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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GZP1bSFXOR2NnRWs09SKm4sJKlsCc25+sJ9fDDRavrJCSNe60uPEElumftBoogc5 62+KhnnJZYODWBM8C48/Zg== 0000950123-10-078144.txt : 20100816 0000950123-10-078144.hdr.sgml : 20100816 20100816172924 ACCESSION NUMBER: 0000950123-10-078144 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20100630 FILED AS OF DATE: 20100816 DATE AS OF CHANGE: 20100816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOLASE TECHNOLOGY INC CENTRAL INDEX KEY: 0000811240 STANDARD INDUSTRIAL CLASSIFICATION: DENTAL EQUIPMENT & SUPPLIES [3843] IRS NUMBER: 870442441 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19627 FILM NUMBER: 101021195 BUSINESS ADDRESS: STREET 1: 4 CROMWELL CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 949-361-1200 MAIL ADDRESS: STREET 1: 4 CROMWELL CITY: IRVINE STATE: CA ZIP: 92618 FORMER COMPANY: FORMER CONFORMED NAME: LASER MEDICAL TECHNOLOGY INC DATE OF NAME CHANGE: 19941117 FORMER COMPANY: FORMER CONFORMED NAME: LASER ENDO TECHNIC CORP DATE OF NAME CHANGE: 19920708 FORMER COMPANY: FORMER CONFORMED NAME: PAMPLONA CAPITAL CORP DATE OF NAME CHANGE: 19911104 10-Q 1 c05030e10vq.htm FORM 10-Q Form 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 June 30, 2010


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 000-19627

BIOLASE TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		87-0442441
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4 Cromwell
Irvine, California 92618
(Address of principal executive offices, including zip code)

(949) 361-1200
(Registrant’s telephone number, including area code)

Indicate by check mark 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller Reporting Company þ
		(Do not check if a smaller reporting company)

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

Number of shares outstanding of the registrant’s common stock, $0.001 par value, as of August 12, 2010: 24,427,852

BIOLASE TECHNOLOGY, INC.

INDEX


	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		3

Consolidated Statements of Operations for the three and six months ended June 30, 2010 and June 30, 2009		4

Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and June 30, 2009		5

Notes to Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures About Market Risk		30

Item 4. Controls and Procedures		30

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		31

Item 1A. Risk Factors		31

Item 4. Submission of Matters to a Vote of Security Holders		31

Item 6. Exhibits		33

Signature		34

Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 31.1
Exhibit 32.1

BIOLASE^®, ZipTip^®, ezlase^®, eztips^®, MD Flow^®, Comfortpulse^®, Waterlase^® and Waterlase MD^®, are registered trademarks of Biolase Technology, Inc., and Diolase^™, Comfort Jet^™, HydroPhotonics^™, LaserPal^™, MD Gold^™, WCLI^™, World Clinical Laser Institute^™, Waterlase MD Turbo^™, HydroBeam^™, SensaTouch^™ , Occulase^™ , C100^™ , Diolase 10^™, Body Contour^™ , Radial Firing Perio Tips^™, Deep Pocket Therapy with New Attachment^™ and iLase^™ are trademarks of BIOLASE Technology, Inc. All other product and company names are registered trademarks or trademarks of their respective owners.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIOLASE TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except per share data)


	June 30, 2010			December 31, 2009

ASSETS
Current assets:
Cash and cash equivalents	$	2,895		$	2,975
Accounts receivable, less allowance of $443 and $421 in 2010 and 2009, respectively		1,675			4,229
Inventory, net		9,284			7,861
Prepaid expenses and other current assets		1,181			1,347
Assets held for sale		531			—

Total current assets		15,566			16,412
Property, plant and equipment, net		1,185			2,180
Intangible assets, net		407			472
Goodwill		2,926			2,926
Deferred tax asset		25			17
Other assets		170			170

Total assets	$	20,279		$	22,177


LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)
Current liabilities:
Term loan payable, current portion	$	644		$	—
Accounts payable		4,491			4,887
Accrued liabilities		4,621			5,152
Customer deposits		6,326			—
Deferred revenue, current portion		1,976			1,123

Total current liabilities		18,058			11,162
Term loan payable, long-term		2,258			—
Deferred tax liabilities		509			473
Warranty accrual, long-term		521			448
Deferred revenue, long-term		76			1,975
Other liabilities, long-term		160			190

Total liabilities		21,582			14,248

Stockholders’ equity (deficit):
Preferred stock, par value $0.001, 1,000 shares authorized, no shares issued and outstanding		—			—
Common stock, par value $0.001, 50,000 shares authorized; 26,384 and 26,340 shares issued and 24,420 and 24,376 shares outstanding in 2010 and 2009, respectively		27			27
Additional paid-in capital		117,759			117,228
Accumulated other comprehensive loss		(516	)		(222	)
Accumulated deficit		(102,174	)		(92,705	)

		15,096			24,328

Treasury stock (cost of 1,964 shares repurchased)		(16,399	)		(16,399	)

Total stockholders’ equity (deficit)		(1,303	)		7,929

Total liabilities and stockholders’ equity (deficit)	$	20,279		$	22,177

See accompanying notes to consolidated financial statements.

BIOLASE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Products and services revenue	$	4,744		$	13,887		$	9,083		$	20,006
License fees and royalty revenue		1,148			430			1,204			905

Net revenue		5,892			14,317			10,287			20,911
Cost of revenue		3,961			6,219			8,086			11,045

Gross profit		1,931			8,098			2,201			9,866

Operating expenses:
Sales and marketing		3,082			2,770			5,715			5,815
General and administrative		1,976			1,735			3,701			4,304
Engineering and development		995			1,119			2,215			2,202

Total operating expenses		6,053			5,624			11,631			12,321

(Loss) profit from operations		(4,122	)		2,474			(9,430	)		(2,455	)

Gain (loss) on foreign currency transactions		26			(109	)		43			206
Interest income		—			2			1			3
Interest expense		(55	)		(12	)		(59	)		(42	)

Non-operating (loss) income, net		(29	)		(119	)		(15	)		167

(Loss) income before income tax provision		(4,151	)		2,355			(9,445	)		(2,288	)
Income tax provision		13			25			24			58

Net (loss) income	$	(4,164	)	$	2,330		$	(9,469	)	$	(2,346	)


Net (loss) income per share:
Basic	$	(0.17	)	$	0.10		$	(0.39	)	$	(0.10	)

Diluted	$	(0.17	)	$	0.10		$	(0.39	)	$	(0.10	)

Shares used in the calculation of net (loss) income per share:
Basic		24,400			24,244			24,391			24,244

Diluted		24,400			24,321			24,391			24,244

See accompanying notes to consolidated financial statements.

BIOLASE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Six Months Ended
	June 30,
	2010			2009
Cash Flows From Operating Activities:
Net loss	$	(9,469	)	$	(2,346	)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization		571			776
Loss on disposal of assets, net		3			13
Impairment of property, plant and equipment		35			—
Provision (recovery) for bad debts		51			(83	)
Provision for inventory excess and obsolescence		—			970
Amortization of discounts on term loan payable		5			—
Amortization of debt issuance costs		8			—
Stock-based compensation		386			785
Deferred income taxes		28			30
Changes in operating assets and liabilities:
Accounts receivable		2,503			1,282
Inventory		(1,423	)		2,435
Prepaid expenses and other assets		90			(8	)
Customer deposits		6,326			—
Accounts payable and accrued liabilities		(730	)		(4,970	)
Deferred revenue		(1,047	)		(893	)

Net cash and cash equivalents used in operating activities		(2,663	)		(2,009	)

Cash Flows From Investing Activities:

Proceeds from sale of property, plant and equipment		—			4
Additions to property, plant and equipment		(184	)		(302	)


Net cash and cash equivalents used in investing activities		(184	)		(298	)

Cash Flows From Financing Activities:
Borrowings under line of credit		—			4,293
Payments under line of credit		—			(9,697	)
Proceeds from term loan payable		3,000			—
Payment of debt issuance costs		(85	)		—
Proceeds from exercise of stock options and warrants		42			—


Net cash and cash equivalents provided by (used in) financing activities		2,957			(5,404	)

Effect of exchange rate changes		(190	)		(37	)

Decrease in cash and cash equivalents		(80	)		(7,748	)
Cash and cash equivalents, beginning of year		2,975			11,235

Cash and cash equivalents, end of period	$	2,895		$	3,487


Supplemental cash flow disclosure:
Cash paid during the period for:
Interest	$	13		$	42

Income taxes	$	(17	)	$	38

See accompanying notes to consolidated financial statements.

BIOLASE TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The Company

BIOLASE Technology, Inc. or the Company or Biolase, incorporated in Delaware in 1987, is a medical technology company operating in one business segment that designs, manufactures and markets advanced dental, cosmetic and surgical lasers and related products.

Basis of Presentation

The unaudited consolidated financial statements include the accounts of BIOLASE Technology, Inc. and its consolidated subsidiaries and have been prepared on a basis consistent with the December 31, 2009 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments and the elimination of all material intercompany transactions and balances, necessary to fairly present the information set forth therein. These unaudited, interim, consolidated financial statements do not include all the footnotes, presentations and disclosures normally required by accounting principles generally accepted in the United States of America, or GAAP, for complete consolidated financial statements. Certain amounts have been reclassified to conform to current period presentation.

Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates in these consolidated financial statements include allowances on accounts receivable, inventory and deferred taxes, as well as estimates for accrued warranty expenses, the realizability of goodwill and indefinite-lived intangible assets, effects of stock-based compensation and the provision or benefit for income taxes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ materially from those estimates.

Fair Value of Financial Instruments

Our financial instruments, consisting of cash, accounts receivable, accounts payable and other accrued expenses, approximate fair value because of the short maturity of these items. Financial instruments consisting of long and short term debt approximate fair value since the interest rate approximates the market rate for debt securities with similar terms and risk characteristics.

Revenue Recognition

Effective September 1, 2006, nearly all of our domestic sales are to Henry Schein, Inc., or HSIC; prior to this date, we sold our products directly to customers through our direct sales force. Sales to HSIC are recorded upon shipment from our facility and payment of our invoices is generally due within 60 days or less. Internationally, we sell products through independent distributors including HSIC. We recognize revenue based on four basic criteria that must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and title and the risks and rewards of ownership have been transferred to our customer, or services have been rendered; (iii) the price is fixed or determinable; and (iv) collectibility is reasonably assured.

Sales of our laser systems include separate deliverables consisting of the product, disposables used with the laser systems, installation and training. For these sales, we apply the residual value method, which requires us to allocate to the delivered elements the total arrangement consideration less the fair value of the undelivered elements. Revenue attributable to the undelivered elements, primarily training, is included in deferred revenue when the product is shipped and is recognized when the related service is performed or upon expiration of time offered under the agreement.

The key judgment related to our revenue recognition relates to the collectibility of payment from the customer. We evaluate the customer’s credit worthiness prior to the shipment of the product. Based on our assessment of the credit information available to us, we may determine the credit risk is higher than normally acceptable, and we will either decline the purchase or defer the revenue until payment is reasonably assured.

Although all sales are final, we accept returns of products in certain, limited circumstances and record a provision for sales returns based on historical experience concurrent with the recognition of revenue. The sales returns allowance is recorded as a reduction of accounts receivable and revenue.

We recognize revenue for royalties under licensing agreements for our patented technology when the product using our technology is sold. We estimate and recognize the amount earned based on historical performance and current knowledge about the business operations of our licensees. Our estimates have been consistent with amounts historically reported by the licensees. Licensing revenue related to exclusive licensing arrangements is recognized concurrent with the related exclusivity period.

We may offer sales incentives and promotions on our products. We recognize the cost of sales incentives at the date at which the related revenue is recognized, or later, in the case of incentives offered after the initial sale has occurred.

Liquidity and Management’s Plans

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of obligations in the normal course of business. We have incurred significant net losses and net revenue has declined during the past three years. As of June 30, 2010, we had $2.9 million in cash and cash equivalents to finance operations and to satisfy our obligations. We are substantially dependent on our primary distributor and the continued performance of this distributor to make committed purchases of our products and associated consumables under our distribution agreement, and the receipt of cash in connection with those purchases, is essential to our liquidity. On February 16, 2010, HSIC agreed to provide us with advance payments of $5.8 million in fulfillment of the February 27, 2009 letter agreement. (See Note 7) On March 9, 2010, we entered into a new agreement, effective April 1, 2010 (See Note 7), and while it provides for lower monthly guaranteed payments, it also provides more upside opportunity to expand beyond those minimums, based largely upon targeted marketing efforts and incremental sales performance with dental offices that we have not been working closely with. The letter agreement has an initial term of one year, after which the letter agreement may be extended for a period of six months by mutual agreement. Either party may terminate the letter agreement upon sixty days’ advance written notice to the other party. There can be no assurance that the distributor will not terminate this agreement prior to the end of the one year term. As of June 30, 2010, HSIC has fulfilled its guaranteed minimum purchase obligations and related prepayments of $4.5 million to date under this agreement. In respect of the February 16, 2010 and March 9, 2010 letter agreements with HSIC, we have collectively received advance payments of $10.3 million of which $6.3 million remained in customer deposits at June 30, 2010.

On May 27, 2010 we entered into a Loan and Security Agreement (See Note 8) in respect of a $5 million term loan, $3 million was funded on such date. In addition, we implemented cost cutting measures at the end of the second quarter of 2010 which included a reduction in headcount of approximately 20 full time employees. Our ability to meet our obligations in the ordinary course of business is dependent upon our ability to raise additional financing through public or private equity or debt financing, to establish profitable operations, or to secure other sources of financing to fund operations. Management intends to seek to increase sales, or raise working capital through additional debt or an equity financing in 2010. However, there can be no assurance we will be able to increase sales or that such financing can be successfully completed on terms acceptable to the Company or at all.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

Newly Adopted Accounting Standards

In May 2009, the FASB established general standards for accounting and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The pronouncement required the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. On February 24, 2010, the FASB amended this standard whereby SEC filers, like the Company, are required by GAAP to evaluate subsequent events through the date its financial statements are issued, but are no longer required to disclose in the financial statements that the Company has done so or disclose the date through which subsequent events have been evaluated.

In August 2009, the FASB provided clarification when measuring liabilities at fair value of a circumstance in which a quoted price in an active market for an identical liability is not available. A reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities (or similar liabilities when traded as assets) and/or 2) a valuation technique that is consistent with the preexisting fair value guidance. It also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption did not have a material impact on our consolidated financial statements.

Accounting Standards Not Yet Adopted

In October 2009, the Financial Accounting Standard Board issued an update to existing guidance on accounting for arrangements with multiple deliverables. This update will allow companies to allocate consideration received for qualified separate deliverables using estimated selling price for both delivered and undelivered items when vendor-specific objective evidence or third-party evidence is unavailable. Additional disclosures discussing the nature of multiple element arrangements, the types of deliverables under the arrangements, the general timing of their delivery, and significant factors and estimates used to determine estimated selling prices will be required. This guidance is effective prospectively for annual periods beginning after June 15, 2010. We have not yet determined the impact on our consolidated financial statements.

NOTE 3 — STOCK-BASED COMPENSATION AND PER SHARE INFORMATION

Stock-Based Compensation

We have three stock-based compensation plans — the 1990 Stock Option Plan, the 1993 Stock Option Plan and the 2002 Stock Incentive Plan. The 1990 and 1993 Stock Option Plans have been terminated with respect to granting additional stock options. Under these plans, stock options are awarded to certain officers, directors and employees of the Company at the discretion of the Company’s management and/or Board of Directors. Options to employees generally vest on a quarterly basis over three years.

Compensation cost related to stock options recognized in operating results during the three months ended June 30, 2010 and 2009 was $180,000 and $317,000, respectively. The net impact to earnings for those periods was $(0.01) and $(0.01) per basic and diluted share, respectively. Compensation cost related to stock options recognized in operating results during the six months ended June 30, 2010 and 2009, was $386,000 and $785,000, respectively. The net impact to earnings for those periods was $(0.02) and $(0.04) per basic and diluted share, respectively. At June 30, 2010, we had $724,000 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under our existing plans. We expect that cost to be recognized over a weighted average period of .9 years.

The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Cost of revenue	$	8	$	34	$	19	$	77
Sales and marketing		48		104		106		228
General and administrative		100		138		212		396
Engineering and development		24		41		49		84

	$	180	$	317	$	386	$	785

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Our options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. This option pricing model requires us to make several assumptions regarding the key variables used in the model to calculate the fair value of its stock options. The risk-free interest rate used by us is based on the U.S. Treasury yield curve in effect for the expected lives of the options at their dates of grant. Beginning July 1, 2005, we have used a dividend yield of zero as we do not intend to pay dividends on our common stock in the foreseeable future. The most critical assumption used in calculating the fair value of stock options is the expected volatility of our common stock. We believe that the historic volatility of our common stock is a reliable indicator of future volatility, and accordingly, have used a stock volatility factor based on the historical volatility of our common stock over a period of time approximating the estimated lives of our stock options. The expected term is estimated by analyzing our historical share option exercise experience over a five year period. Compensation expense is recognized using the straight-line method for all stock-based awards. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of grant based on our historical experience and future expectations. Forfeitures are estimated at the time of the grant and revised as necessary in subsequent periods if actual forfeitures differ from those estimates.

The stock option fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Expected term (years)		4.80			5.00			4.83			4.95
Volatility		83	%		84	%		83	%		84	%
Annual dividend per share	$	0.00		$	0.00		$	0.00		$	0.00
Risk-free interest rate		2.43	%		2.05	%		2.43	%		1.83	%

A summary of option activity under our stock option plans for the six months ended June 30, 2010 is as follows:


						Weighted average
				Weighted		remaining
				average		contractual term		Aggregate
	Shares			exercise price		(years)		intrinsic value(1)
Options outstanding at December 31, 2009		3,650,000		$	4.50
Plus: Options granted		196,000		$	1.92
Less: Options exercised		(43,000	)	$	0.97
Options canceled or expired		(285,000	)	$	5.60

Options outstanding at June 30, 2010		3,518,000		$	4.31		6.63	$	462,000

Options exercisable at June 30, 2010		2,581,000		$	5.21		5.82	$	311,000
Options expired during the six months ended June 30, 2010		262,000		$	5.80


(1)		The intrinsic value calculation does not include negative values. This can occur when the fair market value on the reporting date is less than the exercise price of the grant.

Cash proceeds along with fair value disclosures related to grants, exercises and vesting options are provided in the following table (in thousands, except per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Proceeds from stock options exercised	$	34	$	—	$	42	$	—
Tax benefit related to stock options exercised (1)		N/A		N/A		N/A		N/A
Intrinsic value of stock options exercised (2)	$	20	$	—	$	30	$	—
Weighted-average fair value of options granted during period	$	1.26	$	.83	$	1.27	$	.58
Total fair value of shares vested during the period	$	150	$	445	$	359	$	941


(1)		Excess tax benefits received related to stock option exercises are presented as financing cash inflows. We currently do not receive a tax benefit related to the exercise of stock options due to our net operating losses.

(2)		The intrinsic value of stock options exercised is the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant.

Warrants

In connection with the Loan and Security Agreement entered into on May 27, 2010, warrants were granted to MidCap Financial and Silicon Valley Bank to purchase up to an aggregate of 101,694 shares of our common stock at a price per share of $1.77. (See Note 8)

Net Income (Loss) Per Share — Basic and Diluted

Basic net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. In computing diluted net income (loss) per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities.

Outstanding stock options and warrants to purchase 3,620,000 shares were not included in the computation of diluted loss per share for the three months ended June 30, 2010 as a result of their anti-dilutive effect. Outstanding stock options to purchase 77,000 shares were included in the computation of diluted earnings per share for the three months ended June 30, 2009. For the same 2009 period, anti-dilutive outstanding stock options and warrants to purchase 3,485,000 shares were not included in the computation of diluted earnings per share.

Outstanding stock options and warrants to purchase 3,620,000 shares were not included in the computation of diluted loss per share for the six months ended June 30, 2010 as a result of their anti-dilutive effect. In January 2010, a five year warrant exercisable into 81,037 shares of common stock had expired. Outstanding stock options and warrants to purchase 4,299,000 shares were not included in the computation of diluted loss per share for the six months ended June 30, 2009 as a result of their anti-dilutive effect.

NOTE 4 — INVENTORY

Inventory is valued at the lower of cost or market (determined by the first-in, first-out method) and is comprised of the following (in thousands):


	June 30,		December 31,
	2010		2009
Raw materials	$	4,004	$	3,400
Work-in-process		1,684		1,497
Finished goods		3,596		2,964

Inventory, net	$	9,284	$	7,861

Inventory is net of the provision for excess and obsolete inventory of $1.9 million at June 30, 2010 and December 31, 2009.

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net is comprised of the following (in thousands):


	June 30,			December 31,
	2010			2009
Land	$	—		$	273
Building		—			418
Leasehold improvements		914			914
Equipment and computers		5,830			6,049
Furniture and fixtures		1,019			1,019
Construction in progress		84			45

		7,847			8,718
Accumulated depreciation and amortization		(6,662	)		(6,538	)

Property, plant and equipment, net	$	1,185		$	2,180

Depreciation and amortization of property, plant and equipment was $240,000 and $506,000 for the three and six months ended June 30, 2010, respectively, and $327,000 and $699,000 for the three and six months ended June 30, 2009, respectively.

Leasehold improvements include $536,000 of tenant improvements paid by the landlord in connection with our primary facility lease.

As a result of transitioning our direct sales in certain countries to Henry Schein, Inc. in early 2009, we began the process of shutting down our foreign operations in those countries. In December 2008, we wrote down the value of our land and building in Germany by $355,000 to reflect the market value of the asset. In June 2010, we agreed to an offer to sell the land and building in Germany for €435,000 or $531,000, and as a result, wrote down the net book value of the assets to net realizable value by €28,000 or $35,000. Fully depreciated assets in the amount of €231,000 or $282,000, which were no longer usable, have also been written off.

Assets held for sale is comprised of the following (in thousands):


	June 30,
	2010
Land	$	232
Building		299

Assets held for sale	$	531

NOTE 6 — INTANGIBLE ASSETS AND GOODWILL

We conducted our annual impairment analysis of our goodwill and trade names as of June 30, 2010 and concluded there had not been any impairment. Due to current volatility in our stock price caused by adverse equity market conditions and the general economic environment, we closely monitor our stock price and market capitalization and perform such analysis on a quarterly basis. We believe that no triggering events have occurred since June 30, 2010 that would have a material effect on the value of the remaining assets.

We believe no event has occurred that would trigger an impairment of our intangible assets with finite lives that are subject to amortization in 2010. We recorded amortization expense of $32,000 and $65,000 for the three and six months ended June 30, 2010, respectively, and $33,000 and $76,000, respectively, for the same periods in 2009. Other intangible assets consist of an acquired customer list and a non-compete agreement.

The following table presents details of the Company’s intangible assets, related accumulated amortization and goodwill (in thousands):


	As of June 30, 2010										As of December 31, 2009
			Accumulated										Accumulated
	Gross		Amortization			Impairment			Net		Gross		Amortization			Impairment			Net
Patents (4-10 years)	$	1,914	$	(1,507	)	$	—		$	407	$	1,914	$	(1,442	)	$	—		$	472
Trademarks (6 years)		69		(69	)		—			—		69		(69	)		—			—
Trade names (Indefinite life)		979		—			(979	)		—		979		—			(979	)		—
Other (4 to 6 years)		593		(593	)		—			—		593		(593	)		—			—


Total	$	3,555	$	(2,169	)	$	(979	)	$	407	$	3,555	$	(2,104	)	$	(979	)	$	472


Goodwill (Indefinite life)	$	2,926							$	2,926	$	2,926							$	2,926

NOTE 7 — ACCRUED LIABILITIES AND DEFERRED REVENUE

Accrued liabilities are comprised of the following (in thousands):


	June 30,		December 31,
	2010		2009
Payroll and benefits	$	1,308	$	1,694
Warranty accrual, current portion		2,194		1,787
Deferred rent credit		93		112
Accrued professional services		481		530
Accrued insurance premium		174		517
Other		371		512

Accrued liabilities	$	4,621	$	5,152

Changes in the product warranty accrual, including expenses incurred under our warranties, for the three and six months ended June 30, 2010 and 2009 were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Initial warranty accrual, beginning balance	$	2,491		$	2,227		$	2,235		$	2,612
Provision for estimated warranty cost		1,064			592			1,996			1,036
Warranty expenditures		(840	)		(687	)		(1,516	)		(1,516	)

Initial warranty accrual, ending balance		2,715			2,132			2,715			2,132
Total warranty accrual, long term		521			491			521			491

Total warranty accrual, current portion	$	2,194		$	1,641		$	2,194		$	1,641

Deferred revenue is comprised of the following (in thousands):


	June 30,			December 31,
	2010			2009
Royalty advances from Procter & Gamble		750			1,875
Undelivered elements (training, installation and product) and other		383			347
Extended warranty contracts		919			876

Total deferred revenue		2,052			3,098

Less long-term amounts:
Royalty advances from Proctor & Gamble		—			(1,875	)
Extended warranty contracts		(76	)		(100	)

Total deferred revenue, long-term		(76	)		(1,975	)

Total deferred revenue, current portion	$	1,976		$	1,123

On August 8, 2006, we entered into a License and Distribution Agreement with Henry Schein, Inc., or HSIC, a large distributor of healthcare products to office-based practitioners, pursuant to which we granted HSIC the exclusive right to distribute our complete line of dental laser systems, accessories and services in the United States and Canada. Concurrent with the execution of the Agreement, HSIC paid an upfront license fee of $5.0 million. The Agreement had an initial term of three years, following which HSIC has the option to extend the Agreement for an additional three-year period under certain circumstances, including its satisfaction of the minimum purchase requirements during the full three-year period, and for an additional license fee of $5.0 million. We amortized the initial $5.0 million payment to License Fees and Royalty Revenue on a straight-line basis over the three-year term of the Agreement.

Under the Agreement, HSIC was obligated to meet certain minimum purchase requirements and was entitled to receive incentive payments if certain purchase targets were achieved. If HSIC had not met the minimum purchase requirements at the midpoint of each of the first two three-year periods, we would have had the option, upon repayment of a portion of the license fee, to (i) shorten the remaining term of the agreement to one year, (ii) grant distribution rights held by HSIC to other persons (or distribute products itself), (iii) reduce certain discounts on products given to HSIC under the agreement, and (iv) cease paying future incentive payments. We maintain the right to grant certain intellectual property rights to third parties, but by doing so may incur the obligation to refund a portion of the upfront license fee to HSIC.

On May 9, 2007, we entered into an addendum with HSIC, effective as of April 1, 2007, which modified the License and Distribution Agreement to add the terms and conditions under which HSIC has the exclusive right to distribute our ezlase diode dental laser system in the United States and Canada. In the Addendum, separate minimum purchase requirements were established for the ezlase system. If HSIC had not met the minimum purchase requirement for any 12-month period ending on March 31, we would have had the option, upon 30 days written notice, to (i) convert ezlase distribution rights to a non-exclusive basis for a minimum period of one year, after which period we would have had the option to withdraw ezlase distribution rights, and (ii) reduce the distributor discount on ezlase products.

On March 3, 2008, we entered into a second addendum with HSIC that modified the License and Distribution Agreement, as amended by the first addendum. Pursuant to the second addendum, HSIC was obligated to meet certain minimum purchase requirements and was entitled to receive incentive payments if certain purchase targets were achieved. If HSIC did not meet minimum purchase requirements, we would have had the option to (i) shorten the remaining term of the Agreement to one year, (ii) grant distribution rights held by HSIC to other persons (or distribute products ourselves), (iii) reduce certain discounts on products given to HSIC under the Agreement, and (iv) cease paying future incentive payments. Additionally, under certain circumstances, if HSIC did not meet the minimum purchase requirements, we would have had the right to purchase back the exclusive distributor rights granted to HSIC under the agreement. We also agreed to actively promote Henry Schein Financial Services as our exclusive leasing and financing partner.

On December 23, 2008, we entered into a brief letter agreement with HSIC which amended the initial term of the License and Distribution Agreement to December 31, 2010.

On February 27, 2009, we entered into a letter agreement with HSIC which amended the License and Distribution Agreement, as amended by the first and second addendums and the brief letter agreement. This letter agreement included certain minimum purchase requirements during the initial fourteen-month term of the agreement. In connection with the initial purchase by HSIC made under the letter agreement, on March 13, 2009, we entered into a security agreement, or March 2009 Security Agreement, with HSIC, granting to HSIC a security interest in our inventory, equipment, and other assets. Pursuant to the March 2009 Security Agreement, the security interest granted was released upon products delivered by us to HSIC in respect of such initial purchase. HSIC also had the option to extend the term of the letter agreement for two additional one-year terms based on certain minimum purchase requirements. In addition, HSIC became our distributor in certain international countries including Germany, Spain, Australia and New Zealand and had first right of refusal in new international markets that we were interested in entering.

On September 10, 2009, we entered into an amendment to the License and Distribution Agreement with HSIC, wherein we agreed to provide to HSIC certain customer warranties in respect of the Company’s products.

On January 31, 2010, we entered into a letter agreement amending the License and Distribution Agreement, dated as of August 8, 2006, as amended. Pursuant to the letter agreement, we agreed to an extension of the time for HSIC to provide notice of its intention to renew the License and Distribution Agreement for an additional one year term, from February 1, 2010 to February 25, 2010, in accordance with the terms and conditions thereof.

On February 16, 2010, we entered into a letter agreement amending the License and Distribution Agreement, dated as of August 8, 2006, as amended. Pursuant to the letter agreement, we agreed to HSIC’s request to make certain changes to the applicable product categories required to be purchased by HSIC through March 31, 2010, as set forth in the February 27, 2009 letter agreement. The changes include advance payments in respect of, among other things, purchases of the iLase and the provision of upgrades by us to existing products, should such upgrades be made available in the future. In connection with advance payments of $5.8 million, of which $4.0 million remained in customer deposits at March 31, 2010 after netting outstanding accounts receivable, we entered into a security agreement, or February 2010 Security Agreement, with HSIC, granting to HSIC a security interest in our inventory, equipment, and other assets. Pursuant to the February 2010 Security Agreement, the security interest granted shall be released upon products delivered by us to HSIC in respect of such advance payments.

On February 24, 2010, we entered into a letter agreement amending the License and Distribution Agreement, dated as of August 8, 2006, as amended. Pursuant to the letter agreement, we agreed to an extension of the time for HSIC to provide notice of its intention to renew the License and Distribution Agreement for an additional one year term, from February 25, 2010 to March 3, 2010, in accordance with the terms and conditions thereof.

On March 9, 2010, we entered into a letter agreement with HSIC, effective April 1, 2010. The letter agreement calls for guaranteed minimum purchases by HSIC of $18 million, payable in semi-monthly payments of $750,000, solely in respect of laser equipment in certain territories, plus additional laser equipment purchases on an uncapped basis in certain other territories, plus incremental purchases of consumable products and services in certain applicable territories. Pursuant to this letter agreement, all dental sales will continue to be provided exclusively through HSIC in the United Kingdom, Australia, New Zealand, Belgium, Luxembourg, Netherlands, Spain, Germany, Italy, Austria, and North America. This letter agreement provides incentives for HSIC to focus on its core customer base, and allows us to generate incremental sales to additional dental offices outside of HSIC’s core customer base. This letter agreement has an initial term of one year, after which this letter agreement may be extended for a period of six months by mutual agreement. Either party may terminate this letter agreement upon sixty days’ advance written notice to the other party.

Subsequent to the period covered by this Quarterly Report, on August 13, 2010, we entered into a letter agreement with HSIC. This letter agreement, effective August 17, 2010, reduces the advance notice required to terminate the March 9, 2010 letter agreement form sixty to forty-five days.

In respect of the February 16, 2010 and March 9, 2010 letter agreements with HSIC, we have collectively received advance payments of $10.3 million, of which $6.3 million remained in customer deposits at June 30, 2010.

On June 29, 2006, we received a one-time payment from The Procter & Gamble Company, or P&G, of $3.0 million for a license to certain of our patents pursuant to a binding letter agreement, subsequently replaced by a definitive agreement effective January 24, 2007, or P&G Agreement, which was recorded as deferred revenue when received. In the event of a material uncured breach of the definitive agreement by us, we could be required to refund certain payments made to us under the P&G Agreement, including the $3.0 million payment. The license fee from P&G was amortized over a two-year period covering January 2007 through December 2008. Additionally, P&G is required to make quarterly payments to us in the amount of $250,000, beginning with a payment for the third quarter of 2006 and continuing until the first product under the agreement is shipped by P&G for large-scale commercial distribution in the United States. Seventy-five percent of each $250,000 payment is treated as prepaid royalties and will be credited against royalty payments owed to us, and the remainder is credited to revenue and represents services provided by BIOLASE to P&G.

Pursuant to the terms of the P&G Agreement, after two years from the effective date of the P&G Agreement, P&G had the right, upon formal notice to us, to elect to convert its exclusive license of our patents into a non-exclusive license (and effectively allow us to license the patents to other parties), and cease making the $250,000 quarterly payments as described above. Pursuant to the P&G Agreement, P&G had forty-five (45) days following the end of each quarter to make the quarterly payment, after which a finance charge is to be assessed, equal to the prime rate of interest then in effect plus 100 basis points. We did not receive quarterly payments in 2009 or 2010 and we did not assess finance charges.

On May 20, 2010, we entered into a License Agreement, the Second Agreement, with P&G with an effective date of January 1, 2009, and which supersedes that certain prior License Agreement, dated January 24, 2007. The Second Agreement amends and modifies the First Agreement so as to enable the Company to launch and market for sale certain light-based oral care devices to dental professionals within the professional market.

