UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY | REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012
OR
¨ 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, INC.
(Exact name of registrant as specified in its charter)
Delaware | 87-0442441 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4 Cromwell
Irvine, California 92618
(Address of principal executive offices, including zip code)
(949) 361-1200
(Registrants 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 x No ¨
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 x No ¨
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 | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | 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 ¨ No x
The number of shares of the issuers common stock, $0.001 par value per share, outstanding as of August 3, 2012 was 31,084,982 shares.
BIOLASE, INC.
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PART I. | FINANCIAL INFORMATION | |||||
Item 1. | ||||||
Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 |
3 | |||||
4 | ||||||
Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and June 30, 2011 |
5 | |||||
6 | ||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
17 | ||||
Item 3. | 26 | |||||
Item 4. | 26 | |||||
PART II. | ||||||
Item 1. | 26 | |||||
Item 1A. | 26 | |||||
Item 2. | 27 | |||||
Item 3. | 27 | |||||
Item 4. | 27 | |||||
Item 5. | 27 | |||||
Item 6. | 28 | |||||
Signatures | 30 |
2
ITEM 1. | FINANCIAL STATEMENTS |
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except per share data)
June 30, 2012 | December 31, 2011 | |||||||
ASSETS | ||||||||
Current assets: |
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Cash and cash equivalents |
$ | 1,607 | $ | 3,307 | ||||
Restricted cash |
106 | | ||||||
Accounts receivable, less allowance of $604 and $289 in 2012 and 2011, respectively |
9,576 | 8,899 | ||||||
Inventory, net |
10,700 | 11,312 | ||||||
Prepaid expenses and other current assets |
1,300 | 1,808 | ||||||
Assets held for sale |
138 | | ||||||
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Total current assets |
23,427 | 25,326 | ||||||
Property, plant and equipment, net |
1,325 | 1,148 | ||||||
Intangible assets, net |
147 | 212 | ||||||
Goodwill |
2,926 | 2,926 | ||||||
Deferred tax asset |
8 | 8 | ||||||
Other assets |
380 | 187 | ||||||
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Total assets |
$ | 28,213 | $ | 29,807 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
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Lines of credit |
$ | 1,935 | $ | | ||||
Accounts payable |
6,859 | 7,804 | ||||||
Accrued liabilities |
5,201 | 6,177 | ||||||
Customer deposits |
172 | 165 | ||||||
Deferred revenue, current portion |
2,665 | 2,136 | ||||||
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Total current liabilities |
16,832 | 16,282 | ||||||
Deferred tax liabilities |
630 | 594 | ||||||
Deferred revenue, long-term |
11 | 25 | ||||||
Other liabilities, long-term |
139 | 337 | ||||||
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Total liabilities |
17,612 | 17,238 | ||||||
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Commitments and contingencies (Notes 8 and 9) |
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Stockholders equity (deficit): |
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Preferred stock, par value $0.001, 1,000 shares authorized, no shares issued and outstanding |
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Common stock, par value $0.001, 50,000 shares authorized; 33,026 and 32,502 shares issued and 31,063 and 30,538 shares outstanding in 2012 and 2011, respectively |
33 | 33 | ||||||
Additional paid-in capital |
140,140 | 138,507 | ||||||
Accumulated other comprehensive loss |
(412 | ) | (360 | ) | ||||
Accumulated deficit |
(112,761 | ) | (109,212 | ) | ||||
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27,000 | 28,968 | |||||||
Treasury stock (cost of 1,964 shares repurchased) |
(16,399 | ) | (16,399 | ) | ||||
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Total stockholders equity |
10,601 | 12,569 | ||||||
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Total liabilities and stockholders equity |
$ | 28,213 | $ | 29,807 | ||||
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See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
(in thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Products and services revenue |
$ | 13,266 | $ | 11,689 | $ | 25,578 | $ | 22,235 | ||||||||
Non-recurring event (Note 13) |
(1,141 | ) | | (1,141 | ) | | ||||||||||
License fees and royalty revenue |
50 | 390 | 58 | 405 | ||||||||||||
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Net revenue |
12,175 | 12,079 | 24,495 | 22,640 | ||||||||||||
Cost of revenue |
7,816 | 6,466 | 14,329 | 12,188 | ||||||||||||
Non-recurring event (Note 13) |
(1,141 | ) | | (1,141 | ) | | ||||||||||
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Net cost of revenue |
6,675 | 6,466 | 13,188 | 12,188 | ||||||||||||
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Gross profit |
5,500 | 5,613 | 11,307 | 10,452 | ||||||||||||
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Operating expenses: |
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Sales and marketing |
3,720 | 3,010 | 7,748 | 5,463 | ||||||||||||
General and administrative |
2,221 | 2,227 | 4,432 | 3,926 | ||||||||||||
Engineering and development |
1,272 | 1,093 | 2,462 | 2,186 | ||||||||||||
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Total operating expenses |
7,213 | 6,330 | 14,642 | 11,575 | ||||||||||||
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Loss from operations |
(1,713 | ) | (717 | ) | (3,335 | ) | (1,123 | ) | ||||||||
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Loss on foreign currency transactions |
(92 | ) | (16 | ) | (109 | ) | (54 | ) | ||||||||
Interest expense |
(38 | ) | (6 | ) | (42 | ) | (304 | ) | ||||||||
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Non-operating loss, net |
(130 | ) | (22 | ) | (151 | ) | (358 | ) | ||||||||
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Loss before income tax provision |
(1,843 | ) | (739 | ) | (3,486 | ) | (1,481 | ) | ||||||||
Income tax provision |
34 | 14 | 63 | 22 | ||||||||||||
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Net loss |
(1,877 | ) | (753 | ) | (3,549 | ) | (1,503 | ) | ||||||||
Other comprehensive income (loss) items: |
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Foreign currency translation adjustments |
(115 | ) | 47 | (52 | ) | 161 | ||||||||||
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Comprehensive loss |
$ | (1,992 | ) | $ | (706 | ) | $ | (3,601 | ) | $ | (1,342 | ) | ||||
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Net loss per share: |
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Basic |
$ | (0.06 | ) | $ | (0.03 | ) | $ | (0.11 | ) | $ | (0.05 | ) | ||||
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Diluted |
$ | (0.06 | ) | $ | (0.03 | ) | $ | (0.11 | ) | $ | (0.05 | ) | ||||
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Shares used in the calculation of net loss per share: |
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Basic |
31,028 | 29,024 | 30,954 | 28,267 | ||||||||||||
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Diluted |
31,028 | 29,024 | 30,954 | 28,267 | ||||||||||||
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See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Six Months
Ended June 30, |
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2012 | 2011 | |||||||
Cash Flows From Operating Activities: |
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Net loss |
$ | (3,549 | ) | $ | (1,503 | ) | ||
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: |
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Depreciation and amortization |
247 | 411 | ||||||
Loss on disposal of assets, net |
6 | 8 | ||||||
Provision for bad debts |
315 | 20 | ||||||
Provision for inventory excess and obsolescence |
| 118 | ||||||
Amortization of discount on lines of credit |
7 | | ||||||
Amortization of discount on term loan payable |
| 78 | ||||||
Amortization of debt issuance costs |
15 | 99 | ||||||
Stock-based compensation |
923 | 676 | ||||||
Other equity instruments compensation |
23 | 210 | ||||||
Other non-cash compensation |
124 | 124 | ||||||
Deferred income taxes |
| (2 | ) | |||||
Other |
10 | | ||||||
Changes in operating assets and liabilities: |
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Restricted cash |
(106 | ) | | |||||
Accounts receivable |
(992 | ) | (3,086 | ) | ||||
Inventory |
612 | (1,160 | ) | |||||
Prepaid expenses and other assets |
723 | 486 | ||||||
Customer deposits |
7 | (4,959 | ) | |||||
Accounts payable and accrued liabilities |
(2,154 | ) | 1,234 | |||||
Deferred revenue |
515 | 143 | ||||||
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Net cash and cash equivalents used in operating activities |
(3,274 | ) | (7,103 | ) | ||||
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Cash Flows From Investing Activities: |
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Additions to property, plant and equipment |
(457 | ) | (157 | ) | ||||
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Net cash and cash equivalents used in investing activities |
(457 | ) | (157 | ) | ||||
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Cash Flows From Financing Activities: |
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Borrowings under lines of credit |
2,350 | | ||||||
Repayments of lines of credit |
(415 | ) | | |||||
Payments under term loan payable |
| (2,700 | ) | |||||
Payment of debt issuance costs |
(295 | ) | | |||||
Proceeds from equity offering, net of expenses |
| 17,325 | ||||||
Proceeds from exercise of stock options and warrants |
428 | 964 | ||||||
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Net cash and cash equivalents provided by financing activities |
2,068 | 15,589 | ||||||
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Effect of exchange rate changes |
(37 | ) | 111 | |||||
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Change in cash and cash equivalents |
(1,700 | ) | 8,440 | |||||
Cash and cash equivalents, beginning of period |
3,307 | 1,694 | ||||||
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Cash and cash equivalents, end of period |
$ | 1,607 | $ | 10,134 | ||||
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Supplemental cash flow disclosure: |
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Cash paid during the period for: |
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Interest |
$ | 10 | $ | 79 | ||||
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Income taxes |
$ | 29 | $ | 8 | ||||
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See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1BASIS OF PRESENTATION
The Company
BIOLASE, Inc., (the Company) incorporated in Delaware in 1987, is a medical technology company operating in one business segment that develops, manufactures, and markets lasers, and also markets and distributes dental imaging equipment and other products designed to improve technologies for applications and procedures in dentistry and medicine.
Basis of Presentation
The unaudited consolidated financial statements include the accounts of the Company and its consolidated subsidiaries and have been prepared on a basis consistent with the December 31, 2011 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 (GAAP) for complete consolidated financial statements. Certain amounts have been reclassified to conform to current period presentations.
Use of Estimates
The preparation of these consolidated financial statements in conformity with GAAP requires the Company 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 ability of indefinite-lived intangible assets and goodwill to be realized, revenue deferrals for multiple element arrangements, effects of stock-based compensation and warrants, contingent liabilities 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.
Critical Accounting Policies
Information with respect to the Companys critical accounting policies which management believes could have the most significant effect on the Companys reported results and require subjective or complex judgments by management is contained on pages 41 to 43 in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of the Companys Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K). Management believes that there have been no significant changes during the six months ended June 30, 2012 in the Companys critical accounting policies from those disclosed in Item 7 of the Companys 2011 Form 10-K, except with regard to restricted cash as set forth below.
Restricted Cash
The Company maintains depository accounts controlled by Comerica Bank to be held for repayment of lines of credit and accrued interest expense or disbursement to the Companys operating bank account, pursuant to the terms of two revolving credit facility agreements with the bank. The Company has classified its restricted cash as a current asset commensurate with the related lines of credit included in current liabilities as of June 30, 2012. See Note 8 Lines of Credit and Other Borrowings for further discussion.
Fair Value of Financial Instruments
The Companys financial instruments, consisting of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and other accrued expenses, approximate fair value because of the short maturity of these items. Financial instruments consisting of lines of credit approximate fair value, as the interest rates associated with the lines of credit approximates the market rates for debt securities with similar terms and risk characteristics.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or, if none exists, the most advantageous market, for the specific asset or liability at the measurement date (referred to as the exit price). The fair value should be based on assumptions that market participants would use, including a consideration of nonperformance risk. Level 1 measurement of fair value is quoted prices in active markets for identical assets or liabilities.
6
Money market securities. Money market securities are cash equivalents, which are included in cash and cash equivalents, and consist of highly liquid investments with original maturities of three months or less. Management uses quoted active market prices for identical assets to measure fair value. The Company had money market securities of approximately $446,000 and $0 at June 30, 2012 and December 31, 2011, respectively.
Liquidity and Managements Plans
The Company has suffered recurring losses from operations during the three years ended December 31, 2011. Although the Companys revenues increased for the three and six months ended June 30, 2012, compared to the corresponding periods in 2011, the Company incurred a loss from operations and a net loss during this period.
At June 30, 2012, the Company had approximately $6.6 million in working capital. The Companys principal sources of liquidity at June 30, 2012 consisted of approximately $1.6 million in cash and cash equivalents, $0.1 million in restricted cash, $9.6 million of net accounts receivable, and $5.6 million of available borrowings under two revolving credit facility agreements.
On May 24, 2012, the Company entered into two revolving credit facility agreements with Comerica Bank which provide for borrowings of up to $8.0 million. The Company had approximately $1.9 million of borrowings outstanding under these lines of credit as of June 30, 2012. See Note 8 Lines of Credit and Other Borrowings for additional information.
The Companys ability to meet its obligations in the ordinary course of business is dependent upon its ability to sell its products directly to end-users and through distributors, establish profitable operations through increased sales and decreased expenses, and obtain additional funds when needed. Management intends to increase sales by increasing the Companys product offerings, expanding its direct sales force, and expanding its distributor relationships both domestically and internationally.
There can be no assurance that the Company will be able to increase sales, reduce expenses, or obtain additional financing, if necessary, at a level to meet its current obligations. As a result, the report of the Companys independent registered public accounting firm on its consolidated financial statements for the year ended December 31, 2011 contained an explanatory paragraph stating that there is a substantial doubt regarding the Companys ability to continue as a going concern.
The accompanying consolidated 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 consolidated 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 the Company be unable to continue as a going concern.
From time to time, the Company may attempt to raise capital through either equity or debt offerings. The Companys capital requirements will depend on many factors, including, among other things, the effects of any acquisitions it may pursue as well as the rate at which its business grows, with corresponding demands for working capital and manufacturing capacity. The Company 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 the Company or at all, or that any such financing activity would not be dilutive to its stockholders. Without additional funds and/or increased revenues, the Company may not have enough cash or financial resources to operate for the next twelve months.
On February 22, 2012, the Company entered into a definitive termination agreement (the 2012 Termination Agreement) with Henry Schein, Inc. (HSIC), a leading U.S. dental product and equipment distributor and the Companys former exclusive distributor in North America. The 2012 Termination Agreement, which was completed on April 12, 2012, terminated and superseded all prior agreements with HSIC. Pursuant to the 2012 Termination Agreement, the Company purchased HSICs inventory of Waterlase MD Turbo laser systems and HSIC released its liens on the Companys assets. The Company paid the entire purchase price by offsetting accounts receivable currently due from HSIC from sales made in the normal course of business. None of the funds used to offset the purchase price were related to the original sales of the MD Turbo laser systems that were purchased. See Note 13 Non-recurring Event for further discussion.
7
NOTE 2RECENT ACCOUNTING PRONOUNCEMENTS
Changes to GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASBs Accounting Standards Codification (ASC).
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to not be applicable or are expected to have minimal impact on the Companys consolidated financial position and results of operations.
Newly Adopted Accounting Standards
In September 2011, the FASB issued guidance for the impairment testing of goodwill. The guidance permits an entity to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this guidance effective January 1, 2012. The adoption did not have a material impact on the Companys consolidated financial statements.
In June 2011, the FASB updated the accounting guidance relating to presentation of comprehensive income. This guidance requires companies to present total comprehensive income, the components of net income, and the components of other comprehensive income (OCI) either in a single continuous statement of comprehensive income or in two, but consecutive, statements. Additionally, companies are required to present on the face of the consolidated financial statements the reclassification adjustments that are reclassified from OCI to net income, where the components of net income and the components of OCI are presented. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2011, and requires retrospective application to all periods presented. The Company adopted this guidance effective January 1, 2012 and elected to present a single continuous statement of comprehensive loss. The adoption did not have a material impact on the Companys consolidated financial statements.
New Accounting Standards Not Yet Adopted
On July 27, 2012, the FASB issued IntangiblesGoodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The guidance provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under GAAP. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. Management believes that the adoption will not have a material impact on the Companys consolidated financial statements.
NOTE 3STOCK-BASED AWARDS AND PER SHARE INFORMATION
Stock-Based Compensation
The Company currently has one stock-based compensation plan, the 2002 Stock Incentive Plan (the 2002 Plan). Eligible persons under the 2002 Plan include certain officers and employees of the Company and directors of the Company. Under the 2002 Plan, 6,950,000 shares of common stock have been authorized for issuance. As of June 30, 2012, 2,498,000 shares of common stock have been issued pursuant to options that were exercised, 3,809,000 shares of common stock have been reserved for options that are outstanding, and 643,000 shares of common stock remain available for future grant.
Compensation cost related to stock options recognized in operating results during the three months ended June 30, 2012 and 2011 was $340,000 and $456,000, respectively. The net impact to earnings for those periods was $(0.01) and $(0.02) per basic and diluted share, respectively. Compensation cost related to stock options recognized in operating results during the six months ended June 30, 2012 and 2011, was $923,000 and $676,000, respectively. The net impact to earnings for those periods was $(0.03) and $(0.02) per basic and diluted share, respectively. At June 30, 2012, the Company had $2.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under the Companys existing plans. The Company expects that cost to be recognized over a weighted-average period of 1.3 years.
8
The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Cost of revenue |
$ | 58 | $ | 36 | $ | 116 | $ | 66 | ||||||||
Sales and marketing |
120 | 99 | 241 | 184 | ||||||||||||
General and administrative |
125 | 274 | 483 | 359 | ||||||||||||
Engineering and development |
37 | 47 | 83 | 67 | ||||||||||||
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$ | 340 | $ | 456 | $ | 923 | $ | 676 | |||||||||
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The Black-Scholes option valuation model is used in estimating the fair value of traded options. This option pricing model requires the Company to make several assumptions regarding the key variables used to calculate the fair value of its stock options. The risk-free interest rate used is based on the U.S. Treasury yield curve in effect for the expected lives of the options at their dates of grant. Since July 1, 2005, the Company has used a dividend yield of zero as it does not intend to pay cash dividends on its common stock in the foreseeable future. The most critical assumption used in calculating the fair value of stock options is the expected volatility of the common stock. Management believes that the historic volatility of the common stock is a reliable indicator of future volatility, and accordingly, a stock volatility factor based on the historical volatility of the common stock over a period of time is used in approximating the estimated volatility of new stock options. The expected term is estimated by analyzing the Companys 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 historical experience and future expectations. Forfeitures are estimated at the time of the grant and revised as necessary in subsequent periods if actual forfeitures differ from those estimates.
The stock option fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Expected term |
3.70 years | 3.90 years | 3.80 years | 3.98 years | ||||||||||||
Volatility |
103 | % | 107 | % | 103 | % | 106 | % | ||||||||
Annual dividend per share |
$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
Risk-free interest rate |
0.87 | % | 1.81 | % | 0.88 | % | 1.91 | % |
A summary of option activity under the Companys stock option plan for the six months ended June 30, 2012 is as follows:
Shares | Weighted average exercise price |
Weighted average remaining contractual term (years) |
Aggregate intrinsic value(1) |
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Options outstanding at December 31, 2011 |
3,858,000 | $ | 3.75 | |||||||||||||
Plus: Options granted |
590,000 | $ | 2.65 | |||||||||||||
Less: Options exercised |
(214,000 | ) | $ | 2.12 | ||||||||||||
Options forfeited, canceled, or expired |
(425,000 | ) | $ | 3.78 | ||||||||||||
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Options outstanding at June 30, 2012 |
3,809,000 | $ | 3.67 | 4.2 | $ | 229,000 | ||||||||||
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Options exercisable at June 30, 2012 |
2,171,000 | $ | 4.32 | 4.1 | $ | 229,000 | ||||||||||
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|
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Vested options expired during the six months ended June 30, 2012 |
190,000 | $ | 5.08 |
(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. |
9
Cash proceeds along with fair value disclosures related to grants, exercises and vesting options are provided in the following table (in thousands, except per share amounts):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Proceeds from stock options exercised |
$ | 145 | $ | 370 | $ | 422 | $ | 964 | ||||||||
Tax benefit related to stock options exercised (1) |
N/A | N/A | N/A | N/A | ||||||||||||
Intrinsic value of stock options exercised (2) |
$ | 80 | $ | 532 | $ | 91 | $ | 1,141 | ||||||||
Weighted-average fair value of options granted during period |
$ | 1.78 | $ | 3.80 | $ | 1.82 | $ | 3.43 | ||||||||
Total fair value of shares vested during the period |
$ | 473 | $ | 364 | $ | 1,029 | $ | 563 |
(1) | Excess tax benefits received related to stock option exercises are presented as financing cash inflows. The Company currently does not receive a tax benefit related to the exercise of stock options due to 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. |
On March 2, 2012, the Board of Directors accelerated the vesting period for options to purchase 95,833 shares of common stock held by Federico Pignatelli, the Companys Chairman and Chief Executive Officer (CEO). The options were originally granted in December 2011 at $2.58 per share with monthly vesting over four years. The Board of Directors accelerated the vesting period to March 2, 2012, in part due to the CEOs continued commitment to maintain his annual salary of one dollar for the year ending December 31, 2012. Accelerating the vesting period of the common stock options resulted in the Company recognizing unamortized compensation cost of approximately $183,000 in March 2012. The transaction did not result in any additional compensation cost primarily as the effects of the decrease in the expected term and volatility offset the effects of the difference between the stock price and the option price on the date the vesting of the common stock options were modified.
On May 7, 2012, the Board of Directors granted a non-qualified stock option to purchase 65,000 shares of the Companys common stock to a consultant, at a price per share of $2.55, the closing market price of the Companys common stock on the grant date. The option fully vests and becomes exercisable upon the achievement of certain specified performance conditions, as defined in the consulting agreement with this consultant, and the option expires five years from the grant date. As of June 30, 2012, the Company has estimated there is a remote probability of achieving the required performance conditions and, accordingly, no stock-based compensation has been recognized. The Company will reassess whether achievement of the performance conditions is probable on a quarterly basis and recognize stock-based compensation when it is probable that the performance conditions will be achieved.
Warrants
During September 2010, the Company issued warrants (the IR Warrants) to purchase an aggregate of 50,000 shares of common stock at a price per share of $0.74 to three service providers who provide investor relations services. The IR Warrants vest quarterly and will be revalued each period until the final vesting date. The holders may convert the IR Warrants into a number of shares, in whole or in part. The first tranche of IR Warrants expire on September 20, 2013. Pursuant to the agreement, the service providers were also entitled to a second tranche of IR Warrants to purchase an aggregate of 50,000 shares of common stock at a price per share of $0.74 as a performance bonus when the Companys stock price closes at a price in excess of $6.00. The second tranche of IR Warrants were subsequently issued in April 2011 and will expire on April 11, 2014. The Company accounts for these non-employee stock warrants using the Black Scholes option pricing model. The Company has concluded that the vesting date is the ultimate final measurement date, and will revalue any unvested warrants at the end of each reporting period until that date. As a result of issuing the IR Warrants, the Company recognized a benefit of approximately $2,000 and expenses of approximately $23,000 for the three and six months ended June 30, 2012, respectively, and expenses of approximately $114,000 and $210,000 for the three and six months ended June 30, 2011, respectively.
During May 2012, the Company issued warrants to purchase up to 80,000 shares of the Companys common stock at an exercise price of $2.83 per share to Comerica Bank in connection with two revolving credit facilities entered into on May 24, 2012. The Company reduced the exercise price of the Comerica Warrants from $2.83 to $2.00 per share on August 6, 2012. See Note 8 Lines of Credit and Other Borrowings for further discussion.
10
Net Loss Per Share - Basic and Diluted
Basic net loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding for the period. In computing diluted net 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 4,637,000 shares were not included in the computation of diluted loss per share for the three and six months ended June 30, 2012 as a result of their anti-dilutive effect. For the same 2011 periods, anti-dilutive outstanding stock options and warrants to purchase 4,775,000 shares were not included in the computation of diluted loss per share.
Stock Dividends
The Company intends to pay a 2% annual stock dividend, in quarterly installments, for the year ending December 31, 2012. Stock dividends are discussed quarterly by the Companys Board of Directors and management. The actual declaration of future stock dividends and the establishment of the record and payment dates are subject to final determination by the Companys Board of Directors after its review of the Companys financial performance, the expected results of future operations, availability of shares, and other factors that the Board of Directors may deem relevant. The Companys dividend policy may be changed at any time by the Companys Board of Directors, and there is no assurance, with respect to the amount or frequency, that any stock dividend will be declared in the future.
The Board of Directors declared special one-half percent stock dividends during each of the first two quarters of 2012. The stock dividend declared during the quarter ended June 30, 2012 was payable June 25, 2012 to shareholders of record on June 8, 2012 and the stock dividend declared during the quarter ended March 31, 2012 was payable March 30, 2012 to shareholders of record on March 15, 2012. The Board of Directors deems these two stock dividends to be special dividends and there is no assurance, with respect to amount or frequency, that any stock dividend will be declared again in the future. All stock information presented, other than that related to stock options and warrants, has been adjusted to reflect the effects of these stock dividends.
NOTE 4INVENTORY
Inventory is valued at the lower of cost or market (determined by the first-in, first-out method) and is comprised of the following (in thousands):
June 30, 2012 |
December 31, 2011 |
|||||||
Raw materials |
$ | 4,117 | $ | 4,280 | ||||
Work-in-process |
1,935 | 2,538 | ||||||
Finished goods |
4,648 | 4,494 | ||||||
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Inventory, net |
$ | 10,700 | $ | 11,312 | ||||
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Inventory is net of the provision for excess and obsolete inventory of approximately $2.1 million and $2.3 million at June 30, 2012 and December 31, 2011, respectively.
NOTE 5PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net is comprised of the following (in thousands):
June 30, 2012 |
December 31, 2011 |
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Land |
$ | 175 | $ | 247 | ||||
Building |
234 | 317 | ||||||
Leasehold improvements |
957 | 957 | ||||||
Equipment and computers |
5,933 | 5,729 | ||||||
Furniture and fixtures |
1,042 | 1,036 | ||||||
Construction in progress |
279 | 26 | ||||||
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8,620 | 8,312 | |||||||
Accumulated depreciation and amortization |
(7,295 | ) | (7,164 | ) | ||||
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|
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Property, plant, and equipment, net |
$ | 1,325 | $ | 1,148 | ||||
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11
Depreciation and amortization expense related to property, plant, and equipment totaled approximately $90,000 and $182,000 for the three and six months ended June 30, 2012, respectively, and $151,000 and $346,000 for the three and six months ended June 30, 2011, respectively.
On June 12, 2012, management entered into a Sale and Purchase Agreement in which the Company agreed to sell the smaller of two buildings and a portion of the land parcel of its two-building property in Floss, Germany. The purchase price was 110,000, or approximately $138,000, which could be reduced by settlement and other costs at escrow close. As of June 30, 2012, the Company reclassified the land and building being sold to assets held for sale at their respective purchase price. The Company is undertaking an appraisal of the remaining property and expects to record the final effects of the sale in the quarter ending September 30, 2012.
