Exhibit 10.1

June 28, 2006

Jeffrey Jones

President and Chief Executive Officer

Biolase Technology, Inc.

4 Cromwell

Irvine, CA 92618-1816

Dear Jeff:

This binding letter agreement (the “Letter”) sets forth: i) the agreed-upon
terms and conditions (Sections 1 to 15 below) under which Biolase Technology,
Inc. (“Biolase”) and The Procter & Gamble Company (“P&G”) will negotiate a long
term definitive agreement(s) (the “Definitive Agreement(s)”) memorializing the
acquisition of certain exclusive rights from Biolase in exchange for certain
cash payments by P&G to Biolase under this Letter, and ii) the agreed-upon key
terms and conditions, set forth in Exhibit A and Appendices A and B attached
hereto, that shall be incorporated in the Definitive Agreement(s). It is
understood that the Definitive Agreement(s) may also incorporate additional
terms and conditions as is customary in such agreements and that the terms and
conditions set forth in Exhibit A may be clarified in the Definitive
Agreement(s) in order to effectuate the intent of the Parties. P&G and Biolase
may each be referred to hereafter as a “Party” and collectively as the
“Parties”.

Based on this background and the mutual interests of the Parties, the Parties
hereby express their agreed upon intent to negotiate towards the Definitive
Agreement(s) pursuant to the following terms and conditions:

 

1. Terms and Conditions. The key terms and conditions for the proposed
Transaction (including its proposed activities) are set forth in the key terms
sheets attached hereto as Exhibit A (the “Terms Sheet”), which is incorporated
herein and made a part of this Letter.

 

2. Definitive Agreements. Upon the acceptance of this Letter by Biolase, P&G and
Biolase will promptly negotiate, in good faith, the terms of the Definitive
Agreement(s) and related documentation which incorporates the terms herein and
incorporates such other terms and conditions as P&G and Biolase may deem
reasonable or necessary to accomplish the agreement set forth herein, provided,
however, that the financial and other terms and conditions of the Definitive
Agreement(s) shall in no way be less favorable to either Party than those
contained in the attached Terms Sheet. The Definitive Agreement(s) will be in a
form customary for transactions of this type and will include, in addition to
those matters specifically set forth in this Letter, customary representations,
warranties, indemnities, covenants and agreements of P&G and Biolase.

 

CONFIDENTIAL

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****  Certain confidential information contained in this document, marked with 4
asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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3. Public Announcements. Any public announcement relating to this Letter, the
Definitive Agreement(s), or the proposed Transaction shall be mutually and
reasonably agreed upon, including content and timing, and jointly made by the
Parties, and as reasonably required by law. The decision as to what is
reasonably required by law shall also be jointly made by the parties. An example
of an acceptable form of public announcement is attached hereto as Exhibit B.

 

4. Confidentiality. The existence of this Letter, the existence of any
negotiations between Biolase and P&G, any of the terms of the proposed
transactions, or any information received from the other Party in connection
with the proposed transaction, shall be considered Information under the
Confidentiality Agreement (except to the extent an exception set forth therein
or herein applies) entered into by and between P&G and Biolase as of May 5, 2005
and subsequently amended on June 5, 2006 (the “2005 Confidential Disclosure
Agreement”) and as of June 22, 2006 (the “2006 Confidential Disclosure
Agreement”), respectively, and shall be treated accordingly. Both the 2005
Confidential Disclosure Agreement and 2006 Confidential Disclosure Agreement
shall remain in full force and effect during the term of this Letter and nothing
in this Letter shall be construed as altering the confidentiality obligations
contained therein.

 

5. Business Relationship. P&G envisions a long term strategic relationship with
Biolase. As part of that relationship, P&G may desire to, but is not obligated
to, enter into discussions with Biolase regarding P&G acquiring an equity stake
as part of the relationship.

 

6. Biolase Standstill Agreement. Biolase will not, nor will it permit any of its
officers, directors, employees, financial advisers, brokers, stockholders or any
person acting on Biolase’s behalf, to, directly or indirectly, consider,
solicit, encourage, engage in, continue or initiate discussions or negotiations
with, provide any information or other assistance to, or enter into any
agreement with, any corporation, partnership, person or other entity or group
concerning, or negotiate, or cause to be considered, solicited or negotiated on
behalf of Biolase or its shareholders, or provide or cause to be provided
information to any third party in connection with, any proposal or offer from a
third party with respect to the sale, transfer, licensing, development or other
transaction involving the Biolase Technology or Biolase IP (including the ****
Field), except that this paragraph shall not apply to any of the foregoing
activities with respect to any action connected or related to the Biolase
Retained Field, or outside the P&G Fields of Use. Furthermore, Biolase’s
obligations under this paragraph shall not apply to any business category in
which rights have reverted to Biolase under any of the provisions set forth in
this Letter and Terms Sheet.

