Biolase (NSDQ:BIOL) came under fire by its largest shareholder, the activist investment firm Oracle Partners, which accused Biolase chairman & CEO Federico Pignatelli of manipulating the company’s board of directors.

Oracle, which owns 16.4% of Biolase’s shares, filed a lawsuit seeking court-mandated changes to the board as well as a temporary restraining order requiring that board members seek approval before taking any actions. Oracle responded that it will respond to Oracle in court and that it plans to address recommended board changes "in due course."

Biolase in mid-February closed a $5 million private placement funding round with Oracle Investment Management, selling some 1.9 million shares for $2.57 apiece. Since then Oracle has been taking interest in the makeup of Biolase’s board of directors, starting with the disputed resignations of members Dr. Sam Low and Dr. Alexander Arrow, who is also Biolase’s president & COO.

Biolase announced on March 3 that Arrow and Low had tendered their resignations, to be replaced by Jeffrey Nugent and Paul Clark. Oracle claimed that Biolase attempted to retract Arrow’s and Low’s resignations, expanding the board of directors from 6 to 8 members, in order to stack the Board in a manner favorable to management."

"After apparently realizing that Messrs. Clark and Nugent were, in fact, acting with an independent voice in the best interest of all shareholders, the company filed a Form 8-K with the Securities and Exchange Commission claiming the size of the board had somehow been increased to 8 in an effort by the chairman to secure his position by claiming that Drs. Arrow (who as the company’s president and COO is not considered independent) and Low were still on the board," according to an Oracle press release.

In a conference call with investors Pignatelli insisted that Arrow and Low only attempted to step down to make room for the new members, and that, upon review, he decided expanding the board seemed the better option.

"Regarding Dr. Alex Arrow and Dr. Sam Low, I want to be clear that these tendered the resignation because 2 new board members that were coming on board," Pignatelli said. "I want to be very clear and we will be filing an 8-K by this day, in fact, that Dr. Alex Arrow and Dr. Sam Low are on the board and have continued to serve on the board. So their resignation that was tendered was not accepted by me."

"Initially we thought that a board of 8 people maybe was too large for this company size and then instead we reconsidered," he added. "I reviewed tendering the resignation and I decided to not accept them and ask them to continue to serve on the board, because they are valuable board members both of them."

A MassDevice.com search was unable to turn up the aforementioned 8-K, although Oracle statements also mentioned the filing.

Oracle maintained that Pignatelli’s expansion of the board and rejection of resignation letters violated the company’s bylaws as well as Delaware state law, under which board member resignations become effective immediately.

"Since the vacancies created by these Board resignations were subsequently filled by Messrs. Clark and Nugent, there were no board vacancies remaining on the company’s 6-member Board to which Drs. Arrow and Low could have been reappointed," Oracle said. "What seems to be occurring is an unlawful manipulation of the Board composition by the Chairman to stack the Board in a manner favorable to management."

Oracle declared that it intends to seek changes to the board, nominating 4 members including both Clark and Nugent as well as existing board member Frederic Moll and Oracle partner Dr. Eric Varma, hoping to influence some changes at the company and effect a turnaround in the recent lull in activity.

"As the Company’s largest shareholder, we have previously expressed our concern regarding the operating and financial performance of Biolase to management, which has fallen on deaf ears," Oracle managing member Larry Feinberg said in prepared remarks. "In addition to financial performance issues, at the apparent behest of Federico Pignatelli, the company’s chairman and CEO, management is now attempting to unlawfully entrench itself and certain board members, which raises significant corporate governance concerns."

Biolase recently posted some dismal figures for its 4th quarter, saying that it would look to cut costs ahead of a potential sale. The medical lasers maker is still posting quarterly losses, closing out its fiscal 2013 with more than double the red ink it posted the previous year.

BIOL shares have gained 3.3% since the start of the year, but are down nearly 30% since March 2013.