NOTE 6INTANGIBLE ASSETS AND GOODWILL
The Company conducted its annual impairment test of intangible assets and goodwill as of June 30, 2012, and determined that there was no impairment. The Company also tests its intangible assets and goodwill between the annual impairment test if events occur or circumstances change that would more likely than not reduce the fair value of the Company or its assets below their carrying amounts. No events have occurred since June 30, 2012, that would trigger further impairment testing of the Companys intangible assets and goodwill.
Amortization expense for the three and six months ended June 30, 2012 was $32,000 and $65,000, respectively, and $32,000 and $65,000, respectively, for the same periods in 2011. Other intangible assets consist of an acquired customer list and a non-compete agreement.
The following table presents details of the Companys intangible assets, related accumulated amortization and goodwill (in thousands):
As of June 30, 2012 | As of December 31, 2011 | |||||||||||||||||||||||||||||||
Gross | Accumulated Amortization |
Impairment | Net | Gross | Accumulated Amortization |
Impairment | Net | |||||||||||||||||||||||||
Patents (4-10 years) |
$ | 1,914 | $ | (1,767 | ) | $ | | $ | 147 | $ | 1,914 | $ | (1,702 | ) | $ | | $ | 212 | ||||||||||||||
Trademarks (6 years) |
69 | (69 | ) | | | 69 | (69 | ) | | | ||||||||||||||||||||||
Other (4 to 6 years) |
593 | (593 | ) | | | 593 | (593 | ) | | | ||||||||||||||||||||||
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|
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Total |
$ | 2,576 | $ | (2,429 | ) | $ | | $ | 147 | $ | 2,576 | $ | (2,364 | ) | $ | | $ | 212 | ||||||||||||||
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Goodwill |
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(Indefinite life) |
$ | 2,926 | $ | 2,926 | $ | 2,926 | $ | 2,926 | ||||||||||||||||||||||||
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NOTE 7ACCRUED LIABILITIES AND DEFERRED REVENUE
Accrued liabilities are comprised of the following (in thousands):
June 30, 2012 |
December 31, 2011 |
|||||||
Payroll and benefits |
$ | 1,684 | $ | 1,928 | ||||
Warranty accrual |
1,980 | 2,218 | ||||||
Sales tax |
491 | 526 | ||||||
Accrued professional services |
759 | 669 | ||||||
Accrued insurance premium |
98 | 433 | ||||||
Accrued support services |
| 200 | ||||||
Other |
189 | 203 | ||||||
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|
|
|
|||||
Accrued liabilities |
$ | 5,201 | $ | 6,177 | ||||
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|
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12
Changes in the initial product warranty accrual, and the expenses incurred under initial and extended warranties, for the three and six months ended June 30, 2012 and 2011 were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Initial warranty accrual, beginning balance |
$ | 1,926 | $ | 2,728 | $ | 2,218 | $ | 2,725 | ||||||||
Provision for estimated warranty cost |
661 | 448 | 783 | 956 | ||||||||||||
Warranty expenditures |
(607 | ) | (490 | ) | (1,021 | ) | (995 | ) | ||||||||
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|
|
|
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Initial warranty accrual, ending balance |
1,980 | 2,686 | 1,980 | 2,686 | ||||||||||||
Total warranty accrual, long term |
| 431 | | 431 | ||||||||||||
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Total warranty accrual, current portion |
$ | 1,980 | $ | 2,255 | $ | 1,980 | $ | 2,255 | ||||||||
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|
Deferred revenue is comprised of the following (in thousands):
June 30, 2012 |
December 31, 2011 |
|||||||
Undelivered elements (training, installation and product and support services) |
$ | 1,374 | $ | 1,105 | ||||
Extended warranty contracts |
1,302 | 1,056 | ||||||
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Total deferred revenue |
2,676 | 2,161 | ||||||
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|
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Less long-term amounts: |
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Extended warranty contracts |
(11 | ) | (25 | ) | ||||
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|
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Total deferred revenue, long-term |
(11 | ) | (25 | ) | ||||
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Total deferred revenue, current portion |
$ | 2,665 | $ | 2,136 | ||||
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On May 20, 2010, the Company entered into a license agreement (the 2010 P&G Agreement), with Procter and Gamble Company (P&G), which replaced an existing license agreement between the Company and P&G (the 2006 P&G Agreement). Pursuant to the 2010 P&G Agreement, the Company agreed to continue granting P&G an exclusive license to certain of the Companys patents to enable P&G to develop products aimed at the consumer market and P&G agreed to pay royalties based on sales of products developed with such intellectual property. On June 28, 2011, the Company entered into an amendment to the 2010 P&G Agreement (the 2011 P&G Amendment) which extended the effective period for the 2010 P&G Agreement from December 31, 2010 through June 30, 2011, and resulted in the Company recognizing the previously deferred $375,000 of revenue as royalty revenue during the quarter ended June 30, 2011.
The 2011 P&G Amendment also provided that effective January 1, 2011, P&Gs exclusive license to the Companys patents converted to a non-exclusive license unless P&G paid the Company a license payment in the amount of $187,500 by the end of the third quarter of 2011, and at the end of each quarter thereafter, throughout the term of the 2010 P&G Agreement. As a result of P&G not making any payments to the Company in the third and fourth quarters of the year ended December 31, 2011, their license converted to a non-exclusive license. The Company is currently engaged in an active collaboration with P&G to commercialize a consumer product utilizing its patents.
NOTE 8LINES OF CREDIT AND OTHER BORROWINGS
Lines of Credit
On May 24, 2012, the Company entered into two revolving credit facility agreements (the Credit Agreements) with Comerica Bank, which provide for borrowings against certain domestic accounts receivable and inventory, as set forth in the $4.0 million revolving credit facility agreement (the Domestic Revolver), and borrowings against certain export related accounts receivable and inventory, as set forth in the $4.0 million revolving credit facility agreement (the Ex-Im Revolver), for a combined aggregate commitment of borrowings up to $8.0 million. As of June 30, 2012, the Company had outstanding borrowings totaling approximately $1.9 million under the Domestic Revolver and no borrowings under the Ex-Im Revolver. All outstanding borrowings under the lines of credit and accrued interest are due and payable upon the maturity date of May 1, 2014.
The Company had approximately $106,000 in a controlled restricted cash account as of June 30, 2012. The Companys obligations are generally secured by substantially all of the Companys assets now owned or hereinafter acquired.
13
The Credit Agreements require the Company to maintain compliance with certain financial and non-financial covenants, as defined therein. If a default occurs, Comerica Bank may declare the amounts outstanding under the Credit Agreements immediately due and payable. As of June 30, 2012, the Company was in compliance with these covenants with the exception of the earnings before income tax, depreciation and amortization (EBITDA) covenant. On August 6, 2012, the Company obtained a waiver for noncompliance of the minimum EBITDA covenant from Comerica Bank as of June 30, 2012. The Company also amended the terms of the Credit Agreements (Amendment No. 1) and modified certain future financial covenants.
The interest rates on the outstanding principal balance of the credit facilities bear interest at annual percentage rates equal to the daily adjusting LIBOR rate, plus spreads of 5.25% for the Domestic Revolver and 4.25% for the Ex-Im Revolver. The daily adjusting LIBOR rate is subject to a floor of 1.00% per annum. The Company is also required to pay an unused commitment fee of 0.25% based on a portion of the undrawn lines of credit, payable quarterly in arrears. During the three and six months ended June 30, 2012, the Company incurred $38,000 and $42,000, respectively, of interest expense, of which approximately $10,000 was payable at June 30, 2012. Included in interest expense during the three and six months ended June 30, 2012 is $15,000 of amortization of deferred debt issuance costs and $7,000 of amortization of the discount on lines of credit.
Pursuant to the Credit Agreements, the Company paid both the first and second annual $120,000 commitment fees, each being one and one-half percent of the aggregate $8.0 million commitment, totaling $240,000. The commitment fees and the legal costs associated with acquiring the credit facilities were capitalized and are being amortized as interest expense over the term of the Credit Agreements.
As additional consideration for the lines of credit, the Company also issued warrants to Comerica Bank (the Comerica Warrants) to purchase up to 80,000 shares of the Companys common stock at an exercise price of $2.83 per share. The Comerica Warrants vest in four equal quarterly tranches beginning on May 24, 2012 and are exercisable once vested. The Comerica Warrants may be exercised with a cash payment from Comerica Bank, or, in lieu of a cash payment, Comerica Bank may convert the warrants into a number of shares, in whole or in part. These warrants will expire if unused on May 24, 2017. The fair value of the Comerica Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 5.00 years; volatility of 99.55%; annual dividend per share of $0.00; and risk-free interest rate of 0.77%; and resulted in an estimated fair value of $135,000 which was recorded as equity and resulted in a discount to the credit facilities at issuance. The discount is being amortized to interest expense over the term of the Credit Agreements.
In connection with Amendment No. 1 to the Credit Agreements on August 6, 2012, the Company also reduced the exercise price of the Comerica Warrants from $2.83 to $2.00 per share. The fair value of the re-priced Comerica Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 4.81 years; volatility of 100.47%; annual dividend per share of $0.00; and risk-free interest rate of 0.77%. The modification to the Comerica Warrants resulted in an incremental expense of $7,000 which will be added to the discount and amortized over the remaining term of the Credit Agreements.
Other Borrowings
In December 2011, the Company financed approximately $433,000 of insurance premiums payable in nine equal monthly installments of approximately $48,000 each, including a finance charge of 2.50%. As of June 30, 2012, there was approximately $97,000 outstanding under this arrangement. Such amount is included in Accrued Liabilities in the accompanying consolidated financial statements.
NOTE 9COMMITMENTS AND CONTINGENCIES
Litigation
The Company discloses material loss contingencies deemed to be reasonably possible and accrues for loss contingencies when, in consultation with its legal advisors, management concludes that a loss is probable and reasonably estimable. The ability to predict the ultimate outcome of such matters involves judgments, estimates, and inherent uncertainties. The actual outcome of such matters could differ materially from managements estimates.
Intellectual Property
On April 24, 2012, CAO Group, Inc. filed a lawsuit against the Company in the United States District Court for the District of Utah, Central Division, alleging patent infringement of U.S. Patent No. 7,485,116 involving the Companys ezLase diode laser. The complaint seeks unspecified damages, attorneys fees, interest, costs, and injunctive relief. Management plans to vigorously defend against the allegations.
14
Other Matters
In the normal course of business, the Company is subject to other legal proceedings, lawsuits and other claims. Although the ultimate aggregate amount of probable monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that any monetary liability or financial impact to the Company from these other matters, individually and in the aggregate, would not be material to the Companys consolidated financial condition, results of operations or cash flows. However, there can be no assurance with respect to such result, and monetary liability or financial impact to the Company from these other matters could differ materially from those projected.
NOTE 10SEGMENT INFORMATION
The Company currently operates in a single business segment. For the three and six months ended June 30, 2012, sales in the United States accounted for approximately 66% and 67% respectively, of net revenue, and international sales accounted for approximately 34% and 33%, respectively, of net revenue. For the three and six months ended June 30, 2011, sales in the United States accounted for approximately 71% and 76% respectively, of net revenue, and international sales accounted for approximately 29% and 24%, respectively, of net revenue.
Net revenue by geographic location based on the location of customers was as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
United States |
$ | 8,045 | $ | 8,609 | $ | 16,409 | $ | 17,134 | ||||||||
International |
4,130 | 3,470 | 8,086 | 5,506 | ||||||||||||
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|
|
|
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|||||||||
$ | 12,175 | $ | 12,079 | $ | 24,495 | $ | 22,640 | |||||||||
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|
|
|
|
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|
|
No individual country, other than the United States, represents more than 10% of total net revenue for the three and six months ended June 30, 2012 and 2011.
Long-lived assets located outside of the United States totaled approximately $381,000 and $542,000 as of June 30, 2012 and December 31, 2011, respectively. Assets held for sale located outside of the United States totaled approximately $138,000 as of June 30, 2012.
NOTE 11CONCENTRATIONS
Revenue from Waterlase systems, the Companys principal product, which includes the iPlus, MDX systems, and the MD Turbo, comprised 58% and 61% of total net revenue for the three and six months ended June 30, 2012, respectively, and 63% and 53% of total net revenue, respectively, for the same periods in 2011. Revenue from Diode systems comprised 11% of total net revenue for both the three and six months ended June 30, 2012, and 14% and 24%, for the same periods of 2011. Revenue from consumables, service and warranty contracts comprised 23% of total net revenue for both the three and six months ended June 30, 2012, and 20% and 21%, for the same periods of 2011. Revenue from imaging systems comprised 7% and 4% of total net revenue for the three and six months ended June 30, 2012, respectively, and 0% for the same periods in 2011.
Approximately (3)% and 3% of the Companys net revenue in the three and six months ended June 30, 2012 was generated through sales to HSIC worldwide. Approximately 26% and 30% of the Companys net revenue in the three and six months ended June 30, 2011 was generated through sales to HSIC worldwide.
The Company maintains its cash and cash equivalent accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit.
No individual customer represented more than 10% of the Companys accounts receivable at June 30, 2012 and December 31, 2011.
The Company currently purchases certain key components of its 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 could adversely affect the Companys results of operations.
15
NOTE 12INCOME 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. The Company has elected to classify interest and penalties as a component of its income tax provision. For the three and six months ended June 30, 2012 and 2011, the Company recorded an increase of $1,000 and $2,000, and $1,000 and $2,000, respectively, with respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest.
NOTE 13NON-RECURRING EVENT
On April 12, 2012, the Company completed the 2012 Termination Agreement with HSIC whereby the Company purchased HSICs inventory of Waterlase MD Turbo laser systems for approximately $1.1 million and HSIC released its liens on the Companys assets. Pursuant to the terms of the 2012 Termination Agreement, the Company paid the entire purchase price by offsetting accounts receivable currently due from HSIC from sales made in the normal course of business. None of the funds used to offset the purchase price were related to the original sales of the MD Turbo laser systems that were purchased.
As a result of the transaction, the Company recorded a decrease to accounts receivable of approximately $1.1 million with a corresponding decrease to revenue to pay for the purchase of the Waterlase MD Turbo laser systems. The Company also recorded an increase to inventory for the same amount with a corresponding decrease to cost of revenue to record the inventory acquired. As such, while the Companys revenues and cost of revenues were both reduced by $1.1 million to record the effects of the transaction, there was no effect on the Companys gross profit during the quarter ended June 30, 2012. In addition, the Company de-recognized approximately $155,000 of accounts receivable due from HSIC related to support services previously provided to HSIC and approximately $142,000 of accrued warranties previously provided to HSIC during the three months ended March 31, 2012. During the quarter ended June 30, 2012, the Company reversed accrued sales and marketing service liabilities of approximately $350,000 because the liability was extinguished with the completion of the performance obligations set forth in the 2012 Termination Agreement.
NOTE 14SUBSEQUENT EVENTS
Stock Repurchase Program
Subsequent to the quarter ended June 30, 2012 and pursuant to the stock repurchase program, which became effective on August 12, 2011, the Company repurchased approximately 123,000 shares of the Companys common stock at an average price of $1.73 per share. The shares repurchased will be retired and shall resume the status of authorized and unissued shares. The Company expects to record the effects of the stock repurchases in the third quarter ending September 30, 2012.
Definitive Distribution Agreement
In July 2012, the Company entered a definitive five-year agreement with Copenhagen-based 3Shape Corporation (3Shape), making the Company a distributor of 3Shapes TRIOS® intra-oral scanning technologies for digital impression-taking solutions in the United States and Canada.
Stock Option Grants
Subsequent to the quarter ended June 30, 2012, the Board of Directors granted non-qualified stock options to purchase 121,000 shares of the Companys common stock to several new employees and key consultants. The Company expects to begin to record the effects of these stock option grants in the third quarter ending September 30, 2012.
16
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Quarterly Report on Form 10-Q contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Biolase, Inc. (the Company, we, us or our ) to differ materially and adversely from those expressed or implied by such forward-looking statements. Such forward-looking statements include any statements, predictions and expectations regarding our earnings, revenue, sales and operations, operating expenses, anticipated cash needs, capital requirements and capital expenditures, needs for additional financing, use of working capital, plans for future products and services and for enhancements of existing products and services, anticipated growth strategies, ability to attract customers, sources of net revenue, anticipated trends and challenges in our business and the markets in which we operate, the adequacy of our facilities, the impact of economic and industry conditions on our customers and our business, customer demand, our competitive position, the outcome of any litigation against us, the perceived benefits of any technology acquisitions, critical accounting policies, the impact of recent accounting pronouncements, statements pertaining to financial items, plans, strategies, expectations or objectives of management for future operations, our financial condition or prospects, and any other statement that is not historical fact. Forward-looking statements are often identified by the use of words such as may, might, will, intend, should, could, can, would, continue, expect, believe, anticipate, estimate, predict, potential, plan, seek and similar expressions and variations or the negativities of these terms or other comparable terminology. These forward-looking statements are based on the beliefs and assumptions of our management based upon information currently available to management. Such forward looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially and adversely from future results expressed or implied from such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011 (the 2011 Form 10-K) filed with the Securities and Exchange Commission (the SEC). Such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements for any reason except as otherwise required by law.
Overview
We are a medical technology company that develops, manufactures, and markets lasers, and markets and distributes dental imaging equipment and other related products designed to improve technologies for applications and procedures in dentistry and medicine. 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 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 various other international markets. Since 1998, we have sold over 8,900 Waterlase systems, including more than 4,900 Waterlase MD and iPlus systems, and more than 20,100 laser systems in over 60 countries.
We offer two categories of laser system products: Waterlase systems and Diode systems. Our flagship product category, the Waterlase system, uses a patented combination of water and laser energy 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. We currently have approximately 160 issued and 130 pending U.S. and international patents, 70 percent of which are related to our core Waterlase technology and medical lasers.
We have suffered recurring losses from operations and have not generated cash from operations for the three years ended December 31, 2011. Our inability to generate cash from operations, the potential need for additional capital, and the uncertainties surrounding our ability to raise additional capital, raises substantial doubt about our ability to continue as a going concern. Accordingly, the accompanying financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will continue in operation for the next twelve months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects of recoverability and classifications of assets or the amounts and classifications of liabilities that may result from our inability to continue as a going concern.
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In order for us to continue operations beyond the next twelve months and be able to discharge our liabilities and commitments in the normal course of business, we must sell our products directly to end-users and through multiple distributors; establish profitable operations through increased sales and reduced operating expenses; and potentially raise additional funds, principally through the sales of our securities or debt financings, to meet our working capital needs.
We intend to increase sales by increasing our product offerings, by expanding our direct sales force and our distributor relationships both domestically and internationally. In connection with this strategy, we intend to provide assistance to our domestic and international distribution partners to maximize revenue. However, we cannot guarantee that we will be able to increase sales, reduce expenses or obtain additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to us. If we are unable to increase sales, reduce expenses or raise sufficient additional capital we may be unable to continue to fund our operations, develop our products or realize value from our assets and discharge our liabilities in the normal course of business. These uncertainties raise substantial doubt about our ability to continue as a going concern.
Accordingly, we have taken steps during the period ending June 30, 2012, which we believe will improve our financial condition and ultimately improve our financial results, including the expansion of our direct sales force and certain distributor relationships, and establishing two revolving credit facilities to meet working capital needs.
Credit Facilities Established
On May 24, 2012, we entered into two revolving credit facility agreements (the Credit Agreements) with Comerica Bank, which provide for borrowings against certain domestic accounts receivable and inventory, as set forth in the $4.0 million revolving credit facility agreement (the Domestic Revolver), and borrowings against certain export related accounts receivable and inventory, as set forth in the $4.0 million revolving credit facility agreement (the Ex-Im Revolver), for a combined aggregate commitment of borrowings up to $8.0 million. The Credit Agreements mature on May 1, 2014 and are secured by substantially all assets now owned or hereinafter acquired. The Credit Agreements require compliance with certain financial and non-financial covenants, as defined therein. If a default occurs, Comerica Bank may declare the amounts outstanding under the Credit Agreements immediately due and payable. As of June 30, 2012, we were in compliance with these covenants with the exception of the earnings before income tax, depreciation and amortization (EBITDA) covenant. On August 6, 2012, we obtained a waiver for noncompliance of the minimum EBITDA covenant from Comerica Bank as of June 30, 2012. We also amended the terms of the Credit Agreements (Amendment No. 1) and modified certain future financial covenants.
As additional consideration for the lines of credit, we also issued warrants to Comerica Bank (the Comerica Warrants) to purchase up to 80,000 shares of our common stock at an exercise price of $2.83 per share. The Comerica Warrants vest in four equal quarterly tranches beginning on May 24, 2012 and are exercisable once vested. The Comerica Warrants may be exercised with a cash payment from Comerica Bank, or, in lieu of a cash payment, Comerica Bank may convert the warrants into a number of shares, in whole or in part. These warrants will expire if unused on May 24, 2017. The $135,000 estimated fair value of the warrants was recorded as equity, resulting in a discount to the credit facilities at issuance. The discount is being amortized to interest expense over the term of the lines of credit. In connection with Amendment No. 1 to the Credit Agreements on August 6, 2012, we also reduced the exercise price of the Comerica Warrants from $2.83 to $2.00 per share. The modification to the Comerica Warrants resulted in an incremental expense of $7,000 which will be added to the discount and amortized over the remaining term of the Credit Agreements.
Termination of Master Distribution Agreement
On September 23, 2010, we entered into a Distribution and Supply Agreement with HSIC, effective August 30, 2010, (the D&S Agreement), which terminated all prior agreements with HSIC. Under the D&S Agreement, we granted HSIC certain non-exclusive distribution rights in North America and several 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 the D&S Agreement, HSIC placed two irrevocable purchase orders totaling $9 million for our products. The first purchase order,
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totaling $6 million, was for the purchase of iLase systems and was fully satisfied during the first quarter of 2011. The second purchase order, totaling $3 million, was for the purchase of a combination of laser systems and was fully satisfied during the third quarter of 2011. The D&S Agreement granted HSIC a security interest in our inventory and assets, including our intellectual property.
On April 12, 2012, we completed a transaction with HSIC (the 2012 Termination Agreement) whereby we purchased HSICs inventory of Waterlase MD Turbo laser systems for approximately $1.1 million and HSIC released its liens on our assets. The arrangement enabled us to remove lien restrictions on our assets which allowed us to secure the Credit Agreement with Comerica Bank and also enabled us to reacquire 153 MD Turbo laser systems at a cost well below market for the parts. Pursuant to the terms of the transaction, the entire purchase price was paid by offsetting certain accounts receivable currently due from HSIC from sales made in the normal course of business. None of the funds used to offset the purchase price were related to the original sales of the MD Turbo laser systems that were purchased. As a result of the transaction, we are no longer required to fulfill certain future service obligations and, accordingly, derecognized approximately $155,000 of accounts receivable due from HSIC related to support services previously provided and approximately $142,000 of accrued warranties during the three months ended March 31, 2012. During the quarter ended June 30, 2012, the Company reversed accrued sales and marketing service liabilities of approximately $350,000 because the liability was extinguished with the closing of the 2012 Termination Agreement.
Critical Accounting Policies
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained on pages 41 to 43 in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of the Companys Annual Report on Form 10K for the year ended December 31, 2011 (the 2011 Form 10-K). Management believes that there have been no significant changes during the six months ended June 30, 2012 in our critical accounting policies from those disclosed in Item 7 of the 2011 Form 10-K, except with regard to restricted cash as set forth below.
Restricted Cash. We maintain bank controlled depository accounts to be held for repayment of lines of credit and accrued interest expense or disbursement to our operating bank account, pursuant to the terms of two revolving credit facility agreements with Comerica Bank. Restricted cash has been classified as a current asset commensurate with the related lines of credit included in current liabilities as on the accompanying consolidated financial statements of June 30, 2012.