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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8. Expenses. The Parties shall each bear their own costs and expenses incurred
in connection with this proposed transaction, including, without limitation,
fees and expenses of legal counsel, accountants and other consultants and
representatives incurred in connection with this letter and the discussions
leading hereto, as well as in connection with the activities and transactions
contemplated hereby, whether or not such transactions are consummated.

 

9. Effect of Letter. Except as set forth in Section 4, this Letter supersedes
and replaces any prior written or verbal agreements relating on this subject
matter between the Parties.

 

10. Governing Law. The binding agreements contained in this Letter shall be
governed by the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.

 

11. Payment. Upon execution of this Letter by the Parties and by the close of
business on June 30, 2006, P&G shall pay Biolase the one time sum (the
“Payment”) of three million dollars ($3,000,000 USD) for the right and license
set forth in Section 14 of this Letter and which shall be memorialized in the
Definitive Agreement(s). The Payment shall be non-refundable except as set forth
in Section 15.

 

12. Representations and Warranties. Biolase hereby represents and warrants that:
i) it owns all right, title, and interest in the Biolase IP, ii) there are no
claims, liens, mortgages, licenses, commitments, obligations, or encumbrances of
any kind concerning the Biolase IP that would affect the ability of Biolase to
grant the rights and perform the obligations contemplated by this Letter and
Definitive Agreement(s), and iii) to the best of Biolase’s knowledge, any
granted, or allowed claims, of the Biolase Patents are valid and enforceable and
there are no actions or prior act that would affect the validity or
enforceability of any granted, or allowed claims, of the Biolase Patents,
including, but not limited to, any reexamination requests, opposition
proceedings, certificates of correction, or reissuance requests. Biolase’s
knowledge applies to all agents and employees of Biolase, as well as, agents and
attorneys preparing and prosecuting Biolase Patents (not including P&G agents
and attorneys).

 

13.

Dispute Resolution. In negotiating the Definitive Agreement(s), P&G and Biolase
will attempt to settle any claim, controversy or deadlock through consultation
and negotiation in good faith and a spirit of mutual cooperation. If such
attempt fails, the Parties agree to submit to binding arbitration that will be
governed by the rules and procedures of the American Arbitration Association,
with the requirement that the decision being issued by a written decision and
opinion signed by an independent three-person panel; provided, however, that any
claim, controversy or deadlock arising out of a breach of the 2005 Confidential
Disclosure Agreement, the 2006 Confidential Disclosure Agreement, or any other
confidential disclosure agreement entered into by the parties that is intended
to cover the disclosure of confidential information in connection with this
Letter or the preparation

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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of the Definitive Agreements, shall be governed by the terms and conditions
contained in such agreement rather than by the terms of this Section 13.

 

14. Provisional License Grant. Biolase hereby grants to P&G a provisional
exclusive, irrevocable (except as set forth in Section 15 of this Letter),
worldwide, transferable, perpetual, right and license under all Biolase IP and
Biolase Technology within the P&G Fields of Use and such license will grant P&G
the right to make and have made, use, import, export, sell, have sold, and offer
for sale Products anywhere in the world (the “Provisional Grant”). The terms of
the Provisional Grant are provided in the attached Terms Sheet (see Exhibit A).
The intent of the Parties is that the Definitive Agreement(s) will be executed
within 90 days of the signing of this Letter. The Provisional Grant will
terminate upon execution of the Definitive Agreement(s) and will be superseded
by the license grant and terms of the Definitive Agreement(s).

 

15. Termination. If either Party breaches a term or condition of this Letter,
including any representation and warranty of Section 12, then this Letter may be
terminated by written notice, subject to the last sentence of this Termination
Section 15, by the non-breaching Party to the other Party, in which event: i)
the Payment made by P&G to Biolase under Section 11 of this Letter shall be
fully and promptly refunded to P&G, ii) the license granted to P&G by Biolase
under Section 14 of this Letter, together with any sub-licenses, shall
terminate, and iii) all other rights and obligations, excluding those of
Section 4, of the Parties under this Letter shall terminate and neither Party
shall have any obligation to negotiate or enter into the Definitive
Agreement(s). All representations, warranties, provisions and obligations
provided in this Letter will terminate upon execution of the Definitive
Agreement(s). In the event of an alleged breach by either Party, the allegedly
breaching Party will be given 30 days to attempt to cure said alleged breach.

