<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PACIFIC BIOMETRICS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Character)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
- -------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
- -------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration number, or the
form or schedule and the date of its filing.
(1) Amount previously Paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
October 13, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Pacific Biometrics, Inc. which will be held in the Company's offices, located at
220 W. Harrison, Seattle, Washington, on Thursday, November 13, 1997 at 10:00
a.m. (local time). Your Board of Directors and management look forward to
greeting personally those stockholders able to attend.
At the meeting, in addition to electing six directors and ratifying the
appointment of auditors, you will be asked to consider and vote on a proposal to
amend the Company's 1996 Stock Incentive Plan. This proposal is more fully
discussed in the accompanying Proxy Statement, which you are urged to read
carefully. Your Board of Directors recommends a vote FOR the election of
directors and the ratification of auditors and FOR the Stock Incentive Plan
proposal.
It is important that your shares are represented and voted at the meeting
whether or not you plan to attend. Accordingly, you are requested to sign, date
and mail the enclosed proxy in the envelope provided at your earliest
convenience.
On behalf of the Board of Directors, thank you for your cooperation and
continued support.
Sincerely,
/S/ Paul G. Kanan
- -----------------
Paul G. Kanan
<PAGE>
PACIFIC BIOMETRICS, INC.
-----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 13, 1997
----------------------------
The Annual Meeting of Stockholders of Pacific Biometrics, Inc. (the
"Company"), a Delaware corporation, will be held at the offices of the Company,
220 W. Harrison, Seattle, Washington on November 13, 1997, at 10:00 a.m., for
the following purposes:
1. To elect six directors of the Company to serve for a term of one year
and until their respective successors shall be elected and shall qualify;
2. To increase the total number of shares of Common Stock subject to
options available under the Company's 1996 Stock Incentive Plan; and
3. To ratify the appointment of Coopers and Lybrand, LLP as auditors of
the Company for the year ending June 30, 1998;
4. To consider and act upon such other matters as may properly come
before the meeting.
Only stockholders of record at the close of business on October 9, 1997 are
entitled to notice of and to vote at the meeting, including any adjournments
thereof.
By Order of the Board of Directors
/S/ Paul G. Kanan
----------------------------------
Paul G. Kanan
President and Chief Executive Officer
Irvine, California
October 13, 1997
IMPORTANT: The prompt return of proxies will save the Company the expense of
further requests for proxies and will ensure that your shares are voted. A
self-addressed envelope is enclosed for your convenience. No postage is
required if mailed within the United States.
<PAGE>
PACIFIC BIOMETRICS, INC.
---------------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 13, 1997
---------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Pacific Biometrics, Inc. (the "Company"), a
Delaware corporation, for use at the Annual Meeting of Stockholders of the
Company (the "Meeting") which will be held at the offices of the Company, 220
W. Harrison, Seattle, Washington on November 13, 1997, at 10:00 a.m., and at any
adjournments thereof.
Stockholders who execute proxies retain the right to revoke them at any
time by notice in writing to the Secretary of the Company, by revocation in
person at the Meeting or by presenting a later dated proxy. Unless so revoked,
the shares represented by proxies will be voted at the Meeting in accordance
with the directions given therein. Stockholders vote at the Meeting by casting
ballots (in person or by proxy) which are tabulated by a person who is appointed
by the Board of Directors before the Meeting to serve as inspector of election
at the Meeting and who has executed and verified an oath of office. Abstentions
and broker "non-votes" are included in the determination of the number of shares
present at the Meeting for quorum purposes. An abstention will have the same
effect as a negative vote except with respect to the election of directors, in
which case an abstention will have no effect since directors are elected by a
plurality vote. Broker "non-votes" are not counted in the tabulations of the
votes cast on proposals presented to stockholders because shares held by a
broker are not considered to be entitled to vote on matters as to which broker
authority is withheld. A broker "non-vote" occurs when a nominee holding shares
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to that item and
has not received instructions from the beneficial owner.
The principal executive office of the Company is located at 1370 Reynolds
Avenue, Suite 119, Irvine, California 92614. The approximate date on which this
Proxy Statement and the enclosed form of proxy will first be sent or given to
stockholders is October 13, 1997.