Results of Operations
The following table sets forth certain data from our operating results expressed as percentages of net revenue:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Products and services revenue |
109.0 | % | 96.8 | % | 104.4 | % | 98.2 | % | ||||||||
Non-recurring event |
(9.4 | ) | 0.0 | (4.7 | ) | 0.0 | ||||||||||
License fees and royalty revenue |
0.4 | 3.2 | 0.3 | 1.8 | ||||||||||||
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Net revenue |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of revenue |
64.2 | 53.5 | 58.5 | 53.8 | ||||||||||||
Non-recurring event |
(9.4 | ) | 0.0 | (4.7 | ) | 0.0 | ||||||||||
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Net cost of revenue |
54.8 | 53.5 | 53.8 | 53.8 | ||||||||||||
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Gross profit |
45.2 | 46.5 | 46.2 | 46.2 | ||||||||||||
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Operating expenses: |
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Sales and marketing |
30.6 | 24.9 | 31.6 | 24.1 | ||||||||||||
General and administrative |
18.3 | 18.4 | 18.1 | 17.3 | ||||||||||||
Engineering and development |
10.4 | 9.1 | 10.1 | 9.7 | ||||||||||||
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Total operating expenses |
59.3 | 52.4 | 59.8 | 51.1 | ||||||||||||
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Loss from operations |
(14.1 | ) | (5.9 | ) | (13.6 | ) | (4.9 | ) | ||||||||
Non-operating loss, net |
(1.0 | ) | (0.2 | ) | (0.6 | ) | (1.6 | ) | ||||||||
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Loss before income tax provision |
(15.1 | ) | (6.1 | ) | (14.2 | ) | (6.5 | ) | ||||||||
Income tax provision |
0.3 | 0.1 | 0.3 | 0.1 | ||||||||||||
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Net loss |
(15.4 | )% | (6.2 | )% | (14.5 | )% | (6.6 | )% | ||||||||
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The following table summarizes our net revenue by category (dollars in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2012 (1) | 2011 | 2012 (1) | 2011 | |||||||||||||||||||||||||||||
Waterlase systems |
$ | 7,067 | 58 | % | $ | 7,615 | 63 | % | $ | 15,049 | 61% | $ | 11,990 | 53 | % | |||||||||||||||||
Diode systems |
1,318 | 11 | % | 1,625 | 14 | % | 2,660 | 11% | 5,474 | 24 | % | |||||||||||||||||||||
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Total laser systems |
8,385 | 69 | % | 9,240 | 77 | % | 17,709 | 72% | 17,464 | 77 | % | |||||||||||||||||||||
Imaging systems |
904 | 8 | % | | 0 | % | 1,047 | 5% | | 0 | % | |||||||||||||||||||||
Consumables and service |
1,474 | 12 | % | 1,332 | 11 | % | 2,980 | 12% | 2,608 | 11 | % | |||||||||||||||||||||
Warranty and training |
1,362 | 11 | % | 1,117 | 9 | % | 2,701 | 11% | 2,163 | 10 | % | |||||||||||||||||||||
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Total products and services |
12,125 | 100 | % | 11,689 | 97 | % | 24,437 | 100% | 22,235 | 98 | % | |||||||||||||||||||||
License fees and royalty |
50 | 0 | % | 390 | 3 | % | 58 | 0% | 405 | 2 | % | |||||||||||||||||||||
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Net revenue |
$ | 12,175 | 100 | % | $ | 12,079 | 100 | % | $ | 24,495 | 100% | $ | 22,640 | 100 | % | |||||||||||||||||
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(1) | The summary of net revenue includes the non-recurring event of approximately $1.1 million, which if excluded would result in Waterlase systems revenue of $8.2M and 62% and $16.2M and 63%, total laser systems revenue of $9.5M and 72% and $18.9M and 74%, and net revenue of $13.3M and 100% and $25.6M and 100% for the three and six months ended June 30, 2012; the remaining categorical percentages would decrease accordingly. |
Net revenue by geographic location based on the location of customers was as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 (1) | 2011 | 2012 (1) | 2011 | |||||||||||||
United States |
$ | 8,045 | $ | 8,609 | $ | 16,409 | $ | 17,134 | ||||||||
International |
4,130 | 3,470 | 8,086 | 5,506 | ||||||||||||
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Net revenue |
$ | 12,175 | $ | 12,079 | $ | 24,495 | $ | 22,640 | ||||||||
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(1) | The net revenue by geography includes the non-recurring event of $1.1 million, which if excluded would result in United States net revenue of $9.2M and $17.6M, for the three and six months ended June 30, 2012. |
Three months ended June 30, 2012 and 2011
Net Revenue. Net revenue for the three months ended June 30, 2012 was $12.2 million, an increase of $96,000, or 1%, as compared to net revenue of $12.1 million for the three months ended June 30, 2011. Excluding the non-recurring event resulting from the 2012 Termination Agreement with HSIC, net revenue for the three months ended June 30, 2012 was $13.3 million, an increase of $1.2 million, or 10%, as compared to net revenue of $12.1 million for the three months ended June 30, 2011. The increase in net revenue, excluding the non-recurring event, was primarily attributable to continued demand for our all-tissue Waterlase systems, increased sales of imaging systems, and increases in consumables and service and warranty and training. These increases, fueled by increased sales and marketing efforts, were offset by decreased sales of diode laser systems and lower royalty revenues.
Laser system net revenue decreased by approximately $855,000, or 9%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. Revenues from Waterlase systems decreased $548,000, or 7%, in the three months ended June 30, 2012 compared to the three months ended June 30, 2011. Excluding the non-recurring event, however, sales of our Waterlase systems increased by $593,000, or 8%, in the three months ended June 30, 2012 compared to the three months ended June 30, 2011. The increase was primarily due to increased sales and marketing efforts. Revenues from our diode systems decreased $307,000, or 19%, during the three months ended June 30, 2012 compared to the three months ended June 30, 2011.
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Imaging system net revenue was $904,000 for the three months ended June 30, 2012. There was no imaging system revenue for the three months ended June 30, 2011. The revenues in the quarter ended June 30, 2012, represent an increase of $761,000, or 532%, from the first quarter ended March 31, 2012.
Consumables and service net revenue, which includes consumable products, advanced training programs and extended service contracts, and shipping revenue increased by approximately $387,000, or 16%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. Consumable products revenue increased $142,000, or 11%, and service revenues increased approximately $245,000 or 22%. The increased revenues were due to increased sales and marketing efforts.
License fees and royalty revenue decreased $340,000, or 87%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The decrease resulted primarily as a result of recognition of deferred royalty revenue from The Procter & Gamble Company (P&G) of $375,000 during the three months ended June 30, 2011. We are currently engaged in an active collaboration with P&G to commercialize a consumer product utilizing our patents.
Net Cost of Revenue. Net cost of revenue for the three months ended June 30, 2012 increased by $209,000, or 3%, to $6.7 million, compared with cost of revenue of $6.5 million for the three months ended June 30, 2011. Excluding the non-recurring event resulting from the 2012 Termination Agreement with HSIC, cost of revenue for the three months ended June 30, 2012 increased by $1.3 million, or 21%, to $7.8 million, compared with cost of revenue of $6.5 million for the three months ended June 30, 2011. This increase, excluding the non-recurring event, was primarily attributable to increased sales and increased sales of products and services that are associated with higher costs and lower margins, such as imaging equipment, combined with decreased sales that are associated with lower costs, such as license fees and royalty revenue.
Gross Profit. Gross profit for the three months ended June 30, 2012 decreased by $113,000 to $5.5 million, or 45% of net revenue, during the three months ended June 30, 2012 from $5.6 million, or, 47% of net revenue, for the three months ended June 30, 2011. Excluding the non-recurring event, gross profit for the three months ended June 30, 2012 represented 41% of revenue. The decrease was primarily due to increased sales of products and services which are associated with higher costs and lower margins, such as imaging equipment, and decreased sales that are associated with lower costs, such as license fees and royalty revenue.
Operating Expenses. Operating expenses for the three months ended June 30, 2012 increased by $883,000, or 14%, to $7.2 million as compared to $6.3 million for the three months ended June 30, 2011 and increased as a percentage of net revenue from 52% to 59%, or from 52% to 54% when excluding the non-recurring event resulting from the 2012 Termination Agreement with HSIC. The reasons for the year-over-year increase in expense are broken out into the following expense categories:
Sales and Marketing Expense. Sales and marketing expenses for the three months ended June 30, 2012 increased by $710,000, or approximately 24%, to $3.7 million, or 31% of net revenue, as compared with $3.0 million, or 25% of net revenue, for the three months ended June 30, 2011. Excluding the non-recurring event, sales and marketing expenses for the three months ended June 30, 2012 represented 28% of revenue. The increase was primarily a result of increased convention costs of $408,000 related to the launch and integration of the NewTom and DaVinci 3D Imaging product lines and expansion into specialty market segments, increased media and advertising expenses of $244,000, primarily from additional WCLI dental education events, increased payroll and consulting related expenses of $198,000 including the creation of the inside sales team and strategic partnerships with leading dental education providers, increased commission expenses of $117,000, and increased supplies expenses of $72,000, offset by a reduction in support services of $350,000 related to the non-recurring event.
General and Administrative Expense. General and administrative expenses for the three months ended June 30, 2012 decreased by $6,000, or 0%, to $2.2 million, or 18% of net revenue, as compared with $2.2 million, or 19% of net revenue, for the three months ended June 30, 2011. Excluding the non-recurring event, general and administrative expenses for the three months ended June 30, 2012 represented 17% of revenue. The decrease in general and administrative expenses resulted primarily from decreased payroll and consulting related expenses of $201,000 and decreased patent and legal expenses of $74,000, offset by increased allowance for doubtful accounts of $265,000.
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Engineering and Development Expense. Engineering and development expenses for the three months ended June 30, 2012 increased by $179,000, or 16%, to $1.3 million, or 10% of net revenue, as compared with $1.1 million, or 9% of net revenue, for the three months ended June 30, 2011. Excluding the non-recurring event, engineering and development expenses for the three months ended June 30, 2012 represented 10% of revenue. The increase was primarily related to increased supplies expenses of $95,000 and increased payroll and consulting related expenses of $63,000.
Non-Operating Income (Loss)
Loss on Foreign Currency Transactions. We recognized a $92,000 loss on foreign currency transactions for the three months ended June 30, 2012, compared to a $16,000 loss on foreign currency transactions for the three months ended June 30, 2011, due to exchange rate fluctuations between the U.S. dollar and other currencies.
Interest Expense. Interest expense consists primarily of interest on our revolving credit facilities, amortization of debt issuance costs and debt discount, and the financing of our business insurance premiums. Interest expense totaled approximately $38,000 and $6,000 for the three months ended June 30, 2012 and 2011, respectively. The increase in interest expense was due to borrowings under the revolving credit facilities that were established in May 2012.
Income Taxes. Our provision for income taxes was $34,000 for the three months ended June 30, 2012, compared to $14,000 for the three months ended June 30, 2011.
Net Loss. For the reasons stated above, our net loss was $1.9 million for the three months ended June 30, 2012, compared to a net loss of $753,000 for the three months ended June 30, 2011.
Six months ended June 30, 2012 and 2011
Net Revenue. Net revenue for the six months ended June 30, 2012 was $24.5 million, an increase of $1.9 million, or 8%, as compared with net revenue of $22.6 million for the six months ended June 30, 2011. Excluding the non-recurring event resulting from the 2012 Termination Agreement with HSIC, net revenue for the six months ended June 30, 2012 was $25.6 million, an increase of $3.0 million, or 13%, as compared to net revenue of $22.6 million for the six months ended June 30, 2011. The increase in net revenue, excluding the non-recurring event, was primarily attributable to continued demand for our all-tissue Waterlase systems, increased sales of imaging systems, and increases in consumables and service and warranty and training. These increases, fueled by increased sales and marketing efforts, were offset by decreased sales of diode laser systems and lower royalty revenues.
Laser system net revenue increased by approximately $245,000, or 1%, in the six months ended June 30, 2012 compared to the same period of 2011. Sales of our Waterlase systems increased $3.1 million, or 26%, in the six months ended June 30, 2012 compared to the six months ended June 30, 2011. Excluding the non-recurring event, laser system net revenue increased by approximately $1.4 million, or 8%, for the six months ended June 30, 2012, compared to the six months ended June 30, 2011. Sales of our Waterlase systems, excluding the non-recurring event, increased $4.2 million, or 35%, in the six months ended June 30, 2012, compared to the six months ended June 30, 2011. The increase, excluding the non-recurring event, was primarily due to increased sales and marketing efforts. Revenues from our diode systems decreased $2.8 million, or 51%, in the six months ended June 30, 2012 compared to the six months ended June 30, 2011.
Imaging system net revenue was $1.0 million for the six months ended June 30, 2012. There was no imaging system revenue for the six months ended June 30, 2011.
Consumables and service net revenue increased by approximately $910,000, or 19%, for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. Consumable products revenue increased $372,000, or 14%, and services revenues increased $538,000, or 25%, during the six months ended June 30, 2012, as compared to the same period of 2011. The increased revenues were due to increased sales and marketing efforts in this part of our business.
License fees and royalty revenue decreased approximately $347,000 to approximately $58,000 in the six months ended June 30, 2012 compared to $400,000 in the six months ended June 30, 2011. The decrease resulted primarily as a result of recognition of deferred royalty revenue from P&G of $375,000 during the three months ended June 30, 2011. We are currently engaged in an active collaboration with P&G to commercialize a consumer product utilizing our patents.
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Net Cost of Revenue. Net cost of revenue for the six months ended June 30, 2012 increased by $1.0 million, or approximately 8%, to $13.2 million, compared with cost of revenue of $12.2 million for the six months ended June 30, 2011. Excluding the non-recurring event, cost of revenue for the six months ended June 30, 2012 increased by $2.1 million, or approximately 18%, to $14.3 million, compared with cost of revenue of $12.2 million for the six months ended June 30, 2011. This increase, excluding the non-recurring event, was primarily attributable to increased sales and increased sales of products and services that are associated with higher costs and lower margins, such as imaging equipment, combined with decreased sales that are associated with lower costs, such as license fees and royalty revenue.
Gross Profit. Gross profit for the six months ended June 30, 2012 increased by $855,000 to $11.3 million, or 46% of net revenue, as compared with gross profit of $10.5 million, or 46% of net revenue, for the six months ended June 30, 2011. Excluding the non-recurring event, gross profit for the six months ended June 30, 2012 represented 44% of revenue. The decrease was primarily due to increased sales of products and services which are associated with higher costs and lower margins, such as imaging equipment, and decreased sales that are associated with lower costs, such as license fees and royalty revenue.
Operating Expenses. Operating expenses for the six months ended June 30, 2012 increased by $3.0 million, or 27%, to $14.6 million as compared to $11.6 million for the six months ended June 30, 2011 and increased as a percentage of net revenue from 51% to 60% or from 51% to 57% when excluding the non-recurring event. The year-over-year increase in expense is explained in the following expense categories:
Sales and Marketing Expense. Sales and marketing expenses for the six months ended June 30, 2012 increased by $2.3 million, or approximately 42%, to $7.7 million, or 32% of net revenue, as compared with $5.5 million, or 24% of net revenue, for the six months ended June 30, 2011. Excluding the non-recurring event, sales and marketing expenses for the six months ended June 30, 2012 represented 30% of revenue. The increase was primarily a result of increased convention costs of $641,000 related to the launch and integration of the NewTom and DaVinci 3D Imaging product lines and expansion into specialty market segments, increased media and advertising expenses of $583,000, primarily from additional WCLI dental education events, increased commission expenses of $447,000, increased payroll and consulting related expenses of $427,000 including the creation of the inside sales team and strategic partnerships with leading dental education providers, increased travel and entertainment costs of $176,000, and increased supplies expenses of $176,000, offset by a net reduction in support services of $252,000 related to the non-recurring event.
General and Administrative Expense. General and administrative expenses for the six months ended June 30, 2012 increased by $506,000, or 13%, to $4.4 million, or 18% of net revenue, as compared with $3.9 million, or 17% of net revenue for the six months ended June 30, 2011. Excluding the non-recurring event, general and administrative expenses for the six months ended June 30, 2012 represented 17% of revenue. The increase in general and administrative expenses resulted primarily from increased allowance for doubtful accounts of $271,000, increased payroll and consulting related expenses of $137,000, increased bank fees of $85,000, increased professional insurance costs of $66,000, and increased rent expense of $58,000 offset by decreased depreciation expense of $106,000 and decreased patent and legal expenses of $31,000.
Engineering and Development Expense. Engineering and development expenses for the six months ended June 30, 2012 increased by $276,000, or 13%, to $2.5 million, or 10% of net revenue, as compared with $2.2 million, or 10% of net revenue for the six months ended June 30, 2011. Excluding the non-recurring event, engineering and development expenses for the six months ended June 30, 2012 represented 10% of revenue. The increase was primarily related to increased payroll and consulting related expenses of $137,000 and increased supplies expenses of $63,000.
Non-Operating Income (Loss)
Loss on Foreign Currency Transactions. We recognized a $109,000 loss on foreign currency transactions for the six months ended June 30, 2012, compared to a $54,000 loss on foreign currency transactions for the six months ended June 30, 2011 due to exchange rate fluctuations between the U.S. dollar and other currencies.
Interest Expense. Interest expense consists primarily of interest on our revolving credit facilities, amortization of debt issuance costs and debt discount, the financing of our business insurance premiums, and interest on our term loan payable which was repaid in full in February 2011. Interest expense totaled approximately $42,000 and $304,000 for six months ended June 30, 2012 and 2011, respectively. Interest expense for the six months ended June 30, 2011 included $225,000 of unamortized debt-related costs that were expensed in conjunction with the repayment of our outstanding balances under the Loan and Security Agreement during February 2011.
23
Income Taxes. Our provision for income taxes was $63,000 for the six months ended June 30, 2012, compared to $22,000 for the six months ended June 30, 2011.
Net Loss. For the reasons stated above, our net loss was $3.5 million for the six months ended June 30, 2012, compared to a net loss of $1.5 million for the six months ended June 30, 2011.
Liquidity and Capital Resources
At June 30, 2012, we had approximately $6.6 million in working capital. Our principal sources of liquidity at June 30, 2012 consisted of approximately $1.6 million in cash and cash equivalents, $0.1 million in restricted cash, $9.6 million of net accounts receivable, and $5.6 million of available borrowings under two revolving credit facility agreements. We define cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The following table summarizes our statements of cash flows (in millions):
Six Months Ended June 30, |
||||||||
2012 | 2011 | |||||||
Net cash flow provided by (used in): |
||||||||
Operating activities |
$ | (3,274 | ) | $ | (7,103 | ) | ||
Investing activities |
(457 | ) | (157 | ) | ||||
Financing activities |
2,068 | 15,589 | ||||||
Effect of exchange rate changes |
(37 | ) | 111 | |||||
|
|
|
|
|||||
Net change in cash and cash equivalents |
$ | (1,700 | ) | $ | 8,440 | |||
|
|
|
|
Operating Activities
Net cash used in operating activities during the six months ended June 30, 2012 was $3.3 million. Cash flow from operating activities consists of our net loss, adjusted for our non-cash charges, plus or minus working capital changes. Net cash used in working capital changes totaled $1.4 million for the six months ended June 30, 2012. The most significant changes in operating assets and liabilities for the six months ended June 30, 2012, as reported in our consolidated statements of cash flows, were increases of $2.2 million in accounts payable and accrued liabilities, $1.0 million in accounts receivable, and $106,000 in restricted cash, offset by decreases of $723,000 in prepaid expenses and other assets, $612,000 in inventory, and $515,000 in deferred revenue.
Investing Activities
Cash used in investing activities for the six months ended June 30, 2012 consisted of $457,000 of capital expenditures. For fiscal 2012, we expect capital expenditures to total approximately $1.2 million, and we expect depreciation and amortization to total approximately $700,000.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2012 was $2.1 million. Net cash provided by financing activities included $2.4 million in borrowings under the revolving credit facilities and $428,000 in proceeds from the exercise of stock options. Net cash used in financing activities for the six months ended June 30, 2012 consisted of amounts related to the borrowings under the revolving credit facilities, including $415,000 used for repayment of borrowings and $295,000 used for debt issuance costs.
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Future Liquidity Needs
At June 30, 2012, we had approximately $6.6 million in working capital. Our principal sources of liquidity at June 30, 2012 consisted of approximately $1.6 million in cash and cash equivalents, $0.1 million in restricted cash, $9.6 million of net accounts receivable, and $5.6 million of available borrowings under two revolving credit facility agreements.
Our ability to meet our obligations in the ordinary course of business is dependent upon our ability to sell our products directly to end-users and through distributors, establish profitable operations through increased sales and decreased expenses, and obtain additional funds when needed. Management intends to seek to increase sales by increasing our product offerings, expanding our direct sales force and expanding our distributor relationships both domestically and internationally. There can be no assurance that we will be able to increase sales, reduce expenses or obtain additional financing, if necessary, at a level to meet our current obligations. As a result, the opinion we received from our independent registered public accounting firm as of and for the year ended December 31, 2011 contained an explanatory paragraph stating that there was substantial doubt regarding our ability to continue as a going concern at that time.
Our capital requirements will depend on many factors, including, among other things, the rate at which our business grows, with corresponding demands for working capital and manufacturing capacity, and any acquisitions that we may pursue. From time to time, we could be required, or may otherwise attempt, to raise capital through either equity or debt offerings. We cannot provide assurance that we will enter into any such equity or debt financings in the future or that the required capital would be available on acceptable terms, if at all, or that any such financing activity would not be dilutive to our stockholders.
Contractual and Other Obligations
We lease our Irvine, California facility under a lease that expires in April 2015. In January 2011, we amended the lease to defer a portion of the basic rent to future periods.
In December 2011, we financed approximately $433,000 of insurance premiums payable in nine equal monthly installments of approximately $48,000 each, including a finance charge of 2.50%.
Certain members of management are entitled to severance benefits payable upon termination following a change in control, which would approximate $847,000 at June 30, 2012. We also have agreements with certain employees to pay bonuses based on targeted performance criteria.
We have an outstanding purchase obligation of $656,000 related to a purchase agreement with a supplier that is expected to be completed during the year.
Litigation and Contingencies
For more information on liabilities that may arise from litigation and contingencies, see Note 9 to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
As part of our on-going business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of June 30, 2012, we are not involved in any material unconsolidated SPEs.
Recent Accounting Pronouncements
For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operation and financial condition, please refer to Part I, Item 1, Note 2 of the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by this reference.
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Additional Information
BIOLASE®, ZipTip®, ezlase®, eztips®, MD Flow®, Comfortpulse®, Waterlase®, iLase®, iPlus®, WCLI®, World Clinical Laser Institute®, Waterlase MD®, Waterlase Dentistry®, Proprietary MD®, and EZLase Its So Easy® are registered trademarks of Biolase, Inc., and Diolase, HydroPhotonics, LaserPal, MD Gold, Waterlase MD Turbo, HydroBeam, Occulase, Diolase 10, Body Contour, Radial Firing Perio Tips, Deep Pocket Therapy with New Attachment, 2R , Intuitive Power, Comfortprep , Rapidprep , Bondprep , Intuitive Power, Occulase iPlus, Flavorflow, Occulase MD, Epic Diode, Epic Diode Laser, Biolase Epic, Epic Laser, Epic, Dermalase, Deltalaser, Delta, iStarlaser, iStar, Biolase DaVinci Imaging, Oculase, Waterlase MDX, Total Technology Solution, Geyserlaser, Geyser, eplus, and elase are trademarks of BIOLASE, Inc. All other product and company names are registered trademarks or trademarks of their respective owners.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
For quantitative and qualitative disclosures about market risk affecting the Company, see Quantitative and Qualitative Disclosures About Market Risk in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which is incorporated herein by reference. Our exposure to market risk has not changed materially since December 31, 2011.
ITEM 4. | CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a15(e) and 15d15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report (the Evaluation Date). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Companys management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a15(f) and 15d15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any change in our internal control over financial reporting during that quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. | LEGAL PROCEEDINGS. |
For a description of our legal proceedings, please refer to Part I, Item 1, Note 9 to the Notes to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference in response to this Item.
ITEM 1A. | RISK FACTORS. |
There have been no material changes to the risk factors as disclosed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, except as noted below.
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Risks Related to Our Revolving Credit Facilities
The terms of our revolving credit facilities impose financial and operating restrictions on us.
We have two revolving credit facilities in the aggregate principal amount of $8.0 million. Our revolving credit facilities contain a number of negative covenants that limit our ability to engage in activities. These covenants limit or restrict, among other things, our ability to:
| incur additional indebtedness and grant liens on assets; |
| make certain investments and restricted payments (including the ability to pay cash dividends and repurchase stock); |
| undertake certain acquisitions or sell certain assets; |
| enter into certain transactions with our affiliates; and |
| replace our Chief Executive Officer or Chief Financial Officer, unless our Board of Directors determines, in good faith, exigent circumstances require their prompt replacement. |
These limitations and restrictions may adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our best interests. Further, the revolving credit facilities subject us to various reporting covenants and financial covenants which require us to maintain certain levels of debt ratios and minimum earnings before income taxes, depreciation, and amortization (EBITDA).
The lockbox arrangements under the revolving bank facilities provide that substantially all of the income generated is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of the bank. Cash is disbursed to us only after payment of the applicable debt service and principal.
Our ability to borrow under the revolving bank facilities is subject to compliance with the negative and financial covenants. If we breach any of the covenants in our revolving credit facilities, we may be in default under our revolving credit facilities. If we default, our borrowings under the revolving credit facilities could be declared due and payable, including accrued interest and other fees.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
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ITEM 6. | EXHIBITS |
The exhibits listed below are hereby filed with the SEC as part of this Quarterly Report on Form 10-Q. Certain of the following exhibits have been previously filed with the SEC pursuant to the requirements of the Securities Act or the Exchange Act. Such exhibits are identified in the chart to the right of the Exhibit and are incorporated herein by reference.
Incorporated by Reference | ||||||||||||
Exhibit |
Description |
Filed Herewith |
Form |
Period Ending/Date of Report |
Exhibit | Filing Date | ||||||
3.1.1 | Restated Certificate of Incorporation, including, (i) Certificate of Designations, Preferences and Rights of 6% Redeemable Cumulative Convertible Preferred Stock of the Registrant; (ii) Certificate of Designations, Preferences and Rights of Series A 6% Redeemable Cumulative Convertible Preferred Stock of the Registrant; (iii) Certificate of Correction Filed to Correct a Certain Error in the Certificate of Designation of the Registrant; and (iv) Certificate of Designations of Series B Junior Participating Cumulative Preferred Stock of the Registrant. | S-1, Amendment No. 1 |
12/23/2005 | 3.1 | 12/23/2005 | |||||||
3.1.2 | Fifth Amended and Restated Bylaws of The Registrant, adopted on July 1, 2010 | 8-K | 07/02/2010 | 3.1 | 07/07/2010 | |||||||
3.1.3 | Amendment to Restated Certificate of Incorporation of the Registrant, dated May 11, 2012 | 8-K | 05/10/2012 | 3.1 | 05/16/2012 | |||||||
4.1 | Warrant to purchase Common Stock, dated May 24, 2012. | X | ||||||||||
4.2 | Amendment No. 1 to Warrant to Purchase Common Stock, dated August 6, 2012, by and between the Registrant and Comerica Ventures Incorporated. | X | ||||||||||
10.1 | Loan and Security Agreement, dated May 24, 2012, by and between the Registrant and Comerica Bank. | X | ||||||||||
10.2 | Borrower Agreement, dated May 24, 2012, by and between Comerica Bank and the Registrant, in favor of the Export-Import Bank of the United States. | X |
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Incorporated by Reference | ||||||||||||
Exhibit |
Description |
Filed Herewith |
Form | Period Ending/Date of Report |
Exhibit | Filing Date | ||||||
10.3 | Master Revolving Note, dated May 24, 2012, in favor of Comerica Bank. | X | ||||||||||
10.4 | Amendment No. 1 to Loan and Security Agreement, dated August 6, 2012, by and between Comerica Bank and the Registrant. | X | ||||||||||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended | X | ||||||||||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended | X | ||||||||||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
101 | The following unaudited financial information from the Companys Quarterly Report on Form 10-Q, for the period ended June 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Consolidated Statements of Cash Flows, (iv) Notes to Consolidated Financial Statements | X |
29
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 9, 2012
BIOLASE, INC., a Delaware Corporation (registrant) | ||
By: | /s/ FEDERICO PIGNATELLI | |
Federico Pignatelli | ||
Chief Executive Officer (Principal Executive Officer) | ||
By: | /s/ FREDERICK D. FURRY | |
Frederick D. Furry | ||
Chief Financial Officer (Principal Financial and Accounting Officer) |
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EXHIBIT 4.1
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY APPLICABLE STATE SECURITIES LAWS, AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 4 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO RULE 144 OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE COMMON STOCK
Corporation: | Biolase, Inc., a Delaware corporation | |
Number of Shares: | 80,000 (subject to Section 1.2) | |
Class of Stock: | Common | |
Warrant Price: | $2.83 per share | |
Issue Date: | May 24, 2012 | |
Expiration Date: | May 24, 2017 |
This Warrant to Purchase Common Stock (this Warrant) certifies that, for good and valuable consideration, the receipt of which is hereby acknowledged, Comerica Bank, a Texas banking association, or its assignee (Holder), is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the Shares) of Biolase, Inc. (the Company) at the Warrant Price, all as set forth above and as adjusted pursuant to the terms of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1
EXERCISE
1.1 Method of Exercise.
1.1.1 Cash Exercise. Holder may exercise this Warrant by a duly executed Notice of Exercise in substantially the form attached as Appendix I to the principal office of the Company (or such other appropriate location as Holder is so instructed by the Company). Unless Holder is exercising the conversion right set forth in Section 1.1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company) or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.
