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.
AMENDED AND RESTATED SUPPLY
AGREEMENT
This Agreement is
made effective on December___30___, 2006 (“Effective
Date”), among:
Siemens
Hearing Instruments, Inc. , a Delaware corporation, with an
address at 10 Constitution Avenue, Piscataway, New Jersey, 08855
(“SHI”); and
certain
subsidiaries and affiliates of Siemens Aktiengesellschaft ,
a corporation under the laws of the Federal Republic of Germany
(collectively, the “Siemens Affiliates”);
and
HearUSA,
Inc. , a Delaware corporation, with an address at 1250
Northpoint Parkway, West Palm Beach, Florida, 33407
(“HearUSA”).
WHEREAS, HearUSA
is a retail buyer of hearing aids in the United States and also
services hearing healthcare programs sponsored by HMOs and
insurance companies; and
WHEREAS, SHI is a
manufacturer of hearing aids and sells such hearing aids to retail
resellers, including HearUSA, for resale to consumers;
and
WHEREAS, HearUSA
and SHI have 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 SHI in
order that HearUSA may efficiently and economically distribute such
Products through its current and future retail outlets
(“Facilities”); and
WHEREAS, SHI has
offered to sell and HearUSA has agreed to purchase the Products,
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,
SHI has agreed to sell and HearUSA 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 HearUSA 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 HearUSA, such Siemens Affiliate shall execute and
deliver a counterpart, substantially in the form of Exhibit B,
to SHI and HearUSA. 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 SHI and
HearUSA, to add or delete Products. In addition, it is specifically
understood that HearUSA is purchasing the Products for the purpose
of resale in all of HearUSA’s Facilities,
including,
AMENDED AND RESTATED SUPPLY
AGREEMENT, December 2006
without
limitation, any new Facilities which may be or are owned, operated,
affiliated with or managed by HearUSA.
2. Term. The
term of this Agreement begins on the Effective Date and ends on 10
February 2013 (“Term”).
3. Terms and
Conditions of Sale. HearUSA will submit its orders for Products
either on the forms provided by SHI for that purpose or via a
website provided by SHI. Net payment is due no later than seventy
five (75) days after the statement date.
4. Ordering
Process and Pricing.
4.1.
HearUSA understands that SHI has offered special terms and pricing
to HearUSA as consideration for the purchase compliance levels
committed to by HearUSA, and that SHI is willing to continue to
provide Products to HearUSA in a manner consistent with the
relationship enjoyed to date by SHI and HearUSA. Subject to
Section 3 hereof, HearUSA agrees to purchase, in each Fiscal
Quarter (which, for the purposes of this calculation, shall be each
of the three month periods of the Term ending on the last Saturday
of the months of March, June, September and December), at least
ninety percent (90%) of HearUSA’s quarterly purchases of
hearing aid products in the United States (each individual hearing
aid product purchased by HearUSA from any vendor is hereinafter
called a “Unit”); provided however, that:
(i) if
HearUSA has purchased from SHI, during any four (4) consecutive
Fiscal Quarters, ninety percent (90%) or more of all Units
purchased by HearUSA in the United States, net of returns
(“Minimum Purchase Requirement”), then HearUSA shall be
deemed to have complied with the purchase requirements of this
Agreement; and
(ii) subject to Section 11(a) of this
Agreement, HearUSA shall be in default under this Agreement
(including other events of default or material breaches under this
Agreement) if HearUSA fails to meet the Minimum Purchase
Requirement during any four (4) consecutive Fiscal Quarters
(whether or not coinciding with a calendar year), and if
HearUSA does not achieve the Minimum Purchase Requirement in the
immediately following Fiscal Quarter (“Purchase Requirement
Cure Period”).
New
acquisitions completed by HearUSA after the Closing Date will be
included under the Minimum Purchase Requirement starting on the
six-month anniversary of the last calendar day of the month of such
acquisition.
4.2.
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”
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.
2
AMENDED AND RESTATED SUPPLY
AGREEMENT, December 2006
4.3.