If the terms of this proposal are acceptable to Biolase, please sign and return
one copy of this Letter to the undersigned before noon Eastern Standard Time on
June 28, 2006. The second copy is for your records. Should you have any
questions regarding this proposal, please contact Mark Peterson at 513-983-5279.

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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We at P&G are interested and excited about the potential for the Transaction
with Biolase and look forward to doing business with Biolase.

 

Very truly yours,

THE PROCTER & GAMBLE COMPANY

/s/ Jeffrey D. Weedman

Jeffrey D. Weedman

Vice President, External Business Development

 

ACCEPTED AND AGREED TO

THIS 28 DAY OF June, 2006

BIOLASE TECHNOLOGY, INC. /s/ Jeffrey W. Jones Jeffrey W. Jones President and
Chief Executive Officer

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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EXHIBIT A:

KEY TERMS SHEET (the “Terms Sheet”)

PART I

LICENSE AND TRANSFER OF BIOLASE TECHNOLOGY TO P&G

 

Biolase License Grants    Biolase shall grant to P&G an exclusive, worldwide,
transferable, perpetual, right and license under all Biolase IP and Biolase
Technology within the P&G Fields of Use with Rights to Sub-license, and such
license will grant P&G the right to make and have made, use, import, export,
sell, have sold, and offer for sale Products anywhere in the world. Biolase
Technology    Biolase Technology shall refer to any present or future
information or materials, whether confidential or not, in the possession of
Biolase, including know-how, developments, concepts, technical knowledge,
expertise, skill, practice, analytical methodology, clinical data, manufacturing
knowledge, drawings, specifications, processes, techniques, samples, specimens,
prototypes, designs, research and development results, safety and efficacy data,
and other technical and scientific information reasonably useful or helpful to
P&G for the development and marketing of product(s) within the P&G Fields of
Use. Biolase Intellectual Property    Biolase Intellectual Property (Biolase IP)
includes all present and future: inventions, whether or not patentable; Biolase
Patents; copyrights; trade secrets; and any other rights or information or
materials, whether confidential or not, owned by Biolase or in which Biolase has
a transferable or licensable interest, within the P&G Fields of Use or within
the Biolase Technology. Biolase Patents    Biolase Patents shall refer to those
present and future patents and patent applications within the P&G Fields Of Use
or within the Biolase Technology, including but not limited to: i) the patents
listed in Appendix A and any parent applications, continuations,
continuations-in-part, divisionals, re-exams, reissues thereof, ii) any
subsequent patents or patent applications having applicability in the P&G Fields
of Use in which Biolase has ownership or has a transferable or licensable
interest, and iii) any foreign equivalents of the foregoing.

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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Representations and Warranties    Biolase shall represent and warrant that to
Biolase’s knowledge: i) it owns all right, title, and interest in the Biolase
IP, ii) there are no claims, liens, mortgages, licenses, commitments,
obligations, or encumbrances of any kind concerning the Biolase IP that would
affect the ability of Biolase to grant the rights and perform the obligations
contemplated by this Letter and Definitive Agreement(s), and iii) any granted,
or allowed claims, of the Biolase Patents are valid and enforceable and there
are no actions or prior act that would affect the validity or enforceability of
any granted, or allowed claims, of the Biolase Patents, including, but not
limited to, any reexamination requests, opposition proceedings, certificates of
correction, or reissuance requests. Biolase’s knowledge applies to all agents
and employees of Biolase, as well as, agents and attorneys preparing and
prosecuting Biolase Patents (not including P&G agents and attorneys). P&G Fields
of Use    The P&G Fields of Use will be any and all fields of use, including the
Primary P&G Field of Use, and applications relating to or associated with the
following areas and lines of business in which P&G or its Affiliates now does
business, including, but not limited to, the following areas: ****, such
categories to be more completely defined in Definitive Agreement(s). The P&G
Fields of Use being applicable to ****. The P&G Fields of Use excludes the
Biolase Retained Field. The P&G Fields of Use also excludes the **** Field of
Use, unless P&G exercises its option to add the **** Field of Use to the Primary
P&G Field of Use. Primary P&G Field of Use    The Primary P&G Field of Use shall
be limited to **** products ****. Such **** products include, but are not
limited to, any and all products that may provide one or more of the following
benefits, either on a stand-alone basis or as a combination: ****, the whole
Primary P&G Field of Use being applicable to ****. The Primary P&G Field of Use
specifically excludes the Biolase Retained Field. The Primary P&G Field of Use
also excludes the **** Field of Use, unless P&G exercises its option to add the
**** Field of Use to the Primary P&G Field of Use.

