Exhibit 10.6
EXECUTION VERSION
AMENDED AND RESTATED SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AGREEMENT, is entered into as of September 23,
2010 with an effective date of August 30, 2010 as amended or otherwise modified
from time to time, this “Agreement”), among Biolase Technology, Inc., a Delaware
corporation (“Biolase”), BL Acquisition Corp., a Delaware corporation (“BL
Acquisition”) and BL Acquisition II Inc., a Delaware corporation (“BL
Acquisition II”, together with Biolase and BL Acquisition, “Grantors” and each a
“Grantor”), and Henry Schein, Inc., a Delaware corporation (“HSI”).
Reference is made to each of (x) the security agreement, dated February 16, 2010
(as amended or otherwise modified prior to the date hereof, the “Prior Security
Agreement”), between HSI and Biolase and (y) the Distribution and Supply
Agreement, dated the date hereof (as amended or otherwise modified from time to
time, the “Distribution Agreement”), between HSI and Biolase.
The Prior Security Agreement creates a security interest in all of Biolase’s
inventory (and products and proceeds thereof) to secure obligations of Biolase
to HSI under the letter agreement, dated February 16, 2010 (as amended or
otherwise modified prior to the date hereof, the “February Letter”), between HSI
and Biolase.
The Distribution Agreement, among other things, (x) continues the obligations
owed by Biolase under the February Letter (such obligations, as continued under
the Distribution Agreement, are herein referred to as the “February
Obligations”), (y) continues the obligations of Biolase to HSI under the letter
agreement, dated March 9, 2010 (as amended or otherwise modified prior to the
date hereof, the “March Letter”), between HSI and Biolase (such obligations, as
continued under the Distribution Agreement, are herein referred to as the “March
Obligations”) and (z) creates obligations from Biolase owing to HSI in addition
to the February Obligations and March Obligations, in each case as more fully
described therein.
This Agreement (i) amends and restates in its entirety the Prior Security
Agreement, (ii) continues the security interests granted by Biolase under the
Prior Security Agreement securing obligations of Biolase under the February
Letter and (iii) otherwise secures all obligations of Biolase under the
Distribution Agreement. The Prior Security Agreement has been superseded in its
entirety by this Agreement, and shall no longer be in effect except as modified
herein. This Agreement does not constitute a novation.
As a condition to entering into the Distribution Agreement, HSI shall have
received (i) evidence satisfactory to HSI that the requisite lenders under the
Loan and Security Agreement, dated as of May 27, 2010 (as amended and otherwise
modified prior to the date hereof, the “MidCap Loan Agreement”), among Biolase,
MidCap Funding III, LLC, Silicon Valley Bank and the other lenders party thereto
have entered into an agreement with Biolase, the terms of which shall be
reasonably satisfactory to HSI and (ii) take all action necessary to perfect the
security interests granted (and continued) under Section 2 (other than actions
to be taken post closing in accordance with the last sentence of Section 4).

 

 

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NOW, THEREFORE, in consideration of the promises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
All capitalized terms used herein shall have the meanings provided herein
(including, without limitation, the meanings provided in Schedule I).
Capitalized terms used herein without meanings provided herein shall have the
respective meanings provided therefor in the Distribution Agreement.
2. Grant of Security Interest. Each Grantor hereby grants to HSI, to secure the
payment and performance in full of all of the Obligations, a continuing security
interest in, and pledges to HSI, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.
Each Grantor represents, warrants, covenants and confirms that (i) Biolase
granted a security interest under the Prior Security Agreement in all of
Biolase’s right, title and interest in its inventory (and products and proceeds
thereof) to secure the obligations of Biolase under the February Letter and
(ii) such obligations are continued under the Distribution Agreement and such
security interest is continued hereunder. Each Grantor further represents,
warrants and covenants that the security interest granted herein (and continued
herein) is and shall at all times continue to be a Senior Priority perfected
security interest. “Senior Priority” means (a) with respect to the perfected
security interest in the inventory (and products and proceeds thereof) of
Biolase to secure the February Obligations, a first priority perfected security
interest, subject in priority only to Permitted Liens that may have priority by
operation of applicable Law and (b) with respect to the perfected security
interest in the Collateral to secure all Obligations, a first priority perfected
security interest subject in priority only to Permitted Liens that may have
priority by operation of applicable Law and Liens securing the obligations (but
only up to an aggregate principal amount of $3,000,000) of Biolase under the
MidCap Loan Agreement.
3. Authorization to File Financing Statements. Each Grantor hereby authorizes
HSI to file financing statements, without notice to it, in all appropriate
jurisdictions to perfect or protect HSI’s interest or rights hereunder,
including, without limitation, a notice that any disposition of the Collateral,
by either any Grantor or any other Person, shall be deemed to violate the rights
of HSI under the UCC. Such financing statements may indicate the Collateral as
“all assets of Debtor” or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in HSI’s discretion.