Pursuant to the Second Agreement, (i) certain of the prepaid royalties noted above will be released in accordance with the terms and conditions of the Second Agreement, (ii) P&G licensed to the Company certain of P&G’s intellectual property, including patents, for the Company’s use in the professional dental market, (iii) the Company will pay certain royalties to P&G, expressed as a percentage of net product sales, for the Company’s sales of certain light-based oral care devices to dental professionals within the professional market, and (iv) P&G retains certain rights that it had under the First Agreement with regard to certain of the Company’s intellectual property for use in the consumer market, as well as related royalties, expressed as a percentage of net product sales, to be paid by P&G to the Company. As a result of the Second Agreement, the prepaid royalty payments previously paid by P&G have been applied to the exclusive license period which is effective as of January 1, 2009 and continues through June 30, 2011. Previously recorded deferred revenue of $1.9 million which has been applied to the exclusive license arrangement is being recognized concurrent with the related exclusivity period. During the quarter ended June 30, 2010, $1.1 million of licensing revenue was recognized. The remaining deferred exclusive license fees will be recognized at $187,500 per quarter through June 30, 2011.

The Second Agreement will terminate on the date of expiration of the last Company or P&G patent that is licensed to the other party, and the exclusivity of the Company’s license to P&G has certain limits and conditions. Additionally, either party may terminate the Second Agreement if there is an uncured material breach of any provision of the Second Agreement by the other party or by mutual consent.

NOTE 8 — BANK LINE OF CREDIT AND DEBT

On September 28, 2006, we entered into a Loan and Security Agreement, or the Loan Agreement with Comerica Bank. Under the Loan Agreement, the Lender agreed to extend a revolving loan, the Revolving Line, to us in the maximum principal amount of $10.0 million.

On January 30, 2009, we delivered a compliance certificate to the Lender which set forth the details of our non-compliance with certain covenants under the Loan Agreement as of December 31, 2008. The Loan Agreement was terminated on February 5, 2009 and all outstanding balances were repaid in full with cash available on hand, and under the terms of the Loan Agreement and related note, we and certain of our subsidiaries satisfied all of our obligations under the Loan Agreement.

On May 27, 2010, we entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Financial, LLC, a Delaware limited liability company, and Silicon Valley Bank, a California corporation (collectively, the “Lenders”) for term loan funding of up to $5 million. In connection with the Loan Agreement, we issued two Secured Promissory Notes in favor of the Lenders and two Warrant Agreements in favor of the Lenders for aggregate initial gross proceeds of $3 million. The two Warrant Agreements allow the Lenders to purchase up to an aggregate of 101,694 shares of our common stock at a per share price of $1.77 (the “Warrants”).

Pursuant to the Loan Agreement, the Lenders initially loaned us $3 million. The Loan Agreement includes an option, which expires on August 31, 2010, for us to receive an additional $2 million in funding upon the satisfaction of certain conditions, including generating cash from other financing sources.

The outstanding principal balance of the loan bears interest at an annual percentage rate equal to the greater of the thirty (30) day LIBOR rate or three percent, plus nine and one quarter percent. In the event we do not satisfy certain post-closing items, the loan will bear interest at an annual percentage rate equal to the greater of the thirty (30) day LIBOR rate or three percent, plus eleven and one quarter percent. The interest rate will be adjusted each month and interest will be paid monthly. The Loan Agreement requires interest only payments for the first six months and beginning in December 2010, the outstanding principal will be repaid in 30 equal monthly installments. The final payment of all unpaid principal and accrued interest is due on May 2, 2013 (the “Maturity Date”). Our obligations are secured by substantially all of our assets now owned or hereinafter acquired, including our intellectual property, as well as those of our two wholly-owned subsidiaries, BL Acquisition Corp. and BL Acquisition II, Inc., each of whom have provided a security agreement and certain guarantees to the Lenders. Certain of the assets secured by the security agreement are subordinate to the 2010 Security Agreement in favor of HSIC. As of June 30, 2010, interest on the note is being accrued at a rate of 14.25%. Interest expense, related loan origination fees, prepayment fees and warrant discount costs provide for an effective interest rate on the term loan of 34%.

The Loan Agreement permits us to prepay the outstanding principal amount and all accrued but unpaid interest and fees, subject to a prepayment fee. The amount of the prepayment fee depends on when the prepayment is made. If prepayment is made on or prior to the first anniversary of the date of the term loan, the prepayment fee is equal to six percent of the outstanding principal at the time of prepayment. If prepayment is made after the first anniversary of the term loan and on or prior to the second anniversary of the term loan, the prepayment fee is equal to four percent of the outstanding principal at the time of prepayment. If prepayment is made after the second anniversary of the term loan and prior to the Maturity Date, the prepayment fee is equal to two percent of the outstanding principal at the time of prepayment.

The Loan Agreement requires certain post-closing covenants and compliance with customary financial and performance covenants and provides for customary events of default. If a default occurs, the Lenders may declare the amounts outstanding under the Loan Agreement immediately due and payable. We did not meet a defined minimum “EBITDA” test for the period ended June 30, 2010. On August 16, 2010, the Lenders agreed to an interim forbearance period of 15 days as we continue our discussions with the Lenders regarding the performance covenant requirements.

Pursuant to the Loan Agreement, we paid a commitment fee of one-half of one percent of the aggregate $5 million term loan amount, or $25,000. This commitment fee and the legal costs associated with acquiring the loan were capitalized and are being amortized as interest expense, using the effective interest method over the term of the loan. In addition, upon our repayment of the loan, we must pay a final payment fee equal to three percent of the total amount funded under the Loan Agreement which is being accrued and charged to interest expense using the effective interest method over the term of the loan.

In connection with the Loan Agreement, we issued to the Lenders the Warrants. The Warrants are immediately exercisable and may be exercised on a cashless basis. In lieu of exercising these warrants, the holders may convert the warrants into a number of shares, in whole or in part. These warrants will expire if unused on May 26, 2015. The $103,000 estimated fair value of the Warrants was recorded as equity, resulting in a discount to the Term Loan at issuance. The discount is being amortized to interest expense using the effective interest method over the term of the loan.

The warrant fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:


	Three months ended
	June 30, 2010
Expected term (years)		5.00
Volatility		82	%
Annual dividend per share	$	0.00
Risk-free interest rate		2.18	%

The components of the term loan payable were as follows:


	June 30,
	2010
Term loan payable	$	3,000
Net discount		(98	)

Net term loan payable		2,902
Term loan payable, current portion, net of discount		(644	)

Term loan payable, long-term, net of discount	$	2,258

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Litigation

On April 6, 2010, Discus Dental LLC (“Discus”) and Zap Lasers LLC (“Zap”) filed a lawsuit against us in the United States District Court for the Central District of California, related to our iLase(TM) diode laser. The lawsuit alleges claims for patent infringement, federal unfair competition, common law trademark infringement and unfair competition, and violation of the California Unfair Trade Practices Act.

On May 19, 2010, Discus and Zap filed a First Amended Complaint related to their lawsuit against us. The Amended Complaint dropped the allegation of fraud, as well as certain allegations related to the claims for trademark infringement and unfair competition. In addition to dropping the fraud allegation, the plaintiffs took other steps to narrow their claims against us.

We intend to vigorously defend the Company against this lawsuit. While, based on the facts presently known, we believe we have meritorious defenses to the claims asserted by Discus and Zap, there is no guarantee that we will prevail in this suit or receive any relief if we do prevail. As of June 30, 2010, no amounts have been recorded in the consolidated financial statements for these matters since management believes that it is not probable we have incurred a loss contingency.

From time to time, we become involved in various claims and lawsuits of a character normally incidental to our business. In our opinion, there are no legal proceedings pending against us or any of our subsidiaries that are reasonably expected to have a material adverse effect on our financial condition or on our results of operations.

Supplier Purchase Commitment

We have a long term commitment to a supplier in the amount of $4.7 million for purchases through 2012. The purchase commitment that remains for the 2010 year is $1.1 million.

NOTE 10 — SEGMENT INFORMATION

We currently operate in a single business segment. For the three and six months ended June 30, 2010, sales in the United States accounted for approximately 60% and 56% respectively, of net revenue, and international sales accounted for approximately 40% and 44%, respectively, of net revenue. For the three and six months ended June 30, 2009, sales in the United States accounted for approximately 78% and 76% respectively, of net revenue, and international sales accounted for approximately 22% and 24%, respectively, of net revenue.

Net revenue by geographic location based on the location of customers was as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
United States	$	3,529	$	11,184	$	5,755	$	15,824
International		2,363		3,133		4,532		5,087

	$	5,892	$	14,317	$	10,287	$	20,911

Long-lived assets located outside of the United States at our foreign subsidiaries were $546,000 and $702,000 million as of June 30, 2010 and December 31, 2009, respectively.

NOTE 11 — CONCENTRATIONS

Revenue from our Waterlase systems, our principal product, comprised 19% and 26% of total net revenue for the three and six months ended June 30, 2010, respectively, and 57% and 53% of total net revenue, respectively, for the same periods in 2009. Revenue from our Diode systems comprised 26% and 21% of total net revenue for the three and six months ended June 30, 2010, respectively, and 22% and 20%, for the same periods of 2009.

Approximately 65% and 64% of our laser system and consumable products net revenue in the three and six months ended June 30, 2010 was generated through sales to HSIC worldwide. Approximately 93% and 91% of our laser system and consumable products net revenue in the three and six months ended June 30, 2009 was generated through sales to HSIC worldwide. There were no sales concentrations greater than 10% within any individual country outside the United States for the three and six month periods ended June 30, 2010 and 2009.

We maintain our cash and cash equivalents accounts with established commercial banks. Through June 30, 2010, such cash deposits periodically exceeded the Federal Deposit Insurance Corporation insured limit.

Accounts receivable concentrations from HSIC and one international distributor totaled $442,000 and $235,000 or 26% and 14%, respectively, at June 30, 2010. Accounts receivable concentrations from HSIC worldwide totaled $2.5 million or 58% at December 31, 2009.

We currently buy certain key components of our products from single suppliers. Although there are a limited number of manufacturers of these key components, management believes that other suppliers could provide similar key components on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect consolidated operating results.

NOTE 12 — COMPREHENSIVE INCOME (LOSS)

Components of comprehensive income (loss) were as follows (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
Net (loss) income	$	(4,164	)	$	2,330	$	(9,469	)	$	(2,346	)
Other comprehensive (loss) income items:
Foreign currency translation adjustments		(181	)		227		(294	)		(91	)

Comprehensive (loss) income	$	(4,345	)	$	2,557	$	(9,763	)	$	(2,437	)

NOTE 13 — INCOME TAXES

Accounting for Uncertainty in Income Taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have elected to classify interest and penalties as a component of our income tax provision. As a result, we recognized a $156,000 liability for unrecognized tax benefits, which was accounted for as an increase in the January 1, 2007 accumulated deficit balance. For the six months ended June 30, 2010, we recorded an increase of $3,000 in the liability for unrecognized tax benefits, including related estimates of penalties and interest. The liability for unrecognized tax benefits at June 30, 2010 and December 31, 2009 was $156,000 and $153,000, respectively. Such amount is included in other liabilities, long-term in the accompanying consolidated balance sheets.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements pertaining to financial items, plans, strategies or objectives of management for future operations, our financial condition or prospects, and any other statement that is not historical fact, including any statement using terminology such as “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” or the negativities of these terms or other comparable terminology. For all of the foregoing forward-looking statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. These statements are only predictions and actual events or results may differ materially from our expectations for a number of reasons including those set forth under “Risk Factors” in Item 1A of this quarterly report and our Annual Report on Form 10-K for the year ended December 31, 2009. These forward-looking statements represent our judgment as of the date hereof. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our results of operations and financial condition should be read together with the unaudited consolidated financial statements and the notes to those statements included elsewhere in this report and our audited consolidated financial statements and the notes to those statements for the year ended December 31, 2009. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in any forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009.

Overview

We are a medical technology company that develops, manufactures and markets lasers and related products focused on technologies for improved applications and procedures in dentistry and medicine. In particular, our principal products provide dental laser systems that allow dentists, periodontists, endodontists, oral surgeons and other specialists to perform a broad range of dental procedures, including cosmetic and complex surgical applications. Our systems are designed to provide clinically superior performance for many types of dental procedures, with less pain and faster recovery times than are generally achieved with drills, scalpels and other dental instruments. We have clearance from the U.S. Food and Drug Administration, or FDA, to market our laser systems in the United States and also have the necessary approvals to sell our laser systems in Canada, the European Union and certain other international markets.

We offer two categories of laser system products: (i) Waterlase systems and (ii) Diode systems. Our flagship product category, the Waterlase system, uses a patented combination of water and laser to perform most procedures currently performed using dental drills, scalpels and other traditional dental instruments for cutting soft and hard tissue. We also offer our diode laser systems to perform soft tissue and cosmetic procedures, including tooth whitening.

On August 8, 2006, we entered into a License and Distribution Agreement, or the Agreement, with Henry Schein, Inc., or HSIC, a large distributor of healthcare products to office-based practitioners, pursuant to which we granted HSIC the exclusive right to distribute our complete line of dental laser systems, accessories and services in the United States and Canada. The Agreement had an initial term of three years, following which it will automatically renew for an additional period of three years, provided that HSIC has achieved its minimum purchase requirements. Under the Agreement, HSIC was obligated to meet certain minimum purchase requirements and was entitled to receive incentive payments if certain purchase targets were achieved. If HSIC had not met the minimum purchase requirements at the midpoint of each of the first two three-year periods, we would have had the option, upon repayment of a portion of the license fee, to (i) shorten the remaining term of the agreement to one year, (ii) grant distribution rights held by HSIC to other persons (or distribute products ourselves), (iii) reduce certain discounts on products given to HSIC under the agreement, and (iv) cease paying future incentive payments. We maintain the right to grant certain intellectual property rights to third parties, but by doing so may incur the obligation to refund a portion of the upfront license fee to HSIC.

On May 9, 2007, we entered into an addendum with HSIC, effective as of April 1, 2007, which modified the License and Distribution Agreement to add the terms and conditions under which HSIC has the exclusive right to distribute our ezlase diode dental laser system in the United States and Canada. In the addendum, separate minimum purchase requirements were established for the ezlase system. If HSIC had not met the minimum purchase requirement for any 12-month period ending on March 31, we would have had the option, upon 30 days written notice, to (i) convert ezlase distribution rights to a non-exclusive basis for a minimum period of one year, after which period we would have had the option to withdraw ezlase distribution rights, and (ii) reduce the distributor discount on ezlase products.

On March 3, 2008, we entered into a second addendum with HSIC that modified the License and Distribution Agreement, as amended by the first addendum. Pursuant to the second addendum, HSIC was obligated to meet certain minimum purchase requirements and was entitled to receive incentive payments if certain purchase targets were achieved. If HSIC did not meet minimum purchase requirements, we would have had the option to (i) shorten the remaining term of the Agreement to one year, (ii) grant distribution rights held by HSIC to other persons (or distribute products ourselves), (iii) reduce certain discounts on products given to HSIC under the Agreement, and (iv) cease paying future incentive payments. Additionally, under certain circumstances, if HSIC did not meet the minimum purchase requirements, we would have had the right to purchase back the exclusive distributor rights granted to HSIC under the Agreement. We also agreed to actively promote Henry Schein Financial Services as our exclusive leasing and financing partner.

On December 23, 2008, we entered into a brief letter agreement with HSIC which amended the initial term of the License and Distribution Agreement to December 31, 2010.

On February 27, 2009, we entered into a letter agreement with HSIC which amended the License and Distribution Agreement, as amended by the first and second addendums and the brief letter agreement. This letter agreement included certain minimum purchase requirements during the initial fourteen-month term of the agreement. In connection with the initial purchase by HSIC made under the letter agreement, on March 13, 2009 we entered into a security agreement, or March 2009 Security Agreement, with HSIC, granting to HSIC a security interest in our inventory, equipment, and other assets. Pursuant to the March 2009 Security Agreement, the security interest granted was released upon products delivered by us to HSIC in respect of such initial purchase. HSIC also had the option to extend the term of the letter agreement for two additional one-year terms based on certain minimum purchase requirements. In addition, HSIC became our distributor in certain international countries including Germany, Spain, Australia and New Zealand and had first right of refusal in new international markets that we were interested in entering.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that affect the amounts reported. The following is a summary of those accounting policies that we believe are necessary to understand and evaluate our reported consolidated financial results.

Revenue Recognition. Effective September 1, 2006, nearly all of our domestic sales are to HSIC; prior to this date, we sold our products directly to customers through our direct sales force. Sales to HSIC are recorded upon shipment from our facility and payment of our invoices is generally due within 60 days or less. Internationally, we sell products through independent distributors including HSIC. We recognize revenue based on four basic criteria that must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and title and the risks and rewards of ownership have been transferred to our customer, or services have been rendered; (iii) the price is fixed or determinable; and (iv) collectibility is reasonably assured.

Accounting for Stock-Based Payments. We generally recognize compensation cost related to all stock-based payments based on the grant-date fair value.

Valuation of Accounts Receivable. We maintain an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers. We evaluate our allowance for doubtful accounts based upon our knowledge of customers and their compliance with credit terms. The evaluation process includes a review of customers’ accounts on a regular basis which incorporates input from sales, service and finance personnel. The review process evaluates all account balances with amounts outstanding 90 days and other specific amounts for which information obtained indicates that the balance may be uncollectible. The allowance for doubtful accounts is adjusted based on such evaluation, with a corresponding provision included in general and administrative expenses. Account balances are charged off against the allowance when we feel it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to our customers.

Valuation of Inventory. Inventory is valued at the lower of cost, determined using the first-in, first-out method, or market. We periodically evaluate the carrying value of inventory and maintain an allowance for excess and obsolete inventory to adjust the carrying value as necessary to the lower of cost or market. We evaluate quantities on hand, physical condition and technical functionality, as these characteristics may be impacted by anticipated customer demand for current products and new product introductions. Unfavorable changes in estimates of excess and obsolete inventory would result in an increase in cost of revenue and a decrease in gross profit.

Valuation of Long-Lived Assets. Property, plant and equipment, and certain intangibles with finite lives are amortized over their useful lives. Useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals. We monitor events and changes in circumstances which could indicate that the carrying balances of long-lived assets may exceed the undiscounted expected future cash flows from those assets. If such a condition were to exist, we would recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Valuation of Goodwill and Other Intangible Assets. Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. We conducted our annual impairment analysis of our goodwill as of June 30, 2010 and concluded there had been no impairment in goodwill. We closely monitor our stock price and market capitalization and perform such analysis on a quarterly basis. If our stock price and market capitalization declines, we may need to impair our goodwill and other intangible assets.

Warranty Cost. Waterlase systems sold domestically are covered by a warranty against defects in material and workmanship for a period of one year while our diode systems warranty period is up to two years from date of sale by the distributor to the end-user. Estimated warranty expenses are recorded as an accrued liability, with a corresponding provision to cost of revenue. Warranty expenses expected to be incurred after one year from the time of sale to the distributor are classified as a long term warranty accrual. This estimate is recognized concurrent with the recognition of revenue on the sale to the distributor. Effective October 1, 2009, Waterlase systems sold internationally are generally covered by a warranty against defects in material and workmanship for a period of sixteen months while our ezlase and iLase systems warranty period is up to twenty eight months from date of sale to the distributor. Our overall accrual is based on our historical experience and our expectation of future conditions. An increase in warranty claims or in the costs associated with servicing those claims would result in an increase in the accrual and a decrease in gross profit.

Litigation and Other Contingencies. We regularly evaluate our exposure to threatened or pending litigation and other business contingencies. Because of the uncertainties related to the amount of loss from litigation and other business contingencies, the recording of losses relating to such exposures requires significant judgment about the potential range of outcomes. As additional information about current or future litigation or other contingencies becomes available, we will assess whether such information warrants the recording of expense relating to contingencies. To be recorded as expense, a loss contingency must be both probable and reasonably estimable. If a loss contingency is material but is not both probable and estimable, we will disclose the matter in the notes to the consolidated financial statements.

Income Taxes. Based upon our operating losses during 2010 and 2009 and the available evidence, management determined that it is more likely than not that the deferred tax assets as of June 30, 2010 will not be realized, excluding a portion of the foreign deferred tax assets in the amount of $25,000. Consequently, we established a valuation allowance against our net deferred tax asset, excluding a portion of the foreign operations, in the amount of $34.0 and $30.2 million as of June 30, 2010 and December 31, 2009, respectively. In this determination, we considered factors such as our earnings history, future projected earnings and tax planning strategies. If sufficient evidence of our ability to generate sufficient future taxable income tax benefits becomes apparent, we may reduce our valuation allowance, resulting in tax benefits in our statement of operations and in additional paid-in-capital. Management evaluates the potential realization of our deferred tax assets and assesses the need for reducing the valuation allowance periodically.

Off-Balance Sheet Arrangements. We have no off-balance sheet financing or contractual arrangements.

Results of Operations

The following table presents certain data from our consolidated statements of operations expressed as percentages of revenue:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Consolidated Statements of Operations Data:	2010			2009			2010			2009
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		67.2			43.4			78.6			52.8

Gross profit		32.8			56.6			21.4			47.2

Operating expenses:
Sales and marketing		52.3			19.4			55.6			27.8
General and administrative		33.5			12.1			36.0			20.6
Engineering and development		17.0			7.8			21.5			10.5

Total operating expenses		102.8			39.3			113.1			58.9

(Loss) income from operations		(70.0	)		17.3			(91.7	)		(11.7	)
Non-operating (loss) income, net		(0.5	)		(0.8	)		(0.1	)		0.8

(Loss) income before income tax provision		(70.5	)		16.5			(91.8	)		(10.9	)
Income tax provision		0.2			0.2			0.2			0.3

Net (loss) income		(70.7	)%		16.3	%		(92.0	)%		(11.2	)%

The following table summarizes our net revenue by category (dollars in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
	2010				2009				2010				2009
Waterlase systems	$	1,134	19	%	$	8,193	57	%	$	2,690	26	%	$	10,948	53	%
Diode systems		1,555	26	%		3,163	22	%		2,213	21	%		4,202	20	%
Consumables and Service		2,055	35	%		2,531	18	%		4,180	41	%		4,856	23	%

Products and services		4,744	80	%		13,887	97	%		9,083	88	%		20,006	96	%
License fee and royalty		1,148	20	%		430	3	%		1,204	12	%		905	4	%

Net revenue	$	5,892	100	%	$	14,317	100	%	$	10,287	100	%	$	20,911	100	%

Three months ended June 30, 2010 and 2009

Net Revenue. Net revenue for the three months ended June 30, 2010 was $5.9 million, a decrease of $8.4 million or 59% as compared with net revenue of $14.3 million for the three months ended June 30, 2009.

Laser system net revenue decreased by approximately $8.6 million or 76% in the quarter ended June 30, 2010 compared to the same quarter of 2009. Sales of our Waterlase systems decreased $7.0 million or 86% in the quarter ended June 30, 2010 compared to the same period in 2009 due primarily to an overall reduction in domestic sales to our primary distributor largely due to their efforts to reduce their inventory. Our Diode family of products decreased $1.6 million or 51% in the second quarter of 2010 compared to the same quarter of 2009. The decrease resulted primarily from decreased sales volume of the ezlase both domestically and internationally due to our primary distributors efforts to reduce their inventory. This was offset slightly by the launch of the iLase with sales of $660,000 worldwide during the second quarter of 2010.

Consumables and service net revenue, which includes consumable products, advanced training programs and extended service contracts, and shipping revenue decreased by approximately $476,000 or 19% for the three months ended June 30, 2010 as compared to the same period of 2009. Consumable products revenue decreased $150,000 or 12% primarily as a result of the decreased sales of the Turbo Upgrade in the quarter ended June 30, 2010 as compared to the same period in 2009. Services revenues decreased $326,000 or 25% as compared to the same period of 2009.

License fees and royalty revenue increased $718,000 or 167% in the quarter ended June 30, 2010 compared to the same quarter of 2009. The increase resulted from $1.1 million of recognized deferred royalties from P&G in accordance with the May 20, 2010 agreement partially offset by the amortization of the HSIC license fee in the same period of 2009.

Domestic revenues were $3.5 million, or 60% of net revenue, for the three months ended June 30, 2010 versus $11.2 million, or 78% of net revenue, for the three months ended June 30, 2009. International revenues for the quarter ended June 30, 2010 were $2.4 million, or 40% of net revenue, as compared with $3.1 million, or 22% of net revenue, for the quarter ended June 30, 2009.

Gross Profit. Gross profit for the three months ended June 30, 2010 decreased by $6.2 million from $8.1 million to $1.9 million, and decreased to 33% of net revenue as compared with 57% of net revenue for the three months ended June 30, 2009. The overall decrease in gross profit quarter over quarter was primarily a result of decreased sales revenue in comparison to fixed and unabsorbed manufacturing costs in costs of goods sold. This was partially offset by net increased revenue recognized on deferred royalties from P&G.

Operating Expenses. Operating expenses for the three months ended June 30, 2010 increased by $429,000, or 8%, to $6.1 million as compared to $5.6 million for the three months ended June 30, 2009, and increased as a percentage of net revenue to 103% from 39%. The increase is primarily due to the build out of the sales and marketing team. We will continue to implement cost reductions where it makes sense to help offset the negative impact of current economic conditions.

Sales and Marketing Expense. Sales and marketing expenses for the three months ended June 30, 2010 increased by $312,000, or approximately 11%, to $3.1 million, or 52% of net revenue, as compared with $2.8 million, or 19% of net revenue, for the three months ended June 30, 2009. Advertising and product literature expenses increased $428,000 related primarily to the launch of iLase and were partially offset by reduced commission expense of $118,000 in the quarter ended June 30, 2010 compared with the same quarter of 2009.

General and Administrative Expense. General and administrative expenses for the three months ended June 30, 2010 increased by $241,000, or 14%, to $2.0 million, or 34% of net revenue, as compared with $1.7 million, or 12% of net revenue, for the three months ended June 30, 2009. The increase in general and administrative expenses resulted primarily from increased legal fees of $198,000 and increases in bad debt expense were partially offset by other cost reductions.

Engineering and Development Expense. Engineering and development expenses for the three months ended June 30, 2010 decreased by $124,000, or 11%, to $1.0 million, or 17% of net revenue, as compared with $1.1 million, or 8% of net revenue, for the three months ended June 30, 2009. The decrease is primarily related to decreased payroll and consulting related expenses of $100,000 and decreased supplies expense of $62,000 partially offset by an increase in depreciation expense in the quarter ended June 30, 2010 compared with the same quarter of 2009.

Non-Operating Income (Loss)

Gain on Foreign Currency Transactions. We recognized a $26,000 gain on foreign currency transactions for the three months ended June 30, 2010, compared to a $109,000 loss on foreign currency transactions for the three months ended June 30, 2009 due to the changes in exchange rates between the U.S. dollar and the Euro, the Australian dollar and the New Zealand dollar. As we have now transitioned the majority of our sales from through our foreign subsidiaries to sales through third-party distributors, the amount of inter-company transactions and related balances should continue to be reduced in the future.

Interest Income. Interest income resulted from interest earned on our cash and cash equivalents balances. Interest income for the three months ended June 30, 2010 was $0 as compared with $2,000 for the three months ended June 30, 2009. The decrease is the result of lower average cash balances during the 2010 period compared to the same period in 2009.

Interest Expense. Interest expense consists primarily of interest on the financing of our business insurance premiums and interest on our term loan which was funded on May 27, 2010. Interest expense for the quarter ended June 30, 2010 was $55,000 as compared to $12,000 for the quarter ended June 30, 2009 which resulted in an increase of $43,000 which was primarily related to interest on our term loan payable.

Income Taxes. An income tax provision of $13,000 was recognized for the three months ended June 30, 2010 as compared with an income tax provision of $25,000 for the three months ended June 30, 2009. On January 1, 2007, we adopted the interpretations issued by the FASB regarding uncertain tax positions. As a result, we recognized a $156,000 liability for unrecognized tax benefits, including related estimates of penalties and interest, which was accounted for as an increase in the January 1, 2007 accumulated deficit balance. For each of the three months ended June 30, 2010 and 2009, we recorded an increase of $1,000, in the liability for unrecognized tax benefits, including related estimates of penalties and interest. As of June 30, 2010, we have a valuation allowance against our net deferred tax assets, excluding foreign operations, in the amount of $34.0 million. Based upon our operating losses and the weight of the available evidence, management believes it is more likely than not that we will not realize all of these deferred tax assets.

Six months ended June 30, 2010 and 2009

Net Revenue. Net revenue for the six months ended June 30, 2010 was $10.3 million, a decrease of $10.6 million or 51% as compared with net revenue of $20.9 million for the six months ended June 30, 2009.

Laser system net revenue decreased by approximately $10.2 million or 68% in the six months ended June 30, 2010 compared to the same period of 2009. Sales of our Waterlase systems decreased $8.2 million or 75% in the six months ended June 30, 2010 compared to the same period in 2009 due primarily to an overall reduction in domestic sales to our primary distributor largely due to their efforts to reduce their inventory. Our Diode family of products decreased $2.0 million or 47% in the six months ended June 30, 2010 compared to the same period of 2009. The decrease resulted primarily from decreased volume sales of the ezlase both domestically and internationally due to our primary distributors efforts to reduce their inventory. This was offset slightly by the launch of the iLase with sales of $660,000 worldwide during 2010. We feel the continued adverse worldwide economic environment has been a significant cause for the decreased sales as well as the change in the purchasing pattern from our primary distributor.

Consumables and service net revenue decreased by approximately $676,000 or 14% for the six months ended June 30, 2010 as compared to the same period of 2009. Consumable products revenue decreased $473,000 or 19% and services revenues decreased $203,000 or 9% as compared to the same period of 2009.

License fees and royalty revenue increased approximately $300,000 to $1.2 million in the six months ended June 30, 2010 compared to $905,000 in the same period of 2009. The 2010 period included $1.1 million of recognized deferred royalties from P&G in accordance with the May 20, 2010 agreement offset by the amortization of the HSIC license fee in the same period of 2009.

Domestic revenues were $5.8 million, or 56% of net revenue, for the six months ended June 30, 2010 versus $15.8 million, or 76% of net revenue, for the six months ended June 30, 2009. International revenues for the six months ended June 30, 2010 were $4.5 million, or 44% of net revenue, as compared with $5.1 million, or 24% of net revenue, for the six months ended June 30, 2009.

Gross Profit. Gross profit for the six months ended June 30, 2010 decreased by $7.7 million to $2.2 million, or 21% of net revenue, as compared with gross profit of $9.9 million, or 47% of net revenue, for the six months ended June 30, 2009. The overall decrease was primarily due to lower sales volumes in comparison to fixed and unabsorbed manufacturing costs in cost of goods sold. This was partially offset by net increase in revenue recognized on deferred royalties from P&G.

Operating Expenses. Operating expenses for the six months ended June 30, 2010 decreased by $690,000 or 6%, to $11.6 million as compared to $12.3 million for the six months ended June 30, 2009 but increased as a percentage of net revenue to 113% from 59% on lower net revenue from period to period. We continue to implement cost reductions to help offset the negative impact of current economic conditions.

Sales and Marketing Expense. Sales and marketing expenses for the six months ended June 30, 2010 decreased by $100,000, or approximately 2%, to $5.7 million, or 56% of net revenue, as compared with $5.8 million, or 28% of net revenue, for the six months ended June 30, 2009. Major factors contributing to the reduction were a decrease in convention, seminars and regional meeting related expenses of $215,000, decreased payroll and consulting related expenses of $295,000, and a commission expense decrease of $234,000 offset by increased travel and entertainment of $121,000 and an increase in advertising and product literature related expenses of $485,000 related primarily to the launch of the iLase in the six months ended June 30, 2010 compared with the same period of 2009.

General and Administrative Expense. General and administrative expenses for the six months ended June 30, 2010 decreased by $603,000, or 14%, to $3.7 million, as compared with $4.3 million for the six months ended June 30, 2009, but increased as a percentage of net revenue to 36% from 21% on lower net revenue from period to period. The decrease in general and administrative expenses resulted primarily from decreased payroll and consulting related expenses of $819,000, decreased depreciation expenses of $136,000 and decreased audit fees of $151,000. These decreases were partially offset by an increase in provision for bad debt of $132,000 due to previously determined uncollectible accounts in 2009 becoming collectible, increased legal and patent related fees of $174,000 and an increase in investor relations and board fees of $141,000 partially due to the board waving their Q1 Board Fees in 2009.

Engineering and Development Expense. Engineering and development expenses for the six months ended June 30, 2010 remained flat at $2.2 million, which was 22% of net revenue, as compared with 11% of net revenue, for the six months ended June 30, 2009. The increase in supplies expense of $82,000 pertained to new product development and depreciation expense of $45,000 related to purchases of molds and tooling for the iLase was offset by a decrease in payroll and consulting related expenses of $120,000.

Non-Operating Income (Loss)

Gain on Foreign Currency Transactions. We recognized a $43,000 gain on foreign currency transactions for the six months ended June 30, 2010, compared to a $206,000 gain on foreign currency transactions for the six months ended June 30, 2009 due to the changes in exchange rates between the U.S. dollar and the Euro, the Australian dollar and the New Zealand dollar. As we have now transitioned most of our sales from our foreign subsidiaries to sales through third party distributors, the amount of inter-company transactions and related balances should be reduced in the future.

Interest Income. Interest income resulted from interest earned on our cash and cash equivalents balances. Interest income for the six months ended June 30, 2010 was $1,000 as compared with $3,000 for the six months ended June 30, 2009. The decrease is the result of lower average cash balances during the 2010 period compared to the same period in 2009.

Interest Expense. Interest expense consists primarily of interest on the financing of our business insurance premiums and interest on outstanding balances on our term loan payable. Interest expense for the six months ended June 30, 2010 was $59,000 as compared to $42,000 for the six months ended June 30, 2009. Interest expense, including amortization of loan costs and debt discounts related to our loan payable was $50,000 in the six months ended June 30, 2010 as compared to interest expense of $13,000 in the six months ended June 30, 2009 related to our previous line of credit that was paid in full on February 5, 2009.

Income Taxes. An income tax provision of $24,000 was recognized for the six months ended June 30, 2010 as compared with $58,000 for the six months ended June 30, 2009. On January 1, 2007, we adopted the interpretations issued by the FASB regarding uncertain tax positions. As a result, we recognized a $156,000 liability for unrecognized tax benefits, including related estimates of penalties and interest, which was accounted for as an increase in the January 1, 2007 accumulated deficit balance. For each of the six months ended June 30, 2010 and 2009, we recorded an increase of $3,000, in the liability for unrecognized tax benefits, including related estimates of penalties and interest. As of June 30, 2010, we have a valuation allowance against our net deferred tax assets, excluding foreign operations, in the amount of $34.0 million. Based upon our operating losses and the weight of the available evidence, management believes it is more likely than not that we will not realize all of these deferred tax assets.

