THE SECURITIES REPRESENTED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON
THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, NOR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
August 28, 2000
Farmingdale, New York
7% SECURED CONVERTIBLE DEBENTURE
HEARING INNOVATIONS INCORPORATED ("Hearing"), a Delaware corporation, for value
received, hereby promises to pay to the Misonix, Inc., a Delaware corporation
(the "Holder) at the address set forth on the signature page hereof or at such
other address as the Holder may designate in writing, the principal sum of
$300,000 on August 27, 2002 in lawful money of the United States of America,
together with interest thereon from the date hereof or at the interest rate
hereinafter set forth until payment in full of the outstanding principal
balance, in accordance with all the terms of this Debenture. The principal shall
be made available to Hearing upon the execution hereof.
ARTICLE I
INTERPRETATION
1.1 Definitions. The terms used in this Debenture shall, unless there is
something in the subject matter or the context inconsistent therewith,
have the following meanings:
(a) "Accumulated Debt" at any time means the aggregate of the Loan
Amount plus all interest accrued thereon at the time minus all
amounts in respect thereof paid by Hearing to the Holder.
(b) "Business Day" means a day (other than a Saturday or a Sunday) on
which banks are generally open for business in Farmingdale, New
York.
(c) "Closing Date" means August 28, 2000 or such other date as Hearing
and the Holder agree as the date for the execution and delivery of
this Debenture.
(d) "Common Shares" means fully paid and non-assessable common shares
with a par value of $.0005 per share of Hearing.
(e) "Consolidation Event" means any reduction in the number of Common
Shares resulting from an alteration by any corporate means to the
share capital of Hearing.
(f) "Consolidation Factor" means the quotient obtained when the number
of Common Shares immediately prior to a Consolidation Event is
divided by the number of Common Shares immediately after the
Consolidation Event.
(g) "Conversion Number" at any time means the quotient obtained when
the Accumulated Debt at the time is divided by the Conversion
Price at the time.
(h) "Conversion Option" means the right of the Holder hereunder to
convert the Accumulated Debt to Common Shares.
(i) Conversion Price" at any time means the price at which Hearing
will issue Common Shares pursuant to the Conversion Option,
determined in accordance with Section 4.5.
(j) "Event of Default" has the meaning ascribed to it in Section 9.1
hereof.
(k) "GSA" means a general security agreement between Hearing and the
Holder granting to the Holder a second priority security interest
in all the presently owned and after acquired property of Hearing.
(l) "Loan" or "Loan Amount" means a loan in the amount of $300,000
made by the Holder to Hearing pursuant to this Debenture.
(m) "Permitted Encumbrances" means:
(i) liens or privileges imposed by law in respect of
obligations not yet due or delinquent such as carriers'
liens, warehousemen's liens and other privileges of a
similar nature; or liens for taxes, assessments or
governmental charges or levies not at the time due or
delinquent or the validity of which is being in good faith
diligently contested in appropriate proceedings; or
undetermined or inchoate liens, privileges and charges
incidental to current operations, that have not been filed
pursuant to law or that relate to obligations not due or
delinquent;
(ii) minor encumbrances, including without limitation,
easements, rights of way, servitudes or other similar
rights in land granted to or reserved by other persons,
rights of way for sewers, electric lines, telegraph,
telephone lines, oil and gas pipelines and related
facilities and other similar purposes, or zoning or other
restrictions as to the use of real properties, which
encumbrances, easements, servitudes, rights of way, other
similar rights and restrictions do not in the aggregate
materially detract from the value of the said properties or
materially impair their use in the operation of the
business of their owner;
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(iii) the right reserved to or vested in any municipality or
governmental or other public authority by the terms of any
lease, license, franchise, grant or permit acquired by
Hearing by any statutory provision, to require annual or
other periodic payment as a condition of the continuance
thereof; and
(iv) the lien and security interest granted to Dan Purges
pursuant to the Senior Indebtedness.
(n) "Registration Statement" means a registration statement which
registers the Common Shares to be issued by Hearing pursuant to
the Conversion Option for sale under the Securities Act of 1933,
as amended.