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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**** Field of Use    The **** Field of Use shall mean only those **** products
that are in the form of a **** and which, but for a license from Biolase, would
infringe a valid and enforceable claim of the Biolase **** Patents attached
hereto as Appendix B (such products hereinafter “**** Products”). For the
avoidance of doubt, **** Products shall not include any **** devices or products
that are not in the form of a ****, and specifically shall not include ****
therefore, and **** used therewith. P&G’s Option To Add The **** Field of Use To
The Primary P&G Field of Use    P&G shall have the option to add the **** Field
of Use to the Primary P&G Field of Use within **** of the effective date of the
Definitive Agreement(s) or within **** from the effective date of the Letter,
whichever is sooner, by either: i) the payment of a one time sum of ****
($****), or ii) (a) providing a written plan regarding **** commercialization of
a **** Product that is acceptable to Biolase, the acceptability of which shall
not be unreasonably withheld or delayed, (b) providing notice of its intent to
pay Biolase a sum of **** ($****) within **** of the end of each **** time
period beginning upon satisfaction of the requirements of “(ii)” of this P&G’s
Option To Add The **** Field of Use To the Primary P&G Field Of Use Section
(each payment a “**** Payment”), until the **** distribution of a **** Product,
**** of which shall be pre-paid royalties (**** credited against any Royalty
Payment then owed) and (c) providing notice of its agreement to pay a royalty
rate of ****, in lieu of the **** royalty rate, on **** Products in accordance
with the royalty section of this Term Sheet. A written plan shall be considered
reasonably acceptable, but reasonable acceptability is not limited to, if the
written plan can be implemented within a commercially reasonable period of time,
and it includes the planned commercial launch of a product in at least one of
the United States, Canada, or all or a portion of Western or Eastern Europe. In
the event that P&G exercises its option to add the **** Field of Use to the
Primary P&G Field of Use, then the **** Field of Use shall be treated as if
originally included within the exclusive rights and obligations from Biolase to
P&G under the Definitive Agreement(s). If P&G does not exercise its option
within the time period specified, the option will expire, and the **** Field of
Use will be part of the Biolase Retained Field.

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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Maintenance and Prosecution Of Biolase Patents    Upon execution of the
Definitive Agreement(s), P&G will have the right, but not the obligation, to
have sole responsibility and decision making authority for the preparation,
filing (including the filing of continuations, continuations-in-part,
divisionals, reissues, and reexaminations of the Biolase Patents listed in
Appendix A), prosecution, and maintenance of the licensed Biolase Patents listed
in Appendix A (and Appendix B, if P&G exercises its option to add the **** Field
of Use to the Primary P&G Field of Use) within P&G Fields of Use, and will pay
all costs associated therewith. Biolase will cooperate with P&G so that P&G can
assume responsibility for these activities as soon as possible after execution
of the Definitive Agreement(s). In the event that P&G decides not to file,
prosecute, or maintain a Biolase Patent in any particular country (including the
United States), Biolase may elect to pay the full cost of filing, prosecution,
and maintenance of that application or patent itself. In the event P&G elects
not to prosecute a Biolase Patent, it will provide Biolase with **** written
notice of such decision. P&G’s written notice will be done in a good faith
manner which reasonably provides Biolase with the opportunity to continue with
prosecution. Infringement Within the P&G Fields of Use    As exclusive licensee,
P&G shall have sole decision making authority regarding enforcement of the
Biolase Patents listed in Appendix A (and Appendix B, if P&G exercises its
option to add the **** Field of Use to the Primary P&G Field of Use Option)
within the P&G Fields of Use, and P&G shall have the right, but not the
obligation, to file, prosecute and settle any such claims at its sole
discretion. P&G shall retain any proceeds paid by a third party as a result of
the enforcement of the Biolase Patents within the P&G Fields of Use. Biolase
agrees to cooperate with P&G with the enforcement of any claim within the P&G
Fields of Use and agrees to join, at P&G’s expense, any such action as a party
plaintiff to the extent required by law. Biolase Retained Field   

A.     Biolase shall retain the exclusive right to make, have made, use, import,
export, sell, have sold, and offer for sale products that are: (a) currently
marketed by Biolase;

 

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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and (b) ****. Biolase shall also retain all rights to the Biolase IP and Biolase
Technology that are outside the P&G Fields of Use. Biolase shall also retain and
acquire all rights to products that are declined by P&G or revert to Biolase as
provided herein.