Liquidity and Capital Resources

We have incurred significant net losses and net revenue has declined during the past three years. As of June 30, 2010, we had $2.9 million in cash and cash equivalents to finance operations and satisfy our obligations. We are substantially dependent on our primary distributor and the continued performance of this distributor to make committed purchases of our products and associated consumables under our distribution agreement, and the receipt of cash in connection with those purchases, is essential to our liquidity. On March 9, 2010, we restructured this agreement with our primary distributor and it provides for lower monthly guaranteed minimum payments than during the 2009 fiscal year. The letter agreement has an initial term of one year, after which the letter agreement may be extended for a period of six months by mutual agreement. Either party may terminate the letter agreement upon sixty days’ advance written notice to the other party. There can be no assurance that the distributor will not terminate this agreement prior to the end of the one year term.

The accompanying financial statements have been prepared on a going concern basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include adjustments relating to the recoverability of recorded asset amounts or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern.

On February 16, 2010, we entered into a letter agreement amending the License and Distribution Agreement, dated as of August 8, 2006, as amended. Pursuant to the letter agreement, we agreed to HSIC’s request to make certain changes to the applicable product categories required to be purchased by HSIC through March 31, 2010, as set forth in the February 27, 2009 letter agreement. The changes include advance payments in respect of, among other things, purchases of the iLase, and the provision of upgrades by us to existing products, should such upgrades be made available in the future. In connection with advance payments of $5.8 million, of which $4.0 million remained in customer deposits at March 31, 2010 after netting outstanding accounts receivable, we entered into a security agreement, or February 2010 Security Agreement, with HSIC, granting to HSIC a security interest in our inventory, equipment, and other assets. Pursuant to the February 2010 Security Agreement, the security interest granted shall be released upon products delivered by us to HSIC in respect of such advance payments.

As of March 31, 2010, HSIC had fulfilled its obligation for minimum payments of $42.7 million under the February 27, 2009 letter agreement. As of June 30, 2010, HSIC has fulfilled its guaranteed minimum purchase obligations and related prepayments to date per the March 9, 2010 letter agreement. Although we believe the level of HSIC’s inventory was reduced in the first half of 2010, we believe that HSIC’s inventory remains above historical levels.

At June 30, 2010, we had negative net working capital of $2.5 million, a decrease of $7.8 million from $5.3 million in net working capital at December 31, 2009 resulting primarily from increased customer deposits of $6.3 million and a term loan payable of $644,000 which was partially offset by increased inventory balances of $1.4 million. Our principal sources of liquidity at June 30, 2010 consisted of our cash and cash equivalents balance of $2.9 million.

On January 30, 2009, we delivered a compliance certificate to the Lender which set forth non-compliance with certain covenants under the Loan Agreement as of December 31, 2008. The loan agreement was terminated on February 5, 2009 and all outstanding balances were repaid in full with cash available on hand, and under the terms of the Loan Agreement and related note, we and certain of our subsidiaries satisfied all of our obligations under the Loan Agreement.

Pursuant to the Loan Agreement, the Lenders initially loaned us $3 million upon the satisfaction of certain closing conditions. The Loan Agreement includes an option, which expires on August 31, 2010, for us to receive an additional $2 million in funding upon the satisfaction of certain conditions, including generating cash from other financing sources.

Pursuant to the Loan Agreement, we paid a commitment fee of one-half of one percent of the aggregate $5 million term loan amount, or $25,000. This commitment fee and the legal costs associated with acquiring the loan were capitalized and are being amortized as interest expense using the effective interest method over the term of the loan. In addition, upon our repayment of the loan, we must pay a final payment fee equal to three percent of the total amount funded under the Loan Agreement which is being accrued and charged to interest expense using the effective interest method over the term of the loan.

In connection with the Loan Agreement, we issued to the Lenders the Warrants. The Warrants are immediately exercisable and may be exercised on a cashless basis. In lieu of exercising these warrants, the holders may convert the warrants into a number of shares, in whole or in part. These warrants will expire if unused on May 26, 2015. The $103,000 estimated fair value of the Warrants was determined by the Black Scholes option pricing model. (See Note 8) The Warrants were recorded as equity, resulting in a discount to the Term Loan at issuance. The discount is being amortized to interest expense using the effective interest method over the term of the loan.

For the six months ended June 30, 2010, our operating activities used cash of approximately $2.7 million compared to cash used of $2.0 million for the six months ended June 30, 2009. Cash flows from operating activities in the quarter ended June 30, 2010 were negatively impacted by the net loss recorded in the period offset by a $6.3 million customer deposit from HSIC. The most significant changes in operating assets and liabilities for the six months ended June 30, 2010 as reported in our consolidated statements of cash flows were decreases of $2.5 million in accounts receivable (before the change in allowance for doubtful accounts) and a $6.3 million customer deposit offset by an increase in accounts payable and accrued liabilities of $730,000.

In December 2009, we financed approximately $573,000 of insurance premiums payable in ten equal monthly installments of approximately $58,000 each, including a finance charge of 3.24%. On January 10, 2006, we entered into a five-year facility lease with initial monthly installments of $39,000 and annual adjustments over the lease term. On September 24, 2009, we entered into a “First Amendment to Lease” which extended the facility lease term to April 20, 2015, adjusted basic rent and made modification provisions to the security deposit. These amounts are included in the outstanding obligations as of June 30, 2010 listed below.

The following table presents our expected cash requirements for contractual obligations outstanding as of June 30, 2010 for the years ending as indicated below (in thousands):


	Less Than		1 to 3		3 to 5		More Than
	1 Year		Years		Years		5 years		Total
Operating leases	$	481	$	976	$	947	$	—	$	2,404
SurgiLight agreement		25		—		—		—		25
Insurance premium financing		174		—		—		—		174

Total	$	680	$	976	$	947	$	—	$	2,603

In addition and not included in the above table is a long term commitment to a supplier in the amount of $4.7 million for purchases through 2012.

In January 2008, Jake St. Philip was appointed our Chief Executive Officer. On March 5, 2009, Mr. St. Philip resigned as our Chief Executive Officer and as a director of our Board of Directors. On March 10, 2009, we entered into a Separation and General Release Agreement, or Agreement, with Mr. St. Philip. Pursuant to the Agreement, we agreed to pay Mr. St. Philip a severance payment of $350,000 of which half was paid on May 9, 2009 and half was paid in twelve consecutive equal monthly installments commencing on June 1, 2009. In addition, we paid COBRA premiums on his behalf for twelve months. The Agreement superseded the Employment Agreement we had with Mr. St. Philip dated January 2, 2008.

On April 30, 2008, we appointed David M. Mulder as Chief Financial Officer. Mr. Mulder has an employment agreement that obligates us to pay him severance benefits under certain conditions, including termination without cause and resignation with good reason. In the event Mr. Mulder is terminated by us without cause or he resigns with good reason, the total severance benefits payable would be approximately $255,000 based on compensation in effect as of April 30, 2008, the date Mr. Mulder was appointed as our then Chief Financial Officer. On March 5, 2009, Mr. Mulder was appointed Chief Executive Officer and appointed to our Board of Directors. On April 3, 2009, we modified the financial terms of Mr. Mulder’s employment with us, in connection with his appointment to the position of Chief Executive Officer. Under the new terms of Mr. Mulder’s employment, in the event he is terminated by us without cause or he resigns with good reason, we agreed to pay Mr. Mulder his base salary then in effect (or $250,000, his new base salary as modified on April 3, 2009) payable in twenty-four equal semi-monthly installments. In addition, we agreed to pay Mr. Mulder’s COBRA premiums for twelve months. On June 10, 2010, Mr. Mulder was appointed President and Chairman of the Board.

On July 14, 2009, we appointed Brett L. Scott as Chief Financial Officer. Mr. Scott has an employment agreement that obligates us to pay him severance benefits under certain conditions, including termination without cause and resignation with good reason. In the event Mr. Scott is terminated by us without cause or he resigns with good reason, the total severance benefits payable would be approximately $102,500 based on the employment agreement in effect as of July 14, 2009. In addition, we agreed to pay Mr. Scott’s COBRA premiums for six months. On July 6, 2010, Mr. Scott resigned from his position as our Chief Financial Officer. On July 6, 2010, we entered into a Separation Agreement, or Agreement, with Mr. Scott. Pursuant to the Agreement, we agreed to pay Mr. Scott a severance payment of $17,500, payable in two consecutive installments. In addition, we agreed to pay COBRA premiums on his behalf for three months. The Agreement superseded the severance provisions contained in the Employment Agreement we had with Mr. Scott dated July 14, 2009.

On June 10, 2010, Mr. Federico Pignatelli was terminated as President of the Company. On July 1, 2010, Mr. Pignatelli was appointed Vice Chairman of the Board of Directors. In connection with such appointment, Mr. Pignatelli agreed to $1 cash compensation and 35,000 shares of Stock Options in lieu of the cash compensation paid to our Directors. We also agreed to reimburse Mr. Pignatelli for $50,000 of his out-of-pocket legal fees and expenses incurred in conjunction with stockholder activities.

In addition to Mr. Mulder, certain other members of management are entitled to severance benefits payable upon termination following a change in control, which would approximate $1.5 million. Also, we have agreements with certain employees to pay bonuses based on targeted performance criteria.

In addition to the amounts shown in the table above, $109,000 of unrecognized tax benefits have been recorded as liabilities, and we are uncertain as to if or when such amounts may be settled. Related to these unrecognized tax benefits, we have also recorded a liability for potential penalties and interest of $20,000 and $27,000, respectively, at June 30, 2010. The liability for unrecognized tax benefits at June 30, 2010 and December 31, 2009 was $156,000 and $153,000, respectively.

Our capital requirements will depend on many factors, including, among other things, the effects of any acquisitions we may pursue as well as the rate at which our business grows, with corresponding demands for working capital and manufacturing capacity. We could be required or may elect to seek additional funding through public or private equity or debt financing. However, a credit facility, or additional funds through public or private equity or other debt financing, may not be available on terms acceptable to us or at all. Without additional funds and/or increased revenues, we may not have enough cash/financial resources to operate for the next twelve months.

Recent Accounting Pronouncements

See Note 2 of the Notes to Consolidated Financial Statements (Unaudited) included in this report for a discussion on recent accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Substantially all of our revenue is denominated in U.S. dollars, including sales to our international distributors. Only a small portion of our revenue and expenses is denominated in foreign currencies, principally the Euro. Our Euro expenditures primarily consist of the cost of maintaining our office in Germany, including the facility and employee-related costs. To date, we have not entered into any hedging contracts. Future fluctuations in the value of the U.S. dollar may, however, affect the price competitiveness of our products outside the United States.

Through February 5, 2009, we had a line of credit which bore interest at rates based on the Prime Rate or LIBOR. The line of credit was terminated on February 5, 2009 and the balance was repaid in full.

On May 27, 2010 we entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Financial, LLC, a Delaware limited liability company, and Silicon Valley Bank, a California corporation (collectively, the “Lenders”) for term loan funding of up to $5 million, $3 million of which was funded immediately and bore interest at an annual percentage rate equal to the greater of the thirty (30) day LIBOR rate or three percent, plus eleven and one quarter percent or 14.25% .

Our primary objective in managing our cash balances has been preservation of principal and maintenance of liquidity to meet our operating needs. Most of our excess cash balances are invested in money market accounts in which there is minimal interest rate risk.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2010. Based on this evaluation, our chief executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of June 30, 2010.

Changes in Internal Control over Financial Reporting

In our Annual Report on Form 10-K for the year ended December 31, 2009, we disclosed management’s assessment that our internal control over financial reporting contained no material weaknesses. No change in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred in 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION.

ITEM 1. LEGAL PROCEEDINGS.

ITEM 1A. RISK FACTORS.

Our business, financial condition, and results of operations can be impacted by a number of risk factors, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. The discussion of our business and operations should be read together with the risk factors below and those contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 which was filed with the SEC, and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010 which was filed with the SEC, and describe the various risks and uncertainties to which we are or may be subject. Any of these risks could materially and adversely affect our business, financial condition and results of operations, which in turn could materially and adversely affect the price of our common stock or other securities.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On May 5, 2010, we held our 2010 Annual Meeting of Stockholders to vote on two proposals. The number of shares entitled to vote was 24,244,201. The number of shares represented in person or by proxy was 18,956,775.

The following are the voting results for the proposals:

PROPOSAL 1: Election of six directors to serve until our next annual meeting of stockholders.


	Number of Votes
Robert M. Anderton
For		7,529,417
Against		6,400,713
Abstain		89,554
Broker Non-votes		4,937,091

Total		18,956,775


George V. d’Arbeloff
For		7,445,521
Against		6,485,074
Abstain		89,089
Broker Non-votes		4,937,091

Total		18,956,775


James R. Largent
For		7,469,900
Against		6,459,665
Abstain		90,119
Broker Non-votes		4,937,091

Total		18,956,775


	Number of Votes
Federico Pignatelli
For		13,464,983
Against		450,712
Abstain		103,989
Broker Non-votes		4,937,091

Total		18,956,775


David M. Mulder
For		7,542,238
Against		6,369,375
Abstain		108,071
Broker Non-votes		4,937,091

Total		18,956,775


Gregory D. Waller
For		7,514,193
Against		6,403,372
Abstain		102,119
Broker Non-votes		4,937,091

Total		18,956,775

PROPOSAL 2: To ratify the appointment of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.


	Number of Votes
For		18,591,943
Against		219,300
Abstain		145,532

Total votes		18,956,775

ITEM 6. EXHIBITS


Exhibit No.			Description

	10.1	†	License Agreement, dated May 20, 2010, by and between Biolase Technology, Inc. and The Procter & Gamble Company.

	10.2		Loan and Security Agreement, dated May 27, 2010, by and among Biolase Technology, Inc., MidCap Financial, LLC, and Silicon Valley Bank.

	10.3		Secured Promissory Note, dated May 27, 2010, in favor of MidCap Financial, LLC

	10.4		Secured Promissory Note, dated May 27, 2010, in favor of Silicon Valley Bank.

	10.5		Warrant, dated May 27, 2010, in favor of MidCap Financial, LLC.

	10.6		Warrant, dated May 27, 2010, in favor of Silicon Valley Bank.

	10.7		Intellectual Property Security Agreement, dated May 27, 2010, by and between Biolase Technology, Inc. and MidCap Financial, LLC

	31.1		Certification of David M. Mulder pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

	32.1		Certification of David M. Mulder pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


†		Confidential treatment was requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions were omitted from this exhibit and filed separately with the Securities and Exchange Commission.

SIGNATURE

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.

Dated: August 16, 2010


		BIOLASE TECHNOLOGY, INC.,
		a Delaware corporation

		By:		/s/ DAVID M. MULDER David M. Mulder
				Chairman, Chief Executive Officer, and
				President (Principal Executive Officer and
				Principal Financial and Accounting Officer)

EX-10.1 2 c05030exv10w1.htm EXHIBIT 10.1 Exhibit 10.1

Exhibit 10.1

LICENSE AGREEMENT

This LICENSE AGREEMENT supersedes the license agreement having an effective date of the 24th day of January, 2007 (the “FIRST EFFECTIVE DATE”), between BIOLASE TECHNOLOGY, Inc. (hereinafter along with its AFFILIATES, referred to as “BIOLASE”), located at 4 Cromwell, Irvine, California 92618 and The Procter & Gamble Company (hereinafter along with its AFFILIATES, referred to as “P&G”) located at One Procter & Gamble Plaza, Cincinnati, Ohio 45202. The license agreement having the FIRST EFFECTIVE DATE is referred to hereafter as “PREVIOUS AGREEMENT” and this LICENSE AGREEMENT is referred to hereafter as “SECOND AGREEMENT”. P&G and BIOLASE may each be referred to as a “PARTY” and collectively as the “PARTIES”. The SECOND AGREEMENT shall supersede the PREVIOUS AGREEMENT.

Whereas, P&G is engaged in the business of developing, manufacturing, marketing, distributing, selling and supporting a range of consumer products;

Whereas, BIOLASE is the owner or has certain rights in certain patents and technology as is more particularly set out in Exhibit A; and further, as is more particularly set out in Exhibit C;

Whereas, P&G and BIOLASE entered into a Letter Agreement (the “LETTER”) dated June 28^th, 2006 setting forth the general terms and conditions for the PREVIOUS AGREEMENT;

Whereas, P&G wishes to obtain, and BIOLASE is willing to grant to P&G, an exclusive license to the BIOLASE IP (as defined in Section 1.2) and BIOLASE TECHNOLOGY (as defined in Section 1.5) according to the terms and conditions of the SECOND AGREEMENT;

Whereas, BIOLASE will retain certain rights to the BIOLASE PATENTS and BIOLASE TECHNOLOGY according to the terms and conditions of the SECOND AGREEMENT;

Whereas, P&G is the owner or has certain rights in certain patents and technology as is more particularly set out in Exhibit F;

Whereas, BIOLASE wishes to obtain, and P&G is willing to grant to BIOLASE, an exclusive license to the P&G IP (defined in section 1.14) according to the terms and conditions of this SECOND AGREEMENT;

Whereas P&G will retain certain rights to the P&G IP according to the terms and conditions of this SECOND AGREEMENT; and

Whereas the PARTIES mutually agree to terminate the PREVIOUS AGREEMENT subject to the surviving provisions thereof.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Now, therefore, in consideration of the foregoing and other mutual promises hereinafter set forth and for other good and valuable consideration, the PARTIES hereto agree as follows:

DEFINITIONS

1.1

“AFFILIATE” means any corporation, limited liability company or other legal entity which directly or indirectly controls, is controlled by, or is under common control with P&G or BIOLASE, including any successor or assign of such an entity. “CONTROL”, with respect to an AFFILIATE, shall mean the direct or indirect ownership of at least fifty percent (50%) of (i) the income, (ii) the outstanding shares on a fully diluted basis or other voting rights of the subject entity to elect directors, or if not meeting the preceding, any entity owned or controlled by or owning or controlling at the maximum control or ownership right permitted in the country where such entity exists, or (iii) such other arrangement as constitutes the direct or indirect ability to direct the management, affairs or actions of such entity.

1.2

“BIOLASE INTELLECTUAL PROPERTY” (BIOLASE IP) means all present and future: inventions, whether or not patentable; BIOLASE PATENTS; copyrights; trade secrets; and any other rights or information or materials within the P&G FIELDS OF USE, whether confidential or not, owned by BIOLASE or in which BIOLASE has a transferable or LICENSABLE INTEREST.

1.3

“BIOLASE PATENTS” means those present and future patents and patent applications within the P&G FIELDS OF USE or within the BIOLASE TECHNOLOGY or the BIOLASE RETAINED FIELD to the extent permitted under Section 2.4 of this AGREEMENT, including but not limited to: i) the patents listed in Exhibits A and C, and any parent applications, continuations, continuations-in-part, divisionals, re-exams, reissues thereof, ii) any subsequent patents or patent applications having applicability in the P&G FIELDS OF USE in which BIOLASE has ownership or has a transferable or LICENSABLE INTEREST, and iii) any foreign equivalents of the foregoing

1.4

“BIOLASE RETAINED FIELD” means any and all fields of use and products which are (a) currently, meaning as of the EFFECTIVE DATE, marketed by BIOLASE; and (b) other fields of use and products intended to be used primarily in ****. BIOLASE shall also retain all rights to the BIOLASE IP and BIOLASE TECHNOLOGY that are outside the P&G FIELDS OF USE. BIOLASE shall also retain all rights to products that revert to BIOLASE as provided herein.

The BIOLASE RETAINED FIELD also includes any and all fields of use which are primarily administered by ****.

The BIOLASE RETAINED FIELD also includes products, methods, applications and services directly or indirectly using ****.

The BIOLASE RETAINED FIELD is applicable to products and methods ****. For the avoidance of doubt, products, methods, applications and services within the PRIMARY P&G FIELD OF USE that relate to “(ii)”, “(iii)”, “(iv)”, “(v)”, “(vi)”, and “(vii)” herein are not part of the BIOLASE RETAINED FIELD and are specifically included in the PRIMARY P&G FIELD OF USE.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

For the avoidance of doubt, the BIOLASE RETAINED FIELD includes the Waterlase, the Waterlase MD, the DioLase Plus, the LaserSmile, the Oculase, all related consumables, accessories and related products, methods and all future generations and product line extensions of the aforementioned products.

The BIOLASE RETAINED FIELD specifically excludes the PRIMARY P&G FIELD OF USE, as defined below and specifically excludes BIOLASE PRODUCT as defined below.

1.5

“BIOLASE TECHNOLOGY” means any present or future information or materials, whether confidential or not, in the possession of BIOLASE, including know-how, developments, concepts, technical knowledge, expertise, skill, practice, analytical methodology, clinical data, manufacturing knowledge, drawings, specifications, processes, techniques, samples, specimens, prototypes, designs, research and development results, safety and efficacy data, and other technical and scientific information reasonably useful or helpful to P&G for the development and marketing of product(s) within the P&G FIELDS OF USE.

1.6

“IMPROVEMENTS” shall mean any and all technology or intellectual property rights in and to any update, modification, customization, translation, upgrade, improvement, enhancement and/or derivative work whether or not developed under a JDA or SERVICES agreement between the PARTIES.

1.7

“LICENSABLE INTEREST” shall mean any licensable interest, whether or not royalty-bearing, that exists prior to the EFFECTIVE DATE, or that is licensed by BIOLASE from any third party after the EFFECTIVE DATE.

1.8

“NET OUTSIDE SALES” (NOS) means gross sales to customers (i.e., list price multiplied by total units shipped) less all insurance, duties and sales or value added tax actually paid and less all consumer and trade discounts and allowances, including, without limitation, quantity discounts, returns, listing fees, free goods, contests and offers, cash discounts and all other payments to consumers and trade. All deductions to sales will be specific to sales activity for the product.

1.9

“P&G PRODUCT” shall mean any method, system, product, device or machine (or component thereof), accessory, consumable, composition, compound, ingredient, application, formulation, material, or combinations thereof in the P&G FIELDS OF USE, or within the BIOLASE RETAINED FIELD to the extent permitted under Section 2.4 of this SECOND AGREEMENT, and which, but for the right and license granted herein, would infringe or cause the inducement of an infringement or contribute to or induce the infringement of one or more valid and enforceable claims of one or more BIOLASE PATENTS irrespective of the country of grant or pendency; and/or uses any or all of BIOLASE IP.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

For the avoidance of doubt, any accessory, component, consumable, or **** composition that would contribute to or induce the infringement of one or more valid and enforceable claims of a BIOLASE PATENT shall be considered a P&G PRODUCT hereunder. For example, if a valid and enforceable granted BIOLASE PATENT claim reads upon the combination of ****, both **** are P&G PRODUCTS hereunder to the extent the **** induces or contributes to the infringement of the granted, valid and enforceable BIOLASE PATENT claim. For example, if a valid and enforceable granted BIOLASE PATENT claim reads upon ****, both are P&G PRODUCTS hereunder.

However, if the valid and enforceable granted BIOLASE PATENT claim reads upon the ****, then **** is not a P&G PRODUCT. Further, if **** may be sold or used with **** is still not a P&G PRODUCT. For example, if the valid and enforceable granted BIOLASE PATENT claim reads upon ****, then **** is not a P&G PRODUCT. Further, if **** may be sold or used with the ****, the **** is still not a P&G PRODUCT.

1.10

“P&G FIELDS OF USE” means, being applicable to ****, including the PRIMARY P&G FIELD OF USE, and applications relating to or associated with ****. The P&G FIELDS OF USE excludes the BIOLASE RETAINED FIELD. The P&G FIELDS OF USE also excludes the ****, unless P&G exercises its option to add the ****to the PRIMARY P&G FIELD OF USE.

1.11

“PRIMARY P&G FIELD OF USE” means ****. The PRIMARY P&G FIELD OF USE specifically excludes the BIOLASE RETAINED FIELD.

	1.12		“QUARTER” means any one of the following four (4) time periods within a calendar year: i) January, February, and March (“JFM”); ii) April, May, and June (“AMJ”); iii) July, August and September (“JAS”); and iv) October, November, and December (“OND”).

	1.13		“BIOLASE FIELD OF USE” means ****.

1.14

“P&G INTELLECTUAL PROPERTY” (P&G IP) means P&G PATENTS; trade secrets; clinical results; know how relevant to **** which is owned by P&G and available to license to BIOLASE.

1.15

“P&G PATENTS” means (1) those patents and patent applications listed in Exhibit F, (2) any continuations, continuations-in-part, divisionals, re-exams, reissues thereof, and (3) any foreign equivalents of the foregoing.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

1.16

“P&G RETAINED FIELD” means any and all ****. P&G will also retain all rights to P&G IP outside the BIOLASE FIELD OF USE.

1.17

“BIOLASE PRODUCT” shall mean any method; system; product; device; machine (or component thereof); accessory; consumable; composition (e.g. rinse, dentifrice); compound; ingredient; application; formulation; material; or combinations thereof in the BIOLASE FIELD OF USE, and which, but for the right and license granted herein, would infringe or cause the inducement of an infringement or contribute to the infringement of one or more valid and enforceable claims of one or more P&G PATENTS irrespective of the country of grant or pendency; and/or uses any or all of P&G IP. For avoidance of doubt, BIOLASE PRODUCT shall include the following: ****. For the avoidance of doubt, ****.

1.18

“PREVIOUS AGREEMENT” means the AGREEMENT entered into between the PARTIES having an effective date of January 24, 2007.

1.19

“FIRST EFFECTIVE DATE” means the effective date of the PREVIOUS AGREEMENT, i.e. January 24, 2007.

1.20

“PREVIOUSLY PAID QUARTERLY PAYMENTS” means the **** ($****) by P&G to BIOLASE per section 4.1 of the PREVIOUS AGREEMENT.

1.21

“LARGE SCALE COMMERCIAL DISTRIBUTION” means distribution of a P&G PRODUCT or a BIOLASE PRODUCT that is offered for sale on a scale relatively consistent to other new products launched by the respective company.

LICENSE GRANTS

2.1

License Grant to P&G. BIOLASE hereby grants to P&G an exclusive (even as to BIOLASE), worldwide, transferable, right and license under all BIOLASE IP and BIOLASE TECHNOLOGY within the P&G FIELDS OF USE, with rights to sub-license, to make and have made, use, import, export, sell, have sold, and offer for sale P&G PRODUCTS anywhere in the world.

2.2

Conversion to Non-Exclusive License. P&G may, in its sole discretion, convert, at **** from the FIRST EFFECTIVE DATE of the PREVIOUS AGREEMENT, its exclusive license(s) under this SECOND AGREEMENT to non-exclusive license(s).

2.2.1

In the event the exclusive license is converted to a non-exclusive license under any of the provisions of this SECOND AGREEMENT, the royalty rates shall remain as agreed to herein (at ****). However, if BIOLASE enters into a nonexclusive license with a third party at more favorable terms than that granted to P&G, BIOLASE will offer the same terms to P&G, which P&G may accept at its sole discretion. For example, if BIOLASE grants a third party rights at a lower royalty rate than that applicable to P&G, P&G will be offered the opportunity to convert its royalty rate to the lower royalty rate granted to such third party, with such lower rate to take effect upon execution of such third party agreement.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

2.2.2

P&G’s option to take exclusive control of prosecution and litigation of BIOLASE PATENTS under 6.1 and 7.3-7.7 will terminate in the event that the exclusive license is converted to a non-exclusive license.

2.2.3

Should the license from BIOLASE to P&G revert to a non-exclusive license, BIOLASE will notify P&G in writing of the commencement of any third party discussions and/or negotiations regarding BIOLASE IP. Upon receipt of notification from BIOLASE, P&G will have **** to resume exclusivity payments as described in section 4.2.1. If P&G resumes payments as described in section 4.2.1, then the license from BIOLASE to P&G of BIOLASE IP will revert from non-exclusive to an exclusive license.

2.3

P&G hereby grants to BIOLASE an exclusive (even as to P&G), worldwide, non-transferable, revocable, right and license under P&G IP within the BIOLASE FIELD OF USE, with rights to make and have made, use, import, export, sell, and offer for sale BIOLASE PRODUCTS anywhere in the world.

2.4

Unless otherwise agreed to in writing between the PARTIES, if, three years have lapsed from the EFFECTIVE DATE of this SECOND AGREEMENT, and BIOLASE has not implemented a LARGE SCALE COMMERCIAL DISTRIBUTION of a BIOLASE PRODUCT, then the exclusive license to P&G IP will revert to a non-exclusive license.

2.5

No Other Licenses Granted to BIOLASE. The licenses granted BIOLASE under this SECOND AGREEMENT are limited to those specifically set forth in Section 2.3. Nothing in this SECOND AGREEMENT will be construed to grant BIOLASE any rights or licenses to any other patent, technical information, know-how, or other intellectual property of P&G. All rights not specifically granted to BIOLASE are reserved by P&G.

2.6

No Other Licenses Granted to P&G. The licenses granted P&G under this SECOND AGREEMENT are limited to those specifically set forth in Section 2.1. Nothing in this SECOND AGREEMENT will be construed to grant P&G any rights or licenses to any other patent, technical information, know-how, or other intellectual property of BIOLASE. All rights not specifically granted to P&G are reserved by BIOLASE.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

TECHNOLOGY TRANSFER

3.1

Licensed BIOLASE TECHNOLOGY and BIOLASE IP Related to the PRIMARY P&G FIELD OF USE. Upon reasonable written (including electronically) request by P&G, BIOLASE will share or transfer to P&G, relevant aspects of the BIOLASE TECHNOLOGY and BIOLASE IP licensed to P&G in the PRIMARY P&G FIELD OF USE, including, the patent applications for the BIOLASE PATENTS in Exhibit A and related patent prosecution information, including conception and reduction to practice information, and will reasonably make available to P&G for consultation those BIOLASE employees with substantive knowledge regarding the application of BIOLASE TECHNOLOGY and BIOLASE IP in the PRIMARY P&G FIELD OF USE; provided, however, that BIOLASE will not be required to provide more than **** of such consultation time per quarter to P&G and no more than **** in four **** consecutive calendar quarters. P&G and BIOLASE will appoint technical and patent liaisons who will serve as designated points of contact to develop and coordinate a timely process that is not overly burdensome for BIOLASE to effectuate said sharing of BIOLASE TECHNOLOGY and BIOLASE IP in the event P&G provides BIOLASE with a reasonable written request hereunder.

3.1.1

In the event that such consultation leads P&G to determine that direct involvement of BIOLASE employees and R&D resources will be beneficial to the development of products using the BIOLASE TECHNOLOGY, P&G and BIOLASE may also enter into a joint development agreement (“JDA”), or other agreement, pursuant to which BIOLASE will provide P&G with the specified testing, research, development, prototyping, production, manufacturing services or other assistance requested by P&G, to test, develop, produce and manufacture prototype P&G PRODUCTS and such other products using the BIOLASE TECHNOLOGY as P&G may request (“SERVICES”).

As applicable, the PARTIES will meet at least annually to review progress on specific development projects within the P&G FIELDS OF USE.

3.2

Licensed BIOLASE TECHNOLOGY and BIOLASE IP in P&G FIELDS OF USE (excluding the PRIMARY P&G FIELD OF USE). Upon reasonable written request from P&G, BIOLASE will share the information reasonably necessary for P&G to determine whether P&G has an interest in developing and commercializing a BIOLASE TECHNOLOGY or BIOLASE IP within the P&G FIELDS OF USE (excluding the PRIMARY P&G FIELD OF USE). Should P&G have an interest in evaluating or commercializing BIOLASE TECHNOLOGY or BIOLASE IP disclosed under this Section 3.2, BIOLASE shall disclose information to P&G which is reasonably related to P&G’s interest (including development and manufacturing information), within a commercially reasonable period of time of P&G’s request to BIOLASE.

3.3

Licensed P&G IP in the BIOLASE FIELD OF USE. P&G shall share or transfer to BIOLASE, relevant aspects of the P&G IP licensed to BIOLASE in the BIOLASE FIELD OF USE. P&G will reasonably make available to BIOLASE not more than **** with substantive knowledge regarding the application of P&G IP in the BIOLASE FIELD OF USE. P&G will provide the information in a one time workshop format which will be at least one day but not more than **** and will not be more than **** in total. Said one time workshop will occur within **** of the SIGNING DATE of this SECOND AGREEMENT. P&G and BIOLASE agree to negotiate in good faith a request made by BIOLASE to P&G for additional transferring or sharing related to this section 3.3. For the purposes of clarity P&G is not obligated to provide the requested additional assistance and may ultimately refuse to provide such additional assistance.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

PAYMENTS

4.1

Milestone Payments for First P&G Product and Second P&G Product

4.1.1

First Product Shipment Payment. P&G shall pay BIOLASE a product launch milestone payment in the amount of **** ($****) on the terms and subject to the conditions set forth here below (the “FIRST PRODUCT SHIPMENT PAYMENT”).

4.1.1.1

The FIRST PRODUCT SHIPMENT PAYMENT shall be due ****.

4.1.1.2

Payments made under this Section 4.1.1 are non-refundable except as otherwise provided herein. For the sake of clarity, BIOLASE will be entitled to only one FIRST PRODUCT SHIPMENT PAYMENT and under no circumstance will there be another FIRST PRODUCT SHIPMENT PAYMENT.

4.1.2.

Second Product Shipment Payment. P&G shall pay BIOLASE a second product launch milestone payment in the amount of **** ($****) on the terms and subject to the conditions set forth here below (the “SECOND PRODUCT SHIPMENT PAYMENT”).

