at a time reasonably prior to the filing of a Registration Statement or
Prospectus, or any amendments or supplements thereto, the Company will furnish
to the Purchasers copies of all documents proposed to be filed, which documents
will be subject to the comments of the Purchasers;

          (c) permit counsel designated by the Purchasers to review each
Registration Statement and all amendments and supplements thereto no fewer than
five (5) business days prior to their filing with the SEC and not file any
document to which such counsel reasonably objects;

          (d) furnish to the Purchasers and their legal counsel (i) promptly after
the same is prepared and publicly distributed, filed with the SEC, or received
by the Company, one copy of any Registration Statement and any amendment
thereto, each preliminary prospectus and Prospectus and each amendment or
supplement thereto, and each letter written by or on behalf of the Company to
the SEC or the staff of the SEC, and each item of correspondence from the SEC
or the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
Prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as each Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
and Additional Registrable Securities owned by such Purchaser;

          (e) in the event the Company selects an underwriter for the offering, the
Company shall enter into and perform its reasonable obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriter of such offering;

          (f) if required by the underwriter, or if any Purchaser is described in
the Registration Statement as an underwriter, the Company shall furnish, on the
effective date of the Registration Statement, on the date that Registrable
Securities or Additional Registrable Securities, as applicable, are delivered
to an underwriter, if any, for sale in connection with the Registration
Statement and at periodic intervals thereafter from time to time on request,
(i) an opinion, dated as of such date, from legal counsel representing the
Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the underwriter and any such Purchaser and (ii) a letter, dated such date,
from the Company’s independent certified public accountants in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriter and any such Purchaser;

          (g) make effort to prevent the issuance of any stop order or other
suspension of effectiveness and, if such order is issued, obtain the withdrawal
of any such order at the earliest possible moment;

          (h) furnish to each Purchaser at least five copies of the Registration
Statement and any post-effective amendment thereto, including financial
statements and

5

 

schedules by air mail or reputable courier within three (3) business days
of the effective date thereof;

          (i) prior to any public offering of Registrable Securities or Additional
Registrable Securities, use its best efforts to register or qualify or
cooperate with the Purchasers and their counsel in connection with the
registration or qualification of such Registrable Securities or Additional
Registrable Securities, as applicable, for offer and sale under the securities
or blue sky laws of such jurisdictions requested by the Purchaser and do any
and all other reasonable acts or things necessary or advisable to enable the
distribution in such jurisdictions of the Registrable Securities or Additional
Registrable Securities covered by the Registration Statement;

          (j) cause all Registrable Securities or Additional Registrable Securities
covered by a Registration Statement to be listed on each securities exchange,
interdealer quotation system or other market on which similar securities issued
by the Company are then listed;

          (k) immediately notify the Purchasers, at any time when a Prospectus
relating to the Registrable Securities or Additional Registrable Securities is
required to be delivered under the 1933 Act, upon discovery that, or upon the
happening of any event as a result of which, the Prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such holder, promptly
prepare and
furnish to such holder a reasonable number of copies of a supplement to or
an amendment of such Prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities or Additional
Registrable Securities, as applicable, such Prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing; and

          (l) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, take such other
actions as may be reasonably necessary to facilitate the registration of the
Registrable Securities and Additional Registrable Securities, if applicable,
hereunder; and make available to its security holders, as soon as reasonably
practicable, but not later than the Availability Date (as defined below), an
earnings statement covering a period of at least twelve months, beginning after
the effective date of each Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the 1933 Act (for the purpose
of this subsection 3(l), “Availability Date” means the 45th day following the
end of the fourth fiscal quarter that includes the effective date of such
Registration Statement, except that, if such fourth fiscal quarter is the last
quarter of the Company’s fiscal year, “Availability Date” means the 90th day
after the end of such fourth fiscal quarter).

     4.     Due Diligence Review; Information. The Company shall make available,
during normal business hours, for inspection and review by the Purchasers who
may be deemed an underwriter, advisors to and representatives of such
Purchasers (who may or may

6

 

not be affiliated with the Purchasers and who are reasonably acceptable to
the Company), and any underwriter participating in any disposition of Common
Stock on behalf of the Purchasers pursuant to the Registration Statement or
amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of establishing a due diligence defense
under applicable securities laws and such other reasonable purposes, and cause
the Company’s officers, directors and employees, within a reasonable time
period, to supply all such information reasonably requested by such Purchasers
or any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling such Purchasers and
such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.

