10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-11655

HearUSA, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	22-2748248
(State of Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

1250 Northpoint Parkway, West Palm Beach, Florida	33407
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code (561) 478-8770

Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report

          Indicate by check þ whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes þ No o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “non-accelerated filer” in Rule 12b-2 of the Exchange act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

          Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

          On April 25, 2006, 31,379,538 shares of the Registrant’s Common Stock and 780,358 exchangeable shares of HEARx Canada, Inc. were outstanding.

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets
	April 1, 2006 and December 31, 2005		3
	Consolidated Statements of Operations
	Three months ended April 1, 2006 and April 2, 2005		4
	Consolidated Statements of Cash Flows
	Three months ended April 1, 2006 and April 2, 2005		5
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25
Item 4.	Controls and Procedures		25
PART II.	OTHER INFORMATION
Item 6.	Exhibits		26
	Signatures		28

Part I — Financial Information

Item 1. Financial Statements

HearUSA, Inc.
Consolidated Balance Sheets

	April 1,			December 31,
	2006			2005
	(unaudited)
ASSETS (Note 4)
Current assets
Cash and cash equivalents	$	4,117,615		$	6,706,944
Restricted cash and cash equivalents		444,850			431,000
Accounts and notes receivable, less allowance for doubtful accounts of $446,781 and $413,386		5,985,300			6,715,933
Inventories		2,068,548			1,604,943
Prepaid expenses and other		1,557,413			1,627,407
Total current assets		14,173,726			17,086,227
Property and equipment, net		3,619,686			3,474,381
Goodwill (Note 3)		38,956,076			36,394,959
Intangible assets, net		11,341,185			11,440,345
Deposits and other		571,666			585,633
Total Assets	$	68,662,339		$	68,981,545
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	7,798,690		$	8,499,812
Accrued expenses		2,465,513			2,344,419
Accrued salaries and other compensation		2,396,953			2,589,877
Current maturities of long-term debt		5,447,565			5,192,108
Current maturities of convertible subordinated notes, net of debt discount of $1,676,556 and $1,847,853		823,444			652,147
Current maturities of subordinated notes, net of debt discount of $742,591 and $868,345		1,017,409			891,655
Dividends payable		34,950			34,562
Total current liabilities		19,984,524			20,204,580
Long-term debt (Notes 3 and 4)		20,130,829			19,970,099
Convertible subordinated notes, net of debt discount of $1,203,082 and $1,565,187 (Note 5)		3,171,917			3,434,813
Subordinated notes, net of debt discount of $382,007 and $512,350 (Note 6)		2,477,993			2,787,650
Warrant liability (Note 6)		1,175,550			1,347,217
Total long-term liabilities		26,956,289			27,539,779
Commitments and contingencies		—			—
Stockholders’ equity (Note 7)
Preferred stock (aggregate liquidation preference $2,330,000; $1 par, 7,500,000 shares authorized)
Series H Junior Participating (none outstanding)		—			—
Series J (233 shares outstanding)		233			233
Total preferred stock		233			233
Common stock: $.10 par; 75,000,000 shares authorized 31,903,200 and 31,893,200 shares issued		3,190,320			3,189,320
Stock subscription		(412,500	)		(412,500	)
Additional paid-in capital		122,173,005			121,934,658
Accumulated deficit		(102,982,250	)		(103,252,279	)
Accumulated other comprehensive income		2,237,859			2,262,895
Treasury stock, at cost: 523,662 common shares		(2,485,141	)		(2,485,141	)
Total stockholders’ equity		21,721,526			21,237,186
Total Liabilities and Stockholders’ Equity	$	68,662,339		$	68,981,545

See accompanying notes to the consolidated financial statements

3

HearUSA, Inc.
Consolidated Statements of Operations
Three Months Ended April 1, 2006 and April 2, 2005

	April 1,			April 2,
	2006			2005
	(unaudited)			(unaudited)
Net revenues
Hearing aids and other products	$	20,289,349		$	17,597,626
Services		1,367,965			1,432,959
Total net revenues		21,657,314			19,030,585
Operating costs and expenses
Hearing aids and other products (Note 4)		6,112,568			4,917,507
Services		372,783			447,775
Total cost of products sold and services		6,485,351			5,365,282
Center operating expenses		9,767,320			9,203,466
General and administrative expenses (including approximately $233,000 non-cash employee stock-based compensation expense in 2006) (Notes 1 and 7)		3,239,204			2,963,956
Depreciation and amortization		492,145			482,907
Total operating costs and expenses		19,984,020			18,015,611
Income from operations		1,673,294			1,014,974
Non-operating income (expense):
Gain from insurance proceeds		57,157			—
Interest income		22,825			12,683
Interest expense (including approximately $726,000 and $568,000 of non-cash debt discount amortization and approximately $172,000 in non-cash reduction in interest expense for the decrease in the fair value of the warrant liability) (Notes 4, 5 and 6)		(1,410,147	)		(1,183,617	)
Income (loss) from continuing operations before income taxes		343,129			(155,960	)
Income taxes		(38,150	)		—
Net income (loss) from continuing operations		304,979			(155,960	)
Loss from discontinued operations (Note 2)		—			(95,478	)
Net income (loss)		304,979			(251,438	)
Dividends on preferred stock		(34,950	)		(193,630	)
Net income (loss) applicable to common stockholders	$	270,029		$	(445,068	)
Net income (loss) from continuing operations, including dividends on preferred stock, applicable to common stockholders — basic	$	0.01		$	(0.01	)
Net Income (loss) from continuing operations, including dividends on preferred stock, applicable to common stockholders — diluted	$	0.01		$	(0.01	)
Net income (loss) applicable to common stockholders per common share — basic	$	0.01		$	(0.01	)
Net income (loss) applicable to common stockholders per common share — diluted	$	0.01		$	(0.01	)
Weighted average number of shares of common stock outstanding — basic		32,159,902			30,516,331
Weighted average number of shares of common stock outstanding — diluted		38,825,085			30,516,331

See accompanying notes to the consolidated financial statements

4

HearUSA, Inc.
Consolidated Statements of Cash Flows
Three Months Ended April 1, 2006 and April 2, 2005

	April 1,			April 2,
	2006			2005
	(unaudited)			(unaudited)
Cash flows from operating activities
Net income (loss)	$	304,979		$	(251,438	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Debt discount amortization		725,682			568,223
Depreciation and amortization		492,145			482,907
Interest on Siemens Tranche C		296,163			206,085
Employee stock-based compensation		232,605			—
Provision for doubtful accounts		91,000			99,644
Loss from discontinued operations		—			95,478
Consulting expense		6,740			6,740
Loss (gain) on the disposition of property and equipment		5,668			(60,437	)
Principal payments on long-term debt made through preferred pricing reductions		(730,000	)		(730,201	)
Decrease in fair value of warrant liability		(171,667	)		—
Other		(13,552	)		—
(Increase) decrease in:
Accounts and notes receivable		634,809			197,612
Inventories		(463,598	)		160,832
Prepaid expenses and other		108,894			(565,131	)
Increase (decrease) in:
Accounts payable and accrued expenses		(516,988	)		(319,345	)
Accrued salaries and other compensation		(192,509	)		115,085
Net cash provided by continuing operations		810,371			6,054
Net cash used in discontinued operations		—			(55,823	)
Net cash provided by (used in) operating activities		810,371			(49,769	)
Cash flows from investing activities
Purchase of property and equipment		(445,039	)		(189,696	)
Capital expenditures from discontinued operations		—			(10,851	)
Business acquisitions		(1,426,846	)		—
Net cash used in investing activities		(1,871,885	)		(200,547	)
Cash flows from financing activities
Principal payments on long-term debt		(421,951	)		(206,094	)
Principal payments on convertible subordinated notes		(625,000	)		—
Principal payments on subordinated notes		(440,000	)		—
Proceeds from the exercise of warrants		—			1,725,000
Dividends paid on preferred stock		(34,950	)		(265,430	)
Net cash provided by (used in) financing activities		(1,521,901	)		1,253,476
Effects of exchange rate changes on cash		(5,914	)		13,900
Net increase (decrease) in cash and cash equivalents		(2,589,329	)		1,017,060
Cash and cash equivalents at beginning of period		6,706,944			2,615,379
Cash and cash equivalents at end of period	$	4,117,615		$	3,632,439

5

HearUSA, Inc.
Consolidated Statements of Cash Flows
Three Months Ended April 1, 2006 and April 2, 2005

	April 1,		April 2,
	2006		2005
	(unaudited)		(unaudited)
Supplemental disclosure of cash flows information:
Cash paid for interest	$	434,000	$	266,000
Supplemental schedule of non-cash investing and financing activities:
Principal payments on long-term debt through preferred pricing reductions	$	730,000	$	730,201
Issuance of notes payable in exchange for business acquisitions	$	1,272,000	$	—

See accompanying notes to consolidated financial statements

6

HearUSA, Inc
Notes to Consolidated Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three month period ended April 1, 2006 are not necessarily indicative of the results that may be expected for the year ending December 30, 2006. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2005.

1. Description of the Company and Summary of Significant Accounting Policies

The Company

HearUSA, Inc. (“HearUSA” or the “Company”), a Delaware corporation, was organized in 1986. As of April 1, 2006, the Company has a network of 138 company-owned hearing care centers in eight states and the Province of Ontario, Canada. The Company also sponsors a network of approximately 1,400 credentialed audiology providers that participate in selected hearing benefit programs contracted by the Company with employer groups, health insurers and benefit sponsors in 49 states. The centers and the network providers provide audiological products and services for the hearing impaired.

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned and majority controlled subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Fiscal year

The Company’s fiscal year ends on the last Saturday in December and customarily consists of four 13-week quarters for a total of 52 weeks. Every sixth year includes 53 weeks. 2005 included 53 weeks with the additional week included in the first quarter of 2005. The next year with 53 weeks will be 2011.

Net income (loss) per common share

Net income (loss) per common share is calculated in accordance with SFAS No. 128 “Earnings Per Share” which requires companies to present basic and diluted earnings per share. Net income (loss) per common share – basic is based on the weighted average number of common shares outstanding during the year. Net income per common share – diluted is based on the weighted average number of common shares and dilutive potential common shares outstanding during the year. Under the if-converted method, securities are assumed to be converted at the beginning of the period and the resulting common shares are included in the denominator of the diluted earnings per share calculation for the entire period presented. Common stock equivalent for convertible subordinated notes and preferred stock, outstanding options and warrants to purchase common stock of 10,142,230 were excluded from the computations of net loss per common share — diluted at April 2, 2005 because the effect of their inclusion would be anti-dilutive.

For purposes of computing net income (loss) per common share – basic and diluted, for the quarters ended April 1, 2006 and April 2, 2005, the weighted average number of shares of common stock outstanding includes the effect of the 780,358 and 866,347, respectively, exchangeable shares of HEARx Canada, Inc., as if they were outstanding common stock of the Company.

Comprehensive income (loss)

Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company’s other comprehensive income (loss) represents a foreign currency translation adjustment.

7

HearUSA, Inc
Notes to Consolidated Financial Statements

Components of comprehensive income (loss) are as follows:

	Three Months Ended
	April 1,			April 2,
	2006			2005
Net income (loss) for period	$	304,979		$	(251,438	)
Other comprehensive income:
Foreign currency translation adjustments		(25,036	)		86,099
Comprehensive loss for the period	$	279,943		$	(165,339	)

Stock-based compensation

On January 1, 2006, we adopted Financial Accounting Standards No. 123(R), “Share-Based Payment”, (SFAS 123(R)), that addresses the accounting for share-based payment transactions in which a Company receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the Company’s instruments or that may be settled by the issuance of such equity instruments. The statement eliminates the ability to account for share-based compensation transactions, as we formerly did, using the intrinsic value method as prescribed by Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees,“, and generally requires that such transactions be accounted for using a fair-value based method and recognized as expenses in our consolidated financial statements.

We adopted SFAS 123(R) using the modified prospective transition method which requires the application of accounting standard as of January 1, 2006. Our consolidated financial statements as of and for the first quarter of 2006 reflect the impact of adopting SFAS 123(R). In accordance with the modified prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). (See Note 7 - Stock-based Benefit Plans)

Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that are ultimately expected to vest. Stock-based compensation expense recognized in the consolidated statement of operations during the first quarter of 2006 included compensation expense for stock-based payment awards granted prior to, but not yet vested, as of December 31, 2005 based on grant date fair value estimated in accordance with the pro forma provisions of SFAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosures.”, and compensation expense for the stock-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with SFAS 123(R). This additional expense is non-cash and does not affect the Company’s cash flows.

Reclassifications

Certain amounts in the 2005 consolidated financial statements have been reclassified in order to conform to the 2006 presentation.

2. Discontinued Operations

In June 2005, the Company sold the assets of a group of hearing care centers in the states of Minnesota, Washington and Wisconsin, including goodwill, customer list and selected assets with a net book value of approximately $735,000, for approximately $1.1 million in cash, resulting in a gain on disposition of assets of approximately $365,000.

The assets sold and related operating results have been presented as discontinued operations and the consolidated financial statements have been reclassified to segregate the assets and operating results for all periods presented in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. The assets and operating expenses of these hearing care centers sold were reported under the center segment.

8

HearUSA, Inc
Notes to Consolidated Financial Statements

Net revenues, pre-tax net losses and net loss from discontinued operations applicable to common stockholders — basic and diluted of the discontinued operations for the three months April 2, 2005 were approximately as follows:

	Three months ended
	April 2, 2005
Net revenues of discontinued operations	$	1,038,000
Pre-tax net losses of discontinued operations	$	95,478
Net loss from discontinued operations applicable to common stockholders — basic and diluted	$	(0.00	)

3. Business Acquisitions

During 2006, the Company acquired the assets of five hearing care centers in New Jersey, California and Florida in three separate transactions. Consideration paid was cash of approximately $1.4 million and notes payable in the amount of approximately $1.3 million. The acquisitions resulted in additions to goodwill of approximately $2.6 million, fixed assets of approximately $16,000 and customer lists and non-compete agreements of approximately $88,000. The notes payable bear interest at rates varying from 5% to 6.5% and are payable in quarterly installments of $77,400 plus accrued interest, through March 2010. In connection with these acquisitions, the Company drew approximately $890,000 from its acquisition line of credit with Siemens (Tranche B). This draw was made after the end of the quarter.

4. Long-term Debt (also see Notes 5 and 6)

Long-term debt consists of the following:

	April 1,		December 31,
	2006		2005
	(unaudited)
Notes payable to a Siemens — see (a) below:
Tranche A	$	1,509,851	$	2,239,851
Tranche B (Note 3)		—		—
Tranche C (includes $1,596,831 and $1,298,865 of accrued interest)		21,039,223		20,875,256
Total notes payable to Siemens		22,549,074		23,115,107
Notes payable to others (Note 3)		3,029,320		2,047,100
		25,578,394		25,162,207
Less current maturities		5,447,565		5,192,108
	$	20,130,829	$	19,970,099

The approximate aggregate maturities on long-term debt obligations for the twelve months ended are as follows:

			Payable Through
	Payable in Cash		Preferred Pricing		Total Amount
First quarter of 2007	$	2,528,000	$	2,920,000	$	5,448,000
First quarter of 2008		2,178,000		2,920,000		5,098,000
First quarter of 2009		1,771,000		2,920,000		4,691,000
First quarter of 2010		1,692,000		2,920,000		4,612,000
First quarter of 2011 and thereafter		1,684,000		4,045,000		5,729,000
Total		9,853,000		15,725,000		25,578,000

Approximately $15.7 million of long-term debt can be repaid through preferred pricing reductions from Siemens, including $2.9 million in less than 1 year.

On February 10, 2006, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement’), Amended and Restated Supply Agreement (the “Amended Supply Agreement”) and an Amended and Restated Security Agreement with Siemens Hearing Instruments, Inc. (“Siemens”). Pursuant to the amended agreements, the parties will continue their strategic relationship for an additional five-year term. The parties restructured the then outstanding $23.1 million indebtedness of the Company to Siemens under the original credit agreement. The new facility is for a total of $26 million of which $23.1 million is outstanding at April 1, 2006. The new facility is structured in three tranches.

9

HearUSA, Inc
Notes to Consolidated Financial Statements

Tranche A, with a principal balance at the closing date of approximately $2.2 million and interest of 10% per annum, is payable in quarterly installments of $730,000 plus interest thereon which began in the first quarter of 2006. These quarterly payments are subject to rebate credits as described below. This note is a consolidation of the old Tranches A, B and C.

Tranche B is a revolving credit line established to accommodate funding for certain acquisitions by the Company. Pursuant to the Amended Credit Agreement, the Company may borrow under Tranche B up to the $26 million limit, less any amounts then outstanding under Tranche A and Tranche C.

Tranche C, which is a consolidation of the old Tranches D, E and F, has a principal balance on the closing date of approximately $20.9 million at an interest rate of prime plus 1% per annum, and is payable in quarterly installment payments of $730,000 plus interest commencing with the fourth quarter of 2006. Quarterly payments are subject to rebate credits as described below. Additional loans may be made to the Company under Tranche C for certain acquisitions. In addition, the Company is required to make monthly installments of principal and interest of $130,000 which began February 2006. These monthly installment payments are intended to repay approximately $6.6 million of the Tranche C principal balance.

The remaining principal balance of Tranche C, as well as Tranche A and Tranche B, with interest, will continue to be eligible for repayment utilizing rebates (preferred pricing reductions) on purchases of hearing aids from Siemens, provided that the Company purchases under the Amended Supply Agreement certain percentages of hearing aids it sells. The Amended Credit Agreement also contemplates that the Company will reduce the Tranche C loan balance by making annual payments in an amount equal to 20% of Excess Cash Flow (as that term is defined in the Amended Credit Agreement), and by paying Siemens 25% of any proceeds from equity offerings the Company may complete. The payment for 2006 based on 2005 excess cash flow is approximately $300,000 and was made in April 2006.

The following table shows the preferred pricing reductions received from Siemens pursuant to the supply agreement and the application of such pricing reductions against principal and interest payments on Tranches A, B and C during each of the quarters ended 2006 and 2005:

	April 1, 2006			April 2, 2005
Preferred pricing reductions recorded as a reduction of cost of products sold	$	779,000		$	832,000
Portion applied against quarterly principal payments	$	(730,000	)	$	(730,000	)
Portion applied against quarterly interest payments		(49,000	)		(102,000	)
	$	(779,000	)	$	(832,000	)

In connection with the Amended Credit Agreement, HearUSA and Siemens entered into the Amended Supply Agreement, pursuant to which HearUSA agreed to purchase from Siemens certain minimum percentages of HearUSA company-owned centers’ hearing aid purchases for a period of five years at specified prices. If the Company fails to purchase the required minimum under the Amended Supply Agreement, Siemens could declare a breach of the Amended Credit Agreement and Siemens would have the right to declare all amounts outstanding under the credit facility immediately due and payable.

Pursuant to the agreements with Siemens, a change of control of the Company (as defined) will constitute an event of default upon which Siemens may cancel its commitments under the credit agreement and declare the entire outstanding amounts under the credit facilities to be immediately due and payable.

Substantially all of the Company’s assets collateralize the Siemens notes payable.

5. Convertible Subordinated Notes

In December 2003, the Company completed a private placement of $7.5 million five-year convertible subordinated notes with warrants to purchase 2,642,750 shares of the Company’s common stock. The remaining warrants to purchase 500,000 shares were exercisable after May 31, 2005 at $1.75 per share.

10

HearUSA, Inc
Notes to Consolidated Financial Statements

Since December 2005 the notes can be converted at $1.75 per share and the lender warrants can be exercised for up to 2,142,750 shares at $1.75 per share. The quoted closing market price of the Company’s common stock on the commitment date was $2.37 per share. The notes bear interest at 11 percent annually for the first two years and then at 8 percent through the remainder of their term. The Company recorded a debt discount of approximately $7,488,000 consisting of intrinsic value of the beneficial conversion of approximately $4,519,000 and the portion of the proceeds allocated to the warrants issued to the lenders of approximately $2,969,000, using a Black-Scholes option pricing model, based on the relative fair values of the lender warrants and the notes. The debt discount is being amortized as interest expense over the five-year term of the note using the effective interest method. The notes are subordinate to the Siemens notes payable.

In addition to the 2,642,750 lender warrants issued to the investors in the $7.5 million financing, the Company also issued 117,143 common stock purchase warrants with the same terms as the lender warrants and paid cash of approximately $206,000 to third parties as finder fees and financing costs. These warrants were valued at approximately $220,000 using a Black-Scholes option pricing model. The total of such costs of approximately $426,000 is being amortized as interest expense using the effective interest method over the five year term of the notes.

For the first two years of the term beginning on March 25, 2004, the Company made quarterly payments of interest only. On March 25, 2006, the Company began making twelve equal quarterly payments of principal plus interest. Payments of principal and interest may be made, at the Company’s option, in cash or with the Company’s common stock. If payments are made using the Company’s common stock, the shares to be issued would be computed at 90% of the average closing price for the 20 day trading period immediately preceding the payment date. Approximate annual aggregate amount of maturities of such notes in future years is approximately $1,875,000 for the remainder of 2006 and $2,500,000 in each of 2007 and 2008.

During the first quarter of 2006 and 2005, approximately $703,000 and $779,000, respectively, of interest expense was recorded related to this financing, including a non-cash prepaid finder fees and debt discount amortization charge of approximately $480,000 and $568,000, respectively. The future non-cash debt discount and prepaid finder fees to be amortized as interest expense over the next five years are approximately $1,283,000 for the remainder of 2006, $1,145,000 in 2007 and $435,000 in 2008. In the event the investors convert the debt or the warrants, the Company will be required to expense the remaining debt discount and prepaid financing fees in the period in which the conversion or exercise occurs.

6. Subordinated Notes and Warrant Liability

On August 22, 2005, the Company completed a private placement of $5.5 million three-year subordinated notes (“Subordinated Notes”) with warrants (“Note Warrants”) to purchase 1,499,960 shares of the Company’s common stock expiring on November 22, 2008. The Note Warrants are exercisable after August 22, 2005 at $2.00 per share and the remaining Warrants to purchase 374,990 shares at $2.00 per share. The quoted closing market price of the Company’s common stock on the commitment date was $1.63 per share. The notes bear interest at 7 percent per annum. Proceeds from this financing were used to redeem all of the Company’s 1998-E Series Convertible Preferred Stock. The Company agreed to register the common shares underlying the warrant shares during the three year period ending September 2008 and to maintain such registration so that the Warrant holders may sell their shares if the Note Warrants are exercised. The liability created by the Company’s agreement to register and keep the underlying shares registered during the three year period has been recorded as a warrant liability of $1.9 million based on the fair value of the warrants, using a Black-Scholes option pricing model. Any gains or losses resulting from the changes in fair value from period to period are recorded as interest expense. As the holders exercise their Note Warrants the applicable portion of the liability will be reclassified to additional paid in capital. The notes are subordinate to the Siemens notes payable.

11

HearUSA, Inc
Notes to Consolidated Financial Statements

The Company recorded a debt discount of approximately $1.9 million based on the portion of the proceeds allocated to the fair value of the Note Warrants, using a Black-Scholes option pricing model. The debt discount is being amortized as interest expense over the three-year term of the notes using the effective interest method.

In addition to the Note Warrants, the Company also issued 55,000 common stock purchase warrants with the same terms as the Note Warrants and paid cash of approximately $330,000 to third parties as finder fees and financing costs. These warrants were valued at approximately $66,000 using a Black-Scholes option pricing model. The total of such costs of approximately $396,000 is being amortized as interest expense using the effective interest method over the three year term of the notes.

On the date of issuance of the Subordinated Notes, the Company prepaid interest for the first four months of the note. On December 22, 2005, the Company began making quarterly payments of principal corresponding to 8 percent of the original principal amount plus interest and a premium of 2 percent of the principal payment made. Approximate annual aggregate amount of maturities of such notes maturing in future years is $1,320,000 for the remainder of 2006, $1,760,000 in 2007 and $1,540,000 in 2008.

During the first quarter of 2006 approximately $393,000 interest expense was recorded related to this financing, including non-cash prepaid finder fees and debt discount amortization charges of approximately $246,000. The future non-cash debt discount and prepaid finder fees to be amortized as interest expense over the following three years are approximately $604,000 for the remainder of 2006, $496,000 in 2007 and $126,000 in 2008. In the event the Company retires the Subordinated Notes, the Company will be required to expense the debt discount and prepaid financing fees in the period in which the retirement occurs.

At April 1, 2006, the fair value of the Note Warrants, using a Black-Scholes option pricing model, resulted in a decrease of approximately $172,000 which was recorded as a reduction in interest expense.

7. Stock-based Benefit Plans

The 1987 Stock Option Plan

The 1987 Stock Option Plan is administered by the Company’s Board of Directors. A maximum of 250,000 shares of common stock were authorized for issuance under this plan. All employees of the Company, other than its then principal stockholder (Dr. Paul A. Brown) were eligible to receive options under this plan at the sole discretion of the Board of Directors. Both incentive and non-incentive stock options could be granted. This plan expired June 2, 1997 and no further option grants can be made under this plan. The expiration of the plan did not affect the outstanding options which remain in full force as if the plan had not expired.

