NOTE 7 — STOCKHOLDERS’ EQUITY

Preferred Stock

The BIOLASE board of directors (the “Board”), without further stockholder authorization, may issue from time to time up to 1,000,000 shares of the Company’s preferred stock. Of the 1,000,000 shares of preferred stock, 500,000 shares are designated as Series B Junior Participating Cumulative Preferred Stock. As of December 31, 2017 and 2016, no preferred stock was issued. As of December 31, 2017 and 2016, no preferred stock was outstanding.

Common Stock

At December 31, 2017, the Company had 102,339,682 shares of BIOLASE common stock issued and outstanding. BIOLASE currently has 200,000,000 shares of Company common stock authorized for issuance.

2017 Common Stock Issuances

Rights Offering.  The Company completed a rights offering on December 5, 2017 by selling 26,302,703 shares of common stock. Gross proceeds were approximately $12.0 million, and net proceeds, after offering expenses of approximately $0.6 million, were approximately $11.4 million. Certain affiliates of Larry Feinberg and an affiliate of Jack Schuler exercised their basic subscription rights and over-subscription privilege in the rights offering and purchased a total of 10,745,614 shares and 10,964,912 shares of our common stock, respectively, on the same terms as all other participants. The Company plans to use the net proceeds from the rights offering for general working capital needs.

Private Placement.  The Company completed a private placement on April 18, 2017.  For information regarding this private placement, see Note 1- Convertible Preferred Stock and Warrant Transactions.

2016 Common Stock Issuance

Private Placement. The Company completed a private placement on August 8, 2016.  For information regarding this private placement, see Note 1- Convertible Preferred Stock and Warrant Transactions.

Stock Dividends

There were no dividends paid or declared in 2017, 2016 or 2015.  

Warrants

BIOLASE issues warrants for the sale of its common stock as approved by its Board. Warrants to purchase up to an aggregate of 3,925,871 unregistered shares of BIOLASE common stock at an exercise price of $1.80 per share were issued in connection with the Company’s April 2017 private placement. Warrants to purchase up to an aggregate of 2,035,398 unregistered shares of BIOLASE common stock at an exercise price of $2.00 per share were issued in connection with the Company’s August 2016 private placement. Both private placements are accounted for within stockholders’ equity on the Consolidated Balance Sheets in accordance with GAAP.

The following table summarizes warrant activity (in thousands, except per share data):

 

 

Stock Options

The Company currently has one stock-based compensation plan, the 2002 Stock Incentive Plan (as amended effective as of May 26, 2004, November 15, 2005, May 16, 2007, May 5, 2011, June 6, 2013, August 27, 2014, April 27, 2015 and May 6, 2016) (the “2002 Plan”), which will expire on May 5, 2019. Persons eligible to receive awards under the 2002 Plan include officers and employees of the Company, directors of the Company, and consultants. As of December 31, 2017, a total of 15,550,000 shares have been authorized for issuance under the 2002 Plan, of which 3,963,696 shares of BIOLASE common stock have been issued pursuant to options that were exercised, 8,526,388 shares of BIOLASE common stock have been reserved for options and restricted stock units that are outstanding, and 3,059,916 shares of BIOLASE common stock remain available for future grants.

Stock options may be granted as incentive or non-qualified options; however, no incentive stock options have been granted to date. The exercise price of options is at least equal to the market price of the stock as of the date of grant. Options may vest over various periods but typically vest on a quarterly basis over four years. Options expire after five years, ten years, or within a specified time from termination of employment, if earlier. The Company issues new shares of BIOLASE common stock upon the exercise of stock options. The following table summarizes option activity under the 2002 Plan (in thousands, except per share data):

 

 

The following table summarizes additional information for those options under the 2002 Plan that are outstanding and exercisable as of December 31, 2017 (in thousands, except per share data):

 

 

Cash proceeds, along with fair value disclosures related to grants, exercises, and vesting options, are as follows for the years ended December 31 (in thousands, except per share amounts):

 

 

2017 Stock Option Activity

Effective February 6, 2017, the Compensation Committee of the Board issued 611,000 non-qualified stock options to purchase shares of BIOLASE common stock to certain employees of the Company.  These awards were issued at $1.55 per share, the closing market price of BIOLASE common stock on the grant date, and expire 10 years from the grant date.  Vesting periods for options are as follows: (i) for the 586,000 options awarded to existing employees, one-half vest on the first anniversary of grant date and one-half vest on the second anniversary of the grant date and (ii) for the 25,000 options awarded to new employees, 25% vest on February 6, 2018 and the remainder vest ratably over the 36-month period, commencing on March 6, 2018.