Stockholders of record of the Company's common stock, par value $.01 per
share (the "Common Stock"), at the close of business on October 9, 1997 (the
"Record Date") shall be entitled to one vote for each share then held. On
October 9, 1997, there were outstanding 3,705,522 shares of Common Stock. As of
October 9, 1997, members of management of the Company beneficially held an
aggregate of 1,045,441 shares of Common Stock or 28.2% of the total outstanding
shares of Common Stock entitled to vote at the Meeting.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 1, 1997
with respect to the number of shares of Common Stock beneficially owned by (i)
those persons known to the Company to be the owners of more than five percent of
the Common Stock, (ii) each director of the Company (one of whom is the Chief
Executive Officer of the Company) and (iii) all directors and executive officers
of the Company as a group. Unless otherwise indicated, each of the listed
persons has sole voting and investment power with respect to the shares
beneficially owned by such stockholder.
NAME AND ADDRESS(1) AMOUNT AND PERCENT OF
------------------- NATURE COMMON STOCK
OF BENEFICIAL OUTSTANDING
OWNERSHIP(2)(3) -------------
---------------
Ellen A. Rudnick(4) 291,674 7.4%
Paul G. Kanan(5) 287,674 7.3%
G. Russell Warnick(6) 141,044 3.8%
Elizabeth Teng Leary, Ph.D.(7) 110,125 3.0%
Mary L. Campbell(8) 305,178 8.2%
Craig M. Goldstone(9) 222,689 5.8%
Terry M. Giles(10) 311,268 8.4%
Douglas S. Harrington, M.D.(11) 30,233 *
Peter B. Ludlum(12) 474 *
All directors and officers as a 1,700,359 39.0%
group (9 persons)(13)
- -------------------------
* less than 1%.
(1) The address of each of these persons is c/o the Company, 1370 Reynolds
Avenue, Suite 119, Irvine, California 92614.
(2) Unless otherwise noted, all persons named in the table have sole voting and
dispositive power with respect to all Common Stock beneficially owned by
them.
(3) Includes currently exercisable options and warrants to purchase shares of
Common Stock.
(4) Includes 60,991 shares of Common Stock and 230,683 shares of Common Stock
subject to currently exercisable warrants and options. Does not include
60,000 shares of Common Stock subject to options granted in July 1996 and
25,000 shares of Common Stock subject to options granted in September 1997
which have not yet vested.
2
<PAGE>
(5) Includes 58,991 shares of Common Stock held by the Kanan Living Trust Dated
May 15, 1990, of which Mr. Kanan is a co-trustee with his wife, and 228,683
shares of Common Stock subject to currently exercisable warrants and
options. Does not include 60,000 shares of Common Stock subject to options
granted in July 1996 and 25,000 shares of Common Stock subject to options
granted in September 1997 which have not yet vested.
(6) Includes 114,164 shares of Common Stock and 26,880 shares of Common Stock
subject to currently exercisable options and warrants. Does not include
60,000 shares of Common Stock subject to options granted in July 1996 and
15,000 shares of Common Stock subject to options granted in September 1997
which have not yet vested.
(7) Includes 86,865 shares of Common Stock and 23,260 shares of Common Stock
subject to currently exercisable options and warrants. Does not include
60,000 shares of Common Stock subject to options granted in July 1996 and
15,000 shares of Common Stock subject to options granted in September 1997
which have not yet vested.
(8) Includes 303,910 shares of Common Stock (of which 5,206 shares were issued
in connection with the conversion of certain indebtedness in July 1996) all
held by Enterprise Development Fund I, L.P. ("EDF"), of which Enterprise
Management, Inc. ("EMI") acts as general partner and in which Ms. Campbell
is an officer and one of three directors. Ms. Campbell disclaims
beneficial ownership as to all of said shares, except for approximately
21,000 shares (or approximately 7 percent of such shares) which represents
her one-third interest in EMI which, in turn, holds an approximately 21
percent interest in EDF. Also includes 1,268 shares of Common Stock
subject to currently exercisable options granted in connection with
attendance of meetings of the Board of Directors.
(9) Includes 120,046 shares of Common Stock and 102,267 shares of Common Stock
subject to currently exercisable options and warrants. Does not include
60,000 shares of Common Stock subject to options granted in July 1996 and
25,000 shares of Common Stock subject to options granted in September 1997
which have not yet vested. Also includes 1,268 shares of Common Stock
subject to currently exercisable options granted in connection with
attendance of meetings of the Board of Directors.
