BUSINESS FINANCING MODIFICATION AGREEMENT (Second Amendment to Business Financing Agreement)
Exhibit 10.4
BUSINESS FINANCING MODIFICATION AGREEMENT
(Second Amendment to Business Financing Agreement)
This Business Financing Modification Agreement (this “Modification Agreement”) is entered into as of September 27, 2018, by and between Biolase, Inc., a Delaware corporation (“Parent”), BL Acquisition Corp., a Delaware corporation (“BL Acquisition”), and BL Acquisition II Inc., a Delaware corporation (“BL Acquisition II” and together with Parent and BL Acquisition, individually and collectively, jointly and severally, “Borrower”) and Western Alliance Bank, an Arizona corporation (“Lender”).
1.DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among other documents, a Business Financing Agreement, dated March 6, 2018, by and between Borrower and Lender, as the same has been and may be further amended from time to time (the “Business Financing Agreement”). Capitalized terms used without definition herein shall have the meanings assigned to them in the Business Financing Agreement.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to as the “Indebtedness” and the Business Financing Agreement and any and all other documents executed by Borrower in favor of Lender shall be referred to as the “Existing Documents.”
2.DESCRIPTION OF CHANGE IN TERMS.
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A. |
Modifications to Business Financing Agreement: |
i.Section 1.1: Advances. The last two sentences of Section 1.1 are amended in their entirety and replaced with the following:
By no later than September 28, 2018, Borrower shall either (a) repay the First Amendment Advance in full. together with all accrued unpaid interest thereon, or (b) execute and deliver to Lender such documents, in form and substance satisfactory to Lender, as Lender requests to transfer this Agreement, and all of Borrower's Obligations hereunder, to Lender's Capital Finance Division (the “Loan Transfer”). For clarification, Borrower's failure to satisfy either clause (a) or (b) in the prior sentence on or prior to September 28, 2018, shall be deemed an immediate Event of Default hereunder. During such period, no additional Advances shall be available hereunder.
ii.Section 1.4: Collections. The first sentence of Section l.4(b) is amended in its entirety and replaced with the following:
Lender shall (i) when Borrower's Remaining Months Liquidity is less than six (6), apply the Collections deposited into the Collection Accounts to the outstanding Account Balance on a daily basis, and (ii) when Borrower's Remaining Months Liquidity is equal to or greater than six (6), transfer all Collections deposited into the Collection Accounts to Borrower's Account on a daily basis; provided that upon the occurrence and during the continuance of any Default, Lender may apply all Collections to the Obligations in such order and manner as Lender may determine.
iii.Section 4.14. Section 4.14(g) and (h) are amended in their entireties and replaced with the following:
(g) Within 5 business days after the 15th and last day of each calendar month (or within 5 business days after the last day of each calendar month when Borrower's Remaining Months Liquidity is equal to or greater than nine (9)), and with each request for an Advance (when submitted with a request for an Advance, these must be dated within 3 business days of such Advance), (i) a roll forward domestic borrowing base certificate, in form and substance satisfactory to Lender, setting forth Domestic Eligible Receivables and Receivable Amounts thereof as of the last day of the preceding reporting period, and (ii) a roll forward EXIM borrowing base certificate, in form and substance satisfactory to Lender, setting forth EXIM Eligible Receivables and Receivable Amounts thereof as of the last day of the preceding reporting period.
(h) Within 5 business days after the 15th and last day of each calendar month (or within 5 business days after the last day of each calendar month when Borrower's Remaining Months Liquidity is equal to
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or greater than nine (9)), and with each request for an Advance (when submitted with a request for an Advance, these must be dated within 3 business days of such Advance), detailed agings of Borrower's accounts receivable and accounts payable by invoice date and detailed agings of Borrower's accounts receivable and accounts payable by due date, in each case, separating domestic receivables and EXIM receivables, together with a sales or xxxxxxxx journal, a deferred revenue report, a cash receipts report and such other matters as Lender may request
iv. Section 4.14. The second sentence of Section 4.14(a) is amended in its entirety and replaced with the following:
The statements shall be prepared on a consolidated and a consolidating basis.