On May 10, 2017, non-employee directors of the Company were granted a total of 525,528 non-qualified stock options to purchase shares of BIOLASE common stock.  These awards were issued at $1.21 per share, the closing market price of BIOLASE common stock on the grant date, and expire 10 years from the grant date.  The total grant vests in equal installments over a consecutive 12-month period, commencing on June 10, 2017.

On September 1, 2017, Paul N. Clark resigned from the Board, effective September 11, 2017, and as Chairman of the Board, effective September 1, 2017. Effective September 1, 2017, Dr. Jonathan T. Lord was appointed Chairman of the Board. On September 11, 2017, the Compensation Committee of the Board approved a modification to expiration dates applicable to Mr. Clark’s vested options. As a result of the modification, the Company recognized additional compensation expense of $44,000 for the year ended December 31, 2017. On September 11, 2017, Dr. Lord was granted 65,385 non-qualified stock options to purchase shares of BIOLASE common stock at $0.54 per share, the closing market price of BIOLASE common stock on the grant date, and expiring 10 years from the grant date. On September 12, 2017, Dr. Lord was granted 65,891 non-qualified stock options to purchase shares of BIOLASE common stock at $0.61 per share, the closing market price of BIOLASE common stock on the grant date, and expiring 10 years from the grant date. Both grants vest in equal installments over an eight-month period, commencing on October 10, 2017.

On October 27, 2017, Frederic H. Moll, M.D. resigned from the Board, effective November 11, 2017. On November 11, 2017, the Compensation Committee of the Board approved a modification to expiration dates applicable to Dr. Moll’s vested options. As a result of the modification, the Company recognized additional compensation expense of $22,000 for the year ended December 31, 2017. Also on October 27, 2017, the Board elected Richard B. Lanman, M.D. to the Board. In connection with his election to the Board, on November 1, 2017, Dr. Lanman was granted 135,333 non-qualified stock options to purchase shares of BIOLASE common stock at $0.75 per share, the closing market price of BIOLASE common stock on the grant date, and expiring 10 years from the grant date.

Effective November 7, 2017, the Compensation Committee of the BIOLASE board of directors issued 426,000 non-qualified stock options to purchase shares of BIOLASE common stock to certain employees of the Company.  These awards were issued at $0.60 per share, the closing market price of BIOLASE common stock on the grant date, and expire 10 years from the grant date.  Vesting periods for options are as follows: one-half vest on the first anniversary of the grant date and one-half vest ratably monthly commencing thirteen months after the grant date through the twenty-fourth month.

2016 Stock Option Activity

On February 26, 2016, the Compensation Committee of the Board awarded to certain employees and consultants of the Company a total of 295,000 non-qualified stock options to purchase shares of BIOLASE common stock.  These awards were issued at $0.86 per share, the closing market price of BIOLASE common stock on the grant date, and expire 10 years from the grant date.  Vesting periods for options are as follows: (i) 185,000 options, awarded to existing employees, vest ratably over a 48 month period, commencing one month from the grant date, and (ii) 110,000 options, awarded to new 2016 employees, vest 25% on the one-year anniversary of the grant date and the remainder ratably over the 36-month period, commencing 13 months after of the grant date.

On April 18, 2016, in connection with the hiring of the two new Vice Presidents, the Compensation Committee of the Board awarded 325,000 non-qualified stock options to purchase shares of BIOLASE common stock.  These awards were issued at $1.43 per share, the closing market price of BIOLASE common stock on the grant date, and expire 10 years from the grant date.  Vesting periods for the options are as follows: (i) one-half of the total grant is subject to time vesting, with 25% vesting as of April 18, 2017 and the remaining 75% vesting ratably monthly over a 36-month period commencing on April 18, 2017, and (ii) one-half of the total grant is subject to specific 2016 and 2017 performance criteria, with vesting upon completion of the applicable performance criteria. As of December 31, 2016, 243,750 non-qualified stock options to purchase shares of BIOLASE common stock remain outstanding.