(o) "Repayment Date" means the date that is the second anniversary of
the Closing Date.
(p) "Senior Indebtedness" means that certain Amended and Restated
Secured Term Note dated September 1, 1999 by and between Dan
Purges, as lender, and Hearing, as borrower, in the principal
amount of $1,405,952.
(q) "Warrant" has the meaning ascribed to it in Section 3.1 hereof.
1.2 Headings. The division of this Debenture into sections and the
insertion of headings are for convenience of reference only and shall
not affect the interpretation of this Debenture.
1.3 Number and Gender. Words herein importing the singular number only
shall include the plural and vice versa, and words importing the
masculine gender shall include the feminine and neuter genders and vice
versa.
1.4 Governing Law. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of laws principles thereof. Any legal action or proceeding
with respect to this Debenture against the parties hereto may be
brought in the Courts of the Supreme Court of the State of New York,
New York County or the Federal District Court for the Southern District
of New York, which Courts the parties agree to be a convenient forum
for the resolution of any such legal action or proceeding, and each of
the parties hereto hereby irrevocably submits to the jurisdiction of
said Courts.
1.5 Severability. If any one or more of the provisions contained in this
Debenture should be held to be invalid, illegal or unenforceable in any
respect in any jurisdiction, the validity, legality and enforceability
of such provision or provisions shall not in any way be affected or
impaired in any other jurisdiction and the validity, legality and
enforceability of the remaining provisions contained herein shall not
thereby in any way be affected or impaired.
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ARTICLE II
LOAN FACILITY
2.1 Loan Amount. Subject to all the terms and conditions herein, the Holder
agrees to lend the sum of $300,000 to Hearing on the Closing Date.
2.2 Method of Payment. The Loan Amount shall be made on the Closing Date by
wire transfer of funds to the bank account which Hearing designates by
written notice to the Holder.
ARTICLE III
FEES AND INTEREST
3.1 Commitment Fee. On the Closing Date, Hearing shall issue and deliver to
the Holder as a commitment fee and in consideration of the execution
and delivery of this Debenture by the Holder a warrant (the "Warrant")
entitling the Holder, upon exercise, to purchase 66,667 Common Shares
at a price of $2.25 per share (subject to adjustment), such Warrant to
be irrevocably issued and in addition to all other rights of the Holder
hereunder. The Warrant shall be substantially in the form of Exhibit A
annexed hereto.
3.2 Rates of Interest. Hearing shall pay the Holder interest on the Loan
Amount outstanding from time to time at a rate equal to 7% per annum,
payable when the Loan Amount is due and payable, whether at maturity or
by acceleration. Interest payments shall be made by separate check
payable to the order of the Holder.
3.3 Calculation of Interest. Interest shall be calculated on the Loan
Amount daily from the date of receipt of funds by Hearing on the basis
of a 365 day year both before and after default and maturity.
ARTICLE IV
REPAYMENT AND CONVERSION
4.1 Mandatory Repayment. Unless the holder has exercised the Conversion
Option, Hearing shall pay to the Holder the Accumulated Debt on the
Repayment Date.
4.2 Voluntary Prepayment. Hearing may from time to time prepay all or part
of the Accumulated Debt, without premium or penalty, upon giving not
less than ten (10) Business Days' written notice to the Holder
specifying the amount of prepayment and the date for the making
thereof; provided that the Loan Amount hereunder shall be permanently
reduced by the amount of any such prepayment.
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4.3. Place of Payment. All payments of principal, interest, fees and other
amounts payable under or by virtue of this Debenture shall be made to
the Holder by payment as directed by the Holder from time to time. All
such payments shall be in United States dollars.
4.4 Conversion. This Debenture shall be convertible at the option of the
Holder at any time after the Closing Date and up to and including the
Repayment Date if the Holder gives written notice thereof (the
"Conversion Notice") to Hearing stating that the Holder has elected to
convert all its rights under this Debenture including the Accumulated
Debt at the time of the Conversion Notice into the Conversion Number of
fully paid and non-assessable Common Shares, rounded to the nearest
one-tenth of one share. If the Holder elects to convert all its rights
under this Debenture then the Holder shall surrender this Debenture,
duly endorsed on behalf of the Holder, at the registered office of
Hearing at or after the time of delivery of the Conversion Notice.