 

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

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

 

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

(i) foreclose upon and/or sell or otherwise liquidate the Collateral, but use
commercially reasonable efforts to first foreclose upon and/or sell or otherwise
liquidate, the Collateral consisting of assets other than Intellectual Property;
provided that (A) in instances in which any other Person has initiated
foreclosure on Intellectual Property, HSI shall be entitled to join such action
subject to any restrictions in an agreement between HSI and such Person;
(B) in any foreclosure on Intellectual Property or in any sale of Intellectual
Property in any Insolvency Proceeding, HSI shall not bid to obtain title to
Intellectual Property if the Obligations owing to HSI have been indefeasibly
paid in full;  and  (C) except as expressly provided, this clause (i) shall not
be in any manner restrict or limit HSI’s rights and remedies with respect to
(x) any foreclosure instituted or continued by HSI or any other Person, or
(y) any Insolvency Proceeding;
(ii) apply to the Obligations any (a) balances and deposits of any Grantor that
HSI holds or controls, or (b) any amount held or controlled by HSI owing to or
for the credit or the account of any Grantor; and/or
(iii) commence, join in and prosecute an Insolvency Proceeding or consent to any
Grantor commencing any Insolvency Proceeding.
9. Standards for Exercising Rights and Remedies. To the extent that applicable
law imposes duties on HSI to exercise remedies in a commercially reasonable
manner, each Grantor acknowledges and agrees that it is not commercially
unreasonable for HSI, subject in all cases to its agreement with regard to
Collateral consisting of Intellectual Property set forth in Section 8(b)(i)
above, (a) to fail to incur expenses reasonably deemed significant by HSI to
prepare Collateral for disposition or otherwise to fail to complete raw material
or work in process into finished goods or other finished products for
disposition, (b) to fail to obtain third party consents for access to Collateral
to be disposed of, or to obtain or, if not required by other law, to fail to
obtain governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of, (c) to fail to remove liens or
encumbrances on or any adverse claims against Collateral, (d) to exercise
collection remedies against persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (e) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to
contact other persons, whether or not in the same business as any Grantor, for
expressions of interest in acquiring all or any portion of the Collateral,
(g) to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature, (h) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (i) to
dispose of assets in wholesale rather than retail markets, or (j) to disclaim
disposition warranties. Each Grantor acknowledges that the purpose of this
Section 9 is to provide non-exhaustive indications of what actions or omissions
by HSI would fulfill HSI’s duties under the UCC or other law of the State or any
other relevant jurisdiction in HSI’s exercise of remedies against the Collateral
and that other actions or omissions by HSI shall not be deemed to fail to
fulfill such duties solely on account of not being indicated in this Section 9.
Without limitation upon the foregoing, nothing contained in this Section 9 shall
be construed to grant any rights to any Grantor or to impose any duties on HSI
that would not have been granted or imposed by this Agreement or by applicable
law in the absence of this Section 9.

 

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10. Collateral Protection Expenses; Preservation of Collateral.

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

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

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

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

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

 

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

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

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

 