 

B.     The Biolase Retained Field will be any and all fields of use which are
primarily administered by a ****:

(i)          ****; and

(ii)        ****.

 

C.     The Biolase Retained Field also includes the following products, methods,
applications and services ****. For the earlier of **** from the signing of the
Definitive Agreement or **** from the signing of the Letter, Biolase will offer
P&G the right of first refusal to develop consumer products within the following
categories:

(i)          ****;

(ii)        ****;

(iii)       ****;

(iv)       ****;

(v)         ****;

(vi)       ****;

(vii)      ****; and

(viii)     ****.

 

The Biolase Retained Field is applicable to products and methods for ****.

 

For the avoidance of doubt, uses within the P&G Primary Field of Use that relate
to “(ii)”, “(iii)”, “(iv)”, “(v)”, “(vi)”, and “(vii)” are not part of the
Biolase Retained Field.

For the avoidance of doubt, the Biolase Retained Field includes the Waterlase,
the Waterlase MD, the DioLase Plus, the LaserSmile, the Occulase, all related
consumables, accessories and related products, methods and all future
generations and product line extensions of the aforementioned products.

 

The Biolase Retained Field excludes the Primary P&G Field of Use.

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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Products   

Products shall mean any method, system, product, device or machine (or component
thereof), accessory, consumable, composition, compound, ingredient, application,
formulation, material, or combinations thereof in the P&G Fields of Use and
which, but for the right and license granted herein, would infringe or cause the
inducement of an infringement or contribute to the infringement of any valid and
enforceable Biolase IP. For the avoidance of doubt, any accessory, component,
consumable, or **** composition that would contribute to or induce the
infringement of valid and enforceable Biolase IP shall be considered a Product
hereunder.

 

For example, if a valid and enforceable granted patent claim covers **** induces
or contributes to the infringement of the granted, valid and enforceable patent
claim. For example, if a valid and enforceable granted patent claim covers ****.

 

However, if the valid and enforceable granted patent claim covers ****. For
example, if the valid and enforceable granted patent claim covers ****.

Reversion of Certain Rights   

Unless otherwise agreed to between the Parties:

 

If, after **** from the signing of the Definitive Agreement(s) or within ****
from the effective date of the Letter, whichever is sooner, P&G has not (i)
initiated development of, or (ii) provided a plan to Biolase to develop

 

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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(either itself or via a licensee or via some other relationship with a third
party) products utilizing Biolase IP or Biolase Technology in one or more of the
P&G consumer product business categories included within the P&G Fields of Use
(excluding the Primary P&G Field), then Biolase may terminate P&G’s exclusive
license to Biolase IP and Biolase Technology in those P&G consumer product
business categories as follows: Biolase may provide P&G with notice of its
intent to terminate such exclusive license and if P&G fails to provide Biolase
with a plan to initiate development within **** of such notice from Biolase,
P&G’s exclusive license in the identified consumer product business
category(ies) (excluding the Primary P&G Field) will be terminated and removed
from P&G’s Field of Use.

 

In the event P&G satisfies the requirements of “(i)” or “(ii)” of this Reversion
of Certain Rights Section, P&G will retain said Biolase IP and Biolase
Technology for ****. However, if after ****, P&G does not implement a ****
commercial distribution related to said Biolase IP and Biolase Technology, but
is actively developing or attempting to commercialize, P&G, in its sole
discretion, may (a) pay Biolase a sum of **** ($****) within **** of the end of
each **** time period beginning upon satisfaction of the requirements of “(i)”
or “(ii)” of this Reversion of Certain Rights Section (each payment a “Secondary
**** Payment”), **** of which shall be pre-paid royalties (**** credited against
any Royalty Payment then owed) or (b) allow said Biolase IP and Biolase
Technology to revert to Biolase, and owe nothing further to Biolase for said
Biolase IP and Biolase Technology.