On May 6, 2016, non-employee directors of the Company were granted a total of 597,757 non-qualified stock options to purchase shares of BIOLASE common stock.  These awards were issued at $1.41 per share, the closing market price of BIOLASE common stock on the grant date, and expire 10 years from the grant date.  The total grant vests in equal installments over a consecutive 12-month period, commencing on June 6, 2016.

On August 29, 2016, in connection with the hiring of a new Senior Director, the Compensation Committee of the Board awarded 60,000 non-qualified stock options to purchase shares of BIOLASE common stock.  This award was issued at $1.65 per share, the closing market price of BIOLASE common stock on the grant date, and expires 10 years from the grant date.  Vesting periods for the options are as follows: (i) one-half of the total grant is subject to ratable time vesting over a 48-month period commencing on September 29, 2016, and (ii) one-half of the total grant is subject to specific 2017 performance criteria, with vesting upon completion of the applicable performance criteria. As of December 31, 2016, 60,000 non-qualified stock options to purchase shares of BIOLASE common stock remain outstanding.

On September 15, 2016, in connection with the hiring of a new Vice President, the Compensation Committee of the Board awarded 250,000 non-qualified stock options to purchase shares of BIOLASE common stock.  This award was issued at $1.78 per share, the closing market price of BIOLASE common stock on the grant date, and expires 10 years from the grant date.  Vesting periods for the options are as follows: (i) one-half of the total grant is subject to time vesting with 25% vesting as of September 15, 2017 and the remaining 75% vesting ratably monthly over a 36-month period commencing on September 15, 2017, and (ii) one-half of the total grant is subject to specific 2017 and 2018 performance criteria, with vesting upon completion of the applicable performance criteria. As of December 31, 2016, 250,000 non-qualified stock options to purchase shares of BIOLASE common stock remain outstanding.

On October 3, 2016, in connection with the hiring of a new Vice President, the Compensation Committee of the Board awarded 125,000 non-qualified stock options to purchase shares of BIOLASE common stock.  This award was issued at $1.72 per share, the closing market price of BIOLASE common stock on the grant date, and expires 10 years from the grant date.  Vesting periods for the options are as follows: (i) one-half of the total grant is subject to time vesting with 25% vesting as of October 3, 2017 and the remaining 75% vesting ratably monthly over a 36-month period commencing on October 3, 2017, and (ii) one-half of the total grant is subject to specific 2017 through 2019 performance criteria, with vesting upon completion of the applicable performance criteria. As of December 31, 2016, 125,000 non-qualified stock options to purchase shares of BIOLASE common stock remain outstanding.

During the year ended December 31, 2016, the Compensation Committee of the Board granted non-qualified stock options to purchase 1.4 million shares of BIOLASE common stock to the Company’s President and Chief Executive Officer. The exercise price of such options ranged from $1.44-$1.45 per share, vest over two to four years, and expire 10 years from the grant date.

2015 Stock Option Activity

On January 2, 2015, the Compensation Committee of the Board granted non-qualified stock options to purchase 1,365,702 shares of BIOLASE common stock to certain officers of the Company in connection with a compensation plan for 2015 and 86,000 shares of BIOLASE common stock to members of the Dental Professional Advisory Board (“DPAB”) as consultants for the Company. These options were granted at an exercise price of $2.64, the closing market price of BIOLASE common stock on the grant date. Options granted to certain officers of the Company expire ten years from the grant date and vest as follows: (i) as to 50% of the options, one-fourth on the one year anniversary of the grant date and the remaining three-fourths, ratably over the next 36 month period, commencing on the thirteenth month from grant date over a requisite service period of four years, and (ii) as to 50% of the options, upon achievement of specific annual Company performance criteria with a requisite service period of one year. Options granted to the DPAB fully vest and become exercisable upon the achievement of specified performance conditions, as defined in the consulting agreements, and expires five years from grant date.