The 1995 Flexible Stock Plan

The 1995 Flexible Stock Plan is also administered by the Company’s Board of Directors. An original maximum of 250,000 shares of the Company’s common stock were authorized for issuance under this plan. On June 6, 2000 the shareholders approved an increase of 500,000 shares of the Company’s common stock available under this plan. The plan authorizes an annual increase in authorized shares equal to 10% of the number of shares authorized as of the prior year. Currently an aggregate of 4,895 shares remain as authorized but not yet subject to a plan grant under the plan. All employees of the Company are eligible to receive incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, performance shares, and other stock-based awards under this plan at the sole discretion of the Board of Directors. This plan expired in 2005 and no further grants can be made under this plan. The expiration of the plan did not affect the outstanding options granted under this plan which remain in full force in accordance with their terms.

Flexible Stock Plan

The Company’s 2002 Flexible Stock Plan, which is stockholder approved, permits the grant of share options and shares to

12

HearUSA, Inc
Notes to Consolidated Financial Statements

officers, employees and certain non-employees for up to 5 million shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest based on 4 years of continuous service and have 10-year contractual terms. Share awards generally vest over 4 years. At April 1, 2006, 457,500 shares were available for future grant under the plan.

Impact of the Adoption of SFAS 123(R)

We adopted SFAS 123(R) using the modified prospective transition method on January 1, 2006. Accordingly, for the three-months ended April 1, 2006, we recorded stock-based compensation expense for awards granted prior to, but not yet vested, as of January 1, 2006, as if the fair value method required for pro forma disclosure under SFAS 123(R) were in effect for expense recognition purposes, adjusted for estimated forfeitures. For these awards, we have recognized compensation expense using the straight-line amortization method. For stock-based compensation awards granted after January 1, 2006, we will recognize compensation expense based on the estimated grant date fair value using a Black-Scholes valuation model. For these awards, the Company will continue to recognize compensation expense using the straight-line amortization method. The impact of recording stock-based compensation for the three-months ended April 1, 2006 was $232,605 of additional general and administrative cost. This additional expense is non-cash.

Valuation Assumptions

The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model that uses the assumptions in the following table. Expected volatilities are based on historical data to estimate volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The determination of the fair value of stock options granted was based on the assumption of no expected dividends on the underlying common stock.

	Three Months Ended
	April 1,		April 2,
	2006		2005
Risk free interest rate		N/A		4.16	%
Expected life, in years		N/A		5-10
Expected volatility		N/A		92	%

13

HearUSA, Inc
Notes to Consolidated Financial Statements

Stock-based Payment Award Activity

The following table summarizes activity under our equity incentive plans for the three months ended April 1, 2006:

					Weighted
					Average
			Weighted		Remaining
			Average		Contractual Term		Aggregate
	Shares		Exercise		(in years)		Intrinsic Value
Outstanding at beginning of year		5,258,770	$	1.36
Granted		—	$	—
Exercised		—	$	—
Forfeited /expired/cancelled		17,000	$	2.27
Outstanding at April 1, 2006		5,241,770	$	1.36		7.07	$	1,472,523
Vested and expected to vest at April 1, 2006		5,241,770	$	1.36		7.07	$	1,472,523
Exercisable at April 1, 2006		2,558,731	$	1.50		5.81	$	1,073,956

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for the options that were in-the-money at April 1, 2006. As of April 1, 2006, there was approximately $1,334,323 of total unrecognized compensation cost related to share-based compensation under our stock award plans. That cost is expected to be recognized over a straight-line period of five years.

A summary of the status and changes in our non-vested shares related to our equity incentive plans as of and during the three months ended April 1, 2006 is presented below:

				Weighted Average
				Grant-Date
	Shares			Fair Value
Non-vested at January 1, 2006		2,992,826		$	0.98
Granted		—
Vested		(297,287	)	$	0.89
Forfeited unvested		(12,500	)	$	0.57
Non-vested at April 1, 2006		2,683,039		$	1.04

Pro forma Information for Periods Prior to the Adoption of SFAS 123(R)

Prior to the adoption of SFAS No. 123(R), we provided the disclosures required under SFAS No. 123, as amended by FAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosures.” Employee stock-based compensation expense recognized under SFAS 123(R) was not reflected in our results of operations for the three month period ended

14

HearUSA, Inc
Notes to Consolidated Financial Statements

April 2, 2005 for employee stock option awards and all options were granted with an exercise price equal to the market value of the underlying common stock on the date of grant. Previously reported amounts have not been restated.

The pro forma information for the three months ended April 2, 2005 is as follows:

	Three Months
	Ended
	April 2, 2005
Loss applicable to common stockholders
As reported	$	(445,068	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax effects		(356,000	)
Pro forma, net loss	$	(801,068	)
Loss per share
Basic-as reported	$	(0.01	)
Basic-pro forma	$	(0.03	)
Diluted-as reported	$	(0.01	)
Diluted-pro forma	$	(0.03	)

8. Segments

The following operating segments represent identifiable components of the company for which separate financial information is available. The following table represents key financial information for each of the Company’s business segments, which include the operation and management of centers, the establishment, maintenance and support of an affiliated network and the operation of an e-commerce business. The centers offer people afflicted with hearing loss a complete range of services and products, including diagnostic audiological testing, the latest technology in hearing aids and listening devices to improve their quality of life. The network, unlike the Company-owned centers, is comprised of hearing care practices owned by independent audiologists. The network revenues are mainly derived from administrative fees paid by employer groups, health insurers and benefit sponsors to administer their benefit programs as well as maintaining an affiliated provider network. E-commerce offers on-line product sales of hearing aid related products, such as batteries, hearing aid accessories and assistive listening devices. The Company’s business units are located in the United States and Canada.

15

HearUSA, Inc
Notes to Consolidated Financial Statements

The following is the Company’s segment information:

	Centers		E-commerce			Network		Corporate			Total
Hearing aids and other products revenues
3 months ended April 1, 2006	$	20,277,000	$	12,000			—		—		$	20,289,000
3 months ended April 2, 2005	$	17,590,000	$	8,000			—		—		$	17,598,000
Service revenues
3 months ended April 1, 2006	$	1,059,000		—		$	309,000		—		$	1,368,000
3 months ended April 2, 2005	$	1,068,000		—		$	365,000		—		$	1,433,000
Income (loss) from operations
3 months ended April 1, 2006	$	4,870,000	$	(36,000	)	$	127,000	$	(3,288,000	)	$	1,673,000
3 months ended April 2, 2005	$	3,856,000	$	(7,000	)	$	181,000	$	(3,015,000	)	$	1,015,000
3 months ended April 1, 2006
Depreciation and amortization	$	442,000		—		$	1,000	$	49,000		$	492,000
Total assets	$	53,085,000		—		$	1,105,000	$	14,472,000		$	68,662,000
Capital expenditures	$	400,000		—			—	$	45,000		$	445,000
3 months ended April 2, 2005
Depreciation and amortization	$	431,000		—		$	1,000	$	51,000		$	483,000
Total assets	$	47,681,000		—		$	1,510,000	$	11,047,000		$	60,238,000
Capital expenditures	$	158,000		—			—	$	43,000		$	201,000

Hearing aids and other products revenues consisted of the following:

	Three months ended
	2006			2005
Hearing aid revenues		97.2	%		96.9	%
Other products revenues		2.8	%		3.1	%

Services revenues consisted of the following:

	Three months ended
	2006			2005
Hearing aid repairs		54.7	%		49.7	%
Testing and other income		45.3	%		50.3	%

16

HearUSA, Inc
Notes to Consolidated Financial Statements

Income (loss) from operations at the segment level is computed before the following, the sum of which is included in the column “Corporate” as loss from operations:

	Three months ended
	2006		2005
General and administrative expense	$	3,239,000	$	2,964,000
Deprecation and amortization	$	49,000	$	51,000
Corporate loss from operations	$	3,288,000	$	3,015,000

Information concerning geographic areas:

As of and for the quarters ended April 1, 2006 and April 2, 2005:

	United States		Canada		United States		Canada
	2006		2006		2005		2005
	$		$		$		$
Hearing aid and other product revenues		18,143,000		2,146,000		15,775,000		1,823,000
Service revenues		1,265,000		103,000		1,343,000		90,000
Long-lived assets		44,258,000		10,231,000		39,122,000		9,725,000
Total assets		55,966,000		12,696,000		48,188,000		12,050,000

9. Liquidity

The working capital deficit increased $2.7 million to $5.8 million as of April 1, 2006 from $3.1 million as of December 31, 2005. The increase in the deficit is attributable to approximately $2.6 million in additional cash used in investing and financing activities over cash generated from operating activities of approximately $810,000 and a increase in current maturities of long-term debt, convertible subordinated notes and subordinated notes of approximately $553,000. The working capital deficit of $5.8 million includes approximately $2.9 million representing the current maturities of the long-term debt to Siemens which may be repaid through preferred pricing reductions and approximately $823,000 ($2.5 million in current maturities, net of $1.7 million of debt discount) related to the $7.5 million convertible subordinated notes that can be repaid by either cash or stock, at the option of the Company. In the first quarter of 2006, the Company generated income from operations of approximately $1.7 million compared to $1.0 million in the first quarter of 2005. Cash and cash equivalents as of April 1, 2006 were approximately $4.1 million. Also, subsequent to the end of the quarter, the Company drew approximately $890,000 from its acquisition line of credit with Siemens (Tranche B), related to the acquisitions made during the first quarter of 2006.

The Company believes that current cash and cash equivalents and cash flow from operations, at current net revenue levels, will be sufficient to support the Company’s operational needs through the next twelve months, although there can be no assurance that the Company can maintain compliance with the Siemens loan covenants, that net revenue levels will remain at or higher than current levels or that unexpected cash needs will not arise for which the cash, cash equivalents and cash flow from operations will not be sufficient. In the event of a shortfall in cash, the Company might consider short-term debt, or additional equity or debt offerings. There can be no assurance however, that such financing will be available to the Company on favorable terms or at all. The Company also is continuing its aggressive cost controls and sales gross margin improvements.

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Forward Looking Statements

This Form 10-Q and, in particular, this management’s discussion and analysis contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. These statements include those relating to the Company’s belief that its current cash and cash equivalents and cash flow from operations at current net revenue levels will be sufficient to support the Company’s operational needs through the next twelve months; belief that the Company is in line to achieve its revenues growth objective for the year of 15% to 20% and revenues target of $90 million in 2006; expectation that in the remainder of 2006 the cost of products sold as a percent of revenues will be consistent with the first quarter of 2006; expectation that additional center operating expenses due to acquisitions should be consistent with the current center operating expenses when looked at as a percent of revenues; and expectation that it will begin recording a minority interest during the second quarter of 2006 relating to its joint venture HEARx West. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management’s beliefs and assumptions. Any statements that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included in this report. The statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, including those risks described in the Company’s annual report on Form 10-K for fiscal 2005 filed with the Securities and Exchange Commission.. We do not intend to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

During the quarter, the Company continued to focus on its strategic acquisition program implemented in 2005 and completed several acquisitions in the first quarter of 2006. In addition the Company has signed non-binding letters of intent for acquisitions which, if completed, would close during the second and third quarters of 2006. Combined with completed acquisitions these represent businesses with total twelve month trailing revenues of more than $10.0 million.

On February 10, 2006, the Company amended its credit agreement, supply agreement and security agreement with Siemens Hearing Instruments, Inc. (“Siemens”). Pursuant to the amended agreements, the parties will continue their strategic relationship for an additional five-year term.

Overall, the Company’s profitability improved by approximately $715,000 to net income applicable to common stockholders of approximately $270,000 in the first quarter of 2006, from a loss applicable to common stockholders of approximately $445,000 in the same period of 2005. The 2006 net income includes approximately $233,000 of non-cash employee stock-based compensation expenses which did not exist in the same period of 2005 (see Note 7 – Stock-Based Benefit Plans, Notes to Consolidated Financial Statements included herein). Also included is a non-cash reduction in interest expense of approximately $172,000 relating to a warrant liability reduction (see Note 6 – Subordinated Notes and Warrant Liability, Notes to Consolidated Financial Statements included herein). Net income for the first quarters of 2006 and 2005 also includes non-cash interest charges related to the debt discount amortization of $726,000 and $568,000, respectively (see Note 5 - Convertible Subordinated Notes and Note 6 – Subordinated Notes and Warrant Liability, Notes to Consolidated Financial Statements included herein).

Income from operations also increased $658,000 from approximately $1 million in the first quarter of 2005 to approximately $1.7 million in the first quarter of 2006. The 2006 income from operations also includes non-cash employee stock-based compensation expense of $233,000, which was included in general and administrative expenses.

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These improvements were mostly attributable to the increase in the Company’s revenues of $2.6 million during the first quarter combined with strong control over operating expenses. Management expects income from operations to continue to improve as the Company’s revenues continue to increase.

RESULTS OF OPERATIONS

For the three months ended April 1, 2006 compared to the three months ended April 2, 2005

Net revenues in the first quarter of 2006 increased approximately $2.6 million or 13.8% from the first quarter of 2005. The increase is comprised of an increase in hearing aids and other products revenues of approximately $2.7 million or 15.3%, partially offset by a reduction in service revenues of approximately $65,000 or 4.5%. The increase in hearing aids and other products revenues is mostly attributable to a 15.9% increase in the number of hearing aids sold, combined with a 1.0% increase in the average selling price. The decrease in service revenues is due to lower revenues from the Company’s contract with the Department of Veteran Affairs in 2006 compared to 2005. As part of the overall increase in revenues, approximately $585,000 was generated from the centers acquired within the last twelve months. Also part of the overall increase is a favorable impact of $132,000 related to the change in the Canadian exchange rate from 2005 to 2006. The first quarter of 2005 benefited from the impact of an additional week estimated to have generated approximately $1.4 million in additional revenues. So far in 2006, management believes the Company is in line to achieve its revenues growth objective for the year of 15% to 20% and revenues target of $90 million in 2006.

Total cost of products sold and services in the first quarter of 2006 increased approximately $1.1 million or 20.9%, including a 24.3% increase in hearing aids and other products sold of approximately $1.2 million offset by a 16.7% decrease in services cost of approximately $75,000. Increase in the cost of hearing aids and other product is attributable to the corresponding increase in hearing aids and other products revenues. Included in the cost of hearing aids and other products are Siemens preferred pricing reductions of approximately $779,000 in the first quarter of 2006 and $832,000 in the first quarter of 2005, respectively. Such pricing reductions from Siemens are accounted for as reductions of cost of products sold and applied, pursuant to the Siemens credit agreement, against the principal and interest payments due to Siemens on Tranche A of the Siemens loan (see Note 4 – Long-Term Debt, Notes to Consolidated Financial Statements included herein). The total cost of products sold and services, as a percent of net revenues, increased to 29.9% in the first quarter of 2006 from 28.2% in the first quarter of 2005 due to the increase in advanced technology hearing aids sold, which have lower margins, and special introductory price promotions on new Siemens products. Management expects that in the remainder of 2006 the cost of products sold as a percent of revenues will be consistent with the first quarter of 2006.

Center operating expenses in the first quarter of 2006 increased approximately $564,000, or 6.1% from the first quarter of 2005. This increase is mainly attributable to an increase in incentive compensation related to additional net revenues, increased wages due to normal merit increases and increases in center staff as well as additional expenses of approximately $258,000 related to the centers acquired during the last twelve months. Center operating expenses in 2005 included approximately $510,000 of expenses related to the additional week in the first quarter of 2005. Total center operating expenses for the remainder of 2006 will be affected by any center acquisitions; however, these additional expenses due to acquisitions should be consistent with the current center operating expenses when looked at as a percent of revenues

General and administrative expenses in the first quarter of 2006 increased approximately $275,000 or 9.3% from the first quarter of 2005. This increase is attributable to increases in wages related to the recognition of compensation expense related to employee stock-based compensation awards of approximately $233,000 (see Note 7 – Stock-based Benefit Plan, Notes to Consolidated Financial Statements included herein) and increase in wages due to normal merit increases and additional employees. General and administrative expenses in 2005 included approximately $211,000 of expenses related to the additional week in the first quarter of 2005.

19

Depreciation and amortization expense in the first quarter of 2006 increased approximately $9,000 or 1.9%. This net increase is comprised of certain property and equipment becoming fully depreciated, offset in part by an increases due to the acquisition of approximately $445,000 in fixed assets and approximately $88,000 in intangible assets during the first quarter of 2006.

The gain from insurance proceeds of approximately $57,000 in the first quarter of 2006 represents insurance proceeds resulting from business interruption claims from 2005 hurricanes sustained in Florida hearing care centers.

Interest expense in the first quarter of 2006 increased approximately $227,000 or 19.1% over the first quarter of 2005. This increase is attributable to approximately $519,000 of interest (including the non-cash portion of approximately $246,000) on the $5.5 million financing that was completed in August 2005 and the new $5.0 million financing from Siemens at the end of December 2005. These increases were offset in part by a decrease of interest on other existing balances due to repayments of principal and a decrease of interest expense of approximately $172,000 related to a decrease in the fair market value of the note warrants during the first quarter of 2006 (see Note 6 – Subordinated Notes and Warrant Liability, Notes to Consolidated Financial Statements included herein). The non-cash charge of $726,000 included in the interest expense is $480,000 in amortization of the debt discount related to the $7.5 million convertible subordinated notes (see Note 5 – Convertible Subordinated Notes, Notes to Consolidated Financial Statements included herein) and $246,000 in amortization of the debt discount related to the $5.5 million subordinated notes (see Note 6 – Subordinated Notes and Warrant Liability, Notes to Consolidated Financial Statements included herein). These non-cash charges do not impact the liquidity or working capital of the Company. Also included in interest expense is the interest on the Siemens Tranche A (old Tranches A, B and C) totaling $49,000 in the first quarter of 2006 as compared with $102,000 in the same period of 2005, which were paid through preferred pricing reductions from Siemens (see Note 4 – Long-Term Debt, Notes to Consolidated Financial Statements included herein and Liquidity and Capital Resources below). The interest expense could be affected by the use of the Siemens credit facility and notes payable for acquisitions in 2006. Early payment or conversion of the $7.5 million convertible subordinated notes and/or the $5.5 million subordinated notes would result in acceleration of the debt discount amortization and therefore an increase in non-cash interest expense.

Income tax expense of approximately $38,000 in the first quarter of 2006 is attributable to state income taxes in states where the Company currently does not have net operating loss carryforwards available.

During the first quarters of 2006 and 2005, HEARx West generated net income of approximately $1.0 million and $525,000, respectively. The HEARx West deficit decreased from approximately $1.9 million at the end of 2005 to a deficit of approximately $907,000 at the end of the first quarter of 2006. According to the Company’s agreement with the Permanente Federation, the Company included in its statement of operations 100% of the losses incurred by the venture since its inception and will receive 100% of the net income of the venture until the deficit is eliminated. At such time as the deficit is eliminated and if the venture continues to be profitable, the Company will begin recording a minority interest, corresponding to 50% of the venture’s net income, as an expense in the Company’s consolidated statement of operations and with a corresponding liability on its consolidated balance sheet. The Company expects to begin recording a minority interest during the second quarter of 2006.

LIQUIDITY AND CAPITAL RESOURCES

On February 10, 2006, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement’), Amended and Restated Supply Agreement (the “Amended Supply Agreement”) and an Amended and Restated Security Agreement with Siemens Hearing Instruments, Inc. (“Siemens”). Pursuant to the amended agreements, the parties will continue their strategic relationship for an additional five-year term. The parties have restructured the then outstanding $23.1 million indebtedness of the Company to Siemens under the original credit agreement. The new facility is for a total of $26 million, including the currently outstanding $23.1 million, and is structured in three tranches.

20

The new Tranche A, with a principal balance of approximately $2.2 million and interest of 10% per annum, is payable in three quarterly installments which began in the first quarter of 2006. Quarterly payments are subject to rebate credits as described below. This note is a consolidation of the old Tranches A, B and C.

The new Tranche B is a revolving credit line established to accommodate funding for certain acquisitions by the Company. Pursuant to the Amended Credit Agreement, the Company may borrow under Tranche B up to the $26 million limit, less any amounts then outstanding under Tranche A and Tranche C.

The new Tranche C, which is a consolidation of the old Tranches D, E and F, has a principal balance on the closing date of approximately $20.9 million an interest rate of prime plus 1% per annum, and is payable in quarterly installment payments of $730,000 plus interest thereon commencing with the fourth quarter of 2006, which quarterly payments are also subject to rebate credits as described below. Additional loans may be made to the Company under Tranche C for certain acquisitions. In addition, the Company is required to make monthly installments of principal and interest of $130,000 which began in February 2006. These monthly installment payments are intended to repay approximately $6.6 million of the Tranche C principal balance.

The remaining principal balance of Tranche C, as well as Tranche A and Tranche B, with interest, will continue to be eligible for repayment utilizing rebates on purchases of hearing aids from Siemens, provided that the Company purchases under the Amended Supply Agreement certain percentages of hearing aids it sells. The Amended Credit Agreement also contemplates that the Company will reduce the Tranche C loan balance by making annual payments in an amount equal to 20% of Excess Cash Flow (as that term is defined in the Amended Credit Agreement), and by paying Siemens 25% of proceeds from equity offerings the Company may complete. The payment for 2006 based on 2005 excess cash flow is approximately $300,000 and was made in April 2006.

Substantially all of the Company’s assets collateralize repayment of the Siemens notes payable.

The Siemens’ credit facility imposes certain financial and other covenants on the Company, which are customary for loans of this size and nature, including restrictions on the conduct of the Company’s business, the incurrence of indebtedness, merger or sale of assets, the modification of material agreements, changes in capital structure, making certain payments and paying dividends. If the Company cannot maintain compliance with these covenants, Siemens may terminate future funding under the credit facility and declare all then outstanding amounts under the facility immediately due and payable. Also, the Amended Supply Agreement requires full payment for hearing aids purchased from Siemens within 60 days from statement date. As of April 1, 2006, the Company was in compliance with those payment provisions. Upon noncompliance, Siemens may declare the Company to be in default of the Amended Supply Agreement by written notification, which, if not cured within 60 days of the date of written notification, would be an event of default under the Company’s Amended Credit Facility and Siemens would have the right to declare all amounts outstanding under the credit facility immediately due and payable. Any non-compliance with the Amended Supply Agreement could have a material adverse effect on the Company’s financial condition and continued operations.

The working capital deficit increased $2.7 million to $5.8 million as of April 1, 2006 from $3.1 million as of December 31, 2005. The increase in the deficit is attributable to an excess of approximately $2.6 million in cash used in investing and financing activities over cash generated from operating activities of approximately $810,000 and an increase in current maturities of long-term debt, convertible subordinated notes and subordinated notes of approximately $553,000. The working capital deficit of $5.8 million includes approximately $3.0 million representing the current maturities of the long-term debt to Siemens which may be repaid through preferred pricing reductions and approximately $823,000 ($2.5 million in current maturities, net of $1.7 million of debt discount) related to the $7.5 million convertible subordinated notes that can be repaid by either cash or stock, at the option of the Company. In the first quarter of 2006, the Company generated income from operations of approximately $1.7 million compared to $1.0 million in the first quarter of 2005. Cash and cash equivalents as of April 1, 2006 were approximately $4.1 million. Also, subsequent to the end of the quarter, the Company drew approximately $890,000 from its acquisition line of credit with Siemens (Tranche B), related to the acquisitions made during the first quarter of 2006.

21

Net cash from operating activities in the first quarter of 2006 increased approximately $860,000 compared to the first quarter of 2005, which is mainly attributable to the improvement in net income between the periods from a loss of $251,000 to a net income of $305,000. Furthermore, the 2006 net income includes additional debt discount amortization of approximately $158,000 and stock-based compensation expenses of approximately $233,000, which was offset by a reduction of approximately $172,000 of non-cash interest expense related to the decrease in the fair market value of the note warrants when compared to 2005. These additional charges and credits did not affect cash flows. Decreases in cash flows in the first quarter of 2006 from the first quarter of 2005 resulted from the increase in purchase of inventory due to the purchases of additional stock of hearing aids during the quarter and decreases in accounts payable due to timing in payments. These reductions were offset by corresponding increases in cash flows from decreases in accounts receivable due to the collection of our Kaiser monthly capitation payment of approximately $624,000 for March before the end of the quarter. Such payment for December 2005 was received after the end of fiscal 2005.

During the first quarter of 2006, cash of approximately $1.4 million was used to complete the acquisition of several centers. No acquisitions were made in the first quarter of 2005. Also, additional funds were used in the first quarter of 2006 compared to the first quarter of 2005 (increase from $190,000 in the first quarter of 2005 to approximately $445,000 in the first quarter of 2006) for leasehold improvements related to center upkeep and maintenance.

Funds were also used in the first quarter of 2006 for long-term debt repayment of approximately $422,000, an increase of $216,000 from the first quarter of 2005. A $440,000 payment was also made in the first quarter of 2006 related to the 2005 subordinated notes, as well as a $625,000 payment related to the first quarterly payment due the holders of the $7.5 million convertible subordinated notes. The use of funds for dividends on preferred stock was reduced from $265,000 to $35,000 as the Series E Convertible Preferred Stock was redeemed in September 2005. In the first quarter of 2005, proceeds of $1,725,000 were received from the exercise of warrants.