v. Section 4.14. A new Section 4.14(k) is added to the Business Financing Agreement as follows:
(k) Within 3 business days of each Friday until the earlier of (i) Borrower's achievement of the Capital Raise Milestone or (ii) Borrower's delivery to Lender of evidence satisfactory to Lender that Borrower has achieved EBDAS equal to or greater than One Dollar ($1.00), a weekly cash flow forecast in form and substance satisfactory to Lender.
vi.Section 4.15. Section 4.15 is amended in its entirety and replaced with the following:
4.15 Maintain all of its and its domestic Subsidiaries' depository and operating accounts and investment accounts with Lender. Borrower will utilize and cause its Subsidiaries to utilize Lender's International Banking Division for any international banking services required by Borrower, including, but not limited to, foreign currency wires, foreign exchange, xxxxxx, swaps, and letters of credit.
vii. Section 4.20. Section 4.20 is amended in its entirety and replaced with the following:
4.20 At all times, maintain Borrower's financial condition as follows in accordance with GAAP and used consistently with prior practices (except to the extent modified by the definitions herein):
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(a) |
Adjusted Quick Ratio, tested as of the end of each month, not at any time less than 0.70 to 1.00. |
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(b) |
Unrestricted cash on deposit with Lender not at any time less than $750,000. |
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(c) |
Borrower shall deliver to Lender, by no later than October 15, 2018, a signed term sheet for not less than $5,000,000 in cash proceeds from the sale or issuance of Borrower's equity securities or Subordinated Debt on terms and conditions, and from investors, satisfactory to Lender in its reasonable discretion. |
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(d) |
Borrower shall receive cash proceeds, after the Second Amendment Date but on or prior to November 15, 2018, of not less than $5,000,000 from the sale or issuance of Borrower's equity securities or Subordinated Debt on terms and conditions, and from investors, satisfactory to Lender in its reasonable discretion (the “Capital Raise Milestone”). |
viii.Section 12.1: Definitions. Clause (o) of the defined term “Domestic Eligible Receivables” in Section 12.1 is amended in its entirety and replaced with the following:
(o) The Receivable is not that portion of Receivables due from an Account Debtor which is in excess of twenty percent (20%) (thirty percent (30%) for finance and distribution companies and forty percent (40%) for Dental One Partners, Highland Capital and Xxxxx Xxxxxx) of Borrower's aggregate dollar amount of all outstanding Receivables.
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ix.Section 12.1: Definitions. Notwithstanding anything in the Business Financing Agreement to the contrary, the defined term “EXIM Eligible Receivables” set forth in Section 12.1 shall not include Receivables owing from an Account Debtor as to which thirty-five percent (35%) or more of the aggregate dollar amount of all outstanding Receivables owing from such Account Debtor have not been paid within 60 days from invoice due date.
x.Section 12.1: Definitions. The following terms and their respective definitions set forth in Section 12.1 are amended in their entireties and replaced with the following:
“Adjusted Quick Ratio” means (i) the aggregate of unrestricted global cash and Cash Equivalents plus net trade accounts receivable (net of any reserve for uncollectable accounts and excluding any receivables from affiliates, whether trade or otherwise) divided by (ii) (a) total current liabilities determined in accordance with GAAP (including all Obligations to Lender) minus (b) the current portion of Deferred Revenue.
“Credit Limit” means $2,500,000, which is intended to be the maximum amount of Advances at any time outstanding.
“Domestic Credit Limit” means $2,500,000, which is intended to be the maximum amount of Advances at any time outstanding with respect to Domestic Eligible Receivables.
“Domestic Facility Fee” means a fee equal to one-half of one percent (0.50%) of the Domestic Credit Limit due upon March 6, 2019, and each anniversary thereof so long as any Advances are outstanding or available hereunder.
“EXIM Credit Limit” means $2,500,000, which is intended to be the maximum amount of Advances at any time outstanding with respect to EXIM Eligible Receivables.
“Finance Charge Percentage” means a floating rate per year equal to (i) the Prime Rate plus two and one-quarter percentage points (2.25%) with respect to Advances made under the Domestic Line of Credit, and (ii) the Prime Rate plus two and one-quarter percentage points (2.25%) with respect to Advances made under the EXIM Line of Credit, and, in each case, plus an additional five percentage points (5.00%) during any period that an Event of Default has occurred and is continuing.
