Federico Pignatelli, former CEO and current director and stockholder of
Biolase, Inc. (Nasdaq:BIOL), has initiated a process pursuant to Section
220(b) and (d) of the Delaware General Corporation Law to obtain certain
books and records from Biolase management relating to suspected
wrongdoing, mismanagement and corporate governance failures by the
company's board of directors.
After initially raising concerns about possible company mismanagement
with other members of the board, Mr. Pignatelli delivered a letter to
the Biolase board of directors yesterday. He demanded inspection of the
company's books and records to investigate suspected wrongdoing by four
members of the board whom Mr. Pignatelli contends are controlled by one
investor, Oracle Partners, L.P., which through Oracle Investment
Management, Inc. holds approximately 6.1 million shares, or 16.3%, of
Biolase common stock and is the company's largest stockholder:. Mr.
Pignatelli's letter asserts, in part:
Mr. Pignatelli is concerned that the Board is no longer pursuing the
best interests of Biolase stockholders. Biolase's directors have made
decisions detrimental to the Company that raise serious questions
regarding their independence. Acting in concert with Oracle's wishes,
they conspired to oust Mr. Pignatelli from his position as Biolase Chief
Executive Officer and replace him with Jeffrey Nugent. They did so even
though Biolase prospered during Mr. Pignatelli's tenure as the Executive
Chairman and CEO. Under his management, Biolase improved revenues from
an annualized run rate of products and services revenue of approximately
$20 million based on the nine months ended September 30, 2010, to
approximately $56 million for the year ended December 31, 2013. During
this period, Biolase expanded its product line from one well outdated
WaterLase system to 3 advanced WaterLase systems and several cutting
edge diode laser systems alongside a full complement of other truly
innovative dental technologies such as ConeBeam digital Radiography and
the top of the line 3Shape Trio CAD/CAM digital impressions. Under Mr.
Pignatelli's leadership, Biolase developed a proprietary GALAXY BioMill
CAD/CAM System, and became the exclusive distributor in the U.S. and
Canada of the Stratasys (SSYS) OrthoDesk 3D printers. As a result of his
efforts, the market capitalization of Biolase was approximately $120
million when Oracle sued the Company.
Today, the market value of Biolase has dropped to under $73 million, and
the current CEO, Jeff Nugent, has inadequate knowledge of the relevant
industry to run the company. Mr. Pignatelli believes that Nugent and
other directors are conspiring with Oracle to commit corporate waste and
divest Biolase of its valuable long-standing assets in the dental field.
Among other things, Oracle and/or its myriad healthcare holdings would
benefit greatly by gaining control of undisclosed trade secret
information belonging to Biolase that has wide application in the
medical field beyond the dental field, including robotic and fractional
based surgical applications. Oracle has no experience whatsoever with
dental equipment companies. It also appears that Oracle has never
previously invested in any dental equipment companies. Oracle's
representatives have stated that it has no interest in the dental
business, which remains a fundamental revenue source for Biolase.
Mr. Pignatelli is also aware of facts suggesting that several Board
members may have placed their own interests over the interests of
Bioase shareholders. On February 28, 2014, immediately after Clark and
Nugent attended their first Board meeting, they jointly requested
certain inside company information, including the financial results for
the fourth quarter and year-end of 2013. Biolase's CFO circulated a
draft of Biolase's 2013 Form 10-K filing to the Board. As Clark and
Nugent later admitted under oath, they then provided confidential
information from this draft 10-K to Feinberg on or about March 1, 2014.
In fact, Feinberg similarly admitted in his trial testimony that Clark
or Nugent provided him with certain non-public, financial information
about the company many days before the official 10-K was publicly
disclosed and before other shareholders obtained this same information.
Thus, Nugent and Clark already have provided Oracle with inside
information in violation of securities regulations.
Additionally, current and former directors with loyalties to Oracle
appear to have misappropriated corporate opportunities belonging to
Biolase. In September 2013, Alexander Arrow, a former director and
former President of the Company, and Dr. Frederic Moll held a secret
meeting with Feinberg and Neocis, Inc. ("Neocis"), a start-up company
developing robotic health care technologies. As a result of that
meeting, rather than working out a potential deal for Biolase, Mr.
Pignatelli believes that certain directors personally invested in
Neocis. Further, Moll potentially misappropriated a Biolase corporate
opportunity when he diverted potential investors in Biolase to Auris.