(10) Includes 300,000 shares of Common Stock and 10,000 shares of Common Stock
subject to currently exercisable warrants. Also includes 1,268 shares of
Common Stock subject to currently exercisable options granted in connection
with attendance of meetings of the Board of Directors.
(11) Includes 29,857 shares of Common Stock subject to currently exercisable
options and warrants. Does not include 30,000 shares of Common Stock
subject to options granted in July 1996 which have not yet vested. Also
includes 1,268 shares of Common Stock subject to currently exercisable
options granted in connection with attendance of meetings of the Board of
Directors.
(12) Does not include 50,000 shares of Common Stock subject to options granted
in October 1996 and 7,500 shares of Common Stock subject to options granted
in September 1997 which have not yet vested.
(13) Includes 1,045,441 shares of Common Stock and 654,918 shares of Common
Stock subject to currently exercisable options and warrants. Does not
include 492,500 shares of Common Stock subject to options granted to
management which have not yet vested. In the event such options and
warrants are fully exercised, management will hold an aggregate of
approximately 2,192,859 shares or approximately 45.2 percent based on a
total of 4,852,940 shares outstanding subsequent to such exercise.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Six directors will be elected at the Meeting to serve for a term of one
year and until their respective successors shall have been elected and shall
qualify. The affirmative vote of holders of a plurality of the shares of Common
Stock present in person or by proxy at the Meeting and entitled to vote thereon
is necessary for the election of directors. PROXIES RECEIVED WITH RESPECT TO
THIS SOLICITATION WILL BE VOTED FOR THE ELECTION OF THE PERSONS NAMED BELOW,
UNLESS OTHERWISE SPECIFIED IN THE PROXY. At this time, the Board of Directors
of the Company knows of no reason why any nominee might be unable to serve;
however, should such a situation arise, proxies may be voted for the election of
such other person(s) as director(s) as the holders of the proxies may, in their
discretion, determine. There is no arrangement or understanding between any
director and any other person pursuant to which such person was elected as a
director.
NAME, BUSINESS PRESENT PRINCIPAL OCCUPATION AND DIRECTOR
ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST SINCE
- --------------- FIVE YEARS; OTHER ACTIVITIES --------
--------------------------------
Ellen A. Rudnick Ellen A. Rudnick has served as 1996
Age 46 Chairman of the Company since
July 1996, and served from 1993
to 1996 as Chairman of the Board
and a director of BioQuant,
Inc., a wholly-owned subsidiary
of the Company ("BioQuant").
Since 1992, she has served as
Chairman of CEO Advisors, Inc.
("CEO Advisors"), a health care
consulting company that she and
Mr. Kanan founded. From 1990
through 1992, Ms. Rudnick served
as president and CEO of
Healthcare Knowledge Resources,
Inc., a health care information
company in Ann Arbor, Michigan
and as President of its
successor, HCIA. She was
employed from 1975 to 1990 by
Baxter Healthcare Corporation,
most recently as Corporate Vice
President and President of its
Management Services Division.
She serves on the Boards of NCCI
and Lakeland Health Services and
Health Management Systems, Inc.,
a healthcare information
services company. Ms. Rudnick
holds a B.A. degree from Vassar
College and an M.B.A. degree
from the University of Chicago
Graduate School of Business.
Paul G. Kanan Paul G. Kanan has served since 1996
Age 51 July 1996 as the President,
Chief Executive Officer and a
director of the Company, and
served from 1993 to 1996 as the
President and a director of
BioQuant. Mr. Kanan is also an
officer and director of CEO
Advisors, a health care
consulting firm that he and Ms.
Rudnick founded in 1992. From
1991 to 1992, Mr. Kanan operated
his own health care consulting
firm, and during part of such
period served as acting CEO and
CEO of SPS, Inc., a healthcare
service firm. From 1988 to
1991, he served as President and
CEO of Oncotech, Inc., a medical
diagnostic company in Irvine,
California involved in the
development and marketing of
oncological testing. From 1976
to 1988,
4
<PAGE>
NAME, BUSINESS PRESENT PRINCIPAL OCCUPATION AND DIRECTOR
ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST SINCE
- --------------- FIVE YEARS; OTHER ACTIVITIES --------
--------------------------------
Mr. Kanan was employed by Baxter
Healthcare Corporation, most
recently as President of its
Chemotherapy Services Division.