	4.1.2.1		The SECOND PRODUCT SHIPMENT PAYMENT shall be due ****.

	4.1.2.2		The SECOND PRODUCT SHIPMENT PAYMENT will be treated as prepaid royalties to be deducted from any subsequent ROYALTY PAYMENTS owed under this SECOND AGREEMENT. The second P&G PRODUCT will not include cosmetic changes or minor improvements (refreshes) which do not fundamentally change the benefit delivered by the first P&G PRODUCT. The second P&G PRODUCT is one that is largely unique and different from the first P&G PRODUCT. For the avoidance of doubt, some non-limiting examples of a P&G PRODUCT that does not differ significantly from the first P&G PRODUCT are P&G PRODUCTS that incorporate only packaging changes; artwork changes; bonus packs; marketing promotions; changes to the size, color or shape of the P&G PRODUCT; the addition or elimination of minor excipients, and combinations thereof. Payments made under this Section 4.1.2 are non-refundable except as otherwise provided herein. For the sake of clarity, BIOLASE shall be entitled to only one SECOND PRODUCT SHIPMENT PAYMENT and under no circumstance will there be another SECOND PRODUCT SHIPMENT PAYMENT. For the sake of clarity and to serve as an example, if a first P&G PRODUCT **. Further, if a first P&G PRODUCT **.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4.1.3.

For the sake of clarity, in no circumstance will there be a third product shipment payment.

4.2

Quarterly Payments: P&G will allow BIOLASE to remove a sum of **** ($****) per QUARTER, hereafter “P&G QUARTERLY PAYMENTS” from the PREVIOUSLY PAID QUARTERLY PAYMENTS.

4.2.1

Upon the conclusion of **** after the EFFECTIVE DATE of this SECOND AGREEMENT, the exclusive license granted to P&G by BIOLASE under section 2.1 shall revert to a non-exclusive license unless P&G pays to BIOLASE a QUARTERLY payment of **** ($****).

4.2.2.

Because the EFFECTIVE DATE of this SECOND AGREEMENT is retroactive to January 1, 2009, BIOLASE will have the option to remove **** P&G QUARTERLY PAYMENTS from the PREVIOUSLY PAID QUARTERLY PAYMENTS within **** of this SECOND AGREEMENT. Again for clarity, the P&G QUARTERLY PAYMENTS shall be deducted from the prepaid royalties of the PREVIOUSLY PAID QUARTERLY PAYMENTS made by P&G to BIOLASE.

4.3

In consideration for the license to P&G IP, BIOLASE will make royalty payments (the “BIOLASE ROYALTY PAYMENTS”) to P&G based on **** of BIOLASE PRODUCTS. The BIOLASE ROYALTY PAYMENTS shall be equal to ****.

4.4

Royalty Payments on Product Sales

4.4.1

A PARTY will make royalty payments (the “ROYALTY PAYMENTS”) to the other PARTY based on ****of such P&G PRODUCTS or BIOLASE PRODUCTS. The ROYALTY PAYMENT shall be equal to the ****.

4.4.2

The royalty rate shall be **** if the P&G PRODUCT is in a **** product category where P&G currently markets products **** (see D for a non-exhaustive list). For the avoidance of doubt, a **** shall be considered a product category where **** and shall be only subject to a **** royalty in the event a royalty is applicable. The royalty rate shall be **** if the P&G PRODUCT is in a product category where ****. The **** shall not trigger a **** royalty. Further, using **** will not trigger a **** royalty. For the avoidance of doubt, ****, then a ****or **** that **** would be considered a product in a category where ****.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4.4.3

The royalty rate shall be **** for BIOLASE PRODUCTS.

4.4.4

The amount of ROYALTY PAYMENTS due shall be calculated on a **** basis from the date of **** of P&G PRODUCT or BIOLASE PRODUCT in such country. ROYALTY PAYMENTS will only be due for sales in those countries where (1) commercial sale of a P&G PRODUCT (as defined in Section 1.9) is covered by one or more **** claims; or (2) commercial sale of a BIOLASE PRODUCT (as defined in Section 1.17) occurs. ROYALTY PAYMENTS will be paid on a QUARTERLY basis and will be due on the **** of the subject QUARTER. A PARTY may elect to combine ROYALTY PAYMENTS into a single payment mechanism (e.g., a single wire transfer).

4.4.5

If a P&G PRODUCT is launched after the expiration of **** from the EFFECTIVE DATE of this SECOND AGREEMENT, **** will be applied as pre-paid royalties from the PREVIOUSLY PAID QUARTERLY PAYMENTS.

4.4.6

If a P&G PRODUCT is launched before the expiration of **** from the EFFECTIVE DATE of this SECOND AGREEMENT, the amount of money remaining in the PREVIOUSLY PAID QUARTERLY PAYMENTS to be applied as pre-paid royalties will be ****.

4.5

P&G Sublicenses to Third Parties

4.5.1

Sublicenses Comprising Only BIOLASE PATENTS. To the extent that P&G would have owed ROYALTY PAYMENTS for a P&G PRODUCT under this SECOND AGREEMENT, sub-licenses (comprising only BIOLASE PATENTS) from P&G to third parties will bear the same royalty rate as if P&G had made the sale. Thus, P&G agrees that the net effect of the sub-license (comprising only BIOLASE PATENTS) to third parties will not deprive BIOLASE of ROYALTY PAYMENTS.

4.5.2

Sublicenses Comprising BIOLASE PATENTS and P&G Intellectual Property. In the event P&G enters any agreement with a third party that includes P&G intellectual property and a grant under BIOLASE PATENTS as part of that agreement, wherein said grant to such third party to sell products under BIOLASE PATENTS and said sale would have been subject to ROYALTY PAYMENTS by P&G to BIOLASE if P&G were selling such products, P&G and BIOLASE will mutually agree to ****, and P&G will pay **** to BIOLASE. For example, if P&G elected to license a third party rights under both BIOLASE PATENTS and P&G intellectual property, and **** obligated the third party to pay P&G **** to maintain such license then BIOLASE would receive a ****.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4.5.2.1

The ****under this Section 4.5.2.1 will be ****. It is foreseeable that BIOLASE, only as applicable to this Section 4.5.2.1 may receive **** compensation, according to ****, for BIOLASE PATENTS than they otherwise would have under this SECOND AGREEMENT. In no event, however, will the **** owed to BIOLASE exceed the equivalent of a ****ROYALTY PAYMENT, as would otherwise be applicable under this SECOND AGREEMENT.

4.6

BIOLASE’s right to have made

4.6.1

If BIOLASE requires the use of a third party(ies) to have BIOLASE PRODUCTS made, BIOLASE will establish a confidentiality agreement with the third party(ies).

4.6.1.1

The confidentiality agreement of section 4.6.1 will be at least as restrictive as the confidentiality requirements of this SECOND AGREEMENT, including the obligation of confidentiality beyond the termination of this SECOND AGREEMENT and/or the confidentiality agreement of section 4.6.1; and

4.6.1.2

said confidentiality agreement will explicitly name P&G as an intended third-party beneficiary with all legal rights associated thereto to enforce said confidentiality agreement.

4.7

A PARTY will deliver to the other PARTY a written report of all NOS of P&G PRODUCTS or BIOLASE PRODUCTS by country, in all countries where royalty payments are due on P&G PRODUCTS or BIOLASE PRODUCTS sold, the applicable royalty rate, the amount of earned royalty, and the calculation of the ROYALTY PAYMENT due to the P&G or BIOLASE after deduction of the current total amount of payments hereunder that ****. Said royalty report will be delivered by P&G or BIOLASE within **** of the last day of the QUARTER in which they are earned.

4.8

P&G and BIOLASE will keep accurate and complete records for P&G PRODUCTS or BIOLASE PRODUCTS marketed pursuant to this SECOND AGREEMENT of: (i) its calculation of NOS for P&G PRODUCTS or BIOLASE PRODUCTS (as defined herein); and (ii) all royalties paid and payable hereunder (hereinafter such reports will collectively be referred to as “SALES AND ROYALTY RECORDS”). Such SALES AND ROYALTY RECORDS will be kept with sufficient detail to enable an independent auditor to verify such figures and to calculate NOS and total royalties paid and payable hereunder and will be retained for the TERM and for at least **** subsequent to expiration of the TERM or termination.

4.9

All payments due to P&G or BIOLASE under this Article will be made in U.S. Dollars via wire transfer to an account designated by P&G or BIOLASE. The sending PARTY will notify the receiving PARTY as indicated below prior to sending any such wire transfers.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4.10

Any SALES AND ROYALTY RECORD(S) and notification of any wire transfer(s) by P&G will be delivered to: BIOLASE TECHNOLOGY, Inc., 4 Cromwell, Irvine CA 92618, attention Richard Harrison, Chief Financial Officer and Secretary, or to his designee or successor.

4.11

Any SALES AND ROYALTY RECORD(S) and notification of any wire transfer(s) by BIOLASE will be delivered to: The Procter and Gamble Company, One Procter & Gamble Plaza, Cincinnati, Ohio 45202, attention Meg McCann.

4.12

At any time prior to the expiration of **** following the end of any calendar year, a PARTY will have the right to audit the other PARTY’s SALES AND ROYALTY RECORDS relative to this SECOND AGREEMENT, said auditor being independent, having no past relationship with either PARTY. The purpose of such audit will be to verify the calculation of gross sales for such year, NOS for such year and the royalties paid and payable hereunder for such year. A PARTY will provide at least **** advance written notice before each such audit. The audited PARTY will cooperate in such audit by allowing the other PARTY access (during audited PARTY’s normal business hours at the locations where such SALES AND ROYALTY RECORDS are kept) solely to the audited PARTY’s SALES AND ROYALTY RECORDS. Upon request by audited PARTY, the auditor may be required, as a condition of being granted access to PARTY’s SALES AND ROYALTY RECORDS hereunder, to agree to maintain any information reviewed (including, but not limited to the AUDITOR’S REPORTS (defined in Section 4.13) submitted to the PARTIES pursuant to 4.13 below) in confidence. Notwithstanding anything herein to the contrary, a PARTY may only cause an audit once in any calendar year and only once with respect to each calendar year.

4.13

At the conclusion of the auditor’s audit pursuant to Section 4.12 above, the auditor will submit a written report (herein “AUDITOR’S REPORT”) to the PARTIES setting forth the auditor’s findings with respect to the correct gross sales, NOS and total royalties paid and payable for the quarter(s) in question. If the AUDITOR’S REPORT results in findings as to gross sales, NOS or royalties which are different from those originally reported or paid by the audited PARTY, then the AUDITOR’S REPORT will include a reconciliation of the original figures with those found to be correct by the auditor and the source of such difference(s). The AUDITOR’S REPORT and its content will be treated as confidential pursuant to Section 12. If there is no challenge to the AUDITOR’S REPORT within **** after receipt of the report by the audited PARTY, and the AUDITOR’S REPORT shows an underpayment of royalties, then the audited PARTY will pay to the other PARTY within **** of expiration of the thirty day challenge period an amount sufficient to remedy the amount of any under reporting or underpayment of royalties found by the auditor plus interest calculated at the then current prime rate from the date such payment is due. If the AUDITOR’S REPORT shows an overpayment of royalties, such overpayment will be creditable against any future royalties payable in subsequent royalty periods. The cost and expense of any audit conducted hereunder will be borne by the PARTY requesting the audit unless the AUDITOR’S REPORT finds an error in requesting PARTY’s favor of at least **** of the royalties originally paid by the audited PARTY, in which case the audited PARTY will bear such cost and expense, subject to the outcome of the audit dispute resolution process specified in following section.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4.14

The PARTIES agree to work together with the auditor in good faith to resolve any disputes arising out of or relating to the numbers verified and the results reported in an AUDITOR’S REPORT in a timely, professional and non-adversarial manner. If the PARTIES and the auditor cannot so resolve a dispute, then either PARTY may submit such dispute for binding arbitration (hereinafter referred to as “ROYALTY ARBITRATION”) to a panel of three (3) arbitrators. Such ROYALTY ARBITRATION will be conducted in Cincinnati, Ohio, if brought by BIOLASE and in Irvine, California if brought by P&G. The arbitrators will be selected and the arbitration will be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association except that the only issue for arbitration in the ROYALTY ARBITRATION will be the accuracy of the reporting and calculation of the values for gross sales, NOS, and royalties paid and payable hereunder. The arbitrators will not have power to add to, subtract from or modify any of the terms or conditions of this SECOND AGREEMENT. Any award rendered in such arbitration may be enforced by either PARTY in the courts of the State of New York, to whose jurisdiction each PARTY hereby irrevocably consents and submits for such purpose. Each PARTY will bear its own expense associated with the ROYALTY ARBITRATION. The losing party will bear the cost of the arbitration itself and will also be required to pay the other party’s attorneys’ fees associated with the ROYALTY ARBITRATION. In the event that the outcome of the arbitration is such that there is not a clear losing party, then the PARTIES agree to share the costs for the arbitration in a manner consistent with the decision of the arbitrators.

4.15

Withholding by P&G. If a law or regulation of any country in which P&G PRODUCTS are sold requires withholding of taxes of any type, levies or other charges with respect to any amounts payable hereunder to BIOLASE, P&G will promptly pay such tax, levy or charge for and on behalf of BIOLASE to the proper governmental authority, and will promptly furnish BIOLASE with receipt of such payment. P&G will have the right to deduct any such tax, levy or charge actually paid from payment due BIOLASE or be promptly reimbursed by BIOLASE if no further payments are due BIOLASE. P&G agrees to assist BIOLASE in claiming exemption from such deductions or withholdings under double taxation or similar agreement or treaty from time to time in force and will use reasonable efforts to minimize the amount required to be so withheld or deducted.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4.16

Withholding by BIOLASE. If a law or regulation of any country in which BIOLASE PRODUCTS are sold requires withholding of taxes of any type, levies or other charges with respect to any amounts payable hereunder to P&G, BIOLASE will promptly pay such tax, levy or charge for and on behalf of P&G to the proper governmental authority, and will promptly furnish P&G with receipt of such payment. BIOLASE will have the right to deduct any such tax, levy or charge actually paid from payment due P&G or be promptly reimbursed by P&G if no further payments are due P&G. BIOLASE agrees to assist P&G in claiming exemption from such deductions or withholdings under double taxation or similar agreement or treaty from time to time in force and will use reasonable efforts to minimize the amount required to be so withheld or deducted.

4.17

Payment Due Dates. Any payment due under this SECOND AGREEMENT will be paid within **** of its due date. In the event the payor does not make the payment in full by the **** after the due date, the payee will be entitled to interest in the amount of **** on any unpaid amount, from **** following the due date until such time as the payor pays the payee the amount owed.

4.18

No more than **** after the launch of a BIOLASE PRODUCT, BIOLASE will provide to P&G consumer learnings, understandings, consumer feedback, sales data, and the like. BIOLASE and P&G may, but are not required to, work on said consumer learnings, understanding, consumer feedback, sales data, and the like jointly and again at ****.

INTELLECTUAL PROPERTY OWNERSHIP

5.1

Background Intellectual Property. All IP developed, conceived or reduced to practice prior to the EFFECTIVE DATE of this SECOND AGREEMENT will continue to be owned by the respective PARTY that developed, conceived or reduced it to practice.

5.2

Ownership by P&G. P&G will continue to own P&G IP, and, except as set forth herein in section 2.3, no other rights or licenses to the P&G IP will be granted to BIOLASE.

5.3

All IMPROVEMENTS made solely by P&G (P&G IMPROVEMENTS) will be owned and retained by P&G, including IMPROVEMENTS to BIOLASE TECHNOLOGY invented or developed solely by P&G. Further, IMPROVEMENTS made solely by P&G, including patent applications comprising only such IMPROVEMENTS, are not subject to this SECOND AGREEMENT.

5.4

Ownership by BIOLASE. BIOLASE will continue to own BIOLASE TECHNOLOGY and BIOLASE IP and, except as set forth herein, no other rights or licenses to the BIOLASE TECHNOLOGY or BIOLASE IP will be granted to P&G, and BIOLASE will own any IMPROVEMENTS that BIOLASE solely develops (BIOLASE IMPROVEMENTS), conceives or reduces to practice. Where the BIOLASE IMPROVEMENTS are to the BIOLASE PATENTS, such BIOLASE IMPROVEMENTS will be licensed to P&G in accordance with the terms of this SECOND AGREEMENT.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

5.5

Joint Ownership. The PARTIES will jointly own any IP that is jointly conceived under this SECOND AGREEMENT.

5.6

Pursuant to Section 3.1.1 above, the PARTIES may agree to enter into a JDA or SERVICES agreement. Terms and conditions for a JDA or SERVICES agreement will be agreed to at the time P&G and BIOLASE mutually agree to enter into such an arrangement.

PREPARATION AND PROSECUTION OF PATENT APPLICATIONS AND PATENT COSTS

6.1

Licensed BIOLASE PATENTS of Exhibit A. From the FIRST EFFECTIVE DATE of the PREVIOUS AGREEMENT and written notification from P&G, P&G will have the right, but not the obligation, to take control of the BIOLASE PATENTS listed in Exhibit A and patent applications comprising BIOLASE IMPROVEMENTS in the PRIMARY P&G FIELD OF USE and P&G/BIOLASE joint IMPROVEMENTS in the PRIMARY P&G FIELD OF USE. P&G’s right to take control as discussed above in this Section 6.1 will mean to have sole responsibility and decision making authority for the preparation, filing (including the filing of continuations, continuations-in-part, divisionals, reissues, and reexaminations), prosecution, and maintenance of the BIOLASE PATENTS listed in Exhibit A. P&G will pay all costs and expenses associated with said control in the event and to the extent P&G exercises its right to take control of one or more BIOLASE PATENTS hereunder. BIOLASE will cooperate with P&G, including giving P&G power of attorney and changing the correspondence address to P&G’s address.

6.1.1

In the event that P&G takes control of a BIOLASE PATENT and decides not to prosecute or maintain said BIOLASE PATENT in any particular country (including the United States), BIOLASE may take back control of that patent or application in which event BIOLASE will be responsible for all costs and expenses associated with the said BIOLASE PATENT, including costs and expenses associated with the prosecution and maintenance of said patent.

6.1.1.1

In the event P&G elects not to prosecute or maintain a BIOLASE PATENT that P&G has taken control of, P&G will provide BIOLASE with at least **** advance written notice of such decision. P&G’s written notice will be done in a good faith manner which reasonably provides BIOLASE with at **** to continue with prosecution or maintenance of that BIOLASE PATENT. In the event that BIOLASE takes control of a BIOLASE PATENT under Sections 6.1.1, such change in control will have no effect on P&G’s payment obligations under Section 4 and said BIOLASE PATENT will continue to be licensed to P&G pursuant to the license grant of Section 2.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

6.1.1.2

P&G will only be responsible for the costs and expenses incurred from the time of control of a BIOLASE PATENT is taken by P&G to the sooner of (a) **** or (b) the **** from the time of notice to BIOLASE that P&G will not continue to prosecute or maintain particular BIOLASE PATENT(S).

6.1.2

It is P&G’s intention to achieve broad patent rights with the BIOLASE PATENTS it controls. It is further P&G’s intention to prosecute BIOLASE PATENTS in a way that protects P&G products. Both PARTIES realize that it is unforeseeable whether BIOLASE PATENTS may read upon future P&G products. BIOLASE may file divisionals, continuations and continuations-in-part in an attempt to issue claims which read on a product from the PRIMARY P&G FIELD OF USE. BIOLASE will have control and be responsible for all costs associated with any filings made by BIOLASE under this Section 6.1.2. Any filings made by BIOLASE under this Section 6.1.2 will be subject to the license granted to P&G under Section 2 of this AGREEMENT.

6.1.3

For the applications or patents which P&G controls or has taken control of under this SECOND AGREEMENT, P&G will notify BIOLASE of all written and oral communications to and from any patent office(s) (including, filings, official actions, responses to official actions, etc.) in the same manner outlined by Section 7.1.2 and BIOLASE will have the right to provide P&G with comments on matters relevant to all fields outside of the PRIMARY P&G FIELD OF USE and P&G will consider in good faith said BIOLASE comment(s) in the same manner outlined by Section 7.1.1.

6.1.4

Interferences, oppositions, and similar proceedings. For BIOLASE PATENTS controlled by P&G, P&G also may, in its sole discretion, elect to undertake or defend any interference, reexamination, opposition or similar procedure with respect to said BIOLASE PATENTS. P&G will be responsible for all costs and expenses associated with said proceedings. If P&G does not elect to undertake or defend any interference, reexamination, opposition or similar procedure, BIOLASE may elect to do so at BIOLASE’s expense.

6.1.5

P&G is the owner of other light based intellectual property. It is P&G’s intention to achieve broad patent rights with regard to the other light based intellectual property as well as the P&G PATENTS. BIOLASE acknowledges: (1) the existence of the other light based intellectual property owned by P&G; (2) the other light based intellectual property is excluded from this SECOND AGREEMENT; and (3) that it is unforeseeable whether the other light based intellectual property may read upon future BIOLASE PRODUCTS. Said other light based intellectual property is not and will not become subject to the SECOND AGREEMENT.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Licensed BIOLASE PATENTS Related to the P&G FIELD OF USE.

7.1

BIOLASE will provide to P&G a written update, at least ****, starting from the EFFECTIVE DATE of this SECOND AGREEMENT, of the BIOLASE PATENTS in Exhibits A and Exhibit C (if any consumer product categories in the P&G FIELDS OF USE remain after one (1) year from the FIRST EFFECTIVE DATE of the PREVIOUS AGREEMENT or if P&G accepts any BIOLASE RETAINED FIELD CATEGORIES offered by BIOLASE)

7.1.1

For all BIOLASE PATENTS in Exhibits A or C under the control of BIOLASE, P&G will have the ability to provide BIOLASE with comments relevant to the P&G FIELD OF USE and these comments will be considered in good faith by BIOLASE. P&G comments may include, but are not limited to, claim and specification amendments, submission of prior art, claim additions and deletions, and arguments responsive to official communications from a patent office related thereto.

7.1.2

For BIOLASE PATENTS in Exhibits A or C under the control of BIOLASE, copies of official written communications from a patent office will be provided to P&G as soon as reasonably possible, but in no event greater than **** after receipt by BIOLASE. Additionally, all papers prepared by BIOLASE for filing in a patent office will be provided to P&G within a reasonable period of time to allow for P&G comment and incorporation thereof by BIOLASE, as applicable. Each PARTY will be responsible for its own attorney’s fees and other costs incurred in reviewing filings and official communications, and making, reviewing, discussing, and incorporating comments. Copies of official written communications to a patent office will be provided to P&G as soon as reasonably possible, but in no event greater than **** after submission by BIOLASE

7.1.3

In the event that BIOLASE decides not to prosecute or maintain a BIOLASE PATENT in Exhibit A or Exhibit C in any particular country (including the United States), P&G may take control of that particular application or patent and elect to pay all costs and expenses associated with control, including prosecution and maintenance of the BIOLASE PATENTS. BIOLASE will provide P&G with at least **** advanced written notice of such decision not to prosecute or maintain a BIOLASE PATENT in Exhibits A or C as applicable. BIOLASE’s written notice will be done in a good faith manner which provides P&G with at least **** to continue with prosecution or maintenance of that BIOLASE PATENT. P&G may discontinue its prosecution or maintenance of a BIOLASE PATENT under this Section 7.1.3 at any time acting in its sole discretion.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

7.1.4

Interferences, oppositions, and similar proceedings. For BIOLASE PATENTS of Exhibit A that remain controlled by BIOLASE, BIOLASE will notify P&G of all written and oral communications to and from any patent office(s) concerning any reexamination, reissuance, interference, opposition or similar proceedings in the same manner outlined by Section 7.1.3 and P&G will have the right to comment on matters relevant to the PRIMARY P&G FIELD OF USE and BIOLASE will consider in good faith said P&G comment(s) in the same manner outlined by Section 7.1.1.

7.2

Cooperation. P&G and BIOLASE agree to fully cooperate regarding the execution of any documents necessary or desirable to prepare, prosecute, or maintain any patents under Section 7.

INFRINGEMENT BY THIRD PARTIES

8.1

Notification. Both BIOLASE and P&G agree to notify each other in writing should either PARTY become aware of a possible infringement of the BIOLASE PATENTS and/or P&G PATENTS that relate to the P&G FIELDS OF USE or the BIOLASE FIELD OF USE, respectively.

8.2

Third Party Infringement in P&G FIELDS OF USE (excluding the P&G PRIMARY FIELD OF USE).

8.2.1

If P&G provides BIOLASE with evidence of infringement of one of the BIOLASE PATENTS listed in or to be listed in Exhibit C in the P&G FIELDS OF USE other than the P&G PRIMARY FIELD OF USE, and if P&G has initiated development, then P&G may by written notice request BIOLASE to take steps to terminate the infringement. If BIOLASE does not, within **** of receipt of such notice, take appropriate action against the alleged infringement, then:

8.2.1.1

Upon written notice to BIOLASE, P&G will have the right, but not the obligation, as exclusive licensee to institute such action in its own name as it deems appropriate to terminate said infringement through negotiation, litigation, and/or alternative dispute resolution at P&G’s expense. As exclusive licensee, P&G will have the power at its expense to institute, prosecute and settle, including by granting the infringing party a sublicense, suits for infringement of the BIOLASE PATENTS listed in or to be listed in Exhibit C under this Section 8.2.1.1 after said **** period, and if required by law, BIOLASE will join as a party plaintiff in such suits at P&G’s expense.

8.2.1.2

P&G will have the right to select and control counsel in any action initiated by P&G under Section 8.2.1.1.

8.2.2

Any recovery awarded or received in connection with any negotiation, settlement or suit under this Section 8.2. in excess of litigation costs will belong solely to P&G except as provided under Section 4.5.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

8.3.

Third Party Infringement in PRIMARY P&G FIELD OF USE.

8.3.1

As exclusive licensee in the PRIMARY P&G FIELD OF USE, P&G will have sole decision making authority regarding enforcement of the BIOLASE PATENTS listed or belonging in Exhibit A. P&G will have the right, but not the obligation, to file, prosecute and settle any such claims at its sole discretion. P&G will retain any proceeds paid by a third party as a result of the enforcement of the BIOLASE PATENTS within the PRIMARY P&G FIELD OF USE except as provided under Section 4.5. BIOLASE agrees to cooperate with P&G with the enforcement of any claim within the PRIMARY P&G FIELDS OF USE and agrees to join, at P&G’s expense, any such action as a party plaintiff to the extent required by law.

8.3.1.1

P&G agrees that it will use reasonable efforts to consult with BIOLASE prior to the initiation of any action by P&G under Section 8.3.1. For the avoidance of doubt, said consultation under this Section 8.3.1.1 will not impair P&G’s right to, in its sole discretion, institute an action in its own name under Section 8.3.1 to terminate an infringement in the PRIMARY P&G FIELD OF USE.

8.3.1.2

P&G will have the right to control and to select counsel in any action initiated by P&G under Section 8.3.1.

8.3.1.3

Any recovery awarded or received in connection with any negotiation, settlement, or suit under this Section 8.3.1 in excess of litigation costs will belong solely to P&G except as provided under Section 4.5.

8.4

Third Party Infringement in BIOLASE RETAINED FIELD. BIOLASE will have sole control and discretion regarding how to proceed in the event that a third party is infringing one of the BIOLASE PATENTS in the BIOLASE RETAINED FIELD and any recovery or settlement awarded or received in connection with such action will be solely retained by BIOLASE.

8.5

Third Party Infringement in the BIOLASE FIELD OF USE. P&G will have the right, but not the obligation, to institute any action as it deems appropriate to terminate the infringement or misappropriation of P&G PATENTS through negotiation, litigation and/or alternative dispute resolution means, at its sole discretion and at its sole cost.

8.6

Prosecution of Third Party Infringement in Other Party’s FIELD OF USE.

8.6.1

To the extent that P&G is permitted to exploit a specific Product application in the BIOLASE RETAINED FIELD pursuant to Section 2.4 and a third party is infringing one of the BIOLASE PATENTS in connection with such Product application, such infringement will be treated as if it had taken place in P&G FIELDS OF USE (excluding the PRIMARY P&G FIELD OF USE) in accordance with Section 8.2.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

8.7.

Declaratory Judgments.

8.7.1

If (1) a declaratory judgment action alleging invalidity, unenforceability and/or non-infringement of any of the BIOLASE PATENTS is brought against P&G; (2) a declaratory judgment action alleging invalidity, unenforceability and/or non-infringement of any of the BIOLASE PATENTS is brought against BIOLASE for a BIOLASE PATENT under which P&G is paying BIOLASE a royalty; (3) a declaratory judgment action alleging invalidity, unenforceability and/or non-infringement of any P&G PATENTS is brought against BIOLASE; or (4) a declaratory judgment action alleging invalidity, unenforceability and/or non-infringement of any P&G PATENTS is brought against P&G, P&G may elect, in its sole discretion, to have sole control of the action, including, but not limited to, selection and control of counsel and the defense and settlement of the action, and if P&G so elects it will bear all the costs of the action and will defend against such declaratory judgment action. P&G will keep BIOLASE reasonably informed of the progress of the legal action. P&G may not agree to invalidity, unenforceability, or non-infringement of a BIOLASE PATENT or any claim thereof without BIOLASE’S prior written consent, which may not be unreasonably withheld.

8.7.2

Except as set forth in Section 8.7.1, if a declaratory judgment action alleging invalidity, unenforceability or non-infringement of any of the BIOLASE PATENTS is brought against BIOLASE, BIOLASE will have sole control of the action, including, but not limited to, selection and control of counsel and the defense and settlement of the action.

8.7.3

Except as set forth in Section 8.7.1, if a declaratory judgment action alleging invalidity, unenforceability or non-infringement of any of the BIOLASE PATENTS is brought against both PARTIES, BIOLASE will have sole control of the action, including, but not limited to, selection and control of counsel and the defense and settlement of the action.

8.8

Cooperation. Each PARTY will fully cooperate with the other PARTY, at said other PARTY’S expense, in support of any action initiated by said other PARTY under Section 8, including using commercially reasonable efforts to have its employees testify when requested and to make available relevant records, papers, information, samples, specimens, and the like.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

8.9

P&G as non-exclusive licensee. If BIOLASE elects not to institute such action to terminate third party infringement under section 8.2 or 8.3, or fails to do so within such 6 months of receiving P&G’s notice of infringement under section 8.1, then P&G may bring suit against the third party infringer in P&G’s own name, and/or in BIOLASE’s own name if necessary; provided, that P&G provides written notice to BIOLASE that such infringement is causing or will cause substantial harm to P&G’s sale of P&G PRODUCT. P&G will indemnify BIOLASE against any liability resulting from such P&G enforcement against a third party infringer, provided however, that P&G will not indemnify BIOLASE against any liability directly resulting from the actions of BIOLASE’s counsel or BIOLASE’s employees or agents. BIOLASE will have the right to participate in any such suit brought by P&G at BIOLASE’s own expense and by counsel of BIOLASE’s own selection. Upon request by P&G, BIOLASE will provide reasonable cooperation in the prosecution of any such suit and will provide P&G with all available evidence supporting such infringement. P&G will reimburse BIOLASE for all BIOLASE’s reasonable expenses related to such cooperation; such expenses maybe direct out of pocket expenses and/or, internal expenses; internal expenses will be billed at BIOLASE’s internal rate. Any costs or damages recovered as a result of such enforcement action will be shared between the PARTIES 50:50, following deduction of P&G’s reasonable expenses and legal fees directly connected to the enforcement action.

ALLEGED INFRINGEMENT BY THE PARTIES

9.1

Alleged Infringement by a PARTY.

9.1.1

If a PARTY, any of its AFFILIATES or sublicensees, distributors or other customers are approached by or sued by a third party concerning an allegation of patent infringement for the development, manufacture, use, distribution or sale of a P&G PRODUCT or a BIOLASE PRODUCT, the alleged infringing PARTY will promptly, within reason, notify the other PARTY upon its receiving written notice of such allegation. The alleged infringing PARTY will be entitled to solely control all aspects of the defense or mitigation of any such allegations, including but not limited to, selection and control of counsel, negotiation, litigation strategy development and execution, and settlement.

9.1.2

In the event P&G is a party to a legal action pursuant to Section 9.1.1, BIOLASE will fully cooperate with and supply all assistance reasonably requested by P&G, including by using commercially reasonable efforts to have its employees testify when requested and to make available relevant records, papers, information, samples, specimens, and the like. P&G will bear the reasonable expenses incurred by BIOLASE in providing assistance and cooperation as requested by P&G pursuant to this Section 9.1.2.

9.1.3

The alleged infringing PARTY will keep the other PARTY reasonably informed of the progress of the legal action, and the other PARTY will be entitled to be represented by counsel in connection with such legal action at its own expense.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

9.1.4

The alleged infringing PARTY will have the sole right to settle any claims under this Section 9.1.

9.1.5

In the event the alleged infringing PARTY settles any claim under Section 9.1.4., the alleged infringing PARTY agrees that it will not take any action that would (i) compromise any of the other PARTY’s assets, including but not limited to the BIOLASE PATENTS, BIOLASE IP, BIOLASE TECHNOLOGY, P&G PATENTS, P&G IP or (ii) obligate the other PARTY to a third party in any way. For the avoidance of doubt, nothing in this Section 9.1.5 will be interpreted to reduce, diminish, or extinguish any rights granted to P&G under this SECOND AGREEMENT.

10.

REPRESENTATIONS AND WARRANTIES

10.1

Of Both PARTIES. Each PARTY represents and warrants to the other PARTY that, as of the EFFECTIVE DATE of this SECOND AGREEMENT:

10.1.1

The execution, delivery and performance of this SECOND AGREEMENT and the consummation by the warranting PARTY of the transactions contemplated hereby have been duly authorized by all necessary corporate action of the warranting PARTY, as appropriate.

10.1.2

This SECOND AGREEMENT has been duly executed and delivered by the warranting PARTY, and constitutes a valid and legally binding obligation of the warranting PARTY enforceable against such PARTY in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to the general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law).

10.1.3

The warranting PARTY has not and will not enter into any third party agreement, the terms and conditions of which, would be inconsistent or in derogation with any of the terms and conditions hereof.

10.1.4

The warranting PARTY is duly organized and validly existing under the laws of the jurisdiction of its organization, and has full power, authority and legal right to execute, deliver and perform this SECOND AGREEMENT, and has taken all necessary action to authorize the execution, delivery and performance of this SECOND AGREEMENT.