 

For the sake of clarity, P&G’s exclusive rights in the Primary P&G Field of Use
are not subject to reversion to Biolase. Plan to be reasonably acceptable to
both parties; neither party can unreasonably reject the plan. A written plan
shall be considered reasonably acceptable, but reasonable acceptability is not
limited to, if the written plan can be implemented within a commercially
reasonable time period, and it includes the planned commercial launch of a
product in at least one of the United States, Canada, or all or a portion of
Western or Eastern Europe.

 

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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PART II

P&G – BIOLASE CONSULTATION IN DEVELOPMENT OF PRODUCTS AND P&G

PAYMENT OBLIGATIONS

 

Consultation and Other Services   

The Parties have agreed that Biolase Technology and R&D capabilities may be
useful to P&G in the development of products. After execution of the Definitive
Agreement(s) and following a reasonable written request(s) from P&G, Biolase
shall share or transfer relevant aspects of the Biolase Technology in the
Primary P&G Field of Use to P&G and will reasonably make available to P&G for
consultation those Biolase employees with substantive knowledge regarding the
application of Biolase Technology in the P&G Fields of Use. P&G and Biolase
agree to develop a procedure that is not overly burdensome for Biolase to
effectuate the sharing of Biolase Technology in the event P&G provides Biolase
with a reasonable written request hereunder.

 

In the event that such consultation leads P&G to determine that direct
involvement of Biolase employees and R&D resources will be beneficial to the
development of products using the Biolase Technology, P&G and Biolase may also
enter into a joint development agreement (a “JDA”), or other agreement, pursuant
to which Biolase shall provide P&G with the specified testing, research,
development, prototyping, production, manufacturing services or other assistance
requested by P&G, to test, develop, produce and manufacture prototype Products
and such other products using the Biolase Technology as P&G may request (the
“Services”). Unless mutually agreed otherwise by the Parties, the maximum cost
of Services provided to P&G by Biolase shall not exceed $****.

 

The parties will meet at least annually to review progress on specific
development projects within the P&G Fields of Use.

Decision Making    Within the Primary P&G Field of Use (including the **** Field
of Use if P&G exercises its option to add the **** Field of Use to the Primary
P&G Field of Use) and categories in the P&G Fields of Use that have not reverted
back to Biolase, P&G shall have the full and unrestricted right to make any and
all decisions, in its sole discretion, surrounding its use of any Biolase
Technology and/or Biolase IP, including, without limitation, the development,
testing, marketing, manufacture, sourcing, packaging, sale, distribution,
marketing and pricing of any products

 

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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   whatsoever in the P&G Fields of Use, as well as whether or not to launch,
market, promote, distribute and sell, or continue to sell, any product
whatsoever. In addition, P&G shall remain free to work with, contract with,
subcontract with, conduct research and development with, or work for any third
party and other third party researchers, developers, manufacturers, suppliers,
etc. regarding any products, subject to all confidentiality obligations owed to
Biolase. P&G Payment Obligations    In consideration for the licenses and rights
granted to P&G by Biolase, P&G will make the following additional nonrefundable
payments to Biolase for Products. For the avoidance of doubt, no royalty shall
be due for a product (e.g., a ****) **** would not infringe, or induce or
contribute to the infringement of, a valid and enforceable claim of a Biolase
Patent. In the event the ****, then the royalty rate shall apply to only that
portion of the net outside sale attributable to the Product. For example, if a
valid and enforceable granted patent claim covers ****. Quarterly Payments to
Biolase Until Shipment Of First Product    P&G shall pay Biolase a sum of two
hundred fifty thousand dollars ($250,000 USD) within **** of the end of each
three (3) month time period beginning upon the signing of the Definitive
Agreement(s) or within **** of the end of each three (3) month time period
beginning upon the effective date of the Letter, whichever is sooner (each
payment a “Quarterly Payment”), until the **** distribution of the First
Product. For clarity, the first Quarterly Payment shall be due **** after the
signing of the Definitive Agreement(s) or within **** after the effective date
of the Letter, whichever is sooner. . **** of each Quarterly Payment is payment
for Services provided by Biolase to P&G. **** of each Quarterly Payment shall be
pre-paid royalties (fully credited against any Royalty Payment then owed), or
future Royalty Payments, for any Product designated by P&G. Payments made under
this paragraph are non-refundable.