“Prime Rate” means the greater of five percent (5.00%) per year or the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced from time to time by Lender as its Prime Rate. Lender may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Prime Rate.
xi. Section 12.1: Definitions. The following terms and their respective definitions are added to Section 12.1, in appropriate alphabetical order, as follows:
“Availability Amount” means the lesser of (a) (i) the lesser of (A) the Credit Limit and (B) the Borrowing Base, minus (ii) the total amount of the outstanding Advances (including deemed Advances with respect to the International Sublimit and the total amount of the Cash Management Sublimit), and (b) the sum of (i) (A) the lesser of (1) the Domestic Credit Limit and (2) the Domestic Borrowing Base, minus (B) the total amount of the outstanding Advances with respect to Domestic Eligible Receivables (including deemed Advances with respect to the International Sublimit and the total amount of the Cash Management Sublimit), plus (ii) (A) the lesser of (1) the EXIM Credit Limit and (2) the EXIM Borrowing Base, minus (B) the total amount of the outstanding Advances with respect to EXIM Eligible Receivables.
“Cash Burn” means, for any month, Borrower's net income for such month plus, to the extent deducted in the calculation of net income, depreciate expense, amortization expense, and non cash stock compensation expense.
“EBDAS” means Borrower's net income plus, to the extent deducted from the calculation of net income, (i) depreciation and amortization expense, and (ii) stock compensation expense, in each case determined in accordance with GAAP.
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“Remaining Months Liquidity” means the ratio of (a) the aggregate amount of unrestricted cash maintained with Lender plus the Availability Amount to (b) Borrower's average monthly Cash Bum for the trailing three (3) months most recently ended.
“Second Amendment Date” is September 27, 2018.
xii.Exhibit A: Compliance Certificate. Exhibit A to the Business Financing Agreement is amended in its entirety and replaced with Exhibit A attached hereto.
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B. |
Acknowledgements. |
i.Lender hereby acknowledges that, as of the date of this Modification Agreement, Borrower has closed its accounts maintained with Comerica Bank.
ii.Lender hereby acknowledges that Borrower has completed the Subsidiary Dissolution and therefore has completed the requirement set forth in Section 4.18 of the Business Financing Agreement.
3.CONSISTENT CHANGES. The Existing Documents are each hereby amended wherever necessary to reflect the changes described above.
4.PAYMENT OF MODIFICATION FEE AND DOCUMENTATION EXPENSES. Borrower shall pay to Lender (a) a modification fee in the amount of Five Thousand Dollars ($5,000) (the “Modification Fee”), plus (b) all of Lender's out-of-pocket expenses incurred in connection with the amendment and modification of the Business Financing Agreement (the “Modification Expenses”).
5.NO DEFENSES OF BORROWER/GENERAL RELEASE. Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under the Indebtedness. Borrower (“Releasing Party”) acknowledges that Lender would not enter into this Modification Agreement without Releasing Party's assurance that it has no claims against Lender or any of Lender's officers, directors, employees or agents. Except for the obligations arising hereafter under this Modification Agreement, Releasing Party releases Lender, and each of Lender's and entity's officers, directors and employees from any known or unknown claims that Releasing Party now has against Lender of any nature, including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Business Financing Agreement or the transactions contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The provisions, waivers and releases set forth in this section are binding upon Releasing Party and its shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Lender and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Modification Agreement and the Business Financing Agreement, and/or Lender's actions to exercise any remedy available under the Business Financing Agreement or otherwise.
6.CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Indebtedness, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Documents. Except as expressly modified pursuant to this Modification Agreement, the terms of the Existing Documents remain unchanged and in full force and effect. Lender's agreement to modifications to the existing Indebtedness pursuant to this Modification Agreement in no way shall obligate Lender to make any future modifications to the Indebtedness. Nothing in this Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrower to retain as liable parties all makers and endorsers of Existing Documents, unless the party is expressly released by Lender in writing. No maker, endorser, or guarantor will be released by virtue of this Modification Agreement. The terms of this paragraph apply not only to this Modification Agreement, but also to any subsequent business financing modification agreements.
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7.CONDITIONS. The effectiveness of this Modification Agreement is conditioned upon (a) the due execution and delivery to Lender of a warrant to purchase stock in form and substance satisfactory to Lender, (b) the completion of a Collateral audit with results satisfactory to Lender in its sole discretion, and (c) payment of the Modification Fee and the Modification Expenses.