10.1.5

The warranting PARTY is not subject to any judgment, order, injunction, decree or award of any court, administrative agency or governmental body that would or might interfere with its performance of any of its material obligations hereunder.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

10.2

Of BIOLASE. BIOLASE hereby covenants, represents, and warrants to P&G, that to BIOLASE’s knowledge:

10.2.1

There are no claims, liens, mortgages, licenses, commitments, obligations, or encumbrances of any kind concerning the BIOLASE IP that would affect the ability of BIOLASE to grant the rights and perform the obligations contemplated by this SECOND AGREEMENT.

10.2.2

Any granted, or allowed claims, of the BIOLASE PATENTS are valid and enforceable and there are no actions or prior art that would affect the validity or enforceability of any granted, or allowed claims, of the BIOLASE PATENTS, including, but not limited to, any reexamination requests, opposition proceedings, certificates of correction, or reissuance requests. BIOLASE’s knowledge applies to all agents and employees of BIOLASE, as well as, agents and attorneys preparing and prosecuting BIOLASE PATENTS (not including P&G agents and P&G attorneys).

10.2.3

BIOLASE owns all right, title, and interest in the BIOLASE IP.

10.2.4

BIOLASE has made a reasonable effort to populate Exhibits A and C, such that attached Exhibits A and C of this SECOND AGREEMENT contain a true and complete list of all of the BIOLASE PATENTS, including BIOLASE PATENTS that BIOLASE has a LICENSABLE INTEREST or transferable interest in. It is understood that, despite a reasonable effort to populate Exhibits A and C. Exhibits A or C may not be a true and complete list of all BIOLASE PATENTS. However, upon realization of any error, correction will be made within a reasonable period.

10.2.5

BIOLASE PATENTS and BIOLASE TECHNOLOGY related thereto, listed in attached Exhibits A and C are not subject to any contractual obligations in the P&G FIELDS OF USE, including existing or expectant licenses.

10.2.6

As of the EFFECTIVE DATE, BIOLASE does not, directly or indirectly, make, presently have made, use, import, export, sell, presently have sold, or offer for sale, anywhere in the world, ****.

10.3

BIOLASE hereby covenants, represents, and warrants to P&G, throughout the term of this SECOND AGREEMENT, BIOLASE will, as far as it is reasonably practicable to do so, cause its employees who are employed to do research, development, or other inventive work, to disclose to it inventions within the scope of this SECOND AGREEMENT and to assign to BIOLASE rights in such inventions such that P&G will receive, by virtue of this SECOND AGREEMENT, the license(s) agreed to be granted to it, it being understood that if due care and diligence are used, any inadvertent failure to comply with this Section 10.3 will not constitute a breach of this SECOND AGREEMENT.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

10.4.

EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NOTHING CONTAINED IN THIS AGREEMENT WILL BE CONSTRUED AS:

10.4.1

A WARRANTY OR REPRESENTATION BY EITHER PARTY AS TO THE VALIDITY, ENFORCEABILITY, OR SCOPE OF ANY PATENT;

10.4.2

A WARRANTY OR REPRESENTATION THAT ANY MANUFACTURE, SALE, OFFER FOR SALE, LEASE, IMPORT, USE OR OTHER DISPOSITION OF ANY PRODUCTS HEREUNDER WILL BE FREE FROM INFRINGEMENT OF PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES;

10.4.3

A WARRANTY OR REPRESENTATION BY EITHER PARTY WITH RESPECT TO THEIR ENFORCEMENT OF ANY PATENT INCLUDING THE PROSECUTION, DEFENSE OR CONDUCT OF ANY ACTION OR SUIT CONCERNING INFRINGEMENT OF ANY SUCH PATENT.

10.4.4

A WARRANTY OR REPRESENTATION THAT ANY FORMULATIONS, CLAIMS, DEVICES, INSTRUCTIONS, LABELING, ADVERTISING, AND/OR PACKAGING HAS THE APPROVAL OF THE UNITED STATES FOOD AND DRUG ADMINISTRATION OR APPROVAL BY ANY OTHER JURISDICTION.

10.5

Of P&G. P&G hereby covenants, represents, and warrants to BIOLASE, that to P&G’s knowledge:

10.5.1

There are no claims, liens, mortgages, licenses, commitments, obligations, or encumbrances of any kind concerning the P&G IP that would affect the ability of P&G to grant the rights and perform the obligations contemplated by this SECOND AGREEMENT.

10.6

No Other Representations and Warranties. Neither PARTY makes any representations or warranties other than as expressly set forth in this Section 10.

11.

TERM AND TERMINATION

11.1

TERM. Unless otherwise terminated as provided herein, the SECOND AGREEMENT will be effective up to and including the date of expiration of the last to expire BIOLASE PATENTS and/or P&G PATENTS in Exhibits A, C, and F.

11.2

Termination

11.2.1

Termination for an Uncured Material Breach. Failure by either PARTY to comply with any of the material obligations contained in this SECOND AGREEMENT (the “BREACHING PARTY”) will entitle the other PARTY (the “NON-BREACHING PARTY”) to give to the BREACHING PARTY notice, pursuant to Section 13.1, specifying the nature of the breach and requiring it to cure such breach. In the event the PARTIES are unable to resolve the matter, the PARTIES may enter an arbitration, pursuant to Section 13.2. In the event that the BREACHING PARTY is found, pursuant to Section 13.2, to have committed a MATERIAL BREACH and said MATERIAL BREACH becomes an UNCURED MATERIAL BREACH, the NON-BREACHING PARTY may terminate this SECOND AGREEMENT.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

11.2.2

Termination by Mutual Consent. This SECOND AGREEMENT may be terminated by mutual written consent of the PARTIES and rights hereunder divided as the PARTIES agree in writing.

11.2.3

Termination in Event of Change in Control of BIOLASE. Pursuant to Section 11.4 below, P&G may terminate this SECOND AGREEMENT in the event of a CHANGE IN CONTROL of BIOLASE.

11.2.4

Termination in Event of license of third party to BIOLASE IP. P&G will have the right to terminate this SECOND AGREEMENT or to revoke the license granted to BIOLASE under section 2.3, in the event that BIOLASE licenses BIOLASE IP in the P&G PRIMARY FIELD OF USE and/or the P&G RETAINED FIELD to a third party.

11.3

Certain Effects of Termination.

11.3.1

Termination by BIOLASE for P&G Uncured Material Breach. Effective upon a termination by BIOLASE in accordance with Section 11.2.1 above, the following will occur:

11.3.1.1

Except for Section 11.3.1.3, P&G’s licenses under the BIOLASE PATENTS and BIOLASE TECHNOLOGY will automatically be deemed to have terminated and all rights thereunder will automatically be deemed to have reverted to BIOLASE; and BIOLASE’s licenses under the P&G PATENTS and P&G IP will automatically be deemed to have terminated and all rights thereunder will automatically be deemed to have reverted to P&G.

11.3.1.2

P&G will destroy all copies of BIOLASE CONFIDENTIAL INFORMATION provided by BIOLASE to P&G hereunder. Notwithstanding the foregoing, and provided P&G fulfills its obligations specified in this SECOND AGREEMENT with respect to such materials, P&G’s counsel may continue to retain solely for archival purposes a single copy of BIOLASE’s CONFIDENTIAL INFORMATION and any other materials provided by BIOLASE; and BIOLASE will destroy all copies of P&G CONFIDENTIAL INFORMATION.

11.3.1.3

P&G will retain a non-exclusive, worldwide license to import, offer for sale, or sell any remaining P&G PRODUCTS that had been manufactured up to the date of termination of this SECOND AGREEMENT. This non-exclusive license will automatically terminate upon **** or within ****, whichever is sooner. P&G will owe BIOLASE a royalty under Section 4.3 for the sales of said P&G PRODUCTS under this Section 11.3.1.3.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

11.3.2

Termination by P&G for Uncured Material Breach by BIOLASE. If P&G terminates this SECOND AGREEMENT for a MATERIAL BREACH in accordance with Section 11.2.1 above, BIOLASE, at P&G’s request, will refund all prior payments received by BIOLASE from P&G, insofar as they specifically pertain to the UNCURED MATERIAL BREACH for the term including the **** preceding and up to the time of the UNCURED MATERIAL BREACH. Said refund will include, but is not limited to FIRST or SECOND PRODUCT SHIPMENT PAYMENT(S), PREVIOUSLY PAID QUARTERLY PAYMENTS, P&G QUARTERLY PAYMENTS, ROYALTY PAYMENTS, and any PAYMENT made under the LETTER. If P&G elects to receive a refund of prior payments and the PARTIES are unable to agree on the amount to be refunded with respect to an UNCURED MATERIAL BREACH, either PARTY will submit such dispute to be settled by arbitration in accordance with Section 13. However, if BIOLASE commits an UNCURED MATERIAL BREACH, P&G may alternatively elect to retain its exclusive license(s) without the obligation to pay FIRST or SECOND PRODUCT SHIPMENT PAYMENT(S), P&G QUARTERLY PAYMENTS, ROYALTY PAYMENTS, or any other monies whatsoever, however, if P&G retains its exclusive license(s), it will not be entitled to a refund of monies previously paid. Additionally, where BIOLASE commits an UNCURED MATERIAL BREACH, P&G may revoke the license given to BIOLASE under Section 2.3, thereby terminating this SECOND AGREEMENT.

11.4

Change in Control of BIOLASE. BIOLASE will promptly notify P&G of any CHANGE IN CONTROL as the term is defined in 11.4.2, of BIOLASE or a BIOLASE AFFILIATE that is primarily responsible for undertaking the obligations under this SECOND AGREEMENT. If the CHANGE IN CONTROL event involves a direct competitor to P&G in the P&G PRIMARY FIELD OF USE, P&G will no longer have any obligation to share or to disclose information to BIOLASE regarding the development of products; P&G’s ability to convert to a non-exclusive license pursuant to 2.2 will no longer be subject to any time limitation on when such conversion can occur and BIOLASE will also take all actions necessary to prevent disclosure of P&G CONFIDENTIAL INFORMATION to the party involved in the CHANGE IN CONTROL event, excepting information provided to BIOLASE pursuant to Section 4.4. Further upon a CHANGE IN CONTROL event involving a direct competitor to P&G in the P&G PRIMARY FIELD OF USE, P&G may elect to terminate, modify or continue under this SECOND AGREEMENT as defined in this Section 11.4.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

11.4.1

If the CHANGE IN CONTROL event involves a direct competitor to P&G in the P&G PRIMARY FIELD OF USE, P&G may elect, without consequence, as provided below:

(i)

P&G may elect to terminate any research, development or manufacturing activity that BIOLASE may have been conducting for P&G under this SECOND AGREEMENT or a separate agreement relating to P&G IP or BIOLASE TECHNOLOGY.

(ii)

P&G may elect to continue under this SECOND AGREEMENT, including any research, development or manufacturing activity that BIOLASE may have been conducting for P&G under this SECOND AGREEMENT or a separate agreement related to this SECOND AGREEMENT, in which case P&G may request in writing that BIOLASE or the parent of the entity acquiring control of BIOLASE agree to commit in writing, within sixty (60) days after receipt of such request, to continue to perform the specified BIOLASE activity, to otherwise agree to be bound by the provisions of this SECOND AGREEMENT, and to agree to commit in writing to duly and timely pay, perform and discharge all of the obligations of BIOLASE under this SECOND AGREEMENT.

(iii)

P&G may elect to terminate this SECOND AGREEMENT and a determination pursuant to Exhibit E will be made of the PURCHASE PRICE of the BIOLASE PATENTS licensed to P&G in the PRIMARY P&G FIELD OF USE under this SECOND AGREEMENT, which patents are listed on Exhibit A, and within fifteen (15) days following such PURCHASE PRICE determination P&G will make the further election, in writing, either to (a) purchase BIOLASE PATENTS, or (b) rescind its election to purchase BIOLASE PATENTS. If P&G elects to purchase the BIOLASE PATENTS, the SECOND AGREEMENT will terminate except for certain surviving obligations. P&G will be obligated to grant back limited rights to BIOLASE under the acquired BIOLASE PATENTS if such patents cover products outside the P&G FIELD OF USE.

11.4.2

Change in Control. For purposes of this SECOND AGREEMENT, a “CHANGE IN CONTROL” of BIOLASE will be deemed to have occurred in the event of (i) a merger, combination, reorganization or consolidation of BIOLASE with or into another corporation with respect to which less than a majority of the outstanding voting power of the surviving or consolidated corporation is held by shareholders of BIOLASE immediately prior to such event, (ii) the sale of all or substantially all of the properties and assets of BIOLASE and its subsidiaries, or (iii) the accumulation or acquisition by any individual, firm, corporation, or entity (other than any profit sharing or other employee benefit plan of BIOLASE or any Affiliate, or any employee or group of employees or former officers an/or directors of BIOLASE or its Affiliates) of beneficial ownership, directly or indirectly, of securities of BIOLASE representing more than fifty percent (50%) of the combined voting power of BIOLASE’s then outstanding voting securities.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

11.5

Right of First Negotiation. If BIOLASE elects to seek a buyer for any BIOLASE PATENT set out in Exhibit A licensed hereunder to P&G, P&G will have **** right of first negotiation with respect to a potential purchase by P&G of such BIOLASE PATENT. In the event the PARTIES do not enter into a binding agreement with respect to such purchase within the **** or in the event BIOLASE receives a binding unsolicited offer, BIOLASE will have sole discretion to pursue offers and sale to other parties. It is understood that BIOLASE may license, or may have licensed, other parties in fields outside of fields licensed to P&G under this SECOND AGREEMENT, and that BIOLASE PATENTS may be so encumbered when first offered to P&G under this Section 11.5.

11.6

Termination Not Sole Remedy. Termination is not the sole remedy under this SECOND AGREEMENT and, whether or not termination is affected, all other remedies will remain available except as agreed to otherwise herein.

11.7

Survival of Certain Obligations. Section 12 will survive any termination, in whole or in part, of this SECOND AGREEMENT. The termination of this SECOND AGREEMENT will not relieve either PARTY of any liability it may have to the other PARTY arising out of or relating to acts or omissions occurring prior to termination.

11.8

The signing date “SIGNING DATE” of this SECOND AGREEMENT will be on the day of execution of the last to sign this SECOND AGREEMENT.

12.

CONFIDENTIALITY

12.1

During the term of this SECOND AGREEMENT, both PARTIES may be exposed to certain information of the other PARTY, not generally known to the public and related to this SECOND AGREEMENT, which has been identified by the disclosing PARTY (the “DISCLOSING PARTY”) at the time of disclosure as being confidential by means of an appropriate marking, or, if disclosed orally or visually, will be confirmed in writing as confidential within **** of the oral or visual disclosure (collectively the “CONFIDENTIAL INFORMATION”). The PARTY receiving the CONFIDENTIAL INFORMATION (the “RECEIVING PARTY”) will keep the DISCLOSING PARTY’s CONFIDENTIAL INFORMATION in confidence for a period of **** from disclosure, using measures no less protective than the RECEIVING PARTY takes to protect its own CONFIDENTIAL INFORMATION of like nature, which in no event will be less than a reasonable standard of care.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

12.2

Exceptions. The obligations in Section 12.1 will not preclude the RECEIVING PARTY from using or disclosing the same or similar information which may be the same as the DISCLOSING PARTY’s CONFIDENTIAL INFORMATION to the extent that such same or similar information (i) was or later becomes, through no act or omission on the part of the RECEIVING PARTY, generally available to or available to the public; (ii) was rightfully in the possession of the RECEIVING PARTY at the time of disclosure by the DISCLOSING PARTY, as established by relevant documentary evidence, without restriction as to use or disclosure; (iii) is hereafter acquired by the RECEIVING PARTY from a third party who, in providing such information, does not breach an obligation or confidence of the DISCLOSING PARTY and provides such information without restriction as to use or disclosure; or (vi) is independently conceived, created, or developed by the RECEIVING PARTY without use of or access to the DISCLOSING PARTY’s CONFIDENTIAL INFORMATION, as established by relevant documentary evidence. The provisions of Section 12 will not restrict a PARTY from disclosing the other PARTY’s CONFIDENTIAL INFORMATION to the extent required by any law or regulation; provided that the PARTY required to make such a disclosure uses reasonable efforts to give the other PARTY reasonable advance notice of such required disclosure in order to enable the other PARTY to prevent or limit such disclosure.

12.3

Trade Secrets. If the DISCLOSING PARTY provides to the RECEIVING PARTY CONFIDENTIAL INFORMATION which includes a trade secret, the CONFIDENTIAL INFORMATION limited to the trade secret shall be kept confidential by the RECEIVING PARTY perpetually unless the trade secret falls under one of the exceptions of section 12.2.

12.3.1

Any CONFIDENTIAL INFORMATION provided by the DISCLOSING PARTY to the RECEIVING PARTY which is a trade secret shall be marked conspicuously as such. Additionally, the RECEIVING PARTY will be put on notice by the DISCLOSING PARTY prior to the disclosure of a trade secret.

13.

DISPUTE RESOLUTION

13.1

Notice and Negotiation. In the event of any dispute or disagreement arising out of this SECOND AGREEMENT, the PARTIES will attempt to resolve the matter by submitting it for resolution to the President or Chief Executive Officer of BIOLASE and the appropriate Vice President or General Manager of Research and Development of P&G. If these representatives are unable to resolve such dispute to the satisfaction of both BIOLASE and P&G within **** after the date on which the dispute was submitted to such representative(s), the dispute will be subject to the process described in Section 13.2 below.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

13.2

Arbitration. P&G and BIOLASE will attempt to settle any claim, controversy or deadlock through consultation and negotiation in good faith and a spirit of mutual cooperation pursuant to Section 13.1 above. If such attempt fails, the PARTIES agree to submit to binding arbitration that will be governed by the rules and procedures of the American Arbitration Association, with the requirement that the decision being issued by a written decision and opinion signed by an independent three-person panel. Such arbitration will take place in the State of New York. Judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof. In the event the arbitration involves a claimed material breach of the SECOND AGREEMENT, the alleged breach will become a MATERIAL BREACH upon a decision by the arbitration panel that a material breach has occurred. A breaching PARTY will have **** to cure a MATERIAL BREACH as outlined in the written decision and opinion of the three-person panel of this Section 13.2. If the MATERIAL BREACH is not cured within ****, it will become an UNCURED MATERIAL BREACH. If the binding arbitration involves a patent issue, at least a majority of the arbiters, in addition to other certifications and/or qualifications, will be licensed patent attorneys.

13.2.1

Any payment required under the terms of Sections 13.2 will be made in USD to the bank designated by the PARTY to be paid hereunder.

14.

INDEMNIFICATION

14.1

By P&G. From and after the EFFECTIVE DATE of this SECOND AGREEMENT, P&G will indemnify, defend and hold harmless BIOLASE and its AFFILIATES and their respective directors, officers, shareholders, partners, attorneys, accountants, and employees and any agents of the foregoing and any heirs, executors, successors and assigns of any of the foregoing (the “BIOLASE INDEMNIFIED PARTIES”) from, against and in respect of any damages, losses, charges, obligations, liabilities, actions, interest, penalties and reasonable costs and expenses (including, without limitation, reasonable attorneys’ and experts’ fees and expenses incurred to enforce successfully the terms of this SECOND AGREEMENT, “BIOLASE LOSSES AND EXPENSES”)) imposed on, sustained, incurred or suffered by any of the BIOLASE INDEMNIFIED PARTIES relating to, arising from or otherwise in respect of (i) any breach of, or inaccuracy in a representation or warranty of P&G hereunder, or (ii) a breach of a covenant or other agreement by P&G hereunder, or (iii) any action brought by a third party against a BIOLASE INDEMNIFIED PARTY arising from or related to P&G’s manufacturing, sale, marketing, distribution, or other exploitation of a product covered by the BIOLASE PATENTS and/or the BIOLASE TECHNOLOGY; provided, however, that P&G will have no obligation to indemnify BIOLASE for any BIOLASE LOSSES AND EXPENSES for which indemnification is sought if (i) such BIOLASE LOSSES AND EXPENSES were also caused by, relate to or involve a breach of, or inaccuracy in, any covenant, obligation, representation or warranty of BIOLASE provided to P&G in this SECOND AGREEMENT or (ii) such BIOLASE LOSSES AND EXPENSES result from or arise out of a material action or omission of BIOLASE.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

14.2

By BIOLASE. From and after the EFFECTIVE DATE of this SECOND AGREEMENT, BIOLASE will indemnify, defend and hold harmless P&G and its AFFILIATES and licensees and their respective directors, officers, shareholders, partners, attorneys, accountants, and employees and any agents of the foregoing and any heirs, executors, successors and assigns of any of the foregoing (the “P&G INDEMNIFIED PARTIES”) from, against and in respect of any damages, losses, charges, obligations, liabilities, actions, interest, penalties and reasonable costs and expenses (including, without limitation, reasonable attorneys’ and experts’ fees and expenses incurred to enforce successfully the terms of this SECOND AGREEMENT, “P&G LOSSES AND EXPENSES”)) imposed on, sustained, incurred or suffered by any of the P&G INDEMNIFIED PARTIES relating to, arising from or otherwise in respect of (i) any breach of, or inaccuracy in, a representation or warranty of BIOLASE hereunder, or (ii) a breach of a covenant or other agreement of BIOLASE hereunder, or (iii) any action brought by a third party against a P&G INDEMNIFIED PARTY arising from or related to BIOLASE’s manufacturing, sale, marketing, distribution, or other exploitation of a product covered by the BIOLASE PATENTS, BIOLASE TECHNOLOGY, and/or P&G IP; provided, however, that BIOLASE will have no obligation to indemnify P&G for any P&G LOSSES AND EXPENSES for which indemnification is sought if (i) such P&G LOSSES AND EXPENSES were also caused by, relate to or involve a breach of, or inaccuracy in, any covenant, obligation, representation or warranty of P&G provided to BIOLASE in this SECOND AGREEMENT or (ii) such P&G LOSSES AND EXPENSES result from or arise out of a material action or omission of P&G.

14.3

Third Party Claims. The “INDEMNIFIED PARTIES” will mean the BIOLASE INDEMNIFIED PARTIES and the P&G INDEMNIFIED PARTIES. If a claim by a third party is made against an INDEMNIFIED PARTY hereunder, and if such INDEMNIFIED PARTY intends to seek indemnity with respect thereto under this Section 14, such INDEMNIFIED PARTY will promptly notify BIOLASE, in the case of a P&G INDEMNIFIED PARTY, or P&G, in the case of a BIOLASE INDEMNIFIED PARTY (such PARTY to be notified, the “INDEMNIFYING PARTY”) in writing of such claims setting forth such claims in reasonable detail, provided that failure of such INDEMNIFIED PARTY to give prompt notice as provided herein will not relieve the INDEMNIFYING PARTY of any of its obligations hereunder, except to the extent that the INDEMNIFYING PARTY is materially prejudiced by such failure. The INDEMNIFYING PARTY will have **** after receipt of such notice to undertake, through counsel of its own choosing, subject to the reasonable approval of such INDEMNIFIED PARTY, and at the INDEMNIFYING PARTY’S expense, the settlement or defense thereof, and the INDEMNIFIED PARTY will cooperate with it in connection therewith; provided, however, that the INDEMNIFIED PARTY may participate in such settlement or defense through counsel chosen by such INDEMNIFIED PARTY, provided that the fees and expenses of such counsel will be borne by such INDEMNIFIED PARTY. If the INDEMNIFYING PARTY will assume the defense of a claim, it will not settle such claim without the prior written consent of the INDEMNIFIED PARTY, (a) unless such settlement includes as an unconditional term thereof the giving by the claimant of a release of the INDEMNIFIED


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

PARTY from all liability with respect to such claim or (b) if such settlement involves the imposition of equitable remedies or the imposition of any material obligations on such INDEMNIFIED PARTY other than financial obligations for which such INDEMNIFIED PARTY will be indemnified hereunder. If the INDEMNIFYING PARTY will assume the defense of a claim, the fees of any separate counsel retained by the INDEMNIFIED PARTY will be borne by such INDEMNIFIED PARTY unless there exists a conflict between them as to their respective legal defenses (other than one that is of a monetary nature), in which case the INDEMNIFIED PARTY will be entitled to retain separate counsel, the reasonable fees and expenses of which will be reimbursed by the INDEMNIFYING PARTY. If the INDEMNIFYING PARTY does not notify the INDEMNIFIED PARTY within **** after the receipt of the INDEMNIFIED PARTY’s notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the INDEMNIFIED PARTY will have the right to contest, settle or compromise the claim but will not thereby waive any right to indemnity therefore pursuant to this SECOND AGREEMENT. The indemnification provisions set forth in this Section 14 are the sole and exclusive means of recovery of money damages with respect to the matters covered herein, except for fraud.

14.4

Limitation on Losses and Expenses. Notwithstanding anything to the contrary contained herein, no INDEMNIFYING PARTY hereunder will be liable (including liability for negligence or other tortious act or omission) for (a) any loss of profit, loss of contract or loss of goodwill incurred by any INDEMNIFIED PARTY; or (b) any punitive, indirect or consequential damages incurred by any INDEMNIFIED PARTY pursuant to this SECOND AGREEMENT (it being understood that any damages described in this Section 14.4 owed by any INDEMNIFIED PARTY to any third party will be considered direct damages, not subject to this Section 14.4).

15.

MISCELLANEOUS

15.1

Certain Injunctive Relief. Due to the important confidentiality concerns of the PARTIES, and for other reasons, the PARTIES will be irreparably damaged in the event that the provisions of Sections 4.6.1.1; 4.6.1.2; and 12 are not specifically enforced. In the event of a breach or threatened breach of the terms, covenants and/or conditions of either such Section 12 by any of the PARTIES hereto, the other party will, in addition to any other remedies it may have, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions of such Section 12.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

15.2

Noncompete. Subject to Section 15.2.1 and 15.2.2 of this Non-Compete Section 15.2, BIOLASE by itself or through third parties will not directly or indirectly enter into the research, development, prototyping, testing, manufacture, supply, marketing, distribution, sale, promotion, or commercialization of any compounds, materials, or products in the P&G FIELDS OF USE, including the PRIMARY P&G FIELD OF USE, and the P&G RETAINED FIELD except as provided herein via the BIOLASE FIELD OF USE by: (i) developing, prototyping, conducting research on, manufacturing, supplying, marketing, selling or distributing any such products or products competing with such products to any third party other than P&G; (ii) licensing any intellectual property to any third party other than P&G for use in connection with the research, development, prototyping, testing, manufacture, supply, marketing, distribution, sale, promotion, or commercialization any such compounds, materials, or products; (iii) consulting with, supplying compounds, materials, or products to, cooperating with or providing services to, any third party other than P&G with respect to the research, development, prototyping, testing, manufacture, supply, marketing, distribution, sale, promotion, or commercialization of any such compounds, materials, or products; or (iv) investing in any third party other than P&G, that engages in the research, development, prototyping, testing, manufacture, supply, marketing, distribution, sale, promotion, or commercialization of such products, (collectively, the “RESTRICTED BUSINESS”); provided, however, that this restriction will not apply to BIOLASE directly acquiring a non-controlling ownership interest of less than fifty percent (50%) of the equity of a public or private company that engages in a RESTRICTED BUSINESS if BIOLASE acquires such equity stake in such company primarily in exchange for obtaining rights (either via an outright assignment or a license) or access to technology owned by such company and that is unrelated to the RESTRICTED BUSINESS and such company’s market cap does not exceed **** ($****). In addition, BIOLASE may acquire a less than **** equity stake in any publicly traded or private company that derives less than **** of its revenues from the RESTRICTED BUSINESS.

15.2.1

The time periods of this Non-Compete Section will apply to and be effective for/during the time period that P&G has license rights and/or BIOLASE has license rights, or options thereto (excluding the categories which revert back to BIOLASE) notwithstanding the time limitations provided in section 15.2.2. The terms of Sections 15.2 and 15.2.1 will not apply to (i) categories which have reverted back to BIOLASE from the P&G FIELDS OF USE, (ii) the DENTAL TRAY Field in the event that P&G does not exercise its option, and (iii) the BIOLASE RETAINED FIELD.

15.2.2

The time periods of section 15.2.1 will not extend beyond three years from the EFFECTIVE DATE of this SECOND AGREEMENT for the P&G FIELDS OF USE and will not extend beyond five years from the EFFECTIVE DATE of this SECOND AGREEMENT for the PRIMARY P&G FIELD OF USE and the P&G RETAINED FIELD.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

15.3

Assignment. This SECOND AGREEMENT and the rights and obligations thereunder, may not be assigned, whether by operation of law or otherwise, or otherwise transferred by either PARTY to a third party, except as authorized in writing by the other PARTY or as expressly set forth in Section 10 with respect to a BIOLASE CHANGE IN CONTROL, except that either PARTY may assign the rights and obligations under the SECOND AGREEMENT, in whole or in part, to an AFFILIATE existing as of the EFFECTIVE DATE, or P&G may assign its rights and obligations under this SECOND AGREEMENT to a third party in the event P&G divests, transfers, or sells to that third party a portion or its entire business associated with one or more P&G PRODUCTS. Any attempted assignment or delegation except as permitted herein will be null and void. Any assignee of this SECOND AGREEMENT under this Section 15.3 will covenant to the PARTIES in writing that such assignee agrees to be bound by all the terms and conditions of this SECOND AGREEMENT applicable to the assignor.

15.4

Governing Law; Venue. This SECOND AGREEMENT and the PARTIES’ respective rights and obligations hereunder will be governed by and construed in accordance with the laws of the State of New York, without giving effect to that body of laws pertaining to conflict of laws, whether common law or statutory.

15.5

Severability. If one or more of the sections, provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such section, provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining sections, provisions, paragraphs, words, clauses, phrases or sentences hereof will not be in any way impaired, it being intended that all rights, powers and privileges of the PARTIES hereto will be enforceable to the fullest extent permitted by law.

15.6

Amendments and Waivers. This SECOND AGREEMENT may be amended only by a written instrument executed by both PARTIES. Any amendment effected in accordance with the immediately preceding sentence will be binding on all of the PARTIES to this SECOND AGREEMENT. No failure or delay by any PARTY in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

15.7

Entire Agreement. This SECOND AGREEMENT, together with any exhibits, appendixes and attachments hereto, constitutes the complete and exclusive agreement between the PARTIES regarding the subject matter hereof, and supersedes all previous written or verbal agreements relating on this subject matter between the PARTIES, and all previous writings are merged and superseded by this SECOND AGREEMENT, including the LETTER, and including the Bilateral CDA executed on June 22nd, 2006 by the PARTIES, the Confidential Disclosure Agreement executed on May 5, 2005 by the PARTIES, and the Amendment to the Confidential Disclosure Agreement executed on June 5, 2006 by the PARTIES. This SECOND AGREEMENT may be modified only by a written document signed by all the PARTIES hereto.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

15.8

Bankruptcy. In the event BIOLASE seeks or is involuntarily placed under the protection of the bankruptcy laws, Title XI U.S. Code, and the trustee in bankruptcy rejects this SECOND AGREEMENT, P&G hereby elects, pursuant to Section 365(n), to retain all rights granted to it under this SECOND AGREEMENT to the extent permitted by law. In the event P&G seeks or is involuntarily placed under the protection of the bankruptcy laws, Title XI U.S. Code, and the trustee in bankruptcy rejects this SECOND AGREEMENT, BIOLASE hereby elects, pursuant to Section 365(n), to retain all rights granted to it under this SECOND AGREEMENT to the extent permitted by law.

15.9

Counterparts. This SECOND AGREEMENT may be executed in one or more counterparts, and by different PARTIES on separate counterparts, each of which will be deemed an original and all of which together will constitute one and the same original.

15.10

Notices. Any and all notices required or permitted to be given to a PARTY pursuant to the provisions of this SECOND AGREEMENT will be in writing and will be effective and deemed to provide such PARTY sufficient notice under this SECOND AGREEMENT on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time of transmission by facsimile, addressed to the other PARTY at its facsimile number specified herein (or hereafter modified by subsequent notice to the PARTIES hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; or (iii) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested. All notices for delivery outside the United States will be sent by facsimile or by express courier. Notices by facsimile will be machine verified as received. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the PARTY to be notified at the address or facsimile number as follows, or at such other address or facsimile number as such other PARTY may designate by one of the indicated means of notice herein to the other PARTIES hereto as follows:

if to P&G:

The Procter & Gamble Company
Two Procter & Gamble Plaza
Cincinnati, Ohio 45202
Attention: Jeffrey D. Weedman
Vice President, External Business Development


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

With copies to:

Kim Zerby
Associate General Counsel
Global Health Care
Tel : 513-983-4555
Fax : 513-622-3300
Email : zerby.kw@pg.com

if to BIOLASE:

BIOLASE TECHNOLOGY, Inc.
4 Cromwell, Irvine CA 92618
Attention: Richard Harrison
Chief Financial Officer

With copies to:

Charles K. Ruck, Esq.
Latham & Watkins, LLP
650 Town Center Drive, 20^th Floor
Costa Mesa, CA 92626-1925
Tel: (714) 540-1235
Fax: (714) 755-8290
Email: charles.ruck@lw.com

15.11

Press Releases and Public Disclosure. Any press releases, public announcements or similar publicity with respect to this SECOND AGREEMENT or the transactions contemplated hereby (including, without limitation, standard question and answer responses, scripts for press briefings, and other disclosure) must be approved by both PARTIES in advance with respect to both timing and content of the disclosure, provided that nothing herein will prevent either PARTY or their respective AFFILIATES, upon reasonable notice to the other PARTY, from making public disclosures that are necessary to comply with the requirements of law or any listing agreement with any national securities exchange.

15.12

Force Majeure. Should either PARTY be prevented from performing its obligations under this SECOND AGREEMENT by an event of force majeure, such as an earthquake, typhoon, flood, fire, act of war, act of the public enemy, act of terrorism, act of God or any other unforeseen event the happening and consequences of which are unpreventable and unavoidable, the prevented Party will notify the other PARTY by the most expedient means available (fax, telex or express mail being acceptable in any event) without any delay, and within fifteen (15) days thereafter provide detailed information of the events and, if applicable and available, a valid document for evidence issued by the relevant public notary organization explaining the reason for its inability to perform or delay in the performance of all or part of this SECOND AGREEMENT. The PARTIES will discuss in good faith, taking into account the effects of the force majeure and other unforeseen events on the performance of the obligations under this SECOND AGREEMENT, whether to (a) exempt the prevented Party from performing part or all of its obligations under this SECOND AGREEMENT or (b) delay the performance of the affected obligations under this SECOND AGREEMENT. In the absence of any such agreement, no PARTY will be excused from its performance hereunder once the event of force majeure has subsided.