The Company believes that current cash and cash equivalents and cash flow from operations, at current net revenue levels, will be sufficient to support the Company’s operational needs through the next twelve months, although there can be no assurance that the Company can maintain compliance with the Siemens’ loan covenants, that net revenue levels will remain at or higher than current levels or that unexpected cash needs will not arise for which the cash, cash equivalents and cash flow from operations will not be sufficient. In the event of a shortfall in cash, the Company might consider short-term debt, or additional equity or debt offerings. There can be no assurance however, that such financing will be available to the Company on favorable terms or at all. The Company also is continuing its aggressive cost controls and sales and gross margin improvements.

22

Below is a chart setting forth the Company’s contractual cash payment obligations, which have been aggregated to facilitate a basic understanding of the Company’s liquidity as of April 1, 2006:

	Payments due by period (000’s)
			Less						More
			than 1		1 – 3		4 – 5		Than 5
Contractual obligations	Total		year		years		Years		years
Long-term debt (1)	$	25,578	$	5,448	$	9,789	$	9,221	$	1,120
Convertible subordinated notes (3)		6,875		2,500		4,375		—		—
Subordinated notes		4,620		1,760		2,860		—		—
Subtotal of obligations recorded on balance sheet		37,073		9,708		17,024		9,221		1,120
Interest to be paid on long-term debt (2)		1,822		657		869		296		—
Interest to be paid on convertible subordinated notes (3)		781		461		320		—		—
Interest to be paid on subordinated notes		432		268		164		—		—
Operating leases		17,362		3,709		10,225		2,597		831
Employment agreements		3,619		1,135		1,719		765		—
Purchase obligations		1,167		717		450		—		—
Total contractual cash obligations	$	62,256	$	16,655	$	30,771	$	12,879	$	1,951

(1)	Approximately $15.7 million can be repaid through preferred pricing reductions from Siemens, including $2.9 million in less than 1 year and $5.8 million in years 1-3, $5.8 million in years 4-5 and $1.2 million in more than 5 years.
(2)	Interest on long-term debt excludes the interest on the new Tranches A, B and C that can be repaid through preferred pricing reductions from Siemens pursuant to the Amended and Restated Credit Agreement. Interest repaid through preferred pricing reductions was $49,000 in the first quarter of 2006. (See Note 4 – Long-Term Debt, Notes to Consolidated Financial Statements included herein.)
(3)	When due, these notes and corresponding interest can be repaid at the option of the Company in common stock.

CRITICAL ACCOUNTING POLICIES

Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements:

Goodwill

The majority of the Company’s goodwill resulted from the combination with Helix. On at least an annual basis, the Company is required to assess whether its goodwill is impaired. The Company elected to perform this analysis on the first day of its fourth quarter. In order to do this, management applied judgment in determining its “reporting units”, which represent distinct parts of the Company’s business. The reporting units determined by management are the centers, the network and e-commerce. The definition of the reporting units affects the Company’s goodwill impairment assessments. The annual goodwill impairment assessment involves estimating the fair value of a reporting unit and comparing it with its carrying amount. If the carrying value of the reporting unit exceeds its fair value, additional steps are required to calculate a potential impairment charge. Calculating the fair value of the reporting units requires significant estimates and long-term assumptions. The Company utilized an independent

23

appraisal firm to test goodwill for impairment as of the first day of the Company’s fourth quarter during 2005 and 2004, and each of these tests indicated no impairment. The Company estimates the fair value of its reporting units by applying a weighted average of three methods: quoted market price, external transactions, and discounted cash flow. Significant changes in key assumptions about the business and its prospects, or changes in market conditions, stock price, interest rates or other externalities, could result in an impairment charge.

Revenue recognition

Revenues from the sale of audiological products are recognized at the time of delivery. Revenues from hearing care services are recognized at the time those services are performed.

The Company has capitation contracts with certain health care organizations under which the Company is paid an amount for each enrollee of the health maintenance organization to provide to the enrollee a once every three years discount on certain hearing products and services. The amount paid to the Company by the healthcare organization is calculated on a per-capita basis and is referred to as capitation revenue. Capitation revenue is earned as a result of agreeing to provide services to members without regard to the actual amount of service provided; revenue is recorded in the period that the beneficiaries are entitled to hearing care services.

Allowance for doubtful accounts

Certain of the accounts receivable of the Company are from health insurance and managed care organizations and government agencies. These organizations could take up to nine months before paying a claim made by the Company and also impose a limit on the time the claim can be billed. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions, and a review of the current status of each organization’s trade accounts receivable.

In order to calculate that allowance, the Company first identifies any known uncollectible amounts in its accounts receivable listing and charges them against the existing allowance for doubtful accounts. Then a specific percent per plan and per aging categories is applied against the remaining receivables to estimate the new allowance. Any changes in the percent assumptions per plan and aging categories could result in a change in the allowance for doubtful accounts. For example, an increase of 10% in the percent used would increase the allowance for doubtful accounts by approximately $22,000.

Sales returns

The Company provides to all patients purchasing hearing aids a specific return period of at least 30 days if the patient is dissatisfied with the product. The Company provides an allowance in accrued expenses for returns. The return period can be extended to 60 days if the patient attends the Company’s H.E.L.P. program. The Company calculates its allowance for returns using estimates based upon actual historical returns. The cost of the hearing aid is reimbursed to the Company by the manufacturer.

24

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not engage in derivative transactions. The Company is exposed to Canadian currency exchange rates and the Company is not hedging that exposure. Differences in the fair value of investment securities are not material; therefore the related market risk is not significant. The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s long-term debt. The following table presents the Company’s financial instruments for which fair value is subject to changing market interest rates:

	Variable Rate			Fixed Rate												Total
	Prime+1%			10% note			8%			7%
	due January			Due January			due November			due August
	2011			2011			2008			2008			Other
	$			$			$			$			$			$
	(000’s)			(000’s)			(000’s)			(000’s)			(000’s)			(000’s)
2006		(1,746	)		(1,510	)		(1,875	)		(1,320	)		(860	)		(7,311	)
2007		(4,019	)		—			(2,500	)		(1,760	)		(1,045	)		(9,324	)
2008		(4,120	)		—			(2,500	)		(1,540	)		(666	)		(8,826	)
2009		(4,229	)		—			—			—			(374	)		(4,603	)
2010		(6,925	)		—			—			—			(84	)		(7,009	)
Total		(21,039	)		(1,510	)		(6,875	)		(4,620	)		(3,029	)		(37,073	)
Estimated fair value		(20,875	)		(1,490	)		(6,648	)		(4,503	)		(2,738	)		(36,254	)

Item 4. Controls and Procedures

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of April 1, 2006. Management reviewed in particular the Company’s procedures relating to the calculation of the warrant liability described in Note 6, Notes to Consolidated Financial Statements included above. In light of the restatement of the Company’s 2005 financial statements necessitated by an error in the calculation of the warrant liability (which restatement was included in a Form 10-K/A filed with the Securities and Exchange Commission on May 11, 2006), the Company’s chief executive officer and chief financial officer concluded that, as of April 1, 2006, the Company’s disclosure controls and procedures were not effective. The Company is currently evaluating steps that it can take to remediate any deficiencies in its disclosure controls and procedures, especially as they may relate to the calculation and documentation of warrant liability and other related matters.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the fiscal quarter ended April 1, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

25

PART II

Item 6. Exhibits

2.1	Plan of Arrangement, including exchangeable share provisions (incorporated herein by reference to Exhibit 2.3 to the Company’s Joint Proxy Statement/Prospectus on Form S-4 (Reg. No. 333-73022)).
3.1	Restated Certificate of Incorporation of HEARx Ltd., including certain certificates of designations, preferences and rights of certain preferred stock of the Company (incorporated herein by reference to Exhibit 3 to the Company’s Current Report on Form 8-K, filed May 17, 1996 (File No. 001-11655)).
3.2	Amendment to the Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1A to the Company’s Quarterly Report on Form 10-Q for the period ended June 28, 1996 (File No. 001-11655)).
3.3	Amendment to Restated Certificate of Incorporation including one for ten reverse stock split and reduction of authorized shares (incorporated herein to Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q for the period ending July 2, 1999 (File No. 001-11655)).
3.4	Amendment to Restated Certificate of Incorporation including an increase in authorized shares and change of name (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed July 17, 2002 (File No. 001-11655)).
3.5	Certificate of Designations, Preferences and Rights of the Company’s 1999 Series H Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4 to the Company’s Current Report on Form 8-K, filed December 17, 1999 (File No. 001-11655)).
3.6	Certificate of Designations, Preferences and Rights of the Company’s Special Voting Preferred Stock (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed July 19, 2002 (File No. 001-11655)).
3.7	Amendment to Certificate of Designations, Preferences and Rights of the Company’s 1999 Series H Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4 to the Company’s Current Report on Form 8-K, filed July 17, 2002 (File No. 001-11655)).
3.8	Certificate of Designations, Preferences and Rights of the Company’s 1998-E Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed August 28, 2003 (File No. 001-11655)).
3.9	Amendment of Restated Certificate of Incorporation (increasing authorized capital) (incorporated herein by reference to Exhibit 3.9 to the Company’s Quarterly Report on Form 10-Q, filed August 8, 2004.)
3.10	Amended and Restated By-Laws of HearUSA, Inc. (effective May 9, 2005) (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed May 13, 2005).
4.1	Amended and Restated Rights Agreement, dated July 11, 2002 between HEARx and the Rights Agent, which includes an amendment to the Certificate of Designations, Preferences and Rights of the Company’s 1999 Series H Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4.9.1 to the Company’s Joint Proxy/Prospectus on Form S-4 (Reg. No. 333-73022)).
4.2	Form of Support Agreement among HEARx Ltd., HEARx Canada, Inc. and HEARx Acquisition ULC (incorporated herein by reference to Exhibit 99.3 to the Company’s Joint Proxy Statement/Prospectus on Form S-4 (Reg No. 333-73022)).
4.3	Form of 2003 Convertible Subordinated Note due November 30, 2008 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed December 31, 2003).
9.1	Form of Voting and Exchange Trust Agreement among HearUSA, Inc., HEARx Canada, Inc and HEARx Acquisition ULC and ComputerShare Trust Company of Canada (incorporated herein by reference to Exhibit 9.1 to the Company’s Joint Proxy Statement/Prospectus on Form S-4 (Reg. No. 333-73022)).
10.1	Amended and Restated Credit Agreement, dated as of February 10, 2006, between

26

	HearUSA, Inc and Siemens Hearing Instruments, Inc.
10.2	Amended and Restated Security Agreement, dated as of February 10, 2006, between HearUSA, Inc and Siemens Hearing Instruments, Inc.
10.3	Amended and Restated Supply Agreement, dated as of February 10, 2006, between HearUSA, Inc and Siemens Hearing Instruments, Inc.*
31.1	CEO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	CFO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	CEO and CFO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Confidential treatment has been requested for portions of this agreement.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HearUSA Inc.
	(Registrant)
May 15, 2006
	/s/ Stephen J. Hansbrough
	Stephen J. Hansbrough
	Chief Executive Officer
	HearUSA, Inc.
	/s/ Gino Chouinard
	Gino Chouinard
	Chief Financial Officer
	HearUSA, Inc.

28

EX-10.1

                                                                    EXHIBIT 10.1

================================================================================

                      AMENDED AND RESTATED CREDIT AGREEMENT

                          Dated as of February 10, 2006

                                     Between

                                 HearUSA, Inc.,
                                  as Borrower,

                                       and

                       SIEMENS HEARING INSTRUMENTS, INC.,

                                    as Lender

                                   ----------

                                   $26,000,000

                                   ----------

================================================================================



                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                      
ARTICLE I  DEFINITIONS AND ACCOUNTING TERMS..............................     1
   Section 1.01. Defined Terms...........................................     1
   Section 1.02. Computation of Time Periods.............................    11
   Section 1.03. Accounting Terms........................................    11
   Section 1.04. Certain Terms...........................................    11

ARTICLE II  AMOUNTS AND TERMS OF THE LOAN................................    12
   Section 2.01. The Commitments and the Loans...........................    12
   Section 2.02. Making the Loans........................................    12
   Section 2.03. Repayments..............................................    13
   Section 2.04. Optional Prepayments....................................    15
   Section 2.05. Mandatory Prepayment of Loans...........................    16
   Section 2.06. Interest................................................    16
   Section 2.07. Illegality..............................................    17
   Section 2.08. Payments and Computations...............................    17
   Section 2.09. Taxes...................................................    17

ARTICLE III  CONDITIONS OF LENDING.......................................    18
   Section 3.01. Conditions Precedent to the Loans Made on
                 the Closing Date........................................    18
   Section 3.02. Conditions Precedent to the Tranche B Loans and
                 post-Closing Date Tranche C Loans.......................    19
   Section 3.03. Additional Conditions Precedent to Making All Loans.....    19

ARTICLE IV  REPRESENTATIONS AND WARRANTIES...............................    20
   Section 4.01. Corporate Existence; Compliance with Law................    20
   Section 4.02. Corporate Power; Authorization;
                 Enforceable Obligations.................................    21
   Section 4.03. Full Disclosure.........................................    21
   Section 4.04. Financial Matters.......................................    21
   Section 4.05. Litigation..............................................    22
   Section 4.06. Margin Regulation.......................................    22
   Section 4.07. No Default..............................................    23
   Section 4.08. Investment Company Act..................................    23
   Section 4.09. Use of Proceeds.........................................    23
   Section 4.10. Pari Passu Obligations..................................    23
   Section 4.11. Compliance with Agreements..............................    23
   Section 4.12. Acknowledgement of Outstanding Obligations..............    23

ARTICLE V  AFFIRMATIVE COVENANTS.........................................    24
   Section 5.01. Compliance with Laws, Etc...............................    24
   Section 5.02. Conduct of Business.....................................    24
   Section 5.03. Preservation of Corporate Existence, Etc................    24



                                        i



                                                                      
   Section 5.04. Access..................................................    24
   Section 5.05. Keeping of Books........................................    25
   Section 5.06. Application of Proceeds.................................    25
   Section 5.07. Financial Statements....................................    25
   Section 5.08. Reporting Requirements..................................    26
   Section 5.09. Insurance...............................................    26
   Section 5.10. Payment of Taxes and Claims.............................    26
   Section 5.11. Compliance with Agreements..............................    27
   Section 5.12. Further Documents.......................................    27
   Section 5.13. Repayment of Certain Indebtedness.......................    27
   Section 5.14. Collateral Documents....................................    27

ARTICLE VI  NEGATIVE COVENANTS...........................................    27
   Section 6.01. Liens, Etc..............................................    27
   Section 6.02. Indebtedness............................................    29
   Section 6.03. Mergers, Sale of Assets, Etc............................    30
   Section 6.04. Change in Nature of Business............................    30
   Section 6.05. Modification of Material Agreements.....................    30
   Section 6.06. Cancellation of Indebtedness Owed to the Borrower.......    30
   Section 6.07. Capital Structure.......................................    30
   Section 6.08. Accounting Changes......................................    31
   Section 6.09. OFAC Compliance.........................................    31
   Section 6.10. Investments in Other Persons............................    31

ARTICLE VII  EVENTS OF DEFAULT...........................................    31
   Section 7.01. Events of Default.......................................    31
   Section 7.02. Remedies................................................    33

ARTICLE VIII  MISCELLANEOUS..............................................    33
   Section 8.01. Amendments, Etc.........................................    33
   Section 8.02. Notices.................................................    33
   Section 8.03. No Waiver; Remedies.....................................    34
   Section 8.04. Costs; Expenses; Indemnities............................    34
   Section 8.05. Right of Set-off........................................    35
   Section 8.06. Binding Effect..........................................    36
   Section 8.07. Governing Law...........................................    36
   Section 8.08. Severability............................................    36
   Section 8.09. Submission to Jurisdiction; Service of Process..........    36
   Section 8.10. Waiver of Jury Trial....................................    37
   Section 8.11. Section Titles..........................................    37
   Section 8.12. Execution in Counterparts...............................    37
   Section 8.13. Survival................................................    37
   Section 8.14. Entire Agreement........................................    37




                                       ii



EXHIBITS

Exhibit A-1        Form of Tranche A Note
Exhibit A-2        Form of Tranche B Note
Exhibit A-3        Form of Tranche C Note
Exhibit B          Form of Notice of Borrowing
Exhibit C          Security Agreement

SCHEDULES

Schedule I         Acquisition Procedures and Requirements
Schedule 6.01(k)   Existing Liens
Schedule 6.02(g)   Certain Indebtedness


                                       iii


          AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 10, 2006,
between HearUSA, Inc. (formerly HEARx, Ltd.), a Delaware corporation (the
"Borrower"), and Siemens Hearing Instruments, Inc., a Delaware corporation (the
"Lender"),

                                   WITNESSETH:

          WHEREAS, the Borrower and the Lender have been parties to a Credit
Agreement dated as of December 7, 2001, and subsequently amended (as amended,
the "Original Loan Agreement"), pursuant to which the Lender has made certain
loans to the Borrower (the "Original Loans") for the purposes specified in such
Original Loan Agreement, and to a Supply Agreement dated as of December 7, 2001,
and subsequently amended (as amended, the "Original Supply Agreement") pursuant
to which the Borrower and its Affiliates are purchasing hearing aids from Lender
and its Affiliates; and

          WHEREAS, the Borrower has requested that Lender modify the terms of
the Original Loan Agreement and enter into certain financing arrangements with
the Borrower; and

          WHEREAS, the parties now desire to fully amend and restate the
Original Loan Agreement by, among other things, reducing the total commitment
thereunder to $26 million and consolidating certain tranches; and

          WHEREAS, Borrower and the Lender are desirous of extending their
relationship and entering into this Amended and Restated Credit Agreement
pursuant to which the Lender will make funds available to the Borrower for such
purposes and upon the terms and subject to the conditions set forth herein; and

          WHEREAS, the Borrower and the Lender are also extending their supplier
relationship and will be parties to an Amended and Restated Supply Agreement,
which will provide for the sale of hearing aids to the Borrower and its
Affiliates by the Lender or its Affiliates;

          NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

     Section 1.01. Defined Terms.

          As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):

          "Acquisition Target" has the meaning specified in Schedule I hereto.



          "Affiliate" means, as to any Person, any Subsidiary of such Person and
any other Person which, directly or indirectly, controls, is controlled by or is
under common control with such Person and includes each officer or director or
general partner of such Person, and each Person who is the beneficial owner of
10% or more of any class of Voting Stock of such Person. For the purposes of
this definition, "control" means the possession of the power to direct or cause
the direction of management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.

          "Agreement" means this Amended and Restated Credit Agreement, together
with all Exhibits and Schedules hereto, as the same may be amended, restated,
supplemented or otherwise modified from time to time.

          "Business Day" means a day of the year on which banks are not required
or authorized to close in New York City.

          "Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States government or any agency thereof, (b) certificates of deposit,
eurodollar time deposits, overnight bank deposits and bankers' acceptances of
any lender or by any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia that (i) is
at least "adequately capitalized" (as defined in the regulations of its primary
Federal banking regulator) and (ii) has Tier 1 capital (as defined in such
regulations) of not less than $100,000,000, having maturities of one year or
less from the date of acquisition, (c) commercial paper of an issuer rated at
least "A-1" by Standard & Poors or "P-1" by Moody's, or carrying an equivalent
rating by a nationally recognized rating agency if both of Standard and Poors
and Moody's cease publishing ratings of investments, (d) shares of any money
market mutual fund that (i) has substantially all of its assets invested
continuously in the types of investments referred to in clause (a) above, (ii)
has net assets of not less than $500,000,000, and (iii) has the highest rating
obtainable from either S&P or Moody's; and (e) repurchase obligations of any
lender or of any commercial bank satisfying the requirements of clause (b) of
this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government.

          "Change of Control" means (a) the sale, lease, transfer, conveyance or
other disposition of all or substantially all of the assets of the Borrower to
any "person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of
the Exchange Act any successor provision to either of the foregoing, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act)
(except in connection with a liquidation or dissolution of the Borrower that
does not constitute a Change of Control under clause (b) below), (b) the
approval by the requisite shareholders of the Borrower of a plan of liquidation
or statutory dissolution (which shall not be construed to include a plan of
merger or consolidation) of the Borrower, or (c) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Borrower's Board of Directors (together with any new directors whose
election or appointment by such board or whose nomination for election by the
stockholders of the Borrower was approved by a vote of a majority of the
directors then still in office who were either directors at


                                        2



the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Borrower's Board of Directors then in office.

          "Closing Date" means February 10, 2006.

          "Collateral Documents" means the Amended and Restated Security
Agreement, and any other document or instrument executed and delivered by a
Person granting a Lien on any of its property to secure payment of the
Obligations.

          "Commitments" means, collectively, the Tranche A Loan Commitment, the
Tranche B Loan Commitment and the Tranche C Loan Commitment.

          "Consolidated Net Income" means, for any period with respect to any
specified Person or operations for which financial statements are prepared, the
Net Income of such Person or operations and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; provided that the
Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its shareholders.

          "Current Assets" means, with respect to any Person at any date, the
total consolidated current assets of such Person and its Subsidiaries on a
consolidated basis at such date, determined in conformity with GAAP.

          "Current Liabilities" means, with respect to any Person at any date,
the total consolidated current liabilities of such Person and its Subsidiaries
on a consolidated basis at such date, determined in conformity with GAAP.

          "Default" means any event which with the passing of time or the giving
of notice or both would become an Event of Default.

          "Dollars" and the sign "$" each mean the lawful money of the United
States of America.

          "EBITDA" means, with respect to any Person or operations for which
financial statements are prepared, at any time, for the then most recently
completed four fiscal quarters of such Person or operations, the sum of the
following amounts (without duplication) in respect of such Person and its
Subsidiaries or such operations, determined on a consolidated basis in
accordance with GAAP:

          (a) Consolidated Net Income for such period;


                                        3



          (b) all amounts deducted from net revenues in determining such
Consolidated Net Income for such period on account of (i) Interest Expense and
interest on the Loans and (ii) Taxes payable in respect of income of such
Person;

          (c) all charges or deductions for depreciation or amortization for
such period to the extent deducted in determining Consolidated Net Income for
such period; and

          (d) all non-recurring losses and all losses from investments recorded
using the equity method for such period to the extent deducted in determining
Consolidated Net Income for such period;

          less the amount of all non-recurring gains and all gains from
investments recorded using the equity method for such period to the extent
included in determining Consolidated Net Income for such period.

          "Environmental Laws" means all federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including, without limitation, any
judicial or administrative order, consent decree or judgment relating to the
regulation and protection of human health, safety, the environment or natural
resources (including, without limitation, ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation).

          "ERISA" means the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time, and all rules
and regulations from time to time promulgated thereunder.

          "Event of Default" has the meaning specified in Section 7.01.

          "Excess Cash Flow" means, with respect to any Person or operations for
which financial statements are prepared, at any time, for the then most recently
completed four fiscal quarters of such Person or operations, the sum of the
following amounts (without duplication) in respect of such Person and its
Subsidiaries or such operations, determined on a consolidated basis in
accordance with GAAP:

          (a) Consolidated Net Income for such period;

          (b) all amounts deducted from net revenues in determining such
Consolidated Net Income for such period on account of (i) Interest Expense and
interest on the Loans and (ii) Taxes payable in respect of income of such
Person;

          (c) all charges or deductions for depreciation or amortization for
such period to the extent deducted in determining Consolidated Net Income for
such period;

          (d) all non-recurring losses and all losses from investments recorded
using the equity method for such period to the extent deducted in determining
Consolidated Net Income for such period; and


                                        4



          (e) all charges or deductions for bad debts for such period to the
extent deducted in determining Consolidated Net Income for such period;

          Less:

          (f) the amount of all non-recurring gains and all gains from
investments recorded using the equity method for such period to the extent
included in determining Consolidated Net Income for such period;

          (g) the amount of all credits or decreases in cost of products sold
for such period to the extent decreased in determining Consolidated Net Income
for such period, pursuant to Section 2.03(d) of this Credit Agreement; and

          (h) scheduled and mandatory cash principal and interest payments on
Indebtedness made by Borrower or any of its Subsidiaries (other than the Loans)
during such period to the extent such other Indebtedness is permitted herein and
such payments are permitted to be made herein.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.

          "Fiscal Quarter" means each of the three month periods ending on the
last Saturday during the months of March, June, September and December.

          "Fixed Monthly Tranche C Payment" shall have the meaning set forth in
Section 2.03(c).

          "GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board.

          "Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

          "Indebtedness" means, as to any Person: (a) indebtedness created,
issued, existing or incurred by such Person for borrowed money (whether by loan
or the issuance and sale of debt securities); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within sixty (60) days from the date Borrower
receives statement for such goods or services and other than trade accounts
payable that are being contested in good faith, by proper proceedings, if
adequate reserves therefor have been established on the books of such Person in
conformity with GAAP; (c) Indebtedness of others secured by a Lien on the
property of such Person, whether or not the respective indebtedness so secured
has been assumed by such Person; (d) obligations of such Person in respect of
letters of credit or similar instruments issued


                                        5



or accepted by banks and other financial institutions for the account of such
Person; (e) capital lease obligations of such Person; and (f) Indebtedness of
others guaranteed by such Person.