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13. No Waiver by HSI, etc. HSI shall not be deemed to have waived any of its
rights or remedies in respect of the Obligations or the Collateral unless such
waiver shall be in writing and signed by HSI. No delay or omission on the part
of HSI in exercising any right or remedy shall operate as a waiver of such right
or remedy or any other right or remedy. A waiver on any one occasion shall not
be construed as a bar to or waiver of any right or remedy on any future
occasion. All rights and remedies of HSI with respect to the Obligations or the
Collateral, whether evidenced hereby or by any other instrument or papers, shall
be cumulative and may be exercised singularly, alternatively, successively or
concurrently at such time or at such times as HSI deems expedient.
14. Suretyship Waivers by Grantor. Each Grantor waives demand, notice, protest,
notice of acceptance of this Agreement, credit extended, Collateral received or
delivered or other action taken in reliance hereon and all other demands and
notices of any description. With respect to both the Obligations and the
Collateral, each Grantor assents to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of or
failure to perfect any security interest in any Collateral, to the addition or
release of any party or person primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as HSI
may deem advisable. HSI shall have no duty as to the collection or protection of
the Collateral or any income therefrom, the preservation of rights against prior
parties, or the preservation of any rights pertaining thereto beyond the safe
custody thereof as set forth in Section 10(b). Each Grantor further waives any
and all other suretyship defenses.
15. Marshalling. HSI shall not be required to marshal any present or future
collateral security (including, without limitation, the Collateral) for, or
other assurances of payment of, the Obligations or any of them or to resort to
such collateral security or other assurances of payment in any particular order,
and all of its rights and remedies hereunder and in respect of such collateral
security and other assurances of payment shall be cumulative and in addition to
all other rights and remedies, however existing or arising. To the extent that
it lawfully may, each Grantor hereby agrees that it will not invoke any law
relating to the marshalling of collateral which might cause delay in or impede
the enforcement of HSI’s rights and remedies under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, each Grantor hereby irrevocably waives the benefits of all such
laws.
16. Insurance Proceeds; Proceeds of Dispositions; Expenses. The proceeds of any
casualty insurance in respect of any casualty loss of any of the Collateral
shall, subject to the rights, if any, of other parties with an interest having
priority in the property covered thereby, (i) to the extent that the amount of
such proceeds is less than $50,000, be disbursed to a Grantor, as applicable,
for direct application by it solely to the repair or replacement of its’
property so damaged or destroyed, and (ii) in all other circumstances, be held
by HSI as cash collateral for the Obligations. HSI may, at its sole option,
disburse from time to time all or any part of such proceeds so held as cash
collateral, upon such terms and conditions as HSI may reasonably prescribe, for
direct application by a Grantor solely to the repair or replacement of its’
property so damaged or destroyed, or HSI may apply all or any part of such
proceeds to the Obligations.

 

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Each Grantor shall pay to HSI on demand any and all expenses, including, without
limitation, reasonable attorneys’ fees and disbursements, incurred or paid by
HSI in protecting, preserving or enforcing HSI’s rights and remedies under or in
respect of any of the Obligations or any of the Collateral. After deducting all
of said expenses, the residue of any proceeds of collection or sale or other
disposition of the Collateral shall, to the extent actually received in cash, be
applied to the payment of the Obligations in such order or preference as HSI may
determine proper allowance and provision being made for any Obligations not then
due. Upon the final payment and satisfaction in full of all of the Obligations
and after making any payments required by Sections 9-608(a)(1)(C) or 9-615(a)(3)
of the UCC of the State, any excess shall be returned to the Grantors. In the
absence of final payment and satisfaction in full of all of the Obligations,
each Grantor shall remain liable for any deficiency.
17. Termination Statements. Immediately upon satisfaction of the Obligations,
HSI shall authorize each Grantor, on behalf of such Grantor and at such
Grantor’s expense, to execute and file termination statements in all
jurisdictions in which financing statements were filed in respect of this
Agreement, and shall take such other action or refrain from taking any other
action as such Grantor may reasonably request, and at such Grantor’s sole
expense, to effectuate the termination of this Agreement and the termination of
perfection of any security interest granted in and to the Collateral.
18. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED TO TAKE
EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Each Grantor agrees that any
action or claim arising out of, or any dispute in connection with, this
Agreement, any rights, remedies, obligations, or duties hereunder, or the
performance or enforcement hereof or thereof, may be brought in the courts of
the State or any federal court sitting therein and consents to the non-exclusive
jurisdiction of such court and to service of process in any such suit being made
upon a Grantor by mail at the address set forth on the signature page hereto.
Each Grantor hereby waives any objection that it may now or hereafter have to
the venue of any such suit or any such court or that such suit is brought in an
inconvenient court.
19. Waiver of Jury Trial. THE DEBTOR WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THSI AGREEMENT, ANY RIGHTS, REMEDIES, OBLIGATIONS, OR DUTIES HEREUNDER, OR THE
PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF. Except as prohibited by law, each
Grantor waives any right which it may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. Each Grantor (i) certifies that neither HSI nor any representative,
agent or attorney of HSI has represented, expressly or otherwise, that HSI would
not, in the event of litigation, seek to enforce the foregoing waivers or other
waivers contained in this Agreement, and (ii) acknowledges that, in entering
into the Distribution Agreement, HSI is relying upon, among other things, the
waivers and certifications contained in this Section 19.

 

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20. Indemnification.