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

15.13

Further Assurances. Except as otherwise specifically agreed to herein, the PARTIES agree to execute such further documentation and perform such further actions, including the recordation of such documentation with appropriate authorities, as may be reasonably requested by the other PARTY hereto to evidence, effectuate and further the purposes and intents set forth in this SECOND AGREEMENT.

15.14

No Third Party Beneficiaries. Except for the rights of the INDEMNIFIED PARTIES pursuant to Section 14, nothing in this SECOND AGREEMENT, express or implied, is intended to confer upon any Person, other than the PARTIES hereto or their respective successors and permitted assigns, any rights, remedies, benefits, obligations or liabilities of any nature whatsoever under or by reason of this SECOND AGREEMENT.

16.

PREVIOUS AGREEMENT. The PARTIES mutually agree to TERMINATE the PREVIOUS AGREEMENT with the execution of this SECOND AGREEMENT, noting that the confidentiality provisions of the PREVIOUS AGREEMENT survive the termination of the PREVIOUS AGREEMENT.

IN WITNESS WHEREOF, the PARTIES hereto caused this AGREEMENT to be duly executed as of the date first written above.

BIOLASE TECHNOLOGY, INC.


By:	/s/ David M. Mulder

	Name:	David M. Mulder
	Title:	Chief Executive Officer

THE PROCTER & GAMBLE COMPANY

By:	/s/ Jeffrey D. Weedman

	Name:	Jeffrey D. Weedman
	Title:	Vice President, External Business Development


****		Certain confidential information contained in this document, marked with four asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

EX-10.2 3 c05030exv10w2.htm EXHIBIT 10.2 Exhibit 10.2

Exhibit 10.2

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of May 27, 2010 (the “Effective Date”) among MIDCAP FINANCIAL, LLC, a Delaware limited liability company, with an office located at 7735 Old Georgetown Road, Suite 400, Bethesda, Maryland 20814 (“MidCap”), as collateral agent (“Agent”), SILICON VALLEY BANK, a California corporation and with a loan production office located at 5820 Canoga Avenue, Suite 210, Woodland Hills, California 91367 (“SVB”), the Lenders listed on Schedule 1.1 hereof and otherwise party hereto from time to time (each a “Lender” and collectively, the “Lenders”) and BIOLASE TECHNOLOGY, INC., a Delaware corporation (“Borrower”) provides the terms on which Lenders shall lend to Borrower and Borrower shall repay Lenders. The parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 14. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

2 LOAN AND TERMS OF PAYMENT

2.1 Promise to Pay. Borrower hereby unconditionally promises to pay to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, the outstanding principal amount of all Credit Extensions made by the Lenders and accrued and unpaid interest thereon and any other amounts due hereunder as and when due in accordance with this Agreement.

2.2 Term Loans.

(a) Availability. Subject to the terms and conditions of this Agreement, the Lenders agree, severally and not jointly, to make term loans to Borrower in an aggregate amount up to Five Million Dollars ($5,000,000.00) according to each Lender’s Term Loan Commitment as set forth on Schedule 1.1 hereto. The Term Loans shall be available in two tranches. The first tranche (“Term A Loan”) shall be in an amount equal to Three Million Dollars ($3,000,000.00) and shall be advanced on the Effective Date. The second tranche (“Term B Loan”; Term A Loan and Term B Loan are each referred to herein individually as a “Term Loan” and collectively as the “Term Loans”) shall be made available by the Lenders during the Term B Loan Draw Period in an amount equal to Two Million Dollars ($2,000,000.00) in a single advance. In the event Borrower does not request the Term B Loan during the Term B Loan Draw Period, Lenders may advance the Term B Loan to Borrower within five (5) Business Days after the end of the Term B Loan Draw Period without such request by Borrower, after which advance Borrower will be deemed to have received said Term Loan B for all purposes hereafter. After repayment, no Term Loan may be re-borrowed.

(b) Interest Payments and Repayment. Commencing on the first (1^st) Payment Date following the Funding Date of Term A Loan, and continuing on the Payment Date of each successive month thereafter through and including the Maturity Date, Borrower shall make monthly payments of interest to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, in arrears, and calculated as set forth in Section 2.3. Commencing on the Amortization Date, and continuing on the Payment Date of each successive month thereafter through and including the Maturity Date, Borrower shall make consecutive monthly payments of principal to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, as calculated by Agent based upon: (1) the amount of such Lender’s Term Loans, (2) the effective rate of interest, as determined in Section 2.3, and (3) a straight-line amortization schedule ending on the Maturity Date. All unpaid principal and accrued interest with respect to the Term Loans is due and payable in full on the Maturity Date. The Term Loans may be prepaid only in accordance with Sections 2.2(c) and 2.2(d).

(c) Mandatory Prepayments. If the Term Loans are accelerated following the occurrence of an Event of Default, Borrower shall immediately pay to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, an amount equal to the sum of: (i) all outstanding principal of the Term Loans and all other Obligations, plus accrued and unpaid interest thereon, (ii) the Final Payment, (iii) the Prepayment Fee, plus (iv) all other sums that shall have become due and payable, including Lenders’ Expenses.

(d) Permitted Prepayment of Loans. Borrower shall have the option to prepay all, but not less than all, of the Term Loans advanced by the Lenders under this Agreement, provided Borrower (i) provides written notice to Agent of its election to prepay the Term Loans at least thirty (30) days prior to such prepayment, and (ii) pays to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, on the date of such prepayment, an amount equal to the sum of (A) all outstanding principal of the Term Loans and all other Obligations, plus accrued interest thereon, (B) the Final Payment, (C) the Prepayment Fee, and (D) all other sums that shall have become due and payable, including Lenders’ Expenses.

2.3 Payment of Interest on the Credit Extensions.

(a) Computation of Interest. Interest on the Credit Extensions and all fees payable hereunder shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which such interest accrues. In computing interest on any Credit Extension, the date of the making of such Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.

(b) Interest Rate Determination. Subject to the provisions of Section 2.3(c) below, each Advance shall bear interest on the outstanding principal amount thereof from the date when made until paid in full at a rate per annum equal to the (i) the greater of (A) the LIBOR Rate in effect for the applicable Interest Period or (B) three percent (3.00%), plus (ii) the LIBOR Rate Margin, adjusted on the first (1^st) day of each Interest Period and fixed for the duration of each such Interest Period. As of each Interest Rate Determination Date, Agent shall determine (which determination shall, absent manifest error in calculation, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Advances for which an interest rate is then being determined for the applicable Interest Period. In the event that Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), as of any Interest Rate Determination Date with respect to any Advance, that adequate and fair means do not exist for ascertaining the interest rate applicable to such Advance on the basis provided for in the definition of Base LIBOR Rate, then Agent may select a comparable replacement index and corresponding margin.

(c) Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”). Payment or acceptance of the increased interest rate provided in this Section 2.3(c) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Agent or Lenders.

(d) Debit of Accounts. Lenders may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments when due or any other amounts Borrower owes the Lenders under the Loan Documents when due. These debits shall not constitute a set-off.

(e) Payments. Payments of principal and/or interest received after 12:00 noon Eastern time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest, as applicable, shall continue to accrue until paid. All payments to be made by Borrower hereunder or under any other Loan Document, including payments of principal and interest made hereunder and pursuant to any other Loan Document, and all fees, expenses, indemnities and reimbursements, shall be made without set-off, recoupment or counterclaim, in lawful money of the United States and in immediately available funds. All payments required under this Agreement are to be made directly to Agent unless otherwise directed by Agent in writing.

(f) Maximum Lawful Rate. In no event shall the interest charged hereunder, with respect to the notes (if any) or any other obligations of Borrower under any Loan Documents exceed the maximum amount permitted under the Laws of the State of Maryland. Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of interest payable hereunder or under any note or other Loan Document (the “Stated Rate”) would exceed the highest rate of interest permitted under any applicable Law to be charged (the “Maximum Lawful Rate”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrower shall, to the extent permitted by Law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable. Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply. In no event shall the total interest received by any Lender exceed the amount which it could lawfully have received, had the interest been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of such Lender’s Term Loan or to other amounts (other than interest) payable hereunder, and if no such principal or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrower. In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.

2.4 Fees. Borrower shall pay to Agent for the account of Lenders:

(a) Origination Fee. A fully earned, non-refundable origination fee to be shared among the Lenders pursuant to their respective Commitment Percentages in an amount equal to one-half of one percent (0.50%) of the aggregate Term Loan Commitments of the Lenders, which origination fee Lenders have received prior to the Effective Date;

(b) Final Payment. The Final Payment, when due under Section 2.2(c) or 2.2(d), or otherwise on the Maturity Date, to be shared among the Lenders in accordance with their respective Pro Rata Shares;

(c) Prepayment Fee. The Prepayment Fee, when due hereunder, to be shared among the Lenders in accordance with their respective Pro Rata Shares;

(d) Payment Upon Failure to Draw. In the event that the (i) the Equity Event occurs on or prior to August 31, 2010 and (ii) Term B Loan is not funded by Lenders to Borrower in an amount equal to the full amount of the Term B Loan Commitment on the date which is ten (10) Business Days after the closing of the Equity Event, then, on the such date, Borrower shall pay Agent, for the benefit of the Lenders in accordance with their respective Pro Rata Shares, a fee in an amount equal to five percent (5.00%) of the unfunded portion of the Term B Loan Commitment; and

(e) Lenders’ Expenses. All Lenders’ Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due (and in the absence of any other due date specified herein, such Lenders’ Expenses shall be due upon demand).

2.5 Additional Costs. If any new Law or regulation increases a Lender’s costs or reduces its income for any Term Loan, Borrower shall pay the increase in cost or reduction in income or additional expense; provided, however, that Borrower shall not be liable for any amount attributable to any period before one hundred eighty (180) days prior to the date such Lender notifies Borrower of such increased costs. Each Lender agrees that it shall allocate any increased costs among its customers similarly affected in good faith and in a manner consistent with such Lender’s customary practice.

2.6 Payments and Taxes. Any and all payments made by Borrower under this Agreement or any Loan Documents shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any governmental authority (including any interest, additions to tax or penalties applicable thereto) other than any taxes imposed on or measured by any Lender’s overall net income and franchise taxes imposed on it (in lieu of net income taxes), by a jurisdiction (or any political subdivision thereof) as a result of any Lender being organized or resident, conducting business (other than a business deemed to arise from such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, or otherwise with respect to, this Agreement or any Loan Documents) or having its principal office in such jurisdiction (“Indemnified Taxes”). If any Indemnified Taxes shall be required by Law to be withheld or deducted from or in respect of any sum payable under this Agreement or any Loan Documents to any Lender (w) an additional amount shall be payable as may be necessary so that, after making all required withholdings or deductions (including withholdings or deductions applicable to additional sums payable under this Section) such Lender receives an amount equal to the sum it would have received had no such withholdings or deductions been made, (x) Borrower shall make such withholdings or deductions, (y) Borrower shall pay the full amount withheld or deducted to the relevant taxing authority or other authority in accordance with applicable Law and (z) Borrower shall deliver to such Lender evidence of such payment. Borrower’s obligation hereunder shall survive the termination of this Agreement.

2.7 Secured Promissory Notes. Each Term Loan shall be evidenced by a Secured Promissory Note in the form attached as Exhibit D hereto (each a “Secured Promissory Note”), and shall be repayable as set forth herein. Borrower irrevocably authorizes each Lender to make or cause to be made, on or about the Funding Date of any Term Loan or at the time of receipt of any payment of principal on such Lender’s Secured Promissory Note, an appropriate notation on such Lender’s Secured Promissory Note Record reflecting the making of such Term Loan or (as the case may be) the receipt of such payment. The outstanding amount of each Term Loan set forth on such Lender’s Secured Promissory Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount on such Lender’s Secured Promissory Note Record shall not limit or otherwise affect the obligations of Borrower hereunder or under any Secured Promissory Note to make payments of principal of or interest on any Secured Promissory Note when due. Upon receipt of an affidavit of an officer of a Lender as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, Borrower shall issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof and of like tenor.

3 CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Credit Extension. Each Lender’s obligation to make a Term Loan is subject to the condition precedent that Agent shall consent to or shall have received, in form and substance satisfactory to Agent and Lenders, such documents, and completion of such other matters, as Agent may reasonably deem necessary or appropriate, including, without limitation:

(a) duly executed original signatures to the Loan Documents to which Borrower is a party;

(b) [reserved];

(c) duly executed original Secured Promissory Notes in favor of each Lender with a face amount equal to such Lender’s Term Loan Commitment;

(d) the Operating Documents of Borrower and good standing certificates of Borrower certified by the Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;

(e) good standing certificates dated as of a date no earlier than thirty (30) days prior to the Effective Date to the effect that Borrower is qualified to transact business in all states in which the nature of Borrower’s business so requires;

(f) duly executed original signatures to the completed Borrowing Resolutions for Borrower;

(g) certified copies, dated as of a recent date, of financing statement searches, as Agent shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(h) the Perfection Certificate executed by Borrower;

(i) a landlord’s consent executed in favor of Agent in respect of Borrower’s leased location in Irvine, California;

(j) a legal opinion of Borrower’s counsel dated as of the Effective Date together with the duly executed original signatures thereto;

(k) copies of any existing registration rights agreement/investors’ rights agreement or similar agreements and any amendments thereto;

(l) evidence satisfactory to Agent that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing loss payable and/or additional insured clauses or endorsements in favor of Agent, for the ratable benefit of Lenders; and

(m) payment of the fees and Lenders’ Expenses then accrued as specified in Section 2.4 hereof.

3.2 Conditions Precedent to all Credit Extensions. The obligation of each Lender to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

(a) timely receipt by Agent of an executed Payment/Advance Form in the form of Exhibit B attached hereto;

(b) the representations and warranties in Section 5 shall be true, correct and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in Section 5 remain true, accurate and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

(c) in such Lender’s reasonable discretion, there has not been any Material Adverse Change or any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, or any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Agent.

3.3 Covenant to Deliver. Borrower agrees to deliver to Agent each item required to be delivered to Agent under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Agent of any such item shall not constitute a waiver by the Lenders of Borrower’s obligation to deliver such item, and any such Credit Extension in the absence of a required item shall be made in Agent’s sole discretion.

3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of a Term Loan set forth in this Agreement, to obtain a Term Loan, Borrower shall notify Agent (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 noon Eastern time three (3) Business Days prior to the date the Term Loan is to be made. Together with any such electronic or facsimile notification, Borrower shall deliver to Agent by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Upon receipt of a Payment/Advance Form, Agent shall promptly provide a copy of the same to each Lender. Agent may rely on any telephone notice given by a person whom Agent reasonably believes is a Responsible Officer or designee.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest. Borrower hereby grants Agent, for the ratable benefit of Lenders, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Agent, for the ratable benefit of the Lenders, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that, upon the execution and delivery of the a Subordination Agreement by Henry Schein on or prior to the Effective Date, the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral, subject only to Permitted Liens that may have priority by operation of applicable Law. If Borrower shall acquire a commercial tort claim (as defined in the Code), Borrower shall promptly notify Agent in a writing signed by Borrower of the general details thereof (and further details as may be required by Agent) and grant to Agent, for the ratable benefit of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent.

4.2 Authorization to File Financing Statements; Termination of Financing Statements. Borrower hereby authorizes Agent to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Agent’s and each Lender’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Agent and the Lenders under the Code. Such financing statements may indicate the Collateral as “all assets of Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Agent’s discretion Upon payment in full of (i) all outstanding principal of the Term Loans and all other Obligations, plus accrued and unpaid interest thereon, (ii) the Final Payment, (iii) the Prepayment Fee, plus (iv) any and all other sums that shall have become due and payable, including Lenders’ Expenses, and provided that Lenders have no further obligation or commitment to lend hereunder, Agent and Lenders shall promptly file termination statements relating to the Collateral.

5 REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows at all times unless expressly provided below:

5.1 Due Organization, Authorization: Power and Authority.

(a) Borrower and each of its Subsidiaries, if any, are duly existing and in good standing, as Registered Organizations in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in any jurisdiction in which the conduct of their business or their ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Agent a completed perfection certificate signed by Borrower (the “Perfection Certificate”). Borrower represents and warrants that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete in all material respects (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Agent of such occurrence and provide Agent with Borrower’s organizational identification number.

(b) The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect), or (v) constitute an event of default under any material agreement by which Borrower or any of its Subsidiaries or their respective properties is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

5.2 Collateral.

(a) Borrower has good title to, has rights in, and has the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Other than the accounts referred to in the last section of Section 6.6(b) hereof, Borrower has no Deposit Accounts, Securities Accounts, Commodity Accounts or other investment accounts other than the Collateral Accounts with Comerica Bank and SVB or the other investment accounts, if any, described in the Perfection Certificate delivered to Agent in connection herewith with respect of which Borrower has given Agent notice and taken such actions as are necessary to give Agent for the ratable benefit of all Lenders a perfected security interest therein. The Accounts are bona fide, existing obligations of the Account Debtors.

(b) On the Effective Date, the Collateral is not in the possession of any third party bailee (such as a warehouse) except as disclosed in the Perfection Certificate or Schedule 5.2(b), and, as of the Effective Date, no such third party bailee possesses components of the Collateral in excess of Twenty-Five Thousand Dollars ($25,000). None of the components of the Collateral shall be maintained at locations other than as disclosed in the Perfection Certificate on the Effective Date or as permitted pursuant to Section 7.2. In the event that Borrower, after the Effective Date, intends to store or otherwise deliver any portion of the Collateral to a bailee in excess of Fifty Thousand Dollars ($50,000), then Borrower will first receive the written consent of Agent and such bailee must execute and deliver a bailee agreement in form and substance satisfactory to Agent in its sole discretion.

(d) Borrower is the sole owner of its Intellectual Property, except for non-exclusive licenses granted to its customers in the ordinary course of business and those licenses described in the Perfection Certificate. Each Patent is valid and enforceable and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and, except as set forth on Schedule 5.2(d), to the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim could not reasonably be expected to have a material adverse effect on Borrower’s business.

(e) Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound by, any material license or other agreement with respect to which Borrower is a licensee that (a) prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with Agent’s right to sell any Collateral. Borrower shall provide written notice to Agent within ten (10) days of entering or becoming bound by any such license or agreement (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Agent requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (x) all such licenses or agreements to be deemed “Collateral” and for Agent to have a security interest in it that might otherwise be restricted or prohibited by Law or by the terms of any such license or agreement, whether now existing or entered into in the future, and (y) Agent to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Agent’s rights and remedies under this Agreement and the other Loan Documents.

(f) All of Borrower’s Material Intellectual Property, including all licenses under which Borrower is the licensee of any such Material Intellectual Property owned by another Person, are set forth on Schedule 5.2(f). Such Schedule 5.2(f) indicates in each case the expiration date of such Material Intellectual Property and whether such Material Intellectual Property (or application therefor) is owned or licensed by Borrower, and in the case of any such licensed Material Intellectual Property, lists the name and address of the licensor and the name and date of the agreement pursuant to which such item of Material Intellectual Property is licensed, the expiration date of such license and the expiration date of the underlying Material Intellectual Property, whether or not such license is an exclusive license and whether there are any purported restrictions in such license on the ability to Borrower to grant a security interest in and/or to transfer any of its rights as a licensee under such license.

5.3 Litigation. Except as disclosed in the Perfection Certificate or Schedule 5.3, there are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than One Hundred Thousand Dollars ($100,000.00).

5.4 No Material Deterioration in Financial Condition; Financial Statements. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Agent fairly present, in conformity with GAAP, in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent unaudited financial statements and projections submitted to Agent and the Lenders (which as of the Effective Date were (i) Borrower’s March 31, 2010 unaudited financial statements delivered to Agent and the Lenders on May 6, 2010, (ii) Borrower’s financial projections delivered to Agent and the Lenders on April 19, 2010 and (iii) Borrower’s cash balance delivered to Agent and the Lenders on May 24, 2010).

5.5 Solvency. The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.6 Regulatory Compliance.

(a) Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any Laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than in material compliance with applicable Laws. Borrower has obtained all Required Permits, or has contracted with third parties holding Required Permits, necessary for compliance with all Laws and all such Required Permits are current. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted.

(b) None of Borrower, its Affiliates or any of their respective agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person. Neither Borrower nor, to the knowledge of Borrower, any of its Affiliates or agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement, (x) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (y) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law.

5.7 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports, and Borrower and its Subsidiaries have timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Agent in writing of the commencement of, and any material development in, the proceedings, and (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

5.9 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

5.10 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Agent or any Lender, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Agent or any Lender, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

5.11 Regulatory Developments.

(a) All Products and all Required Permits are listed on Schedule 5.11 (as updated from time to time pursuant to Section 6.2(e)), and Borrower has delivered to Agent a copy of all Required Permits to the extent requested by Agent pursuant to Section 6.2(e);

(b) Without limiting the generality of Section 5.6 above, with respect to any Product being tested or manufactured by Borrower, Borrower has received, and such Product is the subject of, all Required Permits needed in connection with the testing or manufacture of such Product as such testing is currently being conducted by or on behalf of Borrower, and Borrower has not received any notice from any applicable Governmental Authority, specifically including the FDA, that such Governmental Authority is conducting an investigation or review of (A) Borrower’s manufacturing facilities and processes for such Product which have disclosed any material deficiencies or violations of Laws and/or the Required Permits related to the manufacture of such Product, or (B) any such Required Permit or that any such Required Permit has been revoked or withdrawn, nor has any such Governmental Authority issued any order or recommendation stating that the development, testing and/or manufacturing of such Product by Borrower should cease;

(c) Without limiting the generality of Section 5.6 above, with respect to any Product marketed or sold by Borrower, Borrower has received, and such Product is the subject of, all Required Permits needed in connection with the marketing and sales of such Product as currently being marketed or sold by Borrower, and Borrower has not received any notice from any applicable Governmental Authority, specifically including the FDA, that such Governmental Authority is conducting an investigation or review of any such Required Permit or approval or that any such Required Permit has been revoked or withdrawn, nor has any such Governmental Authority issued any order or recommendation stating that such marketing or sales of such Product cease or that such Product be withdrawn from the marketplace;

(d) Without limiting the generality of Section 5.6 above, (i) there have been no adverse clinical test results which have or could reasonably be expected to cause a Material Adverse Change, and (ii) there have been no Product recalls or voluntary Product withdrawals from any market; and

(e) Borrower has not (since the Effective Date) experienced any significant failures in its manufacturing of any Product such that the amount of such Product successfully manufactured by Borrower in accordance with all specifications thereof and the required payments related thereto in any month shall decrease significantly with respect to the quantities of such Product produced in the prior month.

5.12 Non-Operating Subsidiaries. BL Acquisition and BL Acquisition II (i) do not, individually or collectively, conduct any activities which are material to the operation of the business of Borrower, own any material amount of assets or own any assets which are material to the operation of the business, or maintain any Collateral Accounts and (ii) are not obligated in respect of any Indebtedness, other than Indebtedness incurred pursuant to the Loan Documents.

6 AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1 Government Compliance.

(a) Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all Laws, ordinances and regulations to which it is subject, the noncompliance with which could reasonably be expected to have a material adverse effect on Borrower’s business.

(b) Obtain and keep in full force and effect, all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Agent for the ratable benefit of the Lenders, in all of the Collateral. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Agent.

(c) In connection with the development, testing, manufacture, marketing or sale of each and any Product by Borrower, Borrower shall comply fully and completely in all respects with all Required Permits at all times issued by any Governmental Authority the noncompliance with which could have a material adverse effect on Borrower’s business, specifically including the FDA, with respect to such development, testing, manufacture, marketing or sales of such Product by Borrower as such activities are at any such time being conducted by Borrower.

6.2 Financial Statements, Reports, Certificates.

(a) Deliver to Agent: (i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Agent; (ii) as soon as available, but no later than one hundred twenty (120) days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified (other than a “going concern” qualification) opinion on the financial statements from Borrower’s independent certified public accounting firm acceptable to Agent in its reasonable discretion; (iii) as soon as available after approval thereof by Borrower’s Board of Directors, but no later than sixty (60) days after the last day of Borrower’s fiscal year, Borrower’s financial projections for current fiscal year as approved by Borrower’s Board of Directors; (iv) within five (5) days of delivery, copies of all statements, reports and notices made available to all of Borrower’s security holders or to any holders of Subordinated Debt; (v) within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission or a link thereto on Borrower’s or another website on the Internet; (vi) a prompt report of any legal actions pending or threatened against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of One Hundred Thousand Dollars ($100,000) or more or could result in a Material Adverse Change; and (vii) budgets, sales projections, operating plans and other financial information as reasonably requested in writing by Agent.

(b) Within thirty (30) days after the last day of each month, deliver to Agent with the monthly financial statements, a duly completed Compliance Certificate signed by a Responsible Officer.

(c) Keep proper books of record and account in accordance with GAAP in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities. Borrower shall allow, at the sole cost of Borrower, Agent and Lenders to visit and inspect any of its properties, to examine and make abstracts or copies from any of its books and records, to conduct a collateral audit and analysis of its operations and the Collateral, to verify the amount and age of the accounts, the identity and credit of the respective account debtors, to review the billing practices of Borrower and to discuss its respective affairs, finances and accounts with their respective officers, employees and independent public accountants as often as may reasonably be desired. Notwithstanding the foregoing, such audits shall be conducted at Borrower’s expense no more often than once every six (6) months unless a Default or Event of Default has occurred and is continuing.

(d) Deliver to Agent an updated Schedule 5.2(f) promptly upon Borrower’s acquisition or development of any Material Intellectual Property not already listed on Schedule 5.2(f) and upon any other material change in Borrower’s Material Intellectual Property from that listed on Schedule 5.2(f).

(e) If after the Effective Date, Borrower determines to manufacture, sell, develop, test or market any new Product, Borrower shall give written notice to Agent of such new Product following such Product’s introduction to the general marketplace (which shall include a brief description of such Product, plus a list of all Required Permits relating to such new Product (and a copy of such Required Permits if requested by Agent) and/or Borrower’s manufacture, sale, development, testing or marketing thereof issued or outstanding as of the date of such notice) along with a copy of an amended and restated Schedule 5.11; and further, provided, that, if Borrower shall at any time obtain any new or additional Required Permits from the FDA, DEA, or parallel state or local authorities, or foreign counterparts of the FDA, DEA, or parallel state or local authorities, with respect to any Product which has previously been disclosed to Agent, Borrower shall promptly give written notice to Agent of such new or additional Required Permits (along with a copy thereof if requested by Agent).

6.3 Inventory; Returns. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date. Borrower must promptly notify Agent of all returns, recoveries, disputes and claims that involve more than One Hundred Thousand Dollars ($100,000).

6.4 Taxes; Pensions. Timely file and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely file, all foreign, federal, state, and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.8 hereof, and shall deliver to Agent, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

6.5 Insurance. Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Agent may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Agent. All property policies shall have a lender’s loss payable endorsement showing Agent as lender loss payee and waive subrogation against Agent, and all liability policies shall show, or have endorsements showing, Agent, as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall endeavor to give Agent at least thirty (30) days notice before canceling, amending, or declining to renew its policy. At Agent’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Agent’s option, be payable to Agent on behalf of the Lenders on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Agent, Agent may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Agent deems prudent.

6.6 Operating Accounts.

(a) Maintain all of Borrower’s and Guarantor’s Collateral Accounts, operating and investment accounts with Comerica Bank or SVB, which accounts shall be subject to Control Agreements in favor of Agent for the ratable benefit of all Lenders; provided, that on and after the date which is twenty-five (25) days after the Effective Date, Borrower and Guarantor shall (i) maintain their primary operating accounts with SVB and/or one of its Affiliates and (ii) maintain at least 85% of their aggregate cash and Cash Equivalents with SVB and/or one of its Affiliates.

(b) Provide Agent five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Comerica Bank and SVB. In addition, for each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Agent’s Lien in such Collateral Account in accordance with the terms hereunder, which Control Agreement may not be terminated without prior written consent of Agent. The provisions of the previous sentence shall not apply to (i) deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Agent by Borrower as such and (ii) account(s) maintained outside of the United States by Borrower, Guarantor or the Foreign Subsidiaries, provided that the aggregate amount on deposit in all such account(s) shall not at any time exceed $125,000 and the funds on deposit in such account(s) shall be used exclusively for purposes of funding the operations of the Foreign Subsidiaries in the ordinary course of business.

6.7 Protection of Intellectual Property Rights. Borrower shall own, or be licensed to use or otherwise have the right to use, all Material Intellectual Property. All Intellectual Property of Borrower is and shall be fully protected and/or duly and properly registered, filed or issued in the appropriate office and jurisdictions for such registrations, filings or issuances, except where the failure to do so would not reasonably be expected to result in a Material Adverse Change. Borrower shall not become a party to, nor become bound by, any material license or other agreement with respect to which Borrower is the licensee that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or other property. Borrower shall at all times conduct its business without infringement or claim of infringement of any Intellectual Property rights of others. Borrower shall, to the extent it determines, in the exercise of its reasonable business judgment, that it is prudent to do the following: (a) protect, defend and maintain the validity and enforceability of its Intellectual Property; (b) promptly advise Agent in writing of material infringements of its Intellectual Property; and (c) not allow any Material Intellectual Property to be abandoned, forfeited or dedicated to the public without Agent’s prior written consent. If Borrower (i) obtains any patent, registered trademark or servicemark, registered copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any patent or the registration of any trademark or servicemark, then Borrower shall concurrently provide written notice thereof to Agent and shall execute such intellectual property security agreements and other documents and take such other actions as Agent shall request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Agent, for the ratable benefit of Lenders, in such property. If Borrower decides to register any copyrights or mask works in the United States Copyright Office, Borrower shall: (x) provide Agent with at least fifteen (15) days prior written notice of Borrower’s intent to register such copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as Agent may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Agent, for the ratable benefit of the Lenders, in the copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the copyright or mask work application(s) with the United States Copyright Office. Borrower shall promptly provide to Agent copies of all applications that it files for patents or for the registration of trademarks, servicemarks, copyrights or mask works, together with evidence of the recording of the intellectual property security agreement necessary for Agent, for the ratable benefit of the Lenders, to perfect and maintain a first priority perfected security interest in such property.

6.8 Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Agent, without expense to Agent, Borrower and its officers, employees and agents and Borrower’s Books, to the extent that Agent may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Agent with respect to any Collateral or relating to Borrower.

6.9 Notices of Litigation and Default. Borrower will give prompt written notice to Agent of any litigation or governmental proceedings pending or threatened (in writing) against Borrower which would reasonably be expected to have a material adverse effect with respect to Borrower’s business. Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within three (3) Business Days) upon Borrower becoming aware of the existence of any Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default, Borrower shall give written notice to Agent of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default.

6.10 Creation/Acquisition of Subsidiaries. In the event Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Agent of the creation or acquisition of such new Subsidiary and take all such action as may be reasonably required by Agent to cause each such domestic Subsidiary to become a co-Borrower hereunder or to guarantee the Obligations of Borrower under the Loan Documents and, in each case, grant a continuing pledge and security interest in and to the assets of such Subsidiary (substantially as described on Exhibit A hereto); and Borrower shall grant and pledge to Agent, for the ratable benefit of the Lenders, a perfected security interest in the stock, units or other evidence of ownership of each Subsidiary.

6.11 Financial Covenants. Maintain at all times, to be tested as of the last day of each quarter, unless otherwise noted, on a consolidated basis with respect to Borrower:

(a) EBITDA. Achieve EBITDA, tested at the dates noted below for the periods noted below of at least the following:


Testing Date	Testing Period	Minimum EBITDA

July 1, 2010	April 1, 2010 through June 30, 2010	$	(3,029,518	)

October 1, 2010	April 1, 2010 through September 30, 2010	$	(3,602,460	)

January 1, 2011	April 1, 2010 through December 31, 2010	$	(2,534,589	)

April 1, 2011	April 1, 2010 through March 31, 2011	$	(2,417,369	)

July 1, 2011	July 1, 2010 through June 30, 2011	$	3,910,734

October 1, 2011	October 1, 2010 through September 30, 2011	$	6,744,096

January 1, 2012	January 1, 2011 through December 31, 2011	$	11,535,318

April 1, 2012 and the first day of each quarter thereafter	Trailing 12 months	85% of projected EBITDA as set forth in EBITDA projections delivered by Borrower to Agent and Lenders on or before December 1, 2011, which EBITDA shall be approved by Agent and the Lenders in their discretion

6.12 Further Assurances.

(a) Execute any further instruments and take further action as Agent reasonably requests to perfect or continue Agent’s Lien in the Collateral or to effect the purposes of this Agreement.

(b) Deliver to Agent, within five (5) days after the same are sent or received, copies of all material correspondence, reports, documents and other filings with any Governmental Authority that could reasonably be expected to have a material effect on any of the Governmental Approvals material to Borrower’s business or otherwise on the operations of Borrower or any of its Subsidiaries.

6.13 Post-Closing Covenant—Henry Schein Inc. Subordination Agreement. Within thirty (30) days of the Effective Date, Borrower shall deliver to Agent a Subordination Agreement duly executed by Henry Schein, Inc. in favor of the Lenders in form and substance satisfactory to Agent (the “Post-Closing Subordination Covenant”). In the event Borrower fails to satisfy the Post-Closing Subordination Covenant within such thirty (30) day period (as to which no grace period shall apply) the LIBOR Rate Margin applicable the Advances shall automatically increase as set forth in the definition “LIBOR Rate Margin”. Such increase in the LIBOR Rate Margin shall be Lenders’ sole remedy in respect of the Post-Closing Subordination Covenant (i.e., failure to satisfy the Post-Closing Subordination Covenant shall not constitute an Event of Default).

6.14 Additional Post-Closing Requirements.

(a) Provide to Agent, within thirty (30) days after the Effective Date (or such later date as Agent may determine, in its reasonable discretion), with a landlord’s consent in favor of Agent for the following leased location by the respective landlord thereof, together with the duly executed original signatures thereto:

(i) 4 Cromwell, Irvine, California; and

(b) Provide to Agent, within twenty-five (25) days after the Effective Date (or such later date as Agent may determine, in its reasonable discretion) duly executed original signatures to the Control Agreements from SVB, and such other financial institutions as Agent may require, in its sole discretion.

