A Medical Device Daily

HearUSA (West Palm Beach, Florida) has completed a transaction with the holders of the company's 2003 subordinated convertible notes. The participating holders converted $5.4 million of the outstanding principal of the notes into shares of the company's common stock at $1.75 per share in accordance with the original agreement as contemplated by the notes.

The company made cash payments to the participating holders of notes for the remaining principal balance of $409,000, canceling such notes. One of the 2003 investors did not participate in the transaction. The company paid that investor $375,000 of principal, leaving about $42,000 in principal unpaid. As part of the transaction, the company adjusted the exercise price of the outstanding warrants held by the investors and the participating investors exercised all of those warrants for cash. The company issued 2.5 million warrant shares to those warrant holders and received about $1.7 million in cash.

The company will no longer be required to make quarterly principal payments in the amount of $625,000 plus interest to the 2003 note holders. It will have one final principal payment to the non-participating investor of about $42,000 in June 2007.

After making the various aforementioned payments, the company will receive net cash of about $1 million.

The conversion of 14 of the 15 units and the exercise of the warrants combined with the cash pay down will eliminate most of the non-cash debt discount amortization charges and the cash interest expense related to the financing in future periods, the company said. These expenses for 2006 totaled about $2.6 million, or 8 cents per common share. As a result of the transaction, the company will take a one-time final non-cash charge of about $2.4 million in 2Q07 resulting from the acceleration in the amortization of the debt discount related to the convertible notes for this transaction and the reduction in the price of the warrants to the investors, which accounted for about $1.4 million of the one-time charge.

"We are very pleased with this agreement as we believe it is a win-win situation for stockholders and the note holders alike," said Stephen Hansbrough, president/CEO of HearUSA. "Specifically, this deal is immediately accretive to the company as it eliminates the quarterly interest expense and non-cash charges related to the notes and brings in additional capital."

HearUSA provides hearing care to patients primarily through its company owned hearing care centers, which offer a complete range of hearing aids, with an emphasis on the latest digital technology. HearUSA Centers are located in California, Florida, New York, New Jersey, Massachusetts, Ohio, Michigan, and Missouri and the province of Ontario.

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