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

  (b)  
Each Grantor hereby further indemnifies, defends and holds each Indemnified
Person harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
the fees and disbursements of counsel for such Indemnitee), except to the extent
directly caused by such Indemnified Person’s gross negligence, willful
misconduct or fraud, in connection with any investigative, response, remedial,
administrative or judicial matter or proceeding, whether or not such Indemnified
Person shall be designated a party thereto and including any such proceeding
initiated by or on behalf of any Grantor, and the reasonable expenses of
investigation by engineers, environmental consultants and similar technical
personnel and any commission, fee or compensation claimed by any broker (other
than any broker retained by HSI) asserting any right to payment for the
transactions contemplated hereby which may be imposed on, incurred by or
asserted against such Indemnified Person as a result of or in connection with
the transactions contemplated hereby and the use or intended use of the proceeds
of the loan proceeds.

  (c)  
To the extent that the undertaking set forth in this Section 20 may be
unenforceable, each Grantor shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all such indemnified liabilities incurred by the Indemnitees or
any of them.

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

 

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

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

            Organizational ID: Delaware No. 2117279
Address: 4 Cromwell, Irvine, California 92618

BL ACQUISITION CORP.
      By:   /s/ Federico Pignatelli         Name:   Federico Pignatelli       
Title:   Chairman and interim Chief Executive Officer   

            Organizational ID: Delaware No.
Address:

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

            Organizational ID: Delaware No.
Address:

HENRY SCHEIN, INC.
      By:   /s/ Mark E. Mlotek         Name:   Mark E. Mlotek        Title:  
Executive Vice President     

 

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

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

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

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

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

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

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

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

 

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  (h)  
“Permitted Indebtedness” means:

  i.  
Biolase’s obligations to HSI under the Distribution Agreement;
    ii.  
Indebtedness existing on the date hereof as set forth in Schedule V hereto;
    iii.  
Subordinated Debt;
    iv.  
unsecured Indebtedness to trade creditors incurred in the ordinary course of
business;
    v.  
Indebtedness secured by Permitted Liens;
    vi.  
Indebtedness of Biolase under the MidCap Loan Agreement in an amount not to
exceed an aggregate principal amount of $3,000,000 (the “MidCap Debt”); and
    vii.  
extensions, refinancings, modifications, amendments and restatements of any
items of Permitted Indebtedness (a) through (f) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon any Grantor or its subsidiary, as the case
may be.

  (i)  
“Permitted Liens” means:

  i.  
Liens existing on the date first written above (including, without limitation,
Liens granted pursuant to the MidCap Loan and Security Agreement) or arising
under this Agreement;
    ii.  
Liens for taxes, fees, assessments or other government charges or levies, either
not delinquent or being contested in good faith and for which each Grantor
maintains adequate reserves on its books, provided that no notice of any such
Lien has been filed or recorded under the Internal Revenue UCC of 1986, as
amended, and the Treasury Regulations adopted thereunder;
    iii.  
purchase money Liens (i) on equipment acquired or held by each Grantor incurred
for financing the acquisition of the equipment securing no more than One Hundred
Thousand Dollars ($100,000) in the aggregate amount outstanding, or (ii)
existing on equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the equipment; and
    iv.  
Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) and (c) above, but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing Lien
and the principal amount of the Indebtedness may not increase.

 

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  (j)  
“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
    (k)  
“State” means the State of New York.
    (l)  
“Subordinated Debt” means indebtedness incurred by each Grantor subordinated to
all of its’ now or hereafter indebtedness to HSI (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
HSI entered into between each Grantor and the other creditor), on terms
acceptable to HSI.
    (m)  
“UCC” means UCC, as the same may, from time to time, be enacted and in effect in
the State of New York; provided, that, to the extent that the UCC is used to
define any term herein and such term is defined differently in different
Articles of the UCC, the definition of such term contained in Article 9 shall
govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, or priority of, or
remedies with respect to, HSI’s security interest on any Collateral is governed
by the UCC in effect in a jurisdiction other than the State of New York, the
term “UCC” shall mean the UCC as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority, or remedies and for purposes of definitions
relating to such provisions. All terms defined in the UCC and used herein
(whether or not capitalized) shall have the same definitions herein as specified
therein.