7 NEGATIVE COVENANTS

Borrower shall not do any of the following without the prior written consent of Agent and the Required Lenders:

7.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; or (c) in connection with Permitted Liens and Permitted Investments.

7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) permit or suffer any Change in Control. Borrower shall not, without at least thirty (30) days prior written notice to Agent: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Twenty Five Thousand Dollars ($25,000) in Borrower’s assets or property), (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. A Subsidiary may merge or consolidate into another Subsidiary (provided such surviving Subsidiary is a “co-Borrower” hereunder or has provided a secured guaranty hereunder) or into Borrower provided Borrower is the surviving legal entity and Borrower’s tangible net worth is not thereby reduced, and as long as no Event of Default is occurring prior thereto or arises as a result therefrom.

7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Agent) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.

7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.

7.7 Distributions; Investments. (a) Pay any dividends (other than dividends payable solely in common stock) or make any distribution or payment on or redeem, retire or purchase any capital stock (other than repurchases pursuant to the terms of employee stock purchase plans, employee restricted stock agreements or similar plans), or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to the Lenders.

7.10 Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other Law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

7.11 Compliance with Anti-Terrorism Laws. Agent hereby notifies Borrower that pursuant to the requirements of Anti-Terrorism Laws, and Agent’s policies and practices, Agent is required to obtain, verify and record certain information and documentation that identifies Borrower and its principals, which information includes the name and address of Borrower and its principals and such other information that will allow Agent to identify such party in accordance with Anti-Terrorism Laws. Borrower will not, nor will Borrower permit any Subsidiary or Affiliate to, directly or indirectly, knowingly enter into any documents, instruments, agreements or contracts with any Person listed on the OFAC Lists. Borrower shall immediately notify Agent if Borrower has knowledge that Borrower or any Subsidiary or Affiliate is listed on the OFAC Lists or (a) is convicted on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering. Borrower will not, nor will Borrower permit any Subsidiary or Affiliate to, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law.

8 EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day grace period shall not apply to payments due on the Maturity Date or the date of acceleration pursuant to Section 9.1 (a) hereof). During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2 Covenant Default.

(a) Borrower fails or neglects to perform any obligation in Sections 6.1(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.10, or 6.11 or violates any covenant in Section 7; or

(b) Borrower or any of its Subsidiaries fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this Section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above;

8.3 Material Adverse Change. A Material Adverse Change occurs;

8.4 Attachment; Levy; Restraint on Business.

(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under control of Borrower (including a Subsidiary) on deposit with the Lenders or any Lender Affiliate, or (ii) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; and

(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any part of its business;

8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

8.6 Other Agreements. There is a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Seventy Five Thousand Dollars ($75,000) or that could have a material adverse effect on Borrower’s business;

8.7 Judgments. One or more judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction, vacation, or stay of such judgment, order or decree);

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Agent and/or the Lenders or to induce Agent and/or the Lenders to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Agent or the Lenders, or any creditor that has signed such an agreement with Agent or the Lenders breaches any terms of such agreement;

8.10 Governmental Approvals. Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal (i) has, or could reasonably be expected to have, a Material Adverse Change, or (ii) adversely affects the legal qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to affect the status of or legal qualifications of Borrower or any of its Subsidiaries to hold any Governmental Approval in any other jurisdiction;

8.11 Criminal Proceeding. The institution by any Governmental Authority of criminal proceedings against Borrower;

8.12 Lien Priority. Except as permitted by Agent, any Lien created hereunder or by any other Loan Document shall at any time fail to constitute a valid and perfected Lien on all of the Collateral purported to be secured thereby, subject to no prior or equal Lien; or

8.13 Withdrawals, Recalls, Adverse Test Results and Other Matters. (a) The institution of any proceeding by FDA or similar Governmental Authority to order the withdrawal of any Product or Product category from the market or to enjoin Borrower or any representative of Borrower from manufacturing, marketing, selling or distributing any Product or Product category, which, in each case, could cause a Material Adverse Change (b) the institution of any action or proceeding by any DEA, FDA, or any other Governmental Authority to revoke, suspend, reject, withdraw, limit, or restrict any Required Permit held by Borrower or any representative of Borrower, which, in each case, could cause a Material Adverse Change, (c) the commencement of any enforcement action against Borrower by DEA, FDA, or any other Governmental Authority, (d) the recall of any Products from the market, the voluntary withdrawal of any Products from the market, or actions to discontinue the sale of any Products, which, in each case, could cause a Material Adverse Change, or (e) the occurrence of adverse test results in connection with a Product which could cause a Material Adverse Change.

9 RIGHTS AND REMEDIES

9.1 Rights and Remedies.

Upon the occurrence and during the continuance of an Event of Default, Agent may, and at the written direction of any Lender shall, without notice or demand, do any or all of the following: (i) deliver notice of the Event of Default to Borrower, (ii) by notice to Borrower declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations shall be immediately due and payable without any action by Agent or the Lenders) or (iii) by notice to Borrower suspend or terminate the obligations, if any, of the Lenders to advance money or extend credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Agent and/or the Lenders (but if an Event of Default described in Section 8.5 occurs all obligations, if any, of the Lenders to advance money or extend credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Agent and/or the Lenders shall be immediately terminated without any action by Agent or the Lenders).

(b) Without limiting the rights of Agent and the Lenders set forth in Section 9.1(a) above, upon the occurrence and during the continuance of an Event of Default Agent shall have the right, at the written direction of the Required Lenders, without notice or demand, to do any or all of the following:

(i) foreclose upon and/or sell or otherwise liquidate, the Collateral;

(ii) apply to the Obligations any (a) balances and deposits of Borrower that Agent or any Lender holds or controls, or (b) any amount held or controlled by Agent or any Lender owing to or for the credit or the account of Borrower; and/or

(iii) commence and prosecute an Insolvency Proceeding or consent to Borrower commencing any Insolvency Proceeding.

(c) Without limiting the rights of Agent and the Lenders set forth in Sections 9.1(a) and (b) above, upon the occurrence and during the continuance of an Event of Default Agent shall have the right, without notice or demand, to do any or all of the following:

(i) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Agent considers advisable, notify any Person owing Borrower money of Agent’s security interest in such funds, and verify the amount of such account;

(ii) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Agent requests and make it available as Agent designates. Agent may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Agent a license to enter and occupy any of its premises, without charge, to exercise any of Agent’s rights or remedies;

(iii) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, and/or advertise for sale, the Collateral. Agent is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Agent’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements inure to Agent for the benefit of the Lenders;

(iv) place a “hold” on any account maintained with Agent or the Lenders and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(v) demand and receive possession of Borrower’s Books; and

(vi) Subject to clauses 9.1(a) and (b), exercise all rights and remedies available to Agent under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

Notwithstanding any provision of this Section 9.1 to the contrary, upon the occurrence of any Event of Default, Agent shall have the right to exercise any and all remedies referenced in this Section 9.1 without the written consent of Required Lenders following the occurrence of an Exigent Circumstance. As used in the immediately preceding sentence, “Exigent Circumstance” means any event or circumstance that, in the reasonable judgment of Agent, imminently threatens the ability of Agent to realize upon all or any material portion of the Collateral, such as, without limitation, fraudulent removal, concealment, or abscondment thereof, destruction or material waste thereof, or failure of Borrower after reasonable demand to maintain or reinstate adequate casualty insurance coverage, or which, in the judgment of Agent, could result in a material diminution in value of the Collateral.

9.2 Power of Attorney. Borrower hereby irrevocably appoints Agent as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Agent determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Agent or a third party as the Code permits. Borrower hereby appoints Agent as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Agent’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Agent and the Lenders are under no further obligation to make Credit Extensions hereunder. Agent’s foregoing appointment as Borrower’s attorney in fact, and all of Agent’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Agent’s and the Lenders’ obligation to provide Credit Extensions terminates.

9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Agent may obtain such insurance or make such payment, and all amounts so paid by Agent are Lenders’ Expenses and immediately due and payable, bearing interest at the then highest applicable rate, and secured by the Collateral. Agent will make reasonable efforts to provide Borrower with notice of Agent obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No such payments by Agent are deemed an agreement to make similar payments in the future or Agent’s waiver of any Event of Default.

9.4 Application of Payments and Proceeds. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, (a) Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Agent from or on behalf of Borrower of all or any part of the Obligations, and, as between Borrower on the one hand and Agent and the Lenders on the other, Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received against the Obligations in such manner as Agent may deem advisable notwithstanding any previous application by Agent, and (b) the proceeds of any sale of, or other realization upon all or any part of the Collateral shall be applied: first, to Lenders Expenses; second, to accrued and unpaid interest on the Obligations (including any interest which, but for the provisions of the United States Bankruptcy Code, would have accrued on such amounts); third, to the principal amount of the Obligations outstanding; and fourth, to any other indebtedness or obligations of Borrower owing to Agent or any Lender under the Loan Documents. Any balance remaining shall be delivered to Borrower or to whoever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct. In carrying out the foregoing, (x) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category, and (y) each of the Persons entitled to receive a payment in any particular category shall receive an amount equal to its pro rata share of amounts available to be applied pursuant thereto for such category. Any reference in this Agreement to an allocation between or sharing by the Lenders of any right, interest or obligation “ratably,” “proportionally” or in similar terms shall refer to Pro Rata Share unless expressly provided otherwise. Agent, or if applicable, each Lender, shall promptly remit to the other Lenders such sums as may be necessary to ensure the ratable repayment of each Lender’s portion of any Term Loan and the ratable distribution of interest, fees and reimbursements paid or made by Borrower. Notwithstanding the foregoing, a Lender receiving a scheduled payment shall not be responsible for determining whether the other Lenders also received their scheduled payment on such date; provided, however, if it is later determined that a Lender received more than its ratable share of scheduled payments made on any date or dates, then such Lender shall remit to Agent or other Lenders such sums as may be necessary to ensure the ratable payment of such scheduled payments, as instructed by Agent. Any payment or distribution of any kind or character, whether in cash, properties or securities, shall be received by a Lender in excess of its ratable share, then the portion of such payment or distribution in excess of such Lender’s ratable share shall be received by such Lender in trust for and shall be promptly paid over to the other Lender for application to the payments of amounts due on the other Lender’s claims. To the extent any payment for the account of Borrower is required to be returned as a voidable transfer or otherwise, the Lenders shall contribute to one another as is necessary to ensure that such return of payment is on a pro rata basis. If any Lender shall obtain possession of any Collateral, it shall hold such Collateral for itself and as agent and bailee for Agent and other Lenders for purposes of perfecting Agent’s security interest therein. Notwithstanding anything to the contrary herein, any warrants issued to the Lenders by Borrower, the stock issuable thereunder, any equity securities purchased by Lenders, any amounts paid thereunder, any dividends, and any other rights in connection therewith shall not be subject to the terms and conditions of this Agreement. Nothing herein shall affect any Lender’s rights under any such warrants, stock, or other equity securities to administer, manage, transfer, assign, or exercise such warrants, stock, or other equity securities for its own account.

9.5 Liability for Collateral. So long as Agent and the Lenders comply with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Agent and the Lenders, Agent and the Lenders shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6 No Waiver; Remedies Cumulative. Agent’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Agent thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Agent and then is only effective for the specific instance and purpose for which it is given. Agent’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Agent has all rights and remedies provided under the Code, by Law, or in equity. Agent’s exercise of one right or remedy is not an election, and Agent’s waiver of any Event of Default is not a continuing waiver. Agent’s delay in exercising any remedy is not a waiver, election, or acquiescence.

9.7 Demand Waiver. Borrower waives, to the fullest extent permitted by law, demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Agent on which Borrower is liable.

10 NOTICES

All notices, consents, requests, approvals, demands, or other communication (collectively, “Communication”) by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail (if an email address is specified herein) or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Any of Agent, Lender or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

If to Borrower:

c/o Biolase Technology, Inc.
4 Cromwell
Irvine, California 92618
Attention: David M. Mulder
Chief Executive Officer

If to Agent or Lenders:

MidCap Financial, LLC
7735 Old Georgetown Road, Suite 400
Bethesda, Maryland 20814
Attention: Portfolio Management- Life Sciences

with a copy to:

Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attention: John J. Malloy, Esquire

11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

Maryland Law governs the Loan Documents without regard to principles of conflicts of law. Borrower, Lenders and Agent each submit to the exclusive jurisdiction of the State and Federal courts in Maryland. NOTWITHSTANDING THE FOREGOING, AGENT AND LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH AGENT AND LENDERS (IN ACCORDANCE WITH THE PROVISIONS OF SECTION 9.1) DEEM NECESSARY OR APPROPRIATE TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE AGENT’S AND LENDERS’ RIGHTS AGAINST BORROWER OR ITS PROPERTY. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, AGENT AND LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

Borrower, Agent and each Lender agree that each Term Loan (including those made on the Effective Date) shall be deemed to be made in, and the transactions contemplated hereunder and in any other Loan Document (other than the Warrants) shall be deemed to have been performed in, the State of Maryland.

12 GENERAL PROVISIONS

12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Agent’s prior written consent (which may be granted or withheld in Agent’s discretion, subject to Section 12.11). The Lenders have the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, the Lenders’ obligations, rights, and benefits under this Agreement and the other Loan Documents provided, however, that any such sale, assignment, negotiation or grant of a participation by any Lender (other than a sale or assignment to an Eligible Assignee) of its obligations, rights, and benefits under this Agreement and the other Loan Documents shall require the prior written consent of the Required Lenders (such approved assignee, an “Approved Lender”). Borrower and Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned until Agent shall have received and accepted an effective Assignment Agreement executed, delivered and fully completed by the applicable parties thereto, and shall have received such other information regarding such Eligible Assignee or Approved Lender as Agent reasonably shall require.

12.2 Indemnification.

(a) Borrower agrees to indemnify, defend and hold Agent and the Lenders and their respective directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Agent or the Lenders (each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Lenders’ Expenses incurred, or paid by Indemnified Person from, following, or arising from transactions between Agent, and/or the Lenders and Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct (collectively, the “Indemnified Liabilities”).

(b) Borrower hereby further indemnifies, defends and holds each Indemnified Person harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the fees and disbursements of counsel for such Indemnitee), except to the extent directly caused by such Indemnified Person’s gross negligence or willful misconduct, in connection with any investigative, response, remedial, administrative or judicial matter or proceeding, whether or not such Indemnified Person shall be designated a party thereto and including any such proceeding initiated by or on behalf of Borrower, and the reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and any commission, fee or compensation claimed by any broker (other than any broker retained by Agent or Lenders) asserting any right to payment for the transactions contemplated hereby which may be imposed on, incurred by or asserted against such Indemnified Person as a result of or in connection with the transactions contemplated hereby and the use or intended use of the proceeds of the loan proceeds.

(c) To the extent that the undertaking set forth in this Section 12.2 may be unenforceable, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all such indemnified liabilities incurred by the Indemnitees or any of them.

12.3 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.

12.4 Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.5 Correction of Loan Documents. Agent and the Lenders may correct patent errors and fill in any blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties.

12.6 Integration. This Agreement and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.

12.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

12.8 Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.2 to indemnify each Lender and Agent shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

12.9 Confidentiality. In handling any confidential information of Borrower, the Lenders and Agent shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to the Lenders’ and Agent’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, the Lenders and Agent shall use commercially reasonable efforts to obtain such prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by Law, regulation, subpoena, or other order; (d) to regulators or as otherwise required in connection with an examination or audit; (e) as Agent considers appropriate in exercising remedies under the Loan Documents; and (f) to third party service providers of the Lenders and/or Agent so long as such service providers have executed a confidentiality agreement with the Lenders and Agent with terms no less restrictive than those contained herein. Confidential information does not include information that either: (i) is in the public domain or in the Lenders’ and/or Agent’s possession when disclosed to the Lenders and/or Agent, or becomes part of the public domain after disclosure to the Lenders and/or Agent; or (ii) is disclosed to the Lenders and/or Agent by a third party, if the Lenders and/or Agent does not know that the third party is prohibited from disclosing the information. Lenders and/or Agent may use confidential information for any purpose, including, without limitation, for the development of client databases, reporting purposes, and market analysis, so long as Lenders and/or Agent do not disclose Borrower’s identity or the identity of any person associated with Borrower unless otherwise expressly permitted by this Agreement. The provisions of the immediately preceding sentence shall survive the termination of this Agreement. The agreements provided under this Section 12.9 supersede all prior agreements, understanding, representations, warranties, and negotiations between the parties about the subject matter of this Section 12.9. In respect of confidential information provided by Borrower to Agent and Lenders hereunder and Borrower’s securities Agent and Lenders agree to comply with applicable securities laws which prohibit trading in securities based upon material non-public information.

12.10 Right of Set Off. Borrower hereby grants to Agent and to each Lender, a lien, security interest and right of set off as security for all Obligations to Agent and each Lender hereunder, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Agent or the Lenders or any entity under the control of Agent or the Lenders (including a Agent affiliate) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Agent or the Lenders may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

12.11 Amendments.

(a) No amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, or any consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by Borrower, Agent and the Required Lenders provided that

(i) no such amendment, waiver or other modification that would have the effect of increasing or reducing a Lender’s Term Loan Commitment or Commitment Percentage shall be effective as to such Lender without such Lender’s written consent;

(ii) no such amendment, waiver or modification that would affect the rights and duties of Agent shall be effective without Agent’s written consent or signature;

(iii) no such amendment, waiver or other modification shall, unless signed by all the Lenders directly affected thereby, (A) reduce the principal of, rate of interest on or any fees with respect to any Term Loan or forgive any principal, interest (other than default interest) or fees (other than late charges) with respect to any Term Loan (B) postpone the date fixed for, or waive, any payment of principal of any Term Loan or of interest on any Term Loan (other than default interest) or any fees provided for hereunder (other than late charges or for any termination of any commitment); (C) change the definition of the term “Required Lenders” or the percentage of Lenders which shall be required for Lenders to take any action hereunder; (D) release all or substantially all or any material portion of the Collateral, authorize Borrower to sell or otherwise dispose of all or substantially all or any material portion of the Collateral or release any Guarantor of all or any portion of the Obligations or its guaranty obligations with respect thereto, except, in each case with respect to this clause (D), as otherwise may be expressly permitted under this Agreement or the other Loan Documents (including in connection with any disposition permitted hereunder); (E) amend, waive or otherwise modify this Section 12.11 or the definitions of the terms used in this Section 12.11 insofar as the definitions affect the substance of this Section 12.11; (F) consent to the assignment, delegation or other transfer by any Borrower or any Guarantor of any of its rights and obligations under any Loan Document or release Borrower or any Guarantor of its payment obligations under any Loan Document, except, in each case with respect to this clause (F), pursuant to a merger or consolidation permitted pursuant to this Agreement; (G) amend any of the provisions of Section 9.4 or amend any of the definitions Pro Rata Share, Term Loan Commitment, Commitment Percentage or that provide for the Lenders to receive their Pro Rata Shares of any fees, payments, setoffs or proceeds of Collateral hereunder; (H) subordinate the Liens granted in favor of Agent securing the Obligations; or (I) amend any of the provisions of Section 12.10. It is hereby understood and agreed that all Lenders shall be deemed directly affected by an amendment, waiver or other modification of the type described in the preceding clauses (C), (D), (E), (F), (G) and (H) of the preceding sentence;

(iv) the provisions of the foregoing clauses (i), (ii) and (iii) are subject to the provisions of any interlender or agency agreement among the Lenders and Agent pursuant to which any Lender may agree to give its consent in connection with any amendment, waiver or modification of the Loan Documents only in the event of the unanimous agreement of all Lenders.

(b) Other than as expressly provided for in Section 12.11(a)(i)-(iii), Agent may, if requested by the Required Lenders, from time to time designate covenants in this Agreement less restrictive by notification to a representative of the Borrower.

12.12 Publicity. Borrower will not directly or indirectly publish, disclose or otherwise use in any public disclosure, advertising material, promotional material, press release or interview, any reference to the name, logo or any trademark of Agent or any Lender or any of their Affiliates or any reference to this Agreement or the financing evidenced hereby, in any case except as required by applicable Law, subpoena or judicial or similar order, in which case Borrower shall endeavor to give Agent prior written notice of such publication or other disclosure. Each Lender and Borrower hereby authorizes each Lender to publish the name of such Lender and Borrower, the existence of the financing arrangements referenced under this Agreement, the primary purpose and/or structure of those arrangements, the amount of credit extended under each facility, the title and role of each party to this Agreement, and the total amount of the financing evidenced hereby in any “tombstone”, comparable advertisement or press release which such Lender elects to submit for publication. In addition, each Lender and Borrower agrees that each Lender may provide lending industry trade organizations with information necessary and customary for inclusion in league table measurements after the Effective Date. With respect to any of the foregoing, such authorization shall be subject to such Lender providing Borrower and the other Lenders with an opportunity to review and confer with such Lender regarding, and approve, the contents of any such tombstone, advertisement or information, as applicable, prior to its initial submission for publication, but subsequent publications of the same tombstone, advertisement or information shall not require Borrower’s approval.

12.13 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

13 AGENT

13.1 Appointment and Authorization of Agent. Each Lender hereby irrevocably appoints, designates and authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Loan Document, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in the other Loan Documents with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

13.2 Delegation of Duties. Agent may execute any of its duties under this Agreement or any other Loan Document by or through its, or its Affiliates’, agents, employees or attorneys-in-fact and shall be entitled to obtain and rely upon the advice of counsel and other consultants or experts concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct.

13.3 Liability of Agent. Except as otherwise provided herein, no Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by Borrower or any officer thereof, contained herein or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Borrower or any Affiliate thereof.

13.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under any Loan Document unless it shall first receive such advice or concurrence of all Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of all Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.

13.5 Notice of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any default and/or Event of Default, unless Agent shall have received written notice from a Lender or Borrower, describing such default or Event of Default. Agent will notify the Lenders of its receipt of any such notice. Agent shall take such action with respect to an Event of Default as may be directed in writing by the Required Lenders in accordance with Article 9(a); provided, however, that while an Event of Default has occurred and is continuing, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as Agent shall deem advisable or in the best interest of the Lenders, including without limitation, satisfaction of other security interests, liens or encumbrances on the Collateral not permitted under the Loan Documents, payment of taxes on behalf of Borrower, payments to landlords, warehouseman, bailees and other persons in possession of the Collateral and other actions to protect and safeguard the Collateral, and actions with respect to insurance claims for casualty events affecting Borrower and/or the Collateral.

13.6 Credit Decision; Disclosure of Information by Agent. Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of Borrower or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of, and investigation into, the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and its respective Subsidiaries, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by Agent herein, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower or any of its Affiliates which may come into the possession of any Agent-Related Person.

13.7 Indemnification of Agent. Whether or not the transactions contemplated hereby are consummated, each Lender shall, severally and pro rata based on its respective Pro Rata Share, indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), and hold harmless each Agent-Related Person from and against any and all Indemnified Liabilities (which shall not include legal expenses of Agent incurred in connection with the closing of the transactions contemplated by this Agreement) incurred by it; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities to the extent determined in a judgment by a court of competent jurisdiction to have resulted from such Agent-Related Person’s own gross negligence or willful misconduct; provided, however, that no action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section 13.7. Without limitation of the foregoing, each Lender shall, severally and pro rata based on its respective Pro Rata Share, reimburse Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Lenders’ Expenses incurred after the closing of the transactions contemplated by this Agreement) incurred by Agent (in its capacity as Agent, and not as a Lender) in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section 13.7 shall survive the payment in full of the Obligations, the termination of this Agreement and the resignation of Agent.

13.8 Agent in its Individual Capacity. With respect to its Credit Extensions, MidCap shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not Agent, and the terms “Lender” and “Lenders” include MidCap in its individual capacity.

13.9 Successor Agent. Agent may resign as Agent upon ten (10) days’ notice to the Lenders. If Agent resigns under this Agreement, all Lenders shall appoint from among the Lenders (or the affiliates thereof) a successor Agent for the Lenders, which successor Agent shall (unless an Event of Default has occurred and is continuing) be subject to the approval of Borrower (which approval shall not be unreasonably withheld or delayed). If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders, a successor Agent from among the Lenders (or the affiliates thereof). Upon the acceptance of its appointment as successor Agent hereunder, the Person acting as such successor Agent shall succeed to all the rights, powers and duties of the retiring Agent and the respective term “Agent” means such successor Agent and the retiring Agent’s appointment, powers and duties in such capacities shall be terminated without any other further act or deed on its behalf. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Article 13 and Sections 2.4(d) and 12.2 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date ten (10) days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor agent as provided for above.

13.10 Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to Borrower, Agent (irrespective of whether the principal of any Loan, shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Agent shall have made any demand on Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Credit Extensions and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and Agent and their respective agents and counsel and all other amounts due the Lenders and Agent allowed in such judicial proceeding); and

(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to Agent and, in the event that Agent shall consent to the making of such payments directly to the Lenders, to pay to Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agent and its agents and counsel, and any other amounts due Agent under Section 2.4(d). To the extent that Agent fails timely to do so, each Lender may file a claim relating to such Lender’s claim.

13.11 Collateral and Guaranty Matters. The Lenders irrevocably authorize Agent, at its option and in its discretion, to release any Guarantor and any Lien on any Collateral granted to or held by Agent under any Loan Document (i) upon the date that all Obligations due hereunder have been fully and indefeasibly paid in full and no Term Loan Commitments or other obligations of any Lender to provide funds to Borrower under this Agreement remain outstanding, (ii) that is transferred or to be transferred as part of or in connection with any Transfer permitted hereunder or under any other Loan Document, or (iii) as approved in accordance with Section 12.11. Upon request by Agent at any time, all Lenders will confirm in writing Agent’s authority to release its interest in particular types or items of Property, pursuant to this Section 13.11.

13.12 Cooperation of Borrower. If necessary, Borrower agrees to (i) execute any documents (including new Secured Promissory Notes) reasonably required to effectuate and acknowledge each assignment of a Term Loan Commitment or Loan to an assignee in accordance with Section 12.1, (ii) make Borrower’s management available to meet with Agent and prospective participants and assignees of Term Loan Commitments or Credit Extensions and (iii) assist Agent or the Lenders in the preparation of information relating to the financial affairs of Borrower as any prospective participant or assignee of a Term Loan Commitment or Term Loan reasonably may request. Subject to the provisions of Section 12.9 Borrower authorizes each Lender to disclose to any prospective participant or assignee of a Term Loan Commitment, any and all information in such Lender’s possession concerning Borrower and its financial affairs which has been delivered to such Lender by or on behalf of Borrower pursuant to this Agreement, or which has been delivered to such Lender by or on behalf of Borrower in connection with such Lender’s credit evaluation of Borrower prior to entering into this Agreement.

14 DEFINITIONS

14.1 Definitions. As used in this Agreement, the following terms have the following meanings:

“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

“Advance” means an advance or disbursement of proceeds to or for the account of Borrower in respect of a Term Loan.

“Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“Agent” means, MidCap, not in its individual capacity, but solely in its capacity as agent on behalf of and for the benefit of the Lenders.

“Agent-Related Person” means Agent, together with its Affiliates, and the officers, directors, employees, agents, advisors, auditors and attorneys-in-fact of such Persons; provided, however, that no Agent-Related Person shall be an Affiliate of Borrower.

“Agreement” is defined in the preamble hereof.

“Amortization Date” is December 1, 2010.

“Anti-Terrorism Laws” means any Laws relating to terrorism or money laundering, including Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by OFAC.

“Approved Fund” means any (i) investment company, fund, trust, securitization vehicle or conduit that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business or (ii) any Person (other than a natural person) which temporarily warehouses loans for any Lender or any entity described in the preceding clause (i) and that, with respect to each of the preceding clauses (i) and (ii), is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) a Person (other than a natural person) or an Affiliate of a Person (other than a natural person) that administers or manages a Lender.

“Approved Lender” has the meaning given it in Section 12.1.

“Assignment Agreement” means an agreement substantially in the form of Exhibit E hereto.

“Base LIBOR Rate” means, for any Interest Period, the rate per annum, determined by Agent in accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/100%), to be the rate at which Dollar deposits (for delivery on the first day of such Interest Period or, if such day is not a Business Day, on the preceding Business Day) in the amount of One Million Dollars ($1,000,000) are offered to major banks in the London interbank market on or about 11:00 a.m. (New York time) two (2) Business Days prior to the commencement of such Interest Period, for a term comparable to such Interest Period, which determination shall be conclusive in the absence of manifest error.

“Blocked Person” means any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) a Person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) a Person that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list.

“Borrower” is defined in the preamble hereof.

“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such Person’s Board of Directors and delivered by such Person to Agent approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Agent and the Lenders may conclusively rely on such certificate unless and until such Person shall have delivered to Agent a further certificate canceling or amending such prior certificate.

“Business Day” is any day that is not a Saturday, Sunday or a day on which Agent is closed.

“Cash Equivalents” are (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc., (c) certificates of deposit issued maturing no more than one (1) year after issue, and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (b) of this definition.. For the avoidance of doubt, the direct purchase by Borrower, co-borrower, or any subsidiary of Borrower of any Auction Rate Securities, or purchasing participations in, or entering into any type of swap or other derivative transaction, or otherwise holding or engaging in any ownership interest in any type of Auction Rate Security by Borrower, co-borrower, or any subsidiary of Borrower shall be conclusively determined by the Lenders as an ineligible Cash Equivalent, and any such transaction shall expressly violate each other provision of this agreement governing Permitted Investments. Notwithstanding the foregoing, Cash Equivalents does not include and each Borrower and Subsidiary is prohibited from purchasing, purchasing participations in, entering into any type of swap or other equivalent derivative transaction, or otherwise holding or engaging in any ownership interest in any type of debt instrument, including, without limitation, any corporate or municipal bonds with a long-term nominal maturity for which the interest rate is reset through a dutch auction and more commonly referred to as an auction rate security.

“Change in Control” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing twenty-five percent (25%) or more of the combined voting power of Borrower’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors whose election by the Board of Directors of Borrower was approved by a vote of not less than two-thirds of the directors then still in office who either were directions at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office.

“Claims” are defined in Section 12.2.

“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of Maryland; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of Law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of Maryland, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

“Commitment Percentage” is set forth in Schedule 1.1, as amended from time to time.

“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

“Communication” is defined in Section 10.

“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit C.

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

“Control Agreement” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Agent pursuant to which Agent obtains control (within the meaning of the Code) for the benefit of the Lenders over such Deposit Account, Securities Account, or Commodity Account.

“Credit Extension” is any Term Loan or any other extension of credit by Agent or the Lenders for Borrower’s benefit.

“DEA” means the Drug Enforcement Administration of the United States of America and any successor agency thereof.

“Default” is any event which with notice or passage of time or both, would constitute an Event of Default.

“Default Rate” is defined in Section 2.3(c).

“Deposit Account” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

“Designated Deposit Account” is the deposit account maintained by Borrower with SVB and designated as the “Designated Deposit Account” and over which Agent shall be granted control for the ratable benefit of all Lenders.

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

“Drug Application” means a new drug application, an abbreviated drug application, or a product license application for any Product, as appropriate, as those terms are defined in the FDCA.

“EBITDA” shall mean with respect to Borrower and its Subsidiaries on a consolidated basis (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation expense and amortization expense, plus (d) non-cash stack compensation expense, plus (e) income tax expense.

“Effective Date” is defined in the preamble of this Agreement.

“Eligible Assignee” means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an Approved Fund and (iv) any commercial bank, savings and loan association or savings bank or any other entity which is an “accredited investor” (as defined in Regulation D under the Securities Act of 1933, as amended) and which extends credit or buys loans as one of its businesses, including insurance companies, mutual funds, lease financing companies and commercial finance companies, in each case, which either (A) has a rating of BBB or higher from Standard & Poor’s Rating Group and a rating of Baa2 or higher from Moody’s Investors Service, Inc. at the date that it becomes a Lender or (B) has total assets in excess of $5,000,000,000, and in each case of clauses (i) through (iv), which, through its applicable lending office, is capable of lending to Borrower without the imposition of any withholding or similar taxes; provided that notwithstanding the foregoing, “Eligible Assignee” shall not include Borrower, any Guarantor or any of Borrower’s or any Guarantor’s Affiliates or Subsidiaries. Notwithstanding the foregoing, in connection with assignments by a Lender due to a forced divestiture at the request of any regulatory agency, the restrictions set forth herein shall not apply and Eligible Assignee shall mean any Person or party.

“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“Equity Event” shall mean the receipt by Borrower, after the Effective Date and prior to August 31, 2010, of unrestricted net cash proceeds of at least Five Million Dollars ($5,000,000.00) from the closing of the issuance and sale of Borrower’s equity securities.

“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.

“Event of Default” is defined in Section 8.

“FDA” means the Food and Drug Administration of the United States of America or any successor entity thereto.

“FDCA” means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C. Section 301 et seq. and all regulations promulgated thereunder.

“Final Payment” is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the earlier to occur of (a) the Maturity Date, or (b) the acceleration of any Term Loan, or (c) the prepayment of a Term Loan pursuant to Section 2.2(c) or (d), equal to the original Term Loan Commitments multiplied by the Final Payment Percentage.

“Final Payment Percentage” is three percent (3.00%).

“Foreign Subsidiary” shall mean each of the following Subsidiaries of Biolase: (i) Biolase Europe, GmbH, a company organized under the laws of Germany, (ii) Biolase Spain, S.L., a company organized under the laws of Spain, (iii) Biolase Australia Pty. Ltd., a company organized under the laws of Australia, and (iv) Biolase (NZ) Limited, a company organized under the laws of New Zealand.

“Funding Date” is any date on which a Credit Extension is made to or on account of Borrower which shall be a Business Day.

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession in the United States, which are applicable to the circumstances as of the date of determination.

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable Law, any applications therefor, whether registered or not, any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“Guarantor” is, individually and collectively, jointly and severally, BL Acquisition Corp., a Delaware corporation (“BL Acquisition”)and BL Acquisition II, Inc., a Delaware corporation (“BL Acquisition II”), and any present or future guarantor of the Obligations.