He received his B.S.E. degree
from the University of Michigan
and an M.B.A. degree from
Harvard University Graduate
School of Business.
Mary L. Campbell Mary L. Campbell has served as a 1996
Age 52 non-employee officer in the
capacity of Treasurer and a
director of the Company since
July 1996, and served as
secretary, treasurer and a
director of BioQuant from 1993
to 1996. Since 1988, she has
served as the treasurer of
Enterprise Management, Inc., the
general partner of Enterprise
Development Fund, L.P., a
venture capital firm and
investor in BioQuant. Since
1995, she has also served as
Vice President and Treasurer of
EDM, Inc., the general partner
of Enterprise Development
Fund II, Limited Partnership, a
venture capital firm formed in
1995. From 1984 to 1987, she
was employed by Michigan Capital
and Service, Inc., a venture
capital subsidiary of the
National Bank of Detroit, most
recently as its president. Ms.
Campbell also serves as a
director of Vista Restaurants
International and Synthon,
Incorporated, and is an adjunct
lecturer at the University of
Michigan's Graduate School of
Business. Ms. Campbell holds
B.A. and M.B.A. degrees from the
University of Michigan and an
M.A. degree from Fairfield
University.
Craig M. Goldstone Craig M. Goldstone, a director 1996
Age 40 of the Company since July 1996,
was Chairman of the Board of
Pacific Biometrics, Inc., a
Washington Corporation and
wholly-owned subsidiary of the
Company ("PBI-WA") from 1995 to
1996. He also serves as Senior
Vice President-Investments for
Paine Webber's New York office,
which he joined in January,
1995. From May 1991 to January
1995, Mr. Goldstone held Vice
President positions at Lehman
Brothers.
Terry M. Giles Terry M. Giles has been a 1996
Age 48 director of the Company since
July 1996 and was previously a
director of PBI-WA from 1995 to
1996. In 1975, Mr. Giles
founded the law firm of Giles
and Burkhalter, Orange County,
California, of which he is a
member. Mr. Giles has served on
the board of Computerland since
1987, and is a member of the
Board of Regents of Pepperdine
University. He received his
B.A. from the California State
University of Fullerton and his
J.D. from Pepperdine University
School of Law.
5
<PAGE>
NAME, BUSINESS PRESENT PRINCIPAL OCCUPATION AND DIRECTOR
ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST SINCE
- --------------- FIVE YEARS; OTHER ACTIVITIES --------
--------------------------------
Douglas S. Harrington, M.D. Douglas S. Harrington, M.D. has 1996
Age 44 served as the Secretary, a
director of the Company and
Chairman of the Board of the
Company's Scientific Advisory
Board since July 1996, and from
1993 to 1996 was Chairman of the
BioQuant Scientific Advisory
Board and a director since 1995.
Dr. Harrington has been Chief
Executive Officer and director
of ChromaVision Medical Systems,
Inc., a diagnostic
instrumentation company, since
January 1997. From 1992 to
early 1995, Dr. Harrington was
the President of Nichols
Institute Reference Laboratory
in San Juan Capistrano,
California, a major reference
laboratory for esoteric testing.
Dr. Harrington also serves as an
Associate Clinical professor of
pathology and microbiology at
the University of Nebraska
Medical Center, where he has
been a member of the faculty
since 1986. Dr. Harrington has
87 publications including
papers, book chapters and
abstracts. He received his B.A.
from the University of
California and his M.D. from The
University of Colorado Health
Sciences Center. He is board
certified in anatomical and
clinical pathology and
hematology.
During the fiscal year ended June 30, 1997, the Company's Board of
Directors held 7 meetings, which were attended by 100% of the then current
directors in person or by telephone.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors receive
compensation for serving on the Board of Directors as described below. The
Company has established audit and compensation committees, comprised solely of
non-employee directors. Officers are elected annually by the Board of Directors
and serve at the discretion of the Board (and in the case of certain executive
officers pursuant to employment agreements as described below).
There is no family relationship among any of the directors or executive
officers of the Company.