1.1.2 Net Issue Exercise. In lieu of exercising this Warrant as specified in Section 1.1.1, Holder may from time to time elect to exercise this Warrant by receiving Shares equal to the exchange value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with such notice of election, in which event the Company shall issue to the Holder a number of Shares computed as equaling the exchange value using the following formula:
X = Y*(A-B)/A
where:
X = the number of Shares to be issued to the Holder.
Y = the number of Shares purchasable under this Warrant.
A = the Fair Market Value (as determined pursuant to Section 1.6 below) of one Share.
B = the exercise price (as adjusted to the date of such calculation).
1.2 Vesting. This Warrant may only be exercised upon and after, and to the extent that, it has vested. This Warrant shall vest and become exercisable in accordance with the following schedule:
Vesting Date |
Incremental Vested Shares | Total Vested Shares | ||||||
May 24, 2012 |
20,000 | 20,000 | ||||||
August 24, 2012 |
20,000 | 40,000 | ||||||
November 24, 2012 |
20,000 | 60,000 | ||||||
February 24, 2013 |
20,000 | 80,000 |
1.3 Delivery of Certificate and New Warrant. Within 30 days after Holder exercises this Warrant and the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised and has not expired, a new warrant representing the Shares not so acquired.
1.4 Replacement of Warrants. In the case of loss, theft or destruction of this Warrant, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.
1.5 Acquisition of the Company.
1.5.1 Acquisition. For the purpose of this Warrant, Acquisition means (a) any sale, license, or other disposition of all or substantially all of the assets (including intellectual property) of the Company, or (b) any reorganization, consolidation, merger, sale of the voting securities of the Company or other transaction or series of related transactions where the holders of the Companys securities before the transaction or series of related transactions beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction or series of related transactions.
1.5.2 Treatment of Warrant in the Event of an Acquisition. The Company shall give Holder written notice at least 20 days prior to the closing of any proposed Acquisition. The Company will use commercially reasonable efforts to cause (i) the acquirer of the Company, (ii) successor or surviving entity or (iii) parent entity in an Acquisition (the Acquirer) to assume this Warrant as a part of the Acquisition.
(a) If the Acquirer assumes this Warrant, then this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly, and the Warrant Price and number and class of Shares shall continue to be subject to adjustment from time to time in accordance with the provisions hereof.
(b) If the Acquirer refuses to assume this Warrant in connection with the Acquisition, the Company shall give Holder an additional written notice at least ten (10) days prior to the closing of the Acquisition of such fact. In such event, notwithstanding any other
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provision of this Warrant to the contrary, Holder may immediately exercise this Warrant in the manner specified in this Warrant with such exercise effective immediately prior to closing of the Acquisition. If Holder elects not to exercise this Warrant, then this Warrant will terminate immediately prior to the closing of the Acquisition. Notwithstanding any other provision of this Warrant to the contrary if the Acquirer refuses to assume this Warrant in connection with such Acquisition, other than in connection with an Excluded Acquisition (as defined below), then effective as of the date that is ten (10) days prior to the closing of such Acquisition, the Holder shall have the option to elect to put this Warrant to the Company for a per Share amount equal to the difference between the Acquisition consideration payable for one Share and the Warrant Price. As used herein, an Excluded Acquisition means, an Acquisition where the consideration that the holders of the Shares are entitled to receive on account of the Shares consists entirely of cash and/or shares of common stock that are publicly traded on a national exchange and where the shares, if any, receivable by the Holder of this Warrant were the Holder to exercise this Warrant in full immediately prior to the closing of such Acquisition may be publicly re-sold by the Holder in their entirety within the three (3) months following such closing pursuant to Rule 144 or an effective registration statement under the Act.
1.6 Fair Market Value. If the Shares are traded regularly in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Companys stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not regularly traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.
ARTICLE 2
ADJUSTMENTS TO THE SHARES
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock payable in common stock, or other securities, other than duly declared stock dividends consistent with past practice, or subdivides the outstanding common stock into a greater amount of common stock, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Companys Certificate of Incorporation upon the closing of a registered public offering of the Companys common stock. The Company or its successor shall promptly issue to Holder a new warrant for such new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price, the number of securities or property issuable upon exercise of the new warrant and expiration date. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification, reverse split or otherwise, into a lesser Number of Shares, the Warrant Price shall be proportionately increased. If the outstanding Shares are split or multiplied, by reclassification or otherwise, into a greater Number of Shares, the Warrant Price shall be proportionately decreased.
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2.4 Reserved.
2.5 No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holders rights under this Article 2 against impairment.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate signed by its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.
2.7 Fractional Shares. No fractional Shares shall be issuable upon exercise of this Warrant and the Number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise of this Warrant, the Company shall eliminate such fractional share interest by paying Holder an amount computed by multiplying the fractional interest by the fair market value, as determined by the Companys Board of Directors, of a full Share.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 Representations and Warranties. The Company hereby represents and warrants to, and agrees with, the Holder as follows:
3.1.1 The initial Warrant Price referenced on the first page of this Warrant shall equal to 120% of the share price of the Companys common stock on the date hereof as quoted on NASDAQ.
3.1.2 All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
3.1.3 The Companys capitalization table delivered to Holder as of the Issue Date is true and complete as of the Issue Date.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of stock; or (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up, then, in connection with each such event, the Company shall give Holder written notice thereof at the same time
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and in the same manner as the Company gives notice thereof to the holders of the Companys outstanding common stock. Upon request, the Company shall provide Holder with such information reasonably necessary for Holder to evaluate its rights as a holder of this Warrant or the Shares in the case of matters referred to (a), (b), (c) and (d) herein above.
3.3 Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, except to the extent that any of the following has been filed on the SECs EDGAR system, the Company shall deliver to the Holder (a) promptly after mailing, copies of all communications, information and/or communiqués to the shareholders of the Company, (b) within ninety (90) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (c) within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Companys quarterly, unaudited financial statements. In addition, and without limiting the generality of the foregoing, so long as the Holder holds this Warrant and/or any of the Shares, the Company shall afford to the Holder the same access to information concerning the Company and its business and financial condition as would be afforded to a holder of the class of Shares under applicable state law and/or any agreement with any holder of the class of Shares.
3.4 Reserved.
ARTICLE 4
MISCELLANEOUS
4.1 Term; Exercise Upon Expiration. This Warrant is exercisable in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. The Company agrees that Holder may terminate this Warrant, upon notice to the Company, at any time in its sole discretion.
4.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY APPLICABLE STATE SECURITIES LAWS, AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 4 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO RULE 144 OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee. The Company shall not require Comerica Bank (Bank) or a Bank Affiliate (as defined herein) to provide an opinion of counsel or investment representation letter if the transfer is to Banks parent company, Comerica Incorporated (Comerica), or any other affiliate of Bank (Bank Affiliate), provided that such transferee is an accredited investor as defined in Regulation D promulgated under the Act.
4.4 Transfer Procedure. After receipt of the executed Warrant, Bank will transfer all of this Warrant to Comerica Ventures Incorporated, a non-banking subsidiary of Comerica and a Bank Affiliate (Ventures). Subject to the provisions of Section 4.3, Holder may transfer all or part of this Warrant or
Page 5 of 7
the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of this Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable); provided, however, that Holder may transfer all or part of this Warrant to its affiliates, including, without limitation, Ventures, at any time without notice or the delivery of any other instrument to the Company, and such affiliate shall then be entitled to all the rights of Holder under this Warrant and any related agreements, and the Company shall cooperate fully in ensuring that any stock issued upon exercise of this Warrant is issued in the name of the affiliate that exercises this Warrant. The terms and conditions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective permitted successors and assigns.
4.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, or sent via a nationally recognized overnight courier service, fee prepaid, or on the first business day after transmission by facsimile, at such address or facsimile number as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. Effective upon the receipt of executed Warrant and initial transfer described in Article 5.4 above, all notices to the Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:
Comerica Ventures Incorporated
Attn: Warrant Administrator
1717 Main Street, 5th Floor, MC 6406
Dallas, Texas 75201
Facsimile No. (214) 462-4459
All notices to the Company shall be addressed as follows:
Biolase, Inc.
4 Cromwell
Irvine, California 92618
4.6 Amendments; Waiver. This Warrant and any term hereof may be amended, changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such amendment, change, waiver, discharge or termination is sought.
4.7 Attorneys Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.
4.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law.
[end of warrant signature page follows]
Page 6 of 7
This Warrant to Purchase Common Stock is executed and delivered as of the Issue Date set forth above.
BIOLASE, INC. | ||
By: | /s/ Frederick D. Furry | |
Name: | Frederick D. Furry | |
Title: | Chief Financial Officer |
Page 7 of 7
APPENDIX I
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase shares of the common stock of Biolase, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:
Comerica Ventures Incorporated
Attn: Warrant Administrator
1717 Main Street, 5th Floor, MC 6406
Dallas, Texas 75201
Facsimile No. (214) 462-4459
3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws.
COMERICA VENTURES INCORPORATED or Assignee |
(Signature) |
(Name and Title) |
(Date) |
Appendix I
Page 1
EXHIBIT 4.2
AMENDMENT NO. 1 TO WARRANT TO PURCHASE COMMON STOCK
This Amendment No. 1 to Warrant to Purchase Common Stock (Amendment) is made, delivered, and effective as of August 6, 2012, by and between Biolase, Inc., a Delaware corporation (Company) and Comerica Ventures Incorporated, a California corporation (Comerica Ventures) in order to amend the Warrant to Purchase Common Stock dated May 24, 2012, issued by Company to Comerica Bank, a Texas banking association (Warrant), which Warrant has been transferred to Comerica Ventures.
For valuable consideration, Company and Comerica Ventures agree as follows:
1. The Warrant Price, as set forth on page 1 of the Warrant, is hereby amended to be $2.00 per share.
2. Section 1.5.2(b) of the Warrant is amended entirely to read as follows:
(b) If the Acquirer refuses to assume this Warrant in connection with the Acquisition, the Company shall give Holder an additional written notice at least ten (10) days prior to the closing of the Acquisition of such fact. In such event, notwithstanding any other provision of this Warrant to the contrary, Holder may immediately exercise this Warrant in the manner specified in this Warrant with such exercise effective immediately prior to closing of the Acquisition. If Holder elects not to exercise this Warrant, then this Warrant will terminate immediately prior to the closing of the Acquisition. Notwithstanding any other provision of this Warrant to the contrary if the Acquirer refuses to assume this Warrant in connection with such Acquisition, other than in connection with an Excluded Acquisition (as defined below), then effective as of the date that is ten (10) days prior to the closing of such Acquisition, the Holder shall have the option to elect to exercise this Warrant pursuant to Section 1.1.1 for a number of Shares determined using as the Fair Market Value the difference between the Acquisition consideration payable for one Share and the Warrant Price. As used herein, an Excluded Acquisition means, an Acquisition where the consideration that the holders of the Shares are entitled to receive on account of the Shares consists entirely of cash and/or shares of common stock that are publicly traded on a national exchange and where the shares, if any, receivable by the Holder of this Warrant were the Holder to exercise this Warrant in full immediately prior to the closing of such Acquisition may be publicly re-sold by the Holder in their entirety within the three (3) months following such closing pursuant to Rule 144 or an effective registration statement under the Act.
3. This Amendment is not an agreement to any further or other amendment of the Warrant. This Amendment contains the entire agreement of the parties for the amendment of the Warrant, superseding all negotiations, prior discussions, and preliminary agreements made prior to the date hereof. In executing this Agreement, neither party is relying on any promise or commitment of the other party that is not in writing signed by the other party. The parties agree that except as expressly amended in this Amendment, the Warrant, as amended, remains in full force and effect and is ratified and confirmed.
4. Each party represents and warrants to the other that when executed, this Amendment will be a duly authorized, legal, valid, and binding obligation of such party enforceable in accordance with its terms.
5. This Agreement may be executed in one or more counterparts, and by separate parties on separate counterparts, all of which shall constitute one and the same agreement.
[end of amendmentsignature page follows]
This Amendment No. 1 to Warrant to Purchase Common Stock is executed and delivered as of the date first written above.
Biolase, Inc. | Comerica Ventures Incorporated | |||||||
By: | Frederick D. Furry |
By: | LaReeda V. Rentie | |||||
Name: | Frederick D. Furry | Name: | LaReeda V. Rentie | |||||
Title: | Chief Financial Officer | Title: | Assistant Vice President |
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EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this Agreement) is entered into as of May 24, 2012, by and between Comerica Bank (Bank) and Biolase, Inc., a Delaware corporation (Borrower).
RECITALS: In order to support general working capital requirements and to fund capital expenditures, Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.
AGREEMENT: The parties agree as follows:
ARTICLE | 1. DEFINITIONS AND CONSTRUCTION. |
1.1 Definitions. As used in this Agreement, all capitalized terms shall have the definitions set forth on Exhibit A. Any term used in the Code and not defined herein shall have the meaning given to the term in the Code.
1.2 Accounting Terms. Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP. The term financial statements shall include the accompanying notes and schedules.
ARTICLE | 2. LOAN AND TERMS OF PAYMENT. |
2.1 | Credit Extensions. |
(a) Promise to Pay. Borrower promises to pay to Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
(b) | Advances under Revolving Line. |
(i) Amount. Subject to and upon the terms and conditions of this Agreement Borrower may request Advances in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the Borrowing Base. Amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time without penalty or premium prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(b) shall be immediately due and payable.
(ii) Form of Request. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific time (12:00 p.m. Pacific time for wire transfers), on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit C. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of Responsible Officer, or without instructions if in Banks discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any facsimile or telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1(b) to Borrowers deposit account.
2.2 Overadvances. If the aggregate amount of the outstanding Advances exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.3 | Interest Rates, Payments, and Calculations. |
(a) Interest Rates Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding daily balance thereof, as set forth in the Daily Adjusting LIBOR Rate Addendum attached hereto as Exhibit F (Rate Addendum).
(b) Late Fee; Default Rate. If any payment is not made within 10 days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
(c) Payments. Except as set forth in the Rate Addendum, interest hereunder shall be due and payable on the first calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrowers deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific Time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
2.5 | Fees. Borrower shall pay to Bank the following: |
(a) Facility Fee. On the Closing Date, a fee equal to $120,000.00, which shall be nonrefundable; and
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(b) Bank Expenses. On the Closing Date, Bank Expenses of $ incurred through the Closing Date, and, after the Closing Date, all Bank Expenses, as and when they become due.
2.6 Term. This Agreement shall become effective on the Closing Date and, subject to Section 13.8, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.
ARTICLE | 3. CONDITIONS OF LOANS. |
3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) an officers certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement, accompanied by certified copies of Borrowers organizational documents;
(c) financing statement (Form UCC-1);
(d) an agreement to furnish insurance;
(e) the Security Agreement;
(f) the Security Agreement- Stock Pledge for the Shares executed and delivered by Borrower and the certificates for the Shares, together with assignment(s) separate from certificate, duly executed in blank;
(g) payment of the fees and Bank Expenses then due specified in Section 2.5;
(h) current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;
(i) an audit of the Collateral, the results of which shall be satisfactory to Bank;
(j) current financial statements, including (i) audited statements for Biolase Technology Inc.s most recently ended fiscal year, together with an unqualified opinion of its accountants regarding those statements, (ii) company prepared consolidated and consolidating balance sheets and income statements for the most recently ended month in accordance with Section 6.2, and (iii) such other updated financial information as Bank may reasonably request;
(k) a current Borrowing Base Certificate as contemplated by Section 6.2(h);
(l) a current Compliance Certificate in accordance with Section 6.2(i);
(m) a Collateral Information Certificate in form satisfactory to Bank;
(n) an Automatic Debit Authorization;
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(o) a Warrant for 80,000 shares of Biolase Technologys common stock with an exercise price of 120% of the public trading closing price on the Closing Date and a five year term; and
(p) such other documents or certificates, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and
(b) the representations and warranties contained in Article 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
ARTICLE | 4. CREATION OF SECURITY INTEREST. |
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Borrower also hereby agrees not to sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its Intellectual Property, except in connection with Permitted Liens and Permitted Transfers. Borrower further agrees that it shall not enter into any agreement with or for the benefit of any other person that restricts or limits Borrowers ability to assign or grant a security interest to Bank in any of Borrowers Intellectual Property. Notwithstanding any termination of this Agreement, Banks Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
4.2 Perfection of Security Interest. Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable. Any such financing statements may be filed by Bank at any time in any jurisdiction whether or not Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower shall from time to time endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfection of Banks security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, (ii) obtain control of any Collateral consisting of investment
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property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term control are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory to Bank. Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.
4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect Borrowers Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrowers financial condition or the amount, condition of, or any other matter relating to, the Collateral.
4.4 | DOF Account. |
(a) Borrower agrees that the Obligations shall be on a remittance basis. Borrower shall at its sole expense establish and maintain (and Bank, at Banks option, may establish and maintain at Borrowers expense) a non-interest bearing deposit account with Bank which shall be titled as designated by Bank (the Dominion of Funds Account) to which Bank shall have exclusive access and control. Borrower agrees to notify all account debtors and other parties obligated to Borrower that all payments made to Borrower by electronic funds transfer shall be remitted to the Dominion of Funds Account, and Borrower, at Banks request, shall include a like statement on all invoices. Borrower shall execute all documents and authorizations as required by Bank to establish and maintain the Dominion of Funds Account.
(b) Borrower shall hold in trust for Bank all amounts that Borrower receives by check or other form of payment or despite the directions to make electronic funds transfer payments to the Dominion of Funds Account, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit into the Dominion of Funds Account.
(c) All items or amounts which are remitted to the Dominion of Funds Account, or otherwise delivered by or for the benefit of Borrower to Bank on account of partial or full payment of, or with respect to, any Collateral shall, on a daily basis, be applied to the payment of outstanding Advances, whether then due or not, with the balance, if any, deposited to Borrowers operating account maintained at Bank. After the occurrence and during the continuance of an Event of Default, all items or amounts remitted to the Dominion of Funds Account or that Bank has otherwise received shall, in Banks sole discretion, be applied to the payment of any Obligations, whether then due or not, in such order or at such time of application as Bank may determine in its sole discretion. Borrower agrees that Bank shall not be liable for any loss or damage which Borrower may suffer as a result of Banks processing of items or its exercise of any other rights or remedies under this Agreement, including without limitation indirect, special or consequential damages, loss of revenues or profits, or any claim, demand or action by any third party arising out of or in connection with the processing of items or the exercise of any other rights or remedies under this Agreement. Borrower agrees to indemnify and hold Bank harmless from and against all such third party claims, demands or actions, and all related expenses or liabilities, including, without limitation, attorneys fees and INCLUDING CLAIMS, DAMAGES, FINES, EXPENSES, LIABILITIES OR CAUSES OF ACTION OF WHATEVER KIND RESULTING FROM BANKS OWN NEGLIGENCE except to the extent (but only to the extent) caused by Banks gross negligence, willful misconduct, or fraud.
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ARTICLE 5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is an entity duly existing under the laws of the jurisdiction in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrowers powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrowers organizational documents, nor will they constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.
5.3 Collateral. Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. All Collateral is located solely in the Collateral States. The Eligible Accounts are bona fide existing obligations. The property or services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor whose accounts are included in any Borrowing Base Certificate as an Eligible Account. No licenses or agreements giving rise to such Eligible Accounts are with any Prohibited Territory or with any Person organized under or doing business in a Prohibited Territory. All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule, none of the Collateral is maintained or invested with a Person other than Bank or Banks Affiliates.
5.4 Intellectual Property Collateral. Borrower is the sole owner of the Intellectual Property, except for licenses granted by Borrower to its customers in the ordinary course of business. To the best of Borrowers knowledge, each of the Copyrights, Trademarks and Patents is valid and enforceable, and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property violates the rights of any third party except to the extent such claim could not reasonably be expected to cause a Material Adverse Effect.
5.5 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The chief executive office of Borrower is located in the Chief Executive Office State at the address indicated in Article 10.
5.6 Actions, Suits, Litigation, or Proceedings. Except as set forth in the Schedule, there are no actions, suits, litigation or proceedings, at law or in equity, pending by or against Borrower or any Subsidiary before any court, administrative agency, or arbitrator in which a likely adverse decision could reasonably be expected to have a Material Adverse Effect.
5.7 No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly
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present in all material respects Borrowers consolidated and consolidating financial condition as of the date thereof and Borrowers consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or in the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts (including trade debts) as they become due; the fair saleable value of Borrowers assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrowers failure to comply with ERISA that is reasonably likely to result in Borrowers incurring any liability that could reasonably be expected to have a Material Adverse Effect. Borrower is not an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Borrower is in compliance with all Environmental Laws except where the failure to comply is not reasonably likely to have a Material Adverse Effect. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which could reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes could not reasonably be expected to have a Material Adverse Effect.
5.10 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments. All Subsidiaries of Biolase Technology and their respective shareholders are listed on the Schedule.
5.11 Government Consents. Borrower and each Subsidiary 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 for the continued operation of Borrowers business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.
5.12 Inbound Licenses. Except as disclosed on the Schedule, Borrower is not a party to, nor is bound by, any inbound license or other agreement, the failure, breach, or termination of which could reasonably be expected to cause a Material Adverse Effect, or that prohibits or otherwise restricts Borrower from granting a security interest in such Borrowers interest in license or agreement or any other property.
5.13 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading, it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.
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ARTICLE 6. AFFIRMATIVE COVENANTS. Borrower covenants and shall cause its Material Subsidiaries to covenant that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall and shall cause each of its Material Subsidiaries to do all of the following:
6.1 Good Standing and Government Compliance. Borrower shall maintain its and each of its Subsidiaries organizational existence and good standing in the Borrower State, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Effect, and shall furnish to Bank the organizational identification numbers issued to Borrower by the authorities of the jurisdiction in which Borrower is organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required thereunder where the failure to do so could reasonably be expected to have a Material Adverse Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which would reasonably be expected to have a Material Adverse Effect.
6.2 | Financial Statements, Reports, Certificates. Borrower shall deliver to Bank: |
(a) as soon as available, but in any event within 30 days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrowers operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer;
(b) as soon as available, but in any event within 120 days after the end of Borrowers fiscal year, audited consolidated and consolidating financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an opinion which is unqualified (including no going concern comment or qualification) or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank;
(c) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt, if any, and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission (the SEC) (the filing of such documents on the SECs EDGAR system shall be deemed delivery by Borrower of such information to Bank);
(d) promptly upon receipt of notice thereof, a report of any legal actions pending or, to Borrowers knowledge, threatened in writing against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $150,000.00 or more;
(e) promptly upon receipt, each management letter prepared by Borrowers independent certified public accounting firm regarding Borrowers management control systems;
(f) as soon as available, but in any event not later than 60 days after the commencement of each fiscal year, Borrowers board of directors-approved financial and business projections and budget, sales projections, and operating plans for that year;
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(g) within 30 days of the last day of each fiscal quarter, a report signed by Borrower, in form reasonably acceptable to Bank, listing any applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations, as well as any material change in Borrowers Intellectual Property;
(h) within 30 days after the last day of each month, a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit D, together with aged listings by invoice date of accounts receivable and accounts payable; provided, however, during any Weekly Reporting Period, Borrower shall submit Borrowing Base Certificates as of the last Business Day of each week within 2 Business Days thereafter;
(i) within 30 days after the last day of each month, with the monthly financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit E.
(j) immediately upon becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.
Bank shall have a right from time to time hereafter to audit Borrowers Accounts and Inventory and appraise Collateral at Borrowers expense, provided that, unless an Event of Default has occurred and is continuing, (i) audits of Accounts will be conducted no more often than every six (6) months and (ii) audits of Inventory will be conducted no more often than every twelve (12) months.
Borrower may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer. If Borrower delivers this information electronically, it shall also deliver to Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or .pdf file within five (5) days of submission of the unsigned electronic copy the certification of monthly financial statements, the intellectual property report, the Borrowing Base Certificate and the Compliance Certificate, each bearing the physical signature of the Responsible Officer.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good and merchantable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving more than $100,000.00.
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.
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6.5 | Insurance. |
(a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrowers business is conducted on the date hereof. Borrower shall also maintain liability and other insurance in amounts and of a type that are customary to businesses similar to Borrowers.
(b) All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All policies of property insurance shall contain a lenders loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show Bank as an additional insured and specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Banks request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at Borrowers option, be payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security interest. If an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Banks option, be payable to Bank to be applied on account of the Obligations.
6.6 Accounts. Borrower shall maintain all its depository and operating accounts with Bank and its primary investment accounts with Bank or Banks Affiliates (covered by satisfactory control agreements).
6.7 | Financial Covenants. Borrower shall maintain the following financial ratios and covenants: |
(a) Liquidity Ratio. As of the end of each month, commencing with May 31, 2012, a ratio of (i) cash plus Eligible Accounts plus Eligible Ex-Im Accounts plus Eligible Inventory to (ii) the outstanding principal amount of the Obligations, at not less than 1.25:1.00.
(b) EBITDA. As of the end of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2012, an EBITDA of not less than the amount set forth below for the applicable measurement date, measured in each case for the three (3) months then-ending:
Measurement Date |
Minimum EBITDA | |||
March 31, 2012 |
$1,000,000.00 | |||
June 30, 2012 |
-$650,000.00 | |||
September 30, 2012 |
$- 0 - | |||
December 31, 2012 and thereafter |
+ $300,000.00 |
6.8 | Registration of Intellectual Property Rights. |
(a) Borrower shall register or cause to be registered on an expedited basis (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as the case may be, those registrable intellectual property rights now owned or hereafter developed or acquired by Borrower, to the extent that Borrower, in its reasonable business judgment, deems it appropriate to so protect such intellectual property rights.