“Guarantor Security Agreement” is the Security Agreement dated as of the Effective Date made by BL Acquisition and BL Acquisition II in favor of the Agent and the Lenders.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

“Indemnified Liabilities” is defined in Section 12.2.

“Indemnified Person” is defined in Section 12.2.

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency Law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property” includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, trade names, service marks, mask works, rights of use of any name, domain names, or any other similar rights, any applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized thereby, know-how, operating manuals, trade secret rights, clinical and non-clinical data, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing.

“Interest Expense” means for any fiscal period with respect to Borrower and its Subsidiaries on a consolidated basis, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period ending on such date, including, in any event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower and its Subsidiaries, including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap, and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types).

“Interest Period” means the one-month period starting on the first (1^st) day of each month and ending on the last day of such month; provided, however, that the first (1^st) Interest Period for each Advance shall commence on the date that the applicable Advance is made and end on the last day of such month.

“Interest Rate Determination Date” means the second (2^nd) Business Day prior to the first (1^st) day of the related Interest Period.

“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

“IP Agreement” is that certain Intellectual Property Security Agreement executed and delivered by Borrower to Agent dated of even date herewith.

“Laws” means any and all federal, state, provincial, territorial, local and foreign statutes, laws, judicial decisions, regulations, guidances, guidelines, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, governmental agreements and governmental restrictions, whether now or hereafter in effect, which are applicable to any Borrower in any particular circumstance.

“Lender” is any one of the Lenders.

“Lenders” shall mean the Persons identified on Schedule 1.1 hereto and each assignee that becomes a party to this Agreement pursuant to Section 12.1.

“Lenders’ Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) of Lenders and Agent for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred by Agent or the Lenders in connection with the Loan Documents.

“LIBOR Rate” means for each Interest Period, the rate per annum determined by Agent (rounded upwards, if necessary, to the next 1/100th%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage.

“LIBOR Rate Margin” is nine and one quarter percent (9.25%) per annum; provided, however, that in the event that Borrower fails to satisfy the Post-Closing Covenant, the LIBOR Rate Margin shall be eleven and one quarter percent (11.25%) per annum, effective as of the thirtieth day after the Effective Date and thereafter.

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of Law or otherwise against any property.

“Loan Documents” are, collectively, this Agreement, the Warrant, the Perfection Certificate, the IP Agreement, the Unconditional Guaranty, the Guaranty Security Agreement, any note, or notes or guaranties executed by Borrower in connection with the indebtedness governed by this Agreement, and any other present or future agreement between Borrower and/or for the benefit of the Lenders and Agent in connection with this Agreement, all as amended, restated, or otherwise modified.

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Agent’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) or prospects of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

“Material Intellectual Property” is all of Borrower’s Intellectual Property that is material to the condition (financial or other), business or operations of Borrower.

“Maturity Date” is May 1, 2013.

“Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.

“Obligations” are all of Borrower’s obligations to pay when due any debts, principal, interest, Lenders’ Expenses, the Prepayment Fee, the Final Payment, and other amounts Borrower owes the Lenders now or later, under this Agreement or the other Loan Documents, including, without limitation, interest accruing after Insolvency Proceedings begin (whether or not allowed) and debts, liabilities, or obligations of Borrower assigned to the Lenders and/or Agent, and the performance of Borrower’s duties under the Loan Documents.

“OFAC” is the U.S. Department of Treasury Office of Foreign Assets Control.

“OFAC Lists” are, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders.

“Operating Documents” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

“Payment/Advance Form” is that certain form attached hereto as Exhibit B.

“Payment Date” is the first calendar day of each calendar month.

“Perfection Certificate” is defined in Section 5.1.

“Permits” means licenses, certificates, accreditations, product clearances or approvals, provider numbers or provider authorizations, marketing authorizations, other authorizations, registrations, permits, consents and approvals required in connection with the conduct of Borrower’s or any Subsidiary’s business or to comply with any applicable Laws, including, without limitation, drug listings and drug establishment registrations under 21 U.S.C. Section 510, registrations issued by DEA under 21 U.S.C. Section 823 (if applicable to any Product), and those issued by State governments for the conduct of Borrower’s or any Subsidiary’s business.

“Permitted Indebtedness” is:

(a) Borrower’s Indebtedness to the Lenders and Agent under this Agreement and the other Loan Documents;

(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;

(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

(e) Indebtedness secured by Permitted Liens; and

(h) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (e) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investments” are:

(a) Investments shown on the Perfection Certificate and existing on the Effective Date; provided, however that on and after the Effective Date Borrower’s Investments in the Foreign Subsidiaries shall be limited to amounts necessary to fund the operations of the Foreign Subsidiaries in the ordinary course, which amounts shall not exceed $125,000 in the aggregate in any fiscal year for all Foreign Subsidiaries; and

(b) Investments consisting of Cash Equivalents.

“Permitted Liens” are:

(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;

(b) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended , and the Treasury Regulations adopted thereunder;

(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; and

(d) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) and (c) above, but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness may not increase.

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

“Prepayment Fee” means with respect to any Term Loan subject to prepayment prior to the Maturity Date, whether by mandatory or voluntary prepayment, acceleration or otherwise, an additional fee payable to the Lenders in amount equal to:

(i) for a prepayment made on or after the Effective Date through and including the date which is twelve (12) months after the Effective Date, six percent (6.00%) of the outstanding principal amount of the Term Loans;

(ii) for a prepayment made after the date which is twelve (12) months after the Effective Date through and including the date which is twenty-four (24) months after the Effective Date, four percent (4.00%) of the outstanding principal amount of the Term Loans; and

(ii) for a prepayment made after the date which is twenty-four (24) months after the Effective Date and prior to the Maturity Date, two percent (2.00%) of the outstanding principal amount of the Term Loans.

“Pro Rata Share” means, with respect to each Lender, a percentage (expressed as a decimal, rounded to the ninth decimal place) determined by dividing the amount of Term Loans held by such Lender by the aggregate amount of all outstanding Term Loans.

“Products” means any products manufactured, sold, developed, tested or marketed by any Borrower or any of its Subsidiaries, including without limitation, those products set forth on Schedule 5.11 (as updated from time to time in accordance with Section 6.2(e) above); provided that, if Borrower shall fail to comply with the obligations under Section 6.2(e) to give notice to Agent and update Schedule 5.11 prior to manufacturing, selling, developing, testing or marketing any new Product, any such improperly undisclosed Product shall be deemed to be included in this definition; and provided, further, that products manufactured by Borrower for unaffiliated third parties shall not be deemed “Products” hereunder.

“Registered Organization” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made

“Required Lenders” means (i) for so long as all of the Persons that are Lenders on the Effective Date (each an “Original Lender”) have not assigned or transferred any of their interests in their respective Term Loans, Lenders holding one hundred percent (100%) of the aggregate outstanding principal balance of the Term Loans, or (ii) at any time from and after any Original Lender has assigned or transferred any interest in its Term Loans, Lenders holding sixty-six percent (66%) or more of the aggregate outstanding principal balance of the Term Loans, plus, in respect of this clause (ii), (A) each Original Lender that has not assigned or transferred any portion of its respective Term Loans and (B) each assignee of an Original Lender provided such assignee was assigned or transferred and continues to hold 100% of the assigning Original Lender’s interest in the Term Loans (in each case in respect of clauses (A) and (B) of this clause (ii), whether or not such Lender is included within the Lenders holding sixty-six percent (66%) of the Terms Loans); provided, however, that notwithstanding the foregoing, for purposes of Section 9.1(b) hereof, “Required Lenders” means (i) for so long as all Original Lenders retain 100% of their interests in their respective Term Loans, Lenders holding one hundred percent (100%) of the aggregate outstanding principal balance of the Term Loans, or (ii) at any time from and after any Original Lender has assigned or transferred any interest in its Term Loans, Lenders holding sixty-six percent (66%) or more of the aggregate outstanding principal balance of the Term Loans, plus, in respect of this clause (ii), each Original Lender that has not assigned or transferred any portion of its respective Term Loan (in each case in respect of this clause (ii), whether or not such Original Lender is included within the Lenders holding sixty-six percent (66%) of the Term Loans). For purposes of this definition only, a Lender shall be deemed to include itself, and any Lender that is an Affiliate or Approved Fund of such Lender.

“Required Permit” means a Permit (a) issued or required under Laws applicable to the business of Borrower or any of its Subsidiaries or necessary in the manufacturing, importing, exporting, possession, ownership, warehousing, marketing, promoting, sale, labeling, furnishing, distribution or delivery of goods or services under Laws applicable to the business of Borrower or any of its Subsidiaries or any Drug Application (including without limitation, at any point in time, all licenses, approvals and permits issued by the FDA or any other applicable Governmental Authority necessary for the testing, manufacture, marketing or sale of any Product by any applicable Borrower(s) as such activities are being conducted by such Borrower with respect to such Product at such time), and (b) issued by any Person from which Borrower or any of their Subsidiaries have received an accreditation.

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any Law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Reserve Percentage” means, on any day, for any Lender, the maximum percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that are in effect on such date with respect to eurocurrency funding (currently referred to as “eurocurrency liabilities”) of that Lender, but so long as such Lender is not required or directed under applicable regulations to maintain such reserves, the Reserve Percentage shall be zero.

“Responsible Officer” is any of the President and Chief Executive Officer or Chief Financial Officer of Borrower.

“Secured Promissory Note” is defined in Section 2.7.

“Secured Promissory Note Record” is a record maintained by each Lender with respect to the outstanding Obligations and credits made thereto.

“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to the Lenders (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Agent and the Lenders entered into between Agent, Borrower and the other creditor), on terms acceptable to Agent and the Lenders.

“Subsidiary” means, with respect to any Person, any Person of which more than 50.0% of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled, directly or indirectly, by such Person or one or more of Affiliates of such Person.

“Term Loan” or “Term Loans” is defined in Section 2.2(a) hereof.

“Term A Loan” is defined in Section 2.2(b) hereof.

“Term B Loan” is defined in Section 2.2(b) hereof.

“Term B Loan Draw Period” is the period commencing upon the occurrence of the Equity Event and continuing through the earlier to occur of (i) August 31, 2010, and (ii) an Event of Default.

“Term Loan Commitment” means, for any Lender, the obligation of such Lender to make a Term Loan, up to the principal amount shown on Schedule 1.1. “Term Loan Commitments” means the aggregate amount of such commitments of all Lenders.

“Transfer” is defined in Section 7.1.

“Unconditional Guaranty” is the Unconditional Guaranty dated as of the Effective Date made by BL Acquisition and BL Acquisition II in favor of the Agent and the Lenders.

“Warrants” are those certain Warrants to Purchase Stock dated as of the Effective Date executed by Borrower in favor of each Lender or such Lender’s Affiliates.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.


BORROWER:

BIOLASE TECHNOLOGY, INC.

By:	/s/ David M. Mulder

	Name:	David M. Mulder
	Title:	Chief Executive Officer

GUARANTORS:

BL ACQUISITION CORP.

By:	/s/ David M. Mulder

	Name:	David M. Mulder
	Title:	Chief Executive Officer

BL ACQUISITION II, INC.

By:	/s/ David M. Mulder

	Name:	David M. Mulder
	Title:	Chief Executive Officer

AGENT:

MIDCAP FINANCIAL, LLC, as Agent

By:	/s/ Josh Groman

	Name:	Josh Groman
	Title:	Managing Director

LENDERS:

MIDCAP FINANCIAL, LLC, as a Lender

By:	/s/ Josh Groman

	Name:	Josh Groman
	Title:	Managing Director

SILICON VALLEY BANK, as a Lender

By:	/s/ Kurt Miklinski

	Name:	Kurt Miklinksi
	Title:	Vice President

[Signature Page to the Loan and Security Agreement]

SCHEDULE 1.1

LENDERS AND COMMITMENTS


Lender	Term A Loan Commitment		Commitment Percentage
MidCap Financial, LLC	$	2,100,000		70	%
Silicon Valley Bank	$	900,000		30	%
TOTAL TERM A LOANS	$	3,000,000		100	%


Lender	Term B Loan Commitment		Commitment Percentage
MidCap Financial, LLC	$	1,400,000		70	%
Silicon Valley Bank	$	600,000		30	%
TOTAL TERM B LOANS	$	2,000,000		100	%
TOTAL TERM LOANS	$	5,000,000		100	%

[Signature Page to the Loan and Security Agreement]

EX-10.3 4 c05030exv10w3.htm EXHIBIT 10.3 Exhibit 10.3

Exhibit 10.3

SECURED PROMISSORY NOTE

Term A Loan


$2,100,000		Dated: May 27, 2010

FOR VALUE RECEIVED, the undersigned, BIOLASE TECHNOLOGY, INC., a Delaware corporation (“Borrower”) HEREBY PROMISES TO PAY to the order of MIDCAP FINANCIAL, LLC (“Lender”) the principal amount of TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000) or such lesser amount as shall equal the outstanding principal balance of the Term A Loan made to Borrower by Lender, plus interest on the aggregate unpaid principal amount of the Term A Loan, at the rates and in accordance with the terms of the Loan and Security Agreement by and between Borrower and MidCap Financial, LLC, as Agent, and the Lenders as defined therein (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). If not sooner paid, the entire principal amount and all accrued interest hereunder and under the Loan Agreement shall be due and payable on Maturity Date as set forth in the Loan Agreement.

Borrower agrees to pay any initial partial month interest payment from the date of this Secured Promissory Note (this “Note”) to the first Payment Date (“Interim Interest”) on the first Payment Date.

Principal, interest and all other amounts due with respect to the Term A Loan, are payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement and this Note. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.

The Loan Agreement, among other things, (a) provides for the making of a secured Term A Loan to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.

This Note may not be prepaid except as set forth in Section 2.2(c) and Section 2.2(d) of the Loan Agreement.

This Note and the obligation of Borrower to repay the unpaid principal amount of the Term A Loan, interest on the Term A Loan and all other amounts due Lender under the Loan Agreement is secured under the Loan Agreement.

Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.

Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred by Lender in the enforcement or attempt to enforce any of Borrower’s obligations hereunder not performed when due. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of Maryland.

Note Register; Ownership of Note. The ownership of an interest in this Note shall be registered on a record of ownership maintained by Lender or its agent. Notwithstanding anything else in this Note to the contrary, the right to the principal of, and stated interest on, this Note may be transferred only if the transfer is registered on such record of ownership and the transferee is identified as the owner of an interest in the obligation. Borrower shall be entitled to treat the registered holder of this Note (as recorded on such record of ownership) as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in this Note on the part of any other person or entity.

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.


BORROWER: BIOLASE TECHNOLOGY, INC.
By:	/s/ David M. Mulder
	Name:	David M. Mulder
	Title:	Chief Executive Officer

[Signature Page to Secured Promissory Note Term A Loan — to Midcap Financial, LLC]

EX-10.4 5 c05030exv10w4.htm EXHIBIT 10.4 Exhibit 10.4

Exhibit 10.4

SECURED PROMISSORY NOTE

Term A Loan


$900,000		Dated: May 27, 2010

FOR VALUE RECEIVED, the undersigned, BIOLASE TECHNOLOGY, INC., a Delaware corporation (“Borrower”) HEREBY PROMISES TO PAY to the order of SILICON VALLEY BANK (“Lender”) the principal amount of NINE HUNDRED THOUSAND DOLLARS ($900,000) or such lesser amount as shall equal the outstanding principal balance of the Term A Loan made to Borrower by Lender, plus interest on the aggregate unpaid principal amount of the Term A Loan, at the rates and in accordance with the terms of the Loan and Security Agreement by and between Borrower and MidCap Financial, LLC, as Agent and the Lenders as defined therein (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). If not sooner paid, the entire principal amount and all accrued interest hereunder and under the Loan Agreement shall be due and payable on Maturity Date as set forth in the Loan Agreement.

This Note may not be prepaid except as set forth in Section 2.2(c) and Section 2.2(d) of the Loan Agreement.

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.


BORROWER: BIOLASE TECHNOLOGY, INC.
By:	/s/ David M. Mulder
	Name:	David M. Mulder
	Title:	Chief Executive Officer

[Signature Page to Secured Promissory Note Term A Loan — to Silicon Valley Bank]

EX-10.5 6 c05030exv10w5.htm EXHIBIT 10.5 Exhibit 10.5

Exhibit 10.5

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES (SUBJECT TO THE PROVISIONS OF ARTICLE 5 BELOW), SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

WARRANT TO PURCHASE STOCK

Company: Biolase Technology, Inc., a Delaware corporation
Number of Shares: As set forth below
Class of Stock: Common Stock, $0.001 par value per share
Warrant Price: As set forth below
Issue Date: May 27, 2010
Expiration Date: May 26, 2015


Credit Facility:		This Warrant is issued in connection with that certain Loan and Security Agreement of even date herewith among Midcap Financial, LLC, Silicon Valley Bank and the Company (as amended and in effect from time to time, the “Loan Agreement”).

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, MIDCAP FINANCIAL, LLC (together with any successor or permitted assignee or transferee of this Warrant or of any Shares issued upon exercise or conversion hereof, “Holder”) is entitled to purchase the number of fully paid and non-assessable shares (the “Shares”) of the above-stated Class of Stock (the “Class”) of the above-named company (the “Company”) at the above-stated Warrant Price per Share, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

A. Number of Shares; Warrant Price. This Warrant shall be exercisable for the Initial Shares, plus the Additional Shares (if any).

(1) Initial Shares.

(a) Initial Shares. As used herein, “Initial Shares” means 71,186 shares of the Class, subject to adjustment from time to time in accordance with the provisions of this Warrant.

(b) Initial Shares Warrant Price. The purchase price per Initial Share (the “Initial Shares Warrant Price”) shall be $1.77, subject to adjustment from time to time in accordance with the provisions of this Warrant.

(2) Additional Shares.

(a) Additional Shares. Upon the making by Holder (or its affiliate) of the Term B Loan (as defined in the Loan Agreement) to the Company under the Loan Agreement, if at all, this Warrant automatically shall become exercisable for such number of additional shares of the Class (the “Additional Shares”) as shall equal (a)(i) 0.06, multiplied by (ii) the principal amount of such Term B Loan made by Holder (or its affiliate), divided by (b) the Additional Shares Warrant Price, and subject to adjustment thereafter from time to time in accordance with the provisions of this Warrant.

(b) Additional Shares Warrant Price. The purchase price per Additional Share (the “Additional Shares Warrant Price”) shall be the average closing price reported for a share of the Class on the principal US stock exchange or trading market on which shares of the Class are then traded or quoted for the twenty (20) consecutive trading days immediately preceding the date on which Holder (or its affiliate) makes the Term B Loan to the Company, subject to adjustment from time to time thereafter in accordance with the provisions of this Warrant.

(3) As used herein: (a) ”Shares” means the Initial Shares together with the Additional Shares (if any) for which this Warrant becomes exercisable in accordance with paragraph A(2)(a) above, and subject to adjustment from time to time in accordance with the provisions of this Warrant; and (b) “Warrant Price” means the Initial Shares Warrant Price with respect to the Initial Shares, and the Additional Shares Warrant Price with respect to the Additional Shares; all as adjusted from time to time in accordance with the provisions of this Warrant.

ARTICLE 1. EXERCISE.

1.1 Method of Exercise. Holder may exercise this Warrant by delivering the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

1.2 Conversion Right. In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.

1.3 Fair Market Value. If shares of the Class are then publicly listed or quoted on one or more securities exchanges, inter-dealer quotation systems or over-the-counter markets, the fair market value of a Share shall be the closing price of a share of the Class reported on the principal such exchange, system or market for the business day immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company. If shares of the Class are not then publicly listed or quoted on one or more securities exchanges, inter-dealer quotation systems or over-the-counter markets, then the Board of Directors of the Company shall determine the fair market value of a Share in its reasonable good faith judgment.

1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new warrant of like tenor representing the Shares not so acquired.

1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

1.6 Treatment of Warrant Upon Acquisition of Company.

1.6.1 “Acquisition”. For the purpose of this Warrant, “Acquisition” means any sale or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, merger, or sale of outstanding equity securities of the Company by the holders thereof, where the holders of the Company’s outstanding voting equity securities as of immediately before the transaction beneficially own less than a majority of the outstanding voting equity securities of the surviving or successor entity as of immediately after the transaction.

1.6.2 Treatment of Warrant at Acquisition.

A) Holder agrees that, in the event of an Acquisition in which the sole consideration payable to the Company and/or its stockholders consists of cash and/or Marketable Securities, this Warrant shall terminate on and as of the closing of such Acquisition to the extent not previously exercised. The Company shall provide Holder with written notice of any proposed Acquisition not later than ten (10) days prior to the closing thereof setting forth the material terms and conditions thereof.

B) Upon the closing of any Acquisition other than as particularly described in subsection (A) above, the surviving or successor entity shall assume this Warrant and the obligations of the Company hereunder, and this Warrant shall, from and after such closing, be exercisable for the same class, number and kind of securities, cash and other property as would have been paid for or in respect of the Shares issuable (as of immediately prior to such closing) upon exercise in full hereof as if such Shares had been issued and outstanding on and as of such closing, at an aggregate Warrant Price equal to the aggregate Warrant Price in effect as of immediately prior to such closing; and subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant.

C) As used in this Article 1.6, “Marketable Securities” means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise or convert this Warrant on or prior to the closing thereof is then publicly listed or quoted on one or more securities exchanges, inter-dealer quotation systems or over-the-counter markets, and (iii) Holder would not be restricted by contract or by applicable federal and state securities laws from publicly re-selling, within six (6) months and one day following the closing of such Acquisition, all of the issuer’s shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise or convert this Warrant in full on or prior to the closing of such Acquisition.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on the outstanding shares of the Class payable in additional shares of the Class or other securities, then upon exercise or conversion of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

2.2 Reclassification, Exchange, Substitution, Recapitalization or Reorganization. Upon any reclassification, exchange, substitution, recapitalization or reorganization affecting the outstanding shares of the Class, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised in full immediately before such reclassification, exchange, substitution, recapitalization or reorganization, at an aggregate Warrant Price not exceeding the aggregate Warrant Price in effect as of immediately prior thereto. The Company or its successor shall promptly issue to Holder a certificate pursuant to Article 2.6 hereof setting forth the number, class and series or other designation of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution, recapitalization or reorganization. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, recapitalizations and reorganizations.

2.3 Adjustment to Warrant Price on Cash Dividend. In the event that the Company at any time prior or from time to time prior to exercise or conversion in full of this Warrant pays any cash dividend on the outstanding shares of the Class or makes any cash distribution on or in respect of the outstanding shares of the Class, and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of the Class receivable thereupon, the amount of cash which such Holder would hold on the date of such exercise had he been the holder of record of such Class as of the date on which holders of the Class received or became entitled to receive such cash.

2.4 No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Article 2 against impairment.

2.5 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price, Class and number of Shares in effect upon the date thereof and the series of adjustments leading to such Warrant Price, Class and number of Shares.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.1 Representations and Warranties. The Company represents and warrants to, and agrees with, the Holder as follows:

(a) All Shares which may be issued upon the exercise or conversion of this Warrant shall at all times during the term hereof and prior to exercise or conversion in full hereof be duly reserved out of the Company’s authorized and unissued capital stock for issuance upon exercise or conversion hereof and shall, upon issuance, be duly and validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon the outstanding shares of the Class, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription or sale pro rata to the holders of the outstanding shares of the Class any additional shares of any class or series of the Company’s stock; (c) to effect any reclassification, reorganization or recapitalization of the shares of the Class; or (d) to effect an Acquisition or to liquidate, dissolve or wind up; then in each such event the Company shall provide written notice thereof to Holder thereof at the same time and in the same manner as the Company gives notice thereof to the holders of the outstanding shares of the Class.

3.3 No Shareholder Rights. Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and warrants to the Company as follows:

4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution in violation of applicable securities laws. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.

4.2 Disclosure of Information. Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4 Accredited Investor Status. Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

4.5 The Act. Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder’s investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.

ARTICLE 5. MISCELLANEOUS.

5.1 Term: This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

5.2 Legends. This Warrant and the Shares shall be imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES (SUBJECT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO MIDCAP FINANCIAL, LLC DATED AS OF MAY 27, 2010), SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

5.3 Compliance with Securities Laws on Transfer. This Warrant and/or the Shares issued upon exercise or conversion of this Warrant may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to any affiliate of Holder, provided that such affiliate is an “accredited investor” as defined in Regulation D promulgated under the Act.

5.4 Transfer Procedure. Subject to the provisions of Article 5.3 and upon providing the Company with written notice, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The foregoing provisions of this Article 5.4 shall not apply to a public sale of any Shares issued on exercise or conversion of this Warrant pursuant to the provisions of Rule 144 promulgated under the Act.

5.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid (or on the first business day after transmission by facsimile), at such address as may have been furnished to the Company or Holder, as the case may be, in writing by the Company or such holder from time to time. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

Midcap Financial, LLC
7735 Old Georgetown Road, Suite 400
Bethesda, Maryland 20814
Attention: Portfolio Management- Life Sciences
Telephone: 301-760-7600
Facsimile: 301-941-1450

Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Biolase Technology, Inc.
Attn: Chief Executive Officer
4 Cromwell
Irvine, CA 92618
Telephone: 949-361-1200 Facsimile: 949-365-4913

5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 Attorney’s Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

5.8 Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

5.9 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law.

“COMPANY”

BIOLASE TECHNOLOGY, INC.


By:		/s/ David M. Mulder Name: David M. Mulder
		(Print)
		Title: Chief Executive Officer

“HOLDER”

MIDCAP FINANCIAL, LLC


By:		/s/ Josh Groman Name: Josh Groman
		(Print)
		Title: Managing Director

EX-10.6 7 c05030exv10w6.htm EXHIBIT 10.6 Exhibit 10.6

Exhibit 10.6

WARRANT TO PURCHASE STOCK


Credit Facility:		This Warrant is issued in connection with that certain Loan and Security Agreement of even date herewith among Midcap Financial, LLC, Silicon Valley Bank and the Company (as amended and in effect from time to time, the “Loan Agreement”).

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (together with any successor or permitted assignee or transferee of this Warrant or of any Shares issued upon exercise or conversion hereof, “Holder”) is entitled to purchase the number of fully paid and non-assessable shares (the “Shares”) of the above-stated Class of Stock (the “Class”) of the above-named company (the “Company”) at the above-stated Warrant Price per Share, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

A. Number of Shares; Warrant Price. This Warrant shall be exercisable for the Initial Shares, plus the Additional Shares (if any).

(1) Initial Shares.

(a) Initial Shares. As used herein, “Initial Shares” means 30,508 shares of the Class, subject to adjustment from time to time in accordance with the provisions of this Warrant.

(2) Additional Shares.

ARTICLE 1. EXERCISE.

1.6 Treatment of Warrant Upon Acquisition of Company.

1.6.2 Treatment of Warrant at Acquisition.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.1 Representations and Warranties. The Company represents and warrants to, and agrees with, the Holder as follows:

3.3 No Shareholder Rights. Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and warrants to the Company as follows:

4.4 Accredited Investor Status. Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

ARTICLE 5. MISCELLANEOUS.

5.1 Term: This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

5.2 Legends. This Warrant and the Shares shall be imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES (SUBJECT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO SILICON VALLEY BANK DATED AS OF MAY 27, 2010), SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

5.4 Transfer Procedure. After receipt by Silicon Valley Bank (“Bank”) of the executed Warrant, Bank will transfer all of this Warrant to SVB Financial Group, Holder’s parent company. Subject to the provisions of Article 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or such subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The foregoing provisions of this Article 5.4 shall not apply to a public sale of any Shares issued on exercise or conversion of this Warrant pursuant to the provisions of Rule 144 promulgated under the Act.

SVB Financial Group
Attn: Treasury Department
3003 Tasman Drive, HA 200
Santa Clara, CA 95054
Telephone: 408-654-7400
Facsimile: 408-496-2405

Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Biolase Technology, Inc.
Attn: Chief Executive Officer
4 Cromwell
Irvine, CA 92618
Telephone: 949-361-1200
Facsimile: 949-365-4913

5.8 Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

5.9 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law.

“COMPANY”

BIOLASE TECHNOLOGY, INC.


By:		/s/ David M. Mulder Name: David M. Mulder
		(Print)
		Title: Chief Executive Officer

“HOLDER”

SILICON VALLEY BANK


By:		/s/ Kurt Miklinksi Name: Kurt Miklinksi
		(Print)
		Title: Vice President

EX-10.7 8 c05030exv10w7.htm EXHIBIT 10.7 Exhibit 10.7

Exhibit 10.7

INTELLECTUAL PROPERTY SECURITY AGREEMENT

This Intellectual Property Security Agreement is entered into as of May 27, 2010 by and among (a) MIDCAP FUNDING III, LLC, a Delaware limited liability company, individually as a Lender, and as Administrative Agent (“Agent”), and the financial institutions or other entities from time to time parties as lenders to the Loan Agreement (as defined below), each as a “Lender” and collectively as “Lenders”), and (b) BIOLASE TECHNOLOGY, INC., a Delaware corporation, (“Grantor”).

RECITALS

A. Lenders have agreed to make certain advances of money and to extend certain financial accommodation to Grantor (the “Loans”) in the amounts and manner set forth in that certain Loan and Security Agreement by and among Lenders, the Agent and Grantor, dated as of May 27, 2010, (as the same may be amended, modified or supplemented from time to time, the “Loan Agreement”). Capitalized terms used herein are used as defined in the Loan Agreement. Lenders are willing to make the Loans to Grantor, but only upon the condition, among others, that Grantor shall grant to Agent, for the ratable benefit of the Lenders, and to each Lender a security interest in certain Copyrights, Trademarks, Patents, and Mask Works (as each term is described below) to secure the obligations of Grantor under the Loan Agreement.

B. Pursuant to the terms of the Loan Agreement, Grantor has granted to Agent, for the ratable benefit of the Lenders, and to each Lender a security interest in all of Grantor’s right, title and interest, whether presently existing or hereafter acquired, in, to and under all of the Collateral.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, as collateral security for the prompt and complete payment when due of its obligations under the Loan Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:

AGREEMENT

To secure its obligations under the Loan Agreement, Grantor grants and pledges to Agent, for the ratable benefit of the Lenders, and to each Lender a security interest in all of Grantor’s right, title and interest in, to and under its intellectual property now owned or hereafter created, acquired or arising (all of which shall collectively be called the “Intellectual Property Collateral”), including, without limitation, the following:

1. Any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now whether now owned or hereafter acquired, wherever located, including without limitation those set forth on Exhibit A attached hereto (collectively, the “Copyrights”);

2. Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products, whether now owned or hereafter acquired, wherever located;

3. Any and all design rights that may be available to Grantor, whether now owned or hereafter acquired, wherever located;

4. All patents, patent applications and like protections including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, whether now owned or hereafter acquired, wherever located ,including without limitation the patents and patent applications set forth on Exhibit B attached hereto (collectively, the “Patents”);

5. Any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Grantor connected with and symbolized by such trademarks, whether now owned or hereafter acquired, wherever located, including without limitation those set forth on Exhibit C attached hereto (collectively, the “Trademarks”);

6. All mask works or similar rights available for the protection of semiconductor chips, whether now owned or hereafter acquired, wherever located, including, without limitation those set forth on Exhibit D attached hereto (collectively, the “Mask Works”);

7. Any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

8. Subject to any counterparty’s interest in such licenses, all licenses or other rights to use any of the Copyrights, Patents, Trademarks, or Mask Works and all license fees and royalties arising from such use to the extent permitted by such license or rights;

9. All amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks, Patents, or Mask Works; and

10. All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

This security interest is granted in conjunction with the security interest granted to the Agent and the Lenders under the Loan Agreement. The rights and remedies of the Agent and the Lenders with respect to the security interest granted hereby are in addition to those set forth in the Loan Agreement and the other Financing Documents, and those which are now or hereafter available to the Agent and the Lenders as a matter of law or equity. Each right, power and remedy of the Agent and the Lenders provided for herein or in the Loan Agreement or any of the Financing Documents, or now or hereafter existing at law or in equity shall be cumulative and concurrent and shall be in addition to every right, power or remedy provided for herein and the exercise by the Agent and the Lenders of any one or more of the rights, powers or remedies provided for in this Intellectual Property Security Agreement, the Loan Agreement or any of the other Financing Documents, or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including the Agent or any Lender, of any or all other rights, powers or remedies.

[Signature page follows.]

-2-

IN WITNESS WHEREOF, the parties have caused this Intellectual Property Security Agreement to be duly executed by its officers thereunto duly authorized as of the first date written above.


	GRANTOR:

Address of Grantor:	BIOLASE TECHNOLOGY, INC.

4 Cromwell	By:	/s/ David M. Mulder

Irvine, California 92618		Title:	Chief Executive Officer
Attn: Mr. David M. Mulder, Chief Executive Officer

	AGENT:

Address of Agent:	MIDCAP FINANCIAL, LLC, as Agent and as a Lender

7735 Old Georgetown Road, Suite 400 Bethesda, Maryland 20814
Attn: Portfolio Management – Life Sciences	By:	/s/ Josh Groman

		Title:	Managing Director

EX-31.1 9 c05030exv31w1.htm EXHIBIT 31.1 Exhibit 31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13A-14 OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, David M Mulder, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2010 of BIOLASE Technology, 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 report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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 evaluation;

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. 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 the registrant’s Board of Directors (or persons performing the equivalent functions):

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

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.

EX-32.1 10 c05030exv32w1.htm EXHIBIT 32.1 Exhibit 32.1

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*

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, David M. Mulder, Chairman, Chief Executive Officer, and President of BIOLASE Technology, Inc. (the “Company”), hereby certify that to the best of my knowledge:

(1)

This quarterly report on Form 10-Q for the quarter ended June 30, 2010 (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.


Dated: August 16, 2010		/s/ DAVID M. MULDER David M. Mulder
		Chairman, Chief Executive Officer, and President
		(Principal Executive Officer and Principal
		Financial and Accounting Officer)


*		This certificate accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

-----END PRIVACY-ENHANCED MESSAGE-----

Dated: August 16, 2010

/s/ DAVID M. MULDER

David M. Mulder

Chairman, Chief Executive Officer, and President

(Principal Executive Officer and

Principal Financial and Accounting Officer)