William Demant Selected as Stalking Horse Bidder for HearUSA

May 2011

Editor: HearUSA is declaring bankruptcy and has selected Oticon's parent as its preferred purchaser. Here's the press release.

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William Demant, Smorem, Denmark-the parent group of Oticon, Bernafon, Interacoustics, Maico, and GSI-announced yesterday that it has entered into an Asset Purchase Agreement as "stalking horse bidder" for the assets of bankrupt hearing aid distributor HearUSA Inc with the possibility of acquiring HearUSA's assets and selected liabilities. A stalking horse is a bidder chosen by a bankrupt company from a pool of potential bidders to make the first bid for its assets.

Due to liquidity constraints in HearUSA, the transaction is being facilitated with court assistance under Chapter 11 by the United States Bankruptcy Court Southern District of Florida. In order to accelerate the court process, and thus the sale of its assets, HearUSA has selected William Demant as stalking horse bidder under Section 363 of the United States Bankruptcy Code. The Asset Purchase Agreement defines a lower limit for the subsequent auction process over HearUSA's business assets at $80 million, which includes $10 million debtor-in-possession financing plus certain assumed liabilities.

According to William Demant, the transaction is subject to a competitive bidding process under Section 363, which could lead to a situation where WDH's offer is not considered the highest and best possible bid for the creditors of HearUSA. In such case, William Demant will not be the acquirer of HearUSA. The related legal proceedings are expected to be completed in about 8 weeks with closing of the transaction shortly after bankruptcy court approval.

With a US hearing aid market share of about 2%, HearUSA (NYSE: EAR) has 134 retail centers in Florida, New York, New Jersey and Michigan, as well as the northeastern United States. In 2010, it reported revenues of $83.5 million and an operating loss of $2.6 million.

William Demant says the purpose of the potential transaction is to expand the distribution platform for Bernafon's state-of-the-art hearing instruments, thereby strengthening Bernafon's market position in the United States.

Due to HearUSA's status as a listed company, and because an auction process will soon be initiated, William Demant's communication about HearUSA and the potential asset purchase will be limited until the outcome of the auction is announced, according to William Demant.

HearUSA to operate business as usual; CEO Hansbrough resigns. Stephen J. Hansbrough has resigned as chairman and CEO of HearUSA, and has been replaced by interim CEO Gino Chouinard, who is also president and COO.

"After exploring a range of possible alternatives to meet our liquidity needs to operate our business, management and the Board of Directors of HearUSA concluded that a court-supervised sale of our assets is in the best interest of the company and its stakeholders," said Chouinard in a press statement. "We are committed to continuing our business operations with minimal impact throughout the process and will continue to serve our customers with the high standard of care they have come to expect from us."

According to the company, to ensure that day-to-day operations continue as usual, HearUSA has filed "first day" motions seeking assurances from the court that employees will continue to receive their usual pay and benefits on an uninterrupted basis, that the company can honor its agreements, and that customers will continue receiving goods and services as they normally would. HearUSA said that, as part of the chapter 11 process, it will seek to obtain the "highest and best" offer for its assets, holding a court-supervised competitive auction for its assets with William Demant's stalking horse bid as the floor, and seek court approval to close a final transaction. The company said it expects to close within a matter of months.

The press statement said that customers, vendors, suppliers and others seeking more information about HearUSA's court process may contact HearUSA at 1.888.369.8915 or hearusainfo@alixpartners.com. The company has retained Sonenshine Partners and Berger Singerman, subject to bankruptcy court approval, as its advisors in the bankruptcy and sale process. Interested parties may contact Jennifer Dore Russo of Sonenshine Partners at 1.212.994.3334 concerning the court-supervised competitive auction.