Form 10-Q

-----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, H6K9laSCTncQ97jpl3HrwLhwPK0bNmH3Q8uS74p+riolEoaxKKMdrZNOUcwVg/Lw 2zRrPn1yFNl+VvH5DUj41w== 0000950123-10-100187.txt : 20101103 0000950123-10-100187.hdr.sgml : 20101103 20101103170804 ACCESSION NUMBER: 0000950123-10-100187 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20100930 FILED AS OF DATE: 20101103 DATE AS OF CHANGE: 20101103 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: 101162197 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 c07638e10vq.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 September 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		(I.R.S. Employer
of incorporation or organization)		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 October 29, 2010: 24,584,565

BIOLASE TECHNOLOGY, INC.

INDEX


	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

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

Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and September 30, 2009		4

Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and September 30, 2009		5

Notes to Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		33

Item 4. Controls and Procedures		34

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		34

Item 1A. Risk Factors		34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		35

Item 6. Exhibits		36

Signature		37

Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
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)


	September 30, 2010			December 31, 2009

ASSETS
Current assets:
Cash and cash equivalents	$	2,226		$	2,975
Accounts receivable, less allowance of $345 and $421 in 2010 and 2009, respectively		2,861			4,229
Inventory		8,432			7,861
Prepaid expenses and other current assets		887			1,347
Assets held for sale		592			—

Total current assets		14,998			16,412
Property, plant and equipment, net		996			2,180
Intangible assets, net		374			472
Goodwill		2,926			2,926
Deferred tax asset		28			17
Other assets		171			170

Total assets	$	19,493		$	22,177


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Term loan payable, current portion	$	1,138		$	—
Accounts payable		4,223			4,887
Accrued liabilities		4,333			5,152
Customer deposits		8,418			—
Deferred revenue, current portion		1,380			1,123

Total current liabilities		19,492			11,162
Term loan payable, long-term		1,765			—
Deferred tax liabilities		527			473
Warranty accrual, long-term		636			448
Deferred revenue, long-term		441			1,975
Other liabilities, long-term		179			190

Total liabilities		23,040			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; 26,507 and 26,340 shares issued and 24,543 and 24,376 shares outstanding in 2010 and 2009, respectively		27			27
Additional paid-in capital		118,014			117,228
Accumulated other comprehensive loss		(289	)		(222	)
Accumulated deficit		(104,900	)		(92,705	)

		12,852			24,328
Treasury stock (cost of 1,964 shares repurchased)		(16,399	)		(16,399	)

Total stockholders’ equity (deficit)		(3,547	)		7,929

Total liabilities and stockholders’ equity (deficit)	$	19,493		$	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						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Products and services revenue	$	6,002		$	11,796		$	15,085		$	31,802
License fees and royalty revenue		218			289			1,422			1,194

Net revenue		6,220			12,085			16,507			32,996
Cost of revenue		4,429			6,252			12,515			17,297

Gross profit		1,791			5,833			3,992			15,699

Operating expenses:
Sales and marketing		2,110			2,231			7,825			8,046
General and administrative		1,330			1,699			5,031			6,003
Engineering and development		775			999			2,990			3,201

Total operating expenses		4,215			4,929			15,846			17,250

(Loss) income from operations		(2,424	)		904			(11,854	)		(1,551	)

Gain (loss) on foreign currency transactions		(118	)		(40	)		(75	)		166
Interest income		1			1			2			4
Interest expense		(157	)		(7	)		(216	)		(49	)

Non-operating (loss) income, net		(274	)		(46	)		(289	)		121

(Loss) income before income tax provision (benefit)		(2,698	)		858			(12,143	)		(1,430	)
Income tax provision (benefit)		28			(1	)		52			57

Net (loss) income	$	(2,726	)	$	859		$	(12,195	)	$	(1,487	)

Net (loss) income per share:
Basic	$	(0.11	)	$	0.04		$	(0.50	)	$	(0.06	)

Diluted	$	(0.11	)	$	0.04		$	(0.50	)	$	(0.06	)

Shares used in the calculation of net (loss) income per share:
Basic		24,428			24,281			24,403			24,257

Diluted		24,428			24,540			24,403			24,257

See accompanying notes to consolidated financial statements.

BIOLASE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Nine Months Ended
	September 30,
	2010			2009
Cash Flows From Operating Activities:
Net loss	$	(12,195	)	$	(1,487	)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization		830			1,126
Loss on disposal of assets, net		3			13
Impairment of property, plant and equipment		35			—
Recovery for bad debts		(47	)		(134	)
Provision for inventory excess and obsolescence		—			946
Amortization of discounts on term loan payable		17			—
Amortization of debt issuance costs		39			—
Stock-based compensation		499			1,103
Other non-cash compensation		24			—
Deferred income taxes		43			46
Changes in operating assets and liabilities:
Accounts receivable		1,415			626
Inventory		(571	)		2,376
Prepaid expenses and other assets		407			62
Customer deposits		8,418			—
Accounts payable and accrued liabilities		(1,206	)		(5,103	)
Deferred revenue		(1,278	)		(1,357	)

Net cash and cash equivalents used in operating activities		(3,567	)		(1,783	)

Cash Flows From Investing Activities:
Proceeds from sale of property, plant and equipment		—			5
Additions to property, plant and equipment		(220	)		(333	)

Net cash and cash equivalents used in investing activities		(220	)		(328	)

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		148			139

Net cash and cash equivalents provided by (used in) financing activities		3,063			(5,265	)

Effect of exchange rate changes		(25	)		20

Decrease in cash and cash equivalents		(749	)		(7,356	)
Cash and cash equivalents, beginning of year		2,975			11,235

Cash and cash equivalents, end of period	$	2,226		$	3,879


Supplemental cash flow disclosure:
Cash paid (refunded) during the period for:
Interest	$	113		$	49

Income taxes	$	(95	)	$	14

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 August 30, 2010, our products are sold domestically directly to customers through our direct sales force and through non-exclusive distributors. Sales are recorded upon shipment from our facility and payment of our invoices is generally due within 30 days or less. Internationally, we sell products through independent distributors including Henry Schein, Inc., or HSIC, in certain countries. 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) collectability is reasonably assured.

Sales of our laser systems include separate deliverables consisting of the product, disposables used with the laser systems, certain support services, 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 judgments related to our revenue recognition relates to the collectability of payment from the customer and the satisfaction of all elements of the arrangement having been delivered and that no additional customer credits and discounts are needed. 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. Future obligations required at the time of sale may cause us to defer the revenue until the obligation is satisfied.

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 as a reduction in revenue or as a selling expense, as applicable, 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 September 30, 2010, we had $2.2 million in cash and cash equivalents to finance operations and to satisfy our obligations. On September 23, 2010, we entered into a new distribution agreement (See Note 7) with HSIC, effective August 30, 2010, that changed our distributor relationship with HSIC from an exclusive to a non-exclusive distributor of our products. Under the Agreement, we granted HSIC certain non-exclusive distribution rights in North America, and in certain other international markets, with respect to our dental laser systems, accessories, and related support and services in certain circumstances. In addition, we granted HSIC exclusivity in selected international markets subject to review of certain performance criteria. In connection with this Agreement, HSIC made prepayments of $3 million and placed an irrevocable $9 million open purchase order for our products, $6 million of which will be for the purchase of the iLase, with an option for an additional $3 million of iLase or for other laser systems. In respect of the February 16, 2010 and March 9, 2010 letter agreements with HSIC, and the September 23, 2010 distribution agreement, we have received advance payments totaling $14.8 million, of which $8.4 million remained a customer deposit at September 30, 2010 and will be applied against the open purchase orders. Beginning on September 1, 2010, we have sold our products through our direct sales force.

On May 27, 2010 we entered into a Loan and Security Agreement in respect of a $5 million term loan, $3 million of which was funded on such date. On September 23, 2010 we entered into Waiver and Amendment No. 1 to the Loan and Security Agreement which, among other things, waived our non-compliance at June 30, 2010 and September 30, 2010 with a financial covenant contained in the Loan and Security Agreement (See Note 8). In addition to the loan funding we received, we implemented cost cutting measures in the second and third quarters of 2010 which included a reduction in headcount of approximately 25 full time employees.

Our ability to meet our obligations in the ordinary course of business is dependent upon our ability to sell our products directly to the end-user and through distributors, raise additional financing through public or private equity or debt financing, to establish profitable operations through increased sales and decreased expenses, or to secure other sources of financing to fund operations. Management intends to seek to increase sales through the efforts of our direct sales force and through our distributor relationships domestically and around the world. However, there can be no assurance we will be able to increase sales, reduce expenses or line up new financing sources.

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 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 and there are no remaining shares outstanding and exercisable as of September 30, 2010. 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 September 30, 2010 and 2009 was $113,000 and $318,000, respectively. The net impact to earnings for those periods was $(0.00) and $(0.01) per basic and diluted share, respectively. Compensation cost related to stock options recognized in operating results during the nine months ended September 30, 2010 and 2009, was $499,000 and $1.1 million, respectively. The net impact to earnings for those periods was $(0.02) and $(0.05) per basic and diluted share, respectively. At September 30, 2010, we had $292,000 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 September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Cost of revenue	$	7	$	34	$	26	$	111
Sales and marketing		40		108		146		336
General and administrative		47		136		259		532
Engineering and development		19		40		68		124

	$	113	$	318	$	499	$	1,103

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 September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Expected term (years)		4.60			5.00			4.75			4.96
Volatility		91	%		84	%		86	%		84	%
Annual dividend per share	$	0.00		$	0.00		$	0.00		$	0.00
Risk-free interest rate		1.76	%		2.38	%		2.18	%		2.00	%

A summary of option activity under our stock option plans for the nine months ended September 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		314,000		$	1.66
Less: Options exercised		(167,000	)	$	0.89
Options canceled or expired		(877,000	)	$	3.04

Options outstanding at September 30, 2010		2,920,000		$	4.84		4.17	$	128,000

Options exercisable at September 30, 2010		2,548,000		$	5.29		3.45	$	116,000
Options expired during the nine months ended September 30, 2010		280,000		$	5.78


(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 September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Proceeds from stock options exercised	$	106	$	139	$	148	$	139
Tax benefit related to stock options exercised (1)		N/A		N/A		N/A		N/A
Intrinsic value of stock options exercised (2)	$	45	$	82	$	75	$	82
Weighted-average fair value of options granted during period	$	0.85	$	1.16	$	1.11	$	.76
Total fair value of shares vested during the period	$	135	$	295	$	494	$	1,236


(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. In connection with the Waiver and Amendment No. 1 to the Loan and Security Agreement entered into on September 23, 2010, the purchase price per common stock share of the warrants was amended to the then current market price of $0.84. (See Note 8)

On September 20, 2010, we issued an aggregate of 50,000 warrants to acquire shares of our common stock at a price per share of $0.74, to three of our service providers who provide investor relations services to us. (See Item 2)

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 3,071,000 shares were not included in the computation of diluted loss per share for the three months ended September 30, 2010 as a result of their anti-dilutive effect. Outstanding stock options to purchase 259,000 shares were included in the computation of diluted earnings per share for the three months ended September 30, 2009. For the same 2009 period, anti-dilutive outstanding stock options and warrants to purchase 3,245,000 shares were not included in the computation of diluted earnings per share.

Outstanding stock options and warrants to purchase 3,071,000 shares were not included in the computation of diluted loss per share for the nine months ended September 30, 2010 as a result of their anti-dilutive effect. Outstanding stock options and warrants to purchase 4,295,000 shares were not included in the computation of diluted loss per share for the nine months ended September 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):


	September 30,		December 31,
	2010		2009
Raw materials	$	4,073	$	3,400
Work-in-process		1,219		1,497
Finished goods		3,140		2,964

Inventory, net	$	8,432	$	7,861

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

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT

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


	September 30,			December 31,
	2010			2009
Land	$	—		$	273
Building		—			418
Leasehold improvements		914			914
Equipment and computers		5,909			6,049
Furniture and fixtures		1,019			1,019
Construction in progress		48			45

		7,890			8,718
Accumulated depreciation and amortization		(6,894	)		(6,538	)

Property, plant and equipment, net	$	996		$	2,180

Depreciation and amortization of property, plant and equipment was $226,000 and $732,000 for the three and nine months ended September 30, 2010, respectively, and $318,000 and $1.0 million for the three and nine months ended September 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 in June 2010. As of September 30, 2010, the land and building are valued at $592,000.

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


	September 30,
	2010
Land	$	259
Building		333

Assets held for sale	$	592

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 $33,000 and $98,000 for the three and nine months ended September 30, 2010, respectively, and $32,000 and $108,000, 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 September 30, 2010										As of December 31, 2009
			Accumulated										Accumulated
	Gross		Amortization			Impairment			Net		Gross		Amortization			Impairment			Net
Patents (4-10 years)	$	1,914	$	(1,540	)	$	—		$	374	$	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	$	(2,202	)	$	(979	)	$	374	$	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):


	September 30,		December 31,
	2010		2009
Payroll and benefits	$	1,038	$	1,694
Warranty accrual, current portion		2,216		1,787
Deferred rent credit		65		112
Accrued professional services		529		530
Accrued insurance premium		—		517
Other		485		512

Accrued liabilities	$	4,333	$	5,152

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Initial warranty accrual, beginning balance	$	2,715		$	2,132		$	2,235		$	2,612
Provision for estimated warranty cost		798			1,072			2,794			2,108
Warranty expenditures		(661	)		(994	)		(2,177	)		(2,510	)

Initial warranty accrual, ending balance		2,852			2,210			2,852			2,210
Total warranty accrual, long term		636			452			636			452

Total warranty accrual, current portion	$	2,216		$	1,758		$	2,216		$	1,758

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


	September 30,			December 31,
	2010			2009
Royalty advances from Procter & Gamble	$	562		$	1,875
Undelivered elements (training, installation and product) and other		445			347
Extended warranty contracts		814			876

Total deferred revenue		1,821			3,098

Less long-term amounts:
Royalty advances from Proctor & Gamble		(375	)		(1,875	)
Extended warranty contracts		(66	)		(100	)

Total deferred revenue, long-term		(441	)		(1,975	)

Total deferred revenue, current portion	$	1,380		$	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 had 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 the 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 our 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 included 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 we entered into a security agreement, or the 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 was to 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 called 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 were 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 provided incentives for HSIC to focus on its core customer base, and allowed us to generate incremental sales to additional dental offices outside of HSIC’s core customer base. This letter agreement had 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.

On August 13, 2010, we entered into a letter agreement with HSIC. This letter agreement, effective August 17, 2010, reduced the advance notice required to terminate the March 9, 2010 letter agreement from sixty to forty-five days.

On September 23, 2010, we entered into a Distribution and Supply Agreement, the Agreement, with HSIC, effective August 30, 2010. The Agreement terminated that certain License and Distribution Agreement, dated as of August 8, 2006, as amended, the Terminated Distribution Agreement, which provided for, among other things, exclusive distribution rights for HSIC in North America. Under the Agreement, we granted HSIC certain non-exclusive distribution rights in North America, and in certain other international markets, with respect to our dental laser systems, accessories, and related support and services in certain circumstances. In addition, we granted HSIC exclusivity in selected international markets subject to review of certain performance criteria. In connection with this Agreement, HSIC made prepayments of $3 million and placed an irrevocable $9 million open purchase order for our products, $6 million of which will be for the purchase of the iLase, with an option for an additional $3 million of iLase or for other laser systems. In connection with the advance payment, we agreed to enter into an Amended and Restated Security Agreement, dated September 23, 2010 and with an effective date of August 30, 2010, or the August 2010 Security Agreement, which amended and restated the February 2010 Security Agreement. The August 30, 2010 Security Agreement granted to HSIC a security interest in our inventory and assets as security for advance payment amounts made under the Agreement and the Terminated Distribution Agreement, such security interest to be released by HSIC upon products delivered in respect of the purchase order set forth above. The Agreement has an initial term that ends on December 31, 2013, after which the Agreement will automatically renew for successive one year terms unless certain notice is provided by either party to the other, and HSIC’s distribution rights in those territories other than North America shall terminate on December 31, 2012.

In respect of the February 16, 2010 and March 9, 2010 letter agreements with HSIC, and the September 23, 2010 definitive agreement, we have received advance payments totaling $14.8 million, of which $8.4 million remained a customer deposit at September 30, 2010 and will be applied against the open purchase orders.

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 was 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 was treated as prepaid royalties and will be credited against royalty payments owed to us, and the remainder was 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 was 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 December 31, 2010. Previously recorded deferred revenue of $1.5 million, which has been applied to the exclusive license arrangement, is being recognized concurrent with the related exclusivity period. As of September 30, 2010, we recognized $1.3 million of licensing revenue. The remaining deferred exclusive license fees will be recognized at $187,500 per quarter through December 31, 2010. As of December 31, 2010, $375,000 will remain in our long term deferred revenue to be applied against future earned royalties.

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, 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.

On August 3, 2010, MidCap Financial, LLC, assigned our loan to their legal entity, MidCap Funding III, LLC.

On September 23, 2010, we entered into Waiver and Amendment No. 1 to Loan and Security Agreement, the Waiver, with MidCap Funding III, LLC and Silicon Valley Bank, the Lenders. In connection with the Waiver, the Lenders agreed to, among other things, waive non-compliance with a financial covenant under the Loan Agreement, dated as of May 27, 2010, by and between us and the Lenders, specifically with respect to our non-compliance with certain minimum EBITDA financial covenants. The Waiver contains amendments and additional covenants regarding, among other things, loan amortization, loan prepayment without penalty for certain periods, equity raise covenants, supplemental financial reporting, supplemental cooperation with the Lenders, and additional disclosures and notices. In connection with the Waiver, we entered into an amendment to those certain existing warrants previously issued to the Lenders in connection with the Loan Agreement, which amendment contains a new per share exercise price of $0.84.

Pursuant to the Loan Agreement, the Lenders initially loaned us $3 million. The Loan Agreement included an option, which expired 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, as amended by the Waiver, requires interest only payments for the first four months and beginning in October 2010, the outstanding principal will be repaid in predetermined 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 September 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 provided for an effective interest rate on the term loan of 34%.

The Loan Agreement permitted 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 depended on when the prepayment was made. If prepayment was made on or prior to the first anniversary of the date of the term loan, the prepayment fee was to be equal to six percent of the outstanding principal at the time of prepayment. If prepayment was made after the first anniversary of the term loan and on or prior to the second anniversary of the term loan, the prepayment fee was to be equal to four percent of the outstanding principal at the time of prepayment. If prepayment was made after the second anniversary of the term loan and prior to the Maturity Date, the prepayment fee was to be equal to two percent of the outstanding principal at the time of prepayment. The Waiver provides for prepayment of the Loans on or before March 31, 2011, subject to certain terms, without any prepayment penalty or other fee as stated above.

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. On September 23, 2010, the Lenders agreed to waive any non-compliance with our financial covenant requirements through September 30, 2010.

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 five 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. 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. In connection with the Waiver, we entered into an amendment to those certain existing warrants previously issued to the Lenders in connection with the Loan Agreement, which amendment reduced the new per share exercise price to $0.84. The additional incremental estimated fair value of the Warrants of $12,000 was recorded as equity, resulting in an increase in Loan discount to the Term Loan. The discount is being amortized to interest expense using the effective interest method over the term of the loan.

The Waiver provides for additional warrants to be issued to the Lenders in the event that the required Equity Financing does not close on or before March 31, 2011 or if the required Equity Financing results in aggregate net cash proceeds of less than $5 million.

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


Expected term (years)		5.00
Volatility		87	%
Annual dividend per share	$	0.00
Risk-free interest rate		1.34	%

The components of the term loan payable were as follows:


	September 30,
	2010
Term loan payable	$	3,000
Net discount		(97	)

Net term loan payable		2,903
Term loan payable, current portion, net of discount		(1,138	)

Term loan payable, long-term, net of discount	$	1,765

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 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 18, 2010, Discus and Zap filed a First Amended Complaint. The Amended Complaint alleges claims for the same causes of action, but the Amended Complaint dropped an allegation of fraud, as well as certain allegations related to the claims for trademark infringement and unfair competition.

On July 12, 2010, Discus informed the Court that it had acquired all ownership interests in and to Zap and, thus, requested that Zap be dropped as a party to the action. The Court granted that request and, accordingly, Discus is the sole plaintiff in the lawsuit. A jury trial has been scheduled for November 15, 2011.

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, there is no guarantee that we will prevail in this suit or receive any relief if we do prevail. As of September 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 $4.5 million for purchases through 2012 or later depending on the terms set forth in an amendment to the supply schedule dated October 1, 2010. There is no purchase commitment that remains for the 2010 year.

NOTE 10 — SEGMENT INFORMATION

We currently operate in a single business segment. For the three and nine months ended September 30, 2010, sales in the United States accounted for approximately 64% and 59% respectively, of net revenue, and international sales accounted for approximately 36% and 41%, respectively, of net revenue. For the three and nine months ended September 30, 2009, sales in the United States accounted for approximately 71% and 74% respectively, of net revenue, and international sales accounted for approximately 29% and 26%, respectively, of net revenue.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
United States	$	3,984	$	8,540	$	9,739	$	24,364
International		2,236		3,545		6,768		8,632

	$	6,220	$	12,085	$	16,507	$	32,996

Long-lived assets located outside of the United States at our foreign subsidiaries, including assets held for sale, were $604,000 and $702,000 million as of September 30, 2010 and December 31, 2009, respectively.

NOTE 11 — CONCENTRATIONS

Revenue from our Waterlase systems, our principal product, comprised 31% and 28% of total net revenue for the three and nine months ended September 30, 2010, respectively, and 58% and 55% of total net revenue, respectively, for the same periods in 2009. Revenue from our Diode systems comprised 34% and 26% of total net revenue for the three and nine months ended September 30, 2010, respectively, and 15% and 18%, for the same periods of 2009.

Approximately 46% and 57% of our laser system and consumable products net revenue in the three and nine months ended September 30, 2010 was generated through sales to HSIC worldwide. Approximately 85% and 90% of our laser system and consumable products net revenue in the three and nine months ended September 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 nine month periods ended September 30, 2010 and 2009.

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

Accounts receivable concentrations from HSIC and four other distributors totaled $854,000 and $915,000 or 30% and 34%, respectively, at September 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 September 30,					Nine Months Ended September 30,
	2010			2009		2010			2009
Net (loss) income	$	(2,726	)	$	859	$	(12,195	)	$	(1,487	)
Other comprehensive (loss) income items:
Foreign currency translation adjustments		227			84		(67	)		(7	)

Comprehensive (loss) income	$	(2,499	)	$	943	$	(12,262	)	$	(1,494	)

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 nine months ended September 30, 2010, we recorded an increase of $4,000 in the liability for unrecognized tax benefits, including related estimates of penalties and interest. The liability for unrecognized tax benefits at September 30, 2010 and December 31, 2009 was $157,000 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.