          "Indemnified Matters" has the meaning specified in Section 8.04(b).

          "Indemnitee" has the meaning specified in Section 8.04(b).

          "Interest Expense" means, for any fiscal period, for any Person or
operations for which financial statements are prepared, all interest expense
calculated on a consolidated basis for such Person and its Subsidiaries or such
operations in respect of Indebtedness, including any commitment, standby, agency
or other fees charged in respect of the provision of any such Indebtedness, any
fee payable in respect of the issuance of any letter of credit or letter of
guarantee, the imputed interest component of any bankers' acceptance or other
security issued by any such Person or in respect of such operations, the
interest component under any capital lease or under any lease, or under any
interest rate protection agreement entered into by any such Person or in respect
of such operations, all as determined in accordance with GAAP.

          "Investment" has the meaning specified in Section 6.12.

          "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to assure
payment of any indebtedness or other obligation, including, without limitation,
any conditional sale or other title retention agreement, the interest of a
lessor under a capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing, under the UCC or
comparable law of any jurisdiction, of any financing statement evidencing a
valid lien naming the owner of the asset to which such Lien relates as debtor.

          "Loan Balance" means the then outstanding principal plus accrued and
unpaid interest in respect of the Tranche A Loan, Tranche B Loans or Tranche C
Loan, as the context shall specify.

          "Loan Documents" means, collectively, this Agreement, the Notes, the
Collateral Documents and each certificate, agreement or document executed by the
Borrower or any other Person (other than the Lender) and delivered to the Lender
in connection with or pursuant to any of the foregoing.

          "Loans" means, collectively, the Tranche A Loan, the Tranche B Loans
and the Tranche C Loans.

          "Material Adverse Change" means a material adverse change in any of
(a) the legality, validity or enforceability of any Loan Document, (b) the
ability of the Borrower to repay the Obligations or to perform its obligations
under any Loan Document, (c) the ability of the Lender to obtain recourse to any
of the collateral described in the Collateral Documents, or (d) the rights and
remedies of the Lender under any of the Loan Documents.


                                        6



          "Material Adverse Effect" means an effect that results in or causes,
or has a reasonable likelihood of resulting in or causing, a Material Adverse
Change.

          "Maturity Date" means the fifth anniversary of the Closing Date.

          "Minimum Purchase Percentage" has the meaning specified in Section
2.03(d)(i).

          "Net Income (Loss)" means, for any Person for any period, the
aggregate of net income (or loss) of such Person and its Subsidiaries for such
period, determined on a consolidated basis in conformity with GAAP.

          "Notes" means, collectively, the Tranche A Note, the Tranche B Note
and the Tranche C Note.

          "Notice of Borrowing" has the meaning specified in Section 2.02(a).

          "Obligations" means the Loans, the Notes and all other advances,
debts, liabilities, obligations, covenants and duties owing by the Borrower to
the Lender or any Indemnitee, of every type and description, present or future,
whether or not evidenced by any note, guaranty or other instrument, arising
under this Agreement or under any other Loan Document, whether or not for the
payment of money, loan, guaranty, indemnification or in any other manner,
whether direct or indirect (including, without limitation, those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired. The term "Obligations" includes, without
limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to the Borrower under this Agreement
or any other Loan Document.

          "Other Taxes" has the meaning specified in Section 2.09(b).

          "Permit" means any permit, approval, authorization, license, variance
or permission required from a Governmental Authority under an applicable
Requirement of Law.

          "Permitted Liens" means Liens permitted under Section 6.01 of this
Agreement.

          "Permitted Senior Indebtedness" means senior unsecured Indebtedness of
Borrower to non-Affiliates of the Borrower that satisfies each of the following
conditions:

          (a) in the reasonable judgment of the Lender, the Borrower will be
able to service the Permitted Senior Indebtedness without substantially
jeopardizing the ability of the Borrower to pay all principal and interest on
its Indebtedness under reasonably adverse business circumstances;

          (b) there are no sinking fund or mandatory payments or prepayments of
principal due in respect of such Permitted Senior Indebtedness prior to the
Maturity Date;


                                        7



          (c) after giving effect to the incurrence of such Permitted Senior
Indebtedness, the Borrower's ratio of (i) Total Debt to (ii) the sum of (A) its
Total Debt plus (B) its Stockholders' Equity shall be, on a pro forma basis,
equal to or greater than 2.5:1.0;

          (d) after giving effect to the incurrence of such Permitted Senior
Indebtedness, the Borrower's ratio of EBITDA to the Borrower's aggregate
Interest Expense (including, without limitation, interest paid hereunder) shall
be, on a pro forma basis, equal to or greater than 3.0:1.0;

          (e) the other terms and conditions of such Indebtedness, shall be, in
the Lender's reasonable judgment, at then prevailing market standards for
companies similarly situated.

For purposes of this definition, "pro forma" means, for any calculation, on the
basis of the most recently completed rolling four-Fiscal Quarter period, but
assuming the incurrence of the proposed Indebtedness on the first day of such
period.

          "Permitted Subordinated Indebtedness" means subordinated unsecured
Indebtedness of the Borrower that satisfies each of the following conditions:

     (a) the final maturity of such Permitted Subordinated Indebtedness is later
than the Maturity Date;

     (b) there are no sinking fund or mandatory payments or prepayments of
principal due in respect of such Permitted Subordinated Indebtedness prior to
the Maturity Date; and

     (c) the other terms and conditions of such Permitted Subordinated
Indebtedness shall be, in Lender's reasonable opinion, at then prevailing market
standards for companies similarly situated, including limited acceleration
rights, priority in bankruptcy to the Obligations, payover provisions and waiver
of defenses.

          "Person" means an individual, partnership, corporation (including,
without limitation, a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other entity, or a
Governmental Authority.

          "Prime Rate" means the rate of interest per annum publicly announced
from time to time by Citibank, N.A. as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be effective from
and including the date such change is publicly announced as being effective.

          "Required Tranche B Payment" shall have the meaning specified in
Section 2.03(b).

          "Required Tranche C Quarterly Payment" shall have the meaning
specified in Section 2.03(c).


                                        8



          "Requirement of Law" means, as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of such
Person, and all federal, state and local laws, rules and regulations, including,
without limitation, federal, state or local securities, antitrust and licensing
laws, all health and safety laws, including, without limitation, Environmental
Laws, and ERISA, and all orders, judgments, decrees or other determinations of
any Governmental Authority or arbitrator, applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.

          "Responsible Officer" means, with respect to any Person, any of the
principal executive officers of such Person.

          "Roll-In Acquisition" has the meaning specified in Schedule I hereto.

          "Security Agreement" means the Amended and Restated Security Agreement
entered into between Lender and Borrower effective February 10, 2006, set out as
Exhibit C hereto, as such agreement may be amended, supplemented or modified
from time to time.

          "Solvent" means, with respect to any Person, that the value of the
assets of such Person (at book value) is, on the date of determination, greater
than the total amount of liabilities (including, without limitation, contingent
and unliquidated liabilities) of such Person as of such date and that, as of
such date, such Person is able to pay all liabilities of such Person as such
liabilities mature and does not have unreasonably small capital. In computing
the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.

          "Stand-Alone Acquisition" has the meaning specified in Schedule I
hereto.

          "Stock" means shares of capital stock, beneficial, membership or
partnership interests, participations or other equivalents (regardless of how
designated) of or in a corporation, limited liability company, partnership or
other entity, whether voting or non-voting, and includes, without limitation,
common stock and preferred stock.

          "Stock Equivalents" means all securities convertible into or
exchangeable for Stock, and all warrants, options or other rights to purchase or
subscribe for any Stock, whether or not presently convertible, exchangeable or
exercisable.

          "Subsidiary" means, with respect to any Person, any corporation,
partnership or other business entity of which an aggregate of 50% or more of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors, managers, trustees or other controlling persons, is, at the time,
directly or indirectly, owned or controlled by such Person and/or one or more
Subsidiaries of such Person (irrespective of whether, at the time, Stock of any
other class or classes of such entity shall have or might have voting power by
reason of the happening of any contingency).

          "Supply Agreement" means, collectively, the Amended and Restated
Supply Agreement, dated as of February 10, 2006, between the Borrower and the
Lender, and any other


                                        9



supply or similar agreement entered into by the Lender or any of its Affiliates
and the Borrower or any of its Affiliates for the provision of hearing aids by
the Lender or any of its Affiliates to the Borrower or any of its Affiliates, in
each case, as amended, restated, supplemented or otherwise modified from time to
time.

          "Taxes" has the meaning specified in Section 2.09(a).

          "Tranche A Loan" has the meaning specified in Section 2.01(a).

          "Tranche A Loan Commitment" means the commitment of the Lender to make
the Tranche A Loan to the Borrower pursuant to Section 2.01(a) in an aggregate
principal amount not to exceed $2,239,851.

          "Tranche A Loan Payment Date" has the meaning specified in Section
2.03(a).

          "Tranche A Note" means the promissory note of the Borrower payable to
the order of the Lender in an aggregate principal amount equal to the Tranche A
Loan, in substantially the form of Exhibit A-1, evidencing the aggregate
principal amount of the Tranche A Loan by the Lender to the Borrower.

          "Tranche B Loan" has the meaning specified in Section 2.01(b).

          "Tranche B Loan Commitment" means the option of the Lender to make the
Tranche B Loans to the Borrower pursuant to Section 2.01(b) in an aggregate
principal amount not to exceed $26,000,000 less any amounts outstanding under
the Tranche A Loan and Tranche C Loans.

          "Tranche B Loan Payment Date" has the meaning specified in Section
2.03(b).

          "Tranche B Note" means the promissory note of the Borrower payable to
the order of the Lender, in substantially the form of Exhibit A-2, evidencing
the aggregate principal amount of the Tranche B Loans by the Lender to the
Borrower.

          "Tranche C Loan" has the meaning specified in Section 2.01(c).

          "Tranche C Loan Commitment" means the commitment of the Lender to make
the Tranche C Loan to the borrower on the Closing Date in the principal amount
of $20,875,256 and the option of the Lender to make additional Tranche C Loans
to the Borrower pursuant to Section 2.01(c), all in an aggregate principal
amount not to exceed $26,000,000 less any amounts outstanding under the Tranche
A Loan and Tranche B Loan.

          "Tranche C Loan Payment Date" has the meaning specified in Section
2.03(c).

          "Tranche C Monthly Payment Date" shall have the meaning set forth in
Section 2.03(c).


                                       10



          "Tranche C Note" means the promissory note of the Borrower payable to
the order of the Lender in substantially the form of Exhibit A-3, evidencing the
aggregate principal amount of the Tranche C Loans by the Lender to the Borrower.

          "Tranche C Quarterly Payment Date" shall have the meaning set forth in
Section 2.03(c).

          "UCC" means the Uniform Commercial Code, as in effect in any
applicable jurisdiction.

          "Voting Stock" means Stock or similar interests, of any class or
classes (however designated), the holders of which at the time entitled, as such
holders to vote for the election of a majority of the directors (or persons
performing similar functions) of the Person involved, whether or not the right
to so vote exists by reason of the happening of a contingency.

          "Working Capital" means, for any Person at any date, the amount by
which the Current Assets of such Person at such date exceeds the Current
Liabilities of such Person at such date.

     Section 1.02. Computation of Time Periods.

          In this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each mean "to but excluding" and the
word "through" means "to and including".

     Section 1.03. Accounting Terms.

          All accounting terms not specifically defined herein shall be
construed in conformity with GAAP and all accounting determinations required to
be made pursuant hereto shall, unless expressly otherwise provided herein, be
made in conformity with GAAP.

     Section 1.04. Certain Terms.

          (a) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole, and not to any particular
Article, Section, subsection or clause in this Agreement. References herein to
an Exhibit, Schedule, Article, Section, subsection or clause refer to the
appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in
this Agreement.

          (b) The term "Lender" includes its successors and assigns.


                                       11



                                   ARTICLE II

                          AMOUNTS AND TERMS OF THE LOAN

     Section 2.01. The Commitments and the Loans.

          (a) Tranche A Loan. On the terms and subject to the conditions
contained in this Agreement, the Lender agrees to make a single loan (the
"Tranche A Loan") to the Borrower, which Tranche A Loan (i) shall be made only
on the Closing Date, (ii) shall be repaid pursuant to the terms hereof, but once
repaid may not be reborrowed, and (iii) shall not exceed the amount of the
Tranche A Loan Commitment. The Tranche A Loan shall be evidenced by the Tranche
A Note.

          (b) Tranche B Loans. On the terms and subject to the conditions
contained in this Agreement, the Lender agrees to make loans (each, a "Tranche B
Loan" and collectively, the "Tranche B Loans") to the Borrower, which Tranche B
Loans (i) may be made on the Closing Date and from time to time thereafter on
any Business Day up to thirty (30) days prior to the Maturity Date, (ii) shall
be repaid pursuant to the terms hereof, and once repaid may be reborrowed, and
(iii) shall not exceed, at any time outstanding, the amount of the Tranche B
Loan Commitment. The aggregate Tranche B Loans shall be evidenced by the Tranche
B Note.

          (c) Tranche C Loans. On the terms and subject to the conditions
contained in this Agreement, the Lender agrees to make loan(s) (each, a "Tranche
C Loan" and collectively, the "Tranche C Loans") to the Borrower, which Tranche
C Loans (i) shall be made on the Closing Date and from time to time thereafter
on any Business Day up to thirty (30) days prior to the Maturity Date, (ii)
shall be repaid pursuant to the terms hereof, and once repaid may be reborrowed,
and (iii) shall not exceed the amount of the Tranche C Loan Commitment. The
Tranche C Loans shall be evidenced by the Tranche C Note.

          (d) The Borrower may, from time to time, upon at least three Business
Days' prior notice to the Lender, terminate in whole or reduce in part the
unused portions of the Tranche B Loan Commitment or the Tranche C Loan
Commitment. Each partial reduction shall be in an amount of not less than
$250,000 or an integral multiple of $250,000 in excess thereof and shall reduce
permanently such Loan commitment then in effect.

          (e) The Tranche A Loan Commitment shall terminate on the Closing Date.
The Tranche B Loan Commitment and the Tranche C Loan Commitment shall terminate
thirty (30) days prior to the Maturity Date.

     Section 2.02. Making the Loans.

          (a) Subject to the terms and conditions hereof, each Tranche B Loan
and Tranche C Loan shall be made on notice given by the Borrower to the Lender
by 11:00 A.M. (New York City time) on the third Business Day prior to date of
the proposed making of such Loan. Each such notice (a "Notice of Borrowing")
shall be substantially in the form of Exhibit B, specifying therein (i) the
proposed date for the making of such Loan, (ii) the amount


                                       12



of Loans constituting the Tranche B Loan or the Tranche C Loan, and (iii) that
the Borrower has complied with the applicable terms and conditions of this
Section 2.02 and Article III.

          (b) Each Tranche B Loan shall be in an amount equal to a portion of
the purchase price for the purchase or acquisition of Acquisition Targets, which
amount shall be determined in accordance with the guidelines set forth on
Schedule I.

          (c) Each Tranche C Loan that lender determines to make after the
Closing Date shall be in an amount equal to a portion of the purchase price for
the purchase or acquisition of Acquisition Targets, which amount shall be
determined in accordance with the guidelines set forth on Schedule I.

          (d) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. The Borrower shall indemnify the Lender against any loss, cost or
expense incurred by the Lender as a result of any failure to fulfill on or
before the date specified in such Notice of Borrowing for such proposed Loan,
the applicable conditions set forth in Article III, including, without
limitation, any loss (excluding loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by the Lender to fund the Loan, which, as a result of such failure, is
not made on such date.

     Section 2.03. Repayments.

          (a) Repayment of Tranche A Loan. On the 20th day after the last day of
each Fiscal Quarter after the Closing Date (a "Tranche A Loan Payment Date"),
commencing on the 20th day after the last day of the first Fiscal Quarter of
2006 and ending upon payment in full, subject to the provisions of Section
2.03(d) below, the Borrower shall pay the principal amount of the outstanding
Tranche A Loan in three installments of $730,000 each and a fourth installment
of the balance, plus in each instance accrued and unpaid interest as provided by
Section 2.06(a) (each such amount a "Required Tranche A Payment").

          (b) Repayment of Tranche B Loans. On the 20th day after the last day
of each Fiscal Quarter after the Closing Date (a "Tranche B Loan Payment Date"),
commencing on the 20th day after the last day of the first Fiscal Quarter after
the first Tranche B Loan is made and ending on the Maturity Date, subject to the
provisions of Section 2.03(e) below, the Borrower shall pay down the principal
amount of the aggregate outstanding Tranche B Loans in an amount equal to (i)
for each Tranche B Loan for Roll-In Acquisitions, an amount equal to five
percent (5.0%) of the original amount of such Tranche B Loan, and (ii) for each
Tranche B Loan for Stand-Alone Acquisitions made after January 1, 2006, $65 per
hearing aid for all hearing aids purchased by Borrower from Lender during such
Fiscal Quarter on each such new "ship to" account for each such Stand-Alone
Acquisition; plus accrued and unpaid interest thereon as provided by Section
2.06(a) (such amounts the "Required Tranche B Payment").

          (c) Repayment of Tranche C Loans. (i) On the first day of each month
commencing on the first day of March 2006 (a "Tranche C Monthly Payment Date")
the Borrower shall pay down the principal balance of the Tranche C Loans in an
amount of $130,000 (each such amount the "Fixed Monthly Tranche C Payment").
(ii) Additionally, on the 20th day


                                       13


after the last day of each Fiscal Quarter commencing with the fourth quarter of
2006 (i.e., on January 20, 2007) and ending on the Maturity Date (a "Tranche C
Quarterly Payment Date"), subject to the provisions of Section 2.03(d) below,
the Borrower shall pay an amount equal to $730,000, plus accrued and unpaid
interest as provided by Section 2.06(b) (each such amount, the "Required Tranche
C Quarterly Payment").

          (d) Self-Liquidating of Tranche A and Tranche C Loans. Notwithstanding
the provisions of Section 2.03(a) and (c), and provided that no Event of Default
exists, then:

               (i) if, as of any Tranche A Loan Payment Date or Tranche C
          Quarterly Payment Date (each a "Loan Payment Date"), the Borrower has
          purchased pursuant to the Supply Agreement, on a cumulative basis from
          May 1, 2001 through the applicable quarterly Loan Payment Date, 90% or
          more of the total number of hearing aids purchased by the Borrower,
          net of returns (such cumulative amount determined as a percentage, the
          "Minimum Purchase Percentage"), the Borrower shall be deemed to have
          repaid the Required Tranche A Payment or Required Quarterly Tranche C
          Payment, as the case may be, on the applicable Loan Payment Date;

               (ii) if the Borrower has purchased pursuant to the Supply
          Agreement, on a cumulative basis from May 1, 2001 through the
          applicable quarterly Tranche A Loan Payment Date or Tranche C
          Quarterly Payment Date, eighty percent (80%) or more of the total
          number of hearing aids purchased by the Borrower but less than ninety
          percent (90%) of the total number of hearing aids purchased by the
          Borrower in each of the two preceding consecutive Fiscal Quarters, the
          Borrower shall be deemed to have paid an amount, on the applicable
          quarterly Payment Date at the end of such second Fiscal Quarter equal
          to the product of (i) the applicable Required Tranche A Payment or
          Required Tranche C Quarterly Payment, times (ii) (A) 100% minus (B)
          the difference of (1) the Minimum Purchase Percentage and (2) the
          cumulative percentage of purchases of hearing aid products made by
          Borrower under the Supply Agreement during such second Fiscal Quarter.
          By way of example, if Borrower purchased 80% of its cumulative second
          quarter requirements from Lender during any such period, then Borrower
          will be deemed to have made a payment for the applicable Loan Payment
          Date equal to 90% of such Required Tranche A Payment or Required
          Tranche C Quarterly Payment; and

               (iii) if the Borrower has not purchased pursuant to the Supply
          Agreement, on a cumulative basis from May 1, 2001 through the
          applicable Payment Date at least eighty percent (80%) of the total
          number of hearing aids purchased by the Borrower, the Borrower shall
          receive no credit against either the Required Tranche A Payment or the
          Required Tranche C Quarterly Payment. For the avoidance of doubt, the
          repayment credits provided in this Section 2.03(d) shall not apply to
          or reduce the Fixed Monthly Tranche C Payment required under Section
          2.03(c)(i).


                                       14



          Notwithstanding the foregoing, the Borrower shall make a balloon
payment of the outstanding principal amount of the Tranche C Loan, with all
accrued and unpaid interest, on the Maturity Date.

          (e) Self-Liquidation of Tranche B Loans. Notwithstanding the
provisions of Section 2.03(b), and provided that no Event of Default exists,
then:

               (i) if, as of any Tranche B Loan Payment Date, the Borrower has
          purchased pursuant to the Supply Agreement, on a cumulative basis from
          May 1, 2001 through the applicable Loan Payment Date the Minimum
          Purchase Percentage, the Borrower shall be deemed to have repaid all
          of the Required Tranche B Payments on the applicable Tranche B Loan
          Payment Date;

               (ii) if the Borrower has purchased pursuant to the Supply
          Agreement, on a cumulative basis from May 1, 2001 through the
          applicable Loan Payment Date, eighty percent (80%) or more of the
          total number of hearing aids purchased by the Borrower but less than
          the Minimum Purchase Percentage in each of the two preceding
          consecutive Fiscal Quarters, the Borrower shall be deemed to have paid
          an amount on the applicable quarterly Payment Date at the end of such
          second Fiscal Quarter equal to the product of (i) the applicable
          Required Tranche B Payment times (ii) (A) 100% minus (B) the
          difference of (1) the Minimum Purchase Percentage and (2) the
          cumulative percentage of purchases of hearing aid products made by
          Borrower under the Supply Agreement during such second Fiscal Quarter.
          By way of example, if Borrower purchased 80% of its cumulative second
          Fiscal Quarter requirements from Lender during any such period, then
          Borrower will be deemed to have made a payment for the applicable Loan
          Payment Date equal to 90% of such Required Tranche B Payment on the
          applicable Tranche B Loan Payment Date; and

               (iii) if the Borrower has not purchased pursuant to the Supply
          Agreement, on a cumulative basis from May 1, 2001 through the
          applicable Payment Date at least eighty percent (80%) of the total
          number of hearing aids purchased by the Borrower, the Borrower shall
          receive no credit against the Required Tranche B Payment.

Notwithstanding the foregoing, the Borrower shall pay the outstanding principal
amount, if any, of the Tranche B Loans, with all accrued and unpaid interest, on
the Maturity Date.

     Section 2.04. Optional Prepayments.

          The Borrower may, upon at least three Business Days' prior irrevocable
written notice to the Lender stating the proposed date (which shall be a
Business Day) and aggregate principal amount of the prepayment, prepay the
outstanding principal amount of the Loans, in whole or in part, without premium
or penalty, together with accrued interest to the date of such prepayment on the
principal amount of the Loans prepaid; provided, however, that that each partial
prepayment shall be in an aggregate amount not less than $1,000,000 or integral
multiples


                                       15


of $1,000,000 in excess thereof (or a lesser amount if such lesser amount
constitutes the entire outstanding principal balance of such Loan). Upon the
giving of such notice of prepayment, the principal amount of the Loans specified
to be prepaid, together with accrued interest thereon, shall become due and
payable on the date specified for such prepayment. All optional prepayments made
pursuant to this Section 2.04 shall be applied to the Loans so specified to
reduce the remaining installments thereof in the inverse order of their
maturities.

     Section 2.05. Mandatory Prepayment of Loans.

          (a) The Borrower shall forthwith prepay the Loan Balance of the
Tranche C Loans upon receipt by the Borrower or any of its Subsidiaries of the
net proceeds of any issuance of Stock or Stock Equivalents by the Borrower or
any of its Subsidiaries (other than the proceeds received by the Borrower in
connection with the exercise by any of the Borrower's or its Subsidiaries'
employees of any option issued pursuant to any of the Borrower's or its
Subsidiaries' stock option plans), in an amount equal to 25% of such net
proceeds.

          (b) The Borrower shall prepay the Loan Balance of the Tranche C Loans,
within 120 days after the last day of each fiscal year, in an amount equal to
20% of Excess Cash Flow for such fiscal year.

     Section 2.06. Interest.

          (a) Each of the Tranche A Loan and Tranche B Loans shall accrue
interest at a rate per annum equal at all times to 10.0% and shall be payable on
the 20th day after the end of each Fiscal Quarter, subject to the deemed
payments credits as contemplated by Section 2.03(d) and (e), respectively. With
respect to the calculation of interest on the unpaid principal amount of the
Tranche B Loans, each Tranche B Loan shall be deemed to be made on the first day
of the Fiscal Quarter in which such Tranche B Loan is made.