 

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****  Certain confidential information contained in this document, marked with 4
asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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First Product Shipment Payment    P&G shall pay a one time payment in the amount
of **** ($****), (the “First Product Shipment Payment”) within **** of when a
first Product covered by one or more valid and enforceable claims of a Biolase
Patent (the “First Product”) is first shipped for **** distribution in the
United States. Payments made under this paragraph are non-refundable. For the
sake of clarity, Biolase shall be entitled to only one First Product Shipment
Payment and under no circumstance shall there be another First Product Shipment
Payment. Second Product Shipment Payment   

P&G shall pay a one time payment in the amount of **** ($****), (the “Second
Product Shipment Payment”) within **** of when a second Product covered by one
or more valid and enforceable claims of a Biolase Patent (the “Second Product”)
is first shipped for **** distribution in the United States. The Second Product
Shipment Payment shall be **** credited against any Royalty Payments owed to
Biolase by P&G for the Second Product hereunder.

 

The Second Product shall not include cosmetic changes or minor improvements
(refreshes) which do not fundamentally change the benefit delivered by the First
Product. The Second Product is one that is largely unique and different from the
First Product. Payments made under this paragraph are non-refundable.

 

For the sake of clarity, Biolase shall be entitled to only one Second Product
Shipment Payment and under no circumstance shall there be another Second Product
Shipment Payment.

 

For the sake a clarity and to serve as an example, if a First Product is a ****,
the Second Product may or may not be a ****. Further, if a First Product is a
**** and a second Product is a ****, the **** will be a Second Product.

Royalty on Product Sales    P&G will make royalty payments (the “Royalty
Payments”) to Biolase after commercial launch of Product(s) based on Net Outside
Sales of such Product(s). Net Outside Sales (NOS) for such Product(s) will be
defined and calculated by P&G in the same fashion as it calculates NOS for its
other products. Net Outside Sales means gross sales of Products to customers
(i.e., list price multiplied by total units shipped) less all insurance, duties
and sales or value added tax actually paid by P&G and less all consumer and
trade discounts and allowances, including, without limitation,

 

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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quantity discounts, returns, listing fees, free goods, contests and offers, cash
discounts and all other payments to consumers and trade. All deductions to sales
of Product will be specific to Product sales activity.

 

The royalty rate shall be **** if the Product is in **** product category ****.
For the avoidance of doubt, a **** shall be considered **** product category
****. The royalty rate shall be **** if the Product is in **** product category
****. **** does not dictate a **** royalty. Further, using **** does not dictate
a **** royalty. For the avoidance of doubt, assuming that P&G ****, ****, then a
**** that **** would be considered a product ****.

 

Royalties shall be paid on a **** basis from the date of first commercial sale
of Product in such ****. No Royalty Payment will be due on Products sold in ****
wherein no Biolase Patent exists.

 

To the extent that P&G would have owed royalties for a Product under this
Agreement, sub-licenses from P&G to third parties will bear the same royalty
rate as if P&G had made the sale. Thus, P&G agrees that the net effect of the
sub-license to third parties shall not deprive Biolase of royalty payments.

 

In the event P&G enters any agreement, or transaction whereby royalties to
Biolase are reduced or eliminated, then a fair value for same is to be computed
and paid to Biolase. For example if a cross license is entered by P&G, to settle
litigation, or avoid litigation, or allow another party to sell or manufacture a
product, whereby a royalty or past damages would have been due to Biolase, then
the amount which would have been due would be computed and paid to Biolase.

 

CONFIDENTIAL

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****  Certain confidential information contained in this document, marked with 4
asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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Non-Compete   

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

 

The time periods of this Non-Compete Section shall apply to and be effective
for/during the time period that P&G has license rights, or options thereto
(excluding the categories which revert back to Biolase). The terms of this
Section

 

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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     shall not apply to (i) categories which have reverted back to Biolase from
the P&G Fields of Use, (ii)
the **** Field in the event that P&G does not exercise its option, and (iii) the
Biolase Retained Field. Public Announcements    Any public announcement relating
to this Letter, the Definitive Agreement(s), or the proposed Transaction shall
be mutually and reasonably agreed upon, including content and timing, and, if
desired by P&G, jointly released by the Parties, and as reasonably required by
law. The decision as to what is reasonably required by law shall also be jointly
made by the parties. An example of an acceptable form of public announcement is
attached hereto as Exhibit B. Term    Unless otherwise terminated, the
Definitive Agreement(s) shall be effective up to and including the date of
expiration of the last to expire Biolase Patent. Termination and Effect   