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 our products.

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 included 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 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 was to be released upon products delivered by us to HSIC in respect of such advance payments.

On September 23, 2010, we entered into a Distribution and Supply Agreement, the Agreement, with HSIC, effective August 30, 2010. The Agreement terminated that certain License and Distribution Agreement, dated as of August 8, 2006, as amended, the Terminated Distribution Agreement, which provided for, among other things, exclusive distribution rights for HSIC in North America. Under the Agreement, we granted HSIC certain non-exclusive distribution rights in North America, and in certain other international markets, with respect to our dental laser systems, accessories, and related support and services in certain circumstances. In addition, we granted HSIC exclusivity in selected international markets subject to review of certain performance criteria. In connection with this Agreement, HSIC made prepayments of $3 million and placed an irrevocable $9 million open purchase order for our products, $6 million of which will be for the purchase of the iLase, with an option for an additional $3 million of iLase or for other laser systems. In connection with the advance payment, we agreed to enter into an Amended and Restated Security Agreement, dated September 23, 2010 and with an effective date of August 30, 2010, or the August 2010 Security Agreement, which amended and restated the February 2010 Security Agreement. The August 30, 2010 Security Agreement granted to HSIC a security interest our inventory and assets as security for advance payment amounts made under the Agreement and the Terminated Distribution Agreement, such security interest to be released by HSIC upon products delivered in respect of the purchase order set forth above. The Agreement has an initial term that ends on December 31, 2013, after which the Agreement will automatically renew for successive one year terms unless certain notice is provided by either party to the other, and HSIC’s distribution rights in those territories other than North America shall terminate on December 31, 2012.

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 August 30, 2010, our products are sold domestically directly to customers through our direct sales force and through non-exclusive distributors. Sales are recorded upon shipment from our facility and payment of our invoices is generally due within 30 days or less. Internationally, we sell products through independent distributors including HSIC in certain countries. 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) collectability 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 to the end-user by us or HSIC. 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 international 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 September 30, 2010 will not be realized, excluding a portion of the foreign deferred tax assets in the amount of $28,000. Consequently, we established a valuation allowance against our net deferred tax asset, excluding a portion of the foreign operations, in the amount of $35.2 and $30.2 million as of September 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						Nine Months Ended
	September 30,						September 30,
Consolidated Statements of Operations Data:	2010			2009			2010			2009
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		71.2			51.7			75.8			52.4

Gross profit		28.8			48.3			24.2			47.6

Operating expenses:
Sales and marketing		33.9			18.5			47.4			24.4
General and administrative		21.4			14.0			30.5			18.2
Engineering and development		12.5			8.3			18.1			9.7

Total operating expenses		67.8			40.8			96.0			52.3

(Loss) income from operations		(39.0	)		7.5			(71.8	)		(4.7	)
Non-operating (loss) income, net		(4.4	)		(0.4	)		(1.8	)		0.4

(Loss) income before income tax provision		(43.4	)		7.1			(73.6	)		(4.3	)
Income tax provision		0.4			0.0			0.3			0.2

Net (loss) income		(43.8	)%		7.1	%		(73.9	)%		(4.5	)%

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


	Three Months Ended September 30,								Nine Months Ended September 30,
	2010				2009				2010				2009
Waterlase systems	$	1,896	31	%	$	7,060	58	%	$	4,586	28	%	$	18,008	55	%
Diode systems		2,098	34	%		1,767	15	%		4,311	26	%		5,969	18	%
Consumables and Service		2,008	32	%		2,969	25	%		6,188	37	%		7,825	24	%

Products and services		6,002	97	%		11,796	98	%		15,085	91	%		31,802	97	%
License fee and royalty		218	3	%		289	2	%		1,422	9	%		1,194	3	%

Net revenue	$	6,220	100	%	$	12,085	100	%	$	16,507	100	%	$	32,996	100	%

Three months ended September 30, 2010 and 2009

Net Revenue. Net revenue for the three months ended September 30, 2010 was $6.2 million, a decrease of $5.9 million or 48% as compared with net revenue of $12.1 million for the three months ended September 30, 2009.

Laser system net revenue decreased by approximately $4.8 million or 55% in the quarter ended September 30, 2010 compared to the same quarter of 2009. Sales of our Waterlase systems decreased $5.2 million or 73% in the quarter ended September 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 increased by $331,000 or 19% in the third quarter of 2010 compared to the same quarter of 2009. The increase resulted primarily from $1.6 million in sales of the iLase offset by decreased ezlase sales both domestically and internationally.

Consumables and service net revenue, which includes consumable products, advanced training programs and extended service contracts, and shipping revenue decreased by approximately $961,000 or 32% for the three months ended September 30, 2010 as compared to the same period of 2009. Consumable products revenue decreased $715,000 or 40% primarily as a result of the decreased sales of the Turbo Upgrade in the quarter ended September 30, 2010 as compared to the same period in 2009. Services revenues decreased $246,000 or 21% as compared to the same period of 2009.

License fees and royalty revenue decreased $71,000 or 25% in the quarter ended September 30, 2010 compared to the same quarter of 2009. The decrease resulted from the amortization of the HSIC license fee in the 2009 offset by the recognition of P&G previously deferred royalty revenue recognized in 2010.

Domestic revenues were $4.0 million, or 64% of net revenue, for the three months ended September 30, 2010 versus $8.5 million, or 71% of net revenue, for the three months ended September 30, 2009. International revenues for the quarter ended September 30, 2010 were $2.2 million, or 36% of net revenue, as compared with $3.5 million, or 29% of net revenue, for the quarter ended September 30, 2009.

Gross Profit. Gross profit for the three months ended September 30, 2010 decreased by $4.0 million from $5.8 million to $1.8 million, and decreased to 29% of net revenue as compared with 48% of net revenue for the three months ended September 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 cost of revenue.

Operating Expenses. Operating expenses for the three months ended September 30, 2010 decreased by $714,000, or 15%, to $4.2 million as compared to $4.9 million for the three months ended September 30, 2009, however they increased as a percentage of net revenue to 68% from 41%. The decrease is primarily due to the cost reductions implemented in the third quarter of 2010. We will continue 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 September 30, 2010 decreased by $121,000, or approximately 5%, to $2.1 million, or 34% of net revenue, as compared with $2.2 million, or 18% of net revenue, for the three months ended September 30, 2009. Conventions and seminars expenses increased $266,000 compared to prior year due to a prior year pickup in expense resulting from a refund. This increase was offset by reduced commission expense of $80,000, reduced payroll and related expenses of $176,000 and reduced travel expenses of $99,000 in the quarter ended September 30, 2010 compared with the same quarter of 2009.

General and Administrative Expense. General and administrative expenses for the three months ended September 30, 2010 decreased by $369,000, or 22%, to $1.3 million, or 21% of net revenue, as compared with $1.7 million, or 14% of net revenue, for the three months ended September 30, 2009. The decrease in general and administrative expenses resulted primarily from decreased payroll and related expenses of $283,000, decreased board fees of $42,000 and decreases in bad debt expense of $47,000.

Engineering and Development Expense. Engineering and development expenses for the three months ended September 30, 2010 decreased by $224,000, or 22%, to $775,000, or 12% of net revenue, as compared with $1.0 million, or 8% of net revenue, for the three months ended September 30, 2009. The decrease is primarily related to decreased payroll and consulting related expenses of $159,000 unrelated to new product development and decreased supplies expense of $51,000 in the quarter ended September 30, 2010 compared with the same quarter of 2009.

Non-Operating Income (Loss)

Gain on Foreign Currency Transactions. We recognized a $118,000 loss on foreign currency transactions for the three months ended September 30, 2010, compared to a $40,000 loss on foreign currency transactions for the three months ended September 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 September 30, 2010 was $1,000 as compared with $1,000 for the three months ended September 30, 2009.

Interest Expense. Interest expense consists primarily of interest on the financing of our business insurance premiums and interest and related debt costs on our term loan which was funded on May 27, 2010. Interest expense for the quarter ended September 30, 2010 was $157,000 as compared to $7,000 for the quarter ended September 30, 2009, an increase of $150,000 which was primarily related to interest and debt costs on our term loan payable.

Income Taxes. An income tax provision of $28,000 was recognized for the three months ended September 30, 2010 as compared with an income tax benefit of $1,000 for the three months ended September 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 September 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 September 30, 2010, we have a valuation allowance against our net deferred tax assets, excluding foreign operations, in the amount of $35.2 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.

Nine months ended September 30, 2010 and 2009

Net Revenue. Net revenue for the nine months ended September 30, 2010 was $16.5 million, a decrease of $16.5 million or 50% as compared with net revenue of $33 million for the nine months ended September 30, 2009.

Laser system net revenue decreased by approximately $15.1 million or 63% in the nine months ended September 30, 2010 compared to the same period of 2009. Sales of our Waterlase systems decreased $13.4 million or 75% in the nine months ended September 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 $1.7 million or 28% in the nine months ended September 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 partially offset by the launch of the iLase with sales of $2.2 million 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 distributor.

Consumables and service net revenue decreased by approximately $1.6 million or 21% for the nine months ended September 30, 2010 as compared to the same period of 2009. Consumable products revenue decreased $1.2 million or 28% primarily as a result of the decreased sales of the Turbo Upgrade in the nine months ended September 30, 2010 as compared to the same period in 2009. Services revenues decreased $449,000 or 13% as compared to the same period of 2009.

License fees and royalty revenue increased approximately $228,000 to $1.4 million in the nine months ended September 30, 2010 compared to $1.2 million in the same period of 2009. The 2010 period included $1.3 million of recognized deferred royalties from P&G in accordance with the May 20, 2010 agreement compared to the amortization of the HSIC license fee for the same period in 2009.

Domestic revenues were $9.7 million, or 59% of net revenue, for the nine months ended September 30, 2010 versus $24.4 million, or 74% of net revenue, for the nine months ended September 30, 2009. International revenues for the nine months ended September 30, 2010 were $6.8 million, or 41% of net revenue, as compared with $8.6 million, or 26% of net revenue, for the nine months ended September 30, 2009.

Gross Profit. Gross profit for the nine months ended September 30, 2010 decreased by $11.7 million to $4.0 million, or 24% of net revenue, as compared with gross profit of $15.7 million, or 48% of net revenue, for the nine months ended September 30, 2009. The overall decrease was primarily due to lower sales volumes in comparison to fixed and unabsorbed manufacturing costs in cost of revenue. This was partially offset by net increase in revenue recognized on deferred royalties from P&G.

Operating Expenses. Operating expenses for the nine months ended September 30, 2010 decreased by $1.4 million or 8%, to $15.8 million as compared to $17.2 million for the nine months ended September 30, 2009 but increased as a percentage of net revenue to 96% from 52% 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 nine months ended September 30, 2010 decreased by $221,000, or approximately 3%, to $7.8 million, or 47% of net revenue, as compared with $8.1 million, or 24% of net revenue, for the nine months ended September 30, 2009. Major factors contributing to the reduction were a decrease in payroll and consulting related expenses of $459,000 and a commission expense decrease of $313,000 offset by increased travel and entertainment of $42,000 and an increase in advertising and product literature related expenses of $514,000 related primarily to the launch of the iLase in the nine months ended September 30, 2010 compared with the same period of 2009.

General and Administrative Expense. General and administrative expenses for the nine months ended September 30, 2010 decreased by $1.0 million, or 16%, to $5.0 million, as compared with $6.0 million for the nine months ended September 30, 2009, but increased as a percentage of net revenue to 30% from 18% 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 $1.1 million, decreased depreciation expenses of $197,000 and decreased audit fees of $97,000. These decreases were partially offset by an increase in provision for bad debt of $84,000 due to previously determined uncollectible accounts in 2009 becoming collectible, increased legal and patent related fees of $200,000 and an increase in investor relations and board fees of $114,000 partially due to the board waving their Q1 Board Fees in 2009.

Engineering and Development Expense. Engineering and development expenses for the nine months ended September 30, 2010 decreased by $211,000 or 7%, to $3.0 million, as compared with $3.2 million for the nine months ended September 30, 2009, but increased as a percentage of net revenue to 18% from 10% on lower net revenue from period to period. The increase in depreciation expense of $56,000 related to purchases of molds and tooling for the iLase was offset by a decrease in payroll and consulting related expenses of $279,000.

Non-Operating Income (Loss)

Gain on Foreign Currency Transactions. We recognized a $75,000 loss on foreign currency transactions for the nine months ended September 30, 2010, compared to a $166,000 gain on foreign currency transactions for the nine months ended September 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 nine months ended September 30, 2010 was $2,000 as compared with $4,000 for the nine months ended September 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 and related debt costs on outstanding balances on our term loan payable. Interest expense for the nine months ended September 30, 2010 was $216,000 as compared to $49,000 for the nine months ended September 30, 2009. Interest expense, including amortization of loan costs and debt discounts related to our loan payable was $208,000 in the nine months ended September 30, 2010 as compared to interest expense of $42,000 in the nine months ended September 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 $52,000 was recognized for the nine months ended September 30, 2010 as compared with $57,000 for the nine months ended September 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 nine months ended September 30, 2010 and 2009, we recorded an increase of $5,000, in the liability for unrecognized tax benefits, including related estimates of penalties and interest. As of September 30, 2010, we have a valuation allowance against our net deferred tax assets, excluding foreign operations, in the amount of $35.2 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 September 30, 2010, we had $2.2 million in cash and cash equivalents to finance operations and satisfy our obligations. On September 23, 2010, we entered into a new distribution agreement (See Note 7) with HSIC, effective August 30, 2010, that changed our distributor relationship with HSIC from an exclusive to a non-exclusive distributor of our products. Under the Agreement, we granted HSIC certain non-exclusive distribution rights in North America, and in other international markets, with respect to our dental laser systems, accessories, and related support and services in certain circumstances. In addition, we granted HSIC exclusivity in selected international markets subject to review of certain performance criteria. In connection with this agreement, HSIC made prepayments of $3 million and placed an irrevocable $9 million open purchase order for our products, $6 million of which will be for the purchase of the iLase, with an option for an additional $3 million of iLase or for other laser systems. In respect of the February 16, 2010 and March 9, 2010 letter agreements with HSIC, and the September 23, 2010 definitive agreement, we have received advance payments totaling $14.8 million, of which $8.4 million remained a customer deposit at September 30, 2010 and will be applied against the open purchase orders.

On May 27, 2010 we entered into a Loan and Security Agreement in respect of a $5 million term loan, $3 million was funded on such date. On September 23, 2010 we entered into Waiver and Amendment No. 1 to the Loan and Security Agreement which, among other things, waived our non-compliance at June 30, 2010 and September 30, 2010 with a financial covenant contained in the Loan and Security Agreement. (See Note 8) In addition to the loan funding we received, we implemented cost cutting measures in the second and third quarters of 2010 which included a reduction in headcount of approximately 25 full time employees. Our ability to meet our obligations in the ordinary course of business is dependent upon our ability to sell our products directly to the end-user and through distributors, raise additional financing through public or private equity or debt financing, to establish profitable operations through increased sales and decreased expenses, or to secure other sources of financing to fund operations. Management intends to seek to increase sales through the efforts of our direct sales force and through our distributor relationships domestically and around the world. However, there can be no assurance we will be able to increase sales, reduce expenses or line up new financing sources.

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 included 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 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 was to be released upon products delivered by us to HSIC in respect of such advance payments.

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.

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 September 30, 2010, HSIC has fulfilled its guaranteed minimum purchase obligations and related prepayments to date per the March 9, 2010 letter agreement as superseded by the September 23, 2010 agreement. Although we believe the level of HSIC’s inventory was reduced in the first nine months of 2010, we believe that HSIC’s inventory remains above historical levels.

At September 30, 2010, we had negative net working capital of $4.5 million, a decrease of $9.8 million from $5.3 million in net working capital at December 31, 2009 resulting primarily from increased customer deposits of $8.4 million and a term loan payable of $1.1 million which was partially offset by increased inventory balances of $571,000. Our principal sources of liquidity at September 30, 2010 consisted of our cash and cash equivalents balance of $2.2 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.

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.

On August 3, 2010, MidCap Financial, LLC, assigned our loan to their legal entity, MidCap Funding III, LLC.

On September 23, 2010, we entered into Waiver and Amendment No. 1 to Loan and Security Agreement, the Waiver, with MidCap Funding III, LLC and Silicon Valley Bank, the “Lenders. In connection with the Waiver, the Lenders agreed to, among other things, waive non-compliance with a financial covenant under the Loan Agreement, dated as of May 27, 2010, by and between us and the Lenders, specifically with respect to our non-compliance with certain minimum EBITDA financial covenants. The Waiver contains amendments and additional covenants regarding, among other things, loan amortization, loan prepayment without penalty for certain periods, equity raise covenants, supplemental financial reporting, supplemental cooperation with the Lenders, and additional disclosures and notices. In connection with the Waiver, we entered into an amendment to those certain existing warrants previously issued to the Lenders in connection with the Loan Agreement, which amendment contains a new per share exercise price of $0.84.

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 five 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. 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. In connection with the Waiver, we entered into an amendment to those certain existing warrants previously issued to the Lenders in connection with the Loan Agreement, which amendment contains a new per share exercise price of $0.84. The additional incremental estimated fair value of the Warrants of $12,000 was recorded as equity, resulting in an increase in Loan discount to the Term Loan. The discount is being amortized to interest expense using the effective interest method over the term of the loan.

For the nine months ended September 30, 2010, our operating activities used cash of approximately $3.6 million compared to cash used of $1.8 million for the nine months ended September 30, 2009. Cash flows from operating activities in the quarter ended September 30, 2010 were negatively impacted by the net loss recorded in the period offset by an $8.4 million customer deposit from HSIC. The most significant changes in operating assets and liabilities for the nine months ended September 30, 2010 as reported in our consolidated statements of cash flows were decreases of $1.4 million in accounts receivable (before the change in allowance for doubtful accounts) and an $8.4 million increase in customer deposits offset by a decrease in accounts payable and accrued liabilities of $1.2 million.

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 September 30, 2010 listed below.

The following table presents our expected cash requirements for contractual obligations outstanding as of September 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	$	507	$	981	$	820	$	—	$	2,308
SurgiLight agreement		25		—		—		—		25
Insurance premium financing		—		—		—		—		—

Total	$	532	$	981	$	820	$	—	$	2,333

In addition and not included in the above table is a long term commitment to a supplier in the amount of $4.5 million for purchases through 2012.

In conjunction the resignation by a member from our Board of Directors, we agreed to a consulting agreement, the terms to be determined, for $6,250 per month in exchange for certain specific services to be performed. Such services have not been performed as of September 30, 2010, and no definitive consulting agreement has ever been signed.

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 had an employment agreement that obligated us to pay him severance benefits under certain conditions, including termination without cause and resignation with good reason. In the event Mr. Mulder was 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 was 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 August 24, 2010, Mr. Mulder resigned from his position as Chairman, CEO and President and as a member of our Board of Directors. On August 24, 2010, the Company entered into a Separation Agreement, or Agreement, with Mr. Mulder. Pursuant to the Agreement, we agreed to pay Mr. Mulder a severance payment of $10,416.67, payable in one installment, and COBRA premiums on his behalf for six months. The agreement superseded the severance provisions contained in the Employment Agreement, as amended, that we had with Mr. Mulder under the previous agreement.

On July 14, 2009, we appointed Brett L. Scott as Chief Financial Officer. Mr. Scott had an employment agreement that obligated us to pay him severance benefits under certain conditions, including termination without cause and resignation with good reason. In the event Mr. Scott was 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. On August 24, 2010, Mr. Pignatelli was appointed Executive Chairman of the Board and Interim Chief Executive Officer of the Company. On September 30, 2010, Mr. Pignatelli was appointed the permanent Chief Executive Officer of the Company.

Certain members of management are entitled to severance benefits payable upon termination following a change in control, which would approximate $1.2 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 $28,000, respectively, at September 30, 2010. The liability for unrecognized tax benefits at September 30, 2010 and December 31, 2009 was $157,000 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.

Subsequent Event

On October 15, 2010, we received notice that we had regained compliance with the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market.

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, 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% . This agreement was amended on September 23, 2010.

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 September 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 September 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 quarters ended March 31, 2010 and June 30, 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 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On September 20, 2010, we issued warrants to acquire shares of our common stock to three of our service providers who provide investor relations services to us, in exchange for the provision of certain investor relations services without registration under the Securities Act of 1933, or the Act, in reliance on the exemption provided in Section 4(2) of the Act. The warrants will vest equally over four consecutive quarters. The following table shows the date of this issuance, the number of warrant shares issued, and the number of shares of our common stock exercisable, and the strike price of each warrant share.


					Shares of Common
Name	Date of Issuance		Number of Warrants		Stock Exercisable		Strike Price

Christopher Mark Rosgen		9/20/2010		24,000		24,000	$	0.74

Allen and Caron Inc.		9/20/2010		10,000		10,000	$	0.74

Alpenglow Ranch Inc.		9/20/2010		16,000		16,000	$	0.74


ITEM 6.		EXHIBITS


Exhibit No.			Description

	10.1		Settlement Agreement, dated July 6, 2010, by and between Biolase Technology, Inc. and Brett Scott.

	10.2		Letter Agreement, dated August 13, 2010, by and between Biolase Technology, Inc. and Henry Schein, Inc.

	10.3		Forbearance Agreement, dated August 16, 2010, by and among Biolase Technology, Inc., MidCap Financial LLC, and Silicon Valley Bank.

	10.4		Separation Agreement, dated August 24, 2010, by and between Biolase Technology, Inc. and David M. Mulder.

	10.5	†	Distribution and Supply Agreement, dated September 23, 2010, by and between Biolase Technology, Inc. and Henry Schein, Inc.

	10.6		Amended and Restated Security Agreement, dated September 23, 2010, by and between Biolase Technology, Inc. and Henry Schein, Inc.

	10.7		Waiver and Amendment No. 1 to Loan and Security Agreement, dated September 23, 2010, by and among Biolase Technology, Inc., MidCap Funding III, LLC, and Silicon Valley Bank.