On August 12, 2015, the Compensation Committee of the Board approved a modification to the performance criteria applicable to the unvested options.  As a result of this modification, the fair value of the awards decreased by $661,000, and the Company recognized additional compensation expense of $154,000 for the year ended December 31, 2015.  The vesting schedule and requisite service period of the award remained unchanged by the modification.  

On December 31, 2015 the performance criteria related to the officer grants on January 2, 2015 was partially achieved and 80% of the performance-based options vested on January 2, 2016.  As a result, 122,038 shares became available under the 2002 Plan on December 31, 2015, and options to purchase 488,170 shares vested on January 2, 2016.

Restricted Stock Units

2017 Restricted Stock Units Activity

Effective February 6, 2017, the Compensation Committee of the Board approved the grant of the following awards:

On May 9, 2017 and in connection with the Company’s 2017 compensation plan, 500,000 RSUs were awarded to certain employees and consultants of the Company.  These awards were valued at $1.22 per share, the closing market price of BIOLASE common stock on the grant date. The RSUs vest as follows: (i) one-half of the total grant is subject to time vesting with 50% vesting on May 9, 2018 and the remaining 50% vesting on May 9, 2019, and (ii) one-half of the total grant is subject to specific 2017 and 2018 performance criteria, with vesting upon satisfaction of the applicable performance criteria.

On May 10, 2017, non-employee directors of the Company were granted a total of 175,176 RSUs valued at $1.21 per share, the closing market price of BIOLASE common stock on the grant date.  These awards vest on May 10, 2018. On September 1, 2017, Paul N. Clark resigned from the Board, effective September 11, 2017, and as Chairman of the Board, effective September 1, 2017. On September 11, 2017, the Compensation Committee of the Board approved a modification to the vesting criteria applicable to Mr. Clark’s unvested RSUs. As a result of the modification, the Company recognized additional compensation expense of $12,000 for the year ended December 31, 2017. On October 27, 2017, Frederic H. Moll, M.D. resigned from the Board, effective November 11, 2017. On November 11, 2017, the Compensation Committee of the Board approved a modification to the vesting criteria applicable to Dr. Moll’s unvested RSUs. As a result of the modification, the Company recognized additional compensation expense of $10,000 for the year ended December 31, 2017.

2016 Restricted Stock Units Activity

Under the 2002 Plan, effective February 26, 2016, the Compensation Committee of the Board granted the following awards:

On March 10, 2016, the Compensation Committee of the Board approved the grant of 70,000 RSUs to the Company’s Chief Financial Officer as part of his 2015 compensation.  These awards were valued at $1.23 per share, the closing market price of BIOLASE common stock on the grant date, and fully vested on July 1, 2016.

On May 6, 2016, as compensation for their service during the current year, non-employee directors of the Company were granted a total of 248,750 RSUs valued at $1.41 per share, the closing market price of BIOLASE common stock on the grant date.  These awards vest on May 6, 2017.

The following table summarize RSU activity under the 2002 Plan (in thousands):

 

 

Inducement Stock-Based Awards

2017 Inducement Activity

On March 13, 2017, and as amended on April 19, 2017, in connection with the hiring of a new Vice President of Sales, the Compensation Committee of the Board awarded non-qualified stock options to purchase 400,000 shares of BIOLASE common stock.  This award was issued at $1.17 per share, the closing market price of BIOLASE common stock on the grant date, and expires 10 years from the grant date.  Vesting periods for the options are as follows: (i) two-fifths of the total grant is subject to time vesting with 25% vesting as of March 13, 2018 and the remaining 75% vesting ratably monthly over a 36-month period commencing on March 13, 2018, and (ii) three-fifths of the total grant is subject to specific 2017 and 2018 performance criteria, with vesting upon satisfaction of the applicable performance criteria. This award was forfeited upon the departure of the Vice President of Sales in November 2017.