In exchange for HearUSA’s commitment to comply with the
Minimum Purchase Requirement, SHI has offered to sell the Products
to HearUSA at the Net Prices set forth on Exhibit A. During
the term of this Agreement, upon written notice to HearUSA not
later than sixty (60) days prior to the effective date
thereof, SHI may adjust the list prices for the Products, such
adjustment to take effect on the date set forth on such notice. SHI
may not change the list prices for the Products more often than
[*****] in any calendar year of the Term. SHI’s list
prices charged to HearUSA shall not increase more than
[*****] percent ( [****] %) above the then-current
prices at the time of such change and in any case will not exceed
the maximum percentage of then-current price increases made by SHI
to its other customers unless HearUSA fails to meet its Minimum
Purchase Requirements set forth in Section 4, at which time
the parties shall meet to discuss the adjustments which need to be
made should HearUSA continue not to meet the Minimum Purchase
Requirement.
4.4.
If HearUSA (or, as applicable, its assignee or other successor of
HearUSA’s obligations under Section 16(a) of this Agreement)
defaults in its obligation to meet the Minimum Purchase
Requirement, and such default is not cured during the Purchase
Requirement Cure Period, then SHI, in its sole discretion, shall
have the right to take any or all of the following actions
hereunder for so long as such default is continuing:
(i) adjust
prices or terms and conditions of sale with respect to the
provision of Products;
(ii) as
liquidated damages, and not as a penalty, receive prompt
reimbursement from HearUSA of one hundred percent (100%) of the
full difference between the special pricing offered in connection
with this Agreement and the then-current listed single unit prices
for the Products for each defaulting Fiscal Quarter. If, however,
there has been a Change of Control (as defined in the Credit
Agreement) during or before any defaulting Fiscal Quarter then the
parties agree that SHI will incur additional costs and expenses in
due diligence and related activities, and the liquidated damages
reimbursement in such case will be one hundred twenty percent
(120%);
(iii) obtain equitable relief (without the
necessity of posting a bond or similar financial obligation)
compelling HearUSA (including, as applicable under Section 16(a) or
otherwise, any of HearUSA’s affiliates, successors, and
assigns) to refrain from purchasing hearing aids from any vendor
other than SHI during the Term;
(iv) obtain equitable relief (without the
necessity of posting a bond or similar financial obligation)
compelling HearUSA (including, as applicable under Section 16(a) or
otherwise, any of HearUSA’s affiliates, successors, and
assigns) to purchase all its requirements for hearing aids from SHI
during the Term; or
(v) terminate this Agreement in accordance
with Section 11 hereof.
The remedies
enumerated above in subsections (i) through (v) of
Section 4.4 are nonexclusive and do not preclude SHI from
exercising any or all other remedies available to it at law or
equity. If HearUSA is not making best efforts to cure its
default(s), then SHI may in its discretion implement
Sections 4.4(iii) and/or (iv), above, at any time after a
defaulting Fiscal Quarter and regardless of any Purchase
Requirement Cure Period.
4.5.
(a) If HearUSA meets its Minimum Purchase Requirement, or
cures any failure during the Purchase Requirement Cure Period, then
HearUSA may liquidate certain loans
3
AMENDED AND RESTATED SUPPLY
AGREEMENT, December 2006
made by SHI to
HearUSA pursuant to the Second Amended and Restated Credit
Agreement dated as of December_30___, 2006 between SHI and HearUSA
(the “Credit Agreement”).
(b) If
the loans under the Credit Agreement are fully repaid by HearUSA
before the Maturity Date (as defined in the Credit Agreement), then
SHI shall credit to HearUSA hereunder substantially equivalent
rebates in cash of $2,920,000 in each calendar year of the Term
provided that HearUSA meets the Minimum Purchase
Requirement, or cures any failure during the Purchase Requirement
Cure Period, for all Fiscal Quarters of such calendar
year.
4.6.
(a) Within thirty (30) days after the end of each Fiscal
Quarter, HearUSA shall report to SHI the absolute number of Units
in such Fiscal Quarter so that HearUSA’s compliance with the
Minimum Purchase Requirement can be calculated for that Fiscal
Quarter.