	10.8		Amendment No. 1 to Warrant, dated September 23, 2010, in favor of MidCap Financial, LLC.

	10.9		Amendment No. 1 to Warrant, dated September 23, 2010, in favor of SVB Financial Group.

	31.1		Certification of Federico Pignatelli 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 Federico Pignatelli 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: November 3, 2010


	BIOLASE TECHNOLOGY, INC., a Delaware corporation
	By:	/s/ FEDERICO PIGNATELLI
		Federico Pignatelli
		Chairman and Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer)

EX-10.1 2 c07638exv10w1.htm EXHIBIT 10.1 Exhibit 10.1

Exhibit 10.1

SEPARATION AGREEMENT

This Separation Agreement (this “Agreement”) is being entered into as of this 6th day of July, 2010 (the “Date of this Agreement”), by and between Biolase Technology, Inc. (the “Company”), and Brett L. Scott, an individual (“Employee”) (each of the Company and Employee is sometimes hereinafter referred to individually, as a “Party” and collectively, as the “Parties”).

WHEREAS, Employee and the Company are parties to that certain Employment Agreement, dated as of July 13, 2009 (the “Employment Agreement”).

WHEREAS, the Parties wish to provide for severance benefits in lieu of any severance benefits provided under the Employment Agreement on the terms and conditions set forth below.

WHEREFORE in consideration of the foregoing premises and the terms and conditions set forth below, the Parties agree as follows:

1. Termination of Employment.

a. The Company has terminated Employee’s employment, effective as of July 6, 2010 (the “Effective Date”). The Company terminated Employee from his position as the Chief Financial Officer, effective as of the Effective Date. Employee hereby acknowledges receipt of the Company’s notice of termination, and resigns from each position as a director, officer and/or employee of the Company or any subsidiary or affiliate of the Company, effective as of the Effective Date.

b. Employee acknowledges that he is entitled to be paid all salary and wages through and including the Effective Date, including without limitation, and any accrued unused vacation benefits, which will be paid by the Company on the Effective Date, and Employee will be reimbursed for all reasonably business expenses incurred upon submission of evidence of such expenses. Except as otherwise provided for in this Agreement, the rights and obligations of Employee and the Company under the Employment Agreement terminated on the Effective Date and shall have no further force or effect after the Effective Date.

c. Provided that within twenty-one days of the date on which Employee receives this Agreement, Employee executes and delivers to the Company the Termination Certification attached hereto as Exhibit A and the Mutual Release and Waiver of Claims (the “Release”) attached hereto as Exhibit B, and further provided that Employee does not revoke the Release in accordance with its terms and conditions, the Company shall provide to Employee, in lieu of any compensation or benefits under the Employment Agreement, the following severance benefits:

(1) The Company shall pay to Employee $17,500, subject to applicable tax withholding, payable in two consecutive installments, commencing on the first regular pay period following the expiration and non-revocation of the revocation period contained in the Release. The Company shall report such amount as wages paid on each payment date and shall remit the amount of the required tax withholding to the relevant tax authorities.

(2) The Company shall pay COBRA premiums for Employee (and his eligible dependents) under the Company’s medical and dental benefit plans, as in effect from time to time, for a three (3) month period commencing on August 1, 2010. The benefits under such plans shall be provided through insurance maintained by the Company.

(3) To the extent that it is permissible by law and in compliance with all plan rules, the Company shall pay Employee’s premiums under the Company’s group life insurance, accidental death and dismemberment and disability benefit plans during the three (3) month period following the Effective Date. The benefits under such plans shall be provided through insurance maintained by the Company.

d. Except as provided for in this Agreement, Employee understands and agrees that he is giving up any right or claim to further compensation from the Company. Employee and the Company have no further rights or obligations under the Employment Agreement, except as otherwise specified in this Agreement.

2. No Admission. Employee and the Company further understand and agree that neither the payment of money nor the execution of this Agreement, including the Release, shall constitute or be construed as an admission of any liability whatsoever by either Party.

3. Severability. The provisions of this Agreement are severable, and if any part of this Agreement is found to be unenforceable, the other paragraphs (or portions thereof) shall remain fully valid and enforceable.

4. No Encouragement of Actions/Cooperation with the Company. Employee agrees that he will not assist any person or entity in bringing or pursuing legal action against the Company, its agents, successors, representatives, employees and related and/or affiliated companies, based on events occurring prior to the Effective Date; provided, however, that this Section 4 shall not apply to any legal action arising from or related to this Agreement or to any conduct compelled by or pursuant to applicable law, nor shall it prohibit, in any way, Employee from responding to a subpoena or taking any other action required by law. To the extent Employee is subpoenaed or otherwise requested or required to provide any documents, testimony or other information concerning the Company, he shall notify the Company as soon as practicable, and cooperate with the Company in opposing any such request or requirement to the extent permitted by applicable law. Employee shall also provide information requested by the Company, and make himself available at reasonable time upon reasonable request to assist the Company in defending or prosecuting any legal action or arbitration to the extent it concerns events occurring during his employment or events as to which he may have knowledge. The Company shall reimburse Employee for any reasonable out of pocket expenses incurred and shall compensate Employee for Employee’s actual time spent, including travel time, providing information or assistance to the Company, under the immediately preceding sentence, at the rate of $250.00 per hour.

5. No Disparagement. The Company and Employee agree that for a period of ten (10) years after Employee’s employment with the Company ceases, they will not, in any communication with any person or entity, including any actual or potential customer, client, investor, vendor, distributor, or business partner of the Company, or any third party media outlet, make any derogatory or disparaging or critical negative statements — orally, written or otherwise — against the other, or against the Employee’s affiliates, or any of the Company’s directors, officers, or agents (in the case of any of Employee’s affiliates, at such time as they are affiliated with Employee or, in the case of any of the Company’s directors, officers or agents, at such time as they are employed by, or acting for, the Company). The parties acknowledge and agree that the obligation on the part of the Company not to make any derogatory statements as set forth in this paragraph shall only apply to the Company’s officers and directors.

6. Company Property. Employee agrees to search his/her home, office and all other storage areas for all property owned by the Company and to return all Company property and equipment to the Company within ten (10) days of his receipt of this Agreement.

7. Choice of Law and Venue. The Parties acknowledge and agree that this Agreement shall be interpreted in accordance with California law. If any claims or actions arising out of or relating to this Agreement or Employee’s service with the Company are determined by an arbitrator not to be subject to Section 9, they shall be filed in either the Superior Court of the State of California for the County of Orange, or the Federal District Court for the Central District of California.

8. Sole and Entire Agreement; Obligations of Employee. With the exception of the terms and conditions of the Release, the Proprietary Information Agreement, Termination Certification, and the non-solicitation provisions set forth in Section 6 of the Employment Agreement, this Agreement and the exhibits hereto represent the sole and entire agreement among the Parties and supersedes all prior agreements (including, without limitation, the Employment Agreement), negotiations, and discussions between the Parties hereto and/or their respective counsel. The non-solicitation provisions of Section 6 of the Employment Agreement shall remain in full force and effect and shall survive the termination of Employee’s employment with the Company and the termination of the Employment Agreement, and Employee acknowledges and agrees that the Company shall have the right to communicate with any future or prospective employer of Employee concerning Employee’s obligations under this Agreement, the Proprietary Information Agreement, and the non-solicitation provisions of Section 6 of the Employment Agreement. Employee is not relying on any promise or representation by the Company that is not expressly stated herein and the Company is not relying on any promise or representation by Employee that is not expressly stated herein. Any agreement amending or superseding this Agreement must be in writing, signed by duly authorized representatives of the Parties, specifically reference this Agreement; and state the intent of the Parties to amend or supersede this Agreement. This Agreement may only be modified by a writing signed by both Employee and a duly authorized officer of the Company.

10. Headings; Construction of Agreement. The headings in this Agreement are provided solely for the Parties’ convenience, and are not intended to be part of, nor to affect or alter the interpretation or meaning of this Agreement. Both Parties have been represented by, or had the opportunity to be represented by, counsel in connection with this Agreement.

11. Counterparts. For the convenience of the Parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

12. Authority to Execute this Agreement. The person or persons executing this Agreement on behalf of a Party warrants and represents that he has the authority to execute this Agreement on behalf of the Party and has the authority to bind that Party to the performance of its obligations hereunder.

IN WITNESS WHEREOF, the parties have entered into this Separation and General Release Agreement as of the date first set forth above.

“COMPANY”

BIOLASE TECHNOLOGY, INC.


By:	/s/ David M. Mulder
	Name:	David M. Mulder
	Title:	Chairman and Chief Executive Officer

“EMPLOYEE”


/s/ Brett L. Scott
Brett L. Scott

EXHIBIT A

BIOLASE TECHNOLOGY, INC.

TERMINATION CERTIFICATION

This is to certify that based on a reasonably diligent search by me, and to the best of my knowledge, I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items which is a trade secret and/or proprietary information belonging to BioLase Technology, Inc., its subsidiaries, affiliates, successors or assigns (together, the “Company”).

I further certify that, to the best of my knowledge, I have complied with all the terms of the Company’s Employee Proprietary Information Agreement signed by me.

I further agree that, in compliance with the Employee Proprietary Information Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any Business of the Company or any of its clients, consultants or licensees which is proprietary and/or confidential information to the Company.

Date:



	Brett L. Scott

EXHIBIT B

GENERAL RELEASE AND WAIVER OF CLAIMS

In consideration of the payments and other benefits set forth in the Separation and General Release Agreement, dated as of July 6, 2010, by and between Executive and the Company (the “Agreement”), to which this form shall be deemed to be attached, Brett L. Scott (“Executive”) hereby agrees to the following general release and waiver of claims (“General Release”).

In exchange for the consideration provided to Executive by the Agreement that Executive is not otherwise entitled to receive, Executive hereby generally and completely releases Biolase Technology, Inc. (the “Company”) and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring from the beginning of the world to my signing of this General Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (2) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under Title VII of the 1964 Civil Rights Act, as amended, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, the Equal Pay Act of 1963, as amended, the provisions of the California Labor Code, the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Sarbanes-Oxley Act of 2002, and any other state, federal, or local laws and regulations relating to employment and/or employment discrimination. The only exceptions are claims Executive may have for unemployment compensation and worker’s compensation, Base Salary (through the date of termination), outstanding business expenses, and unused vacation earned through the date of termination of Executive.

Executive expressly waives and relinquishes any and all rights and benefits Executive now has or may have in the future under the terms of Section 1542 of the Civil Code of the State of California, which sections reads in full as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Notwithstanding said Code Section, Executive knowingly and voluntarily waives the provisions of Section 1542 as well as any other statutory or common law provisions of similar effect and acknowledges and agrees that this waiver is an essential part of this General Release.

Executive acknowledges that, among other rights, Executive is waiving and releasing any rights Executive may have under ADEA, that this General Release is knowing and voluntary, and that the consideration given for this General Release is in addition to anything of value to which Executive was already entitled as an executive of the Company. Executive further acknowledge that Executive has been advised, as required by the Older Workers Benefit Protection Act, that: (a) the General Release granted herein does not relate to claims under the ADEA which may arise after this General Release is executed; (b) Executive has the right to consult with an attorney prior to executing this General Release (although Executive may choose voluntarily not to do so); and (c) Executive has twenty-one (21) days from the date of termination of Executive’s employment with the Company in which to consider this General Release (although Executive may choose voluntarily to execute this General Release earlier, in which case he voluntarily waives the remainder of the twenty-one (21) day period); (d) Executive has seven (7) days following the execution of this General Release to revoke his consent to this General Release; and (e) this General Release shall not be effective until the seven (7) day revocation period has expired.

Executive acknowledges his continuing obligations under the Proprietary Information and Inventions Agreement and the non-solicitation provisions set forth in Section 6 of that certain Employment Agreement, dated July 13, 2009, by and between the Executive and the Company (the “Employment Agreement”). Nothing contained in this General Release shall be deemed to modify, amend or supersede the obligations set forth in such agreements.

By signing this General Release, Executive hereby represents that he is not aware of any affirmative conduct or the failure to act on the part of the Company, its officers, directors, and/or employees concerning the Company’s business practices, its reporting obligations, its customers and/or prospective customers, its products, and/or any other any other aspect of the Company’s business, which Executive has any reason to believe rises to the level of unfair, improper and/or unlawful conduct pursuant to any state or federal law, rule, regulation or order, including, but not limited to, any rule, regulation or decision promulgated or enforced by the Securities and Exchange Commission, or which has been promulgated or enforced by any other state or federal office or administrative body pursuant to the Sarbanes-Oxley Act of 2002.

With the exception of the terms set forth in the Proprietary Information Agreement, the Agreement, and the non-solicitation provisions set forth in the Employment Agreement, this General Release constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and Executive with regard to the subject matter hereof. Executive is not relying on any promise or representation by the Company that is not expressly stated herein and the Company is not relying on any promise or representation by Executive that is not expressly stated herein. This General Release may only be modified by a writing signed by both Executive and a duly authorized officer of the Company.

The Company and Executive agree that for a period of ten (10) years after Executive’s employment with the Company ceases, they will not, in any communication with any person or entity, including any actual or potential customer, client, investor, vendor, distributor, or business partner of the Company, or any third party media outlet, make any derogatory or disparaging or critical negative statements — orally, written or otherwise — against the other, or against the Executive’s estate or affiliates, any of the Company’s directors, officers or employees. The parties acknowledge and agree that the obligation on the part of the Company not to make any derogatory statements as set forth in this paragraph shall only apply to the Company’s officers and directors.

The parties agree that this General Release does not in any way compromise or lessen Executive’s rights to be indemnified by the Company pursuant to that certain Indemnification Agreement dated July 14, 2009, pursuant to the Company’s by-laws or certificate of incorporation, or otherwise be covered under any applicable insurance policies that Executive would otherwise be entitled to receive and/or be covered by.

The parties agree that in no way does this General Release preclude Executive from enforcing his ownership rights pertaining to any stock or stock options which may have been purchased by Executive or granted to Executive by the Company pursuant to a written stock option grant and/or as memorialized in a written Board Resolution (and as reported periodically in the Company’s proxy statements).

BIOLASE TECHNOLOGY, INC.


By:
	Name:	David M. Mulder
	Title:	Chairman and Chief Executive Officer



Brett L. Scott

EX-10.2 3 c07638exv10w2.htm EXHIBIT 10.2 Exhibit 10.2

Exhibit 10.2

HENRY SCHEIN, INC.

August 13, 2010

Mr. David M. Mulder
Chief Executive Officer Biolase
Technology, Inc. 4
Cromwell
Irvine, California 92618

Dear Mr. Mulder:

Reference is made to the letter agreement between Henry Schein, Inc. (“HSIC”) and Biolase Technology, Inc. (“Biolase”), dated as of March 9, 2010 (the “March Letter Agreement”).

Effective on August 17, 2010, Section 4 of the March Letter Agreement is hereby amended by deleting the reference therein to “60 days advance written notice” and replacing it with “45 days’ advance written notice.”

Please acknowledge your agreement to the foregoing by executing a counterpart of this letter agreement.

Sincerely,

HENRY SCHEIN, INC.


By:	/s/ Brian S. Watson
	Brian S. Watson
	Vice President, Strategic and Business Planning

BIOLASE TECHNOLOGY, INC.


By:	/s/ David M. Mulder
	David M. Mulder
	Chief Financial Officer

EX-10.3 4 c07638exv10w3.htm EXHIBIT 10.3 Exhibit 10.3

Exhibit 10.3

FORBEARANCE AGREEMENT

This FORBEARANCE AGREEMENT (this “Agreement”), dated as of August 16, 2010 (the “Effective Date”), is by and among MIDCAP FUNDING III, LLC, a Delaware limited liability company (as successor to MidCap Financial, LLC), 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 to the Loan Agreement (as hereinafter defined) and otherwise party thereto from time to time, including Midcap and SVB (each a “Lender” and collectively, the “Lenders”) and BIOLASE TECHNOLOGY, INC., a Delaware corporation (the “Borrower”).

WHEREAS, the Borrower and the Lenders have entered into that certain loan arrangement (the “Loan Arrangement”) evidenced by, among other things, the following documents, instruments, and agreements (together with all documents, instruments, and agreements executed incidental to or contemplated by this Agreement, and together with any and all future modifications, amendments, renewals, substitutions, and restatements thereof, singly and collectively, the “Loan Documents”): (i) the Loan and Security Agreement dated as of May 27, 2010 by and among the Borrower and the Lenders (the “Loan Agreement”); (ii) the Secured Promissory Note in the original principal amount of $2,100,000 dated May 27, 2010 made by the Borrower payable to MidCap (the “Midcap Note”); (iii) the Secured Promissory Note in the original principal amount of $900,000 dated May 27, 2010 made by the Borrower payable to SVB (the “SVB Note”); (iv) the Intellectual Property Security Agreement dated as of May 27, 2010 by and among the Borrower and the Lenders (the “Intellectual Property Security Agreement”); (v) the Unconditional Guaranty dated as of May 27, 2010 made by BL ACQUISITION CORP., a Delaware corporation (“BL Acquisition”), BL ACQUISITION II, INC., a Delaware corporation (“BL Acquisition II” and individually and collectively, jointly and severally with BL Acquisition, the “Guarantor”) in favor of Agent and the Lenders; and (vi) the Security Agreement dated as of May 27, 2010 made by the Guarantor in favor of agent and the Lenders.

WHEREAS, the Borrower has informed the Lenders that certain “Existing Defaults” (as hereinafter defined) have occurred and are continuing under the Loan Agreement, which Existing Defaults constitute Events of Default under the Loan Agreement and other Loan Documents; and

WHEREAS, in connection with the foregoing the Borrower has requested that the Lenders forbear from exercising its rights and remedies in respect of the Existing Defaults; and

WHEREAS, the Lenders are willing to accept the Borrower’s request but only upon the express terms and conditions of this Agreement.

NOW THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement and other Loan Documents and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby acknowledge, covenant, and agree as follows:

1. Defined Terms. Terms not otherwise defined herein which are defined in the Loan Agreement shall have the same respective meanings herein as therein. In addition, as used herein, the following terms shall have the following meanings:

(a) “Claims” as defined in Section 10 herein.

(b) “Existing Defaults” means each of the Defaults and Event of Defaults disclosed by Borrower on Schedule 1 attached hereto.

(d) “Obligations” as defined in the Loan Agreement.

(e) “Releasees” as defined in Section 10 herein.

(f) “Termination Date” means the earliest to occur of the following: (i) the occurrence of any Termination Event or (ii) August 31, 2010 (with time being of the essence).

(g) “Termination Event” as defined in Section 6 herein.

2. Acknowledgment of Existing Defaults. The Borrower hereby acknowledges and agrees that, notwithstanding any provision in the Loan Agreement or any other Loan Document to the contrary the Existing Defaults have occurred and are continuing under the Loan Agreement.

3. Acknowledgment of Obligations. The Borrower hereby acknowledges and agrees that, in accordance with the terms and conditions of the Loan Agreement and the other Loan Documents, the Borrower is unconditionally liable to the Lenders for the following amounts which constitute a portion of the Obligations, as of the dates indicated below:

(a) Midcap Note (as of August 16, 2010):


Principal:	$	2,100,000.00

Interest (calculated at the non-Default Rate):	$	12,468.75

(b) SVB Note (as of August 16, 2010):


Principal:	$	900,000.00

Interest (calculated at the non-Default Rate):	$	5,343.75

(c) For all amounts now due, or hereafter coming due, to the Lenders under any treasury and cash management services, automated clearinghouse agreements, account agreements, hedging agreements, swap contracts or similar agreements or arrangements;

(d) For all interest heretofore or hereafter accruing under the Loan Documents (including, without limitation, any and all interest hereafter determined at the Default Rate (as further provided herein), for all fees heretofore or hereafter accruing under the Loan Documents, and for all fees, costs, expenses, and costs of collection (including attorneys’ reasonable fees and expenses) heretofore or hereafter incurred by the Lenders in connection with, and any other amounts due under, this Agreement and the other Loan Documents, including, without limitation, all attorney’s reasonable fees and expenses incurred in connection with the negotiation and preparation of this Agreement and all documents, instruments, and agreements incidental hereto or contemplated hereby.

4. Forbearance by Lender.

(a) In reliance upon the representations of the Borrower herein and in the Loan Documents and subject to each of the terms and conditions set forth herein, during the Forbearance Period (but only so long as no Termination Event shall occur) the Lenders hereby agree to forbear from exercising the Lender’s rights and remedies with respect to the Existing Defaults. The Borrower hereby acknowledges and agrees that nothing in this Section 4 or elsewhere in this Agreement shall be deemed or otherwise construed as a waiver by Lenders of the Existing Defaults, and/or of any of the Lender’s rights, remedies, powers, privileges, and discretions pursuant to the Loan Documents, applicable law, or otherwise. Without limiting the generality of the foregoing, the Borrower expressly acknowledges and agrees: (i) that in no event and under no circumstance shall the agreements by the Lenders pursuant to this Agreement be deemed or otherwise construed to modify, amend, limit, or waive the unconditional obligation of the Borrower to pay in full the entire amount of all Obligations, including, without limitation, as set forth in Section 3 herein (further including, without limitation, with respect to the Prepayment Fee, the Final Payment, the non-draw fee set forth in Section 2.4 of the Loan Agreement and the Lenders’ Expenses as set forth in Section 2.4 of the Loan Agreement) and (ii) that from and after the occurrence of the Existing Defaults interest shall at all times continue to accrue on the unpaid principal amount of the Obligations and all interest (accrued and hereafter accruing) shall be at the Default Rate, as provided in the Loan Agreement, as and when determined solely and exclusively by the Lenders from time to time.

(b) This Agreement shall only constitute an agreement by the Lenders to forbear from enforcing their rights and remedies based upon the Existing Defaults upon the terms and conditions set forth herein so long as no Termination Event shall occur. Upon the expiration of the Forbearance Period, the agreement of the Lenders to forbear as set forth in this Agreement shall automatically terminate and the Lenders may immediately commence enforcing their rights and remedies pursuant to the Loan Documents, applicable law or otherwise, in such order and manner as the Lenders may determine appropriate in their sole and exclusive discretion from time to time.

5. Additional Covenants of Borrower. At all times during the Forbearance Period, the Borrower (and the Guarantor by its assent below) further covenants and agrees as follows:

(a) Disclosures; Notices. Without limiting the generality of all disclosures and other notices required pursuant to the Loan Agreement and other Loan Documents:

(i) The Borrower shall notify Lenders of the occurrence of any other or further Default or Event of Default (other than an Existing Defaults) within one (1) Business Day of any executive officer of the Borrower becoming aware thereof.