Moll is Chairman and Chief Executive Officer of Auris.
The Board has not conducted appropriate due diligence into available
financing opportunities for Biolase. During Mr. Pignatelli's tenure as
CEO, Piper Jaffray and Northland were both interested in providing
financing to Biolase. The Board carelessly fired Mr. Pignatelli before
any financing deals could be consummated at the very time when Mr.
Pignatelli was needed most to raise capital. Instead, the Board's
Finance Committee, formed after Oracle seized control over the Board,
appears to be re-examining a financing deal with Oracle. But such a deal
is not in the best interests of the company, will dilute the equity of
existing shareholders and likely will give Oracle a controlling equity
interest in the company. Indeed, we understand that the repeal of a
poison pill currently is being considered to benefit Oracle. Based upon
the aforementioned potential misconduct, certain former and current
Board directors appear to have contributed to significant damage and
corporate waste to Biolase as described herein. In addition, the
reputation of Biolase has been seriously damaged and its management has
lost credibility with shareholders.
The letter also makes reference to investigating the purchase of Biolase
common stock by director Paul Clark in the days immediately preceding
the November 12, 2013 filing by Oracle of a Schedule 13D with the U.S.
Securities and Exchange Commission reporting that Oracle beneficially
owned 2.6 million shares, or 7.4%, of Biolase. Oracle has testified
under oath that it informed Mr. Clark of its upcoming plans to file a
Schedule 13D prior to reporting its position publicly, and Mr. Clark has
testified under oath that he purchased 88,000 shares of Biolase common
stock in open-market transactions while in possession of that
information three and four days prior to the date of the public filing.
Mr. Clark also sits on the board of directors of Agilent Technologies,
In addition, on June 26, 2014 Mr. Pignatelli participated in a meeting
of the Biolase board of directors. Commenting on that meeting, he said,
"Within a few hours of receipt of my letter the Biolase board of
directors took actions that I believe were intended to shield themselves
from liability for their wrongdoing. Knowing that I had raised serious
concerns about their conduct, a majority of the board - comprised of all
four of the current directors mentioned by name in my letter as being
under the control of Oracle - voted to change Biolase's Bylaws to make
directors less accountable to their shareholders and make it harder for
shareholders and directors to bring suits based upon the very types of
misconduct of the type described in my letter. In particular, the four
directors mentioned in my letter voted to change the Bylaws to stipulate
that shareholders can only bring shareholder suits in Delaware, which is
a jurisdiction known for being protective of director interests,
requires the posting of a substantial bond and is geographically
inconvenient to many Biolase shareholders.
"Additionally, the four directors mentioned in my letter voted to change
the Bylaws to provide that a director, including me, who brings an
action against the Board must reimburse them for their legal expenses if
a Delaware court finds that the claiming director 'does not obtain a
judgment on the merits that substantially achieves . . . the full remedy
sought,' regardless of whether that director has prevailed on several
other claims of misconduct of the type described in my letter. While I
dispute the legality and enforceability of these amendments, they are
clearly designed to chill actions taken to protect all shareholders and
hold the board accountable for misconduct of the type described in my
"Lastly, the four directors mentioned in my letter voted to reduce the
size of the Board to no less than three and no more than five members,
and then nominated themselves along with me for those seats, furthering
insulating themselves from outside influence. These actions are not just
directed at me, they are designed to curtail the rights of any shareholder
or director who dares to hold management accountable for the type of
misconduct described in my letter."
Mr. Pignatelli added, "I believe the reputation of Biolase has been
seriously damaged and its current management has lost credibility with
shareholders and employees. I am fully committed to working on behalf of
the best interest of all Biolase stockholders, and not merely a select
few, and to realizing the value inherent in our company and its
technologies. Biolase is fortunate to be built upon a foundation of
talented and loyal employees, and I owe it to them as well as to my
fellow stockholders to identify wrongdoing, mismanagement and corporate
governance failures when I see them, and to pursue appropriate actions."
Federico Pignatelli has served on the Biolase board of directors
continuously since 1991 and currently is the beneficial owner of
approximately 1.8 million shares, or 4.8%, of Biolase common stock. He
served as executive vice chairman from 1994 through 2006, and as interim
chief executive officer from September 2006 to January 2007. He served
as chairman of the board of directors and as chief executive officer
from September 2010 through June 2014, during which time and at his
request he was paid an annual salary of $1.
[ Back To NFVZone's Homepage ]