          (b) The parties acknowledge that interest shall not accrue on a
portion of the principal balance of the Tranche C Loan made on the Closing Date
and equal to $6,576,391. The remainder of the Tranche C Loan made on the Closing
Date shall accrue interest at a rate per annum equal at all times to the Prime
Rate plus 1.0% and shall be payable on the 20th day after the end of each Fiscal
Quarter, subject to the deemed payments credits as contemplated by Section
2.03(d). With respect to each Tranche C Loan made after the Closing Date,
Borrower agrees that such Loans shall accrue interest at a rate per annum equal
at all times to the Prime Rate plus 1.0% from the date deemed made until the
principal amount thereof shall be paid in full; however, such accrued interest
shall not be added to accrued interest which is paid as part of the current
interest in a Required Quarterly Tranche C Payment, but shall accrue and be
added to the principal amount of Tranche C (i.e., compounded) on each Tranche C
Quarterly Payment Date until paid in full. Each Tranche C Loan made after the
Closing Date shall be deemed to be made on the first day of the Fiscal Quarter
in which such Tranche C Loan is made.


                                       16



     Section 2.07. Illegality.

          Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other Governmental
Authority shall assert that it is unlawful, for the Lender to make or continue
the Loans, then, on notice thereof and demand therefor by the Lender to the
Borrower, (a) the obligation of the Lender to make or to continue the Loans
shall terminate and (b) the Borrower shall forthwith prepay in full the Loans
then outstanding, together with interest accrued thereon.

     Section 2.08. Payments and Computations.

          (a) The Borrower shall make each payment hereunder and under the Notes
not later than 11:00 A.M. (New York City time) on the day when due, in Dollars,
to the Lender at its address referred to in Section 8.02 in immediately
available funds without set-off or counterclaim. Payment received by the Lender
after 1:00 PM (New York City time) shall be deemed to be received on the next
Business Day.

          (b) The Borrower hereby authorizes the Lender, if and to the extent
payment owed to the Lender is not made when due hereunder, to charge from time
to time against any or all of the Borrower's accounts with the Lender any amount
so due.

          (c) All computations of interest hereunder shall be made by the Lender
on the basis of a year of 365/6 days and number of days elapsed.

          (d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.

     Section 2.09. Taxes.

          (a) Any and all payments by the Borrower under each Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Lender taxes
measured by its net income, and franchise taxes imposed on it, by the
jurisdiction of the Lender's applicable lending office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder to the Lender (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including, without limitation, deductions applicable to additional sums payable
under this Section 2.09) the Lender receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with applicable law.


                                       17



          (b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies of the United States or any political subdivision thereof or any
applicable foreign jurisdiction which arise from any payment made under any Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, any Loan Document (collectively, "Other Taxes").

          (c) The Borrower will indemnify the Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.09) paid by
the Lender and any liability (including, without limitation, for penalties,
interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date the Lender makes
written demand therefor, accompanied by reasonable supporting documentation and
calculations.

          (d) Within 30 days after the date of any payment of Taxes or Other
Taxes, the Borrower will furnish to the Lender, at its address referred to in
Section 8.02, the original or a certified copy of a receipt evidencing payment
thereof.

          (e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.09 shall survive the payment in full of the other Obligations.
Lender agrees that, as promptly as practicable after the officer of Lender
responsible for administering its Loans becomes aware of the occurrence of an
event or the existence of a condition that would entitle Lender to receive
payments under this Section 2.09, it will, to the extent not inconsistent with
the internal policies of such Lender and any applicable legal or regulatory
restrictions, use reasonable efforts to (a) make, issue, fund or maintain its
applicable Commitments or Loans through another office of Lender, or (b) take
such other measures as Lender may deem reasonable, if as a result thereof the
circumstances which would cause the additional amounts which would otherwise be
required to be paid to Lender pursuant to this Section 2.09 would be reduced and
if, as determined by Lender in its reasonable discretion, the making, issuing,
funding or maintaining of such Commitments or Loans through such other office or
in accordance with such other measures, as the case may be, would not otherwise
adversely affect such Commitments or Loans or the interests of Lender.

                                   ARTICLE III

                              CONDITIONS OF LENDING

     Section 3.01. Conditions Precedent to the Loans Made on the Closing Date.

          The obligation of the Lender to make the Loans on the Closing Date is
subject to satisfaction of the conditions precedent that the Lender shall have
received, on the Closing Date, the following, each dated the Closing Date unless
otherwise indicated, in form and substance satisfactory to the Lender:

          (a) The Notes, duly executed by the Borrower.


                                       18



          (b) The Supply Agreement, duly executed by the parties thereto.

          (c) Copies of (i) the resolutions of the Board of Directors of the
Borrower approving each Loan Document to which it is a party, (ii) all documents
evidencing other necessary corporate action and required governmental and third
party approvals, licenses and consents with respect to each Loan Document and
the transactions contemplated thereby and (iii) a copy of the Certificate of
Incorporation and the By-laws of the Borrower certified by a Secretary or an
Assistant Secretary of the Borrower as being true and correct and in full force
and effect as of the Closing Date.

          (d) A certificate of the Secretary of State of the state of
incorporation of the Borrower, attesting to the good standing of the Borrower.

          (e) A certificate of the Secretary or an Assistant Secretary of the
Borrower certifying the names and true signatures of each officer of the
Borrower who has been authorized to execute and deliver any Loan Document or
other document required hereunder to be executed and delivered by or on behalf
of the Borrower.

          (f) The Security Agreement amendment extending its terms to this
Credit Agreement, duly executed by the Borrower.

          (g) A certificate, signed by a Responsible Officer of the Borrower,
stating that each of the conditions specified in Section 3.03 and Section 3.02,
if applicable, has been satisfied.

          (h) An opinion letter of Borrower's counsel, in form and substance
reasonably satisfactory to Lender.

          (i) Such additional documents, information and materials as the Lender
may reasonably request.

     Section 3.02. Conditions Precedent to the Tranche B Loans and post-Closing
     Date Tranche C Loans.

          (a) Each of the conditions precedent set forth in Section 3.01 shall
have been satisfied.

          (b) The purchase or acquisition of the related Acquisition Target
shall comply with the guidelines set forth on Schedule I.

     Section 3.03. Additional Conditions Precedent to Making All Loans.

          The obligation of the Lender to make any Loan (including the Loans to
be made on the Closing Date) is subject to the further conditions precedent
that:

          (a) The following statements shall be true on the date of such Loan,
before and after giving effect to the making of such Loan and to the application
of the proceeds


                                       19



therefrom (and the acceptance by the Borrower of the proceeds of such Loan shall
constitute a representation and warranty by the Borrower that on such date such
statements are true):

               (i) The representations and warranties of the Borrower contained
          in Article IV and in each of the other Loan Documents are true and
          correct in all material respects on and as of such date as though made
          on and as of such date;

               (ii) No Default or Event of Default is continuing or will result
          from the Loan being made on such date; and

               (iii) All necessary governmental and material third party
          approvals required to be obtained by the Borrower and its Subsidiaries
          in connection with the transactions contemplated hereby and by each of
          the other Loan Documents have been obtained and remain in full force
          and effect.

          (b) All costs and accrued and unpaid fees and expenses required to be
paid to the Lender on or before such date, to the extent then due and payable,
shall have been paid.

          (c) The making of Loans on such date does not violate any Requirement
of Law and is not enjoined, temporarily, preliminarily or permanently.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

          To induce the Lender to enter into this Agreement, the Borrower
represents and warrants to the Lender that:

     Section 4.01. Corporate Existence; Compliance with Law.

          The Borrower and each of its Subsidiaries (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where such
qualification is necessary, except for failures which in the aggregate have no
Material Adverse Effect; (c) has all requisite corporate power and authority and
the legal right to own, pledge, mortgage and operate its properties, to lease
the property it operates under lease and to conduct its business as now or
currently proposed to be conducted; (d) is in compliance with its Certificate of
Incorporation and By-laws; (e) is in compliance with all other applicable
Requirements of Law except for such non-compliances as in the aggregate have no
Material Adverse Effect; and (f) has all Permits or consents from or by, has
made all necessary filings with, and has given all necessary notices to, each
Governmental Authority having jurisdiction, to the extent required for such
ownership, operation and conduct, except for Permits or consents which can be
obtained by the taking of ministerial action to secure the grant or transfer
thereof or failures which in the aggregate have no Material Adverse Effect.


                                       20



     Section 4.02. Corporate Power; Authorization; Enforceable Obligations.

          (a) The execution, delivery and performance by the Borrower of the
Loan Documents and the consummation of the transactions related to the
transactions contemplated hereby and thereby:

               (i) are within such Person's corporate powers;

               (ii) have been duly authorized by all necessary corporate action;

               (iii) do not and will not (A) contravene such Person's
          Certificate of Incorporation or By-laws or other comparable governing
          documents, (B) violate any other applicable Requirement of Law
          (including, without limitation, Regulations T, U and X of the Board of
          Governors of the Federal Reserve System), or any order or decree of
          any Governmental Authority or arbitrator, (C) conflict with or result
          in the breach of, or constitute a default under, or result in or
          permit the termination or acceleration of, any contractual obligation
          of such Person, or (D) result in the creation or imposition of any
          Lien upon any of the property of such Person, other than Liens for the
          benefit of the Lender; and

               (iv) do not require the consent of, authorization by, approval
          of, notice to, or filing or registration with, any Governmental
          Authority or any other Person, other than those which have been
          obtained or made and copies of which have been or will be delivered to
          the Lender pursuant to Section 3.01, and each of which on the Closing
          Date and on each subsequent lending date will be in full force and
          effect.

          (b) This Agreement and the Supply Agreement have been, and each of the
other Loan Documents will be upon delivery thereof, duly executed and delivered
by the Borrower. This Agreement and the Supply Agreement are, and the other Loan
Documents will be, when delivered hereunder, the legal, valid and binding
obligation of the Borrower enforceable against it in accordance with its terms.

     Section 4.03. Full Disclosure.

          No written statement prepared or furnished by or on behalf of the
Borrower or any of its Affiliates in connection with any of the Loan Documents
or the consummation of the transactions contemplated thereby, and no financial
statement delivered pursuant hereto or thereto, contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.

     Section 4.04. Financial Matters.

          (a) Each of the financial statements described below (copies of which
have heretofore been provided to the Lender), have been prepared in accordance
with GAAP consistently applied throughout the periods covered thereby, are
complete and correct in all material respects and present fairly the financial
condition and results from operations of the


                                       21



entities and for the periods specified (subject in the case of interim
company-prepared statements to normal year-end adjustments and the absence of
footnotes):

               (i) The consolidated balance sheet of the Borrower and its
          Subsidiaries as of December 25, 2004, and the related consolidated
          statements of income, retained earnings and cash flows of the Borrower
          and its Subsidiaries for the fiscal year then ended, audited by BDO
          Seidman, LLP, copies of which have been furnished to the Lender,
          fairly present the consolidated financial condition of the Borrower
          and its Subsidiaries as of and for such dates and the consolidated
          results of the operations of the Borrower and its Subsidiaries for the
          period ended on such dates, all in conformity with GAAP.

               (ii) after the Closing Date, the annual and quarterly financial
          statements provided in accordance with Sections 5.07(a) and 5.07(b).

          (b) Since October 1, 2005, there has been no Material Adverse Change,
and there have been no events or developments that in the aggregate have had a
Material Adverse Effect.

          (c) The Borrower is, and on a consolidated basis the Borrower and its
Subsidiaries are, Solvent.

     Section 4.05. Litigation.

          (a) The performance of any action by the Borrower or any of its
Subsidiaries required or contemplated by any of the Loan Documents is not
restrained or enjoined (either temporarily, preliminarily or permanently), and
no material adverse condition has been imposed by any Governmental Authority or
arbitrator upon any of such transactions.

          (b) There are no pending or, to the knowledge of the Borrower,
threatened actions, investigations or proceedings affecting the Borrower or any
of its Subsidiaries before any court, arbitrator or other Governmental
Authority, other than those that in the aggregate, if adversely determined,
would have no Material Adverse Effect.

     Section 4.06. Margin Regulation.

          The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Loan will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.


                                       22



     Section 4.07. No Default.

          No Default or Event of Default has occurred and is continuing.

     Section 4.08. Investment Company Act.

          The Borrower is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company", as
such terms are defined in the Investment Company Act of 1940, as amended. The
making of the Loans by the Lender, the application of the proceeds and repayment
thereof by the Borrower and the consummation of the transactions contemplated by
the Loan Documents will not violate any provision of such Act or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder.

     Section 4.09. Use of Proceeds.

          (a) The proceeds of the Tranche A Loan will be used by the Borrower to
repay existing Indebtedness owed by the Borrower to the Lender under the
Original Loan Agreement.

          (b) The proceeds of any Tranche B Loans shall be used by the Borrower
to pay a portion of the purchase price in connection with the purchase or
acquisition of Acquisition Targets.

          (c) The proceeds of any Tranche C Loan shall be used by the Borrower
to repay existing Indebtedness owed by the Borrower to the Lender under the
Original Loan Agreement, and to pay a portion of the purchase price in
connection with the purchase or acquisition of Acquisition Targets.

     Section 4.10. Pari Passu Obligations.

          The Obligations constitute the direct, unconditional and general
obligations of the Borrower, and rank at least pari passu with all other
Indebtedness and other obligations of the Borrower.

     Section 4.11. Compliance with Agreements.

          The Borrower and each of its Subsidiaries is in compliance with all
material indentures, material agreements (including the Supply Agreement) and
other material instruments binding upon it or any of their respective property.

     Section 4.12. Acknowledgement of Outstanding Obligations.

          The Borrower acknowledges and agrees that, as of the Closing Date, the
sum of TWO MILLION TWO HUNDRED THIRTY-NINE THOUSAND EIGHT HUNDRED FIFTY-ONE
United States Dollars ($2,239,851) will be due and owing under the Tranche A
Loan, and the sum of TWENTY MILLION EIGHT HUNDRED SEVENTY-FIVE THOUSAND TWO
HUNDRED FIFTY-SIX United States Dollars ($20,875,256) will be due and owing
under the Tranche C Loan.


                                       23



                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

          As long as any of the Obligations or the Commitments remain
outstanding, the Borrower agrees with the Lender that:

     Section 5.01. Compliance with Laws, Etc.

          The Borrower shall comply, and shall cause each of its Subsidiaries to
comply, in all material respects, with all Requirements of Law, contractual
obligations, commitments, instruments, licenses, permits and franchises,
including, without limitation, all Permits.

     Section 5.02. Conduct of Business.

          The Borrower shall (a) conduct, and shall cause each of its
Subsidiaries to conduct, its business in the ordinary course and consistent with
past practice, and (b) perform and observe, in all material respects, and cause
each of its Subsidiaries to perform and observe, in all material respects, all
the terms, covenants and conditions required to be performed and observed by it
under its contractual obligations, and do, and cause its Subsidiaries to do, all
things necessary to preserve and to keep unimpaired its rights under such
contractual obligations; provided, however, that the foregoing shall not require
Borrower nor any of its Subsidiaries to perform or observe any contractual
obligation the nonperformance or nonobservation of which would have no Material
Adverse Effect.

     Section 5.03. Preservation of Corporate Existence, Etc.

          The Borrower shall, and shall cause each of its Subsidiaries to,
preserve and maintain its corporate existence, rights (charter and statutory)
and franchises; provided, however, that the foregoing shall not require Borrower
nor any of its Subsidiaries to preserve or maintain any rights or franchises
which are no longer used by Borrower or its Subsidiaries in the conduct of their
respective businesses or where the preservation or maintenance of such rights or
franchises is no longer economically feasible, in Borrower's reasonable
discretion.

     Section 5.04. Access.

          The Borrower shall, at any reasonable time and from time to time, with
reasonable prior notice permit the Lender or representatives thereof, to (a)
examine and make copies of and abstracts from the records and books of account
of the Borrower and each of its Subsidiaries, (b) visit the properties of the
Borrower and each of its Subsidiaries, (c) discuss the affairs, finances and
accounts of the Borrower and each of its Subsidiaries with any of their
respective officers or directors, and (d) communicate directly with the
Borrower's independent certified public accountants; provided that the Borrower
is present during such communications or has given its consent (such consent not
to be unreasonably withheld) for such communications to occur without the
presence of the Borrower. The Borrower shall authorize its independent certified
public accountants to disclose to the Lender any and all financial statements
and other information of any kind, including, without limitation, copies of any
management letter, or the


                                       24



substance of any oral information that such accountants may have with respect to
the business, financial condition, results of operations or other affairs of the
Borrower or any of its Subsidiaries, subject to the Lender's agreement to
preserve the confidentiality of such information.

     Section 5.05. Keeping of Books.

          The Borrower shall keep, and shall cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Borrower and each such Subsidiary.

     Section 5.06. Application of Proceeds.

          The Borrower shall use the proceeds of the Loans as provided in
Section 4.09.

     Section 5.07. Financial Statements.

          The Borrower shall furnish to the Lender:

          (a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, an audited consolidated balance sheet
of the Borrower and its Subsidiaries as of the end of such year and the related
audited consolidated statements of income, retained earnings and cash flows of
the Borrower and its Subsidiaries for such fiscal year, all prepared in
conformity with GAAP and the independent auditor's report thereon without
qualification by BDO Seidman, LLP or other independent public accountants of
recognized national standing, together with a certificate of such accounting
firm stating that in the course of the regular audit of the consolidated
financial statements of the Borrower and its Subsidiaries, which audit was
conducted by such accounting firm in accordance with generally accepted auditing
standards, such accounting firm has obtained no knowledge that a Default or
Event of Default has occurred and is continuing, or, if in the opinion of such
accounting firm, a Default or Event of Default (insofar as they relate to
accounting and auditing matters) has occurred and is continuing, a statement as
to the nature thereof.

          (b) as soon as available and in any event within 75 days after the end
of each of the first three fiscal quarters of each fiscal year, a consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such quarter
and consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous fiscal year
and ending with the end of such fiscal quarter, all prepared in conformity with
GAAP (subject to normal year-end adjustments) and certified by the chief
financial officer of the Borrower as fairly presenting the financial condition
and results of operations of the Borrower and its Subsidiaries as of such date
and for such period, together with (i) a certificate of said officer stating
that no Default or Event of Default has occurred and is continuing or, if a
Default or an Event of Default has occurred and is continuing, a statement as to
the nature thereof and the action which the Borrower proposes to take with
respect thereto, and (ii) a written discussion and analysis by the management of
the Borrower of the financial statements furnished in respect of such fiscal
quarter.


                                       25



     Section 5.08. Reporting Requirements.

          The Borrower shall furnish to the Lender:

          (a) Promptly, and in any event within ten Business Days after receipt
of written notice of the commencement thereof, notice of all actions, suits and
proceedings before any domestic or foreign Governmental Authority or arbitrator,
affecting the Borrower or any of its Subsidiaries, except those which in the
aggregate, if adversely determined, would have no Material Adverse Effect;

          (b) promptly and in any event within ten Business Days after the
Borrower becomes aware of the existence of (i) any Default or Event of Default,
(ii) any breach or non-performance of, or any default under, any contractual
obligation which is material to the business, prospects, operations or financial
condition of the Borrower and its Subsidiaries taken as one enterprise, or (iii)
any Material Adverse Change after the Closing Date or any event, development or
other circumstance which has any reasonable likelihood of causing or resulting
in a Material Adverse Change, telephonic notice in reasonable detail specifying
the nature of the Default, Event of Default, breach, non-performance, default,
event, development or circumstance, including, without limitation, the
anticipated effect thereof, which notice shall be promptly confirmed in writing
within five days;

          (c) as soon as available and in any event within 30 days after the end
of each fiscal year, an update of the existing five year forecast of annual
purchases, sales, earnings, capital expenditures, working capital requirements
and projected cash flow results of the Borrower and its Subsidiaries on a
consolidated basis through the Maturity Date; and

          (d) promptly such other information as the Lender may reasonably
request from time to time.

     Section 5.09. Insurance.

          The Borrower shall maintain or cause to be maintained with financially
sound and reputable insurers, insurance with respect to its properties and
business, and the properties and business of its Subsidiaries, against loss or
damage of the kinds customarily insured against by reputable companies in the
same or similar businesses, such insurance to be of such types and in such
amounts (with such deductible amounts) as is customary for such companies under
similar circumstances, and furnish the Lender on request full information as to
all such insurance.

     Section 5.10. Payment of Taxes and Claims.

          The Borrower shall pay, and cause each of its Subsidiaries to pay, (a)
all Taxes, assessments and governmental charges imposed upon it or upon its
property, and (b) all genuine claims (including claims for labor, materials,
supplies or services) that might, if unpaid, become a Lien upon its property or
assets, unless, in each case, the validity or amount thereof is being contested
in good faith by appropriate proceedings and the Borrower or such Subsidiary has
maintained adequate reserves in accordance with GAAP with respect thereto or has
posted a bond in respect thereof satisfactory to the Lender.


                                       26



     Section 5.11. Compliance with Agreements.

          The Borrower shall, and shall cause each of its Subsidiaries to, (i)
perform and observe all the terms, covenants and conditions required to be
performed and observed by it under its contractual obligations and (ii) do all
things necessary to preserve and keep unimpaired its rights under such
contractual obligations; provided, however, that the foregoing shall not require
Borrower nor any of its Subsidiaries to perform or observe any contractual
obligation the nonperformance or nonobservation of which would have no Material
Adverse Effect.

     Section 5.12. Further Documents.

          The Borrower shall, and shall cause each of its Subsidiaries to,
execute and deliver or to cause to be executed and delivered to the Lender from
time to time such consents and such other documents, instruments or agreements
as the Lender may reasonably request, that are, in the Lender's reasonable
judgment, necessary or desirable to obtain or preserve for the Lender the
benefit of the Loan Documents.

     Section 5.13. Repayment of Certain Indebtedness.

          Simultaneously with the borrowing thereof on the Closing Date, the
Borrower shall use the proceeds of the Tranche A Loan and Tranche C Loan to
permanently repay or prepay the Indebtedness outstanding under the Original Loan
Agreement.

     Section 5.14. Collateral Documents.

          The Borrower, at its sole cost and expense, shall take all actions
necessary or reasonably requested by the Lender to maintain each Collateral
Document in full force and effect and enforceable in accordance with its terms,
including (i) making filings and recordations, (ii) making payments of fees and
other charges, (iii) issuing, and if necessary, filing or recording supplemental
documentation, including continuation statements, (iv) discharging all claims or
other Liens (other than Liens permitted by Section 6.01) adversely affecting the
rights of the Lender in the Collateral, and (v) publishing or otherwise
delivering notice to third parties.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

          As long as any of the Obligations or the Commitments remain
outstanding, the Borrower agrees with the Lender that:

     Section 6.01. Liens, Etc.

          The Borrower shall not create or suffer to exist, and shall not permit
any of its Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of its or such Subsidiary's properties, whether now owned or
hereafter acquired, or assign any right to receive income, except for:


                                       27



          (a) Liens created pursuant to the Loan Documents;

          (b) Purchase money Liens or purchase money security interests upon or
in any property acquired or held by the Borrower or any such Subsidiary of the
Borrower in the ordinary course of business to secure the purchase price of such
property or to secure Indebtedness incurred solely for the purpose of financing
the acquisition of such property (and any refinancings thereof), and Liens
existing on such property at the time of its acquisition (other than any such
Lien created in contemplation of such acquisition); provided, however, that the
aggregate principal amount of the Indebtedness secured by the Liens referred to
in this clause (b) and in clause (h) below shall not exceed $75,000,000 in the
aggregate at any time outstanding;

          (c) Liens arising by operation of law (statutory or common) in favor
of materialmen, mechanics, warehousemen, carriers, lessors or other similar
Persons incurred by the Borrower or any such Subsidiary in the ordinary course
of business which secure its obligations to such Person; provided, however, that
(i) the Borrower or such Subsidiary is not in default with respect to such
payment obligation to such Person, unless the Borrower or such Subsidiary is in
good faith and by appropriate proceedings diligently contesting such obligation
and adequate provision is made for the payment thereof, and (ii) all such
defaults in the aggregate have no Material Adverse Effect;

          (d) Liens (excluding environmental liens) securing taxes, assessments
or governmental charges or levies; provided, however, that (i) neither the
Borrower nor any such Subsidiary is in default in respect of any payment
obligation with respect thereto unless the Borrower or such Designated
Subsidiary is in good faith and by appropriate proceedings diligently contesting
such obligation and adequate provision is made for the payment thereof and (ii)
all such defaults in the aggregate have no Material Adverse Effect;

          (e) Liens incurred or pledges and deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance,
old-age pensions and other social security benefits;

          (f) Liens securing the performance of bids, tenders, leases, contracts
(other than for the repayment of borrowed money), statutory obligations, surety
and appeal bonds and other obligations of like nature, incurred as an incident
to and in the ordinary course of business, and judgment liens; provided,
however, that all such Liens in the aggregate have no Material Adverse Effect;

          (g) Zoning restrictions, easements, licenses, reservations,
restrictions on the use of real property or minor irregularities incident
thereto which do not in the aggregate materially detract from the value or use
of the property or assets of the Borrower or any such Subsidiary or impair, in
any material manner, the use of such property for the purposes for which such
property is held by the Borrower or any such Subsidiary; and

          (h) Liens to secure capitalized lease obligations; provided, however,
that: (i) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including, without limitation, the cost of


                                       28



construction) of the property subject thereto, (ii) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost, and (iii)
such Lien does not extend to or cover any other property other than such item of
property and any improvements on such item and (iv) the aggregate principal
amount of Indebtedness secured by the Liens referred to in this clause (h) and
in clause (b) above shall not exceed $75,000,000 in the aggregate at any time
outstanding.