(ii) The Borrower shall notify Lenders immediately of the occurrence of the following: (A) Borrower and/or Guarantor entering into any agreement or letter of intent relating to any proposed sale or other disposition of any asset comprising the Collateral and (B) any notice or action given or taken by Henry Schein, Inc. or any of its affiliates, assignees or designees (collectively, “Schein”) in respect of any agreement between the Borrower and Schein, including any action to enforce any rights and remedies under any agreement between the Borrower and Schein in respect of the collateral (including any Collateral), if any, securing such facility.

(b) Supplemental Financial Reporting. In addition to all other financial and other reports, notices, and other information required to be delivered or provided by the Borrower and/or the Guarantor pursuant to the Loan Documents, the Borrower and the Guarantor shall provide the Lenders promptly upon request, all other reports and information as may be reasonably requested by the Lenders from time to time, including, without limitation, with respect to the Collateral, any Subordinated Debt, and/or any transaction with Schein. Without limiting the foregoing, from and after the date of this Agreement, the Borrower shall deliver to Agent and the Lenders copies of all agreements (including amendments, modifications, supplements and side letters relating thereto) entered into by and between Schein and the Borrower and/or the Guarantor on or after the date of this Agreement.

(c) Cooperation. Without limiting the provisions of the existing Loan Documents, the Borrower and the Guarantor shall at all times cooperate fully with the Lenders (including its representatives, agents, appraisers, and contractors) with respect to the Obligations, including, without limitation, by providing the Lenders with full access to the Collateral and/or the Guarantor’s Collateral as and when reasonably requested by the Lenders from time to time with respect to the Lender’s review, examination, and valuation of same and any other matters pertinent thereto, as determined solely but reasonably by the Lenders from time to time. The Borrower and the Guarantor shall execute and deliver to the Lenders such further instruments and documents as the Lenders shall reasonably request to carry out to its satisfaction the transactions contemplated by this Agreement and the other Loan Documents.

6. Termination Events. The occurrence of any one or more of the following events shall constitute an immediate termination event (each a “Termination Event”) under this Agreement:

(a) The failure of the Borrower and/or the Guarantor to promptly, punctually, or faithfully perform or comply with any term or condition of this Agreement as and when required, it being expressly acknowledged and agreed that TIME IS OF THE ESSENCE;

(b) The failure of the Borrower and/or the Guarantor to pay any amount required to be paid under this Agreement as and when due, it being expressly acknowledged and agreed that TIME IS OF THE ESSENCE;

(c) Any representation or warranty of the Borrower and/or the Guarantor in this Agreement or any other financial report previously or hereafter delivered to the Lenders shall be false in any material respect upon the date when made or deemed to have been made or repeated; and

(d) Other than with respect to the Existing Defaults, the occurrence, after the date hereof, of any other or further Default or Event of Default under the Loan Agreement, regardless of whether the Loan Agreement may provide the Borrower and/or the Guarantor with any grace period or right to cure such Default or Event of Default (all of such grace periods and cure rights being hereby irrevocably WAIVED);

(e) The occurrence of the Termination Date;

(f) The assertion and/or filing of any demand, injunction, claim, counterclaim, or offset, action, suit, or proceeding by any person or entity alleging or otherwise claiming: (i) that the Obligations of the Borrower and/or any Guarantor are not fully enforceable by the Lenders and/or (ii) that the Lender’s security interest, pledge, or other collateral interest to and in (x) any Collateral granted by the Borrower under the Loan Agreement and/or (y) any Collateral granted by the Guarantor is invalid or otherwise should be unwound or set aside; and/or

(g) Any action by Schein to enforce any rights and remedies under any agreement between the Borrower and Schein in respect of the collateral (including any Collateral), if any, securing such facility;

(h) The Borrower and Schein shall enter into any new agreement and or side letter without the prior written consent of the Lenders and receipt by the Lenders of an Intercredtior Agreement in form and substance acceptable to Agent and the Lenders in their sole discretion; and/or

(i) The occurrence, after the date hereof, of any material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), or financial condition of the Borrower and/or the Guarantor which, taken as a whole, would (i) adversely affect the Collateral and/or the ability of the Lenders to realize upon same and/or (ii) cause a material impairment of the rights and remedies of the Lenders under any Loan Document or a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower or any Guarantor with respect to any Loan Document to which it is a party; all of the foregoing as determined solely but reasonably by the Lender.

7. Conditions to Effectiveness of Agreement. Lenders and Borrower agree that the agreements of the Lenders as set forth in Section 4 of this Agreement shall only become effective upon the satisfaction of each of the following conditions precedent (and not otherwise), each in form and substance satisfactory to Lenders in all respects:

(a) The Lenders shall have received a counterpart of this Agreement, duly executed and delivered by Borrower and duly assented to by the Guarantor (by its execution of the assent below);

(b) The Lenders shall have received certified resolutions of the board of directors of the Borrower and the Guarantor evidencing approval of this Agreement and the transactions contemplated hereby;

(c) The Lenders shall have received payment for all reasonable fees and expenses incurred by Lenders in connection with this Agreement, including, but not limited to, all reasonable fees, costs and expenses of Lender’s counsel;

(d) The Lenders shall have received a forbearance fee of $7,500 to be shared pro rata by the Lenders;

(e) The Lenders shall have received copies of all agreements (including amendments, modifications, supplements and side letters relating thereto) by and between Schein and the Borrower and/or the Guarantor;

(f) No other or further Event of Default or other event which, with the passage of time, the giving of notice or both, would constitute an Event of Default, shall have occurred and be continuing (other than on account of the Existing Defaults).

8. Representations and Warranties. The Borrower (and the Guarantor by its assent below) hereby represents and warrants to Lenders as follows:

(a) Ratification, Etc. Except as expressly amended hereby, the Loan Agreement, the other Loan Documents and all documents, instruments and agreements related thereto, are hereby ratified and confirmed in all respects and shall continue in full force and effect. Borrower hereby ratifies, confirms, and reaffirms each of the terms and conditions of the Loan Documents to which it is a party and all of its obligations thereunder.

(b) Authority, Etc. The execution and delivery by Borrower of this Agreement (and the assent by the Guarantor below), and the performance by Borrower of all of its agreements and obligations under the Loan Agreement, as amended hereby, and the performance by the Borrower and the Guarantor, respectively, pursuant to this Agreement and the other Loan Documents, are within the corporate authority of Borrower and the Guarantor, respectively, and have been duly authorized by all necessary corporate action on the part of Borrower and the Guarantor. The execution and delivery by Borrower and the Guarantor of this Agreement and the other Loan Documents, respectively, does not and will not require any registration with, consent or approval of, or notice to any Person (including any governmental authority).

(c) Enforceability of Obligations. This Agreement, the Loan Agreement, as amended hereby, and the other Loan Documents, constitute legal, valid and binding obligations enforceable against Borrower and the Guarantor, respectively, in accordance with their terms, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought.

(d) No Default. No Event of Default or other event which, with the passage of time, the giving of notice or both, would constitute an Event of Default, has occurred and is continuing (other than on account of the Existing Defaults).

9. Reaffirmations; Waiver of Claims. Except as expressly provided in this Agreement, all of the terms and conditions of the Loan Agreement and the other Loan Documents remain in full force and effect. Except as expressly provided in this Agreement, nothing contained in this Agreement shall in any way prejudice, impair or affect any rights or remedies of Lenders under the Loan Agreement and the other Loan Documents. Except as specifically amended hereby, Borrower hereby ratifies, confirms, and reaffirms all covenants contained in the Loan Agreement and the other Loan Documents. The Borrower (and the Guarantor by its assent below) expressly acknowledges and agrees that neither the Borrower nor the Guarantor has any claim, counterclaim, off-set, or defense against the Lenders with respect to the Loan Arrangement, this Agreement, and the other Loan Documents, including, without limitation, respecting the amount and/or determination of the Obligations as set forth in Section 3 herein, impairing the right of Agent and the Lenders to accelerate the Obligations on account of the Existing Defaults, the terms and conditions of this Agreement and the instruments, documents, and agreements incidental hereto or contemplated hereby, and/or otherwise, and to the extent that the Borrower (or the Guarantor) has any such claim, counterclaim, off-set, or defense the Borrower and the Guarantor each hereby affirmatively and irrevocably WAIVES same.

10. Releases. In further consideration of Lender’s execution of this Agreement, each of the Borrower (and the Guarantor by its assent below), for itself and on behalf of its respective successors (including, without limitation, any trustees acting on behalf of, and any debtor-in-possession with respect to, Borrower and/or the Guarantor), assigns, Subsidiaries and affiliates, hereby forever RELEASES Agetn, the Lenders and their respective successors, assigns, parents, subsidiaries, affiliates, officers, employees, directors, agents and attorneys (collectively, the “Releasees”) from any and all debts, claims, demands, liabilities, responsibilities, disputes, causes, damages, actions and causes of action (whether at law or in equity) and obligations of every nature whatsoever, whether liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent (collectively, “Claims”), that Borrower and/or the Guarantor may have against the Releasees which arise from or relate to any actions which the Releasees may have taken or omitted to take prior to the date this Agreement was executed with respect to the Obligations, any Collateral, the Loan Agreement, any other Loan Document and any third parties liable in whole or in part for the Indebtedness, other than arising out of such Releasee’s gross negligence or willful misconduct. This provision shall survive and continue in full force and effect whether or not Borrower and/or the Guarantor shall satisfy all other provisions of this Agreement, the Loan Documents or the Loan Agreement, including payment in full of all Obligations as and when required hereunder.

11. Execution in Counterparts. This Agreement may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopy or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement shall constitute one of the Loan Documents for all purposes.

12. Bankruptcy; Automatic Stay; Non-Interference. The Borrower (and the Guarantor by its assent below) hereby further covenants and agrees as follows:

(a) The Borrower and the Guarantor each represent and warrant to the Lenders that they do not intend to, and agree not to, commence (or to consent to the commencement of), any proceeding by or against any of them under the Bankruptcy Code and/or other applicable insolvency proceedings. Notwithstanding the foregoing, the Borrower and the Guarantor hereby agree that in the event that any petition for relief is filed by or against any one or more of the Obligors under the Bankruptcy Code or such other insolvency proceedings, then on account of the Obligations the Lenders shall be: (i) entitled to immediate and complete relief from the automatic stay, and (ii) permitted to proceed to protect and enforce its rights and remedies under applicable law.

(b) The Borrower hereby (i) expressly assents to any motion filed by the Lenders seeking relief from the automatic stay and each expressly WAIVES the protections afforded under Section 362 of the Bankruptcy Code with respect to the Lenders and (ii) acknowledges that the representations of the Borrower under this Section 12 are a material inducement to the Lenders entering into this Agreement.

(c) From and after the occurrence of any Termination Event, the Borrower and the Guarantor: (a) agree not to interfere with the exercise by the Lenders of any of its respective rights and remedies under the Loan Documents and/or applicable law and (b) further agree that they shall not seek to distrain or otherwise hinder, delay, or impair the Lender’s efforts to realize upon any Collateral granted to the Lenders or otherwise to enforce its rights and remedies pursuant to the Loan Documents. The provisions of this Section 12(c) shall be specifically enforceable by the Lender.

(d) The Borrower and the Guarantor (to the extent otherwise entitled thereto) hereby WAIVE any notice regarding the disposition of the Collateral which secures the Obligations to which the Borrower and/or any Guarantor may be entitled under the Loan Documents, the Uniform Commercial Code, or otherwise, including without limitation, any notice required by Article 9 of the Uniform Commercial Code, as amended and in effect.

13. Miscellaneous. The Borrower (and the Guarantor by its assent below) hereby further acknowledges and agrees as follows:

(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS.

(b) The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof.

(c) This Agreement shall be binding on, and shall inure to the benefit of, Borrower and Lenders and their respective successors and assigns

(d) The Loan Agreement as and when amended, including through this Agreement, and any other Loan Documents or other agreements prepared, negotiated, executed or delivered in connection with this Agreement or transactions contemplated hereby embody the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof. No modification, amendment, or waiver of any provision of this Agreement or of any provision of any other agreement among the Borrower, the Guarantor, and the Lenders shall be effective unless executed in writing by the party to be charged with such modification, amendment and waiver, and if such party shall be the Lender, then by a duly authorized officer thereof.

(e) Any determination that any provision of this Agreement or any application hereof is invalid, illegal or unenforceable in any respect and in any instance shall not affect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality or enforceability of any other provisions of this Agreement.

(f) The running of any time period or statute of limitations applicable to any legal proceedings the Lenders may commence to enforce its rights under the Loan Documents shall be deemed tolled during the period of the Lender’s forbearance hereunder during the Forbearance Period. The tolling effected by this subsection shall inure only to the benefit of the Lenders and shall not be construed as enlarging any period within which the Borrower and/or any Guarantor may, or is required to, act under the Loan Documents or this Agreement.

(g) Borrower warrants and represents that Borrower has consulted with independent legal counsel of Borrower’s selection in connection with this Agreement and is not relying on any representations or warranties of Lenders or its counsel in entering into this Agreement.

(h) The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event of 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. Time is of the essence for this Agreement.

(i) Borrower absolutely and unconditionally agrees to reimburse Lenders on demand for all reasonable and documented out-of-pocket fees, costs and expenses, including all reasonable fees and expenses of counsel incurred in the preparation, negotiation, execution and delivery of this Agreement, and any other Loan Documents or other agreements prepared, negotiated, executed or delivered in connection with this Agreement or transactions contemplated hereby.

[Signature page to follow.]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year specified at the beginning hereof.


BORROWER:

BIOLASE TECHNOLOGY, INC.

By:		/s/ David M. Mulder
		Name: David M. Mulder
		Title: Chairman and Chief Executive Officer

AGENT:

MIDCAP FUNDING III, LLC, as Agent

By:		/s/ Luis Viera
		Name: Luis Viera
		Title: Managing Director

LENDERS:

MIDCAP FINANCIAL, LLC, as a Lender

By:		/s/ Luis Viera
		Name: Luis Viera
		Title: Managing Director

SILICON VALLEY BANK, as a Lender

By:		/s/ Richard Shuttleworth
		Name: Richard Shuttleworth
		Title: Senior Advisor

ASSENT BY GUARANTOR:

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned Guarantor: (i) hereby acknowledges and assents to the terms and conditions of the foregoing Agreement; (ii) as and to the extent specified in the foregoing Agreement, hereby joins with the Borrower in making the representations, warranties, covenants, and agreements specified therein as being applicable to the Guarantor by its assent hereunder; (iii) hereby represents and warrants to the Lenders that the execution and delivery of its assent hereunder and of the instruments, documents, and agreements required by the Guarantor under the Agreement and contemplated thereby have been determined by the Guarantor: (x) to be in the best corporate interest of the Guarantor, (y) to constitute the reasonably equivalent value with respect to the benefit derived by the Guarantor therefrom, and (z) to be the free and voluntary act of the Guarantor for such valid consideration; and (iv) hereby submits to the jurisdiction of all federal and state courts situated in the State of Maryland with respect to all matters relating in any way to this Agreement and/or the other Loan Documents.


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

EX-10.4 5 c07638exv10w4.htm EXHIBIT 10.4 Exhibit 10.4

Exhibit 10.4

EXECUTION COPY

SEPARATION AND GENERAL RELEASE AGREEMENT

This Separation and General Release Agreement (this “Agreement”) is being entered into as of this 24th day of August, 2010, by and between Biolase Technology, Inc. (the “Company”), and David M. Mulder, an individual (“Employee”) (each of the Company and Employee is sometimes hereinafter referred to individually, as a “Party” and collectively, as the “Parties”).

WHEREAS, Employee and the Company are parties to that certain Employment Agreement, dated as of April 29, 2008, as amended (the “Employment Agreement”).

WHEREAS, the Parties wish to provide for severance benefits in lieu of any severance benefits provided under the Employment Agreement on the terms and conditions set forth below.

WHEREFORE in consideration of the foregoing premises and the terms and conditions set forth below, the Parties agree as follows:

1. Termination of Employment.

a. The Company has terminated Employee’s employment, effective as of August 24, 2010 (the “Effective Date”). The Company terminated Employee from his positions as the Chief Executive Officer and President, effective as of the Effective Date. Employee hereby acknowledges receipt of the Company’s notice of termination, and resigns as a member of the Board of Directors of the Company, and from each position as a director, officer and/or employee of the Company or any subsidiary or affiliate of the Company, effective as of the Effective Date.

b. Employee acknowledges that he has been paid the gross amount of $24,999.03, which constitutes all salary and wages through and including the Effective Date, including without limitation, and any accrued unused vacation benefits, less applicable tax and other withholding, and Employee has been fully reimbursed for all of Employee’s business expenses. Except as otherwise provided for in this Agreement, the rights and obligations of Employee and the Company under the Employment Agreement terminated on the Effective Date and shall have no further force or effect after the Effective Date.

(1) The Company shall pay to Employee $10,416.67, subject to applicable tax withholding, payable in one installment(s) the next day following the expiration of the Release revocation period described above. The Company shall pay such amount as wages, and report such amount as wages paid on each payment date and shall remit the amount of the required tax withholding to the relevant tax authorities.

(2) The Company shall pay COBRA premiums for Employee (and his eligible dependents) under the Company’s medical and dental benefit plans, as in effect from time to time, for the six (6) month period following the Effective Date. The benefits under such plans shall be provided through insurance maintained by the Company.

(3) To the extent that it is permissible by law and in compliance with all plan rules, the Company shall pay Employee’s premiums under the Company’s group life insurance, accidental death and dismemberment and disability benefit plans during the six (6) month period following the Effective Date. The benefits under such plans shall be provided through insurance maintained by the Company.

4. No Encouragement of Actions/Cooperation with the Company/Press Release. Employee agrees that he will not assist any person or entity in bringing or pursuing legal action against the Company, its agents, successors, representatives, employees and related and/or affiliated companies, based on events occurring prior to the Effective Date; provided, however, that this Section 4 shall not apply to any legal action arising from or related to this Agreement or to any conduct compelled by or pursuant to applicable law, nor shall it prohibit, in any way, Employee from responding to a subpoena or taking any other action required by law. To the extent Employee is subpoenaed or otherwise requested or required to provide any documents, testimony or other information concerning the Company, he shall notify the Company as soon as practicable, and reasonably cooperate with the Company in opposing any such request or requirement to the extent permitted by applicable law. Employee shall also provide information requested by the Company, and make himself available at reasonable times upon reasonable request to assist the Company in defending or prosecuting any legal action or arbitration to the extent it concerns events occurring during his employment or events as to which he may have knowledge. The Company shall reimburse Employee for any reasonable out of pocket expenses incurred and shall compensate Employee for Employee’s actual time spent, including travel time, providing information or assistance to the Company, under the immediately preceding sentence, at the rate of $250.00 per hour. The Company shall issue, on the date hereof, the Press Release attached hereto as Exhibit C.

6. Company Property. Employee agrees to search Employee’s home, office and all other storage areas for all property owned by the Company and to return or destroy and/or delete any located Company property and equipment to the Company within five (5) days of Employee’s execution of this Agreement. In the event Employee discovers Company property or equipment in his possession after such time, Employee shall deliver such materials to the Company immediately upon discovery.

8. Sole and Entire Agreement; Obligations of Employee. With the exception of the terms and conditions of the Release, the Proprietary Information Agreement, and the non-solicitation provisions set forth in Section 6 of the Employment Agreement, this Agreement and the exhibits hereto represent the sole and entire agreement among the Parties and supersedes all prior agreements (including, without limitation, the Employment Agreement), negotiations, and discussions between the Parties hereto and/or their respective counsel. The non-solicitation provisions of Section 6 of the Employment Agreement shall remain in full force and effect and shall survive the termination of Employee’s employment with the Company and the termination of the Employment Agreement, and Employee acknowledges and agrees that the Company shall have the right to communicate with any future or prospective employer of Employee concerning Employee’s obligations under this Agreement, the Proprietary Information Agreement, and the non-solicitation provisions of Section 6 of the Employment Agreement. Employee is not relying on any promise or representation by the Company that is not expressly stated herein and the Company is not relying on any promise or representation by Employee that is not expressly stated herein. Any agreement amending or superseding this Agreement must be in writing, signed by duly authorized representatives of the Parties, specifically reference this Agreement; and state the intent of the Parties to amend or supersede this Agreement. This Agreement may only be modified by a writing signed by both Employee and a duly authorized officer of the Company. In the event the Company fails to provide Employee with the severance benefits set forth in Section 1(c) above, Employee shall have the right to cease performance under this Agreement (but only if the Company does not cure after the expiration of the cure period below and provided that Employee has not otherwise breached this Agreement) by sending two separate written notices to the Company, to the Company’s principal headquarters and one to the attention of the Company’s Chief Executive Officer and the other to the Chairman of the Board, and the Company may cure such failure within thirty (30) business days of receipt such notice(s). If the Company fails to cure such failure within the thirty (30) business day time period, the Release shall be deemed unenforceable by the Company.

9. Arbitration. The Parties hereby agree to submit any claim or dispute arising out of or relating to the terms of this Agreement to private and confidential arbitration by a single neutral arbitrator. Subject to the terms of this Section, the arbitration proceedings shall be governed by the rules of the Judicial Arbitration and Mediation Service (“JAMS”) applicable to employment disputes as they may be in effect from time to time, and shall take place in Orange County, California. The arbitrator shall be appointed by agreement of the Parties hereto or, if no agreement can be reached, by the JAMS pursuant to its rules. The Arbitrator shall have jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold pre-hearing conferences by telephone or in person, as the Arbitrator deems necessary. The Arbitrator shall have the authority to entertain a motion to dismiss, demurrer, and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the federal rules of civil procedure applicable in the location of the arbitration. The decision of the arbitrator shall be rendered in writing and be final and binding on all Parties to this Agreement, and judgment thereon may be entered in any court having jurisdiction. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and/or to enforce an arbitration award. The arbitrator’s fees and/or any other fees payable to JAMS shall be shared in accordance with the rules of JAMS; provided, however, that Employee shall not be required to pay any such fees that are unique to arbitration and/or would exceed the cost of filing the same claim(s) in a court of competent jurisdiction, and any shortfall shall be borne by the Company. The Parties shall each bear their own attorneys’ fees, witness expenses, expert fees and other costs, except to the extent they may be awarded otherwise by the arbitrator in accordance with applicable law. This arbitration procedure is intended to be the sole and exclusive method of resolving any claim between the Parties, and each of the Parties hereby waives any right to a jury trial with respect to such claims. The successful or prevailing party in any arbitration or other legal proceeding concerning this Agreement shall be entitled to attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which such party may be entitled or awarded. Notwithstanding the foregoing provisions of this paragraph, either party may seek temporary or preliminary injunction relief in any court of competent jurisdiction if such relief is unavailable or cannot be timely obtained through Arbitration.