Hearing shall issue and deliver to the Holder a certificate or
certificates for the number of Common Shares to which the Holder shall
be entitled. The conversion shall be deemed to have occurred
immediately prior to the close of business on the date of the surrender
of this Debenture to be converted (the "Conversion Date"), and the
Holder shall be treated for all purposes as the registered holder of
such Common Shares as of that date. Hearing shall cancel this Debenture
when surrendered to Hearing and shall so annotate its books and
records. Upon the issuance and delivery of the Common Shares, the
Holder shall have no more rights under this Debenture and shall be
treated for all purposes as the registered holder of Common Shares as
of that date. No fractional Common Shares shall be issued on the
conversion of this Debenture. If any fractional interest in a Common
Share would, except for the provisions of this subparagraph, be
deliverable on the conversion of this Debenture, Hearing shall, in lieu
thereof, adjust the fractional interest by payment to the Holder of an
amount in cash (computed to the nearest cent) equal to the then
Conversion Price multiplied by the fractional interest.
4.5 Conversion Price. Subject to section 4.6, the Conversion Price shall be
$2.25 per share.
4.6 Adjustments to Conversion Price. Subject to section 4.8, the Conversion
Price shall be subject to adjustment from time to time in the event of
a stock split or stock dividend of Common Shares (any of which is
referred to herein as a "Dilution Event"). Upon a Dilution Event, the
Conversion Price shall be adjusted, rounded to the nearest US$0.01, to
be equal to the Conversion Price immediately prior to the Dilution
Event, multiplied by a fraction, the numerator of which is the sum of
(y) the number of Common Shares outstanding immediately prior to the
Dilution Event, including the number of Common Shares issuable upon
exercise of all options, warrants, or rights, upon conversion of all
convertible securities or upon conversion of all securities issuable
upon exercise of all options, warrants, or rights for such convertible
securities issued in all prior Dilution Events plus (z) the number of
Common Shares that the effective price for any Common Shares issued in
respect of the Dilution Event giving rise to this adjustment would
purchase at the then Conversion Price, and the denominator of which is
the number of Common Shares outstanding immediately after the Dilution
Event, including the number of Common Shares issuable upon exercise of
all options, warrants, or rights, upon conversion of all convertible
securities, or upon conversion of all convertible securities issuable
upon exercise of all options, warrants, or rights for
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such convertible securities issued in this and all prior Dilution
Events. The effective price for any Common Shares issued in respect of
any Dilution Event shall be the sum of all cash and the fair market
value of all property other than cash, as determined by Hearing's board
of directors in good faith and absent manifest error, received or
applied to the benefit of Hearing plus, for options, warrants, and
rights, the amount equal to the exercise price multiplied by the number
of securities subject to such option, warrant, or right.
4.7 Record of Adjustments. Upon any adjustment of the Conversion Price,
Hearing shall maintain at its registered office a statement, signed by
the President and the Chief Financial Officer, showing in reasonable
detail the facts requiring the adjustment and the Conversion Price
after the adjustment.
4.8 Other Adjustments. If Hearing shall reorganize or reclassify its
capital (other than a subdivision or consolidation of its outstanding
Common Shares), consolidate or merge with or into another corporation,
or convey all or substantially all of its assets to another
corporation, this Debenture shall thereafter be convertible into the
number of shares or other securities or property to which a holder of
the number of Common Shares deliverable on conversion of this Debenture
would have been entitled on the reorganization, reclassification,
consolidation, merger, or conveyance; and in any such case, appropriate
adjustments (as determined by the Board of Directors of Hearing) shall
be made in the application of the provisions herein set forth with
respect to the rights and interests thereafter of the Holder to the end
that the provisions set forth (including provisions with respect to
changes in, and other adjustments of, the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation
to any shares or other property thereafter deliverable on conversion of
this Debenture.