(b) Borrower shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office and United States Copyright Office, including the date of such filing and the registration or application numbers, if any.
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(c) Borrower shall give Bank prompt written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed.
(d) Borrower shall (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents, Copyrights, and trade secrets, (ii) use commercially reasonable efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld.
6.9 Notice of Inbound Licenses. Prior to entering into or becoming bound by any material license or agreement, Borrower shall provide written notice to Bank of the material terms of such material license or agreement with a description of its likely impact on Borrowers business or financial condition.
6.10 Further Assurances. At any time and from time to time, Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
6.11 Future Subsidiaries; Additional Collateral. Borrower shall cause, with respect to each Person which is or becomes a Material Subsidiary of Borrower (directly or indirectly) after the Closing Date, within 30 days of the later of the date when the date such Person becomes a Material Subsidiary, such Material Subsidiary to execute and deliver to Bank (x) a joinder agreement in the form of Exhibit A to the Guaranty made by the Guarantors whereby such Material Subsidiary becomes obligated as a Guarantor under such Guaranty, (y) a joinder agreement in the form of Exhibit A to the Security Agreement Stock Pledge, if applicable, and (z) a joinder agreement in the form of Exhibit C to the Security Agreement; and Borrower shall pledge, or cause to be pledged, to Bank 100% of the shares of capital stock or other ownership or equity interests in such Material Subsidiary; and in each case such documents to be in form reasonably satisfactory to Bank together with such supporting documentation, including without limitation corporate or other legal authority items, certificates and opinions of counsel, as reasonably required by Bank.
ARTICLE 7. NEGATIVE COVENANTS. Borrower covenants and agrees and shall cause each of its Subsidiaries to covenant and agree that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not and will not permit any of its Subsidiaries to do any of the following without Banks prior written consent:
7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to Transfer), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.
7.2 Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control. Change its name or the Borrower State or relocate its chief executive office without 30 days prior written notification to Bank; replace its chief executive officer or chief financial officer without 30 days prior written notification to Bank, provided that, Borrowers board
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of directors acting in good faith may determine that there exist exigent circumstances requiring prompt replacement of such officers without prior notification to Bank, in which case notice will be given as soon as reasonably practicable; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end; have a Change in Control.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, or enter into any agreement to do any of the same, except where (i) such transactions do not in the aggregate exceed $100,000.00 during any fiscal year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity.
7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.
7.5 Encumbrances. Create, incur, assume or allow any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrowers property.
7.6 Distributions. Pay any cash dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, except that Borrower may (i) repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase[, and (ii) repurchase the stock of former employees pursuant to stock repurchase agreements by the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists. For the avoidance of doubt, Bank acknowledges that Borrower currently pays a stock dividend and such dividend shall not be deemed a violation of this Section 7.6.
7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries to do so, other than Permitted Investments, or maintain or invest any of its property with a Person other than Bank or Banks Affiliates or permit any Subsidiary to do so unless such Person has entered into a control agreement with Bank, in form and substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower. Further, Borrower shall not enter into any license or agreement with any Prohibited Territory or with any Person organized under or doing business in a Prohibited Territory.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrowers business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt
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and the terms of the subordination agreement relating to such Subordinated Debt, or amend any provision of any document evidencing such Subordinated Debt, except in compliance with the terms of the subordination agreement relating to such Subordinated Debt, or amend any provision affecting Banks rights contained in any documentation relating to the Subordinated Debt without Banks prior written consent.
7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee, warehouseman, or similar third party unless the third party has been notified of Banks security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Banks benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Article 10 and such other locations of which Borrower gives Bank prior written notice and as to which Bank files a financing statement where needed to perfect its security interest.
7.11 No Investment Company; Margin Regulation. Become or be controlled by an investment company, within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.
ARTICLE 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
8.1 | Payment Default. If Borrower fails to pay any of the Obligations when due. |
8.2 | Covenant Default. |
(a) If any Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement; or
(b) If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within ten (10) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, so long as Borrower continues to diligently attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;
8.3 Material Adverse Change. If there occurs any circumstance or circumstances that could reasonably be expected to have a Material Adverse Effect.
8.4 Defective Perfection. If Bank shall receive at any time following the Closing Date an SOS Report indicating that except for Permitted Liens, Banks security interest in the Collateral is not prior to all other security interests or Liens of record reflected in the report;
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8.5 Attachment. If any material portion of Borrowers assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrowers assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrowers assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by such Borrower (provided that no Credit Extensions will be made during such cure period);
8.6 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within forty five (45) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
8.7 Other Agreements. If there is a default or other failure to perform in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of $100,000.00 or that could reasonably be expected to have a Material Adverse Effect;
8.8 Subordinated Debt. If Borrower makes any payment on account of Subordinated Debt, except to the extent the payment is allowed under any subordination agreement entered into with Bank;
8.9 Judgments; Settlements. If one or more (a) judgments, orders, decrees or arbitration awards requiring Borrower and/or any of its Subsidiaries to pay an aggregate amount of $150,000.00 or greater shall be rendered against Borrower and/or any of its Subsidiaries and the same shall not have been vacated or stayed within twenty (20) days thereafter (provided that no Credit Extensions will be made prior to such matter being vacated or stayed); or (b) settlements are agreed upon by Borrower and/or its Subsidiaries for the payment by Borrower and/or its Subsidiaries of an aggregate amount of $150,000.00 or greater.
8.10 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.
ARTICLE | 9. BANKS RIGHTS AND REMEDIES. |
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.6 (insolvency), all Obligations shall become immediately due and payable without any action by Bank);
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(b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
(d) Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Banks determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrowers owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Banks rights or remedies provided herein, at law, in equity, or otherwise;
(e) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, and (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrowers labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Banks exercise of its rights under this Section 9.1, Borrowers rights under all licenses and all franchise agreements shall inure to Banks benefit;
(g) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate. Bank may sell the Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale;
(h) Bank may credit bid and purchase at any public sale;
(i) Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and
(j) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.
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Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.
9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Banks designated officers, or employees) as Borrowers true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Banks security interest in the Accounts; (b) endorse Borrowers name on any checks or other forms of payment or security that may come into Banks possession; (c) sign Borrowers name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrowers policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clause (g) above, regardless of whether an Event of Default has occurred. The appointment of Bank as Borrowers attorney in fact, and each and every one of Banks rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Banks obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence and during the continuation of an Event of Default, Bank may notify any Person owing funds to Borrower of Banks security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Banks trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Banks Liability for Collateral. Bank has no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them and Bank may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Banks rights against Borrower. Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative. Banks rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right
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or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrowers part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrower expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.
9.8 Demand; Protest. Except as otherwise provided in this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.
ARTICLE | 10. NOTICES. |
Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:
If to Borrower: | Biolase Technology Inc. 4 Cromwell Irvine, CA 92618 Attn: Federico Pignatelli, Chairman and CEO FAX: (949) 273-6685 | |
If to Bank: | Comerica Bank M/C 7578 39200 Six Mile Rd. Livonia, MI 48152 Attn: National Documentation Services | |
with a copy to: | Comerica Bank Technology & Life Sciences Division 11943 El Camino Real Suite 110B San Diego, CA 92130 Attn: Lake T. McGuire FAX: (858) 509-2365 |
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
ARTICLE 11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the State and Federal courts located in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY
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RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.
ARTICLE | 12. REFERENCE PROVISION. |
12.1 In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.
(a) With the exception of the items specified in Section 12.1(b), below, any controversy, dispute or claim (each, a Claim) between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the Loan Documents), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (CCP), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding will be in the Superior Court in the County where the real property involved in the action, if any, is located or in a County where venue is otherwise appropriate under applicable law (the Court).
(b) The matters that shall not be subject to a reference are the following: (i) foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This Agreement does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this Agreement.
(c) The referee shall be a retired Judge or Justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted.
(d) The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
(e) The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a partys failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to priority in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
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(f) Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referees power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
(g) The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court and any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
(h) If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or Justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
(i) THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
ARTICLE | 13. GENERAL PROVISIONS. |
13.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Banks prior written consent, which consent may be granted or withheld
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in Banks sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Banks obligations, rights and benefits hereunder.
13.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement and/or the Loan Documents; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Banks gross negligence or willful misconduct.
13.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.
13.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
13.5 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties.
13.6 Amendments in Writing, Integration. All amendments to or terminations of this Agreement or the other Loan Documents must be in writing signed by the parties. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents.
13.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
13.8 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
13.9 Confidentiality. In handling any confidential information, Bank and all employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank, (v) to Banks accountants, auditors and regulators, and (vi) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.
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IN WITNESS WHEREOF, the parties hereto have caused this Loan and Security Agreement to be executed as of the date first above written.
Biolase, Inc. | Comerica Bank | |||||||
By: | /s/ Frederick D. Furry |
By: | /s/ Lake T. McGuire | |||||
Name: | Frederick D. Furry | Name: | Lake T. McGuire | |||||
Title: | Chief Financial Officer | Title: | Vice President |
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Exhibit A: Definitions
Accounts means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrowers Books relating to any of the foregoing.
Advance or Advances means a cash advance or cash advances under the Revolving Line.
Affiliate means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Persons senior executive officers, directors, and partners.
Bank Expenses means all reasonable costs or expenses (including reasonable attorneys fees and expenses, whether generated in-house or by outside counsel) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees but no more than $10,000 per audit; and Banks reasonable attorneys fees and expenses (whether generated in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
Borrower State means Delaware, the state under whose laws each Borrower is organized.
Borrowers Books means all of Borrowers books and records including: ledgers; records concerning such Borrowers assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
Borrowing Base means an amount equal to:
(a) | Eighty percent (80.0%) of Eligible Accounts plus |
(b) | the least of the following: |
(i) | Fifty percent (50.0%) of Eligible Inventory, or |
(ii) | $1,500,000.00, or |
(iii) | the amount determined under clause (a); |
as each of the foregoing is determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower.
Business Day means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
Cash means unrestricted cash and cash equivalents.
Change in Control shall mean a transaction in which any person or group (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a
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sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such person or group to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.
Chief Executive Office State means California, where Borrowers chief executive office is located.
Closing Date means the date of this Agreement.
Code means the California Uniform Commercial Code as amended or supplemented from time to time.
Collateral means the property described on attached Exhibit B and all Negotiable Collateral to the extent not described on Exhibit B, except to the extent any such property (i) is non-assignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, or (iii) constitutes the capital stock of a controlled foreign corporation (as defined in the IRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote.
Collateral State means the state or states where the Collateral is located, which is California.
Consolidated Net Income (or Deficit) means the consolidated net income (or deficit) of any Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income.
Consolidated Total Interest Expense means with respect to any Person for any period, the aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.
Contingent Obligation means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
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Copyrights means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.
Credit Extension means each Advance or any other extension of credit by Bank to or for the benefit of Borrower hereunder.
EBITDA means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of Borrowers Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent added in computing Consolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits) for such period, all as determined in accordance with GAAP.
Eligible Accounts means those Accounts that arise in the ordinary course of Borrowers business that comply with all of Borrowers representations and warranties to Bank set forth in Section 5.3; provided, that Bank may change the standards of eligibility by giving Borrower thirty (30) days prior written notice. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay in full within ninety (90) days of invoice date;
(b) Credit balances over ninety (90) days;
(c) Accounts with respect to an account debtor, twenty-five percent (25%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date;
(d) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed:
(i) fifty percent (50%) of all Accounts in the case of accounts owned by National Technology Leasing and
(ii) twenty-five percent (25%) of all Accounts in the case of all other Account Debtors, in either case, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank;
(e) Accounts with respect to which the account debtor does not have its principal place of business in the United States, except for Eligible Foreign Accounts;
(f) Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States, except for Accounts of the United States if the payee has assigned its payment rights to Bank and the assignment has been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);
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(g) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower;
(h) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, demo or promotional, or other terms by reason of which the payment by the account debtor may be conditional;
(i) Accounts with respect to which the account debtor is an officer, employee, agent or Affiliate of Borrower;
(j) Accounts that have not yet been billed to the account debtor or that relate to deposits (such as good faith deposits) or other property of the account debtor held by Borrower for the performance of services or delivery of goods which Borrower has not yet performed or delivered;
(k) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(l) Accounts the collection of which Bank reasonably determines after inquiry and consultation with Borrower to be doubtful; and
(m) Retentions and hold-backs.
Eligible Ex-Im Accounts means those Accounts that are deemed Eligible under the Ex-Im Facility Documents.
Eligible Foreign Accounts means Accounts with respect to which the account debtor does not have its principal place of business in the United States and is not located in an OFAC sanctioned country and that are (i) supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, (ii) insured by the Export Import Bank of the United States, (iii) generated by an account debtor with its principal place of business in Canada, provided that the Bank has perfected its security interest in the appropriate Canadian province, or (iv) approved by Bank on a case-by-case basis. All Eligible Foreign Accounts must be calculated in U.S. Dollars.
Eligible Inventory is Borrowers Inventory consisting of raw materials and of finished goods held by Borrower for sale in the ordinary course of business pursuant to a valid third-party purchase order received by Borrower, for delivery in the United States, valued at the lowest of (i) Borrowers net purchase cost or net manufacturing cost and (ii) the average sales price, excluding, however, any Inventory which consists of:
(a) Inventory located outside of the United States;
(b) Work-in-process, supplies, displays, packaging or promotional materials or Inventory sold on consignment;
(c) Inventory consisting of proprietary software;
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(d) Any Inventory not in the actual possession of Borrower, except to the extent provided in Subsection (l) below;
(e) Any Inventory the sale or other disposition of which has given rise to an Account;
(f) Any Inventory which fails to meet all standards and requirements imposed by any governmental authority over such Inventory or its production, storage, use or sale;
(g) Any Inventory located on premises leased or rented to the Borrower or otherwise not owned by a Borrower, unless Bank has received a waiver and consent from the lessor, landlord or owner, in form and substance reasonably satisfactory to Bank and from any mortgagee of such lessor, landlord or owner to the extent required by Bank;
(h) Inventory with offsetting claims;
(i) Inventory that is damaged, defective, obsolete, returned, recalled or unfit for further processing;
(j) Inventory that is not subject to a valid, perfected first priority Lien in favor of Bank;
(k) Inventory that is located at an address that has not been disclosed to Bank in writing;
(l) Inventory that is in the possession of a processor or bailee, or located on premises leased or subleased to Borrower, or on premises subject to a mortgage in favor of a Person other than Bank, unless such processor or bailee or mortgagee or the lessor or sublessor of such premises, as the case may be, has executed and delivered all documentation which Bank shall reasonably require to evidence the subordination or other limitation or extinguishment of such Persons rights with respect to such Inventory and Banks right to gain access thereto;
(m) any Inventory as to which Bank determines in the exercise of its sole and absolute discretion at any time and in good faith is not in good condition or is defective, unmerchantable, post-seasonal, slow moving or obsolete; and
(n) any Inventory which Bank in the good faith exercise of its sole and absolute discretion has deemed to be ineligible because Bank otherwise considers the collateral value to Bank to be impaired or its ability to realize such value to be insecure.
In the event of any dispute under the foregoing criteria, as to whether Inventory is, or has ceased to be, Eligible Inventory, the decision of Bank in the good faith exercise of its sole and absolute discretion shall control.
Environmental Laws means all laws, rules, regulations, orders and the like issued by any federal state, local foreign or other governmental or quasi-governmental authority or any agency pertaining to the environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials.
Equipment means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
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Event of Default has the meaning assigned in Article 8.
Ex-Im means the Export-Import Bank of the United States.
Ex-Im Facility Documents means the Ex-Im Facility Letter Agreement, the $4,000,000 Master Revolving Note, the Loan Authorization Notice, the Borrower Agreement, and Economic Impact Certification, each dated as of May , 2012.
Ex-Im Facility Loans means the loans advanced to Borrower under and pursuant to the Ex-Im Facility Documents.
GAAP means generally accepted accounting principles, consistently applied, as in effect from time to time.
Guarantors means BL Acquisition Corp., a Delaware corporation, and BL Acquisition II Inc., a Delaware corporation, together with any Subsidiary that becomes a Guarantor after the date of this Agreement pursuant to Section 6.11.
Guaranty means the Guaranty dated as of the Closing Date, covering all outstanding Obligations of Borrower made by the Guarantors (whether by execution thereof, or by execution of the joinder or assumption agreement with respect thereto), to Bank, as amended, renewed, replaced, extended, or supplemented from time to time.
Indebtedness means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.
Insolvency Proceeding means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
Intellectual Property means all of Borrowers right, title, and interest in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;
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(f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.
Inventory means all present and future inventory in which Borrower has any interest.
Investment means any beneficial ownership of (including stock, partnership or limited liability company interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
IRC means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
Lien means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
Loan Documents means, collectively, this Agreement, any note or notes executed by Borrower, and any other document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.
Material Adverse Effect means (i) a material adverse change in Borrowers prospects, business or financial condition (including without limitation, evidence of a lack of investor support and/or Borrowers inability to attract sufficient additional equity financing from its investors), (ii) a material impairment in the prospect of repayment of all or any portion of the Obligations or in otherwise performing Borrowers obligations under the Loan Documents, or (iii) a material impairment in the perfection, value or priority of Banks security interests in the Collateral.
Material Subsidiary means:
(a) the Guarantors;
(b) each Subsidiary that, together with its Subsidiaries (i) generates more than five percent (5.0%) of Borrowers consolidated gross revenue for the four (4) fiscal quarter periods most recently ended and (ii) represents more than five percent (5.0%) of Borrowers consolidated assets as of the end of any fiscal quarter; and
(c) each Subsidiary that when combined with all Subsidiaries that are not covered by clause (b) of this definition (Immaterial Subsidiaries) would cause all of the Immaterial Subsidiaries, taken as a whole, to (i) be the source of more than fifteen percent (15.0%) of Borrowers consolidated gross revenue for the four (4) fiscal quarter periods most recently ended and (ii) represent more than fifteen percent (15.0%) of Borrowers consolidated assets as of the end of any fiscal quarter.
Negotiable Collateral means all of Borrowers present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and Borrowers Books relating to any of the foregoing.
Obligations means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.
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Patents means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
Permitted Indebtedness means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document or any Ex-Im Facility Document;
(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c) Indebtedness not to exceed $100,000.00 in the aggregate secured by a lien described in clause (c) of the defined term Permitted Liens, provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the ordinary course of business;
(f) Guarantees of Borrower in respect of Indebtedness otherwise permitted hereunder of Borrower or any subsidiary; and
(g) Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
Permitted Investment means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poors Corporation or Moodys Investors Service, (iii) Banks certificates of deposit maturing no more than one (1) year from the date of investment therein, and (iv) Banks money market accounts;
(c) Repurchases of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed $100,000.00 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists;
(d) Investments accepted in connection with Permitted Transfers;
(e) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed the following amounts in any fiscal year: (i) $250,000 for any Subsidiaries located in India, (ii) $250,000 for any Subsidiaries located in Brazil, (iii) $100,000 for any Subsidiary located in all other countries; and (iv) $750,000.00 in the aggregate;
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(f) Investments not to exceed $100,000.00 in the aggregate in any fiscal year consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrowers Board of Directors;
(g) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrowers business;
(h) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary; and
(i) Joint ventures or strategic alliances in the ordinary course of Borrowers business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $150,000.00 in the aggregate in any fiscal year.
Permitted Liens means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Advances) or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves, provided the same have no priority over any of Banks security interests;
(c) Liens not to exceed $100,000.00 in the aggregate (i) upon or in any Equipment (other than Equipment financed by an Equipment Advance) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (e) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; and
(e) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.5 (attachment) or 8.9 (judgments).
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Permitted Transfer means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) Non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;
(c) Worn-out or obsolete Equipment; or
(d) Other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $100,000.00 during any fiscal year.
Person means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
Prime Rate means the variable rate of interest, per annum, most recently announced by Bank, as its prime rate, whether or not such announced rate is the lowest rate available from Bank.
Prohibited Territory means any person or country listed by the Office of Foreign Assets Control of the United States Department of Treasury as to which transactions between a United States Person and that territory are prohibited.
Responsible Officer means each of the Chief Executive Officer, the Chief Financial Officer and the Controller of Borrower.
Revolving Line means a Credit Extension of up to Four Million and 00/100 Dollars ($4,000,000.00).
Revolving Maturity Date means May 1, 2014.
Schedule means the schedule of exceptions attached hereto and approved by Bank, if any.
Security Agreement means the Security Agreement dated as of the Closing Date, executed and delivered by the Guarantors, as debtor, in favor of Bank with respect to any or all of the Collateral (as defined therein) to secure any or all of the Obligations, as such Security Agreement may be amended, renewed, replaced, extended, or supplemented from time to time.
Security Agreement-Stock Pledge means the Security Agreement dated as of the Closing Date, executed and delivered by Borrower, as pledgor, in favor of Bank with respect to any or all of the Collateral (as defined therein) to secure any or all of the Obligations, as such Security Agreement may be amended, renewed, replaced, extended, or supplemented from time to time.
Shares means 100% of the outstanding shares of capital stock or other equity interests of each Guarantor.
SOS Reports means the official reports from the Secretaries of State of each Collateral State, Chief Executive Office State and the Borrower State and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.
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Subordinated Debt means any debt incurred by a Borrower that is subordinated in writing to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).
Subsidiary means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than 50% of the stock, limited liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.
Trademarks means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
Weekly Reporting Period means any time that EBITDA, as measured on a trailing three month basis, is less than $0.
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EXHIBIT 10.2
EXPORT-IMPORT BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER AGREEMENT
TABLE OF CONTENTS
ARTICLE I DEFINITIONS |
1 | |||
1.01 Definition of Terms |
1 | |||
1.02 Rules of Construction |
14 | |||
1.03 Incorporation of Recitals |
15 | |||
ARTICLE II OBLIGATIONS OF BORROWER |
15 | |||
2.01 Use of Credit Accommodations |
15 | |||
2.02 Security Interests |
15 | |||
2.03 Loan Documents and Loan Authorization Agreement |
16 | |||
2.04 Export-Related Borrowing Base Certificates and Export Orders |
16 | |||
2.05 Schedules, Reports and Other Statements |
16 | |||
2.06 Exclusions from the Export-Related Borrowing Base |
16 | |||
2.07 Borrowings and Reborrowings |
17 | |||
2.08 Repayment Terms |
17 | |||
2.09 Financial Statements |
17 | |||
2.10 Additional Security or Payment |
17 | |||
2.11 Continued Security Interest |
18 | |||
2.12 Inspection of Collateral and Facilities |
18 | |||
2.13 General Intangibles |
19 | |||
2.14 Economic Impact Approval |
19 | |||
2.15 Indirect Exports |
19 | |||
2.16 Overseas Inventory and Accounts Receivable |
20 | |||
2.17 Country Limitation Schedule |
21 | |||
2.18 Notice of Certain Event |
21 | |||
2.19 Insurance |
22 | |||
2.20 Taxes |
22 | |||
2.21 Compliance with Laws |
22 | |||
2.22 Negative Covenants |
22 | |||
2.23 Cross Default |
22 | |||
2.24 Munitions List |
22 | |||
2.25 Suspension and Debarment, etc |
22 | |||
ARTICLE III RIGHTS AND REMEDIES |
23 | |||
3.01 Indemnification |
23 | |||
3.02 Liens |
23 |
ARTICLE IV MISCELLANEOUS |
24 | |||
4.01 Governing Law |
24 | |||
4.02 Notification |
24 | |||
4.03 Partial Invalidity |
24 | |||
4.04 Waiver of Jury Trial |
24 | |||
4.05 Consequential Damages |
24 |
EXPORT-IMPORT BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER AGREEMENT
THIS BORROWER AGREEMENT (this Agreement) is made and entered into by the entity identified as Borrower on the signature page hereof (Borrower) in favor of the Export- Import Bank of the United States (Ex-Im Bank) and the institution identified as Lender on the signature page hereof (Lender).
RECITALS
Borrower has requested that Lender establish a Loan Facility in favor of Borrower for the purposes of providing Borrower with working capital to finance the manufacture, production or purchase and subsequent export sale of Items.
Lender and Borrower expect that Ex-Im Bank will provide a guarantee to Lender regarding this Loan Facility subject to the terms and conditions of the Master Guarantee Agreement, a Loan Authorization Agreement, and to the extent applicable, the Delegated Authority Letter Agreement or Fast Track Lender Agreement.
Lender and Ex-Im Bank have requested that Borrower execute this Agreement as a condition precedent to Lender establishing the Loan Facility and Ex-Im Bank providing the guarantee.
NOW, THEREFORE, Borrower hereby agrees as follows:
ARTICLE I
DEFINITIONS
1.01 Definition of Terms. As used in this Agreement, including the Recitals to this Agreement and the Loan Authorization Agreement, the following terms shall have the following meanings:
Accounts Receivable shall mean all of Borrowers now owned or hereafter acquired (a) accounts (as such term is defined in the UCC), other receivables, book debts and other forms of obligations, whether arising out of goods sold or services rendered or from any other transaction; (b) rights in, to and under all purchase orders or receipts for goods or services; (c) rights to any goods represented or purported to be represented by any of the foregoing (including unpaid sellers rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (d) moneys due or to become due to such Borrower under all purchase orders and contracts (which includes Export Orders) for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower), including the proceeds of the foregoing; (e) any notes, drafts, letters of credit, insurance proceeds or other instruments, documents and writings evidencing or supporting the foregoing; and (f) all collateral security and guarantees of any kind given by any other Person with respect to any of the foregoing.
Accounts Receivable Aging Report shall mean a report detailing the Export-Related Accounts Receivable and Export-Related Overseas Accounts Receivable for a Loan Facility, and the applicable terms for the relevant time period; in the case of Indirect Exports, such report shall indicate the portion of such Accounts Receivables corresponding to Indirect Exports.
Advance Rate shall mean, with respect to a Loan Facility, the rate specified in Section 5.C. of the Loan Authorization Agreement for each category of Primary Collateral except for Export-Related General Intangibles and Other Collateral. Unless otherwise set forth in writing by Ex-Im Bank, in no event shall the Advance Rate exceed (i) ninety percent (90%) for Eligible Export-Related Accounts Receivable, (ii) seventy five percent (75%) for Eligible Export-Related Inventory, (iii) seventy percent (70%) for Eligible Export-Related Overseas Accounts Receivable or (iv) sixty percent (60%) for Eligible Export-Related Overseas Inventory and (v) twenty five percent (25%) for Retainage Accounts Receivable.