IN WITNESS WHEREOF, the parties have entered into this Separation and General Release Agreement as of the date first set forth above.

“COMPANY”

BIOLASE TECHNOLOGY, INC.


By:		/s/ Norman J. Nemoy
		Name: Norman J. Nemoy
		Title: Chairman of the Compensation Committee
		of the Board of Directors

“EMPLOYEE”


/s/ David M. Mulder
David M. Mulder

EXHIBIT A

BIOLASE TECHNOLOGY, INC.

TERMINATION CERTIFICATION

This is to certify that based on a reasonably diligent search by me to date, and to the best of my knowledge, I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items which is a trade secret and/or proprietary information belonging to BioLase Technology, Inc., its subsidiaries, affiliates, successors or assigns (together, the “Company”). If I locate any such materials after the date of this certification, I will cause such materials to be delivered to the Company within two (2) business days.

I further certify that, to the best of my knowledge, I have complied with all the terms of the Company’s Employee Proprietary Information Agreement signed by me.

Date:



		David M. Mulder

EXHIBIT B

GENERAL RELEASE AND WAIVER OF CLAIMS

In consideration of the payments and other benefits set forth in the Separation and General Release Agreement, dated as of August 24, 2010, by and between Executive and the Company (the “Agreement”), to which this form shall be deemed to be attached, David M. Mulder (“Executive”) hereby agrees to the following general release and waiver of claims (“General Release”).

In exchange for the consideration to be paid and provided to Executive by the Agreement, Executive hereby generally and completely releases Biolase Technology, Inc. (the “Company”) and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring from the beginning of the world to my signing of this General Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (2) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under Title VII of the 1964 Civil Rights Act, as amended, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, the Equal Pay Act of 1963, as amended, the provisions of the California Labor Code, the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Sarbanes-Oxley Act of 2002, and any other state, federal, or local laws and regulations relating to employment and/or employment discrimination. The only exceptions are claims Executive may have for unemployment compensation and worker’s compensation, Base Salary (through the date of termination), outstanding business expenses, and unused vacation earned through the date of termination of Executive.

Executive acknowledges his continuing obligations under the Proprietary Information and Inventions Agreement and the non-solicitation provisions set forth in Section 6 of that certain Employment Agreement, dated April 29, 2008, by and between the Executive and the Company (the “Employment Agreement”). Nothing contained in this General Release shall be deemed to modify, amend or supersede the obligations set forth in such agreements.

With the exception of the terms set forth in the Proprietary Information Agreement, the Agreement, and the non-solicitation provisions set forth in Section 6 of the Employment Agreement, this General Release constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and Executive with regard to the subject matter hereof. Executive is not relying on any promise or representation by the Company that is not expressly stated herein and the Company is not relying on any promise or representation by Executive that is not expressly stated herein. This General Release may only be modified by a writing signed by both Executive and a duly authorized officer of the Company.

The parties agree that this General Release does not in any way compromise or lessen Executive’s rights to be indemnified by the Company pursuant to that certain Indemnification Agreement dated April 29, 2008, pursuant to the Company’s by-laws or certificate of incorporation, or otherwise be covered under any applicable insurance policies that Executive would otherwise be entitled to receive and/or be covered by.

The parties agree that in no way does this General Release preclude Executive from enforcing his ownership rights pertaining to any stock or stock options which may have been purchased by Executive or granted to Executive by the Company pursuant to a written stock option grant and/or as memorialized in a written Board Resolution (or as reported periodically in the Company’s proxy statements).

BIOLASE TECHNOLOGY, INC.


By:
		Name: Norman J. Nemoy
		Title: Chairman of the Compensation Committee
		of the Board of Directors


David M. Mulder

EXHIBIT C

PRESS RELEASE

EX-10.5 6 c07638exv10w5.htm EXHIBIT 10.5 Exhibit 10.5

EXHIBIT 10.5

DISTRIBUTION AND SUPPLY AGREEMENT

This Distribution and Supply Agreement (this “Agreement”) is entered into as of September 23, 2010 with an effective date as of August 30, 2010 (the “Effective Date”) by and between Biolase Technology, Inc. and its subsidiaries (collectively, “Biolase”) and Henry Schein, Inc. and its subsidiaries (collectively, “HSI”).

WHEREAS, Biolase and HSI are parties to that certain License and Distribution Agreement dated as of August 8, 2006, as amended on April 1, 2007, February 29, 2008, April 7, 2008, December 23, 2008, February 27, 2009, September 10, 2009, January 31, 2010, February 16, 2010, March 9, 2010 and August 13, 2010 (the “Original Agreement”), pursuant to which HSI was an exclusive distributor of Biolase products in the United States and Canada;

WHEREAS, the parties desire to enter into this Agreement, pursuant to which, among other things, (a) Biolase will have the right to sell Products in all territories, except in certain territories where HSI will have the exclusive right to sell Products (as defined below), (b) Biolase will retain distribution rights in territories where it has existing exclusive distribution relationships (referred to herein as the “Biolase Retained Territories”), and HSI shall have no distribution rights in the Biolase Retained Territories, and (c) HSI will have (i) exclusive rights in certain territories specified herein, (ii) non-exclusive rights in North America (as defined below), and (iii) non-exclusive rights in all other territories which are not Biolase Retained Territories, in each case to distribute the Products subject to the terms and conditions set forth herein;

WHEREAS, contemporaneously with the entry into this Agreement, HSI will deliver to Biolase new purchase orders for **** of Products (of which **** will be for **** and **** will be for Products (other than consumables, parts, training or warranties)) and **** for consumable Products, in each case on the terms and conditions set forth herein; and

WHEREAS, in connection with the entry into this Agreement, Biolase and HSI have agreed to amend, restate and supersede the Original Agreement, such that neither party shall have any rights, remedies or obligations thereunder, other than as set forth herein.

NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Termination. Subject to Section 4.4, effective as of the Effective Date, the Original Agreement (and all outstanding purchase orders provided thereunder or otherwise) shall hereby, automatically and without any further action by any of the parties, be terminated and be of no further force and effect and no party thereto shall have any rights, remedies or obligations thereunder. It is agreed and understood that the terms of this Agreement shall apply to all Products and services purchased or distributed by HSI prior to the Effective Date.


****		Certain confidential information contained in this document, marked with four asterisk, 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. Appointment and Term.

2.1. Subject to the terms and conditions of this Agreement, Biolase hereby appoints HSI as its exclusive distributor, in the territories listed on Schedule 2.1 (collectively, “HSI Exclusive Territories”), of the products listed on Exhibit A and **** (collectively, “Products”) and HSI hereby accepts such appointment. During the Exclusivity Negotiation Period (as defined below), the parties will use their best efforts to agree upon commercially reasonable performance criteria for each HSI Exclusive Territory, to become effective no earlier than the expiration of the Exclusivity Negotiation Period. If the parties are not able to agree to such performance criteria for any HSI Exclusive Territory despite their best effort to do so prior to the expiration of the applicable Exclusivity Negotiation Period, or if HSI does not satisfy such performance criteria in any HSI Exclusive Territory, then such HSI Exclusive Territory will become an HSI Non-Exclusive Territory (as defined below) under this Agreement. “Exclusivity Negotiation Period” means ****.

2.2. Subject to the terms and conditions of this Agreement, Biolase hereby appoints HSI as its non-exclusive distributor of the Products in North America and those other territories that are not (i) Biolase Retained Territories or (ii) HSI Exclusive Territories (collectively, the “HSI Non-Exclusive Territories” and together with the HSI Exclusive Territories, the “HSI Distribution Territory”), and HSI hereby accepts such appointment. Except for North America, HSI’s right to distribute Products in any Non-Exclusive Territory is subject to the right of Biolase to appoint an exclusive distributor in such territory pursuant to Section 2.4(ii) below. “North America” means, collectively, the United States and its territories and possessions, Puerto Rico and Canada. For the avoidance of doubt, the parties acknowledge and agree that Puerto Rico is, as of the date hereof, an HSI Exclusive Territory, and notwithstanding its inclusion in the term North America, will not be an HSI Non-Exclusive Territory unless and until it becomes an HSI Non-Exclusive Territory pursuant to Section 2.1.

2.3. Subsidiaries of HSI may, at the direction of HSI, exercise any of the rights, or assume any of the duties, of HSI hereunder, provided that HSI shall be responsible for the performance of, and the adherence to this Agreement by, any such subsidiaries. In addition, outside of North America, and subject to applicable regulatory requirements, HSI shall have the right to appoint third party sub-distributors, agents or resellers, provided that, HSI shall be responsible to ensure that any such sub-distributors, agents and resellers agree to adhere to the performance requirements and other terms and conditions consistent with this Agreement. Within North America, and subject to applicable regulatory requirements, HSI shall have the right to appoint Authorized Agents (as defined below), subject to written approval from Biolase (which approval shall not be unreasonably withheld, conditioned or delayed), provided that, HSI shall be responsible to ensure that any such Authorized Agents agree to adhere to the performance requirements and other terms and conditions consistent with this Agreement. No Authorized Agent appointed by HSI pursuant to this Section 2.3 shall have the right to sell Products in Biolase Retained Territories. For the purposes of this Agreement, “Authorized Agent” means a third party (including a sub-distributor, agent or reseller) engaged by HSI that satisfies the following criteria: ****. HSI agrees to use its commercially reasonable efforts to enforce its rights and remedies against any Authorized Agent who breaches its obligations under clause (i) above.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

2.4. The rights granted to HSI in this Section 2 above are subject to the restrictions in the following subsections 2.4(i), 2.4(ii) and 2.4(iii).

(i) HSI shall not have the right to distribute any Products in territories that are, as of the date hereof, the subject of an exclusive distribution agreement between Biolase and any third party distributor entered into prior to the date hereof (any such territory, a “Biolase Retained Territory,” and each such distribution agreement, a “Biolase Retained Territory Distribution Agreement”). A list of each of the Biolase Retained Territory Distribution Agreements, and the Biolase Retained Territories associated therewith, are set forth on Schedule 2.4 hereto. Biolase hereby represents and warrants to HSI that Schedule 2.4 sets forth a true, complete and correct list of all of the Biolase Retained Territory Distribution Agreements to which Biolase is a party. For purposes of clarification, HSI shall not have any right to distribute Products in any of the Biolase Retained Territories; provided, however, that (a) if Biolase does not deliver to HSI, within sixty (60) days of the Effective Date, a written confirmation signed by Biolase and each third party distributor in each of the territories marked on Schedule 2.4 with an asterisk that such distributor is an exclusive distributor within such territory, then each such territory shall automatically become an HSI Non-Exclusive Territory under this Agreement, and (b) if at any time during the Term Biolase grants distribution rights in any Biolase Retained Territory to more than one distributor, then such Biolase Retained Territory shall automatically become an HSI Non-Exclusive Territory under this Agreement, with or without notice to HSI, but Biolase agrees to give prompt written notice to HSI of such event.

(ii) Biolase shall ****. If, after **** (the “Non-Exclusivity Date”), Biolase desires to **** Biolase may ****, subject to the following conditions: ****. If HSI notifies Biolase ****. If HSI does not so notify Biolase ****, then Biolase ****. Upon the occurrence of a ****, the ****shall not apply in ****. Each party agrees that this Section 2.4(ii) and the terms set forth herein are confidential and may not be disclosed by either party. “****” means . “****” means ****. This Section 2.4(ii) shall ****.

(iii) At the request of HSI, Biolase shall promptly deliver to HSI’s outside counsel (as directed by HSI), on a confidential basis, a **** with the terms of this Agreement.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

2.5. Notwithstanding the foregoing, ****

2.6. The initial term of this Agreement shall be from the date hereof through **** (the “Initial Term”), which shall thereafter automatically renew for successive one year terms (“Renewal Terms”) unless either party gives written notice to the other of its intent not to renew this Agreement **** Initial Term or a Renewal Term, as applicable, or unless otherwise terminated in accordance with this Agreement. Notwithstanding the foregoing, HSI’s distribution rights in all territories other than North America shall terminate on ****. The Initial Term and all Renewal Terms are collectively referred to as the “Term”.

3. Pricing.

3.1. Subject to Section 3.3, Biolase agrees ****. All prices are expressed in U.S. dollars and are exclusive of any sales or excise taxes. Biolase may decrease the prices for the Products at any time and will promptly notify HSI of any price decrease. ****.

3.2. If and when Biolase ****) (the “****”), Biolase shall ****. Biolase shall ****.

3.3. Notwithstanding anything in this Agreement to the contrary, Biolase shall at all times during the Term provide the Products to HSI at ****.

3.4. ****.

(i) If at any time during the Term the **** such ****, provided, however, that (i) the **** shall not **** in the aggregate and (ii) Biolase may **** for any Applicable Quarter by **** in the form of ****.

(ii) ****

(iii) For purposes of this Agreement, (i) “****” shall mean, as to ****. If the parties are not able to agree on ****, Biolase and HSI shall promptly **** and to determine the ****, which determination shall be final and binding on Biolase and HSI.

(iv) **** following the **** of Biolase during the Term (each such ****, the “Applicable ****”), each party shall deliver to the other party a notice containing the **** for such Applicable **** (“****”). If either party objects to **** by delivering written notice of such objection ****, then Biolase and HSI shall use their reasonable, good faith efforts to resolve such dispute ****. If a resolution is reached, such resolution shall be in writing, signed by Biolase and HSI, shall be final and binding on Biolase and HSI, and shall conclusively determine ****. If no resolution can be reached ****, Biolase and HSI shall promptly select an independent accounting firm that has no preexisting relationship with either Biolase or HSI (the “Accounting Firm”) to arbitrate the dispute, to review the **** and to determine the **** in accordance with the terms and conditions of this Agreement (with instructions to such Accounting Firm that the determination shall be made ****), which determination shall be final and binding on Biolase and HSI.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

3.5. Upon ****, each party shall provide to the other party’s attorney and/or accountants access to such books and records during regular business hours as may reasonably be required to verify ****, provided that any person participating in**** shall (to the extent such person is not otherwise bound to protect the confidentiality of such books and records by applicable codes of conduct or professional responsibility) agree to keep confidential all information disclosed in connection therewith, and provided further that, **** the business of the party providing access. In connection with this Section 3.5, neither party shall be required to **** to the other party’s attorney or accountants.

4. Orders; Shipping and Payment Terms; Prepayments.

4.1. HSI shall order Products from Biolase by submitting a purchase order indicating the desired quantity and delivery location. Biolase shall promptly acknowledge HSI’s purchase orders and inform HSI of scheduled delivery dates, and if applicable, back order status.

4.2. All shipments of Products (including drop shipments directly from Biolase to HSI’s customers) shall be shipped by Biolase, FOB Biolase’s manufacturing facility, with risk of loss and title to the Products (except for warranty claims) to pass to HSI (or HSI’s customers in the case of drop shipments) upon delivery by Biolase to the shipping carrier at its facility.

4.3. Amounts payable under purchase orders shall be due and payable ****. Notwithstanding the foregoing, Biolase may, at its option, require amounts payable under a purchase order to be due and payable ****, in which case the amounts payable under such purchase order shall be subject to a ****. Biolase’s option shall be exercised by delivery of a written notice to HSI on or prior to the date the applicable invoice is issued. All payments shall be made in U.S. dollars. No invoice may be issued prior to Biolase’s shipment of the Products ordered.

4.4. Existing Pre-Paid Advances; New Pre-Paid Advance.

(i) The parties agree that this Agreement (i) amends and restates in its entirety each of (x) the letter agreement dated February 16, 2010 (as amended or otherwise modified prior to the date hereof, the “February Letter”), between the HSI and Biolase, and (y) the letter agreement and March 9, 2010 (as amended or otherwise modified prior to the date hereof, the “March Letter”), between the HSI and Biolase (collectively, the February Letter and the March Letter are referred to as the “Existing Agreements”), and (ii) continues the obligations of Biolase thereunder. The Existing Agreements shall no longer be in effect other than as modified herein. This Agreement does not constitute a novation.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

(ii) HSI and Biolase hereby acknowledge and agree that ****.

(iii) Subject to the terms and conditions of this Agreement, HSI agrees to ****.

(iv) If (i) Biolase fails to deliver Products in accordance with this Agreement under the **** Purchase Order on or prior to the delivery date(s) set forth below in Section 4.5 (or ****), and ****, or (ii) any Event of Default (as defined in the Amended and Restated Security Agreement, defined below) occurs, then the outstanding balance under the Total Advances shall be refunded by Biolase to HSI, which payment shall be immediately due and payable to HSI in cash without any action or notice required by HSI.

4.5. Subject to Section 10.1, Biolase agrees to deliver Products as soon as commercially practicable after receipt of a purchase order from HSI, but in no event later than the date set forth on such purchase order. On the date hereof, HSI will deliver purchase orders to Biolase as follows (the “Effective Date Purchase Orders”): (i) ****. The satisfaction and fulfillment of the Effective Date Purchase Orders are subject to the terms and conditions set forth in the Amended and Restated Security Agreement, dated as of the date hereof, between HSI and Biolase (the “Amended and Restated Security Agreement”). ****.

4.6. All Products shall have standard warranties for **** . ****.

5. Product Discontinuance. Biolase agrees to notify HSI **** Biolase intends to discontinue the distribution or sale of any Products, and ****. Notwithstanding its receipt of such notice, HSI may continue to sell such discontinued Products until its inventory is depleted.

6. Purchase Modification. HSI may modify, without charge, any of the **** of Products (other than consumables, parts, training and warranties) to be delivered by Biolase prior to **** under the **** Purchase Order for other Products (other than consumables, parts, training or warranties), by providing Biolase with notice of such modification electronically, by facsimile or by mail on or prior to ****.


****		Certain confidential information contained in this document, marked with four asterisk, 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. Support of Products.

7.1. Biolase and its distributors **** will provide HSI and HSI’s existing and future end-user customers (including the ****) (the “Customers”), with such technical support, educational programs, product literature, training, upgrades (including without limitation, software upgrades, and any upgrades or modifications to HSI inventory intended to be sold by HSI in any HSI Distribution Territory which HSI determines is reasonably necessary in order to sell such Product in any such HSI Distribution Territory, including reconfiguring software and adding documentation for such HSI Distribution Territory), replacement parts and Product warranties on the Products, including without limitation, those services set forth on Schedule 7.1 (“Support Services”) as is necessary for HSI and its Customers to effectively market, sell and use, as applicable, the Products. Notwithstanding the foregoing, with respect to its obligation to provide Support Services for the ****, Biolase shall not be required to provide Support Services to any party other than HSI or its Customers. Biolase shall, at HSI’s request, upgrade any Products in HSI’s inventory to make it saleable, and will charge HSI ****; provided that, if ****, then Biolase ****. Such Support Services shall be provided by Biolase to HSI and its Customers ****.

7.2. Biolase shall use ****, any **** which HSI, in its reasonable discretion, **** (“****”). Biolase hereby covenants and agrees that it will **** for **** prior to ****.

7.3. On or prior to ****, HSI will provide Biolase with a preliminary marketing plan prepared in good faith, in such detail and with such assumptions as HSI reasonably believes are necessary for such plan to be meaningful. The parties expressly acknowledge that delivery of such plan does not impose any further or new obligations on, nor grant any further rights to, HSI and the failure by HSI to successfully carry out the marketing plan, or any changes made thereto by HSI, shall not be a breach of this Agreement.

8. Termination.

8.1. A party may terminate this Agreement, effective immediately upon delivery to the other party of written notice to such effect, in any of the following circumstances:

(i) the other party dissolves, ceases doing business, or sells or transfers all or substantially all of its assets;

(ii) the other party (A) makes an assignment for the benefit of its creditors, (B) institutes a proceeding as a debtor under any law relating to insolvency or bankruptcy, (C) fails to have discharged within 45 days any involuntary proceedings brought against it under any insolvency or bankruptcy law, (D) becomes insolvent or (E) generally does not pay its debts as they become due;

(iii) the other party commits theft or embezzlement or obtains funds or property under false pretenses; or

(iv) the other party fails to remedy any breach or default in the performance of the terms of this Agreement (but only if such breach or default is capable of remedy) within **** after its receipt of a written notice of such breach or default; provided, however, that, with respect to any breach or default of ****, such cure period shall be **** (but only if such breach or default is capable of remedy).


****		Certain confidential information contained in this document, marked with four asterisk, 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.

8.2. Biolase shall honor all orders for Product that HSI placed prior to the effective date of termination or expiration of this Agreement. Termination shall not affect the rights or obligations of either party accrued as of the effective date of such termination or that may arise subsequently with respect to transactions initiated or completed prior to the effective date of such termination. The confidentiality and indemnification provisions of this Agreement shall survive the termination or expiration of this Agreement. In addition, in the event of termination or expiration of this Agreement, HSI shall have the right to sell any remaining Products delivered to HSI.

9. Treatment of Confidential Information; Nondisparage.

9.1. Neither party will use (except to undertake the activities contemplated by this Agreement), publish or otherwise disclose any information related to the other party that is acquired by such party in connection with the performance of this Agreement unless required by law, regulation or legal process. During the Term and for a ****, neither party will disclose, reveal or use any Confidential Information concerning the other party or its respective clients, affiliates or business partners without the prior written consent of the disclosing party; provided, however, that the confidentiality obligations hereunder shall survive indefinitely with respect to, if applicable, customer lists and customer identifying data of HSI. HSI and Biolase each agrees it shall not knowingly utilize any material Confidential Information of the other party to encourage, assist, or induce its employees or any third party to negatively interfere with or impede each party’s respective sales efforts. A violation of this Section 9.1 shall constitute a breach of this Agreement.

9.2. “Confidential Information” means all data and information of any type or form (whether visual, written, oral, electronic, photographic or otherwise) of a proprietary or confidential nature and not generally known to the public that is disclosed (either intentionally or unintentionally) by a party hereto or one of its affiliates or representatives to the other party hereto or one of its affiliates or representatives, regardless of whether such information is marked or indicated as being confidential. Confidential Information includes, but is not limited to, all information of a financial, business, marketing, organizational, legal or technological nature, including patents, copyrights, proprietary software, computer algorithms, trade secrets, inventions and other intellectual property, financial statements and other financial data, customer and supplier lists, marketing plans, sales projections and forecasts, cost information, product designs, engineering and technical data, models, prototypes and other information relating to business practices, current and future acquisitions, research and development, manufacturing, production, operations and the like. Confidential Information also includes information of or relating to third parties that is disclosed by the disclosing party to the receiving party. Confidential Information shall not, however, include any information that, as shown by competent proof, (i) is publicly known or generally available in the public domain prior to the time of disclosure by the disclosing party to the receiving party, (ii) becomes publicly known or generally available in the public domain after disclosure by the disclosing party to the receiving party through no action or inaction of the receiving party, (iii) is already in the possession of the receiving party at the time of disclosure by the disclosing party as shown by the receiving party’s written records existing immediately prior to the time of such disclosure, (iv) is obtained by the receiving party from a third party that may lawfully disclose such information without breaching any obligation of confidentiality applicable to such third party or (v) is independently developed by the receiving party without use of or reference to the disclosing party’s Confidential Information, as shown by the receiving party’s independent contemporaneous written records.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

9.3. All Confidential Information provided hereunder will be and remain the property of the disclosing party and, upon termination of this Agreement, will be promptly returned to the disclosing party or destroyed upon the disclosing party’s written request.