4.9 Other Actions.
4.9.1 Simultaneously with the execution and delivery of this
Debenture, Hearing and the Holder shall execute and deliver an
Amendment to Warrant Expiring April 14, 2001, in the form of Exhibit B
annexed hereto.
4.9.2 Simultaneously with the execution and delivery of this
Debenture, Hearing and the Holder shall execute and deliver an
Amendment to Investment Agreement dated October 14, 1999, in the form
of Exhibit C annexed hereto.
4.10 Reservation of Shares. Hearing shall at all times reserve and keep
available, out of its authorized but unissued Common Shares solely for
the purpose of effecting conversion of this Debenture or exercise of
the Warrant, the full number of Common Shares deliverable on conversion
of this Debenture or exercise of the Warrant. Hearing shall, from time
to time, in accordance with applicable law, increase the authorized
number of Common Shares if at any time the authorized number of Common
Shares remaining unissued shall not be sufficient to permit the
conversion of this Debenture or exercise of the Warrant.
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4.11 Issue Costs. Hearing shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of Common Shares on
conversion of this Debenture or exercise of the Warrant.
ARTICLE V
SECURITY
5.1 Security. On the Closing Date Hearing shall grant to the Holder as
security for its obligations under or by virtue of this Debenture a
second priority security interest in all of Hearing's assets by
execution and delivery of the GSA, in the form of Exhibit D annexed
hereto.
5.2 Inconsistency. In case of any inconsistency between the provisions of
this Debenture and the provision of the GSA, the provisions of this
Debenture shall prevail.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions For Benefit of the Holder. The following are conditions
precedent to the obligation of the Holder to make the Loan and the
Holder shall not be obliged to make the Loan unless all of the
following conditions precedent have been satisfied or waived in writing
by the Holder as of the Closing Date:
(a) the GSA shall have been duly executed and delivered and
registrations in respect thereof shall have been filed in all
appropriate registries;
(b) the Warrant shall have been duly executed and delivered to the
Holder;
(c) the Amendment to Warrant Expiring April 14, 2001 shall have been
duly executed and delivered to the Holder;
(d) the Holder shall have received certified copies of resolutions of
the directors of Hearing approving and authorizing this Debenture
and the GSA;
(e) the representations and warranties contained in Article VII hereof
were true and correct at the time they were made and continue to
be true and correct;
(f) no breach of any of the covenants contained in Article VIII hereof
has occurred and is continuing;
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(g) no Event of Default and no event which, through the giving of
notice or lapse of time or both, would constitute an Event of
Default, has occurred and is continuing; and
(h) the making of the Loan is not contrary to any statutes,
regulations, restrictions or rules of any competent regulatory
authority having jurisdiction over the Holder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties. Hearing represents and warrants to the
Holder that:
(a) Hearing is duly incorporated and validly existing under the laws
of the State of Delaware;
(b) Hearing has all corporate power and owns all assets (including
licenses) necessary in any material respect to carry on its
business;
(c) the financial statements of Hearing for the year ended December
31, 1999 and the quarterly financial statements of Hearing to and
including June 30, 2000 fairly reflected the financial condition
of Hearing as of the date of such statements and there has been no
material adverse change in the financial condition of Hearing
since June 30, 2000;
(d) there are no facts that materially adversely affect, or so far as
Hearing can reasonably foresee would materially adversely affect,
the properties, assets, conditions (financial or otherwise),
business or operations of Hearing;
(e) Hearing is not in breach of or in default under any applicable
law, statute or regulation of any jurisdiction where it carries on
business or any agreement or instrument to which it is a party
which in any way would materially adversely affect the ability of
Hearing to meet its obligations under this Debenture or the GSA;
(f) there are no actions or proceedings pending (including appeals or
applications for review), or to the best knowledge of Hearing
threatened, before any court, arbitrator, administrative agency,
referee or governmental body which, if determined against Hearing,
would result in a change occurring in the properties, assets,
conditions (financial or otherwise) business or operations of
Hearing which would materially adversely affect the ability of
Hearing to meet its obligations under this Debenture or the GSA or
to carry on its business;
(g) Hearing has the corporate power and authority to enter into this
Debenture and the GSA and to perform its obligations hereunder and
thereunder;
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(h) each of this Debenture and the GSA has been duly authorized,
executed and delivered by Hearing and is a valid and legally