(i) has
complied with the Minimum Purchase Requirement as of the end of a
Fiscal Quarter, or cures any failure during the Purchase
Requirement Cure Period, and
(ii) in
such Fiscal Quarter HearUSA has equaled or exceeded the cumulative
average of Units purchased from SHI in each comparable past Fiscal
Quarter of the Term (except that for each Fiscal Quarter in 2007,
HearUSA need only equal or exceed the number of Units purchased in
the comparable 2006 Fiscal Quarter) ((i) and (ii) together
called the “Quarterly Volume Test”),
then Siemens
shall provide additional rebates of $312,500 for each such Fiscal
Quarter (subject to Section 4.6(e), below).
(c) If
HearUSA does not meet the Quarterly Volume Test for any Fiscal
Quarter, then:
(i) if
HearUSA achieves at least 90% of the Quarterly Volume Test for such
Fiscal Quarter, HearUSA shall be entitled to fifty percent (50%) or
$156,250 of the rebate associated with such Fiscal Quarter (subject
to Section 4.6(e), below); or
(ii) if
HearUSA does not achieve at least 90% of the Quarterly Volume Test
for such Fiscal Quarter, HearUSA shall not be entitled to any
rebate associated with such Fiscal Quarter other than rebates
described in Section 4.5(b) of this Agreement.
(d) If
HearUSA exceeds by twenty-five percent (25%) or more the Quarterly
Volume Test for any Fiscal Quarter, then HearUSA shall be entitled
to an additional rebate of $156,250 for such Fiscal Quarter
(subject to Section 4.6(e), below).
(e) Notwithstanding
anything else in this Agreement, however:
(i) the
sum of all rebates provided to HearUSA under this Supply Agreement
shall not exceed $4,795,000 in any calendar year of the Term;
and
4
AMENDED AND RESTATED SUPPLY
AGREEMENT, December 2006
(ii) so
long as there is any balance outstanding under the Credit
Agreement, SHI shall provide all rebates under this Supply
Agreement solely as a credit against HearUSA’s repayments of
the Loans under the Credit Agreement; otherwise, all rebates under
this Supply Agreement shall be provided in cash.
5. Product
Representations. SHI 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 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) SHI 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 SHI’s
directions for use, shall not, to the knowledge of SHI, infringe
any intellectual property rights of any third parties.
6. Covenants
of SHI. SHI covenants and agrees as follows with respect to the
Products:
(a) SHI 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) SHI shall
use commercially reasonable efforts to have the Products listed on
the “pick lists” maintained by each of the Canadian
provinces.
(c) SHI shall
use commercially reasonable efforts to: (i) fill
HearUSA’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 HearUSA, in each case
consistent with past practices of HearUSA and SHI.
(d) SHI 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 SHI from conducting its
business in accordance with the policies and procedures established
from time to time by SHI’s Board of Directors or with the
overall policies and procedures of Siemens
Aktiengesellschaft.
7. Indemnification
by SHI.
(a) Subject
to the provisions of subsection 7(b) below, SHI agrees to
indemnify, defend and hold harmless HearUSA, its affiliates and
their respective employees, agents and
5
AMENDED AND RESTATED SUPPLY
AGREEMENT, December 2006
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 SHI, 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
HearUSA or any of its affiliates, agents or representatives,
(ii) any act of HearUSA or any of its affiliates, agents or
representatives done jointly with any party other than SHI, or
(iii) any claim arising as a result of any unauthorized
alteration, modification or change to the Product by any party
other than SHI.
8. Indemnification
by HearUSA.
(a) Subject
to the provisions of subsection 8(b) below, HearUSA agrees to
indemnify, defend and hold harmless SHI, 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 HearUSA relative to the marketing, distribution and sale of
Products.
(b) The
foregoing indemnity shall not be effective nor shall it be
enforceable to the extent that any such claim, loss, damage or
liability is based upon: (i) any act of SHI or any of its
affiliates, agents or representatives, (ii) any act of SHI or
any of its affiliates, agents or representatives done jointly with
any party other than HearUSA, or (iii) any claim arising as a
result of any unauthorized alteration, modification or change to
the Product by any party other than HearUSA, 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
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