9.4. HSI covenants and agrees that HSI and its subsidiaries, Affiliates, agents, and employees (the “HSI Parties”) shall not ****, directly or indirectly, say or do anything disparaging about, or take any action injurious to the business interests or reputation of Biolase or its subsidiaries, Affiliates, agents, and employees (the “Biolase Parties”), including, without limitation, any disparagement of any of their products or services. HSI covenants and agrees that the HSI Parties shall not **** encourage, assist or induce others to say or do anything disparaging about, or take any action injurious to the business interests or reputation of the Biolase Parties, including, without limitation, any disparagement of any of their products or services. Biolase covenants and agrees that the Biolase Parties shall not ****, directly or indirectly, say or do anything disparaging about, or take any action injurious to the business interests or reputation of the HSI Parties, including, without limitation, any disparagement of any of their products or services. Biolase covenants and agrees that the Biolase Parties shall not during the Term encourage, assist or induce others to say or do anything disparaging about, or take any action injurious to the business interests or reputation of the HSI Parties, including, without limitation, any disparagement of any of their products or services.

9.5. During ****, HSI and Biolase each agree to use commercially reasonable best efforts (a) not to solicit for employment, (b) not to hire for employment, and (c) not to engage as an independent contractor or consultant, any employee of the other party who acted in such capacity during the Term of this Agreement and, as to a particular HSI or Biolase employee whose employment is **** (and including any former employees of Biolase as may be agreed to in writing by HSI), **** of such employee’s service with HSI or Biolase, as the case may be. During the Term, Biolase agrees to promptly notify HSI in writing, but in any event, **** the separation of service of any Biolase employee, and HSI’s obligations hereunder shall relate only to those Biolase employees as to whom HSI received such written notice. The notice required from Biolase pursuant to this Section 9.5 shall be delivered **** by e-mail addressed to ****, or such other person(s) as HSI may designate from time to time, shall clearly state that such notice is being delivered pursuant to this Section 9.5 of this Agreement and shall be followed by a confirmation copy sent to HSI within 5 days of such email notification by certified mail to the addresses set forth in Section 12.6.


****		Certain confidential information contained in this document, marked with four asterisk, 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. ****.

10.1. Biolase’s obligation to supply Products to third parties shall at all times be subject to the condition that Biolase is able to **** and any **** (collectively, “****”). In the event that Biolase is at any time during the Term **** pursuant to the terms of this Agreement for any reason whatsoever, Biolase shall use its commercially reasonable efforts to **** such **** as soon as such ****; provided, however, that (i) ****.

10.2. Pursuant to the terms and conditions of this Agreement, during the Term, HSI may make available financial services offered or arranged by HSI or its affiliates to HSI prospective purchasers of Products in connection with the sale of Products or otherwise (“HSI Financial Services”). Nothing herein shall be construed as limiting HSI’s or its affiliates’ rights to provide HSI Financial Services for or on behalf of any other person, and nothing herein shall be construed as limiting Biolase’s rights to offer or provide to its customers financial services of any other person.

10.3. ****

11. Prospective Customers.

11.1. If at any time HSI provides Biolase information about a prospective sale by HSI, including in connection with a request for Biolase assistance in connection with prospective sales of Products, Biolase shall not, directly or indirectly, encourage any such prospective customer of HSI to purchase or otherwise acquire any Products from any third party (other than HSI), including, without limitation, directly from Biolase or any of its affiliates, rather than purchasing such Products from HSI.

11.2. Biolase shall not solicit any Customer for the sale of any ****, or sell any **** to any Customer, for **** each of (a) **** and (b) the ****. For purposes of this Section 11.2, “****” means ***** with respect to any Product.

11.3. If at any time Biolase would like to request HSI’s assistance in connection with a prospective sale of Products, Biolase shall ****, or ****, and such request shall clearly state that it is being delivered pursuant to this Section 11.3 of this Agreement. If, and only if, HSI agrees in writing to provide such assistance, then Biolase may provide information about the prospective customer in order to permit HSI to provide such assistance and HSI shall not, directly or indirectly, encourage any such prospective customer of Biolase to purchase or otherwise acquire any Products from any third party (other than Biolase), including, without limitation, directly from HSI or any of its affiliates, rather than purchasing such Products from Biolase. For the purposes of clarification, Biolase shall not provide ****, or ****.


****		Certain confidential information contained in this document, marked with four asterisk, 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. Other Matters.

12.1. Representations and Warranties of Biolase. Biolase hereby represents and warrants to HSI that (i) it is the exclusive legal and beneficial owner, free and clear of any liens, encumbrances, or claims of third parties (other than the existing security interests in favor of MidCap Financial, LLC and HSI), of all right, title and interest in and to the Products and all intellectual property rights incorporated therein or used in connection with the manufacture, marketing or sale of such Products (“Intellectual Property Rights”), (ii) it has the right to permit HSI’s, HSI’s affiliates and/or HSI’S customer’s use of the Intellectual Property Rights, (iii) it is the exclusive legal and beneficial owner of the trademarks, service marks, names, and designs owned by Supplier (the “Marks”) and used in connection with the Products, free and clear of any liens, encumbrances, or claims of third parties (other than the existing security interests in favor of MidCap Financial, LLC and HSI), and has the right to license the Marks to HSI as provided in this Agreement, (iv) HSI’s use of the Marks in accordance with this Agreement does not, and is not reasonably likely to, infringe or violate the trademark or trade dress rights of any third party in the HSI Distribution Territory, (v) the Products do not, in whole or in part, infringe upon, violate or misappropriate the rights of any person or entity, including, but not limited to, any patents, copyrights, trademark rights, trade secrets or any other proprietary rights, (vi) except as disclosed in Biolase’s filings with U.S. Securities and Exchange Commission there is no claim, action, litigation, proceeding or investigation before any court or administrative agency pending or threatened against or with respect to the Products, (vii) except as set forth on Schedule 12.1, Biolase has not received any third party cease or desist notification, licensing notice, or patent notification with respect to the Products, (viii) nothing contained in any marketing, advertising or educational materials produced by or for the Biolase in connection with marketing, advertising or educating persons concerning the Products infringes, violates or misappropriates any intellectual property right of any third party (for the sake of clarity, it is specified that this representation and warranty also applies to materials produced by HSI at the direction of the Biolase), and (ix) the distribution by HSI of the Products in the packaging provided by or approved by the Biolase, as contemplated by this Agreement shall not infringe or violate the trademark or trade dress rights of any third party in the HSI Distribution Territory.

12.2. Continuing Guaranty. The parties shall be subject to the terms of the Continuing Guaranty and Indemnification set forth on Exhibit B, which is hereby incorporated herein and made a part hereof. In the event of a conflict between the terms and conditions set forth in this Agreement and the terms and conditions set forth on Exhibit B, the terms and conditions set forth on Exhibit B shall control.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

12.3. HSI represents and warrants that it is acting on behalf of itself and no other third parties in connection with the negotiation and execution of this Agreement.

12.4. LIMITATION OF LIABILITY. EXCEPT IN CONNECTION WITH A PARTY’S WILFUL MISCONDUCT OR GROSS NEGLIGENCE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED TO, LOST PROFITS AND LOSS OF GOODWILL, ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT (OR ANY DUTY OF COMMON LAW, AND WHETHER OR NOT OCCASIONED BY THE NEGLIGENCE OF A PARTY OR ITS AFFILIATES), REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED THAT NOTHING IN THIS SECTION IS INTENDED TO, OR DOES, LIMIT (A) THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY SET FORTH HEREIN OR (B) EITHER PARTY’S RIGHT TO CLAIM DIRECT DAMAGES FROM THE OTHER PARTY.

12.5. For purposes of clarification, subject to warranty claims, HSI does not have any right to return or exchange of any products purchased by it under this Agreement. Upon reasonable request by Biolase, HSI shall provide, addressed to Biolase (or addressed to Biolase’s independent auditors) a written confirmation of the immediately preceding sentence, signed by an appropriate officer of HSI.

12.6. Notices. Except as otherwise provided, all notices given under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered by hand or facsimile transmission with receipt confirmed, three days after mailing by certified or registered mail, and one day after sending by overnight courier, to the parties’ respective address indicated on the signature page of this Agreement or such other address as a party specifies in writing to the other party. All notices given to HSI under this Agreement shall be sent with a copy to Henry Schein, Inc., 135 Duryea Road, Melville, New York 11747, Attn: General Counsel, Fax (631) 843-5660. All notices given to Biolase under this Agreement shall be sent with a copy to Biolase Technology, Inc., 4 Cromwell, Irvine, California 92618, Attn: General Counsel, Fax (949) 340-7379.

12.7. No Joint Venture. Nothing in this Agreement shall be construed to create, constitute, give effect to or otherwise imply a joint venture, partnership, agency or employment relationship of any kind between the parties.

12.8. Compliance with Government Contracting Requirements. Biolase and HSI will work together in good faith to identify mutually beneficial opportunities (as determined in HSI’s sole discretion) to utilize the services of minority-owned businesses in connection with HSI’s pursuit of federal, state and local government contracts. Biolase shall comply with laws, regulations and orders related to government contracting, including without limitation with respect to minority owned and disadvantaged businesses (including pursuant to 48 CFR Sections 52.219-8 and 52.219-9), and equal employment opportunity and affirmative action. Biolase and any Biolase representative performing this Agreement have not been debarred, suspended or excluded, and are not subject to any proposed debarment, suspension or exclusion, from participation in the Medicare or Medicaid programs or any other government program, and have not been convicted of, or have charges pending regarding, any offenses which may lead to such debarment, suspension or exclusion. Biolase shall promptly inform HSI if it becomes aware that the provisions of this paragraph become inaccurate in a material way during the term.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

12.9. Trademarks. Biolase grants to HSI the limited right to use Biolase’s trademarks relating to the Products in connection with the marketing of the Products during the Term and for a period of during any such period thereafter in which HSI has rights to sell Products.

12.10. Assignment. This Agreement may not be assigned by either party without the other party’s prior written consent.

12.11. Governing Law. This Agreement shall be governed by the laws of the State of New York, without reference to conflict of laws principles; provided, however, that the Federal Arbitration Act of the United States shall govern issues as to arbitrability. Except as otherwise provided herein, if a dispute arises in connection with or relating to this Agreement and the parties are unable to resolve it **** through direct negotiations, the dispute shall be referred to final and binding arbitration to be held in Chicago, Illinois, U.S.A. in accordance with the rules of the American Arbitration Association then in effect, by a panel of three arbitrators, with one arbitrator to be selected by each party and the third to be chosen by the two arbitrators selected by the parties; provided, however, if Biolase becomes a debtor in a bankruptcy or similar insolvency proceeding, the judge presiding over such proceeding shall have discretion to hear and determine all disputes arising under this Agreement. The arbitrators shall make the final determination as to any discovery disputes between the parties and may impose sanctions in their discretion to enforce compliance with discovery obligations. The award of the arbitrator(s) shall be final and binding upon the parties hereto and may be enforced by any court of competent jurisdiction. Each party shall bear their own attorneys’ fees, costs and necessary disbursements incurred in connection with said arbitration; provided, however, the successful party prevailing in any such arbitration shall be entitled to recover from the unsuccessful party the successfully party’s share of the costs and charges of the arbitrators. Notwithstanding the provisions of this Section, the parties may, in addition to any other remedies available to it under this Agreement, bring an action in any court of competent jurisdiction for injunctive relief pending the settlement or arbitration of the dispute and may have entered an appropriate temporary restraining order or preliminary injunction without being required to post bond or other security or to offer proof of monetary damages. The inclusion of this provision shall not be construed to deny appropriate equitable relief in arbitration in any other situation in which the circumstances justify such relief.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

12.12. Remedies. Due to the fact that the disclosing party could not be adequately compensated by money damages in the event of the receiving party’s breach of any of the confidentiality provisions of this Agreement, the disclosing party shall be entitled, in addition to any other right or available remedy, to an injunction or other equitable relief restraining such breach or any threatened breach.

12.13. Entire Agreement; Amendments. This Agreement, including the exhibits attached hereto, each of which is incorporated herein by reference in its entirety, constitutes the entire agreement between Biolase and HSI. All prior or contemporaneous agreements, proposals, understandings and communications between or involving Biolase and HSI, whether oral or written, including without limitation, the Original Agreement, are superseded by this Agreement. The terms contained in this Agreement shall supersede any conflicting terms contained in any purchase order, invoice or other document used or submitted by either party in connection with the purchase of Products covered by this Agreement. This Agreement may not be amended, nor any obligation waived, except by a writing signed by both parties.

12.14. No Waiver. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

12.15. Severability. If any term of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, then this Agreement, including all of the remaining unaffected terms, shall remain in full force and effect as if such invalid or unenforceable term had never been included.

12.16. No Publicity. Neither party shall originate any publicity, press releases or other public announcement relating to any relationship between the parties, this Agreement or the performance hereof without the other party’s prior written consent; provided, however, that either party may, without such consent, make any press release or other public announcement as required by law.

12.17. Section Headings. The headings contained in this Agreement are for convenience of reference only and are not intended to have any substantive significance in interpreting this Agreement.

12.18. Facsimile; Counterparts. This Agreement may be executed by facsimile signature and in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

Signatures on next page


****		Certain confidential information contained in this document, marked with four asterisk, 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.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective duly authorized representatives.


Henry Schein, Inc.		Biolase Technology, Inc.

By:	/s/ Mark E. Mlotek	By:	/s/ Federico Pignatelli

	Name: Mark E. Mlotek		Name: Federico Pignatelli
	Title: Executive Vice President		Title: Chairman and interim CEO

Address for Notices:		Address for Notices:

	135 Duryea Road		4 Cromwell
	Melville, New York 11747		Irvine, California 92618
	Fax: (631) 843-5660		Fax: (949) 340-7379
	Attn: General Counsel		Attn: General Counsel


****		Certain confidential information contained in this document, marked with four asterisk, 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.

EXHIBIT A

****


****		Certain confidential information contained in this document, marked with four asterisk, 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.

EXHIBIT B

CONTINUING GUARANTY AND INDEMNIFICATION

Biolase Technology, Inc. on behalf of itself and its affiliates (collectively referred to as “BIOLASE”) hereby guarantees that each article constituting or being part of any shipment or delivery now or hereafter made to Henry Schein, Inc. or any affiliate thereof (collectively, the “PRODUCTS”) (collectively, “HSI”) will: (i) at the time of each shipment or delivery be in compliance with all applicable federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law) (hereinafter referred to as “Legal Requirements”), in each region in which HSI will distribute the Products; and (ii) not be adulterated or misbranded within the meaning of the U.S Federal Food, Drug and Cosmetic Act (the “Act”), or within the meaning of any Legal Requirements, nor will any PRODUCT be an article which may not, under the provisions of Sections 405, 505 or 512 of the Act, be introduced into interstate commerce. BIOLASE hereby guarantees that it has proper legal title to the PRODUCTS and that the PRODUCTS are merchantable and fit for their intended purpose.

BIOLASE, at its own expense, shall defend, indemnify and hold HSI harmless for and against any and all liabilities, losses, damages (including, actual, punitive, enhanced and exemplary damages), claims (including product liability claims), costs and expenses (including defense costs and reasonable attorneys’ fees and expenses), interest, awards, judgments and penalties (including reasonable attorneys’ fees and expenses) suffered or incurred by HSI arising or resulting from:

any claim of trademark, trade dress, trade secret, copyright, patent or other intellectual property infringement or misappropriation, including any claim for willful infringement against HSI, arising out of HSI’s distribution of the PRODUCTS (except where HSI has supplied the trademark which is the basis for the claim);

	ii.		any claim for false advertising, unfair competition, and/or Lanham Act violation arising out of HSI’s distribution of the PRODUCTS (except where HSI has supplied the materials which are the basis for the claim);

	iii.		any alleged or actual use or misuse of the PRODUCTS (other than by HSI);

iv.

any breach by BIOLASE of any obligation to HSI, including those contained in related agreements in respect of distribution, if any;

any negligent or willful action or omission of BIOLASE or any of its agents, employees, representatives, successors or assigns in connection with the manufacture, development, sale, distribution, storage or dispensing of the PRODUCTS (except to the extent HSI has made any material modifications to any PRODUCTS in violation of any applicable warranty); or

vi.

any action for the recall or seizure of the PRODUCTS.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

In the event that any claim concerning the PRODUCTS is threatened or brought against HSI, HSI shall have the right to select counsel to defend against such claim with all reasonable attorneys’ fees and expenses to be borne and paid by BIOLASE, provided that (i) HSI shall identify the counsel it intends to use to defend against such claim within a reasonable time, (ii) counsel selected by HSI is experienced in the relevant area of law (e.g., trademark, copyright, patent etc.) relating to the claim at issue, and (iii) the attorneys’ fees for which Biolase is responsible for are those rates normally charged for similar work by attorneys of like skill in the area (for example, as set forth in the most recent Economic Survey of the American Intellectual Property Law Association). Nothing herein shall affect Biolase’s obligation to indemnify and hold harmless HSI as set forth above.

In the event that any claim is threatened or brought against the PRODUCTS, Biolase shall promptly notify HSI of such claim(s) in writing. Biolase shall consult with HSI to the fullest extent possible in the defense of the claim(s) and shall not take any substantive action in defense of the claim without HSI’s approval.

BIOLASE agrees to maintain comprehensive “occurrence” general liability insurance, including “occurrence” product liability, contractual liability insurance and advertising injury coverage, with minimum limits of liability of **** and to deliver to HSI a certificate thereof with HSI named as an additional insured thereon. Such insurance must insure against all products contemplated under this Agreement. Insurance coverage must be procured from an insurance company bearing an AM Best Rating of no less than **** or a S&P Rating of no less than ****.

BIOLASE will provide notice to HSI of any regulatory action related to its operations and BIOLASE shall be responsible, if required by Legal Requirements, for notifying the appropriate federal, state and local authorities of any customer complaints or other occurrences regarding the PRODUCTS, evaluating all complaints and responding to HSI in writing on the resolution of any complaints from HSI for its customers.

If BIOLASE private labels any PRODUCT for HSI, BIOLASE agrees: (a) to make no changes in the PRODUCT, labeling or packaging of the PRODUCT without HSI’s prior written approval; and (b) to allow representatives of HSI to enter and inspect BIOLASE’S facilities during normal business hours and, upon reasonable request, to supply HSI with proper documentation for HSI to determine BIOLASE’s adherence to quality assurance and regulatory compliance standards.


****		Certain confidential information contained in this document, marked with four asterisk, 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.

This Agreement shall be continuing and shall be binding upon BIOLASE and his or its successors and assigns and shall inure to the benefit of HSI, its successors and assigns and to the benefit of its officers, directors, agents and employees. This Agreement shall supersede any and all prior agreements or understandings between HSI and BIOLASE regarding the subject matter hereof. Neither party shall provide any compensation or other benefit to employees of the other party without the prior written consent of such other party, and each party agrees to promptly disclose to the other party any financial relationships between itself and any employee of the other party which may give rise to a conflict of interest between such employee and such other party and neither party shall represent to any customer or potential customer that they are providing any such compensation or other benefit, unless the parties otherwise agree in writing. No right, express or implied, is granted to BIOLASE hereunder to use in any manner any name, trade name, trademark or service mark of HSI. This Agreement contains proprietary information and may not be disclosed without prior written approval from HSI. Any amendments or modifications to this Agreement must be in writing and executed by authorized representatives of both parties. This Agreement shall be governed by the laws of the State of New York. This Agreement shall cover all PRODUCTS and shall survive the termination of any distribution agreement or arrangement between BIOLASE and HSI.


****		Certain confidential information contained in this document, marked with four asterisk, 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-10.6 7 c07638exv10w6.htm EXHIBIT 10.6 Exhibit 10.6

Exhibit 10.6

EXECUTION VERSION

AMENDED AND RESTATED SECURITY AGREEMENT

AMENDED AND RESTATED SECURITY AGREEMENT, is entered into as of September 23, 2010 with an effective date of August 30, 2010 as amended or otherwise modified from time to time, this “Agreement”), among Biolase Technology, Inc., a Delaware corporation (“Biolase”), BL Acquisition Corp., a Delaware corporation (“BL Acquisition”) and BL Acquisition II Inc., a Delaware corporation (“BL Acquisition II”, together with Biolase and BL Acquisition, “Grantors” and each a “Grantor”), and Henry Schein, Inc., a Delaware corporation (“HSI”).

Reference is made to each of (x) the security agreement, dated February 16, 2010 (as amended or otherwise modified prior to the date hereof, the “Prior Security Agreement”), between HSI and Biolase and (y) the Distribution and Supply Agreement, dated the date hereof (as amended or otherwise modified from time to time, the “Distribution Agreement”), between HSI and Biolase.

The Prior Security Agreement creates a security interest in all of Biolase’s inventory (and products and proceeds thereof) to secure obligations of Biolase to HSI under the letter agreement, dated February 16, 2010 (as amended or otherwise modified prior to the date hereof, the “February Letter”), between HSI and Biolase.

The Distribution Agreement, among other things, (x) continues the obligations owed by Biolase under the February Letter (such obligations, as continued under the Distribution Agreement, are herein referred to as the “February Obligations”), (y) continues the obligations of Biolase to HSI under the letter agreement, dated March 9, 2010 (as amended or otherwise modified prior to the date hereof, the “March Letter”), between HSI and Biolase (such obligations, as continued under the Distribution Agreement, are herein referred to as the “March Obligations”) and (z) creates obligations from Biolase owing to HSI in addition to the February Obligations and March Obligations, in each case as more fully described therein.