binding obligation of Hearing enforceable against it in accordance
with their respective terms;
(i) neither the execution and delivery of this Debenture or the
GSA nor performance in accordance therewith is or will
constitute a breach or a default under:
(i) any law, statute or regulation of any jurisdiction where
Hearing is carrying on business;
(ii) the charter documents of Hearing; or
(iii) any agreement or instrument to which Hearing is a party
which breach or default would materially adversely affect
(x) the ability of Hearing to carry on business, (y) the
legality, validity or enforceability of this Debenture or
the GSA or (z) the ability of Hearing to perform its
respective obligations under this Debenture or the GSA;
(j) Hearing has good and marketable title to all its properties and
assets free and clear of all liens, charges and encumbrances other
than Permitted Encumbrances;
(k) Hearing has paid on a timely basis with the appropriate
authorities all federal, state and local taxes and any other
amounts due to federal, state and local governmental authorities
that are capable of forming a lien, charge or encumbrance in favor
of such authorities against any of the assets of Hearing; and
(l) all necessary consents, approvals and waivers have been obtained
to permit Hearing to enter into this Debenture and the GSA.
7.2 Nature of Representations and Warranties. The representations and
warranties set out in this Article VII shall survive the execution and
delivery of this Debenture and the GSA notwithstanding any
investigations or examinations made by the Holder or its counsel, and
the Holder shall be deemed to have relied on such representations and
warranties when making the Loan.
ARTICLE VIII
COVENANTS OF HEARING
8.1 Affirmative Covenants. Hearing covenants and agrees to and with the
Holder that so long as the Accumulated Debt or any portion thereof is
outstanding:
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(a) Hearing will observe and perform all of the covenants, agreements,
terms and conditions to be respectively observed and performed by
Hearing in this Debenture and the GSA;
(b) the Holder will be provided with:
(i) the unaudited financial statements of Hearing for each
fiscal quarter end prepared in accordance with generally
accepted accounting principles ("GAAP") applied
consistently, within forty five (45) days of each fiscal
quarter end (not including the fiscal year end);
(ii) the unaudited financial statements of Hearing for each
fiscal year end prepared in accordance with GAAP applied
consistently, within ninety (90) days of each fiscal year
end of Hearing;
(iii) such other financial and other information relating to
Hearing as the Holder may reasonably request.
(c) Hearing will carry on and conduct its business in a proper and
efficient manner, will keep all of its assets in a good state of
repair and in proper working condition, and will keep or cause to
be kept accurate books and records;
(d) Hearing will from time to time pay all rents, taxes, rates, levies
or assessments, ordinary or extraordinary, and government fees or
dues levied, assessed or imposed upon Hearing or its assets
capable of forming a lien, charge or encumbrance on any of the
assets of Hearing, as and when the same become due and payable
unless their validity is disputed in good faith by Hearing and the
Holder is provided security acceptable to it, acting reasonably,
for the payment of same;
(e) Hearing will maintain its corporate existence and all
registrations in jurisdictions in which it is carrying on
business;
(f) Hearing will maintain all licenses and permits required to carry
on its business and will not transfer, surrender or otherwise
dispose of any such licenses or permits;
(g) Hearing will comply with all laws, regulations, rules and orders,
the non-compliance with which could have a material adverse effect
on its business or condition (financial or otherwise);
(h) Hearing will forthwith on becoming aware of same, provide the
Holder with notice of the occurrence of any Event of Default or
any event which, through the giving of notice or lapse of time or
both, would constitute an Event of Default;
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(i) Hearing will cause all the property and assets of Hearing which
are of a character usually insured by companies operating like
businesses to be insured and kept insured in such amounts as the
Holder may reasonably require against loss or damage from any
cause which is customarily insured against by companies carrying
on like businesses with insurers approved by the Holder, with the
Holder as a loss payee as its interest may appear, and will pay
all premiums necessary for such purpose as the same shall become
due and shall provide particulars of all such policies and all
renewals thereof to the Holder, all such policies or contracts to
be on terms reasonably satisfactory to the Holder;
(j) Hearing will maintain public liability insurance in such amounts
as the Holder may reasonably require with insurers approved by the
Holder, acting reasonably, and will pay all premiums necessary for
such purpose as the same shall become due and shall provide
particulars of all such policies and all renewals thereof to the
Holder, all such policies or contracts to be on terms reasonably
satisfactory to the Holder.