On March 27, 2017, in connection with the hiring of a new Senior Vice President and Chief Financial Officer, the Compensation Committee of the Board awarded non-qualified stock options to purchase 600,000 shares of BIOLASE common stock.  This award was issued at $1.28 per share, the closing market price of BIOLASE common stock on the grant date, and expires 10 years from the grant date.  Vesting periods for the options are as follows: (i) two-thirds of the total grant is subject to time vesting with 25% vesting as of March 27, 2018 and the remaining 75% vesting ratably monthly over a 36-month period commencing on March 27, 2018, and (ii) one-third of the total grant is subject to specific 2017 and 2018 performance criteria, with vesting upon satisfaction of the applicable performance criteria. This award was forfeited upon the departure of the Senior Vice President and Chief Financial Officer in May 2017.

On October 2, 2017, in connection with the hiring of a new Senior Vice President and Chief Financial Officer, the Compensation Committee of the Board awarded non-qualified stock options to purchase 600,000 shares of BIOLASE common stock.  This award was issued at $0.59 per share, the closing market price of BIOLASE common stock on the grant date, and expires 10 years from the grant date.  Vesting periods for the options are as follows: (i) two-thirds of the total grant is subject to time vesting with 25% vesting as of October 2, 2018 and the remaining 75% vesting ratably monthly over a 36-month period commencing on October 2, 2018, and (ii) one-third of the total grant is subject to specific 2018 and 2019 performance criteria, with vesting upon satisfaction of the applicable performance criteria.

2015 Inducement Activity

Effective March 9, 2015, the Compensation Committee of the Board granted non-qualified stock options to purchase up to 871,710 shares of BIOLASE common stock to the Company’s Chief Financial Officer in connection with his employment agreement with BIOLASE. These options were granted at an exercise price of $1.99 per share, the closing price of BIOLASE common stock on the grant date. These options expire ten years from the grant date and vest in two tranches as follows: (i) as to options to purchase 523,026 shares (the “First Tranche”), options to purchase 130,757 shares vested and became exercisable on March 9, 2016, and options to purchase 10,896 shares vest and become exercisable each month following March 9, 2016 for a period of 35 consecutive months, and options to purchase 10,909 shares vest and become exercisable on March 9, 2019, and (ii) as to options to purchase 348,684 shares (the “Second Tranche”), all such shares vest and become exercisable on March 9, 2025 or based on the Company’s achievement of certain enumerated financial performance targets or other milestones, at the discretion of the Compensation Committee of the Board. The fair value of the First Tranche of $1.48 per share was estimated using the Black-Scholes option-pricing model with assumptions of 6.1 years for expected term, 88.79% volatility and 1.83% risk-free interest rate. The fair value of the Second Tranche of $1.70 per share was estimated using the Black-Scholes option-pricing model with assumptions of 10.0 years for expected term, 87.87% volatility and 2.19% risk-free interest rate. On December 30, 2016, the Chief Financial Officer tendered his resignation and entered into a transition letter agreement with the Company. Pursuant to the transition letter agreement, modifications occurred to vest 294,205 unvested options and extend the exercise period of 623,026 vested stock options from 90 days to one year. As a result of these modifications, the Company recognized additional compensation expense of $215,000 for the year ended December 31, 2016.  

On June 23, 2015 the Board elected to accelerate options to purchase 100,000 shares in the Second Tranche of the Chief Financial Officer’s award.  As of December 31, 2016, 100,000 shares were vested and exercisable.

Effective July 13, 2015, the Compensation Committee of the Board granted non-qualified stock options to purchase up to 870,000 shares of BIOLASE common stock to the Company’s President and Chief Executive Officer in connection with his employment agreement with BIOLASE. These options were granted at an exercise price of $1.64 per share, the closing price of BIOLASE common stock on the grant date. These options expire ten years from the grant date and vest over four years, with options to purchase 217,500 shares vesting and becoming exercisable on July 13, 2016 and options to purchase 18,125 shares vesting and becoming exercisable each month following July 13, 2016 for a period of 36 consecutive months.

Also effective July 13, 2015, the Compensation Committee of the Board awarded 870,000 stock-settled RSUs to its President and Chief Executive Officer in connection with his employment agreement with BIOLASE.  The RSUs are valued at $1.64 per share and vest upon the achievement of specific interim and annual Company performance criteria. As of December 31, 2016, 435,000 stock-settled RSUs remain outstanding.