Pignatelli issued yet another letter to Biolase stockholders this week, announcing his decision to retire immediately and withdraw his nomination for election. He didn’t go quietly, accusing other board members of scheming to "disenfranchise independent Directors through a series of calculated actions designed to isolate us and remove our power."
Fellow board member Dr. Norman Nemoy resigned just a day ahead of Pignatelli, although there was no accompanying announcement about his departure. That leaves the Biolase board comprise entirely of members with ties to Oracle or to Larry Feinberg, managing partner for major stakeholder Oracle Partners, Pignatelli said.
Pignatelli has been at odds with Oracle for months, a feud that returned with a vengeance after Biolase reported dismal 1st quarter earnings this year. Oracle accused Pignatelli of "improper Board manipulations" and sought a court order to reorganize the company’s board. A Delaware Supreme Court ruling handed down in June forced Pignatelli to retire as CEO, making way for new acting CEO and board member Jeffrey Nugent and new board chairman Paul Clark.
Since being ousted, Pignatelli has claimed that Nugent and others schemed with Oracle to eject him and take over the company. Pignatelli launched an investigation and filed a lawsuit against the new Biolase and its leadership (which he later withdrew) and attempted to secure his seat on the board by appealing to shareholders through press releases.
In his latest letter, issued yesterday, Pignatelli offered yet another laundry list of alleged misdeeds by Biolase’s new leadership, including providing excessive compensation packages, establishing golden parachutes for new managers and giving Oracle too much power over the board.
Read the full letter below:
To My Fellow Stockholders:
Later today I will deliver to Paul N. Clark and Michael C. Carroll, the Chairman and Secretary of BIOLASE, respectively, my letter of resignation as a Director of BIOLASE, effective as of 11:59 p.m. Pacific time today. Further, I will withdraw my name from the ballot for election to the BIOLASE Board at the upcoming annual meeting of stockholders.
I have served as a Director of BIOLASE for the past 23 years, including years with a hostile majority of the Board (2006 to August 2010) that made numerous poor decisions, against my vote, that I only managed to overturn upon being named Chairman and CEO in August 2010. I am concerned about the company’s future as I foresee a repeat of what happened in the past. My decision to resign has not been an easy one as I have deep emotional and financial roots with BIOLASE and the utmost respect for its employees and long-standing stockholders, who have shown great confidence and faith in BIOLASE and its former leadership. My decision to resign follows a protracted campaign by a majority of the Board, controlled by and acting under the direction of Oracle Partners (Oracle) (BIOLASE’s largest stockholder) and Larry N. Feinberg (Oracle’s Managing Partner), to disenfranchise independent Directors through a series of calculated actions designed to isolate us and remove our power. The Board majority, controlled by Oracle, blocked our access to BIOLASE books and records and effectively prevented us from participating in the BIOLASE corporate governance process.
These actions included, but were not limited to:
The adoption of improper bylaw amendments that (a) provide for a Delaware exclusive forum selection clause; and (b) provide for fee-shifting relating to claims brought by or on behalf of any current or former Director, each of which has the effect of entrenching the Oracle-controlled Directors and disenfranchising stockholders by quieting any voice of opposition;
Summarily rejecting a proposed slate of Directors nominated through me for election at the upcoming annual meeting of stockholders because it claims that I – who have owned over a million shares of BIOLASE common stock for years – was not qualified to nominate a slate, based upon a "technical requirement,"1 thus depriving BIOLASE’s stockholders of any opportunity to express their voice on who will lead BIOLASE going forward (and rather than waive this technicality, which would have been appropriate, the Oracle-controlled Board instead chose to spend substantially large sums of BIOLASE’s cash – expenses that should have been Oracle’s as they were undertaken in support only of Oracle’s interests – that otherwise would have been available for product development and marketing, on the fees of extremely expensive large law firms to ensure stockholders did not have a say in this matter);
Consummating a private placement financing "under cover of dark" to Oracle and Oracle supporters on the eve of the record date for the annual meeting at a depressed market price, following apparent actions by Oracle to depress the public market price of BIOLASE’s shares. This placed an additional 6.25 million shares (approximately 16% of previously outstanding shares) in Oracle-controlled hands that can be voted to support and further entrench the Board chosen by Oracle;
Repeatedly scheduling meetings of the Board on weekends and during evening hours, on minimal advance notice to Dr. Norman Nemoy and me, the only Directors independent of Oracle;
Failing to provide Dr. Nemoy or me with adequate opportunity to review materials in advance of a vote on the related proposal, including most recently, providing a document more than 130 pages in length a mere 11 minutes before the Board meeting was convened at which a vote on the related proposal was held;
Refusing to provide salient information, properly requested by Dr. Nemoy or me, and affirmatively directing members of management present at Board meetings not to respond to reasonable and relevant factual inquiries made by Dr. Nemoy or me;
The establishment of an Executive Committee of the Board, comprised solely of the Oracle-controlled Directors, to disenfranchise the only Directors independent of Oracle and exclude them from normal corporate governance and the decision-making process, and to permit future decisions to be made without any input from Board members not controlled by Oracle;
Rewarding Oracle-chosen management, particularly interim CEO Jeffrey Nugent, with excessive compensation packages that are unrelated to performance or BIOLASE’s financial results (recall that during my tenure as CEO, I was paid $1 per year and periodically was granted stock options issued at the market price on the date of grant – thus, I would only benefit if stockholder value were enhanced under my leadership); and
Approving golden parachutes for new members of management, further entrenching them and burdening BIOLASE with contingent liabilities unrelated to performance and the enhancement of stockholder value, adverse to stockholder interests (recall that during my tenure as CEO, substantially all employees had at-will arrangements; we did not burden BIOLASE with special arrangements for management at the expense of all stockholders).