COMPENSATION OF DIRECTORS
The Company's policy is not to pay compensation to directors who are also
employees of the Company for their services as directors. The Company's
compensation policy for non-employee directors is to grant such persons for each
meeting attended in person up to a maximum of six meetings that number of stock
options, based on the fair market value on the date of grant, equal to $1,000.
The Company will also reimburse reasonable out-of-pocket expenses of directors
for attendance at meetings.
6
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
IN FAVOR OF THE RE-ELECTION OF THE SIX NOMINEES
TO THE COMPANY'S BOARD OF DIRECTORS
EXECUTIVE OFFICERS
The executive officers of the Company are listed below. There is no
arrangement or understanding between any executive officer and any other person
regarding selection as an officer.
NAME AGE POSITION
Ellen A. Rudnick 46 Chairman of the Board
Paul G. Kanan 51 President, Chief Executive Officer and Director
G. Russell Warnick 53 Chief Scientific Officer and Founder
Elizabeth Teng Leary 49 Vice President and Director of Laboratories
Peter B. Ludlum 42 Vice President of Finance and Chief Financial
Officer
Paul G. Kanan See "Proposal 1 - Election of Director" for biographical
information.
Ellen A Rudnick See "Proposal 1 - Election of Director" for biographical
information.
G. Russell Warnick G. Russell Warnick has served as the Company's Chief
Scientific Officer since July 1996. Mr. Warnick was a
co-founder of PBI-WA and has served as its President from
1989 to 1996. From July 1976 to 1990, Mr. Warnick was
associated with the University of Washington in a number
of roles including research associate, research scientist
and most recently Director of the Lipoprotein Laboratory
at the Northwest Lipid Research Center. As an
internationally recognized expert in cholesterol testing,
he has been extensively involved in developing national
guidelines for improving laboratory performance. He has
authored over 150 books, chapters, articles and abstracts,
primarily in areas of lipid/lipoprotein measurement and
developed a method for measurement of HDL cholesterol that
has been widely adopted by other clinical laboratories.
Mr. Warnick holds a B.A. in chemistry and an M.S. in
biochemistry from Utah State University and an M.B.A. from
City University of Seattle.
Elizabeth Teng Leary,
Ph.D., DABCC Elizabeth Teng Leary has served as the Company's Vice
President and Director of Laboratories since July, 1996.
From 1989 to 1996, she was Vice President and Director of
the Laboratory Division of PBI-WA. Dr. Leary has served
in a number of clinical laboratory management positions
prior to co-founding PBI-WA in 1989 with Mr. Warnick. Dr.
Leary served as the Director of Chemistry at Cooperative
Medical Laboratories of Providence Hospital, Everett
Washington from 1978 to 1989; Consultant to the Northwest
Lipid Research Center from 1988 to 1989; and Director of
Chemistry at the General Hospital of Everett from 1978 to
1989. Dr. Leary is a Diplomate of the American Board of
Clinical Chemistry and serves as Chair of the American
Association for Clinical Chemistry Lipid and Lipoproteins
Division. She is also the Director of the CDC Cholesterol
Reference Method Laboratory at Pacific Biometrics Research
Foundation. Her focus in recent years has been
standardization and method development in lipids and
osteoporosis testing. She has authored over 25
7
<PAGE>
publications and abstracts. Dr. Leary received her B.A.
from the University of California, Berkeley; her Ph.D. in
biochemistry from Purdue University; and participated in
post doctoral training in clinical chemistry at the
University of Washington.
Peter B. Ludlum Peter B. Ludlum has served as the Company's Vice President
of Finance and Chief Financial officer since November
1997. From 1989 to 1997 Mr. Ludlum served as Controller
of Derlan Industries, Inc., a diversified manufacturing
company. From 1978 to 1986 Mr. Ludlum held accounting and
finance positions for Safeguard Health Enterprises Inc.,
NERCO Inc., Bechtel Investments Inc., and Mobil
Corporation. Mr. Ludlum holds a B.S. degree in Business
and Economics from Lehigh University, an M.B.A. degree
from California State University, Fullerton and a C.M.A.