Affiliated Foreign Person shall have the meaning set forth in Section 2.15.
Business Day shall mean any day on which the Federal Reserve Bank of New York is open for business.
Buyer shall mean a Person that has entered into one or more Export Orders with Borrower or who is an obligor on Export-Related Accounts Receivable or Export-Related Overseas Accounts Receivable.
Capital Good shall mean a capital good (e.g., manufacturing equipment, licensing agreements) that will establish or expand foreign production capacity of an exportable good.
Collateral shall mean all real and personal property and interest in real and personal property in or upon which Lender has been, or shall be, granted a Lien as security for the payment of all the Loan Facility Obligations and all products and proceeds (cash and non-cash) thereof.
Commercial Letters of Credit shall mean those letters of credit subject to the UCP payable in Dollars and issued or caused to be issued by Lender on behalf of Borrower under a Loan Facility for the benefit of a supplier(s) of Borrower in connection with Borrowers purchase of goods or services from the supplier in support of the export of the Items.
Country Limitation Schedule shall mean the schedule published from time to time by Ex-Im Bank setting forth on a country by country basis whether and under what conditions Ex-Im Bank will provide coverage for the financing of export transactions to countries listed therein.
Credit Accommodation Amount shall mean, the sum of (a) the aggregate outstanding amount of Disbursements and (b) the aggregate outstanding Letter of Credit Obligations, which sum may not exceed the Maximum Amount.
Credit Accommodations shall mean, collectively, Disbursements and Letter of Credit Obligations.
Debarment Regulations shall mean, collectively, (a) the Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988), (b) Subpart 9.4 (Debarment, Suspension, and Ineligibility) of the Federal Acquisition Regulations, 48 C.F.R. 9.400-9.409 and (c) the revised Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 60 Fed. Reg. 33037 (June 26, 1995).
Delegated Authority Letter Agreement shall mean the Delegated Authority Letter Agreement, if any, between Ex-Im Bank and Lender.
Disbursement shall mean, collectively, (a) an advance of a working capital loan from Lender to Borrower under the Loan Facility, and (b) an advance to fund a drawing under a Letter of Credit issued or caused to be issued by Lender for the account of Borrower under the Loan Facility.
Dollars or $ shall mean the lawful currency of the United States.
Economic Impact Approval shall mean a written approval issued by Ex-Im Bank stating the conditions under which a Capital Good may be included as an Item in a Loan Facility consistent with Ex-Im Banks economic impact procedures (or other mechanism for making this determination that Ex-Im Bank notifies Lender of in writing).
Economic Impact Certification shall have the meaning set forth in Section 2.14(b).
Effective Date shall mean the date on which (a) all of the Loan Documents have been executed by Lender, Borrower and, if applicable, Ex-Im Bank and (b) all of the conditions to the making of the initial Credit Accommodations under the Loan Documents or any amendments thereto have been satisfied.
Eligible Export-Related Accounts Receivable shall mean Export-Related Accounts Receivable which are acceptable to Lender and which are deemed to be eligible pursuant to the Loan Documents, but in no event shall Eligible Export-Related Accounts Receivable include any Account Receivable:
(a) that does not arise from the sale of Items in the ordinary course of Borrowers business;
(b) that is not subject to a valid, perfected first priority Lien in favor of Lender;
(c) as to which any covenant, representation or warranty contained in the Loan Documents with respect to such Account Receivable has been breached;
(d) that is not owned by Borrower or is subject to any right, claim or interest of another Person other than the Lien in favor of Lender;
(e) with respect to which an invoice has not been sent;
(f) that arises from the sale of defense articles or defense services;
(g) that arises from the sale of Items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities unless with Ex-Im Banks prior written consent;
(h) that is due and payable from a Buyer located in a country with which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;
(i) that does not comply with the requirements of the Country Limitation Schedule;
(j) that is due and payable more than one hundred eighty (180) days from the date of the invoice;
(k) that is not paid within sixty (60) calendar days from its original due date, unless it is insured through Ex-Im Bank export credit insurance for comprehensive commercial and political risk, or through Ex-Im Bank approved private insurers for comparable coverage, in which case it is not paid within ninety (90) calendar days from its due date;
(l) of a Buyer for whom fifty percent (50%) or more of the Accounts Receivable of such Buyer do not satisfy the requirements of subclauses (j) and (k) above;
(m) that arises from a sale of goods to or performance of services for an employee of Borrower, a stockholder of Borrower, a subsidiary of Borrower, a Person with a controlling interest in Borrower or a Person which shares common controlling ownership with Borrower;
(n) that is backed by a letter of credit unless the Items covered by the subject letter of credit have been shipped;
(o) that Lender or Ex-Im Bank, in its reasonable judgment, deems uncollectible for any reason;
(p) that is due and payable in a currency other than Dollars, except as may be approved in writing by Ex-Im Bank;
(q) that is due and payable from a military Buyer, except as may be approved in writing by Ex-Im Bank;
(r) that does not comply with the terms of sale set forth in Section 7 of the Loan Authorization Agreement;
(s) that is due and payable from a Buyer who (i) applies for, suffers, or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or calls a meeting of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed, any petition which is filed against it in any involuntary case under such bankruptcy laws, or (viii) takes any action for the purpose of effecting any of the foregoing;
(t) that arises from a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper;
(u) for which the Items giving rise to such Accounts Receivable have not been shipped to the Buyer or when the Items are services, such services have not been performed or when the Export Order specifies a timing for invoicing the Items other than shipment or performance and the Items have not been invoiced in accordance with such terms of the Export Order, or the Accounts Receivable otherwise do not represent a final sale;
(v) that is subject to any offset, deduction, defense, dispute, or counterclaim or the Buyer is also a creditor or supplier of Borrower or the Account Receivable is contingent in any respect or for any reason;
(w) for which Borrower has made any agreement with the Buyer for any deduction therefrom, except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto;
(x) for which any of the Items giving rise to such Account Receivable have been returned, rejected or repossessed;
(y) that is included as an eligible receivable under any other credit facility to which Borrower is a party;
(z) any of the Items giving rise to such Accounts Receivable are Capital Goods, unless the transaction is in accordance with Section 2.14;
(aa) that is due and payable from a Buyer that is, or is located in, the United States; provided however, that this subsection (aa) shall not preclude an Export-Related Accounts Receivable arising from the sale of Items to foreign contractors or subcontractors providing services to a United States Embassy or the United States Military located overseas from being deemed an Eligible Export-Related Accounts Receivable; or
(bb) that arises from the sale of Items that do not meet the U.S. Content requirements in accordance with Section 2.01(b)(ii).
Eligible Export-Related Inventory shall mean Export-Related Inventory which is acceptable to Lender and which is deemed to be eligible pursuant to the Loan Documents, but in no event shall Eligible Export-Related Inventory include any Inventory:
(a) that is not subject to a valid, perfected first priority Lien in favor of Lender;
(b) that is located at an address that has not been disclosed to Lender in writing;
(c) that is placed by Borrower on consignment or held by Borrower on consignment from another Person;
(d) that is in the possession of a processor or bailee, or located on premises leased or subleased to Borrower, or on premises subject to a mortgage in favor of a Person other than Lender, unless such processor or bailee or mortgagee or the lessor or sublessor of such premises, as the case may be, has executed and delivered all documentation which Lender shall require to evidence the subordination or other limitation or extinguishment of such Persons rights with respect to such Inventory and Lenders right to gain access thereto;
(e) that is produced in violation of the Fair Labor Standards Act or subject to the hot goods provisions contained in 29 U.S.C. §215 or any successor statute or section;
(f) as to which any covenant, representation or warranty with respect to such Inventory contained in the Loan Documents has been breached;
(g) that is not located in the United States unless expressly permitted by Lender, on terms acceptable to Lender;
(h) that is an Item or is to be incorporated into Items that do not meet U.S. Content requirements in accordance with Section 2.01 (b)(ii);
(i) that is demonstration Inventory;
(j) that consists of proprietary software (i.e. software designed solely for Borrowers internal use and not intended for resale);
(k) that is damaged, obsolete, returned, defective, recalled or unfit for further processing;
(l) that has been previously exported from the United States;
(m) that constitutes, or will be incorporated into Items that constitute, defense articles or defense services;
(n) that is an Item or will be incorporated into Items that will be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities unless with Ex-Im Banks prior written consent;
(o) that is an Item or is to be incorporated into Items destined for shipment to a country as to which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;
(p) that is an Item or is to be incorporated into Items destined for shipment to a Buyer located in a country in which Ex-Im Bank coverage is not available for commercial reasons as designated in the Country Limitation Schedule, unless and only to the extent that such Items are to be sold to such country on terms of a letter of credit confirmed by a bank acceptable to Ex-Im Bank;
(q) that constitutes, or is to be incorporated into, Items whose sale would result in an Accounts Receivable which would not be an Eligible Export-Related Accounts Receivable;
(r) that is included as eligible inventory under any other credit facility to which Borrower is a party; or
(s) that is, or is to be incorporated into, an Item that is a Capital Good, unless the transaction is in accordance with Section 2.14.
Eligible Export-Related Overseas Accounts Receivable shall mean Export-Related Overseas Accounts Receivable which are acceptable to Lender and which are deemed to be eligible pursuant to the Loan Documents but in no event shall include the Accounts Receivable (a) through (bb) excluded from the definition of Eligible Export-Related Accounts Receivable.
Eligible Export-Related Overseas Inventory shall mean Export-Related Overseas Inventory which is acceptable to Lender and which is deemed to be eligible pursuant to the Loan Documents, but in no event shall include the Inventory (a) through (r) excluded from the definition of Eligible Export-Related Inventory.
Eligible Person shall mean a sole proprietorship, partnership, limited liability partnership, corporation or limited liability company which (a) is domiciled, organized or formed, as the case may be, in the United States, whether or not such entity is owned by a foreign national or foreign entity; (b) is in good standing in the state of its formation or otherwise authorized to conduct business in the United States; (c) is not currently suspended or debarred from doing business with the United States government or any instrumentality, division, agency or department thereof; (d) exports or plans to export Items; (e) operates and has operated as a going concern for at least one (1) year; (f) has a positive tangible net worth determined in accordance with GAAP; and (g) has revenue generating operations relating to its core business activities for at least one year. An Affiliated Foreign Person that meets all of the requirements of the foregoing definition of Eligible Person other than subclause (a) thereof shall be deemed to be an Eligible Person
ERISA shall mean the Employee Retirement Income Security Act of 1974 and the rules and regulations promulgated thereunder.
Export Order shall mean a documented purchase order or contract evidencing a Buyers agreement to purchase the Items from Borrower for export from the United States, which documentation shall include written information that is necessary to confirm such purchase order or contract, including identification of the Items, the name of the Buyer, the country of destination, contact information for the Buyer and the total amount of the purchase order or contract; in the case of Indirect Exports, such documentation shall further include a copy of the written purchase order or contract from a foreign purchaser or other documentation clearly evidencing a foreign purchasers agreement to purchase the Items.
Export-Related Accounts Receivable shall mean those Accounts Receivable arising from the sale of Items which are due and payable to Borrower in the United States.
Export-Related Accounts Receivable Value shall mean, at the date of determination thereof, the aggregate face amount of Eligible Export-Related Accounts Receivable less taxes, discounts, credits, allowances and Retainages, except to the extent otherwise permitted by Ex-Im Bank in writing.
Export-Related Borrowing Base shall mean, at the date of determination thereof, the sum of (a) (if Lender elects to include) the Export-Related Inventory Value or Export-Related Historical Inventory Value multiplied by the Advance Rate applicable to Eligible Export-Related Inventory set forth in Section 5.B.(1.) of the Loan Authorization Agreement, plus (b) the Export- Related Accounts Receivable Value multiplied by the Advance Rate applicable to Eligible Export-Related Accounts Receivable set forth in Section 5.B.(2.) of the Loan Authorization Agreement, plus (c) if permitted by Ex-Im Bank in writing, the Retainage Value multiplied by the Advance Rate applicable to Retainages set forth in Section 5.B.(3.) of the Loan Authorization Agreement, plus (d) the Other Assets set forth in Section 5.B.(4.) of the Loan Authorization Agreement multiplied by the Advance Rate agreed to in writing by Ex-Im Bank, plus (e) if permitted by Ex-Im Bank in writing, the Export-Related Overseas Accounts Receivable Value multiplied by the Advance Rate applicable to Eligible Export-Related Overseas Accounts Receivable set forth in Section 5.B.(5.) of the Loan Authorization Agreement, plus (f) if permitted by Ex-Im Bank in writing, the Export-Related Overseas Inventory Value multiplied by the Advance Rate applicable to Eligible Export-Related Overseas Inventory set forth in Section 5.B.(6.) of the Loan Authorization Agreement, less (g) the amounts required to be reserved pursuant to Sections 4.12 and 4.13 of this Agreement for each outstanding Letter of Credit, less (h) such reserves and in such amounts deemed necessary and proper by Lender from time to time.
Export-Related Borrowing Base Certificate shall mean a certificate in the form provided or approved by Lender, executed by Borrower and delivered to Lender pursuant to the Loan Documents detailing the Export-Related Borrowing Base supporting the Credit Accommodations which reflects, to the extent included in the Export-Related Borrowing Base, Export-Related Accounts Receivable, Eligible Export-Related Accounts Receivable, Export-Related Inventory, Eligible Export-Related Inventory, Export-Related Overseas Accounts Receivable, Eligible Export-Related Accounts Receivable, Export-Related Overseas Inventory and Eligible Export- Related Overseas Inventory balances that have been reconciled with Borrowers general ledger, Accounts Receivable Aging Report and Inventory schedule.
Export-Related General Intangibles shall mean the Pro Rata Percentage of General Intangibles determined as of the earlier of: (i) the date such General Intangibles are liquidated and (ii) the date Borrower fails to pay when due any outstanding amount of principal or accrued interest payable under the Loan Documents that becomes the basis for a Payment Default on which a Claim is filed.
Export-Related Historical Inventory Value shall mean with respect to a Borrower, the relevant Export-Related Sales Ratio multiplied by the lowest of (i) the cost of such Borrowers Inventory as determined in accordance with GAAP, or (ii) the market value of such Borrowers Inventory as determined in accordance with GAAP or (iii) the appraised or orderly liquidation value of such Borrowers Inventory, if Lender has loans and financial accommodations to such Borrower for which it conducts (or contracts for the performance of) such an appraised or orderly liquidation value.
Export-Related Inventory shall mean the Inventory of Borrower located in the United States that has been purchased, manufactured or otherwise acquired by Borrower for sale or resale as Items, or to be incorporated into Items to be sold or resold pursuant to Export Orders.
Export-Related Inventory Value shall mean, at the date of determination thereof, the lowest of (i) the cost of Eligible Exported-Related Inventory as determined in accordance with GAAP, or (ii) the market value of Eligible Export-Related Inventory as determined in accordance with GAAP or (iii) the lower of the appraised market value or orderly liquidation value of the Eligible Export-Related Inventory, if Lender has other loans and financial accommodations to a Borrower for which it conducts (or contracts for the performance of) such an appraised or orderly liquidation value.
Export-Related Overseas Accounts Receivable shall mean those Accounts Receivable arising from the sale of Items which are due and payable outside of the United States either to a Borrower or an Affiliated Foreign Person.
Export-Related Overseas Accounts Receivable Value shall mean, with respect to a Loan Facility, at the date of determination thereof, the aggregate face amount of Eligible Export- Related Overseas Accounts Receivable less taxes, discounts, credits, allowances and Retainages, except to the extent otherwise permitted by Ex-Im Bank in writing.
Export-Related Overseas Inventory shall mean the Inventory of Borrower located outside of the United States that has been purchased, manufactured or otherwise acquired by such Borrower for sale or resale as Items, or to be incorporated into Items to be sold or resold pursuant to Export Orders.
Export-Related Overseas Inventory Value shall mean, at the date of determination thereof, the lowest of (i) the cost of Eligible Export-Related Overseas Inventory as determined in accordance with GAAP, (ii) the market value of Eligible Export-Related Overseas Inventory as determined in accordance with GAAP or (iii) the appraised or orderly liquidation value of the Eligible Export-Related Overseas Inventory, if Lender has other loans and financial accommodations to Borrower or an Affiliated Foreign Person for which it conducts (or contracts for the performance of) such a appraised or orderly liquidation.
Export-Related Sales Ratio shall mean with respect to a Borrower, the percentage of such Borrowers total sales revenue derived from the sale of Eligible Export-Related Inventory over a rolling twelve-month period ending no more than ninety (90) days prior to the date of the relevant Export-Related Borrowing Base Certificate
Extension shall mean, with respect to a Loan Facility, an amendment to the Loan Authorization Agreement extending the Final Disbursement Date on the same terms and conditions as the Loan Facility for an aggregate period not to exceed one hundred and twenty (120) days beyond the original Final Disbursement Date, either as agreed to in writing by Ex-Im Bank or, in the case of Delegated Authority, as notified by Lender to Ex-Im Bank pursuant to its authority under the Delegated Authority Letter Agreement.
Fast Track Lender Agreement shall mean the Fast Track Lender Agreement, if any, between Ex-Im Bank and Lender.
Final Disbursement Date shall mean the last date on which Lender may make a Disbursement set forth in Section 10 of the Loan Authorization Agreement (including as amended by an Extension) or, if such date is not a Business Day, the next succeeding Business Day; provided, however, to the extent that Lender has not received cash collateral in the amount of the Letter of Credit Obligations or an equivalent full indemnity from Borrower or Guarantor, as applicable, with respect to Letter of Credit Obligations outstanding on the Final Disbursement Date, the Final Disbursement Date with respect to an advance to fund a drawing under such Letter of Credit shall be no later than thirty (30) days after any such drawing which may be no later than the expiry date of the Letter of Credit related thereto.
GAAP shall mean the generally accepted accounting principles issued in the United States.
General Intangibles shall mean all intellectual property and other general intangibles (as such term is defined in the UCC).
Guarantor shall mean any Person which is identified in Section 3 of the Loan Authorization Agreement who shall guarantee (jointly and severally if more than one) the payment and performance of all or a portion of the Loan Facility Obligations.
Guarantee Agreement shall mean a valid and enforceable agreement of guarantee executed by each Guarantor in favor of Lender.
Indirect Exports shall mean finished goods or services that are sold by a Borrower to a Buyer located in the United States, are intended for export from the United States, and are identified in Section 4.A.(2.) of the Loan Authorization Agreement.
Inventory shall mean all inventory (as such term is defined in the UCC), now or hereafter owned or acquired by Borrower, wherever located, including all inventory, merchandise, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrowers business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies.
ISP shall mean the International Standby Practices-ISP98, International Chamber of Commerce Publication No. 590 and any amendments and revisions thereof.
Issuing Bank shall mean the bank that issues a Letter of Credit, which bank is Lender itself or a bank that Lender has caused to issue a Letter of Credit by way of a guarantee or reimbursement obligation.
Items shall mean the finished goods or services which are intended for export from the United States, either directly or as an Indirect Export, meet the U.S. Content requirements inaccordance with Section 2.01(b)(ii) of this Agreement and are specified in Section 4.A. of the Loan Authorization Agreement.
Letter of Credit shall mean a Commercial Letter of Credit or a Standby Letter of Credit.
Letter of Credit Obligations shall mean all undrawn amounts of outstanding obligations incurred by Lender, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guarantee by Lender or Issuing Bank of Letters of Credit.
Lien shall mean any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the UCC or comparable law of any jurisdiction) by which property is encumbered or otherwise charged.
Loan Agreement shall mean a valid and enforceable agreement between Lender and a Borrower setting forth, with respect to each Loan Facility, the terms and conditions of such Loan Facility.
Loan Authorization Agreement shall mean, as applicable, the duly executed Loan Authorization Agreement, Fast Track Loan Authorization Agreement, or the Loan Authorization Notice, setting forth certain terms and conditions of each Loan Facility, a copy of which is attached hereto as Annex A.
Loan Authorization Notice shall mean the Loan Authorization Notice executed by Lender and delivered to Ex-Im Bank in accordance with the Delegated Authority Letter Agreement setting forth the terms and conditions of each Loan Facility.
Loan Documents shall mean the Loan Authorization Agreement, the Loan Agreement, this Agreement, each promissory note (if applicable), each Guarantee Agreement, and all other instruments, agreements and documents now or hereafter executed by the applicable Borrower, any Guarantor, Lender or Ex-Im Bank evidencing, securing, guaranteeing or otherwise relating to the Loan Facility or any Credit Accommodations made thereunder.
Loan Facility shall mean the Revolving Loan Facility, the Transaction Specific Loan Facility or the Transaction Specific Revolving Loan Facility established by Lender in favor of Borrower under the Loan Documents.
Loan Facility Obligations shall mean all loans, advances, debts, expenses, fees, liabilities, and obligations, including any accrued interest thereon, for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower to Lender, of any kind or nature, present or future, arising in connection with the Loan Facility.
Loan Facility Term shall mean, with respect to a Loan Facility, the number of months or portion thereof from the Effective Date to the Final Disbursement Date as set forth in the Loan Authorization Agreement as amended.
Master Guarantee Agreement shall mean the Master Guarantee Agreement between Ex-Im Bank and Lender, as amended, modified, supplemented and restated from time to time.
Material Adverse Effect shall mean a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of Borrower or any Guarantor, (b) any Borrowers ability to pay or perform the Loan Facility Obligations in accordance with the terms thereof, (c) the Collateral or Lenders Liens on the Collateral or the priority of such Lien, or (d) Lenders rights and remedies under the Loan Documents.
Maximum Amount shall mean the maximum Credit Accommodation Amount that may be outstanding at any time under each Loan Facility, as specified in Section 5.A. of the Loan Authorization Agreement.
Other Assets shall mean, with respect to a Loan Facility, such other assets of a Borrower to be included in Primary Collateral, which may include cash and marketable securities, or such other assets as Ex-Im Bank agrees to in writing, and disclosed as Primary Collateral in Section 6.A. of the Loan Authorization Agreement. The applicable Advance Rate (to be multiplied by the Other Asset Value) shall be as agreed to by Ex-Im Bank in writing case by case by case and set forth in Section 5.B.(4) of the Loan Authorization Agreement.
Other Asset Value shall mean, with respect to a Loan Facility, at the date of determination thereof, the value of the Other Assets as determined in accordance with GAAP.
Other Collateral shall mean any additional collateral that Lender customarily would require as security for loan facilities on its own account and risk where the permitted borrowing level is based principally on a borrowing base derived from a borrowers inventory and accounts receivable, but where such additional collateral does not enter into the borrowing base calculation.
Permitted Liens shall mean (a) Liens for taxes, assessments or other governmental charges or levies not delinquent, or, being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by Borrower; provided, that, the Lien shall have no effect on the priority of the Liens in favor of Lender or the value of the assets in which Lender has such a Lien and a stay of enforcement of any such Lien shall be in effect; (b) deposits or pledges securing obligations under workers compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) deposits or pledges securing bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of Borrowers business; (d) judgment Liens that have been stayed or bonded; (e) mechanics, workers, materialmens or other like Liens arising in the ordinary course of Borrowers business with respect to obligations which are not due; (f) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided, that, any such Lien shall not encumber any other property of Borrower; (g) security interests being terminated concurrently with the execution of the Loan Documents; and (h) Liens disclosed in Section 6.D. of the Loan Authorization Agreement, provided that, except as otherwise permitted by Ex-Im Bank in writing, such Liens in Section 6.D. shall be subordinate to the Liens in favor of Lender on Primary Collateral.
Person shall mean any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether national, federal, provincial, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and shall include such Persons successors and assigns.
Pro Rata Percentage shall mean, with respect to a Loan Facility, as of the date of determination thereof, the principal balance of the Credit Accommodations outstanding as a percentage of the combined principal balance of all loans from Lender to such Borrower including the then outstanding principal balance of the Credit Accommodations plus unfunded amounts under outstanding Letters of Credit.
Principals shall mean any officer, director, owner, partner, key employee, or other Person with primary management or supervisory responsibilities with respect to Borrower or any other Person (whether or not an employee) who has critical influence on or substantive control over the transactions covered by this Agreement.
Retainage shall mean that portion of the purchase price of an Export Order that a Buyer is not obligated to pay until the end of a specified period of time following the satisfactory performance under such Export Order.
Retainage Accounts Receivable shall mean those portions of Eligible Export-Related Accounts Receivable or Eligible Export-Related Overseas Accounts Receivable arising out of a Retainage.
Retainage Value shall mean, at the date of determination thereof, the aggregate face amount of Retainage Accounts Receivable as permitted by Ex-Im Bank in writing, less taxes, discounts, credits and allowances, except to the extent otherwise permitted by Ex-Im Bank in writing.
Revolving Loan Facility shall mean the credit facility or portion thereof established by Lender in favor of Borrower for the purpose of providing working capital in the form of loans and/or Letters of Credit to finance the manufacture, production or purchase and subsequent export sale of Items pursuant to Loan Documents under which Credit Accommodations may be made and repaid on a continuous basis based solely on credit availability on the Export-Related Borrowing Base during the term of such credit facility
Special Conditions shall mean those conditions, if any, set forth in Section 13 of the Loan Authorization Agreement.
Specific Export Orders shall mean those Export Orders specified in Section 5.D. of the Loan Authorization Agreement as applicable for a Transaction Specific Revolving Loan Facility or a Transaction Specific Loan Facility.
Standby Letters of Credit shall mean those letters of credit subject to the ISP or UCP issued or caused to be issued by Lender for Borrowers account that can be drawn upon by a Buyer only if Borrower fails to perform all of its obligations with respect to an Export Order.
Transaction Specific Loan Facility shall mean a credit facility or a portion thereof established by Lender in favor of Borrower for the purpose of providing working capital in the form of loans and/or Letters of Credit to finance the manufacture, production or purchase and subsequent export sale of Items pursuant to Loan Documents under which Credit Accommodations are made based solely on credit availability on the Export-Related Borrowing Base relating to Specific Export Orders and once such Credit Accommodations are repaid they may not be reborrowed.
Transaction Specific Revolving Loan Facility shall mean a Revolving Credit Facility established to provide financing of Specific Export Orders.
UCC shall mean the Uniform Commercial Code, as the same may be in effect from time to time in the relevant United States jurisdiction.
UCP shall mean the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 and any amendments and revisions thereof.