With my resignation, and the resignation of Dr. Norman Nemoy yesterday, the BIOLASE Board is now comprised of Paul N. Clark, Dr. Frederic H. Moll, Jeffrey M. Nugent and James R. Talevich, each of whom has direct ties and/or allegiance to Oracle and Mr. Feinberg. These Directors have voted together as a block, with limited if any deliberations, on each matter (including those delineated above) that has come before the Board since late-February 2014, when Oracle launched its initiative to seize control of the BIOLASE Board and its operations.
What is disturbing is that the Oracle block is comprised of individuals who are well known and considered "of business reputation" in the medical field, such as Larry Feinberg, the principal of Oracle Partners; Fred Moll, a Co-Founder of Intuitive Surgical, CEO of Auris, Director of Hansen Medical; Paul Clark, ex-Vice-President of Abbot Laboratories, ex-CEO of Icos and current Director of Agilent; Jeffrey Nugent, ex-CEO of Neutrogena, now part of Johnson and Johnson and Revlon; and Jim Talevich, ex-CFO of iFlo, acquired by Kimberly-Clark and a former auditor at KPMG. Their actions as Directors and initiatives to disenfranchise stockholders of BIOLASE are inexplicable; however, what is clear is that their actions are not in the best interest of all BIOLASE stockholders and are in violation of fiduciary duties owed to us.
Before considering my resignation, I attempted to invoke the powers of the Delaware Chancery Court to recognize the competing Board slate I put forth for election at the annual meeting and to protect certain rights of all BIOLASE stockholders; however, after being denied expedited relief on a number of time-sensitive issues by the Delaware Chancery Court, based upon various technicalities argued by the Oracle-controlled Board and designed to drown the proceedings in a sea of red tape, I determined that it is in the best interest of BIOLASE stockholders that I change my strategy, withdraw as a Director and Director nominee, and seek to preserve and protect the rights of BIOLASE stockholders as an independent unaffiliated stockholder. Among the issues that are of primary concern to me, above and beyond the entrenchment initiatives by the Oracle-controlled Board highlighted above, are the following, each of which will potentially cause real and irreparable harm to BIOLASE:
The precipitous exodus of BIOLASE employees since the lawsuit filed by Oracle and its interference in the company’s business with the appointment of Jeffrey Nugent as the interim chief executive officer to succeed me; and
Business retention and exploitation of revenue opportunities, particularly in light of a current BIOLASE leadership team that has limited experience in BIOLASE’s core business area and a business strategy that is clouded at best.
I am deeply committed to preserving the BIOLASE business franchise and enhancing stockholder value. BIOLASE has an extensive and exceptional portfolio of current and potential product offerings, technologies and intellectual property, most of which were developed under my leadership. If properly exploited, these products will radically change the way surgery is performed in many fields of medicine and in dentistry, substantially enhancing BIOLASE stockholder value. In fact, I strongly believe that the most revolutionary technologies among these new offerings, which consist of valuable company trade secrets, have been secretly revealed to affiliates of Oracle by certain members of the Board and management to the exclusion of others in the market, which is what piqued Oracle’s interest in raiding BIOLASE in the first instance.
It is ironic, to say the least, that Oracle is attempting to gain a stranglehold on these innovative products by assassinating the character and record of the very management that helped developed them. Oracle’s message appears to be that BIOLASE has been floundering under poor management, but their actions suggest that they will go to any lengths to obtain what I and my management team created. As that appears to be their plan (if that is their plan), they should pay a fair price to stockholders, not a depressed price generated from poor interim management and unsupported revisionist history and rhetoric. Achieving fair value for all BIOLASE stockholders has always been, and will continue to be, my principal goal. Unfortunately, due to the Oracle initiative and the current Board composition, I am no longer able to effectively exercise my duties as a Director and guide the implementation of our long-term product strategy from that position.
Rest assured, I remain fully committed to my fellow BIOLASE stockholders to preserve and protect our proprietary and commercial interests and ensure that stockholder value is maximized. In just over a month, the Oracle-controlled Directors have reduced BIOLASE’s corporate governance from a stockholder democracy to an Oracle dictatorship, muting any voices of independence and without regard to stockholder value and the fundamental BIOLASE business franchise. I will not passively stand by and allow this to advance – we the stockholders of BIOLASE must insist upon the full accountability of those at the helm.