8.2 Negative Covenants. Hearing covenants and agrees to and with the Holder
that, unless the Holder consents in writing, so long as the Accumulated
Debt or any portion thereof is outstanding:
(a) Hearing will not grant, create, assume or permit to exist any
mortgage, pledge, assignment, lien, charge, encumbrance or other
security interest, whether fixed or floating, upon any of the
assets of Hearing other than Permitted Encumbrances and the Senior
Indebtedness;
(b) Hearing will not make any loans or advances to, whether secured or
unsecured, or guarantee or otherwise become contingently liable
for any obligations of any person, firm or corporation without the
Holder's prior written consent, which consent may be withheld for
any reason;
(c) Hearing will not in any fiscal year, except in the ordinary course
of business, sell or otherwise dispose of any of its assets having
in the aggregate a value exceeding $250,000 unless the proceeds
therefrom are paid to the Holder on account of the Loan Amount;
(d) Hearing will not merge, consolidate, reorganize or become a party
to any other transaction whereby all or substantially all of its
assets become the property of any other person, firm or
corporation or, in the case of a merger, of the surviving
corporation resulting from the merger;
(e) Hearing will not change its fiscal year end; and
(f) Hearing will not pay salaries, management fees or bonuses except
in accordance with existing contracts or usual industry practices.
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ARTICLE IX
DEFAULT
9.1 Events of Default. The occurrence of any one or more the following
events (each such event being herein called an "Event of Default")
shall constitute a default under this Debenture:
(a) if Hearing fails to make any payment to the Holder due under this
Debenture or the GSA, whether for principal, interest, fees or
otherwise, for more than ten (10) Business Days after its due
date;
(b) if Hearing defaults in the performance or observance of any
provision contained in this Debenture or the GSA on its part to be
performed or observed (other than making a payment referred to in
clause (a) above) and such default continues for more than thirty
(30) days after the Holder has given Hearing written notice of the
default;
(c) the Holder, acting reasonably, is not satisfied on the basis of
the financial statements furnished pursuant to Section 8.1(b) with
the financial condition of Hearing;
(d) if proceedings are commenced for the dissolution, liquidation or
winding up of Hearing, unless such proceedings are being actively
and diligently contested in good faith by Hearing;
(e) if a default under any indenture or instrument evidencing
indebtedness for borrowed money of Hearing shall occur and any
such indebtedness shall have been lawfully accelerated or shall
lawfully be or become due and payable prior to the date on which
the same would otherwise have become due and payable;
(f) if Hearing is adjudged or declared bankrupt or becomes insolvent
or makes an assignment for the benefit of creditors, or admits in
writing its inability to satisfy its debts generally as they
become due, or petitions or applies to any tribunal for the
appointment of a receiver or trustee for it or for any substantial
part of its property, or commences any proceedings relating to it
under any reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction
whether now or hereafter in effect, or by any act indicates its
consent to, approval of, or acquiescence in, any such proceeding
for it or for any substantial part of its property;
(g) if a receiver, receiver and manager, receiver-manager, custodian,
liquidator or trustee (or any person with like powers) shall be
appointed for all or any substantial part of the property of
Hearing, provided that such appointment shall not constitute an
Event of Default if and for so long as:
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(i) Hearing obtains within two (2) Business Days of such
appointment an order of a court of competent jurisdiction
staying such appointment and such order (or a replacement
thereof to similar effect) remains in full force and
effect; or
(ii) Hearing disputes and continues to dispute such appointment
and provides or causes to be provided to the Holder, such
security as the Holder, acting reasonably, shall require
for payment of such sum as may be necessary to discharge
such appointment, and for the purposes hereof it is agreed
that the Holder, in determining whether any proposed
security is sufficient, may assume the validity of any such
appointment and of the powers purported to be granted to
the person so appointed;
(h) if any representation or warranty made in this Debenture by