certificate in management accounting.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by the Company with
respect to each of the fiscal years presented for services in all capacities of
the Company's Chairman, the Company's Chief Executive Officer and the Company's
Chief Scientific Officer and Founder (the "Named Executive Officers"). No other
executive officer of the Company earned in excess of $100,000 in any of such
fiscal periods.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Other
Annual Awards All Other
Name and Principal Salary Bonus Compen- Restricted Stock Options/ LTIP Payouts Compen-
Position Year ($) ($) sation ($) Awards ($) SARs (#) ($) sation ($)
- ------------------ ----- -------- ----- ---------- ------------------ --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ellen A. Rudnick 1997 128,333 - - -- -- -- --
Chairman 1996 - - 117,500(1) -- -- -- --
Paul G. Kanan 1997 165,000 - - -- -- -- --
President, Chief 1996 - - 117,500(1) -- -- -- --
Executive Officer
and Director
G. Russell Warnick 1997 90,000 17,462 - -- -- -- --
Chief Scientific 1996 84,166 - - -- -- -- --
Officer and Founder
</TABLE>
- --------------------------
(1) Amounts above reflect payments to such persons through CEO Advisors, a firm
owned by Paul Kanan and Ellen Rudnick, for management services to BioQuant.
Such amounts reflect the receipt of cash of $24,000 and a promissory note in the
amount of $93,500 in July 1996 in lieu of the remaining cash payment due under
the management contract. The promissory notes matured on July 9, 1997, are
still outstanding and bear interest at the rate of 7 percent per annum. The
note holders have not demanded payment of such note. In consideration of receipt
of such notes in lieu of cash, such persons also received stock options to
purchase 27,100 shares of Common Stock at $3.45 per share.
8
<PAGE>
For fiscal 1997, the named executive officers received the following option
grants under the plan, no SAR's have been granted:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SAR'S
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SAR'S EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
(a) (b) (c) (d) (e)
------------------ ------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Ellen A. Rudnick 105,000 13.8% $ 3.45 7/9/01
2,100 0.3% $ 3.45 7/25/01
Paul G. Kanan 105,000 13.8% $ 3.45 7/9/01
2,100 0.3% $ 3.45 7/25/01
G. Russell Warnick 80,000 10.5% $ 3.45 7/9/01
6,880 0.9% $ 3.45 7/25/01
</TABLE>
EMPLOYMENT CONTRACTS
In October, 1996, the Company entered into two year employment agreements
with each of Paul Kanan, Ellen Rudnick, G. Russell Warnick and Elizabeth Teng
Leary, Ph.D., the Company's key employees. See "Risk Factors -- Dependence on
Key Personnel." All such employees are entitled to receive customary benefits
including disability benefits, annual salary reviews and participation in all
Company stock, health and benefit plans available to other executive officers
and employees.
Mr. Kanan's and Ms. Rudnick's employment agreements provide for annual
salaries of $180,000 and $140,000 respectively, and during their employment and
for periods ranging from nine months to two years thereafter depending on the
circumstances of termination a prohibition from engaging in any business that
competes with that of the Company. In addition, both Mr. Kanan and Ms. Rudnick
are prohibited from recruiting or soliciting any employee or any person that has
a business relationship with the Company for a two year period. If such persons
are terminated for "cause," as defined in each employment agreement, such
persons will be entitled to receive their respective salary and bonus up to the
date of termination. In the event such persons are terminated without cause
they shall be entitled to receive immediate payment for all debt owed to them by
the Company, plus their salary, bonus and benefits for a period of nine months
thereafter. Furthermore, upon termination, any stock options held by Mr. Kanan
and Ms. Rudnick received subsequent to July 1, 1996 will accelerate and become
exercisable in full during the ninety day period subsequent to the date of
termination. The Company has agreed to finance the exercise of these options in
exchange for a three-year promissory note with interest payable in either stock
or cash on a quarterly basis at the rate of 7 percent of annum. Any such loan
by the Company will be collateralized by the shares of Common Stock underlying
such options, and the proceeds of the sale of such shares must be used to
satisfy such person's obligations to the Company. Options received prior to
July 1, 1996 will be unaffected by such termination of employment.