          (i) Any Liens to secure the performance of obligations in respect to
Permitted Senior Indebtedness.

          (j) Any Liens to secure the performance of obligations in respect to
Permitted Subordinated Indebtedness.

          (k) Those existing Liens set forth on Schedule 6.01(k).

     Section 6.02. Indebtedness.

          The Borrower shall not create or suffer to exist, or permit any of the
Subsidiaries to create or suffer to exist, any Indebtedness except:

          (a) the Obligations;

          (b) current liabilities in respect of taxes, assessments and
governmental charges or levies incurred, or claims for labor, materials,
inventory, services, supplies and rentals incurred, or for goods or services
purchased, in the ordinary course of business consistent with the past practice
of the Borrower and such Subsidiaries;

          (c) Indebtedness incurred in connection with the purchase or
acquisition of Acquisition Targets completed in accordance with the procedures
set forth on Schedule I; provided that the terms and conditions of such
Indebtedness shall comply with the requirements set forth on Schedule I;

          (d) Permitted Subordinated Indebtedness incurred by the Borrower;

          (e) Permitted Senior Indebtedness incurred by the Borrower;

          (f) Indebtedness secured by Permitted Liens;

          (g) Indebtedness of any Subsidiary to Borrower or to any other
Subsidiary;

          (h) Indebtedness which may be deemed to exist pursuant to any
guaranties, performance bonds, surety bonds, statutory, appeal or similar
obligations incurred in the ordinary course of business;

          (i) extensions or renewals of Indebtedness set forth on Schedule
6.02(g);

          (j) Indebtedness of Borrower to any Subsidiary incurred in the
ordinary course of business; and


                                       29



          (k) Indebtedness of Borrower existing on the Closing Date.

     Section 6.03. Mergers, Sale of Assets, Etc.

          The Borrower shall not, other than in the ordinary course of its
business, and shall not permit any of its Subsidiaries to, (a) merge with any
Person, (b) consolidate with any Person or (c) sell, lease, transfer or
otherwise dispose of, whether in one transaction or in a series of transactions
all or substantially all of its assets.

     Section 6.04. Change in Nature of Business.

          The Borrower shall not, and shall not permit any of its Subsidiaries
to, make any material change in the nature or conduct of its business as carried
on at the date hereof.

     Section 6.05. Modification of Material Agreements.

          The Borrower shall not, and shall not permit any of its Subsidiaries
to, alter, amend, modify, rescind, terminate or waive any of their respective
rights under, or fail to comply in all material respects with, any of its
material contractual obligations; provided, however, that, with respect to any
contractual obligation, the Borrower shall not be deemed in default of this
Section if all such alterations, amendments, modifications, rescissions,
terminations, waivers or failures in the aggregate have no Material Adverse
Effect; and provided, further, that in the event of any breach or event of
default by a Person other than the Borrower or any of its Subsidiaries, the
Borrower shall promptly notify the Lender of any such breach or event of default
and take all such action as may be reasonably necessary in order to endeavor to
avoid having such breach or event of default have a Material Adverse Effect.

     Section 6.06. Cancellation of Indebtedness Owed to the Borrower.

          The Borrower shall not cancel, or permit any of its Subsidiaries to
cancel, any claim or material Indebtedness owed to it except for adequate
consideration and in the ordinary course of business; provided that Indebtedness
not exceeding $100,000 shall not be deemed to be "material" for purposes hereof
and provided, further, that neither the Borrower nor its Subsidiaries shall
cancel claims or material Indebtedness more than one time in any Fiscal Quarter
and provided further that the foregoing shall not in any way limit the
Borrower's or its Subsidiaries' ability to negotiate and effect adjustments to
trade accounts receivable or other customer payables, including the granting of
credits, rebates and adjustments, in the ordinary course of business.

     Section 6.07. Capital Structure.

          The Borrower shall not make, and shall not permit any of its
Subsidiaries to make, any change in its capital structure (including, without
limitation, in the terms of its outstanding Stock) or amend its Certificate of
Incorporation or By-laws other than for amendments which in the aggregate have
no Material Adverse Effect.


                                       30


     Section 6.08. Accounting Changes.

          The Borrower shall not make, nor permit any of its Subsidiaries to
make, any change in accounting treatment and reporting practices or tax
reporting treatment, except as required by GAAP or law and disclosed to the
Lender.

     Section 6.09. OFAC Compliance.

          The Borrower shall not enter into contracts or otherwise do business
with any Person whose name appears on any of the various lists maintained by the
Office of Foreign Asset Control of the United States Department of Treasury.

     Section 6.10. Investments in Other Persons.

          The Borrower shall not, directly or indirectly, make or permit any of
its Subsidiaries to make, any loan or advance to any Person, or purchase or
otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any Stock, Stock Equivalents, other equity interests, obligations or
other securities of, or any assets constituting the purchase of a business or
line of business, or make, or permit any of its Subsidiaries to make, any
capital contribution to, or otherwise invest in, any Person (including, without
limitation, any Subsidiary of the Borrower) (any such transaction being an
"Investment"), except (a) Investments in Cash Equivalents, (b) in the ordinary
course of the Borrower's business, and (c) unless as is otherwise permitted or
provided for in this Agreement.

                                   ARTICLE VII

                                EVENTS OF DEFAULT

     Section 7.01. Events of Default.

          Each of the following events shall be an "Event of Default":

          (a) The Borrower shall fail to pay any principal (including, without
limitation, mandatory prepayments of principal) of, or interest on, the Loans,
any other amount due hereunder or under the other Loan Documents or any other
Obligations hereunder when the same becomes due and payable; or

          (b) Any representation or warranty made or deemed made by the Borrower
in any Loan Document or by the Borrower (or any of its officers) in connection
with any Loan Document shall prove to have been materially incorrect when made
or deemed made; or

          (c) (i) The Borrower or any of its Subsidiaries shall fail to perform
or observe any term, covenant or agreement contained in Articles V or VI, or
(ii) the Borrower or any of its Subsidiaries shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement or in any
other Loan Document if such failure under this clause (ii) shall remain


                                       31



unremedied for 30 days after the earlier of the date on which (A) a Responsible
Officer of the Borrower becomes aware of such failure or (B) written notice
thereof shall have been given to the Borrower by the Lender; or

          (d) The Borrower or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Indebtedness of the Borrower or any
such Subsidiary having a principal amount of $100,000 or more (excluding
indebtedness evidenced by the Notes), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure to pay continues for a period of 45 days; or any
other event shall occur or condition shall exist under any agreement or
instrument relating to any such Indebtedness, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall become or be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), or the Borrower or any of its Subsidiaries shall be
required to repurchase or offer to repurchase such Indebtedness, prior to the
stated maturity thereof; or

          (e) The Borrower or any of its Subsidiaries shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against any
the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a custodian,
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceedings instituted against the
Borrower or any of its Subsidiaries (but not instituted by it), either such
proceedings shall remain undismissed or unstayed for a period of 30 days or any
of the actions sought in such proceedings shall occur; or the Borrower or any of
its Subsidiaries shall take any corporate action to authorize any of the actions
set forth above in this subsection (e); or

          (f) One or more judgments or order for the payment of money in excess
of $100,000 in the aggregate to the extent not fully covered by insurance shall
be rendered against the Borrower or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon any such
judgment or order, or (ii) there shall be any period of 10 consecutive days
during which a stay of enforcement of any such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or

          (g) The Borrower shall be in default under the Supply Agreement beyond
any grace or cure period specified therein, or the Supply Agreement shall be
cancelled, terminated, revoked or rescinded in accordance with the terms thereof
other than due to the (i) breach thereof by the Lender, (ii) mutual agreement of
the parties thereto or (iii) the expiration of the term thereof, or any action
at law, suit or in equity or other legal proceeding to cancel, revoke or rescind
the Supply Agreement shall be commenced by or on behalf of the Borrower, or any
court or any other governmental or regulatory authority or agency of competent
jurisdiction shall make a determination that, or issue a judgment, order, decree
or ruling to the effect that, the Supply Agreement is illegal, invalid or
unenforceable in any material respect in accordance with the terms thereof; or


                                       32



          (h) There shall occur a Change of Control.

     Section 7.02. Remedies.

          If there shall occur and be continuing any Event of Default, the
Lender may (a) by notice to the Borrower, cancel the Commitments and declare the
obligation of the Lender to make the Loans to be terminated, whereupon the same
shall forthwith be canceled and terminated; and (b) by notice to the Borrower,
declare the Loans, all interest thereon and all other amounts and Obligations
payable under this Agreement to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts and Obligations shall become and
be forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided, however, that upon the occurrence of the Event of Default specified in
subparagraph 7.01(e), (i) the Commitments shall automatically be canceled and
the obligation of the Lender to make the Loans shall automatically be terminated
and (ii) the Loans, all such interest and all such amounts and Obligations shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower. In addition to the remedies set forth above, the Lender may
exercise any remedies provided by applicable law or in equity.

                                  ARTICLE VIII

                                  MISCELLANEOUS

     Section 8.01. Amendments, Etc.

          No amendment or waiver of any provision of this Agreement nor consent
to any departure by the Borrower therefrom shall in any event be effective
unless the same shall be in writing and signed by the Lender and the Borrower,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

     Section 8.02. Notices.

          Except as otherwise provided herein, all notices and other
communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or
sent by telecopy, as follows:

               (i)  if to the Borrower:

                    HearUSA, Inc.
                    1250 Northpoint Parkway
                    West Palm Beach, FL 33407
                    Attention: President
                    Telecopy No. (561) 688-8893


                                       33



               With a copy to:

                    LaDawn Naegle, Esq.
                    Bryan Cave LLP
                    700 13th Street, N.W., Suite 700
                    Washington, DC 20005
                    Telecopy No. (202) 508-6200

               (ii) if to the Lender:

                    Siemens Hearing Instruments, Inc.
                    10 Constitution Avenue
                    Piscataway, New Jersey 08855
                    Attention: President
                    Telecopy No. (732) 562-6688

               With a copy to:

                    James Ruger, Esq.
                    c/o Siemens Medical Solutions USA, Inc.
                    Legal Department
                    51 Valley Stream Parkway
                    Malvern, PA 19355-1406

          Any party hereto may change its address or telecopy number for notices
and other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.

     Section 8.03. No Waiver; Remedies.

          No failure on the part of the Lender to exercise, and no delay in
exercising, and no course of dealing with respect to, any right hereunder or
under any other Loan Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law or in
equity.

     Section 8.04. Costs; Expenses; Indemnities.

          (a) Each of the parties hereto shall bear its own expenses (including,
without limitation, fees and expenses of the counsel, accountants, appraisers,
consultants or industry experts or other experts) incurred by it in connection
with the preparation, negotiation, execution, delivery, administration,
modification and amendment of this Agreement, each of the other Loan Documents
and each of the other documents to be delivered hereunder and thereunder and the
transactions contemplated hereby and thereby.


                                       34



          (b) The Borrower agrees to indemnify and hold harmless the Lender and
its Affiliates, and the directors, officers, employees, agents, attorneys,
consultants and advisors of or to any of the foregoing (each of the foregoing
being an "Indemnitee") from and against any and all claims, damages,
liabilities, obligations, losses, penalties, actions, judgments, suits, costs,
disbursements and expenses of any kind or nature (including, without limitation,
fees and disbursements of counsel to any such Indemnitee) which may be imposed
on, incurred by or asserted against any such Indemnitee in connection with or
arising out of any investigation, litigation or proceeding, whether or not any
such Indemnitee is a party thereto, whether direct, indirect, or consequential
and whether based on any federal, state or local law or other statutory
regulation, securities or commercial law or regulation, or under common law or
in equity, or on contract, tort or otherwise, in any manner relating to or
arising out of this Agreement, any other Loan Document, any Obligation, or any
act, event or transaction related or attendant to any thereof, (collectively,
the "Indemnified Matters"); provided, however, that the Borrower shall not have
any obligation under this Section 8.04(b) to an Indemnitee with respect to any
Indemnified Matter caused by or resulting from the gross negligence or willful
misconduct of that Indemnitee.

          (c) The Borrower, at the request of any Indemnitee, shall have the
obligation to defend against such investigation, litigation or proceeding, and
the Borrower, in any event, may participate in the defense thereof with legal
counsel of the Borrower's choice. In the event that such Indemnitee requests the
Borrower to defend against such investigation, litigation or proceeding, the
Borrower shall promptly do so, and such Indemnitee shall have the right to have
legal counsel of its choice participate in such defense, and all costs and
expenses of such counsel shall be borne by the Borrower. No action taken by
legal counsel chosen by such Indemnitee in defending against any such
investigation, litigation or proceeding, shall vitiate or in any way impair the
Borrower's obligation and duty hereunder to indemnify and hold harmless such
Indemnitee.

          (d) The Borrower agrees that any indemnification or other protection
provided to any Indemnitee pursuant to this Agreement (including, without
limitation, pursuant to this Section 8.04) or any other Loan Document shall (i)
survive payment of the Obligations and (ii) inure to the benefit of any Person
who was at any time an Indemnitee under this Agreement or any other Loan
Document.

     Section 8.05. Right of Set-off.

          Upon the occurrence and during the continuance of any Event of Default
the Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Lender to or for the credit or the
account of the Borrower against any and all of the Obligations now or hereafter
existing whether or not the Lender shall have made any demand under this
Agreement, the Notes or any other Loan Document and although such Obligations
may be unmatured. The Lender agrees promptly to notify the Borrower after any
such set-off and application made by the Lender; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section are in addition to the
other rights and remedies (including, without limitation, other rights of
set-off) which the Lender may have.


                                       35



     Section 8.06. Binding Effect.

          This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights or delegate its
obligations hereunder or any interest herein without the prior written consent
of the Lender.

     Section 8.07. Governing Law.

          THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO 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).

     Section 8.08. Severability.

          Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

     Section 8.09. Submission to Jurisdiction; Service of Process.

          (a) Any legal action or proceeding with respect to this Agreement or
the Notes or any other Loan Document may be brought in the courts of the State
of New York or of the United States of America for the Southern District of New
York, and, by execution and delivery of this Agreement, each of the Borrower and
the Lender hereby accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. The parties
hereto hereby irrevocably waive any objection, including, without limitation,
any objection to the laying of venue or based on the grounds of forum non
conveniens, which any of them may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions.

          (b) Each of the Borrower and the Lender irrevocably consents to the
service of process of any of the aforesaid courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Borrower, or the Lender, as the case may be, at its
address provided herein.

          (c) Nothing contained in this Section 8.09 shall affect the right of
the Lender or any holder of the Notes to serve process in any other manner
permitted by law or commence legal proceedings or otherwise proceed against the
Borrower in any other jurisdiction.


                                       36



     Section 8.10. Waiver of Jury Trial.

          EACH OF THE PARTIES HERETO WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR ACTION OF ANY PARTY
HERETO.

     Section 8.11. Section Titles.

          The Section titles contained in this Agreement are and shall be
without substantive meaning or content of any kind whatsoever and are not a part
of the agreement between the parties hereto.

     Section 8.12. Execution in Counterparts.

          This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original, and both of which taken together
shall constitute one and the same agreement.

     Section 8.13. Survival.

          The representations and warranties of the Borrower contained in each
of the Loan Documents shall survive the execution and delivery of the Loan
Documents and the making of the Loans.

     Section 8.14. Entire Agreement.

This Agreement, together with the Exhibits and Schedules hereto and all of the
other Loan Documents and all certificates and documents delivered hereunder or
thereunder, embody the entire agreement of the parties and supersedes all prior
agreements and understandings, either oral or written, relating to the subject
matter hereof.


                                       37



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

                                    HearUSA, Inc., Borrower


                                    By: /s/ Stephen J. Hansbrough
                                        ----------------------------------------
                                    Name: Stephen J. Hansbrough
                                    Title: President and Chief Executive Officer


                                    SIEMENS HEARING INSTRUMENTS, INC., as
                                    Lender


                                    By: /s/ William J. Lankenau
                                        ----------------------------------------
                                    Name: William J. Lankenau
                                    Title: President & CEO


                                       38



                                                                     EXHIBIT A-1

                             FORM OF TRANCHE A NOTE

U.S. $2,239,851                                         Dated: February 10, 2006

          FOR VALUE RECEIVED, the undersigned, HearUSA, Inc., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of SIEMENS
HEARING INSTRUMENTS, INC. (the "Lender") the principal sum of TWO MILLION TWO
HUNDRED THIRTY-NINE THOUSAND EIGHT HUNDRED FIFTY-ONE United States Dollars
($2,239,851), or, if less, the aggregate unpaid principal amount of the Tranche
A Term Loan (as defined in the Credit Agreement referred to below) of the Lender
to the Borrower, payable at such times, and in such amounts, as are specified in
the Credit Agreement.

          The Borrower promises to pay interest on the unpaid principal amount
of the Tranche A Loan from the date made until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in the
Credit Agreement.

          Both principal and interest are payable in lawful money of the United
States of America to the Lender at the Wachovia Bank of North Carolina, in
Atlanta GA (or such other bank as may be deemed by Lender), in immediately
available funds. The Tranche A Loan made by the Lender to the Borrower, and all
payments made on account of the principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on this Tranche A Note.

          This Note is the Tranche A Note referred to in, and is entitled to the
benefits of, the Credit Agreement, dated as of February 10, 2006 (said
agreement, as it may be amended, supplemented or otherwise modified from time to
time, being the "Credit Agreement"), between the Borrower and the Lender, and
the other Loan Documents referred to therein and entered into pursuant thereto.
The Credit Agreement, among other things, (a) provides for the making of the
Tranche A Loan by the Lender to the Borrower in an aggregate amount not to
exceed at any time outstanding the United States Dollar amount first above
mentioned (as the same may be adjusted pursuant to the terms of the Credit
Agreement), the indebtedness of the Borrower resulting from such Tranche A Loan
being evidenced by this Tranche A Note, and (b) contains provisions for
acceleration of the maturity of the unpaid principal amount of this Tranche A
Note upon the happening of certain stated events and also for prepayments on
account of the principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.

          Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by the Borrower.


                                     A-1-1



          THIS NOTE 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).

                                        HearUSA, INC.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------


                                     A-1-2



                                                                     EXHIBIT A-2

                             FORM OF TRANCHE B NOTE

U.S. $26,000,000                                        Dated: February 10, 2006

          FOR VALUE RECEIVED, the undersigned, HearUSA, INC., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of SIEMENS
HEARING INSTRUMENTS, INC. (the "Lender") the principal sum of TWENTY-SIX MILLION
United States Dollars ($26,000,000), or, if less, the aggregate unpaid principal
amount of the Tranche B Loan (as defined in the Credit Agreement referred to
below) of the Lender to the Borrower, payable at such times, and in such
amounts, as are specified in the Credit Agreement.

          The Borrower promises to pay interest on the unpaid principal amount
of the Tranche B Loan from the date made until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in the
Credit Agreement.

          Both principal and interest are payable in lawful money of the United
States of America to the Lender at the Wachovia Bank of North Carolina, in
Atlanta, GA (or such other bank as may be deemed by Lender), in immediately
available funds. Lender shall record in its books and records the date and
amount of all payments made under this note. Lender's books and records of the
Tranche B Loan shall be conclusive evidence of the amounts outstanding under
this Note in the absence of manifest error.

          This Note is the Tranche B Note referred to in, and is entitled to the
benefits of, the Credit Agreement, dated as of February 10, 2006 (said
agreement, as it may be amended, supplemented or otherwise modified from time to
time, being the "Credit Agreement"), between the Borrower and the Lender, and
the other Loan Documents referred to therein and entered into pursuant thereto.
The Credit Agreement, among other things, (a) provides for the making of the
Tranche B Loan by the Lender to the Borrower in an aggregate amount not to
exceed at any time outstanding the United States Dollar amount first above
mentioned (as the same may be adjusted pursuant to the terms of the Credit
Agreement), the indebtedness of the Borrower resulting from such Tranche B Loan
being evidenced by this Tranche B Note, and (b) contains provisions for
acceleration of the maturity of the unpaid principal amount of this Tranche B
Note upon the happening of certain stated events and also for prepayments on
account of the principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.

          Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by the Borrower.


                                     A-2-3



          THIS NOTE 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).

                                        HearUSA, INC.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------


                                     A-1-4



                                                                     EXHIBIT A-3

                             FORM OF TRANCHE C NOTE

U.S. $26,000,000                                        Dated: February 10, 2006

          FOR VALUE RECEIVED, the undersigned, HearUSA, INC., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of SIEMENS
HEARING INSTRUMENTS, INC. (the "Lender") the principal sum of TWENTY-SIX MILLION
United States Dollars ($26,000,000), or, if less, the aggregate unpaid principal
amount of the Tranche C Loan (as defined in the Credit Agreement referred to
below) of the Lender to the Borrower, payable at such times, and in such
amounts, as are specified in the Credit Agreement.

          The Borrower promises to pay interest on the unpaid principal amount
of the Tranche C Loan from the date made until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in the
Credit Agreement.

          Both principal and interest are payable in lawful money of the United
States of America to the Lender at the Wachovia Bank of North Carolina, in
Atlanta, GA (or such other bank as may be deemed by Lender), in immediately
available funds. Lender shall record in its books and records the date and
amount of all payments made under this note. Lender's books and records of the
Tranche C Loan shall be conclusive evidence of the amounts outstanding under
this Note in the absence of manifest error

          This Note is the Tranche C Note referred to in, and is entitled to the
benefits of, the Credit Agreement, dated as of February 10, 2006 (said
agreement, as it may be amended, supplemented or otherwise modified from time to
time, being the "Credit Agreement"), between the Borrower and the Lender, and
the other Loan Documents referred to therein and entered into pursuant thereto.
The Credit Agreement, among other things, (a) provides for the making of the
Tranche C Loan by the Lender to the Borrower in an aggregate amount not to
exceed at any time outstanding the United States Dollar amount first above
mentioned (as the same may be adjusted pursuant to the terms of the Credit
Agreement), the indebtedness of the Borrower resulting from such Tranche C Loan
being evidenced by this Tranche C Note, and (b) contains provisions for
acceleration of the maturity of the unpaid principal amount of this Tranche C
Note upon the happening of certain stated events and also for prepayments on
account of the principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.

          Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by the Borrower.


                                     A-3-5



          THIS NOTE 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).

                                        HearUSA, INC.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------


                                     A-1-6



                                                                       EXHIBIT B

                                     FORM OF
                               NOTICE OF BORROWING

                                                         [____________ __], 20__

Siemens Hearing Instruments, Inc.
10 Constitution Avenue
Piscataway, New Jersey 08855
Attention: [____________]

               Re:  HearUSA, Inc.

Ladies and Gentlemen:

          Reference is made to that certain Credit Agreement, dated as of
February 10, 2006 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), by and between the
undersigned and Siemens Hearing Instruments, Inc. (the "Lender"). Capitalized
terms used and not otherwise defined herein shall have the meanings ascribed to
such terms in the Credit Agreement.

          The undersigned hereby gives you notice, irrevocably, pursuant to
[Section 2.02(b)/2.02(c)] of the Credit Agreement that the undersigned hereby
requests a [Tranche B Loan/Tranche C Loan] under the Credit Agreement, and in
that connection sets forth below the information relating to such [Tranche B
Loan/Tranche C Loan] (the "Proposed Borrowing") as required by Section 2.02 of
the Credit Agreement:

          (a) The Business Day of the Proposed Borrowing is [________ __],
     200[_] (the "Borrowing Date").

          (b) The aggregate amount of the [Tranche B Loan/Tranche C Loan] is
     $[__________].

          The undersigned hereby certifies that the following statements are
     true on the date hereof, and will be true on the Borrowing Date, before and
     after giving effect thereto and to the application of the proceeds
     therefrom:

     (a) The representations and warranties of the Borrower contained in Article
IV of the Credit Agreement and in each of the other Loan Documents are true and
correct in all material respects on and as of the Borrowing Date;

     (b) No Default or Event of Default is continuing or will result from the
Proposed Borrowing;

     (c) All necessary governmental and material third party approvals required
to be obtained by the Borrower and its Subsidiaries in connection with the
Proposed Borrowing and


                                       B-1




the transactions contemplated thereby and by each of the other Loan Documents
have been obtained and remain in full force and effect;

     (d) All costs and accrued and unpaid fees and expenses (including, without
limitation, legal fees and expenses) required to be paid to the Lender on or
before the Borrowing Date, to the extent then due and payable, have been paid;

     (e) The making of the Loan on such date does not violate any Requirement of
Law and is not enjoined, temporarily, preliminarily or permanently; and

     (f) The terms of the purchase or acquisition and the Acquisition Target to
which the [Tranche B Loan/Tranche C Loan] relates meets the guidelines set forth
on Schedule I to the Credit Agreement.