Hearing or any information furnished in writing to the Holder by
Hearing before or after the date hereof proves to have been
incorrect in any material adverse respect when made or furnished;
(i) if a writ, execution or attachment or similar process is issued or
levied against all or a substantial portion of the property of
Hearing in connection with any judgment against Hearing, as the
case may be, in any amount which materially affects the assets of
Hearing, as the case may be, and such writ, execution, attachment
or similar process is not released, bonded, satisfied, discharged,
vacated or stayed or unless being actively and diligently
contested by Hearing, in good faith within sixty (60) days after
its entry, commencement or levy;
(j) if an encumbrancer or lienor takes possession of any substantial
part of the properties or assets of Hearing, unless Hearing
disputes and continues to dispute such possession in good faith
and provides to the Holder, such security for the payment of such
encumbrance or lien as the Holder shall reasonably require;
(k) if an order is made or legislation enacted by any competent body
having authority for the expropriation, confiscation, forfeiture,
escheating, other taking or compulsory divestiture, whether or not
with compensation, of all or a significant portion of the assets
of Hearing and such order or legislation remains in effect and has
not been stayed by a court of competent jurisdiction for a period
of more than thirty (30) days from the date of pronouncement of
the order or enactment of the legislation, as the case may be;
(l) if there has been a material adverse change in the businesses,
operations, assets, financial or other condition of Hearing, since
the date hereof;
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(m) if judgment in excess of $50,000 is granted against Hearing in
respect of which Hearing does not have insurance coverage and the
same remains undischarged or unsatisfied after the time for appeal
therefrom has expired without Hearing having appealed the judgment
and obtaining a stay of execution of the judgment, provided that
such judgment shall not constitute an Event of Default if Hearing
provides or causes to be provided to the Holder such security as
the Holder, acting reasonably, shall require for the payment of
such judgment; or
(n) if Hearing declares a dividend on any class of shares other than
as required on its issued and outstanding Series "A" Convertible
Preferred Shares.
9.2 Termination and Acceleration. Upon the occurrence of an Event of
Default and for so long as such Event of Default shall continue, the
Holder may, by notice to Hearing, do any or all of the following:
(a) declare the entire principal amount of the Loan, all interest
accrued thereon and all fees and other amounts required to be paid
by Hearing hereunder, to be immediately due and payable without
the necessity of further notice or demand for payment, presentment
for payment, protest, notice of dishonor or any other notice
whatsoever (all of which are hereby expressly waived) and proceed
to exercise any and all rights under this Debenture and the GSA;
or
(b) request from Hearing such additional financial, marketing, sales
or other information (referred to herein as "Financial
Information") as the Holder may reasonably request to permit the
Holder to determine whether to waive the Event of Default. The
Holder will keep confidential all Financial Information disclosed
to it by Hearing hereunder and not copy, disclose or make any use
of, Financial Information.
9.3 Remedies Cumulative and Waivers. It is expressly understood and agreed
that the respective rights and remedies of the Holder under this
Debenture and the GSA are cumulative and are in addition to and not in
substitution for any rights or remedies provided by law or by equity;
and any single or partial exercise by the Holder of any right of remedy
for a default or breach of any term, covenant, condition or agreement
contained in this Debenture or the GSA shall not be deemed to be a
waiver of or to alter, affect or prejudice any other right or remedy or
other rights or remedies to which the Holder may be lawfully entitled
for such default or breach. Any waiver by the Holder of the strict
observance, performance or compliance with any term, covenant,
condition or agreement herein contained or contained in the GSA and any
indulgence granted either expressly or by course of conduct, by the
Holder shall be effective only in the specific instance and for the
purpose for which it was given and shall be deemed not to be a waiver
of any rights and remedies of the Holder under this Debenture or the
GSA.