This Agreement (i) amends and restates in its entirety the Prior Security Agreement, (ii) continues the security interests granted by Biolase under the Prior Security Agreement securing obligations of Biolase under the February Letter and (iii) otherwise secures all obligations of Biolase under the Distribution Agreement. The Prior Security Agreement has been superseded in its entirety by this Agreement, and shall no longer be in effect except as modified herein. This Agreement does not constitute a novation.

As a condition to entering into the Distribution Agreement, HSI shall have received (i) evidence satisfactory to HSI that the requisite lenders under the Loan and Security Agreement, dated as of May 27, 2010 (as amended and otherwise modified prior to the date hereof, the “MidCap Loan Agreement”), among Biolase, MidCap Funding III, LLC, Silicon Valley Bank and the other lenders party thereto have entered into an agreement with Biolase, the terms of which shall be reasonably satisfactory to HSI and (ii) take all action necessary to perfect the security interests granted (and continued) under Section 2 (other than actions to be taken post closing in accordance with the last sentence of Section 4).

NOW, THEREFORE, in consideration of the promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions.

All capitalized terms used herein shall have the meanings provided herein (including, without limitation, the meanings provided in Schedule I). Capitalized terms used herein without meanings provided herein shall have the respective meanings provided therefor in the Distribution Agreement.

2. Grant of Security Interest. Each Grantor hereby grants to HSI, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to HSI, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

Each Grantor represents, warrants, covenants and confirms that (i) Biolase granted a security interest under the Prior Security Agreement in all of Biolase’s right, title and interest in its inventory (and products and proceeds thereof) to secure the obligations of Biolase under the February Letter and (ii) such obligations are continued under the Distribution Agreement and such security interest is continued hereunder. Each Grantor further represents, warrants and covenants that the security interest granted herein (and continued herein) is and shall at all times continue to be a Senior Priority perfected security interest. “Senior Priority” means (a) with respect to the perfected security interest in the inventory (and products and proceeds thereof) of Biolase to secure the February Obligations, a first priority perfected security interest, subject in priority only to Permitted Liens that may have priority by operation of applicable Law and (b) with respect to the perfected security interest in the Collateral to secure all Obligations, a first priority perfected security interest subject in priority only to Permitted Liens that may have priority by operation of applicable Law and Liens securing the obligations (but only up to an aggregate principal amount of $3,000,000) of Biolase under the MidCap Loan Agreement.

3. Authorization to File Financing Statements. Each Grantor hereby authorizes HSI to file financing statements, without notice to it, in all appropriate jurisdictions to perfect or protect HSI’s interest or rights hereunder, including, without limitation, a notice that any disposition of the Collateral, by either any Grantor or any other Person, shall be deemed to violate the rights of HSI under the UCC. 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 HSI’s discretion.

4. Other Actions as to Any and All Collateral. Each Grantor agrees, at the request and option of HSI, to take any and all other actions HSI may determine to be necessary or useful for the attachment, perfection and Senior Priority of, and the ability of HSI to enforce, HSI’s security interest in any and all of the Collateral, including, without limitation, (a) executing any further instruments (including, without limitation, intellectual property security agreements and control agreements) and taking further action (including, without limitation, delivery of Collateral that can only be perfected by possession) as HSI reasonably requests to perfect or continue HSI’s security interest in the Collateral or to effect the purposes of this Agreement, (b) delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC, (c) causing HSI’s name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of HSI to enforce, HSI’s security interest in such Collateral, (d) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of HSI to enforce, HSI’s security interest in such Collateral, (e) obtaining governmental and other third party waivers, consents and approvals in form and substance satisfactory to HSI, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral and (f) taking all actions under any earlier versions of the UCC or under any other law, as reasonably determined by HSI to be applicable in any relevant UCC or other jurisdiction, including, without limitation, any foreign jurisdiction. If a Grantor shall acquire a commercial tort claim (as defined in the UCC), it shall promptly notify HSI in a writing signed by it of the general details thereof (and further details as may be required by HSI) and grant to HSI, 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 HSI. Without limiting the generality of the foregoing, each Grantor will execute and deliver deposit account control agreements for any deposit accounts constituting Collateral no later than [fifteen (15)] days after the date hereof.

5. Representations and Warranties. Each Grantor makes the representations and warranties set forth on Schedule II hereto.

6. Covenants. Each Grantor agrees with HSI to comply with each of the covenants set forth on Schedule III hereto.

7. Events of Default. Any one or more of the events, actions or omissions set forth on Schedule IV shall constitute an event of default (an “Event of Default”).

8. Rights and Remedies.

(a)

Upon the occurrence and during the continuance of an Event of Default, HSI shall have the right to do any or all of the following: (i) deliver notice of the Event of Default to the Grantors, (ii) by notice to the Grantors declare all Obligations immediately due and payable (but if an Event of Default described in clause (c) of Schedule IV occurs all Obligations shall be immediately due and payable without any action by HSI) or (iii) by notice to the Grantors suspend or terminate the obligations, if any, of HSI to advance money or extend credit for Biolase’s benefit under the Distribution Agreement (but if an Event of Default described in clause (c) of Schedule IV occurs all obligations, if any, of HSI to advance money or extend credit for Biolase’s benefit under the Distribution Agreement).

(b)

Without limiting the rights of HSI set forth in the paragraph above, upon the occurrence and during the continuance of an Event of Default HSI shall have the right, without notice or demand, to do any or all of the following:

(i) foreclose upon and/or sell or otherwise liquidate the Collateral, but use commercially reasonable efforts to first foreclose upon and/or sell or otherwise liquidate, the Collateral consisting of assets other than Intellectual Property; provided that (A) in instances in which any other Person has initiated foreclosure on Intellectual Property, HSI shall be entitled to join such action subject to any restrictions in an agreement between HSI and such Person; (B) in any foreclosure on Intellectual Property or in any sale of Intellectual Property in any Insolvency Proceeding, HSI shall not bid to obtain title to Intellectual Property if the Obligations owing to HSI have been indefeasibly paid in full; and (C) except as expressly provided, this clause (i) shall not be in any manner restrict or limit HSI’s rights and remedies with respect to (x) any foreclosure instituted or continued by HSI or any other Person, or (y) any Insolvency Proceeding;

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

(iii) commence, join in and prosecute an Insolvency Proceeding or consent to any Grantor commencing any Insolvency Proceeding.

9. Standards for Exercising Rights and Remedies. To the extent that applicable law imposes duties on HSI to exercise remedies in a commercially reasonable manner, each Grantor acknowledges and agrees that it is not commercially unreasonable for HSI, subject in all cases to its agreement with regard to Collateral consisting of Intellectual Property set forth in Section 8(b)(i) above, (a) to fail to incur expenses reasonably deemed significant by HSI to prepare Collateral for disposition or otherwise to fail to complete raw material or work in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or not in the same business as any Grantor, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, or (j) to disclaim disposition warranties. Each Grantor acknowledges that the purpose of this Section 9 is to provide non-exhaustive indications of what actions or omissions by HSI would fulfill HSI’s duties under the UCC or other law of the State or any other relevant jurisdiction in HSI’s exercise of remedies against the Collateral and that other actions or omissions by HSI shall not be deemed to fail to fulfill such duties solely on account of not being indicated in this Section 9. Without limitation upon the foregoing, nothing contained in this Section 9 shall be construed to grant any rights to any Grantor or to impose any duties on HSI that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section 9.

10. Collateral Protection Expenses; Preservation of Collateral.

(a)

Expenses Incurred by HSI. In HSI’s discretion, if a Grantor fails to do so, HSI may discharge taxes and other encumbrances at any time levied or placed on any of the Collateral, maintain any of the Collateral, make repairs thereto and pay any necessary insurance premiums. Each Grantor agrees to reimburse HSI on demand for all expenditures so made. HSI shall have no obligation to any Grantor to make any such expenditures.

(b)

HSI’s Obligations and Duties. HSI’s sole duty with respect to the custody, safe keeping and physical preservation of the Collateral in its possession, if any, under Section 9-207 of the UCC of the State or otherwise, shall be to deal with such Collateral in the same manner as HSI deals with similar property for its own account.

11. Set-off. Regardless of the adequacy of Collateral or any other security for the Obligations, any deposits or other sums at any time credited by or due from HSI to any Grantor may at any time be applied to or set off against any of the Obligations.

12. Appointment and Powers of HSI.

(a)

Each Grantor hereby irrevocably constitutes and appoints HSI and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of any Grantor, as applicable, or in HSI’s own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or useful to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives said attorneys the power and right, on behalf of it, without notice to or assent by it, to do the following:

(i) subject to the proviso set forth in Section 9(b), upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise dispose of or deal with any of the Collateral in such manner as is consistent with the UCC of the State and as fully and completely as though HSI were the absolute owner thereof for all purposes, and to do, at a Grantor’s expense, at any time, or from time to time, all acts and things which HSI deems necessary or useful to protect, preserve or realize upon the Collateral and HSI’s security interest therein, in order to effect the intent of this Agreement, all at least as fully and effectively as a Grantor might do; and

(ii) to the extent that a Grantor’s authorization given in Section 3 is not sufficient, to file such financing statements with respect hereto, with or without its’ signature, or a photocopy of this Agreement in substitution for a financing statement, as HSI may deem appropriate and to execute in such Grantor’s name such financing statements and amendments thereto and continuation statements which may require its’ signature.

(b)

Ratification by the Grantors. To the extent permitted by law, each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and is irrevocable.

(c)

No Duty on HSI. The powers conferred on HSI hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon it to exercise any such powers. HSI shall be accountable only for the amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act, except for HSI’s own gross negligence or willful misconduct.

13. No Waiver by HSI, etc. HSI shall not be deemed to have waived any of its rights or remedies in respect of the Obligations or the Collateral unless such waiver shall be in writing and signed by HSI. No delay or omission on the part of HSI in exercising any right or remedy shall operate as a waiver of such right or remedy or any other right or remedy. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. All rights and remedies of HSI with respect to the Obligations or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly, alternatively, successively or concurrently at such time or at such times as HSI deems expedient.

14. Suretyship Waivers by Grantor. Each Grantor waives demand, notice, protest, notice of acceptance of this Agreement, credit extended, Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description. With respect to both the Obligations and the Collateral, each Grantor assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of or failure to perfect any security interest in any Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as HSI may deem advisable. HSI shall have no duty as to the collection or protection of the Collateral or any income therefrom, the preservation of rights against prior parties, or the preservation of any rights pertaining thereto beyond the safe custody thereof as set forth in Section 10(b). Each Grantor further waives any and all other suretyship defenses.

15. Marshalling. HSI shall not be required to marshal any present or future collateral security (including, without limitation, the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of HSI’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

16. Insurance Proceeds; Proceeds of Dispositions; Expenses. The proceeds of any casualty insurance in respect of any casualty loss of any of the Collateral shall, subject to the rights, if any, of other parties with an interest having priority in the property covered thereby, (i) to the extent that the amount of such proceeds is less than $50,000, be disbursed to a Grantor, as applicable, for direct application by it solely to the repair or replacement of its’ property so damaged or destroyed, and (ii) in all other circumstances, be held by HSI as cash collateral for the Obligations. HSI may, at its sole option, disburse from time to time all or any part of such proceeds so held as cash collateral, upon such terms and conditions as HSI may reasonably prescribe, for direct application by a Grantor solely to the repair or replacement of its’ property so damaged or destroyed, or HSI may apply all or any part of such proceeds to the Obligations.

Each Grantor shall pay to HSI on demand any and all expenses, including, without limitation, reasonable attorneys’ fees and disbursements, incurred or paid by HSI in protecting, preserving or enforcing HSI’s rights and remedies under or in respect of any of the Obligations or any of the Collateral. After deducting all of said expenses, the residue of any proceeds of collection or sale or other disposition of the Collateral shall, to the extent actually received in cash, be applied to the payment of the Obligations in such order or preference as HSI may determine proper allowance and provision being made for any Obligations not then due. Upon the final payment and satisfaction in full of all of the Obligations and after making any payments required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the UCC of the State, any excess shall be returned to the Grantors. In the absence of final payment and satisfaction in full of all of the Obligations, each Grantor shall remain liable for any deficiency.

17. Termination Statements. Immediately upon satisfaction of the Obligations, HSI shall authorize each Grantor, on behalf of such Grantor and at such Grantor’s expense, to execute and file termination statements in all jurisdictions in which financing statements were filed in respect of this Agreement, and shall take such other action or refrain from taking any other action as such Grantor may reasonably request, and at such Grantor’s sole expense, to effectuate the termination of this Agreement and the termination of perfection of any security interest granted in and to the Collateral.

18. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Each Grantor agrees that any action or claim arising out of, or any dispute in connection with, this Agreement, any rights, remedies, obligations, or duties hereunder, or the performance or enforcement hereof or thereof, may be brought in the courts of the State or any federal court sitting therein and consents to the non-exclusive jurisdiction of such court and to service of process in any such suit being made upon a Grantor by mail at the address set forth on the signature page hereto. Each Grantor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient court.

19. Waiver of Jury Trial. THE DEBTOR WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THSI AGREEMENT, ANY RIGHTS, REMEDIES, OBLIGATIONS, OR DUTIES HEREUNDER, OR THE PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF. Except as prohibited by law, each Grantor waives any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. Each Grantor (i) certifies that neither HSI nor any representative, agent or attorney of HSI has represented, expressly or otherwise, that HSI would not, in the event of litigation, seek to enforce the foregoing waivers or other waivers contained in this Agreement, and (ii) acknowledges that, in entering into the Distribution Agreement, HSI is relying upon, among other things, the waivers and certifications contained in this Section 19.

20. Indemnification.

(a)

Each Grantor agrees to indemnify, defend and hold HSI and its respective directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing HSI (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 this Agreement or the Distribution Agreement; and (b) all losses or HSI’s expenses incurred, or paid by Indemnified Person from, following, or arising from transactions between HSI and any Grantor (including, without limitation, reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence, willful misconduct or fraud (collectively, the “Indemnified Liabilities”).

(b)

Each Grantor 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, without limitation, the fees and disbursements of counsel for such Indemnitee), except to the extent directly caused by such Indemnified Person’s gross negligence, willful misconduct or fraud, 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 any Grantor, 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 HSI) 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 20 may be unenforceable, each Grantor 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.

21. Miscellaneous. The headings of each section of this Agreement are for convenience only and shall not define or limit the provisions thereof. This Agreement and all rights and obligations hereunder shall be binding upon each Grantor and its respective successors and assigns, and shall inure to the benefit of HSI and its successors and assigns. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. Each Grantor acknowledges receipt of a copy of this Agreement.

IN WITNESS WHEREOF, intending to be legally bound, Grantor has caused this Agreement to be duly executed as of the date first above written.


BIOLASE TECHNOLOGY, INC.
By:	/s/ Federico Pignatelli
	Name:	Federico Pignatelli
	Title:	Chairman and interim Chief Executive Officer


Organizational ID: Delaware No. 2117279 Address: 4 Cromwell, Irvine, California 92618 BL ACQUISITION CORP.
By:	/s/ Federico Pignatelli
	Name:	Federico Pignatelli
	Title:	Chairman and interim Chief Executive Officer


Organizational ID: Delaware No. Address: BL ACQUISITION II INC.
By:	/s/ Federico Pignatelli
	Name:	Federico Pignatelli
	Title:	Chairman and interim Chief Executive Officer


Organizational ID: Delaware No. Address: HENRY SCHEIN, INC.
By:	/s/ Mark E. Mlotek
	Name:	Mark E. Mlotek
	Title:	Executive Vice President

Schedule I

DEFINITIONS

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

(a)

“Collateral” means all goods, accounts (including, without limitation, health-care insurance receivables), equipment, inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, general intangibles, commercial tort claims, documents, instruments (including, without limitation, any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, investment accounts, commodity accounts, all certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and all of each Grantor’s books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

(b)

“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.

(c)

“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.

(d)

“Indebtedness” is (a) indebtedness for borrowed money, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) obligations for the deferred price of property or services (including, without limitation, reimbursement and other obligations for surety bonds and letters of credit), (d) capital lease obligations, (e) any obligation that is secured by a Lien and (f) contingent obligations with respect to any of the foregoing.

(e)

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including, without limitation, assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

(f)

“Lien” means 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.

(g)

“Obligations” means all of the obligations and liabilities of each Grantor to HSI, individually or collectively, whether direct or indirect (including any obligations under any guaranties), joint or several, absolute or contingent, due or to become due, now existing or hereafter arising under the Distribution Agreement, and any purchase orders issued thereunder, including, without limitation, the Total Advances.

(h)

“Permitted Indebtedness” means:

	i.		Biolase’s obligations to HSI under the Distribution Agreement;

	ii.		Indebtedness existing on the date hereof as set forth in Schedule V hereto;

	iii.		Subordinated Debt;

	iv.		unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

	v.		Indebtedness secured by Permitted Liens;

	vi.		Indebtedness of Biolase under the MidCap Loan Agreement in an amount not to exceed an aggregate principal amount of $3,000,000 (the “MidCap Debt”); and

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

(i)

“Permitted Liens” means:

	i.		Liens existing on the date first written above (including, without limitation, Liens granted pursuant to the MidCap Loan and Security Agreement) or arising under this Agreement;

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

	iii.		purchase money Liens (i) on equipment acquired or held by each Grantor 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

	iv.		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.

	(j)		“Person” means 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.

	(k)		“State” means the State of New York.

	(l)		“Subordinated Debt” means indebtedness incurred by each Grantor subordinated to all of its’ now or hereafter indebtedness to HSI (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to HSI entered into between each Grantor and the other creditor), on terms acceptable to HSI.

	(m)		“UCC” means UCC, as the same may, from time to time, be enacted and in effect in the State of New York; provided, that, to the extent that the UCC is used to define any term herein and such term is defined differently in different Articles of the UCC, the definition of such term contained in Article 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, HSI’s security interest on any Collateral is governed by the UCC in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the UCC 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. All terms defined in the UCC and used herein (whether or not capitalized) shall have the same definitions herein as specified therein.

Schedule II

REPRESENTATIONS AND WARRANTIES

Each Grantor hereby represents and warrants to HSI as follows:

	(a)		Each Grantor is (x) duly existing and in good standing, as a registered organization in its jurisdictions of organization and (y) qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified, except, in the case of clause (y) where the failure to do so could not reasonably be expected to have a material adverse effect on each Grantor’s business;

	(b)		Each Grantor’s exact legal name is that indicated on the signature page hereof;

(c)

Each Grantor is an organization of the type, and is organized in the jurisdiction set forth in the first paragraph of this Agreement;

(d)

Each Grantor’s organizational identification number is that indicated on the signature page hereof;

(e)

Each Grantor’s place of business as well as each Grantor’s mailing address is that indicated on the signature page hereof;

(f)

the execution, delivery and performance by each Grantor of this Agreement have been duly authorized, and does not (i) conflict with any of its’ organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which it 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 (including, without limitation, the MidCap Loan Agreement) by which it or any of its subsidiaries or their respective properties is bound;

(g)

Each Grantor is the owner of or has other rights in or power to transfer the Collateral, free from any right or claim or any person or any adverse lien, security interest or other encumbrance, except for the security interest created by this Agreement;

(h)

Each Grantor 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;

(i)

there are no actions or proceedings pending or, to the knowledge of each Grantor, threatened in writing by or against it or any of its subsidiaries involving more than One Hundred Thousand Dollars ($100,000.00), other than what has been disclosed in all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;

(j)

after giving effect to the transactions contemplated in the Distribution Agreement (i) the fair salable value of each Grantor’s assets (including, without limitation, goodwill minus disposition costs) exceeds the fair value of its liabilities, (ii) each Grantor is not left with unreasonably small capital, and (iii) each Grantor is able to pay its debts (including, without limitation, trade debts) as they mature;

(k)

Each Grantor is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended;

(l)

Each Grantor 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);

(m)

Each Grantor 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; and

(n)

Each Grantor has timely filed all required tax returns and reports, and Grantor and its subsidiaries have timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by it. Each Grantor may defer payment of any contested taxes, provided that it (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies HSI 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.

(o)

The February Obligations amount to $2,461,908 and the March Obligations amount to $3,540,842, in each case, as of the date first written above.

Schedule III

COVENANTS

Each Grantor covenants with HSI to:

(a)

Government Compliance.

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 its business or operations.

ii.

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 its business.

iii.

Obtain and keep in full force and effect, all of the Governmental Approvals necessary for the performance by it of its obligations under this Agreement and the Distribution Agreement and the grant of a security interest to HSI, in all of the Collateral.

iv.

Promptly provide copies of any such obtained Governmental Approvals to HSI.

(b)

Financial Statements, Reports, Certificates.

Deliver to HSI: (i) as soon as available, but no later than one hundred twenty (120) days after the last day of its 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 its independent certified public accounting firm, (ii) 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 Biolase’s or another website on the Internet and (iii) promptly upon receipt thereof, it shall deliver to HSI any default notice or notice of enforcement action received pursuant to any agreement evidencing Indebtedness in excess of $100,000.

ii.

Give prompt written notice to HSI of any litigation or governmental proceedings pending or threatened (in writing) against it which would reasonably be expected to have a material adverse effect with respect to its business.

iii.

Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within three (3) Business Days) upon it 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, it shall give written notice to HSI 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.

(c)

Insurance.

Maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with general practices of businesses engaged in similar activities in similar geographic areas. Such insurance shall be in such minimum amounts that each Grantor will not be deemed a co-insurer under applicable insurance laws, regulations and policies and otherwise shall be in such amounts, contain such terms, be in such forms and be for such periods as may be reasonably satisfactory to HSI. In addition, all such insurance shall be payable to HSI as loss payee.

ii.

All policies of insurance shall provide for at least 30 days prior written cancellation notice to HSI. In the event of failure by each Grantor to provide and maintain insurance as herein provided, HSI may, at its option, provide such insurance and charge the amount thereof to it. Each Grantor shall furnish HSI with certificates of insurance and policies evidencing compliance with the foregoing insurance provision.

	(d)		Dispositions. Not 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.

	(e)		Changes in Business, Management, Ownership, or Business Locations. (a) Not engage in or permit any of its subsidiaries to engage in any business other than the businesses currently engaged in by each Grantor and such Subsidiary, as applicable, or reasonably related thereto; (b) not liquidate or dissolve; or (c) not permit or suffer any Change in Control. “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 such Grantor, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of such Grantor, representing twenty-five percent (25%) or more of the combined voting power of such Grantor’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 such Grantor (together with any new directors whose election by the Board of Directors of such Grantor 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.