U.S. or United States shall mean the United States of America including any division or agency thereof (including United States embassies or United States military bases located overseas), and any United States Territory (including without limitation, Puerto Rico, Guam or the United States Virgin Islands).
U.S. Content shall mean, with respect to any Item, all the costs, including labor, materials, services and overhead, but not markup or profit margin, which are of U.S. origin or manufacture, and which are incorporated into an Item in the United States.
Warranty shall mean Borrowers guarantee to Buyer that the Items will function as intended during the warranty period set forth in the applicable Export Order.
Warranty Letter of Credit shall mean a Standby Letter of Credit which is issued or caused to be issued by Lender to support the obligations of Borrower with respect to a Warranty or a Standby Letter of Credit which by its terms becomes a Warranty Letter of Credit.
1.02 Rules of Construction. For purposes of this Agreement, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (b) the term or is not exclusive; (c) the term including (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; (e) the words this Agreement, herein, hereof, hereunder or other words of similar import refer to this Agreement as a whole including the schedules, exhibits, and annexes
hereto as the same may be amended, modified or supplemented; (f) all references in this Agreement to sections, schedules, exhibits, and annexes shall refer to the corresponding sections, schedules, exhibits, and annexes of or to this Agreement; and (g) all references to any instruments or agreements, including references to any of the Loan Documents, the Delegated Authority Letter Agreement, or the Fast Track Lender Agreement shall include any and all modifications, amendments and supplements thereto and any and all extensions or renewals thereof to the extent permitted under this Agreement.
1.03 Incorporation of Recitals. The Recitals to this Agreement are incorporated into and shall constitute a part of this Agreement.
ARTICLE II
OBLIGATIONS OF BORROWER
Until payment in full of all Loan Facility Obligations and termination of the Loan Documents, Borrower agrees as follows:
2.01 Use of Credit Accommodations. (a) Borrower shall use Credit Accommodations only for the purpose of enabling Borrower to finance the cost of manufacturing, producing, purchasing or selling the Items. Borrower may not use any of the Credit Accommodations for the purpose of: (i) servicing or repaying any of Borrowers pre-existing or future indebtedness unrelated to the Loan Facility unless approved by Ex-Im Bank in writing; (ii) acquiring fixed assets or capital assets for use in Borrowers business; (iii) acquiring, equipping or renting commercial space outside of the United States; (iv) paying the salaries of non U.S. citizens or non-U.S. permanent residents who are located in offices outside of the United States; or (v) in connection with a Retainage or Warranty unless approved by Ex-Im Bank in writing.
(b) In addition, no Credit Accommodation may be used to finance the manufacture, purchase or sale of any of the following:
(i) Items to be sold to a Buyer located in a country as to which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;
(ii) that part of the cost of the Items which is not U.S. Content unless such part is not greater than fifty percent (50%) of the cost of the Items and is incorporated into the Items in the United States;
(iii) defense articles or defense services;
(iv) Capital Goods unless in accordance with Section 2.14 of this Agreement; or
(v) without Ex-Im Banks prior written consent, any Items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities.
2.02 Security Interests. Borrower agrees to cooperate with Lender in any steps Lender shall take to file and maintain valid, enforceable and perfected security interests in the Collateral.
2.03 Loan Documents and Loan Authorization Agreement. (a) This Agreement and each of the other Loan Documents applicable to Borrower have been duly executed and delivered on behalf of Borrower, and are and will continue to be legal and valid obligations of Borrower, enforceable against it in accordance with its terms.
(b) Borrower shall comply with all of the terms and conditions of this Agreement, the Loan Authorization Agreement and each of the other Loan Documents to which it is a party.
(c) Borrower hereby represents and warrants to Lender that Borrower is an Eligible Person.
2.04 Export-Related Borrowing Base Certificates and Export Orders. (a) In order to receive Credit Accommodations under the Loan Facility, Borrower shall have delivered to Lender an Export-Related Borrowing Base Certificate as frequently as required by Lender but at least within the past month, together with a copy of the Export Order(s) or, for Revolving Loan Facilities, if permitted by Lender, a written summary of the Export Orders (when Eligible Export-Related Inventory and Eligible Overseas Export-Related Inventory are entering the Export-Related Borrowing Base) against which Borrower is requesting Credit Accommodations. In addition, so long as there are any Credit Accommodations outstanding under the Loan Facility, Borrower shall deliver to Lender an Export-Related Borrowing Base Certificate at least once each month. Lender shall determine if daily electronic reporting reconciled monthly may substitute for monthly Export-Related Borrowing Base Certificates. If the Lender requires an Export-Related Borrowing Base Certificate more frequently, Borrower shall deliver such Export- Related Borrowing Base Certificate as required by Lender.
(b) If Lender permits summaries of Export Orders, Borrower shall also deliver promptly to Lender copies of any Export Orders requested by Lender.
2.05 Schedules, Reports and Other Statements. With the delivery of each Export- Related Borrowing Base Certificate required in Section 2.04 above, Borrower shall submit to Lender in writing (a) an Inventory schedule for the preceding month, as applicable, and (b) an Accounts Receivable Aging Report for the preceding month. Borrower shall also furnish to Lender promptly upon request such information, reports, contracts, invoices and other data concerning the Collateral as Lender may from time to time specify.
2.06 Exclusions from the Export-Related Borrowing Base. In determining the Export- Related Borrowing Base, Borrower shall exclude therefrom Inventory which are not Eligible Export-Related Inventory or Eligible Export-Related Overseas Inventory and Accounts Receivable which are not Eligible Export-Related Accounts Receivable or Eligible Export- Related Overseas Accounts Receivable. Borrower shall promptly, but in any event within five (5) Business Days, notify Lender (a) if any then existing Export-Related Inventory or Export- Related Overseas Inventory no longer constitutes Eligible Export-Related Inventory or Eligible Export-Related Overseas Inventory, as applicable or (b) of any event or circumstance which to Borrowers knowledge would cause Lender to consider any then existing Export-Related Accounts Receivable or Export-Related Overseas Accounts Receivable as no longer constituting an Eligible Export-Related Accounts Receivable or Eligible Export-Related Overseas Accounts Receivable, as applicable.
2.07 Borrowings and Reborrowings. (a) If the Loan Facility is a Revolving Loan Facility or Transaction Specific Revolving Loan Facility, provided that Borrower is not in default under any of the Loan Documents, Borrower may borrow, repay and reborrow amounts under such Loan Facility up to the credit available on the current Export-Related Borrowing Base Certificate subject to the terms of this Agreement and each of the other Loan Documents until the close of business on the Final Disbursement Date.
(b) If the Loan Facility is a Transaction Specific Loan Facility, provided that Borrower is not in default under any of the Loan Documents, Borrower may borrow (but not reborrow) amounts under the Loan Facility up to the credit available on the current Export- Related Borrowing Base Certificate subject to the terms of this Agreement and each of the other Loan Documents until the close of business on the Final Disbursement Date.
2.08 Repayment Terms. (a) The Borrower on a Revolving Loan Facility shall pay in full the outstanding Loan Facility Obligations no later than the first Business Day after the Final Disbursement Date unless such Loan Facility is renewed or extended by Lender consistent with procedures required by Ex-Im Bank.
(b) The Borrower on a Transaction Specific Loan Facility and a Transaction Specific Revolving Loan Facility shall, within two (2) Business Days of the receipt thereof, pay to Lender (for application against the outstanding Loan Facility Obligations) all checks, drafts, cash and other remittances it may receive in payment or on account of the Export-Related Accounts Receivable, Export-Related Overseas Accounts Receivable or any other Collateral, in precisely the form received (except for the endorsement of Borrower where necessary). Pending such deposit, Borrower shall hold such amounts in trust for Lender separate and apart and shall not commingle any such items of payment with any of its other funds or property. Unless a Transaction Specific Loan Facility or Transaction Specific Revolving Loan Facility is renewed or extended by Lender consistent with procedures required by Ex-Im Bank, Borrower shall pay in full all outstanding Loan Facility Obligations no later than the first Business Day after the Final Disbursement Date, except for Eligible Export-Related Accounts Receivables and Eligible Export-Related Overseas Accounts Receivable outstanding as of the Final Disbursement Date and due and payable after such date, for which the principal and accrued and unpaid interest thereon shall be due and payable no later than the first Business Day after the date such Accounts Receivable are due and payable.
2.09 Financial Statements. Borrower shall deliver to Lender the financial statements required to be delivered by Borrower in accordance with Section 11 of the Loan Authorization Agreement.
2.10 Additional Security or Payment. (a) Borrower shall at all times ensure that the Export-Related Borrowing Base equals or exceeds the aggregate outstanding amount of Disbursements. If informed by Lender or if Borrower otherwise has actual knowledge that the Export-Related Borrowing Base is at any time less than the aggregate outstanding amount of Disbursements, Borrower shall, within five (5) Business Days, either (i) furnish additional Collateral to Lender, in form and amount satisfactory to Lender and Ex-Im Bank or (ii) pay to Lender an amount equal to the difference between the aggregate outstanding amount of Disbursements and the Export-Related Borrowing Base.
(b) For purposes of this Agreement, in determining the Export-Related Borrowing Base there shall be deducted from the Export-Related Borrowing Base an amount equal to (i) twenty-five percent (25%) of the undrawn amount of outstanding Commercial Letters of Credit and Standby Letters of Credit and (ii) one hundred percent (100%) of the undrawn amount of outstanding Warranty Letters of Credit less the amount of cash collateral held by Lender to secure Warranty Letters of Credit.
(c) Unless otherwise approved in writing by Ex-Im Bank, for Revolving Loan Facilities (other than Transaction Specific Revolving Loan Facilities), Borrower shall at all times ensure that the sum of the outstanding amount of Disbursements and the undrawn amount of outstanding Commercial Letters of Credit that is supported by Eligible Export-Related Inventory or Eligible Export-Related Overseas Inventory (discounted by the relevant Advance Rate percentages) in the Export-Related Borrowing Base does not exceed sixty percent (60%) of the sum of the total outstanding amount of Disbursements and the undrawn amount of all outstanding Commercial Letters of Credit. If informed by Lender or if Borrower otherwise has actual knowledge that the sum of the outstanding amount of Disbursements and the undrawn amount of outstanding Commercial Letters of Credit that is supported by such Inventory exceeds sixty percent (60%) of the sum of the total outstanding Disbursements and the undrawn amount of all outstanding Commercial Letters of Credit, Borrower shall, within five (5) Business Days, either (i) furnish additional non-Inventory Collateral to Lender, in form and amount satisfactory to Lender and Ex-Im Bank, or (ii) pay down the applicable portion of the outstanding Disbursements or (iii) reduce the undrawn amount of outstanding Commercial Letters of Credit such that the above described ratio is not exceeded.
(d) If informed by Lender or if Borrower otherwise has actual knowledge that the conditions of Section 2.16(g) are at any time not being met, Borrower shall, within five (5) Business Days, either (i) furnish additional Collateral to Lender that is not Eligible Export- Related Overseas Accounts Receivable or Eligible Export-Related Overseas Inventory, in form and amount satisfactory to Lender and Ex-Im Bank, or (ii) remove from the Export-Related Borrowing Base the portion of Eligible Export-Related Overseas Accounts Receivable or Eligible Export-Related Overseas Inventory that supports greater than fifty percent (50%) of the Export-Related Borrowing Base.
2.11 Continued Security Interest. Borrower shall not change (a) its name or identity in any manner, (b) the location of its principal place of business or its jurisdiction of organization or formation, (c) the location of any of the Collateral or (d) the location of any of the books or records related to the Collateral, in each instance without giving thirty (30) days prior written notice thereof to Lender and taking all actions deemed necessary or appropriate by Lender to continuously protect and perfect Lenders Liens upon the Collateral.
2.12 Inspection of Collateral and Facilities. (a) Borrower shall permit the representatives of Lender and Ex-Im Bank to make at any time during normal business hours inspections of the Collateral and of Borrowers facilities, activities, and books and records, and shall cause its officers and employees to give full cooperation and assistance in connection therewith.
(b) Borrower agrees to facilitate Lenders conduct of field examinations at Borrowers facilities in accordance with the time schedule and content for such examinations
that Lender requests. Such field examinations shall address at a minimum: (x) the value of the Collateral against which Credit Accommodations may be provided, (y) the amount, if any, that the aggregate outstanding amount of Disbursements exceeds the Export-Related Borrowing Base and (z) whether such Borrower is in material compliance with the terms of each of the Loan Documents. Such field examinations shall include an inspection and evaluation of the Export-Related Inventory and Export-Related Overseas Inventory, a book audit of Export-Related Accounts Receivable and Export-Related Overseas Accounts Receivable, a review of the Accounts Receivable Aging Reports and a review of Borrowers compliance with any Special Conditions. Lenders who opt to use the Export-Related Historical Inventory Value in the Export-Related Borrowing Base calculation shall reconcile those numbers against the calculation for the relevant time periods using the Export-Related Inventory Value. Whenever Export-Related Accounts Receivable or Export-Related Inventory derived from Indirect Exports are in the Export-Related Borrowing Base, Lender shall verify compliance with Section 2.15 herein, including taking a random sampling of ultimate foreign purchasers.
2.13 General Intangibles. Borrower represents and warrants that it owns, or is licensed to use, all General Intangibles necessary to conduct its business as currently conducted except where the failure of Borrower to own or license such General Intangibles could not reasonably be expected to have a Material Adverse Effect.
2.14 Economic Impact Approval. (a) For Loan Facilities up to and including $10 million, Borrower acknowledges that Capital Goods may not be included as Items, and Export-Related Inventory, Export-Related Overseas Inventory, Export-Related Accounts Receivable and Export-Related Overseas Accounts Receivable in connection with the sale of such Capital Goods may not be included in the Export-Related Borrowing Base, if such Capital Goods would enable a foreign buyer to establish or expand production of a product where, as of the date of the Economic Impact Certification covering such Item: (i) the Buyer is subject to a Final Anti- Dumping (AD) or Countervailing Duty (CVD) order, or a Suspension Agreement arising from a AD or CVD investigation, and such product is substantially the same as the product that is the subject of the AD/CVD order or suspension agreement; or (ii) the Buyer is the subject of a Section 201 injury determination by the International Trade Commission (ITC) and such product is substantially the same as a product that is the subject of the ITC injury determination. Borrower may consult with Ex-Im Bank regarding the appropriate application of this Section 2.14(a) and may, at its option, request that Ex-Im Bank issue an Economic Impact Approval covering any Items listed in Section 4.A. of the Loan Authorization Agreement. For Loan Facilities over $10 million involving Items that are Capital Goods, Borrower shall obtain from Ex-Im Bank, and abide by, an Economic Impact Approval covering all Items listed in Section 4(A) of the Loan Authorization Agreement.
(b) Borrower shall provide Lender with a certification in the form of Annex B (an Economic Impact Certification) covering the Items stated in Section 4(A) of the Loan Authorization Agreement prior to Lender including such Items in the Loan Authorization Agreement. Prior to Lender amending the Loan Authorization Agreement to include additional Items, Borrower shall provide Lender with an additional Economic Impact Certification covering such additional Items.
2.15 Indirect Exports. Indirect Exports may be included as Items in a Loan Facility provided that funds available under such Loan Facilitys Export-Related Borrowing Base
supported by Accounts Receivable and Inventory derived from Indirect Exports at no time exceed ten percent (10%) of the Maximum Amount of such Loan Facility, and provided, further that (a) the ultimate foreign buyer for the Items must be located in a country in which Ex-Im Bank is not legally prohibited from doing business in accordance with the Country Limitation Schedule, and (b) the Borrower must make available to Lender verifiable evidence of intent to export the Indirect Exports from the United States, which evidence may be contained in the Export Orders and Accounts Receivable Aging Reports and supporting documents. Lender must obtain written consent from Ex-Im Bank prior to including funds derived from Indirect Exports in an Export-Related Borrowing Base above the ten percent (10%) threshold.
2.16 Overseas Inventory and Accounts Receivable. Upon the prior written consent of Ex-Im Bank, Export-Related Overseas Accounts Receivable and Export-Related Overseas Inventory of a Borrower or of an Affiliated Foreign Person (as defined below) may be included in the Export-Related Borrowing Base provided that conditions required by Ex-Im Bank, including the following, are met:
(a) the Affiliated Foreign Person, if any, has been approved by Ex-Im Bank;
(b) the Affiliated Foreign Person, if any, is a Borrower under the relevant Loan Facility;
(c) notwithstanding the Maximum Amount of the Loan Facility, all payments due and payable on such Export-Related Overseas Accounts Receivable are collected through a cash collateral account under Lenders control;
(d) as of the Effective Date, or such later date when the Export-Related Overseas Accounts Receivable and/or Export-Related Overseas Inventory are added to the Loan Facility, Lender has obtained a valid and enforceable first priority Lien in the Export-Related Overseas Accounts Receivable and Export-Related Overseas Inventory, as applicable;
(e) as of the Effective Date, or such later date when the Export-Related Overseas Accounts Receivable and/or Export-Related Overseas Inventory are added to the Loan Facility, Lender has obtained a legal opinion confirming the security interest in the Export-Related Overseas Accounts Receivable and Export-Related Overseas Inventory;
(f) the Export-Related Overseas Accounts Receivable are due and payable in United States Dollars or other currency acceptable to Ex-Im Bank; and
(g) at no time may the portion of the Export-Related Borrowing Base derived from Eligible Export-Related Overseas Accounts Receivable and Eligible Export-Related Overseas Inventory exceed fifty percent (50%) of the Export-Related Borrowing Base.
For purposes hereof, an Affiliated Foreign Person shall mean a subsidiary or affiliate of a Borrower on the same Loan Facility, which has duly executed as a Borrower all of the applicable Loan Documents and any other documents required by Ex-Im Bank, meets all of the requirements of the definition of Eligible Person other than subclause (a) thereof and is in good standing in the country of its formation or otherwise authorized to conduct business in such country.
2.17 Country Limitation Schedule. Unless otherwise informed in writing by Lender or Ex-Im Bank, Borrower shall be entitled to rely on the last copy of the Country Limitation Schedule distributed from Lender to Borrower.
2.18 Notice of Certain Events. Borrower shall promptly, but in any event within five (5) Business Days, notify Lender in writing of the occurrence of any of the following:
(a) Borrower or any Guarantor (i) applies for, consents to or suffers the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its property or calls a meeting of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed within thirty (30) days, any petition filed against it in any involuntary case under such bankruptcy laws, or (vii) takes any action for the purpose of effecting any of the foregoing;
(b) any Lien in any of the Collateral, granted or intended by the Loan Documents to be granted to Lender, ceases to be a valid, enforceable, perfected, first priority Lien (or a lesser priority if expressly permitted pursuant to Section 6 of the Loan Authorization Agreement) subject only to Permitted Liens;
(c) the issuance of any levy, assessment, attachment, seizure or Lien, other than a Permitted Lien, against any of the Collateral which is not stayed or lifted within thirty (30) calendar days;
(d) any proceeding is commenced by or against Borrower or any Guarantor for the liquidation of its assets or dissolution;
(e) any litigation is filed against Borrower or any Guarantor which has had or could reasonably be expected to have a Material Adverse Effect and such litigation is not withdrawn or dismissed within thirty (30) calendar days of the filing thereof;
(f) any default or event of default under the Loan Documents;
(g) any failure to comply with any terms of the Loan Authorization Agreement;
(h) any material provision of this Agreement or any other Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms;
(i) any event which has had or could reasonably be expected to have a Material Adverse Effect; or
(j) the aggregate outstanding amount of Disbursements exceeds the applicable Export-Related Borrowing Base.
2.19 Insurance. Borrower will at all times carry property, liability and other insurance, with insurers acceptable to Lender, in such form and amounts, and with such deductibles and other provisions, as Lender shall require, and Borrower will provide evidence of such insurance to Lender on the proper Acord Form, so that Lender is satisfied that such insurance is, at all times, in full force and effect. Each property insurance policy shall name Lender as loss payee or mortgagee and shall contain a lenders loss payable endorsement in form acceptable to Lender and each liability insurance policy shall name Lender as an additional insured. All policies of insurance shall provide that they may not be cancelled or changed without at least thirty (30) days prior written notice to Lender and shall otherwise be in form and substance satisfactory to Lender. Borrower will promptly deliver to Lender copies of all reports made to insurance companies.
2.20 Taxes. Borrower has timely filed all tax returns and reports required by applicable law, has timely paid all applicable taxes, assessments, deposits and contributions owing by Borrower and will timely pay all such items in the future as they became due and payable. Borrower may, however, defer payment of any contested taxes; provided, that Borrower (a) in good faith contests Borrowers obligation to pay such taxes by appropriate proceedings promptly and diligently instituted and conducted; (b) notifies Lender in writing of the commencement of, and any material development in, the proceedings; (c) posts bonds or takes any other steps required to keep the contested taxes from becoming a Lien upon any of the Collateral; and (d) maintains adequate reserves therefore in conformity with GAAP.
2.21 Compliance with Laws. Borrower represents and warrants that it has complied in all material respects with all provisions of all applicable laws and regulations, including those relating to Borrowers ownership of real or personal property, the conduct and licensing of Borrowers business, the payment and withholding of taxes, ERISA and other employee matters, safety and environmental matters.
2.22 Negative Covenants. Without the prior written consent of Ex-Im Bank and Lender, Borrower shall not: (a) merge, consolidate or otherwise combine with any other Person; (b) acquire all or substantially all of the assets or capital stock of any other Person; (c) sell, lease, transfer, convey, assign or otherwise dispose of any of its assets, except for the sale of Inventory in the ordinary course of business and the disposition of obsolete equipment in the ordinary course of business; (d) create any Lien on the Collateral except for Permitted Liens; (e) make any material changes in its organizational structure or identity; or (f) enter into any agreement to do any of the foregoing.
2.23 Cross Default. Borrower shall be deemed in default under the Loan Facility if Borrower fails to pay when due any amount payable to Lender under any loan or other credit accommodations to Borrower whether or not guaranteed by Ex-Im Bank.
2.24 Munitions List. If any of the Items are articles, services, or related technical data that are listed on the United States Munitions List (part 121 of title 22 of the Code of Federal Regulations), Borrower shall send a written notice promptly, but in any event within five (5) Business Days, of Borrower learning thereof to Lender describing the Items(s) and the corresponding invoice amount.
2.25 Suspension and Debarment, etc. On the date of this Agreement neither Borrower nor its Principals are (a) debarred, suspended, proposed for debarment with a final determination
still pending, declared ineligible or voluntarily excluded (as such terms are defined under any of the Debarment Regulations referred to below) from participating in procurement or nonprocurement transactions with any United States federal government department or agency pursuant to any of the Debarment Regulations or (b) indicted, convicted or had a civil judgment rendered against Borrower or any of its Principals for any of the offenses listed in any of the Debarment Regulations. Unless authorized by Ex-Im Bank, Borrower will not knowingly enter into any transactions in connection with the Items with any person who is debarred, suspended, declared ineligible or voluntarily excluded from participation in procurement or nonprocurement transactions with any United States federal government department or agency pursuant to any of the Debarment Regulations. Borrower will provide immediate written notice to Lender if at any time it learns that the certification set forth in this Section 2.24 was erroneous when made or has become erroneous by reason of changed circumstances.
ARTICLE III
RIGHTS AND REMEDIES
3.01 Indemnification. Upon Ex-Im Banks payment of a Claim to Lender in connection with the Loan Facility pursuant to the Master Guarantee Agreement, Ex-Im Bank may assume all rights and remedies of Lender under the Loan Documents and may enforce any such rights or remedies against Borrower, the Collateral and any Guarantors. Borrower shall hold Ex-Im Bank and Lender harmless from and indemnify them against any and all liabilities, damages, claims, costs and losses incurred or suffered by either of them resulting from (a) any materially incorrect certification or statement knowingly made by Borrower or its agent to Ex-Im Bank or Lender in connection with the Loan Facility, this Agreement, the Loan Authorization Agreement or any other Loan Documents or (b) any material breach by Borrower of the terms and conditions of this Agreement, the Loan Authorization Agreement or any of the other Loan Documents. Borrower also acknowledges that any statement, certification or representation made by Borrower in connection with the Loan Facility is subject to the penalties provided in Article 18 U.S.C. Section 1001.
3.02 Liens. Borrower agrees that any and all Liens granted by it to Lender are also hereby granted to Ex-Im Bank to secure Borrowers obligation, however arising, to reimburse Ex-Im Bank for any payments made by Ex-Im Bank pursuant to the Master Guarantee Agreement. Lender is authorized to apply the proceeds of, and recoveries from, any property subject to such Liens to the satisfaction of Loan Facility Obligations in accordance with the terms of any agreement between Lender and Ex-Im Bank.
ARTICLE IV
MISCELLANEOUS
4.01 Governing Law. This Agreement and the obligations arising under this Agreement shall be governed by, and construed in accordance with, the law of the state governing the Loan Agreement.
4.02 Notification. All notices required by this Agreement shall be given in the manner and to the parties provided for in the Loan Agreement.
4.03 Partial Invalidity. If at any time any of the provisions of this Agreement becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, the validity nor the enforceability of the remaining provisions hereof shall in any way be affected or impaired.
4.04 Waiver of Jury Trial. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT, PROCEEDING OR OTHER LITIGATION BROUGHT TO RESOLVE ANY DISPUTE ARISING UNDER, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT, ANY LOAN DOCUMENT, OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OR OMISSIONS OF LENDER, EX- IM BANK, OR ANY OTHER PERSON, RELATING TO THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT OR ANY OTHER LOAN DOCUMENT.
4.05 Consequential Damages. Neither Ex-Im Bank, Lender nor any agent or attorney for any of them shall be liable to Borrower for consequential damages arising from any breach of contract, tort or other wrong relating to the establishment, administration or collection of the Loan Facility Obligations.
IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly executed as of the 24th day of May, 2012.
BIOLASE, INC. | ||
By: | /s/ Frederick D. Furry | |
(Signature) | ||
Name: | Frederick D. Furry | |
(Print or Type) | ||
Title: | Chief Financial Officer | |
(Print or Type) | ||
ACKNOWLEDGED: | ||
COMERICA BANK | ||
By: | /s/ Lake T. McGuire | |
(Signature) | ||
Name: | Lake T. McGuire | |
(Print or Type) | ||
Title: | Vice President | |
(Print or Type) |
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Master Revolving Note Daily Adjusting LIBOR Rate Maturity Date-Obligatory Advances (Business and Commercial Loans Only) |
AMOUNT $4,000,000.00
|
NOTE DATE May 24, 2012
|
MATURITY DATE May 1, 2014
|
On or before the Maturity Date set forth above, FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of COMERICA BANK (herein called Bank), at any office of the Bank in the State of California, the principal sum of FOUR MILLION AND 00/100 DOLLARS ($4,000,000.00), or so much of said sum as has been advanced and is then outstanding under this Note, together with interest thereon at the Daily Adjusting LIBOR Rate plus the Applicable Margin, except during any period of time during which, in accordance with the terms and conditions of this Note, the Indebtedness hereunder shall bear interest at the Prime Referenced Rate plus the Applicable Margin.