8.TERMINATION OF WARRANT. Upon the effectiveness of this Modification Agreement, including, without limitation, the completion of the items set forth in Section 7 above, that certain Warrant to Purchase Stock, dated as of March 6, 2018, between Borrower and Lender, shall be deemed to be terminated and of no further force or effect.
9.NOTICE OF FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES TI:IAT: (A) THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
10.COUNTERSIGNATURE. This Modification Agreement shall become effective only when executed by Lender and Borrower.
(Signature Page Follows]
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BORROWER: |
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LENDER: |
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WESTERN ALLIANCE BANK, AN ARIZONA CORPORATION |
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By: |
/s/ Xxxx X. Xxxxxx |
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By: |
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Name: |
Xxxx X. Xxxxxx |
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Name: |
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Title: |
EVP & CFO |
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Title: |
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9/28/18 |
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BL ACQUISITION CORP. |
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By: |
/s/ Xxxx X. Xxxxxx |
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Name: |
Xxxx X. Xxxxxx |
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Title: |
EVP & CFO |
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9/28/18 |
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BL ACQUISITION II INC. |
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By: |
/s/ Xxxx X. Xxxxxx |
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Name: |
Xxxx X. Xxxxxx |
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Title: |
EVP & CFO |
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9/28/18 |
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BORROWER: |
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LENDER: |
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WESTERN ALLIANCE BANK, AN ARIZONA CORPORATION |
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By: |
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/s/ Xxxxxx Le |
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Name: |
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Xxxxxx Le |
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SVP |
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BL ACQUISITION CORP. |
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By: |
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Name: |
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Title: |
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BL ACQUISITION II INC. |
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By: |
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Name: |
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Title: |
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COMPLIANCE CERTIFICATE
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TO: |
WESTERN ALLIANCE BANK, an Arizona corporation (“Lender”) |
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FROM: |
BIOLASE, INC. (“Parent”), BL ACQUISITION CORP. (“BL Acquisition”), and BL ACQUISITION II INC. (“BL Acquisition II”, and together with Parent and BL Acquisition, individually and collectively, jointly and severally, “Borrower”) |
The undersigned authorized officer of Biolase, Inc., on behalf of all Borrowers, hereby certifies that in accordance with the terms and conditions of the Business Financing Agreement between Borrower and Lender (the “Agreement), (i) Borrower is in complete compliance for the period ending with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please Indicate compliance status by circling Yes/No under “Complies” column.
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Reporting Covenant |
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Required |
Complies |
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Monthly financial statements and Compliance Certificate |
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Monthly within 30 days |
Yes No |
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Annual corporate tax returns |
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Within 5 days of filing |
Yes No |
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10-Q, 1O-K and 8-K |
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Within 5 days of filing |
Yes No |
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A/R & A/P Agings (by invoice date and due date), Borrowing Base Certificates, Deferred Revenue report, Sales or xxxxxxxx journal, Cash receipts report |
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Within 5 business days of the 15th and last day of each month (or monthly within 5 business days if RML ≥ 9) and with each Advance request |
Yes No |
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Annual financial projections (Board-approved) |
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FYE within 30 days |
Yes No |
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Quarterly invoice sampling |
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Quarterly within 30 days |
Yes No |
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Weekly cash flow forecast |
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Within 3 business days of each Friday |
Yes No |
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Financial Covenant |
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Required |
Actual |
Complies |
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Adjusted Quick Ratio |
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0.70:1.0 |
:1.00 |
Yes No |
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Unrestricted cash at Lender |
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$750,000 |
$ |
Yes No |
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Term Sheet Milestone (for $5,000,000 in proceeds) |
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10/15/18 |
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Yes No |
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Capital Raise Milestone (by 11/15/18) |
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$5,000,000 |
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Yes No |
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Comments Regarding Exceptions: See Attached. |
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BANK USE ONLY |
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Received by: |
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Sincerely, |
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AUTHORIZED SIGNER |
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Date: |
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SIGNATURE |
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Verified: |
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TITLE |
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AUTHORIZED SIGNER |
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Date: |
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DATE |
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Compliance Status |
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Yes No |
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