Mr. Warnick's and Ms. Leary's employment agreements provide for annual base
salaries of $90,000 and $85,000, respectively, and contain similar restrictions
as described above prohibiting engaging in any business that competes with that
of the Company for a period of nine months following termination. In addition,
both Mr. Warnick and Ms. Leary will be entitled to a bonus of $50,000 and
$30,000, respectively, in the event certain product development and laboratory
operation milestones are achieved. Further such persons are prohibited for a
period of two years after termination of employment from recruiting or
soliciting any employee or any person that has a business relationship with the
Company. If such persons are terminated for "cause," as defined in each
employment agreement, such terminated person will be entitled to receive their
salary and bonus up to the date of
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termination. In the event such persons are terminated without cause they shall
be entitled to receive their salary, bonus and benefits for a period of nine
months thereafter and the Company has agreed to indemnify such persons against
any liabilities or claims with respect to certain personal guarantees under a
lease on behalf of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from July 1994 through June 1996, Terry Giles, provided
the Company (and PBI-WA), on eight separate occasions, with loans aggregating
$400,000. These loans bore interest at annual variable rates ranging from 8.25
percent to 10 percent. All of such loans plus interest were converted into
124,295 shares of Common Stock of the Company on July 31, 1996 at the rate of
$3.45 per share. Additionally, in June 1996, Mr. Giles invested $50,000 in the
Company's bridge financing prior to its initial public offering ("IPO").
Mr. Giles received a promissory note in like amount with interest at 14 percent
per annum, which note was repaid with a portion the proceeds of a second bridge
financing completed prior to the IPO, and an aggregate of 10,000 Warrants to
purchase Common Stock through April 30, 1998 at an exercise price equal to $5.70
per share.
During the period from July 1994 through June 1996, Craig Goldstone,
provided the Company (and PBI-WA), on four separate occasions, with loans
aggregating $100,879. These loans bore interest at the annual rate of 9.25
percent. $42,500 of such amount plus interest was converted into 12,773 shares
of Common Stock of the Company on July 31, 1996 at the rate of $3.45 per share.
$58,334 of such loan amount was used in connection with the second bridge
financing completed prior to the IPO for which Mr. Goldstone received a
promissory note in like amount with interest at 14 percent per annum, which note
was repaid with a portion of the proceeds of the Company's IPO, and an aggregate
of 14,583 Warrants to purchase Common Stock through April 30, 1998 at an
exercise price equal to $5.70 per share.
EDF, an entity in which Mary Campbell, a director of the Company, maintains
a minority ownership interest, converted an aggregate of $17,500 of loans to the
Company plus interest into 5,206 shares of Common Stock of the Company on
July 31, 1996 at the rate of $3.45 per share. Ms. Campbell disclaims beneficial
ownership of such shares held by EDF as a result of her minority interest
therein.
In July 1996, the Board of Directors granted Terry Giles, 55,000 shares of
Common Stock for services rendered on behalf of the Board of Directors.
In July 1996, the Board of Directors of the Company granted, pursuant to
the Plan, options to purchase Common Stock at an exercise price of $3.45 per
share to directors and officers as follows: Paul Kanan -- 80,000; Ellen Rudnick
- -- 80,000; Craig Goldstone -- 80,000; G. Russell Warnick -- 80,000; Elizabeth
Teng Leary -- 80,000; Douglas S. Harrington -- 40,000.
In July 1996, the Board of Directors of the Company authorized the grant,
contemporaneously with the Company's IPO, of options to purchase 50,000 shares
of Common Stock at an exercise price equal to the IPO price per share (i.e.,
$4.75) to Craig Goldstone in connection with services rendered on behalf of the
Board of Directors.
In July 1996, the Board of Directors of the Company granted options to
purchase Common Stock at an exercise price of $3.45 share in connection with
deferred salaries as follows: G. Russell Warnick-- 6,880; and Elizabeth Teng
Leary--3,260.
In August 1996, the Board of Directors of the Company granted 9,000 shares
of Common Stock to Craig Goldstone in connection with services rendered on
behalf of the Board of Directors.
On September 5, 1996, the Board of Directors adopted resolutions assigning
a certain contract and other obligations of the Company to Messrs. Giles and
Goldstone and three former directors of PBI-WA. Specifically, the Company is
assigning its rights and obligations pursuant to that certain letter agreement
dated June 13, 1995
10
<PAGE>
between PBI-WA and Irvine Scientific, the manufacturer of the Company's
SPINPRO-Registered Trademark- product, whereby 13,270 shares of the Company's
Common Stock were issued to Irvine Scientific in satisfaction of certain
indebtedness, subject to a put option whereby the Company would have to
repurchase such shares for $140,000 in the event the Company does not exercise
its call option to purchase such shares prior to January 1, 1999. The Company
did not want to risk using its cash resources in connection with the put option
and, accordingly, has given up its rights with respect to the call option.