P&G may, in its sole discretion, terminate the Definitive Agreement(s) for an
Uncured Material Breach by Biolase, including Biolase’s breach of the
Representations and Warranties, and shall give Biolase **** notice of such
termination. In the event P&G terminates the Definitive Agreement(s) for an
Uncured Material Breach by Biolase, P&G may elect that Biolase shall refund all
payments made by P&G to Biolase insofar as they specifically pertain to the
Uncured Material Breach for the term including the **** preceding and up to the
time of the Uncured Material Breach. Said refund shall include, but is not
limited to, milestone payments, royalty payments, quarterly payments, and the
Payment made under the Letter. However, if Biolase commits to an Uncured
Material Breach, P&G may alternatively elect to retain its exclusive license(s)
without the obligation to pay First or Second Shipment Payment(s), Quarterly
Payments, milestones, royalties, or any other monies whatsoever, however, if P&G
retains its exclusive license(s), it will not be entitled to a refund of monies
previously paid.

 

Biolase may, in its sole discretion, terminate the Definitive Agreement(s) for
an Uncured Material Breach by P&G.

 

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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Conversion of P&G’s Exclusive License to a Non-Exclusive License    Excluding
the **** Field of Use, P&G may, in its sole discretion, convert, at any time
after **** from the effective date of the Definitive Agreement(s), its exclusive
license(s) to non-exclusive license(s), in which case P&G will no longer be
obligated to pay the First or Second Shipment Payment(s), Quarterly Payments,
and First and Second Product Shipment Payments, however, P&G will not be
entitled to a refund of any payments previously paid. In the event the exclusive
license is converted to a non-exclusive license, the royalty rates shall ****.
However, if Biolase enters into a nonexclusive license with a 3rd party at more
favorable terms than that granted to P&G, P&G shall be offered the opportunity
to receive the same terms. For example, if Biolase grants to a 3rd party rights
at a lower royalty rate than that applicable to P&G, P&G shall be offered the
opportunity to convert its royalty rate to the lower royalty rate granted to
such 3rd party with such lower rate to take effect upon execution of such 3rd
Party agreement. Dispute Resolution   

P&G and Biolase will attempt to settle any claim, controversy or deadlock,
including alleged material breaches, through consultation and negotiation in
good faith and a spirit of mutual cooperation, including involvement of senior
management in resolving the dispute, claim, or controversy. In the event the
Parties cannot resolve their dispute within ****, or such other time as mutually
agreed to by the Parties, the Parties agree to submit to binding arbitration
that will be governed by the rules and procedures of the American Arbitration
Association, with the requirement that the decision being issued by a written
decision and opinion signed by an independent three-person panel. In the event,
the arbitration involves a material breach of the Definitive Agreements, the
alleged breach shall become a Material Breach upon a decision by the arbitration
panel that a material breach has occurred.

 

A breaching party shall have **** to cure a Material Breach of the Definitive
Agreements. If the Material Breach is not cured within ****, it shall become an
Uncured Material Breach.

 

If the binding arbitration involves a patent issue, a majority of the arbiters
will be licensed patent attorneys.

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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Assignment    The Definitive Agreement(s), and the rights and obligations
thereunder, may not be assigned or otherwise transferred by either Party to a
Third Party, except as authorized in writing by the other Party, except that P&G
may assign the rights and obligations under the Definitive Agreement(s), in
whole or in part, to an Affiliate of P&G or to a third party in the event P&G is
divesting to a third party a portion or its entire business associated with one
or more Products.

The terms of the final Definitive Agreements will include standard
representations and warranties and indemnification provisions, as well as other
miscellaneous standard contract terms. It is the intent of P&G to indemnify
Biolase for product liability to the extent that Biolase is a passive licensor
and is not involved with manufacture, distribution, or sale of Product(s). To
the extent that Biolase manufactures, sells or distributes Products, it is not
P&G’s intent to indemnify Biolase, however, P&G may consider providing such
indemnification of Biolase. Additional indemnification provisions will be
negotiated as part of the Definitive Agreement(s).

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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APPENDIX A:

Biolase Patents

U.S. patent and application publication nos. **** and any parent applications,
continuations, continuations-in-part, divisionals, re-exams, reissues, and any
foreign equivalents thereof.

 

CONFIDENTIAL

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asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

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APPENDIX B:

Biolase **** Patents

U.S. patent and application publication nos. **** and any parent applications,
continuations, continuations-in-part, divisionals, re-exams, reissues, and any
foreign equivalents thereof, and any other patent or patent application related
to the **** Field.

 

CONFIDENTIAL

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****  Certain confidential information contained in this document, marked with 4
asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.