 

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Schedule II
REPRESENTATIONS AND WARRANTIES
Each Grantor hereby represents and warrants to HSI as follows:

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

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

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

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

  (f)  
the execution, delivery and performance by each Grantor of this Agreement have
been duly authorized, and does not (i) conflict with any of its’ organizational
documents, (ii) contravene, conflict with, constitute a default under or violate
any material law, (iii) contravene, conflict or violate any applicable order,
writ, judgment, injunction, decree, determination or award of any Governmental
Authority by which it or any of its subsidiaries or any of their property or
assets may be bound or affected, (iv) require any action by, filing,
registration, or qualification with, or Governmental Approval from, any
Governmental Authority (except such Governmental Approvals which have already
been obtained and are in full force and effect), or (v) constitute an event of
default under any material agreement (including, without limitation, the MidCap
Loan Agreement) by which it or any of its subsidiaries or their respective
properties is bound;

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

  (h)  
Each Grantor and each of its subsidiaries have obtained all consents, approvals
and authorizations of, made all declarations or filings with, and given all
notices to, all Governmental Authorities that are necessary to continue their
respective businesses as currently conducted;

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

 

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

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

  (l)  
Each Grantor is not engaged as one of its important activities in extending
credit for margin stock (under Regulations X, T and U of the Federal Reserve
Board of Governors);

  (m)  
Each Grantor has not violated any Laws, ordinances or rules, the violation of
which could reasonably be expected to have a material adverse effect on its
business; and

  (n)  
Each Grantor has timely filed all required tax returns and reports, and Grantor
and its subsidiaries have timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by it. Each Grantor may
defer payment of any contested taxes, provided that it (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (b) notifies HSI in writing of the
commencement of, and any material development in, the proceedings, and (c) posts
bonds or takes any other steps required to prevent the governmental authority
levying such contested taxes from obtaining a Lien upon any of the Collateral
that is other than a Permitted Lien.

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

 

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Schedule III
COVENANTS
Each Grantor covenants with HSI to:

  (a)  
Government Compliance.

  i.  
Maintain its and all its subsidiaries’ legal existence and good standing in
their respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could reasonably be expected to
have a material adverse effect on its business or operations.

  ii.  
Comply, and have each subsidiary comply, with all laws, ordinances and
regulations to which it is subject, the noncompliance with which could
reasonably be expected to have a material adverse effect on its business.

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

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

  (b)  
Financial Statements, Reports, Certificates.

  i.  
Deliver to HSI: (i) as soon as available, but no later than one hundred twenty
(120) days after the last day of its fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified (other than a “going concern” qualification) opinion on the
financial statements from its independent certified public accounting firm,
(ii) within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission or a link thereto on Biolase’s
or another website on the Internet and (iii) promptly upon receipt thereof, it
shall deliver to HSI any default notice or notice of enforcement action received
pursuant to any agreement evidencing Indebtedness in excess of $100,000.

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

  iii.  
Without limiting or contradicting any other more specific provision of this
Agreement, promptly (and in any event within three (3) Business Days) upon it
becoming aware of the existence of any Event of Default or event which, with the
giving of notice or passage of time, or both, would constitute an Event of
Default, it shall give written notice to HSI of such occurrence, which such
notice shall include a reasonably detailed description of such Event of Default
or event which, with the giving of notice or passage of time, or both, would
constitute an Event of Default.

 

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  (c)  
Insurance.

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

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

  (d)  
Dispositions. Not convey, sell, lease, transfer, assign, or otherwise dispose of
(collectively, “Transfer”), or permit any of its subsidiaries to Transfer, all
or any part of its business or property, except for Transfers (a) of inventory
in the ordinary course of business; (b) of worn-out or obsolete equipment; or
(c) in connection with Permitted Liens and Permitted Investments.
    (e)  
Changes in Business, Management, Ownership, or Business Locations. (a) Not
engage in or permit any of its subsidiaries to engage in any business other than
the businesses currently engaged in by each Grantor and such Subsidiary, as
applicable, or reasonably related thereto; (b) not liquidate or dissolve; or
(c) not permit or suffer any Change in Control. “Change in Control” means any
event, transaction, or occurrence as a result of which (a) any “person” (as such
term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of such Grantor, is or becomes a beneficial owner (within the meaning
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of such Grantor, representing twenty-five percent (25%) or more of
the combined voting power of such Grantor’s then outstanding securities; or
(b) during any period of twelve consecutive calendar months, individuals who at
the beginning of such period constituted the Board of Directors of such Grantor
(together with any new directors whose election by the Board of Directors of
such Grantor was approved by a vote of not less than two-thirds of the directors
then still in office who either were directions at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason other than death or disability to constitute a majority of the
directors then in office.

 

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

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

  (h)  
Subordinated Debt. Not (a) make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to HSI.

  (i)  
Compliance. Not become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940, as amended and
not undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Obligations for that
purpose.

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

 

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Schedule IV
EVENTS OF DEFAULT
The following shall constitute Events of Default:

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

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

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

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

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

 

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

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

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

 

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Schedule V
EXISTING INDEBTEDNESS

 

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