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ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Costs and Expenses. Hearing shall pay promptly all costs and expenses
incurred by the Holder in connection with the preparation, execution,
delivery and registration of this Debenture and the GSA, and in
connection with arranging the establishment of the loan hereby
established and reasonable out-of-pocket expenses of the Holder's
counsel with respect thereto and with respect to advising the Holder as
to its rights and responsibilities under this Debenture and the GSA.
Except for ordinary expenses of the Holder relating to the day-to-day
administration of this Debenture and not involving the preparation or
review of any waiver, consent or amendment, Hearing further agrees to
pay all reasonable costs and expenses incurred by the Holder (including
reasonable fees and expenses of counsel, accountants and other
experts), in connection with the preservation or enforcement of rights
of the Holder under this Debenture and the GSA including, without
limitation, all reasonable costs and expenses sustained by the Holder
as a result of any failure by Hearing to perform or observe its
obligations contained in this Debenture and the GSA.
Any notice, demand or other communication to be made in respect of
this Debenture may be made or given by personal delivery, registered
mail or facsimile transmission to the parties as follows:
(a) if to Hearing:
Hearing Innovations Incorporated
9040 S. Rita Road
Suite 2250
Tucson, Arizona 85747
Attention: President
Fax No.: (520) 663-0018
(b) if to the Holder:
Misonix, Inc.
1938 New Highway
Farmingdale, New York 11735
Attention: President
Fax No.: (631) 694-9412
or at such other addresses or facsimile numbers as may be designated by
written notice given by the other party from time to time.
10.3 Successors and Assigns. This Debenture shall become effective when it
shall have been executed by the parties hereto and thereafter shall be
binding upon and enure to the benefit of Hearing and the Holder and
their respective successors and permitted assigns. Hearing shall not
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have the right to assign its rights hereunder or any interest herein.
Subject to all applicable securities laws, the Holder from time to time
(y) may grant a participation in all or any part of the Loan to any
third party (a "Participant"), after notice to but without any
requirement of consent by Hearing, and (z) with the prior written
consent of Hearing (which consent shall not be unreasonably withheld),
may assign all or any part of its rights and obligations under this
Debenture to any third party (an "Assignee"). The Holder may give any
Participant or Assignee copies of financial statements and other
reports and all other information furnished to it by or on behalf of
Hearing for the purposes of this Debenture. Without limitation of its
obligations hereunder, Hearing shall, at its sole cost and expense,
give such certificates, acknowledgments and further assurances in
respect of this Debenture and the Loan as the Holder may require in
connection with any participation or assignment pursuant to this
Section. The Holder shall act on behalf of all its Participants and
Assignees in all dealings with Hearing in respect of the Loan, until
such time as an Event of Default occurs as a result of Hearing's
failure to pay any amount on account of principal or interest owing
under or by virtue of this Debenture. Save as aforesaid, any
Participant or Assignee shall be entitled to the full benefit of this
Debenture and the GSA to the same extent as if it were an original
party in respect of the rights and obligations granted or assigned to
it.
10.4 Entire Agreement. This Debenture constitutes the entire agreement
between the parties hereto and cancels and supersedes any prior
agreements, undertakings, declarations, commitments and
representations, written or oral, in respect thereof.
10.5 Amendments. Any provision of this Debenture or the GSA may be amended
only if Hearing and the Holder so agree in writing.
10.6 Further Assurances. Hearing agrees that it will, at the request of the
Holder, do all such further acts and execute and deliver all such
further assurances and documents as may be reasonably required by the
Holder to carry out the intent of this Debenture.
IN WITNESS WHEREOF this Debenture has been duly executed as of the date
first above written.
HEARING INNOVATIONS INCORPORATED
By: /s/ Arthur Przbyl
-------------------------------
Arthur Przbyl, President
MISONIX, INC.
By: /s/ Michael A. McManns, Jr.
-------------------------------
Michael A. McManns, Jr.
President and CEO
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