                                        Very truly yours,

                                        HearUSA, INC.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------


                                       B-2

EX-10.2

                                                                    EXHIBIT 10.2

================================================================================

                     AMENDED AND RESTATED SECURITY AGREEMENT

                                     between

                                 HearUSA, Inc.,

                                    as Debtor

                                       and

                       SIEMENS HEARING INSTRUMENTS, INC.,

                                as Secured Party

                          Dated as of February 10, 2006

================================================================================



                                TABLE OF CONTENTS



                                                                            Page
                                                                            ----
                                                                         
SECTION 1. DEFINITIONS...................................................     1

SECTION 2. ASSIGNMENT; SECURITY INTERESTS; INSURANCE PROCEEDS............     3
   2.01 Assignment; Grant of Security Interests..........................     3
   2.02 Power of Attorney................................................     5
   2.03 Costs of Enforcement.............................................     6

SECTION 3. GENERAL REPRESENTATIONS AND WARRANTIES........................     6
   3.01 Location of Collateral...........................................     6
   3.02 Debtor Organization..............................................     6
   3.03 Enforceability...................................................     6
   3.04 Ownership........................................................     6
   3.05 Business.........................................................     7
   3.06 Control..........................................................     7
   3.07 Liens............................................................     7
   3.08 Consents.........................................................     7

SECTION 4. SPECIAL PROVISIONS CONCERNING ACCOUNTS; INSTRUMENTS;
           CHATTEL PAPER; COMMERCIAL TORT CLAIMS.........................     7
   4.01 Additional Representations and Warranties........................     7
   4.02 Maintenance of Records...........................................     7
   4.03 Direction to Account Debtors; Contracting Parties; etc...........     8
   4.04 Collection.......................................................     8
   4.05 Instruments and Chattel Paper....................................     8
   4.06 Commercial Tort Claims...........................................     9

SECTION 5. SPECIAL PROVISIONS CONCERNING PATENTS,
           COPYRIGHTS AND TRADEMARKS.....................................     9
   5.01 Additional Representations and Warranties........................     9
   5.02 Infringements....................................................     9
   5.03 Other Patents, Copyrights and Trademarks.........................     9
   5.04 Remedies.........................................................     9



                                        i




                                                                         
SECTION 6. PROVISIONS CONCERNING ALL COLLATERAL; INSURANCE...............    10
   6.01 Protection of the Secured Party's Interests......................    10
   6.02 Further Actions..................................................    10
   6.03 Financing Statements.............................................    10
   6.04 Location.........................................................    11
   6.05 Adverse Claims...................................................    11
   6.06 Taxes............................................................    11
   6.07 No Other Liens...................................................    12
   6.08 Access...........................................................    12

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.....................................................    17
   9.10 Severability.....................................................    17



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


                                       ii


                     AMENDED AND RESTATED SECURITY AGREEMENT

          AMENDED AND RESTATED SECURITY AGREEMENT, dated as of February 10, 2006
(this "Agreement"), by and between HearUSA, Inc. (formerly HEARx, LTD.), a
Delaware corporation (the "Debtor"), and SIEMENS HEARING INSTRUMENTS, INC., a
Delaware corporation (the "Secured Party"),

                                   WITNESSETH:

          WHEREAS, the Debtor and the Secured Party entered into that certain
Credit Agreement, dated as of December 7, 2001 (the "Original Loan Agreement"),
and as a condition precedent to the obligations of the Secured Party under that
agreement, the Debtor was required to execute and deliver a Security Agreement
of even date therewith (the "Original Security Agreement") and to grant to the
Secured Party a continuing security interest in all of the Collateral (as
defined in the Original Security Agreement;

          WHEREAS, the Debtor has requested that the Secured Party modify the
terms of the Original Loan Agreement and enter into certain financing
arrangements with the Debtor; and

          WHEREAS, the parties now desire to fully amend and restate the
Original Loan Agreement by, among other things, reducing the total commitment
thereunder to $26 million and consolidating certain tranches, and are extending
their relationship and entering into an Amended and Restated Credit Agreement
pursuant to which the Secured Party will make funds available to the Debtor; and

          WHEREAS, as a condition precedent to the obligations of the Secured
Party under the Amended and Restated Credit Agreement, dated effective February
10, 2006 (the "Credit Agreement") the Debtor is required to execute and deliver
this Agreement;

          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, Commercial Tort Claim,
Deposit Account, Document, Equipment, Fixtures, General Intangible, Goods,
Instrument, Inventory, Investment Property, Letter-of-



Credit Right, Proceeds, Supporting Obligation, and Tangible Chattel Paper, 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.

          "Copyrights" shall mean all of Debtor's copyrights, registrations and
applications therefor, and any and all (a) renewals and extensions thereof, (b)
income, royalties, damages and payments now and hereafter due or payable or both
with respect thereto, including damages and payments for past or future
infringements or misappropriations thereof, (c) rights to sue for past, present
and future infringements or misappropriations thereof and (d) all other rights
corresponding thereto throughout the world, whether now owned or hereafter
acquired.

          "Credit Agreement" has the meaning provided in the fourth whereas
clause of this Agreement.

          "Debtor" has the meaning provided in the preamble of this Agreement.

          "Licenses" means license agreements in which Debtor grants or receives
a grant of any interest in Copyrights, Trademarks, Patents and Trade Secrets and
other intellectual property and any and all (a) renewals, extensions,
supplements, amendments and continuations thereof, (b) income, royalties,
damages and payments now and hereafter due or payable or both with respect
thereto, including damages and payments for past or future violations or
infringements or misappropriations thereof and (c) rights to sue for past,
present and future violations or infringements thereof, whether now owned or
hereafter acquired.

          "Patents" shall mean all of the Debtor's patents and patent
applications and any and all (a) inventions and improvements described and
claimed therein, (b) reissues, divisions, continuations, renewals, extensions
and continuations-in-part thereof, (c) income, royalties, damages and payments
now and hereafter due or payable or both with respect thereto, including damages
and payments for past or future infringements or


                                       2



misappropriations thereof, (d) rights to sue for past, present and future
infringements or misappropriations thereof and (e) all other rights
corresponding thereto throughout the world, whether now owned or hereinafter
acquired.

          "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.

          "Trademarks" shall mean all of the Debtor's trademarks (including
service marks and trade names, whether registered or at common law),
registrations and applications therefor, and the entire product lines and the
goodwill of Debtor's business connected therewith and symbolized thereby, and
any and all (a) renewals thereof, (b) income, royalties, damages and payments
now and hereafter due or pay able or both with respect thereto, including
damages and payments for past or future infringements or misappropriations
thereof, (c) rights to sue for past, present and future infringements or
misappropriations thereof and (d) all other rights corresponding thereto
throughout the world; all whether now owned or hereafter acquired.

          "Trade Secrets" means all of the Debtor's trade secrets, any and all
(a) income, royalties, damages and thereafter due or payable or both with
respect thereto, including damages and payments for past or future infringements
or misappropriations thereof, (b) rights to sue for past, present and future
infringements or misappropriations thereof and (c) all other rights
corresponding thereto throughout the world; all whether now owned or hereafter
acquired.

          "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
acknowledge and affirm that it has assigned, pledged, conveyed, set over and
transferred,


                                       3



and hereby re-assigns, pledges, conveys, sets over and transfers, unto the
Secured Party, and has granted and does hereby confirm and affirm the grant to
the Secured Party of, and hereby re-grants 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;

               (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;

               (xii) All Patents, Trademarks, Licenses, Trade Secrets and
          Copyrights;

               (xiii) the entire goodwill of Debtor's business connected with
          the use of and symbolized by the Trademarks; and

               (xiv) all Accessions and all Proceeds and products of any and all
          of the foregoing.


                                       4



          (b) The Collateral pledged and the security interest granted by the
Debtor hereunder 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.

          2.02 Power of Attorney. The Debtor hereby acknowledges that it has
irrevocably appointed 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


                                       5



               (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.

          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


                                       6



whatsoever, except for (A) the Lien created hereby, and (B) any other Permitted
Lien. No financing statement or other security instrument is on file in any
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


                                       7



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 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.


                                       8



          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:

          (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


                                       9



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.

          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.

          (a) The Debtor authorizes the Secured Party to file, without the
signature of the Debtor to the extent permitted by law, all financing
statements, continuation statements, amendments, assignments, certificates, and
other documents and instruments with respect to the Collateral pursuant to the
UCC and otherwise as may be necessary or reasonably requested by Secured Party
to perfect or from time to time to publish notice of, or continue or renew the
security interests granted hereby and previously granted (including, such
financing statements, continuation statements, certificates, and other documents
as may be necessary or reasonably requested to perfect a security interest in
any additional property rights hereafter acquired by Debtor or in any
replacements, products or proceeds thereof), in each case in form and substance
satisfactory to Secured Party. Such financing statements may describe the
Collateral in the same manner as described herein or may contain an indication
or description of collateral that describes such property in any other manner as
Secured Party may reasonably determine is necessary, advisable or prudent to
ensure the perfection of


                                       10



the security interest in the Collateral granted to Secured Party herein. 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.

          (b) Debtor will pay the cost of filing the same in all public offices
where filing is necessary or reasonably requested by Secured Party and will pay
any and all recording or filing taxes that may be due in connection with any
such filing.

          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 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.


                                       11



          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.

          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:


                                       12



               (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

               (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


                                       13



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 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


                                       14



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 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


                                       15



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 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.


                                       16



          (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.

          (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


                                       17



unenforceable provision with another provision not so invalid, illegal or
unenforceable with the same or similar effect.

                            [SIGNATURE PAGE FOLLOWS]


                                       18



          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.

                                        HearUSA, INC.


                                        By: /s/ Stephen J. Hansbrough
                                            ------------------------------------
                                        Name: Stepehen J. Hansbrough
                                        Title: President and Chief Executive
                                               Officer


                                        SIEMENS HEARING INSTRUMENTS, INC.


                                        By: /s/ William J. Lankenau
                                            ------------------------------------
                                        Name: William J. Lankenau
                                        Title: President & CEO

EX-10.3

                                                                    EXHIBIT 10.3

CERTAIN INFORMATION (INDICATED BY ASTERISKS) IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                                    EXHIBIT 10.3

                      AMENDED AND RESTATED SUPPLY AGREEMENT

     This Amended and Restated Supply Agreement, is made as of the 10th day of
February, 2006 ("Execution Date"), among Siemens Hearing Instruments, Inc., a
Delaware corporation, with an address at 10 Constitution Avenue, Piscataway, New
Jersey 08855 ("SHI" or "Seller"), certain subsidiaries and affiliates of Siemens
Aktiengesellschaft (collectively, the "Siemens Affiliates") and HearUSA, Inc.
(formerly HEARx, Ltd.), a Delaware corporation, with an address at 1250
Northpoint Parkway, West Palm Beach, FL 33407 ("HearUSA" or "Buyer").

     WHEREAS, Buyer is a retail seller of hearing aids in the United States and
also services hearing healthcare programs sponsored by HMOs and insurance
companies; and

     WHEREAS, Seller is a manufacturer of hearing aids and sells such hearing
aids to retail resellers, including Buyer, for resale to consumers; and

     WHEREAS, Buyer and Seller determined that it would be in their respective
best interests to assure a steady supply of hearing aids of various styles and
capacities (the "Products") from Seller in order that Buyer may efficiently and
economically distribute such Products through its current and future retail
outlets ("Facilities") and, to that end, entered into a Supply Agreement as of
December 7, 2001 (the "Original Supply Agreement"); and

     WHEREAS, the parties have now determined that it would be in their
respective best interests to amend and restate the Original Supply Agreement,
extending their relationship until January 2011, all in accordance with the
terms and conditions contained herein.

     NOW, THEREFORE, the parties hereto agree as follows:

     1. Purchase and Sale. Subject to the provisions contained in this
Agreement, Seller has agreed to sell and Buyer has agreed to buy those Products
listed on Exhibit A to this Agreement during the term of this Agreement. The
Siemens Affiliates manufacture or may manufacture certain of the Products
offered hereunder, and those Products manufactured and supplied by the Siemens
Affiliates and purchased by Buyer will be included within the definition of
Products under this Agreement and included in the calculations set forth in
Section 4 hereof. If any Siemens Affiliate shall sell any of the Products to the
Buyer, such Siemens Affiliate shall execute and deliver a counterpart,



substantially in the form of Exhibit B, to SHI and the Buyer. Upon the execution
of such counterpart, such Siemens Affiliate shall become a party hereto and be
bound by all the terms and conditions hereof as a "Seller" to the same extent as
though such Siemens Affiliate had originally executed this Agreement. The
parties understand and agree that Exhibit A may be amended from time to time,
upon mutual agreement of the Seller and Buyer, to add or delete Products. In
addition, it is specifically understood that Buyer is purchasing the Products
for the purpose of resale in all of Buyer's Facilities, including, without
limitation, any new Facilities which may be or are owned, operated, affiliated
with or managed by Buyer.

     2. Term. The term of this Agreement is five (5) years, commencing on the
Execution Date (the "Term").

     3. Terms and Conditions of Sale. The Buyer will submit its orders for
Products either on the forms provided therefor or via a website provided by
Seller and payment shall be made by Buyer for products delivered and accepted
within sixty (60) days from the date of statement by Seller.

     4. Ordering Process and Pricing. Buyer understands that Seller has offered
special terms and pricing to Buyer as consideration for the purchase compliance
levels committed to by Buyer, and that Seller is willing to continue to provide
Products to Buyer in a manner consistent with the relationship enjoyed to date
by Seller and Buyer. Subject to Section 3 hereof, Buyer agrees to purchase, in
each Fiscal Quarter during the term of this Agreement (which, for the purposes
of this calculation, shall be each of the three month periods ending on the last
Saturday of the months of March, June, September and December), at least ninety
percent (90%) of Buyer's quarterly purchases of hearing aid products; provided
however, that:

          (i) if the Buyer has purchased, on a cumulative basis from May 1, 2001
through the applicable Fiscal Quarter, 90% or more of the total number of
hearing aids purchased by the Borrower, net of returns (the "Minimum Purchase
Percentage"), the Buyer shall be deemed to have complied with the minimum
purchase requirements of this Supply Agreement; and

          (ii) in the event the Buyer has not complied with the provisions of
4(i) above, if the Borrower has purchased, on a cumulative basis from May 1,
2001 through the applicable Fiscal Quarter, eighty percent (80%) or more of the
total number of hearing aids purchased by the Borrower but less than ninety
percent (90%) of the total number of hearing aids purchased by the Borrower in
each of the two preceding consecutive Fiscal Quarters, the Borrower shall be
deemed to have complied with the minimum purchase requirements of this Supply
Agreement.

          For purposes of this Section 4, (A) the Fiscal Quarter in which the
last day of the Term occurs (unless such day is the last day of a Fiscal
Quarter), shall mean the period commencing on the first day of such Fiscal
Quarter and ending on the last day of the Term (such period, the "Final Contract
Fiscal Quarter"), (B) the "quarterly purchases"


                                       -2-



described above shall refer to such purchases made during the applicable Final
Contract Fiscal Quarter, and (C) the 90% requirement shall be reduced to a
number equal to the product of 90% multiplied by a fraction, the numerator of
which is the number of days in the applicable Final Contract Fiscal Quarter and
the denominator of which is the actual number of days in the Fiscal Quarter in
which the last day of the Term occurs.

          In exchange for this purchase commitment, Seller has offered to sell
the Products to Buyer at the prices set forth on Exhibit A. During the term of
this Agreement, upon written notice to Buyer not later than sixty (60) days
prior to the effective date thereof, Seller may adjust the list prices for the
Products, such adjustment to take effect on the date set forth on such notice.
Seller may not change the list prices for the Products more often than ****** in
any contract year and the prices shall not be increased more than ****** above
the then-current prices at the time of such change, unless Buyer fails to meet
its purchase requirements set forth in Section 4, at which time the parties
shall meet to discuss the adjustments which need to be made should Buyer
continue not to meet such purchase requirements. In the event Buyer defaults in
its obligation to meet the agreed purchase requirements, Seller, in its sole
discretion, shall have the right to take any or all of the following actions
hereunder: (i) adjust prices or terms and conditions of sale with respect to the
provision of Products for the remaining contract years of the Agreement, (ii)
seek reimbursement from Buyer for the difference between the special pricing
offered in connection with this Agreement and the then-current list prices for
the Products, (iii) obtain injunctive relief compelling Buyer to refrain from
purchasing hearing aids from any vendor other than Seller until the end of the
term of this Agreement, (iv) obtain injunctive relief compelling Buyer to
purchase all its requirements for hearing aids from Seller until the end of the
term of this Agreement, or (v) terminate this Agreement in accordance with
Section 11 hereof.

          Further, if Buyer meets the purchase commitments set out in this
Agreement, Buyer is able to liquidate certain loans made by Seller to Buyer
pursuant to that Amended and Restated Credit Agreement entered into of even date
herewith by and between Buyer and Seller (the "Credit Agreement"). In the event
that the Tranche A Loan and all Tranche C Loans (as those terms are defined in
the Credit Agreement) are repaid by Buyer prior to the Maturity Date (as defined
in the Credit Agreement), so long as Buyer meets the Minimum Purchase Percentage
set out above, Seller shall credit to Borrower hereunder substantially
equivalent rebates of ******* annually through the term hereof for so long as
such cumulative Minimum Purchase Percentage is achieved by Buyer.

     5. Product Representations. Seller makes the following representations and
warranties with respect to the Products sold hereunder:

     (a) Each Product shall be manufactured (i) in conformity with all
applicable requirements of the Food and Drug Administration ("FDA") and (ii) in
accordance with all applicable United States federal, state and local statutes,
ordinances and regulations, including but not limited to the Food, Drug and
Cosmetic Act (21 USC 301 et seq.) (the "Act"), as amended from time to time, and
the regulations thereunder, including Good Manufacturing Practice Regulations,
which are currently in force or which are hereafter


                                      -3-



adopted. At the time of shipment of any Product, it will not be adulterated or
misbranded within the meaning of the Act and will not be a product which would
violate any section of the Act if introduced into interstate commerce in the
United States.

     (b) Seller has good and marketable title to, and the right to sell, the
Products.

     (c) The manufacture and sale of the Product, and its use in accordance with
all applicable approvals theretofore obtained and Seller's directions for use,
shall not, to the knowledge of Seller, infringe any intellectual property rights
of any third parties.

     6. Covenants of Seller. Seller covenants and agrees as follows with respect
to the Products:

     (a) Seller shall conduct its manufacturing operations in a safe and prudent
manner, in compliance with all applicable laws and regulations, including, but
not limited to, those dealing with occupational safety and health, those dealing
with public safety and health, those dealing with protection of the environment,
and those dealing with disposal of wastes and in compliance with the applicable
provisions of this Agreement.

     (b) Seller shall use commercially reasonable efforts to have the Products
listed on the "pick lists" maintained by each of the Canadian provinces.

     (c) Seller shall use commercially reasonable efforts to (i) fill Buyer's
orders for Products on time and (ii) deliver Products that function as per
specifications and that meet the requirements of the orders submitted by Buyer,
in each case consistent with past practices of Buyer and Seller.

     (d) Seller shall use commercially reasonable efforts to remain one of the
technology leaders in the field of hearing healthcare; provided that nothing
contained herein shall limit or prohibit Seller from conducting its business in
accordance with the policies and procedures established from time to time by
Seller's Board of Directors or with the overall policies and procedures of
Siemens Aktiengesellschaft.

     7. Indemnification by Seller.

     (a) Subject to the provisions of subsection 7(b) below, Seller agrees to
indemnify, defend and hold harmless Buyer, its affiliates and their respective
employees, agents and representatives, against any and all claims, losses,
damages and liabilities, including reasonable attorneys' fees, incurred by any
of them arising out of any breach of any representation by Seller, resulting
from the actual adulteration or misbranding of Product, or any defect in
materials or workmanship.

     (b) The foregoing indemnify shall not be effective to the extent any such
claim, loss, damage or liability is based upon (i) any act of Buyer or any of
its affiliates, agents or representatives, (ii) any act of Buyer or any of its
affiliates, agents or representatives done jointly with any party other than
Seller, or (iii) any claim arising as a result of any


                                      -4-



unauthorized alteration, modification or change to the Product by any party
other than Seller.

     8. Indemnification by Buyer.

     (a) Subject to the provisions of subsection 8(b) below, Buyer agrees to
indemnify, defend and hold harmless Seller, its affiliates and their respective
employees, agents and representatives, against any and all claims, losses,
damages and liabilities, including reasonable attorneys' fees, incurred by any
of them arising out of any act of Buyer relative to the marketing, distribution
and sale of Products.

     (b) The foregoing indemnity shall not be effective nor shall it be
enforceable in the event any such claim, loss, damage or liability is based upon
(i) any act of Seller or any of its affiliates, agents or representatives, (ii)
any act of Seller or any of its affiliates, agents or representatives done
jointly with any party other than Buyer, or (iii) any claim arising as a result
of any unauthorized alteration, modification or change to the Product by any
party other than Buyer, or any defect in materials or workmanship.

     9. Procedures Related to Indemnification.

     (a) A party seeking indemnification under the terms of this Agreement shall
be referred to as the "indemnified party" and the person who is to provide such
indemnification shall be referred to as the "indemnifying party." The
indemnified party shall notify in writing the indemnifying party with reasonable
promptness of its discovery of any matter giving rise to a claim of indemnity.
The failure or delay in so notifying the indemnifying party shall not relieve
indemnifying party of its obligations to indemnify unless, and only to the
extent that, the indemnifying party's defense of such claim is materially
prejudiced as a result of such delay. The indemnified party shall provide the
indemnifying party as soon as practicable all information and documentation
related to the matter for which the indemnified party seeks indemnification. The
indemnifying party shall be given access to all books and records in the
possession or under the control of the indemnified party that the indemnifying
party reasonably determines to be related to such claim.

     (b) Promptly upon receipt of notice from the indemnified party, the
indemnifying party shall take over control of the defense of any action, claim
or litigation arising out of the indemnification provisions of this Agreement.
The indemnified party shall support and assist the indemnifying party in the
defense, but all costs, expenses and related charges, including but not limited
to attorneys' fees, shall be for the account of the indemnifying party, except
to the extent such independent counsel is representing the indemnified party for
defenses available to it but not available to the indemnifying party. If the
indemnified party wishes to retain its own counsel to advise and assist in the
defense of such claim, it may do so, but the expense of retaining such
independent counsel shall be for the account of the indemnified party and the
indemnifying party shall retain complete control over the defense. If, after
receipt of notice, the indemnifying party does not defend the interests of the
indemnified party or does not take appropriate


                                      -5-



action to defend and hold harmless the indemnified party, then, and in that case
only, the indemnified party shall be entitled to retain counsel, defend the
action, claim or litigation, and seek compensation for all of its costs of
defense from the indemnifying party. The indemnified party shall not, without
the prior consent of the indemnifying party, enter into any settlement the
result of which would materially limit or modify the rights of the indemnifying
party under this Agreement.

     10. Recall. In the event of any recall of any Product, whether voluntary or
involuntary, Seller shall replace the recalled Product without charge to Buyer.
In addition, Seller shall pay all of Buyer's reasonable out of pocket expenses
incurred in connection with such recall. In no event shall Seller be liable for
any loss of use, revenue or anticipated profits, loss of stored, transmitted or
recorded data, or for any incidental, unforeseen, special, punitive or
consequential damages arising out of or in connection with this Agreement, or
the sale or use of the Products, or arising out of the actions taken by Seller
in response to a recall or other action required by law, regulation or agency
with oversight over the operations and business of Seller; provided, however,
that nothing in this Section 10 shall limit Seller's indemnification obligations
under Section 7 for losses incurred by Buyer for which Buyer is entitled to
indemnification arising out of a claim by any third party.

     11. Termination.

     (a) Either party may terminate this Agreement in the event of a material
breach by the other which remains uncured (or where significant steps toward
effecting the cure shall not have been taken) within sixty (60) days after
written notice is given to the breaching party specifying the nature of the
breach. The parties agree that Buyer's failure to meet the purchase requirements
set forth in Section 4 or to make payments as required under this Agreement
shall be material breaches, giving Seller the right subject to the cure period,
but not the obligation, to terminate this Agreement. The remedy of termination
shall be without prejudice to any other rights or remedies available to the
non-breaching party under this Agreement or at law.

     (b) Notwithstanding subsection (a) hereinabove, Seller may terminate this
Agreement effective immediately if any proceeding shall be instituted by or
against the Buyer seeking to adjudicate it a bankrupt or insolvent or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a custodian, receiver, trustee or other
similar official for it or for any substantial part of its property and, in the
case of any such proceedings instituted against Buyer (but not instituted by it)
either such proceedings shall remain undismissed or unstayed for a period of
sixty (60) days or any of the actions sought in such proceedings shall occur; or
the Buyer shall take any corporate action to authorize any of the actions set
forth above in this subsection (b). Buyer may terminate this Agreement if Seller
voluntarily or involuntarily becomes bankrupt or is unable to fulfill its
obligations hereunder.