This Note is a note under which advances, repayments and re-advances may be made from time to time, subject to the terms and conditions of this Note.
Accrued and unpaid interest on the unpaid principal balance outstanding hereunder shall be payable monthly, in arrears, on the first Business Day of each month, until maturity (whether as stated herein, by acceleration, or otherwise). Interest accruing hereunder shall be computed on the basis of a year of 360 days, and shall be assessed for the actual number of days elapsed, and in such computation, effect shall be given to any change in the applicable interest rate as a result of any change in the Daily Adjusting LIBOR Rate or, to the extent applicable, the Prime Referenced Rate on the date of each such change.
From and after the occurrence of any Default hereunder, and so long as any such Default remains unremedied or uncured thereafter, the Indebtedness outstanding under this Note shall bear interest at a per annum rate of three percent (3%) above the otherwise applicable interest rate hereunder, which interest shall be payable upon demand. In addition to the foregoing, a late payment charge equal to five percent (5%) of each late payment hereunder may be charged on any payment not received by Bank within ten (10) calendar days after the payment due date therefor, but acceptance of payment of any such charge shall not constitute a waiver of any Default hereunder.
In no event shall the interest payable under this Note at any time exceed the maximum rate permitted by law.
The amount and date of each advance hereunder, its applicable interest rate and the amount and date of any repayment shall be noted on Banks records, which records shall be conclusive evidence thereof, absent manifest error; provided, however, any failure by Bank to make any such notation, or any error in any such notation, shall not relieve the undersigned of its/their obligations to repay Bank all amounts payable by the undersigned to Bank under or pursuant to this Note, when due in accordance with the terms hereof.
In the event that the Daily Adjusting LIBOR Rate is not available to the undersigned as the basis for the applicable interest rate hereunder for the principal Indebtedness outstanding hereunder in accordance with the terms of this Note, the Prime Referenced Rate plus the Applicable Margin shall be the applicable interest rate hereunder in respect of such Indebtedness for such period, subject in all respects to the terms and conditions of this Note.
In the event that any payment under this Note becomes due and payable on any day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and, to the extent applicable, interest shall continue to accrue and be payable thereon during such extension at the rates set forth in this Note.
All payments to be made by the undersigned to Bank under or pursuant to this Note shall be in immediately available United States funds, without setoff or counterclaim, and in the event that any payments submitted hereunder are in funds not available until collected, said payments shall continue to bear interest until collected.
The undersigned may prepay all or part of the outstanding balance of any Indebtedness hereunder at any time without premium or penalty. Any prepayment hereunder shall also be accompanied by the payment of all accrued and unpaid interest on the amount so prepaid.
If, at any time, Bank determines that, (a) Bank is unable to determine or ascertain the Daily Adjusting LIBOR Rate, or (b) by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars in the applicable amounts or for the relative maturities are not being offered to Bank, or (c) the Daily Adjusting LIBOR Rate plus the Applicable Margin will not accurately or fairly cover or reflect the cost to Bank of maintaining any of the Indebtedness under this Note based upon the Daily Adjusting LIBOR Rate, then Bank shall forthwith give notice thereof to the undersigned. Thereafter, until Bank notifies the undersigned that such conditions or circumstances no longer exist, the Prime Referenced Rate plus the Applicable Margin shall be the applicable interest rate for all Indebtedness hereunder during such period of time.
If any Change in Law shall make it unlawful or impossible for the Bank (or its LIBOR Lending Office) to make or maintain any of the Indebtedness under this Note with interest based upon the LIBOR-based Rate, Bank shall forthwith give notice thereof to the undersigned. Thereafter, until Bank notifies the undersigned that such conditions or circumstances no longer exist, the Prime Referenced Rate plus the Applicable Margin shall be the applicable interest rate for all Indebtedness hereunder during such period of time.
If any Change in Law shall (a) subject Bank (or its LIBOR Lending Office) to any tax, duty or other charge with respect to this Note or any Indebtedness hereunder, or shall change the basis of taxation of payments to Bank (or its LIBOR Lending Office) of the principal of or interest under this Note or any other amounts due under this Note in respect thereof (except for changes in the rate of tax on the overall net income of Bank or its LIBOR Lending Office imposed by the jurisdiction in which Banks principal executive office or LIBOR Lending Office is located); or (b) impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by Bank (or its LIBOR Lending Office), or shall impose on Bank (or its LIBOR Lending Office) or the foreign exchange and interbank markets any other condition affecting this Note or the Indebtedness hereunder; and the result of any of the foregoing is to increase the cost to Bank of maintaining any part of the Indebtedness hereunder or to reduce the amount of any sum received or receivable by Bank under this Note by an amount deemed by the Bank to be material, then the undersigned shall pay to Bank, within fifteen (15) days of the undersigneds receipt of written notice from Bank demanding such compensation, such additional amount or amounts as will compensate Bank for such increased cost or reduction. A certificate of Bank, prepared in good faith and in reasonable detail by Bank and submitted by Bank to the undersigned, setting forth the basis for determining such additional amount or amounts necessary to compensate Bank shall be conclusive and binding for all purposes, absent manifest error.
In the event that any Change in Law affects or would affect the amount of capital required or expected to be maintained by Bank (or any corporation controlling Bank), and Bank determines that the amount of such capital is increased by or based upon the existence of any obligations of Bank hereunder or the maintaining of any Indebtedness hereunder, and such increase has the effect of reducing the rate of return on Banks (or such controlling corporations) capital as a consequence of such obligations or the maintaining of such Indebtedness hereunder to a level below that which Bank (or such controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy), then the undersigned shall pay to Bank, within fifteen (15) days of the undersigneds receipt of written notice from Bank demanding such compensation, additional amounts as are sufficient to compensate Bank (or such controlling corporation) for any increase in the amount of capital and reduced rate of return which Bank reasonably determines to be allocable to the existence of any obligations of the Bank hereunder or to maintaining any Indebtedness hereunder. A certificate of Bank as to the amount of such compensation, prepared in good faith and in reasonable detail by the Bank and submitted by Bank to the undersigned, shall be conclusive and binding for all purposes absent manifest error.
This Note and any other indebtedness and liabilities of any kind of the undersigned (or any of them) to the Bank, and any and all modifications, renewals or extensions of it, whether joint or several, contingent or absolute, now existing or later arising, and however evidenced and whether incurred voluntarily or involuntarily, known or unknown, or originally payable to the Bank or to a third party and subsequently acquired by Bank including, without limitation, any late charges; loan fees or charges; overdraft indebtedness; costs incurred by Bank in establishing, determining, continuing or defending the validity or priority of any security interest, pledge or other lien or in pursuing any of its rights or remedies under any loan document (or otherwise) or in connection with any proceeding involving the Bank as a result of any financial accommodation to the undersigned (or any of them); and reasonable costs and expenses of attorneys and paralegals, whether inside or outside counsel is used, and whether any suit or other action is instituted, and to court costs if suit or action is instituted, and whether any such fees, costs or expenses are incurred at the trial court level or on appeal, in bankruptcy, in administrative proceedings, in probate proceedings or otherwise (collectively Indebtedness) are secured
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by and the Bank is granted a security interest in and lien upon all items deposited in any account of any of the undersigned with the Bank and by all proceeds of these items (cash or otherwise), all account balances of any of the undersigned from time to time with the Bank, by all property of any of the undersigned from time to time in the possession of the Bank and by any other collateral, rights and properties described in each and every deed of trust, mortgage, security agreement, pledge, assignment and other security or collateral agreement which has been, or will at any time(s) later be, executed by any (or all) of the undersigned to or for the benefit of the Bank (collectively Collateral). Notwithstanding the above, (i) to the extent that any portion of the Indebtedness is a consumer loan, that portion shall not be secured by any deed of trust or mortgage on or other security interest in any of the undersigneds principal dwelling or in any of the undersigneds real property which is not a purchase money security interest as to that portion, unless expressly provided to the contrary in another place, or (ii) if the undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or mortgage covering California real property, that deed of trust or mortgage shall not secure this Note or any other indebtedness of the undersigned (or any of them), unless expressly provided to the contrary in another place, or (iii) if the undersigned (or any of them) has (have) given or give(s) the Bank a deed of trust or mortgage covering real property which, under Texas law, constitutes the homestead of such person, that deed of trust or mortgage shall not secure this Note or any other indebtedness of the undersigned (or any of them) unless expressly provided to the contrary in another place.
If (a) the undersigned (or any of them) or any guarantor under a guaranty of all or part of the Indebtedness (guarantor) (i) fail(s) to pay this Note or any of the Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (ii) fail(s) to comply with any of the terms or provisions of any agreement between the undersigned (or any of them) or any guarantor and the Bank, and any such failure continues beyond any applicable grace or cure period, if any, expressly provided with respect thereto; or (iii) become(s) insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy, or a reorganization, arrangement or creditor composition proceeding, (if a business entity) cease(s) doing business as a going concern, (if a natural person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any general partner of it dies, becomes incompetent or becomes the subject of a bankruptcy proceeding, or (if a corporation or a limited liability company) is the subject of a dissolution, merger or consolidation; or (b) any warranty or representation made by any of the undersigned or any guarantor in connection with this Note or any of the Indebtedness shall be discovered to be untrue or incomplete; or (c) there is any termination, notice of termination, or breach of any guaranty, pledge, collateral assignment or subordination agreement relating to all or any part of the Indebtedness; or (d) there is any failure by any of the undersigned or any guarantor to pay when due any of its indebtedness (other than to the Bank) or in the observance or performance of any term, covenant or condition in any document evidencing, securing or relating to such indebtedness; or (e) the Bank deems itself insecure, believing that the prospect of payment or performance of this Note or any of the Indebtedness is impaired or shall fear deterioration, removal or waste of any of the Collateral; or (f) there is filed or issued a levy or writ of attachment or garnishment or other like judicial process upon the undersigned (or any of them) or any guarantor or any of the Collateral, including, without limit, any accounts of the undersigned (or any of them) or any guarantor with the Bank; then the Bank, upon the occurrence and at any time during the continuance or existence of any of these events (each a Default), may, at its option and without prior notice to the undersigned (or any of them), cease advancing money or extending credit to or for the benefit of the undersigned under this Note or any other agreement between the undersigned and Bank, terminate this Note as to any future liability or obligation of Bank, but without affecting Banks rights and security interests in any Collateral and the Indebtedness of the undersigned to Bank, declare any or all of the Indebtedness to be immediately due and payable (notwithstanding any provisions contained in the evidence of it to the contrary), sell or liquidate all or any portion of the Collateral, set off against the Indebtedness any amounts owing by the Bank to the undersigned (or any of them), charge interest at the default rate provided in the document evidencing the relevant Indebtedness and exercise any one or more of the rights and remedies granted to the Bank by any agreement with the undersigned (or any of them) or given to it under applicable law. In addition, if this Note is secured by a deed of trust or mortgage covering real property, then the trustor or mortgagor shall not mortgage or pledge the mortgaged premises as security for any other indebtedness or obligations. This Note, together with all other indebtedness secured by said deed of trust or mortgage, shall become due and payable immediately, without notice, at the option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge the mortgaged premises for any other indebtedness or obligations or shall convey, assign or transfer the mortgaged premises by deed, installment sale contract or other instrument, or (b) if the title to the mortgaged premises shall become vested in any other person or party in any manner whatsoever, or (c) if there is any disposition (through one or more transactions) of legal or beneficial title to a controlling interest of said trustor or mortgagor.
The undersigned authorize(s) the Bank to charge any account(s) of the undersigned (or any of them) with the Bank for any and all sums due hereunder when due; provided, however, that such authorization shall not affect any of the undersigneds obligation to pay to the Bank all amounts when due, whether or not any such account balances that are maintained by the undersigned with the Bank are insufficient to pay to the Bank any amounts when due, and to the extent that are insufficient to pay to the Bank all such amounts, the undersigned shall remain liable for any deficiencies until paid in full.
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If this Note is signed by two or more parties (whether by all as makers or by one or more as an accommodation party or otherwise), the obligations and undertakings under this Note shall be that of all and any two or more jointly and also of each severally. This Note shall bind the undersigned, and the undersigneds respective heirs, personal representatives, successors and assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor, notice of demand or intent to demand, notice of acceleration or intent to accelerate, and all other notices, and agree(s) that no extension or indulgence to the undersigned (or any of them) or release, substitution or nonenforcement of any security, or release or substitution of any of the undersigned, any guarantor or any other party, whether with or without notice, shall affect the obligations of any of the undersigned. The undersigned waive(s) all defenses or right to discharge available under Section 3605 of the California Uniform Commercial Code and waive(s) all other suretyship defenses or right to discharge. The undersigned agree(s) that the Bank has the right to sell, assign, or grant participations or any interest in, any or all of the Indebtedness, and that, in connection with this right, but without limiting its ability to make other disclosures to the full extent allowable, the Bank may disclose all documents and information which the Bank now or later has relating to the undersigned or the Indebtedness. The undersigned agree(s) that the Bank may provide information relating to this Note or relating to the undersigned to the Banks parent, affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse Bank, or any other holder or owner of this Note, for any and all costs and expenses (including, without limit, court costs, legal expenses and reasonable attorneys fees, whether inside or outside counsel is used, whether or not suit is instituted, and, if suit is instituted, whether at the trial court level, appellate level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in collecting or attempting to collect this Note or the Indebtedness or incurred in any other matter or proceeding relating to this Note or the Indebtedness.
The undersigned acknowledge(s) and agree(s) that there are no contrary agreements, oral or written, establishing a term of this Note and agree(s) that the terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an officer of the Bank expressly stating that the writing constitutes an amendment, waiver or modification of the terms of this Note. As used in this Note, the word undersigned means, individually and collectively, each maker, accommodation party, endorser and other party signing this Note in a similar capacity. If any provision of this Note is unenforceable in whole or part for any reason, the remaining provisions shall continue to be effective. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
For the purposes of this Note, the following terms have the following meanings:
Applicable Margin means four and one-quarter percent (4.25%) per annum.
Business Day means any day, other than a Saturday, Sunday or any other day designated as a holiday under Federal or applicable State statute or regulation, on which Bank is open for all or substantially all of its domestic and international business (including dealings in foreign exchange) in San Jose, California, and, in respect of notices and determinations relating to the Daily Adjusting LIBOR Rate, also a day on which dealings in dollar deposits are also carried on in the London interbank market and on which banks are open for business in London, England.
Change in Law means the occurrence, after the date hereof, of any of the following: (i) the adoption or introduction of, or any change in any applicable law, treaty, rule or regulation (whether domestic or foreign) now or hereafter in effect and whether or not applicable to Bank on such date, or (ii) any change in interpretation, administration or implementation thereof of any such law, treaty, rule or regulation by any Governmental Authority, or (iii) the issuance, making or implementation by any Governmental Authority of any interpretation, administration, request, regulation, guideline, or directive (whether or not having the force of law), including any, risk-based capital guidelines. For purposes of this definition, (x) a change in law, treaty, rule, regulation, interpretation, administration or implementation shall include, without limitation, any change made or which becomes effective on the basis of a law, treaty, rule, regulation, interpretation administration or implementation then in force, the effective date of which change is delayed by the terms of such law, treaty, rule, regulation, interpretation, administration or implementation, and (y) the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, H.R. 4173) and all requests, rules, regulations, guidelines, interpretations or directives promulgated thereunder or issued in connection therewith shall be deemed to be a Change in
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Law , regardless of the date enacted, adopted, issued or promulgated, whether before or after the date hereof, and (z) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall each be deemed to be a Change in Law, regardless of the date enacted, adopted, issued or implemented.
Daily Adjusting LIBOR Rate means, for any day, a per annum interest rate which is equal to the quotient of the following:
(a) | for any day, the per annum rate of interest determined on the basis of the rate for deposits in United States Dollars for a period equal to one (1) month appearing on Page BBAM of the Bloomberg Financial Markets Information Service as of 8:00 a.m. (California time) (or as soon thereafter as practical) on such day, or if such day is not a Business Day, on the immediately preceding Business Day. In the event that such rate does not appear on Page BBAM of the Bloomberg Financial Markets Information Service (or otherwise on such Service) on any day, the Daily Adjusting LIBOR Rate for such day shall be determined by reference to such other publicly available service for displaying eurodollar rates as may be reasonably selected by Bank, or, in the absence of such other service, the Daily Adjusting LIBOR Rate for such day shall, instead, be determined based upon the average of the rates at which Bank is offered dollar deposits at or about 8:00 a.m. (California time) (or as soon thereafter as practical), on such day, or if such day is not a Business Day, on the immediately preceding Business Day, in the interbank eurodollar market in an amount comparable to the principal amount outstanding hereunder and for a period of one (1) month; |
divided by
(b) | 1.00 minus the maximum rate (expressed as a decimal) on such day at which Bank is required to maintain reserves on Euro-currency Liabilities as defined in and pursuant to Regulation D of the Board of Governors of the Federal Reserve System or, if such regulation or definition is modified, and as long as Bank is required to maintain reserves against a category of liabilities which includes eurodollar deposits or includes a category of assets which includes eurodollar loans, the rate at which such reserves are required to be maintained on such category; |
provided, however, in no event and at no time shall the Daily Adjusting LIBOR Rate be less than one percent (1.00%) per annum.
Governmental Authority means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including, without limitation, any supranational bodies such as the European Union or the European Central Bank).
LIBOR Lending Office means Banks office located in the Cayman Islands, British West Indies, or such other branch of Bank, domestic or foreign, as it may hereafter designate as its LIBOR Lending Office by notice to the undersigned.
Prime Rate means the per annum interest rate established by Bank as its prime rate for its borrowers, as such rate may vary from time to time, which rate is not necessarily the lowest rate on loans made by Bank at any such time.
Prime Referenced Rate means a per annum interest rate which is equal to the Prime Rate, but in no event less than two and one-half percent (2.50%) per annum.
No delay or failure of Bank in exercising any right, power or privilege hereunder shall affect such right, power or privilege, nor shall any single or partial exercise thereof preclude any further exercise thereof, or the exercise of any other power, right or privilege. The rights of Bank under this Agreement are cumulative and not exclusive of any right or remedies which Bank would otherwise have, whether by other instruments or by law.
5
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND BANK, BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
The undersigned acknowledges that one or more Guaranties have been entered into which guarantee a portion of all Indebtedness. Upon partial satisfaction of the Indebtedness, the undersigned expressly waives any right to designate the portion of the Indebtedness that is satisfied by such payment.
BIOLASE, INC. | ||
By: | /s/ Frederick D. Furry | |
Its: | Chief Financial Officer |
4 Cromwell |
Irvine | California | 92618 | |||||||||
STREET ADDRESS |
CITY | STATE | ZIP CODE |
For Bank Use Only |
||||||||||
OFFICER INITIALS | LOAN GROUP NAME | BASE RATE INDEX 20128 |
OBLIGOR NAME Biolase Technology, Inc. | |||||||
OFFICER I.D. NO. | LOAN GROUP NO. | OBLIGOR NO. | NOTE NO. |
AMOUNT $4,000,000.00 |
EXHIBIT 10.4
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
This Amendment No. 1 to Loan and Security Agreement (Amendment) is made on August 6, 2012 (Amendment No. 1 Effective Date) between Biolase, Inc., a Delaware corporation (Borrower) and Comerica Bank, a Texas banking association, (Bank).
Borrower and Bank entered into a Loan and Security Agreement dated May 24, 2012, (Loan Agreement) providing terms and conditions governing certain loans and other credit accommodations extended by Bank to Borrower (Obligations). Borrower and Bank have agreed to amend the terms of the Loan Agreement as provided in this Amendment.
Accordingly, Borrower and Bank agree as follows:
1. Capitalized Terms. In this Amendment, capitalized terms that are used without separate definition shall have the meanings given to them in the Loan Agreement.
2. Amendments. The Loan Agreement is amended as follows:
(a) Section 6.7(b) is amended to read in its entirety as follows:
(b) EBITDA. As of the end of each fiscal quarter, commencing with the fiscal quarter ending September 30, 2012, an EBITDA of not less than the amount set forth below for the applicable measurement date, measured in each case for the three (3) months then-ending:
Measurement Date |
Minimum EBITDA | |
September 30, 2012 |
-$750,000.00 | |
December 31, 2012 |
-$250,000.00 | |
March 31, 2013 and thereafter |
[to be determined as follows] |
For each fiscal quarter ending on or after March 31, 2013, Bank shall establish an EBITDA measurement based upon Borrowers Board of Directors-approved financial and business projections and budget, sales projections, and operating plans for the fiscal year ending December 31, 2013 (2013 Plan), which 2013 Plan shall be delivered to Bank no later than November 15, 2012, and shall be reasonably satisfactory to Bank.
3. Representations. Borrower represents and agrees that:
(a) Except as expressly modified in this Amendment, (i) the representations and warranties set forth in the Loan Agreement and in each of the Loan Documents remain true and correct in all respects, except to the extent that they expressly speak as of a specific prior date, and (ii) the covenants set forth in the Loan Agreement continue to be satisfied in all respects, and are legal, valid and binding obligations with the same force and effect as if entirely restated in this Amendment.
(b) When executed, this Amendment will be a duly authorized, legal, valid, and binding obligation of Borrower enforceable in accordance with its terms, and will not conflict with or violate any of Borrowers organization documents or any agreement, instrument, law, or order to which Borrower or any material portion of its assets is subject or bound.
(c) The corporate resolutions delivered to Bank on or about May 24, 2012 remain in full force and effect, have not been amended, repealed or rescinded in any respect and may continue
to be relied upon by Bank until written notice to the contrary is received by Bank, the officers named therein continue to hold those offices, and Borrower continues to be in good standing under the laws of the State of Delaware.
(d) Except for events or conditions for which Bank has given or is concurrently giving its written waiver, no Event of Default exists or has occurred and is continuing uncured or unwaived as of the Effective Date.
4. Conditions Precedent. The effectiveness of this Amendment is subject to Banks receipt of or Borrowers satisfaction of all of the following:
(a) this Amendment;
(b) execution and delivery by the Guarantors of the Acknowledgement and Consent of Guarantors as set forth below; and
(c) such other documents and completion of such other matters as Bank may reasonably deem necessary or appropriate.
5. Waiver of Default. Borrower acknowledges that it is not in compliance with the Agreement because it has failed to comply with Section 6.7(b) [EBITDA] as of June 30, 2012 (Identified Default). Bank waives any default or Event of Default under the Loan Agreement arising out of the Identified Default as of the stated date, but not at or for any subsequent time or period. This provision is not a waiver of or consent to any other event, condition, transaction, act or omission whether related or unrelated to the Identified Default.
6. No Other Changes. Except as specifically provided in this Amendment, it does not vary the terms and provisions of any Loan Documents. This Amendment shall not impair the rights, remedies, and security given in and by the Loan Documents. The terms of this Amendment shall control any conflict between its terms and those of the Loan Agreement.
7. Ratification. Except for the modifications under this Amendment, the parties ratify and confirm the Loan Agreement and the Loan Documents and agree that they remain in full force and effect.
8. Further Modification; No Reliance. This Amendment may be altered or modified only by written instrument duly executed by Borrower and Bank. In executing this Amendment, Borrower is not relying on any promise or commitment of Bank that is not in writing signed by Bank. This Amendment shall not be more strictly construed against any one of the parties as compared to any other.
9. Successors and Assigns. This Amendment shall inure to the benefit of and be binding upon the parties and their respective successors and assigns.
10. Governing Law. The parties agree that the terms and provisions of this Amendment shall be governed by and construed in accordance with the internal laws of the State of California, without regard to principles of conflicts of law.
11. No Defenses. Borrower acknowledges, confirms, and warrants to Bank that as of the date hereof Borrower has absolutely no defenses, claims, rights of set-off, or counterclaims against Bank under, arising out of, or in connection with, this Amendment, the Loan Agreement, the Loan Documents and/or the individual advances under the Indebtedness, or against any of the indebtedness evidenced or secured thereby.
- 2 -
12. Expenses. Borrower shall promptly pay all out-of-pocket fees, costs, charges, expenses, and disbursements of Bank incurred in connection with the preparation, execution, and delivery of this Amendment, and the other documents contemplated by this Amendment.
13. Counterparts. This Amendment may be executed in one or more counterparts, and by separate parties on separate counterparts, all of which shall constitute one and the same agreement.
[end of amendmentsignature page follows]
- 3 -
This Amendment No. 1 to Loan and Security Agreement is executed and delivered as of the Amendment No. 1 Effective Date.
Comerica Bank | Biolase, Inc. | |||||||
By: | Lake T. McGuire |
By: | Frederick D. Furry | |||||
Name: | Lake T. McGuire | Name: | Frederick D. Furry | |||||
Title: | Vice President | Title: | Chief Financial Officer |
- 4 -
EXHIBIT 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
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 June 30, 2012 of BIOLASE, 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 financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are 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:
a. | 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; |
b. | 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; |
c. | Evaluated the effectiveness of the registrants 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; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants Board of Directors (or persons performing the equivalent functions):
a. | 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 registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 9, 2012 | By: | /s/ FEDERICO PIGNATELLI | ||||
Federico Pignatelli | ||||||
Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Frederick D. Furry, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2012 of BIOLASE, 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 financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are 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:
a. | 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; |
b. | 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; |
c. | Evaluated the effectiveness of the registrants 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; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants Board of Directors (or persons performing the equivalent functions):
a. | 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 registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 9, 2012 | By: | /s/ FREDERICK D. FURRY | ||||
Frederick D. Furry | ||||||
Chief Financial Officer (Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BIOLASE, Inc. (the Company) on Form 10-Q for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Federico Pignatelli, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2012 | /s/ FEDERICO PIGNATELLI | |||||
Federico Pignatelli | ||||||
Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BIOLASE, Inc. (the Company) on Form 10-Q for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Frederick D. Furry, Chief Operating Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2012 | /s/ FREDERICK D. FURRY | |||||
Frederick D. Furry | ||||||
Chief Financial Officer (Principal Financial and Accounting Officer) |