          The Company shall not disclose material nonpublic information to the
Purchasers, or to advisors to or representatives of the Purchasers, unless
prior to disclosure of such information the Company identifies such information
as being material nonpublic information and provides the Purchasers, such
advisors and representatives with the opportunity to accept or refuse to accept
such material nonpublic information for review. The Company may, as a
condition to disclosing any material nonpublic information hereunder, require
the Purchasers’ advisors and representatives to enter into a confidentiality
agreement (including an agreement with such advisors and representatives
prohibiting them from trading in Common Stock during such period of time as
they are in possession of material nonpublic information) in
form reasonably satisfactory to the Company and the Purchasers. Nothing herein
shall require the Company to disclose material nonpublic information to the
Purchasers or their advisors or representatives.

     5.     Obligations of the Purchasers.

          (a) Each Purchaser shall furnish in writing to the Company such
information regarding itself, the Registrable Securities or Additional
Registrable Securities, as applicable, held by it and the intended method of
disposition of the Registrable Securities or Additional Registrable Securities,
as applicable, held by it, as shall be reasonably required to effect the
registration of such Registrable Securities or Additional Registrable
Securities, as applicable, and shall execute such documents in connection with
such registration as the Company may reasonably request. At least ten (10)
days prior to the first anticipated filing date of any Registration Statement,
the Company shall notify each Purchaser of the information the Company requires
from such Purchaser if such Purchaser elects to have any of the Registrable
Securities or Additional Registrable Securities included in the Registration
Statement.

          (b) Each Purchaser, by its acceptance of the Registrable Securities and
Additional Registrable Securities, if any, agrees to cooperate with the Company
as reasonably

7

 

requested by the Company in connection with the preparation and filing of
a Registration Statement hereunder, unless such Purchaser has notified the
Company in writing of its election to exclude all of its Registrable Securities
or Additional Registrable Securities, as applicable, from the Registration
Statement. Each Purchaser agrees to comply with the applicable prospectus
delivery requirements under the 1933 Act in connection with any resales of
Registrable Securities pursuant to the Registration Statement.

          (c) In the event the Company determines to engage the services of an
underwriter which engagement is reasonably acceptable to the Purchasers, each
Purchaser agrees to enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the dispositions of the
Registrable Securities or Additional Registrable Securities, as applicable.

          (d) Each Purchaser agrees that, upon receipt of any notice from the
Company of the happening of any event rendering a Registration Statement no
longer effective, such Purchaser will immediately discontinue disposition of
Registrable Securities or Additional Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities or Additional
Registrable Securities, until the Purchaser’s receipt of the copies of the
supplemented or amended prospectus filed with the SEC and declared effective
and, if so directed by the Company, the Purchaser shall deliver to the Company
(at the expense of the Company) or destroy all copies in the Purchaser’s
possession of the prospectus covering the Registrable Securities or Additional
Registrable Securities, as applicable, current at the time of receipt of such
notice.

          (e) No Purchaser may participate in any third party underwritten
registration hereunder unless it (i) agrees to sell the Registrable Securities
or Additional Registrable Securities, as applicable, on the basis provided in
any underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to the terms of this Agreement.

     6.     Indemnification.

          (a) Indemnification by Company. The Company agrees to indemnify and hold
harmless, to the fullest extent permitted by law, the Purchasers, each of their
officers, directors, partners and employees and each person who controls the
Purchasers (within the meaning of the 1933 Act) against all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable
attorney’s fees) and expenses imposed on such person caused by (i) any untrue
or alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or any preliminary prospectus or any amendment or
supplement thereto or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading,

8

 

except insofar as the same are based upon any information furnished in
writing to the Company by such Purchasers, expressly for use therein, or (ii)
any violation by the Company of any federal, state or common law, rule or
regulation applicable to the Company in connection with any Registration
Statement, Prospectus or any preliminary prospectus, or any amendment or
supplement thereto, and shall reimburse in accordance with subparagraph (c)
below, each of the foregoing persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claims. The foregoing is subject to the condition that, insofar as the
foregoing indemnities relate to any untrue statement, alleged untrue statement,
omission or alleged omission made in any preliminary prospectus or Prospectus
that is eliminated or remedied in any Prospectus or amendment or supplement
thereto, the above indemnity obligations of the Company shall not inure to the
benefit of any indemnified party if a copy of such corrected Prospectus or
amendment or supplement thereto had been provided to such indemnified party and
was not sent or given by such indemnified party at or prior to the time such
action was required of such indemnified party by the 1933 Act and if delivery
of such Prospectus or amendment or supplement thereto would have eliminated (or
been a sufficient defense to) any liability of such indemnified party with
respect to such statement or omission. Indemnity under this Section 5(a) shall
remain in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the permitted transfer of the
Registrable Securities and Additional Registrable Securities.