(f)

Indebtedness. Not create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

(g)

Encumbrance. Not create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including, without limitation, the sale of any accounts, or permit any of its subsidiaries to do so, except for Permitted Liens, or enter into any agreement, document, instrument or other arrangement (except with or in favor of HSI) with any Person which directly or indirectly prohibits or has the effect of prohibiting each Grantor or any subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of each Grantor’s or any subsidiary’s Collateral, except as is otherwise permitted in clause (d) above and the definition of “Permitted Liens”.

(h)

Subordinated Debt. Not (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 HSI.

(i)

Compliance. Not become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended and not 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 Obligations for that purpose.

(j)

Use of Proceeds. Use the prepaid advances for general working capital purposes, but in no event to repay any Indebtedness described in clauses (a), (b) or (f) of the definition thereof.

Schedule IV

EVENTS OF DEFAULT

The following shall constitute Events of Default:

(a)

Delivery/Payment Default. Biolase fails to deliver Products in accordance with the Distribution Agreement (including, without limitation, under the $9.0M Purchase Order or the Consumables Purchase Order) or pay cash in lieu thereof in amounts required under the Distribution Agreement, after giving effect to the applicable cure period set forth in Section 4.4(iv) of the Distribution Agreement;

(b)

Termination of Distribution Agreement. The Distribution Agreement shall terminate or cease to be in effect for any reason prior to the full and indefeasible satisfaction of all obligations under the $9.0M Purchase Order and all other prepaid advances thereunder (or purchase orders related thereto).

(c)

Covenant Default. Each Grantor 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 the Distribution Agreement, as applicable, and as to any default (other than those specified in clause (a) above) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within thirty (30) days after the occurrence thereof (provided that this cure period shall not be applicable to any provision of the Distribution Agreement that already has a cure period);

(d)

Insolvency. (a) AGrantor is unable to pay its debts (including, without limitation, trade debts) as they become due or otherwise becomes insolvent; (b) A Grantor begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against a Grantor and not dismissed or stayed within sixty (60) days;

(e)

Other Agreements. There is a default in the MidCap Loan Agreement or any agreement to which a Grantor is a party with a third party or parties and, as a result thereof, the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) under any such agreement is accelerated, or any enforcement action with respect to such Indebtedness, or any assets securing such Indebtedness, is taken by any such third party;

(f)

Judgments. One or more unappealable judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred and Fifty Thousand Dollars ($250,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against a Grantor and shall remain unsatisfied, unvacated, or unstayed for a period of thirty (30) days after the entry thereof;

(g)

Misrepresentations. A Grantor makes any representation or warranty in this Agreement, and such representation or warranty is incorrect in any material respect when made; and

(h)

Lien Priority. Except as permitted by HSI, any Lien created hereunder shall at any time fail to constitute a valid Senior Priority perfected Lien on all of the Collateral purported to be secured hereunder.

Schedule V

EXISTING INDEBTEDNESS

EX-10.7 8 c07638exv10w7.htm EXHIBIT 10.7 Exhibit 10.7

Exhibit 10.7

WAIVER AND AMENDMENT NO. 1 TO LOAN AND
SECURITY AGREEEMNT

This Waiver and Amendment No. 1 to Loan and Security Agreement (this “Amendment”) is entered into as of September 23, 2010 by and among MIDCAP FUNDING III, LLC, a Delaware limited liability company (as successor to MidCap Financial, LLC), with an office located at 7735 Old Georgetown Road, Suite 400, Bethesda, Maryland 20814 (“MidCap”), as collateral agent (“Agent”), and as a “Lender”, SILICON VALLEY BANK, a California corporation and with a loan production office located at 5820 Canoga Avenue, Suite 210, Woodland Hills, California 91367 (“SVB”), as a “Lender” (MidCap and SVB in their capacities as “Lenders” are referred to herein each as a “Lender” and collectively as the “Lenders”), and BIOLASE TECHNOLOGY, INC., a Delaware corporation (“Borrower”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Lender, Borrower is indebted to Lender pursuant to a certain loan arrangement, evidenced by, among other documents, instruments and agreements, the following (collectively, together with all other documents, instruments and agreements evidencing or securing the Obligations, the “Loan Documents”): (i) the Loan and Security Agreement dated as of May 27, 2010 by and among Agent, the Lenders and Borrower (the “Loan Agreement”); (ii) the Secured Promissory Note in the original principal amount of $2,100,000 dated May 27, 2010 made by Borrower payable to MidCap; (iii) the Secured Promissory Note in the original principal amount of $900,000 dated May 27, 2010 made by Borrower payable to SVB; (iv) the Intellectual Property Security Agreement dated as of May 27, 2010 by and among Borrower, Agent and the Lenders (the “Intellectual Property Security Agreement”); (v) the Unconditional Guaranty dated as of May 27, 2010 made by BL ACQUISITION CORP., a Delaware corporation (“BL Acquisition”) and BL ACQUISITION II, INC., a Delaware corporation (“BL Acquisition II” and individually and collectively, jointly and severally with BL Acquisition, the “Guarantor”) in favor of Agent and the Lenders; and (vi) the Security Agreement dated as of May 27, 2010 made by the Guarantor in favor of Agent and the Lenders (the “Security Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

Reference is also made to the Forbearance Agreement, dated as of August 16, 2010, by and among Agent, the Lenders and Borrower (the “Forbearance Agreement”). Pursuant to the terms of the Forbearance Agreement, the Lenders have agreed to forbear during the Forbearance Period (as defined in the Forbearance Agreement), and have so forbeared to and including the date hereof, from exercising its rights and remedies in respect of the Events of Default arising due to Borrower’s failure to comply with the financial covenant contained in Section 6.11(a) of the Loan Agreement on the Testing Date occurring on July 1, 2010 (the “July Event of Default”). In addition, Borrower has informed Agent and the Lenders that Borrower does not expect to comply with the financial covenant contained in Section 6.11(a) of the Loan Agreement on the Testing Date occurring on October 1, 2010 (the “October Event of Default” and collectively with the July Event of Default, the “Existing Defaults”) .

2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement, the Intellectual Property Security Agreement and the Security Agreement.

3. DESCRIPTION OF CHANGE IN TERMS.

A. Modifications to Loan Agreement.

1. The Loan Agreement shall be amended by deleting the following, appearing as Section 2.2(b) thereof:

“(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).”

and inserting in lieu thereof the following:

“(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 (provided that for the Payment Dates occurring on April 1, 2011 through and including December 1, 2011, the aggregate principal amortization of Term A Loan shall be $125,000 per month and allocated to each Lender in accordance with its respective Pro Rata Share). 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).”

2. The Loan Agreement shall be amended by adding the following sentence at the end of Section 2.2(d) thereof:

“Notwithstanding the foregoing, Borrower shall be permitted to optionally prepay all or any portion of the Term A Loans on or before March 31, 2011, provided Borrower (i) provides written notice to Agent of its election to prepay the Term A Loans at least five (5) 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) the principal amount of the Term A Loans being prepaid, plus accrued interest thereon, (B) the Final Payment in respect of the principal amount of the Term A Loans being prepaid, and (C) all other sums that shall have become due and payable, including Lenders’ Expenses (but not including any Prepayment Fee in respect of the principal amount of the Term A Loans being prepaid). The provisions of the foregoing sentence shall not apply to any prepayment of the Term A Loans upon the acceleration of the Term A Loans.”

3. The Loan Agreement shall be amended by adding the following new clauses (f) and (g) to Section 6.2 thereof:

“(f) Deliver to Agent and the Lenders on the first Business Day of each week, (i) a prospective cash flow forecast for the thirteen (13) week period commencing on such day and (ii) a report detailing the unit sales performance of Borrower and its Subsidiaries in the week preceding such day.

(g) Deliver to Agent and the Lenders on or before December 31 of each year, annual sales projections on a month-by-month basis for the succeeding calendar year (the “Annual Projections”).”

4. The Loan Agreement shall be amended by adding the following new section, appearing as Section 6.15 thereof:

“6.15 Subsequent Financing Event. Borrower shall close the Required Equity Financing on or before March 31, 2011. Borrower shall remit to Agent all proceeds of each Subsequent Equity Event for application to the repayment of the Term A Loans in accordance with Section 2.2(d) immediately upon receipt of such proceeds by Borrower. In addition, in the event the (i) the Required Equity Financing does not close on or before March 31, 2011 or (ii) the Required Equity Financing closes on or before March 31, 2011 and results in the receipt by Borrower of aggregate net cash proceeds of less than $5,000,000, on or before April 5, 2011, Borrower shall issue, execute and deliver to each Lender additional stock purchase warrants (the “Additional Warrants”), in substantially the same form as the stock purchase warrants issued by Borrower to the Lenders of the Effective Date (the “Existing Warrants”). The Additional Warrants shall have terms and conditions substantially identical to the Existing Warrants and shall have a term of five (5) years from date of issuance, representing in the aggregate (such aggregate to be allocated among the Lenders proportionally in the same proportions as the Existing Warrants) the right to purchase such number of shares of Borrower’s common stock (calculated as of the business day immediately prior to the date of issuance) as shall equal to the Applicable Percentage (as defined below) of Borrower’s then-total issued and outstanding common stock determined on a fully-diluted, as-exercised, as-converted basis, at an exercise price per share equal to the lowest closing price per share of Borrower’s common stock reported on the NASDAQ Capital Market reported for the twenty (20) trading days immediately preceding the date of issuance. “Applicable Percentage” shall mean (i) two and one-half percent (2.50%) if the Required Equity Financing does not close on or before March 31, 2011 or (ii) one and one-half percent (1.50%) if the Required Equity Financing closes on or before March 31, 2011 and results in the receipt by Borrower of aggregate net cash proceeds equal to or greater than $3,000,000 but less than $5,000,000.”

5. The Loan Agreement shall be amended by deleting the “.” at the end of Section 8.13 and replacing it with “;” and adding the following new section, appearing as Section 8.14 thereof:

“8.14 Monthly Unit Sales. Commencing with the month ending October 31, 2010 and continuing on the last day of each month thereafter, Borrower shall fail to achieve monthly unit sales for any two consecutive months (tested as of the last day of each month) of at least 80% of the unit sales projected for such months (i) with respect to October, November and December, 2010, as set forth in Borrower’s business plan attached hereto as Exhibit E and (ii) thereafter, as set forth in Borrower’s Annual Projections as approved by Agent and the Lenders.”

6. The Loan Agreement shall be amended by deleting the following, appearing as Section 8.2(a) thereof:

“(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”

and inserting in lieu thereof the following:

“(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, 6.11, 6.15 or 6.16 or violates any covenant in Section 7; or”

7. The Loan Agreement shall be amended by deleting the following, appearing as Section 8.12 thereof:

and inserting in lieu thereof the following:

“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 (other than Liens in favor of Henry Schein, Inc. provided that such Liens (i) secure only the obligations of Borrower pursuant to the Schein Distribution Agreement as in effect on the Loan Modification Agreement and (ii) are subject to an Intercreditor Agreement, by and among Agent, the Lenders and Henry Schein, Inc. in form and substance acceptable to Agent and the Lenders); or”

8. The Loan Agreement shall be amended by deleting the following definitions appearing in Section 13.1 thereof:

““Amortization Date” is December 1, 2010.

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

“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.”

and inserting in lieu thereof the following:

““Amortization Date” is October 1, 2010.

“Payment Date” is the first calendar day of each calendar month; provided that the Payment Date in each month during the period commencing on October 1, 2010 through and including March 1, 2011 shall be the 10^th calendar day of the month.

“Permitted Liens” are:

(a) Liens arising under this Agreement and the other Loan Documents;

(e) Liens in favor of Henry Schein, Inc. granted pursuant to that certain Amended and Restated Security Agreement dated as of September _____, 2010 by and between Borrower and Henry Schein, Inc. provided that such Liens (i) secure only the obligations of Borrower pursuant to the Schein Distribution Agreement as in effect on the Loan Modification Agreement and (ii) are subject to an Intercreditor Agreement, by and among Agent, the Lenders and Henry Schein, Inc. in form and substance acceptable to Agent and the Lenders.”

9. The Loan Agreement shall be further amended by adding the following, definitions in Section 13.1 thereof in alphabetical order:

“Loan Modification Date” means September _____, 2010.”

“Required Equity Financing” means the receipt by Borrower, on or after the Loan Modification Date, of aggregate net cash proceeds of not less than $3,000,000 from one or more Subsequent Equity Events and application of 100% such net proceeds to the prepayment of the Term A Loans in accordance with Section 2.2(d).”

“Schein Distribution Agreement” means the Distribution and Supply Agreement dated as of September _____, 2010 by and between Borrower and Henry Schein, Inc.

“Schein Security Agreement” means the Amended and Restated Security Agreement dated as of September _____, 2010 by and between Borrower and Henry Schein, Inc.

“Subsequent Equity Event” means the receipt by Borrower, on or after the Loan Modification Date, of net cash proceeds from an equity or subordinated convertible debt financing and/or licensing or joint venture or corporate collaboration transaction.”

4. WAIVER. Borrower acknowledges the Existing Defaults. In consideration of and in reliance upon the representations, warranties and covenants of Borrower herein and in the Loan Documents, the Lenders hereby waive the Existing Defaults under the Loan Agreement. The Lenders’ agreement to waive the Existing Defaults as set forth in this Amendment in no way shall obligate the Lenders to waive or forbear in the future or otherwise make any future modifications to the Loan Documents or the Obligations.

5. REPRESENTATION AND WARRANTIES. To induce Agent and the Lenders to enter into this Amendment, Borrower hereby represents and warrants to Agent and the Lenders as follows: immediately after giving effect to the waiver in Section 4 of this Amendment (a) the representations and warranties of Borrower contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing and (b) Borrower has the power and authority to execute and deliver this Amendment. Borrower understands and agrees that in entering into this Amendment, Agent and the Lenders is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Loan Documents and herein.

6. CONSISTENT CHANGES. The Loan Documents are hereby amended wherever necessary to reflect the changes described above.

7. RATIFICATION OF LOAN DOCUMENTS; ACKNOWLEDGEMENT OF OBLIGATIONS. Borrower hereby (a) ratifies, confirms, and reaffirms each of the terms and conditions of the Loan Documents, (b) acknowledges and agrees that except as previously amended in writing and as specifically modified by this Amendment, all terms and conditions of the Loan Documents shall remain in full force and effect, and (c) ratifies, confirms and reaffirms all terms and conditions of all security or other collateral granted to Agent and the Lenders, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations. Nothing in this Amendment shall constitute a satisfaction of the Obligations. It is the intention of Agent, the Lenders and Borrower to retain as liable parties all makers of Loan Documents, unless the party is expressly released by Agent and the Lenders in writing. No maker will be released by virtue of this Amendment. Borrower acknowledges and agrees that the Term B Loan Draw Period never commenced and that the Lenders have no obligation to make any Term B Loan available to Borrower.

8. NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Agent or any Lender with respect to the Loan Documents, the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Agent or any Lender, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Agent and each Lender from any liability thereunder.

9. WAIVER OF JURY TRIAL. Borrower hereby makes the following waiver knowingly, voluntarily, and intentionally, and understand that Agent and the Lenders, in entering into this Amendment, are expressly relying on such waiver: BORROWER HEREBY IRREVOCABLY WAIVES ANY PRESENT OR FUTURE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH BORROWER, ANY GUARANTOR, AGENT, OR ANY LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST LENDER OR IN WHICH LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN RESPECT OF, ANY RELATIONSHIP AMONG BORROWER, ANY GUARANTOR, AGENT AND ANY LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR AGENT AND THE LENDERS TO ENTER INTO THIS AMENDMENT.

10. FEES AND EXPENSES. In consideration of the execution and delivery by the Lenders of this Amendment, Borrower shall pay the Lenders an amendment fee of $60,000 to be paid to the Lenders in accordance with their respective Pro Rata Shares, which amendment fee is due and payable on the earliest to occur of (i) prepayment in full of the Term A Loan under Section 2.2(d) of the Loan Agreement, (ii) the acceleration of Term A Loan or (iii) the Maturity Date. In addition, Borrower shall reimburse Agent and the Lenders on demand for any and all unreimbursed costs, expenses, and costs of collection (including reasonable attorneys’ fees and expenses) heretofore and hereafter incurred by Agent or any Lender in connection with the protection, preservation, and enforcement by Agent or any Lender of Agent’s or any Lender’s rights and remedies under the Loan Documents, including, without limitation, the negotiation and preparation of this Amendment.

11. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only upon (i) execution and delivery by Borrower and Henry Schein, Inc. of the Schein Distribution Agreement and the Schein Security Agreement on or before the Loan Modification Date, (ii) receipt by Agent and the Lenders of a fully executed Intercreditor Agreement with Henry Schein, Inc. in form and substance acceptable to Agent and the Lenders, (iii) receipt by Agent and the Lenders of evidence satisfactory to Agent and the Lenders that Borrower has received net cash proceeds of not less than $3,000,000 from Henry Schein, Inc. in connection with the execution and delivery of the Schein Distribution Agreement, (iv) receipt by the Lenders of amendments to their respective Warrants in form and substance acceptable to the Lenders, and (v) execution of this Amendment by Agent, the Lenders and Borrower. It is the intention of the parties hereto that this Amendment may be executed in any number of counterparts (including by facsimile or e-mail transmission of an adobe file format document (also known as a PDF file)), and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.

[The remainder of this page is intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the Loan Modification Date.


BORROWER: BIOLASE TECHNOLOGY, INC.
By:	/s/ Federico Pignatelli
	Name:	Federico Pignatelli
	Title:	Chairman and interim Chief Executive Officer


AGENT: MIDCAP FUNDING III, LLC, as Agent
By:	/s/ Luis Viera
	Name:	Luis Viera
	Title:	Managing Director


LENDERS: MIDCAP FUNDING III, LLC, as a Lender
By:	/s/ Luis Viera
	Name:	Luis Viera
	Title:	Managing Director


SILICON VALLEY BANK, as a Lender
By:	/s/ Marla Johnson
	Name:	Marla Johnson
	Title:	Senior Advisor

ASSENT BY GUARANTOR:

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned Guarantor: (i) hereby acknowledges and assents to the terms and conditions of the foregoing Amendment; (ii) as and to the extent specified in the foregoing Amendment, hereby joins with the Borrower in making the representations, warranties, covenants, and agreements specified therein as being applicable to the Guarantor by its assent hereunder; (iii) hereby represents and warrants to the Lenders that the execution and delivery of its assent hereunder and of the instruments, documents, and agreements required by the Guarantor under the Amendment and contemplated thereby have been determined by the Guarantor: (x) to be in the best corporate interest of the Guarantor, (y) to constitute the reasonably equivalent value with respect to the benefit derived by the Guarantor therefrom, and (z) to be the free and voluntary act of the Guarantor for such valid consideration; and (iv) hereby submits to the jurisdiction of all federal and state courts situated in the State of Maryland with respect to all matters relating in any way to this Amendment and/or the other Loan Documents.


GUARANTORS: BL ACQUISITION CORP.
By:	/s/ Federico Pignatelli
	Name:	Federico Pignatelli
	Title:	Chief Executive Officer


BL ACQUISITION II, INC.
By:	/s/ Federico Pignatelli
	Name:	Federico Pignatelli
	Title:	Chief Executive Officer

EX-10.8 9 c07638exv10w8.htm EXHIBIT 10.8 Exhibit 10.8

Exhibit 10.8

AMENDMENT NO. 1 TO WARRANT TO PURCHASE STOCK

THIS AMENDMENT NO. 1 TO WARRANT TO PURCHASE STOCK is made as of September 23, 2010 by and between Midcap Financial, LLC (“Holder”) and Biolase Technology, Inc., a Delaware corporation (the “Company”).

WHEREAS, Holder is the holder of that certain Warrant to Purchase Stock dated as of May 27, 2010 issued by the Company to Holder (the “Warrant”); and

WHEREAS, in connection with that certain Waiver and First Loan Modification Agreement, of even date herewith, to that certain Loan and Security Agreement dated May 27, 2010, among Midcap Financial, LLC, Silicon Valley Bank and the Company, the parties hereto desire to amend the Warrant in the manner set forth below;

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Warrant Amendment. The Warrant is hereby amended so that from and after the date hereof, the Initial Shares Warrant Price and the Additional Shares Warrant Price (each as defined in the Warrant, and referred to therein sometimes as the “Warrant Price”) shall be $0.84, subject to further adjustment hereafter from time to time in accordance with the provisions of the Warrant.

2. No Other Amendments. Except as amended hereby, the Warrant shall remain in full force and effect as originally written.

3. Governing Law. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflict of laws provisions.

[Remainder of page left blank intentionally]

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Warrant to Purchase Stock as of the date first above written.


BIOLASE TECHNOLOGY, INC.
By:	/s/ Federico Pignatelli
	Name:	Federico Pignatelli
	Title:	Chairman and interim Chief Executive Officer


MIDCAP FINANCIAL, LLC
By:	/s/ Luis Viera
	Name:	Luis Viera
	Title:	Managing Director

EX-10.9 10 c07638exv10w9.htm EXHIBIT 10.9 Exhibit 10.9

Exhibit 10.9

AMENDMENT NO. 1 TO WARRANT TO PURCHASE STOCK

THIS AMENDMENT NO. 1 TO WARRANT TO PURCHASE STOCK is made as of September 23, 2010 by and between SVB Financial Group (“Holder”) and Biolase Technology, Inc., a Delaware corporation (the “Company”).

WHEREAS, Holder is the holder, by assignment from Silicon Valley Bank (“Bank”), of that certain Warrant to Purchase Stock dated as of May 27, 2010 issued by the Company to Bank (the “Warrant”); and

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

2. No Other Amendments. Except as amended hereby, the Warrant shall remain in full force and effect as originally written.

3. Governing Law. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflict of laws provisions.

[Remainder of page left blank intentionally]

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Warrant to Purchase Stock as of the date first above written.


BIOLASE TECHNOLOGY, INC.
By:	/s/ Federico Pignatelli
	Name:	Federico Pignatelli
	Title:	Chairman and interim Chief Executive Officer


SVB FINANCIAL GROUP
By:	/s/ Marla Johnson
	Name:	Marla Johnson
	Title:	Senior Advisor

EX-31.1 11 c07638exv31w1.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, Federico Pignatelli, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 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.


Dated: November 3, 2010	By:	/s/ FEDERICO PIGNATELLI
		Federico Pignatelli
		Chairman and Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer)

EX-32.1 12 c07638exv32w1.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, Federico Pignatelli, Chairman and Chief Executive Officer 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 September 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: November 3, 2010	/s/ FEDERICO PIGNATELLI
	Federico Pignatelli
	Chairman and Chief Executive Officer (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.

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