                                      -6-



     (c) Buyer may terminate this Agreement if (i) the US Food and Drug
Administration takes any final action the result of which is to ban the
manufacture, sale or introduction into interstate commerce of any Product or to
impose significant restrictions on its use in the hearing field or generally or
(ii) Seller purchases or operates any entity which sells hearing aids through
retail outlets.

     (d) Termination or expiration of this Agreement for any reason shall not
(i) release either party from any liability or obligation which has already
accrued as of the effective date of such termination or (ii) constitute a waiver
or release of, or otherwise be deemed to prejudice or adversely affect, any
rights, remedies or claims, whether for damages or otherwise, which a Party may
have hereunder, at law, equity or otherwise.

     12. Representations and Warranties.

     (a) Seller represents and warrants that:

          (i) Seller is a corporation duly organized, validly existing and in
     good standing under the laws of its state of incorporation and has
     requisite power and authority to own, lease and operate its properties and
     to carry on its business as currently conducted, and is qualified to do
     business in all jurisdictions where it currently conducts business.

          (ii) Seller has the power and authority to enter into this Agreement
     and to perform its obligations hereunder, and the execution of this
     Agreement has been duly authorized by all necessary corporate or other
     action.

          (iii) This Agreement constitutes a legal, valid and binding obligation
     of Seller, and is enforceable against it in accordance with its terms,
     except to the extent such enforceability may be subject to (a) the laws of
     bankruptcy, insolvency, fraudulent conveyance or other laws relating to
     creditors' rights or (b) general equitable principles.

          (iv) The execution and delivery of this Agreement and the performance
     by Seller of its obligations hereunder will not violate any laws or
     regulations applicable to Seller, conflict with or cause a breach of any
     obligations to a third party, or violate, breach or conflict with any of
     the terms of Seller's Certificate of Incorporation or By-Laws.

     (b) Buyer represents and warrants that:

          (i) Buyer is a corporation duly organized, validly existing and in
     good standing under the laws of its state of organization and has requisite
     power and authority to own, lease and operate its properties and to carry
     on its business as currently conducted, and is qualified or will be
     qualified to do business in all jurisdictions where it does or will conduct
     business.


                                      -7-



          (ii) Buyer has the power and authority to enter into this Agreement,
     including the power and authority to make payments in respect of purchases
     and other transactions arising herefrom, and to perform its obligations
     hereunder. The execution of this Agreement has been duly authorized by all
     necessary corporate, governmental or other action.

          (iii) This Agreement constitutes a legal, valid and binding obligation
     of Buyer, and is enforceable against it in accordance with its terms,
     except to the extent such enforceability may be subject to (a) the laws of
     bankruptcy, insolvency, fraudulent conveyance or other laws relating to
     creditors' rights or (b) general equitable principles.

          (iv) To the best of Buyer's knowledge, Buyer does not have any
     liabilities or obligations of any nature, whether absolute, accrued,
     contingent or otherwise, that would be material to its or their financial
     condition or business operations that have not been disclosed to Seller.

          (v) The execution and delivery of this Agreement and the performance
     by Buyer of its obligations hereunder will not violate any laws or
     regulations applicable to Buyer, conflict with or cause a breach of any
     obligations of Buyer to a third party, or violate, conflict with or cause a
     breach of any of the terms of Buyer's Certificate of Incorporation or
     By-Laws.

     (c) Product Complaint Procedures. Buyer agrees to provide all complaints
with respect to the Products to Seller, in writing and in the English language,
in a timely manner. Submitted complaints shall contain sufficient detail to
enable Seller to adequately investigate the reported problem. Complaints
pertaining to injury or death shall be reported to Seller in five (5) working
days or less from the date of Buyer's receipt of such complaint in order that
Seller may comply with the requisite FDA Medical Device Reporting requirements.
Seller will take appropriate steps to make all necessary filings and reports to
regulatory agencies in accordance with its obligations. When requested so to do,
Buyer will use its best commercial efforts to provide evaluation and
investigation support to Seller. Seller, as service provider for the Products,
is responsible for analysis of service reports, service repair data, service
trends and telephone support for potential complaints or corrective action
requirements, all as set forth in the Quality Systems Regulation and other FDA
instructions. Buyer agrees to return parts involved in a complaint to Seller
promptly, and in any event within thirty (30) days after notification by Buyer
to Seller of the complaint.

     13. Dispute Resolution.

     (a) In an effort to effectively and economically manage the resolution of
any disagreement which might arise during the term of this Agreement with
respect to the obligations of the parties, or with respect to actions to be
taken or not taken under the terms of the Agreement, the parties agree to
appoint a representative (at the line manager level or its equivalent) to meet
and discuss the disagreement. If such representatives,


                                      -8-



after a good faith effort, are not able to resolve the disagreement to the
mutual satisfaction of the parties, the disagreement then shall be submitted to
the respective Vice Presidents of the parties for their attention. If the Vice
Presidents are not able to negotiate a mutually acceptable resolution of the
dispute, then the parties agree to submit the disagreement to arbitration and
the provisions of clause (b) of this Section shall apply.

     (b) Subject to the provisions of subsection (a) hereinabove, any
disagreement, dispute, controversy or claim arising out of this Agreement,
including without limitation, interpretation thereof, or any alleged breach or
invalidity, which cannot be resolved through the good faith negotiations of the
parties shall be resolved through arbitration. The arbitration shall be
conducted in accordance with the commercial arbitration rules of the American
Arbitration Association (except to the extent such rules conflict with the
provisions of this Agreement, in which event, this Agreement shall control). The
tribunal shall be composed of three arbitrators (one selected by each party and
the third selected by the arbitrators selected by the parties) and shall be
conducted in New York, New York ("Site"). Any arbitration proceedings shall be
conducted in confidence and the award or decision of the tribunal shall be final
and binding upon the parties. The award of the arbitrators shall be enforceable
by any court having jurisdiction thereof.

     (c) Nothing contained herein shall prohibit or limit in any way any party
from seeking or obtaining preliminary or interim injunctive or other equitable
relief from a court for a breach or alleged breach of any of the covenants and
agreements of the other party to this Agreement.

     14. Notices. When any notice is required or permitted to be given under any
provision of this Agreement, such notice shall be made in writing and signed by
or on behalf of the party giving such notice, mailed certified mail, postage
prepaid, return receipt requested, or sent by nationally recognized overnight
courier, and addressed to the party to whom such notice is to be given at the
addresses set forth below. Notices are considered delivered on the postmarked
date or the date delivered to a courier for next workday delivery. Either party
may change its address for the receipt of any notice in the manner set forth
above.

To Seller:                            To Buyer:

Siemens Hearing Instruments, Inc..    HearUSA, Inc.
10 Constitution Avenue                1250 Northpoint Parkway
Piscataway, New Jersey 08855          West Palm Beach, FL 33407
Attention: Chief Financial Officer    Attention: President
Telecopy No. (732) 562-6688           Telecopy No. (561) 688-8893

Copy to:                              Copy to:

Associate General Counsel             LaDawn Naegle, Esq.
Siemens Corporation                   Bryan Cave LLP
186 Wood Avenue South                 700 13th Street, N.W., Suite 700


                                      -9-



Iselin, NJ 08830                      Washington, DC 20005
                                      Telecopy No. (202) 508-6200

     15. New Products. The parties understand and agree that the development of
new hearing aids is both anticipated and encouraged. Buyer wishes to be able to
sell new and improved Products. As new Products become commercially available
from Seller, Seller will provide notice to Buyer of such availability, and such
Products will be added to this Agreement as soon as they are commercially
available upon the mutual agreement of the parties. Seller shall determine the
prices for such new Products, such prices to be commercially reasonable and
consistent with the quantity discounts provided under this Agreement. Such
Products shall be subject to the same adjustments in price as described above
for the current Products. As a result of the development of new technology,
certain of the current Products may become less valuable in the marketplace. To
the extent practicable, Seller will continue to offer the older Products, but
Buyer agrees to channel its marketing efforts and those of the Facilities
towards the introduction and sale of the new Products added to this Agreement.
As the scope of the Products changes, certain older Products may be deleted from
the Products offered under this Agreement, upon the mutual agreement of the
parties.

     16. Miscellaneous Provisions.

     (a) No Assignment. Neither this Agreement, nor the rights or duties of any
party thereunder, may be assigned without the written consent of the other
party, which consent shall not be unreasonably withheld or delayed, provided,
however, that Seller shall be permitted to assign this Agreement to a
subsidiary, parent or affiliated entity of Seller. In the event of a Change of
Control (as defined in the Credit Agreement) during the term of this Agreement,
Seller shall have the right to determine whether or not, in its discretion, this
Agreement should be assigned to the third party or the entity which results from
the Change of Control, and, should Seller so request, Buyer will provide or
arrange to have provided to Seller, additional assurance of the abilities and
willingness of the third party or new entity to assume the obligations and
provide the services of Buyer hereunder. If Seller does not consent to an
assignment of this Agreement, Buyer shall have the right to terminate the
Agreement on sixty (60) days prior written notice without any further obligation
or liability hereunder. Seller shall retain all rights which it has or may have
up to the effective date of such termination. This Agreement shall be binding on
Seller and Buyer and their respective successor and permitted assigns.

     (b) No Waiver. No waiver of a breach of any provision of this Agreement
shall constitute a waiver of any other breach of such provision, nor shall any
such waiver be construed as a continuing waiver.

     (c) Governing Law. This Agreement is governed by and construed in
accordance with the laws of the State of New York, without giving effect to such
State's conflict of laws provisions (other than Sections 5-1401 and 5-1402 of
the New York General Obligations Law).


                                      -10-



     (d) Force Majeure. No party shall be liable for failure to perform or delay
in performing its obligations under this Agreement, and shall not be deemed to
be in breach of its obligations hereunder, if and to the extent and for so long
as such failure or delay in performance or breach is due to natural disaster,
war, strikes or other labor disputes, any loss or disruption of facilities, or
any other cause beyond the reasonable control of such party. The affected party
shall promptly provide the other party with notice of such occurrence, shall
diligently attempt to restore or continue its performance, and shall advise when
such event of force majeure shall have ended.

     (e) Housemark Usage. In connection with the transactions contemplated under
this Agreement, Seller has authorized Buyer to use Seller's housemark 'SIEMENS'
in accordance with Seller's regulations and guidelines for the use of such
housemark. In order to assure proper usage of its housemark, Seller reserves the
right to review all proposed usages of the housemark by Buyer.

     (f) Complete Agreement. This Agreement, and the Exhibits hereto, represents
the complete and exclusive statement of the arrangement between the parties with
respect to the matters contained herein and supersedes all prior agreements and
representations, oral or written, on the same subject matter. Amendments to this
Agreement shall not be effective unless made in writing and signed by the
parties hereto. In the event of a conflict between the terms contained in any of
the Exhibits relating to this Agreement and the terms of this Agreement, the
text of this Agreement shall govern. If there are terms in the Exhibits which
govern activities related thereto and which are not addressed in this Agreement,
the terms of the Exhibit shall govern. If the nature of the activities to be
conducted pursuant to this Agreement anticipate the preparation, execution and
use of other agreements ("ancillary documents") in respect of specific
activities, such ancillary documents will be subject to the terms of this
Agreement to the extent the terms therein are not in conflict with this
Agreement, and in an event of conflict, the terms of the ancillary documents
shall control the activities described therein.

     (g) No Agency. The relationship established hereby is in all respects a
commercial relationship. Nothing herein shall be construed as imposing any
fiduciary obligations on either party, or as establishing any partnership or
joint venture between the parties, or as rendering one part an agent of the
other. No agent or employee of one party shall be deemed to be an employee or
agent of the other. The parties acknowledge that their relationship is one of
independent buyer and seller and that, as separate entities, they have entered
into this Agreement for their respective business interests.

     (h) Confidentiality. Buyer and Seller agree that this Agreement, including
any Exhibits, appendices or ancillary agreements, as well as the nature of the
services to be provided one to the other hereunder, are confidential. The
parties agree to keep this Agreement and the information disclosed in, in
connection with and with respect to this Agreement as confidential and not
reveal such information to any other entity now, during or after the termination
or expiration of this Agreement. The parties may, however, admit to the
existence of a supply agreement between them. This restriction does not apply to
any information that (i) is or becomes public through the process of law,


                                      -11-



or through no fault of either party, or (ii) that was revealed to either party
by a third party not owing an obligation of confidentiality to the party who
owns the information disclosed, (iii) information that is rightfully in the
recipient's possession or part of recipient's general knowledge prior to the
receipt of such confidential information, or (iv) information that is required
to be disclosed by law, the order of a court or regulation of a governmental
agency having jurisdiction over the parties; provided, however, in the event
this Agreement is a "Material Agreement" or Buyer is otherwise required by the
SEC to file this Agreement, Buyer shall provide to Seller for Seller's prior
review: (i) a copy of Buyer's proposed redacted version of the Agreement, and
(ii) Buyer's explanatory cover letter to the SEC. Buyer shall incorporate all
redactions reasonably requested by Seller, provided all redactions are requested
upon the advice of Seller's counsel.

     (i) Taxes. Each party shall remain responsible for any taxes assessed
against such party which are to be paid by such party as a result of the
transactions hereunder.

     (j) Headings; Counterparts. The headings contained in this Agreement are
for convenience of reference only and shall not constitute a part hereof, or
define, limit or in any was affect the meaning of any of the terms or provisions
hereof. This Agreement may be executed in two or more counterparts and any party
hereto may execute any such counterpart. Each counterpart, when executed and
delivered, shall be deemed to be an original and all of such counterparts taken
together shall be deemed to be one and the same instrument.

     (k) Public Announcements. Except as the other party shall authorize in
writing, or as required by law, the parties shall not disclose, and shall cause
their respective officers, directors, employees, affiliates and advisors not to
disclose, any matter or matters relating to this transaction to any person not
an officer, director, employee, affiliate or advisor of such party. In the event
a party is required by law to make a public announcement or disclosure, such
party shall, if practicable, consult with the other as to the timing and content
of such announcement before such announcement is made. The parties shall agree
about the content of any statement or communication to the public or the media
prior to the release thereof.

     (l) Rebates. Buyer acknowledges that rebates that are realized by Buyer as
a result of meeting the Minimum Purchase Percentage set out in Section 4 above
may be reportable in connection with Federal and State reimbursement programs in
which Buyer participates pursuant to Section 1128 (B) (b) of the Social Security
Act. In order to comply with any such reporting obligations, Seller agrees to
cooperate with Buyer in identifying total rebate amounts as requested.

     (m) Survival of Certain Provisions. Notwithstanding the termination or
expiration of this Agreement, the following provisions shall survive, along with
either party's obligations to pay any payments or fees accrued prior to
termination or expiration: Sections 7, 8, 9, 10, 11(d), 13, 14 and 17.


                                      -12-



                            [SIGNATURE PAGE FOLLOWS.]


                                      -13-



     IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the Execution Date.

                                        HearUSA, INC.


                                        By: /s/ Stephen J. Hansbrough
                                            ------------------------------------
                                        Name: Stephen J. Hansbrough
                                        Title: President and Chief Executive
                                               Officer


                                        SIEMENS HEARING INSTRUMENTS, INC.


                                        By: /s/ William J. Lankenau
                                            ------------------------------------
                                        Name: William J. Lankenau
                                        Title: President & CEO


                                      -14-


CERTAIN INFORMATION (INDICATED BY ASTERISKS) IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                    EXHIBIT A

HEARUSA PRICING SCHEDULE FOR CUSTOM AND BTE PRODUCTS
effective February 1, 2006 through December 31, 2006

                                                                 NEW - EFFECTIVE
                                                                 2/1/06



                                                         HEARUSA    HEARUSA
                                          SINGLE UNIT   DISCOUNT   NET PRICE
                                          -----------   --------   ---------
                                                       
LIFE             BTE
                 ACURIS Life                 $1,391       ****%      $****
                 ACURIS Life Kits            $2,883       ****%      $****
                 ARTIS Life                  $1,167       ****%      $****
                 CIELO Life                  $  833       ****%      $****
                 epocket Remote Control      $  101       ****%      $****

ACURIS           CUSTOM
                 ITE                         $1,525       ****%      $****
                 HS                          $1,576       ****%      $****
                 ITC / MC                    $1,677       ****%      $****
                 CIC                         $1,828       ****%      $****
                 BTE
                 ACURIS S                    $1,626       ****%      $****
                 ACURIS P                    $1,904       ****%      $****

TRIANO           CUSTOM
                 ITE                         $1,363       ****%      $****
                 HS                          $1,438       ****%      $****
                 ITC / MC                    $1,533       ****%      $****
                 CIC                         $1,682       ****%      $****
                 BTE
                 TRIANO S                    $1,480       ****%      $****
                 TRIANO SL                   $1,548       ****%      $****
                 TRIANO 3                    $1,788       ****%      $****
                 TRIANO 3 P                  $1,879       ****%      $****
                 TRIANO SP                   $1,565       ****%      $****

ARTIS WITH E2E   CUSTOM
                 ITE                         $1,373       ****%      $****
                 HS                          $1,418       ****%      $****
                 ITC / MC                    $1,509       ****%      $****
                 CIC                         $1,645       ****%      $****



                                       -1-



                                                       
                 BTE
                 ARTIS e2e S                 $1,463       ****%      $****

ARTIS            CUSTOM
                 ITE                         $  996       ****%      $****
                 HS                          $1,072       ****%      $****
                 ITC / MC                    $1,147       ****%      $****
                 CIC                         $1,297       ****%      $****
                 BTE
                 ARTIS S                     $1,167       ****%      $****

PRISMA 2         CUSTOM
                 ITE                         $  832       ****%      $****
                 HS                          $  895       ****%      $****
                 ITC / MC                    $  958       ****%      $****
                 CIC                         $1,084       ****%      $****
                 BTE
                 PRISMA 2                    $  931       ****%      $****
                 PRISMA 2 K/2 K+             $  930       ****%      $****
                 PRISMA 2 Power              $1,039       ****%      $****
                 PRISMA 2 VC                 $  975       ****%      $****
                 PRISMA 2 P VC               $1,083       ****%      $****
                 PRISMA 2 D SP               $1,102       ****%      $****

CIELO            CUSTOM
                 ITE                         $  738       ****%      $****
                 HS                          $  813       ****%      $****
                 ITC / MC                    $  907       ****%      $****
                 CIC                         $1,055       ****%      $****
                 BTE
                 CIELO S                     $  833       ****%      $****
                 CIELO Dir                   $  844       ****%      $****

MUSIC PRO        CUSTOM
                 ITE                         $  633       ****%      $****
                 HS                          $  697       ****%      $****
                 ITC / MC                    $  778       ****%      $****
                 CIC                         $  905       ****%      $****
                 BTE
                 MUSIC Pro                   $  678       ****%      $****
                 MUSIC Pro S                 $  715       ****%      $****
                 MUSIC Pro Dir               $  724       ****%      $****
                 MUSIC Pro SP                $  727       ****%      $****




                                       -2-


                                                       
PHOENIX          CUSTOM
                 ITE                         $ 417        ****%      $****
                 HS                          $ 476        ****%      $****
                 ITC / MC                    $ 553        ****%      $****
                 CIC                         $ 672        ****%      $****
                 BTE
                 PHOENIX 104                 $ 468        ****%      $****
                 PHOENIX 204                 $ 468        ****%      $****
                 PHOENIIX 304                $ 468        ****%      $****

INFINITI PRO     CUSTOM
                 ITE                         $ 422        ****%      $****
                 HS                          $ 497        ****%      $****
                 ITC / MC                    $ 595        ****%      $****
                 CIC                         $ 746        ****%      $****
                 BTE
                 INFINITI Pro                $ 487        ****%      $****
                 INFINITI Pro S              $ 513        ****%      $****
                 INFINITI Pro Dir            $ 519        ****%      $****
                 INFINITI Pro SP             $ 525        ****%      $****

PHOENIX ONE      CUSTOM
                 ITE                         $ 399        ****%      $****
                 HS                          $ 477        ****%      $****
                 ITC / MC                    $ 576        ****%      $****
                 CIC                         $ 732        ****%      $****
                 BTE
                 PHOENIX 113                 $ 383        ****%      $****
                 PHOENIX 213                 $ 383        ****%      $****
                 PHOENIIX 313                $ 383        ****%      $****



HEARUSA PRICING SCHEDULE FOR OPTIONS
effective February 1, 2006 through December 31, 2006

                                                          NEW - EFFECTIVE 2/1/06



                                  SINGLE
                                   UNIT    HEAR USA   HEAR USA
OPTIONS                           PRICE    DISCOUNT     PRICE
- ------------------------------   -------   --------   --------
                                             
AGC-O CONTROL                    $ 33.00     ****%      $****
CLEAR COAT                       $ 32.00     ****%      $****
FILAMENT VC                      $ 59.00     ****%      $****
GAIN CONTROL                     $ 33.00     ****%      $****



                                       -3-



                                             
MPO CONTROL                      $ 33.00     ****%      $****
SCREW SET VC                     $ 32.00     ****%      $****
SOFT CANAL                       $ 32.00     ****%      $****
TELECOIL                         $ 59.00     ****%      $****
TELECOIL (SWITCHLESS)            $ 73.00     ****%      $****
TONE (N-H) SWITCH                $ 33.00     ****%      $****
TONE (N-L) SWITCH                $ 33.00     ****%      $****
TONE (N-H) CONTROL               $ 33.00     ****%      $****
TONE (N-L) CONTROL               $ 33.00     ****%      $****
TWINMIC SYSTEM                   $133.00     ****%      $****
VOICEMIC                         $133.00     ****%      $****
24 HOUR SERVICE                  $ 49.00     ****%      $****
REMAKE / RECASE                  $ 61.00     ****%      $****
REMAKE/RECASE- NO MODEL CHANGE   $ 61.00     ****%      $****
CONV BTE >5YR OUT-WARR SERVICE   $127.00     ****%      $****
CONV BTE OUT OF WARRANTY SVC     $ 69.00     ****%      $****
CONV ITE >5YR OUT WARR SERVICE   $127.00     ****%      $****
CONV ITE OUT OF WARR SERVICE     $ 69.00     ****%      $****
DIG BTE OUT OF WARRANTY          $129.00     ****%      $****
DIG ITE OUT OF WARRANTY SERV     $129.00     ****%      $****
ITE 1-2YR DAMAGE SERVICE         $181.00     ****%      $****
PROG ANALOG BTE OUT OF WARR      $108.00     ****%      $****
PROG ANALOG ITE OUT OF WARR      $108.00     ****%      $****
DHL EXPRESS OVERNIGHT/NEXT DAY   $ 16.00     ****%      $****
DHL EXPRESS OVERNIGHT/NEXT DAY   $ 18.00     ****%      $****



*    The parties agree that the "ship to" addresses determine the level of
     pricing charged to the purchasers under the terms of this Agreement.


                                       -4-



                                    EXHIBIT B

                    AGREEMENT TO BE BOUND BY SUPPLY AGREEMENT

TO:     SIEMENS HEARING INSTRUMENTS, INC.

AND TO: HearUSA, INC.

          The undersigned hereby acknowledges and confirms that the undersigned
(i) has received a copy of the Supply Agreement, dated as of February 10, 2006
(the "Agreement"), by and among Siemens Hearing Instruments, Inc., certain
Siemens Affiliates and HearUSA, Inc., a copy of which is attached hereto, (ii)
has read and understands fully the provisions of the Agreement and (iii)
proposes to become a party thereto as a "Seller" in accordance with the
provisions of the Agreement.

          From and after the date hereof, the undersigned hereby covenants and
agrees to be bound by the Agreement, as such Agreement may be amended, modified,
replaced, restated or supplemented from time to time in accordance with the
provisions thereof, as a party in the same manner and to the same extent as if
the undersigned had been an original party to the Agreement as a "Seller".

          Unless otherwise defined in this Counterpart, capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Agreement.

                            DATED: February 10, 2006

                                        [NAME OF SIEMENS AFFILATE]


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------

Address for Notices:
_____________________________________

_____________________________________

_____________________________________


                                       -5-

EX-31.1

Exhibit 31.1

Sarbanes-Oxley Section 302 Certification

I, Stephen J. Hansbrough, certify that:

1. I have reviewed this quarterly report on Form 10-Q of HearUSA, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this l report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2006

/s/Stephen J. Hansbrough

Stephen J. Hansbrough

Chief Executive Officer

EX-31.2

Exhibit 31.2

Sarbanes-Oxley Section 302 Certification

I, Gino Chouinard, certify that:

1. I have reviewed this quarterly report on Form 10-Q of HearUSA, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this l report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2006

/s/Gino Chouinard

Gino Chouinard

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of HearUSA, Inc. (the “Company”) for the period ending April 1, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Stephen J. Hansbrough, Chief Executive Officer and Gino Chouinard, Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stephen J. Hansbrough

Stephen J. Hansbrough

Chief Executive Officer

HearUSA, Inc.

May 15, 2006

/s/ Gino Chouinard

Gino Chouinard

Chief Financial Officer

HearUSA, Inc.

May 15, 2006