          (b) Indemnification by Holder. In connection with any registration
pursuant to the terms of this Agreement, each Purchaser will furnish to the
Company in writing such information as the Company reasonably requests
concerning the holders of Registrable Securities and Additional Registrable
Securities or the proposed manner of distribution for use in connection with
any Registration Statement or Prospectus and agrees, severally but not jointly,
to indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors, officers, employees, stockholders and each person who
controls the Company (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expense (including reasonable attorney’s fees)
resulting from any untrue statement of a material fact or any omission of a
material fact required to be stated in
the Registration Statement or Prospectus or preliminary prospectus or
amendment or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent that such untrue statement or
omission is contained in any information furnished in writing by such Purchaser
to the Company specifically for inclusion in such Registration Statement or
Prospectus or amendment or supplement thereto and that such information was
substantially relied upon by the Company in preparation of the Registration
Statement or Prospectus or any amendment or supplement thereto. In no event
shall the liability of a Purchaser be greater in amount than the dollar amount
of the proceeds (net of all expenses paid by such Purchaser and the amount of
any damages such holder has otherwise been required to pay by reason of such
untrue statement or omission) received by such Purchaser upon the sale of the
Registrable Securities or Additional Registrable Securities included in the
Registration Statement giving rise to such indemnification obligation.

9

 

          (c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party with
respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person); and
provided, further, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such
claim or litigation. It is understood that the indemnifying party shall not,
in connection with any proceeding in the same jurisdiction, be liable for fees
or expenses of more than one separate firm of attorneys at any time for all
such indemnified parties. No indemnifying party will, except with the consent
of the indemnified party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation.

          (d) Contribution. If for any reason the indemnification provided for in
the preceding paragraphs (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
within the meaning of Section 11(f) of the 1933 Act shall be entitled to
contribution from any person not guilty of such fraudulent misrepresentation.
In no event shall the contribution obligation of a holder
of Registrable Securities or Additional Registrable Securities be greater
in amount than the dollar amount of the proceeds (net of all expenses paid by
such holder and the amount of any damages such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission) received by it upon the sale of the Registrable
Securities or Additional Registrable Securities giving rise to such
contribution obligation.

     7.     Miscellaneous.

          (a) Amendments and Waivers. This Agreement may be amended only by a
writing signed by the parties hereto. The Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the

10

 

Company shall have obtained the written consent to such amendment, action
or omission to act, of the Purchasers affected by such amendment, action or
omission to act.

          (b) Notices. All notices and other communications provided for or
permitted hereunder shall be made as set forth in Section 9.4 of the Purchase
Agreement.

          (c) Assignments and Transfers by Purchasers. This Agreement and all the
rights and obligations of any Purchaser hereunder may be assigned or
transferred to any transferee or assignee of the Notes, Warrants or Registrable
Securities as may be permitted under the Purchase Agreement. A Purchaser may
make such assignment or transfer to any transferee or assignee of any Note,
Warrant, Registrable Securities or Additional Registrable Securities,
provided that (i) such transfer is made expressly subject to this Agreement and the
transferee agrees in writing to be bound by the terms and conditions hereof,
and (ii) the Company is provided with written notice of such assignment.

          (d) Assignments and Transfers by the Company. This Agreement may not be
assigned by the Company without the prior written consent of the Purchasers,
but after notice duly given, the Company shall assign its rights and delegate
its duties hereunder to any successor-in-interest corporation, and such
successor-in-interest shall assume such rights and duties, in the event of a
merger or consolidation of the Company with or into another corporation or the
sale of all or substantially all of the Company’s assets (and it shall be a
condition to any such merger, consolidation or sale that such
successor-in-interest assume in writing all obligations hereunder).

          (e) Benefits of the Agreement. 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.

          (f) 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. This Agreement may be
executed by facsimile.

          (g) 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.

          (h) 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 to the fullest extent permitted by law.

          (i) Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be

11

 

required to carry out the transactions contemplated hereby and to evidence
the fulfillment of the agreements herein contained.

          (j) Entire Agreement. This Agreement, together with the Purchase
Agreement, Notes and Warrants and documents contemplated thereby, is intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Agreement, together with the Purchase Agreement, Notes and Warrants and
documents contemplated thereby, supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

          (k) 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 law.

[Signature Pages Follow]

12

 

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

	 	 	 	 	 
	 	 	THE COMPANY:
	 	 	 	 	 
	 	 	HEARUSA, INC.
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	
Name:
	 	 	
Title:

13

 

	 	 	 	 	 
	 	 	THE PURCHASER:
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	
Title:

14

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