In September 1997, the Board of Directors of the Company granted, pursuant
to the Plan, options to purchase Common Stock at an exercise price of $3.44 per
share to directors and officers as follows: Paul Kanan -- 25,000; Ellen Rudnick
- -- 25,000; G. Russell Warnick -- 15,000; Elizabeth Teng Leary -- 15,000; Peter
Ludlum -- 7,500.
In September 1997, the Board of Directors of the Company granted 25,000
options to purchase Common Stock at an exercise price of $3.44 per share to
Craig Goldstone in connection with services rendered on behalf of the Board of
Directors.
Additionally, Messrs. Giles and Goldstone and three former directors of
PBI-WA have agreed to assume the Company's obligations (i) under a severance
arrangement with a former employee whereby the Company would be obligated to pay
such former employee $50,000 upon consummation of an IPO, and (ii) pursuant to
the Agreement of Merger and Plan of Reorganization, dated September 30, 1994, by
and between Merchant House Scientific, Inc. and PBI-WA, whereby the Company
would be obligated to issue certain additional shares of its Common Stock to
former PBI-WA stockholders who have not previously waived their rights to
receive such shares as a result of the inability of the Company to achieve
certain minimum revenue targets for its SPINPRO-Registered Trademark- product by
June 30, 1996.
Paul Kanan and Ellen Rudnick, are principals of CEO Advisors, a company
that provided management services to BioQuant beginning in 1993. This
arrangement has been terminated effective upon the consummation of the Mergers
on June 28, 1996, except for the provision of an assistant to Ellen Rudnick,
rent and office support on a pro rata basis at the estimated annual rate of
$28,000. During fiscal 1995 and fiscal 1996, BioQuant paid CEO Advisors an
aggregate of $109,000 and $186,000, respectively, for all services rendered.
Amounts outstanding at June 30, 1996 under this arrangement aggregated $187,000,
which is evidenced by two promissory notes in the principal amount of $93,500
and bear interest at 7 percent per annum. The promissory notes were issued to
each of Paul Kanan and Ellen Rudnick along with options to purchase 27,100
shares of Common Stock at an exercise price of $3.45 as an inducement to accept
the notes in lieu of cash. The notes are payable on demand.
The Company has entered into deferred compensation with four of its senior
executives, Paul Kanan, Ellen Rudnick, G. Russell Warnick and Elizabeth Teng
Leary. At June 30, 1997, the Company's deferred compensation obligation was
$65,413. Compensation expense in connection with these agreements was $30,417
and $22,496 for the years ended June 30, 1997 and 1996, respectively, and
$54,413 for the period from inception to June 30, 1997. The liability for
deferred compensation of $65,413 was converted into promissory notes bearing
annual interest at 7% and are payable on demand.
The Company believes that the transactions between the Company and its
officers and directors described above are on terms no less favorable to the
Company then could have been obtained from unaffiliated parties under similar
circumstances.
FILING REQUIREMENTS
The Company believes that all filing requirements under Section 16(a) of
the Securities Exchange Act of 1934, as amended, applicable to its officers,
directors and greater than 10% beneficial owners were complied with during the
fiscal year ended June 30, 1997, except that Mary Campbell and Terry Giles,
directors of the Company, did not file applicable amendments to their beneficial
ownership statements with respect to a change
11
<PAGE>
from indirect ownership to direct ownership as a result of the exercises of
certain options and distribution to limited partners, respectfully. Such
applicable filings have since been made.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN
The Board of Directors approved the amendment to the 1996 Stock Incentive
Plan at a meeting of the Board of Directors on August 28, 1997, subject to the
approval of the stockholders to provide (i) that the aggregate number of shares
of Common Stock subject to options or awards under the Stock Incentive Plan be
increased from 1,000,000 to 2,000,000 and accordingly (ii) that the number of
shares reserved for the future issuance of shares of Common Stock upon the
exercise of options under the Stock Incentive Plan be increased from 1,000,000
to 2,000,000. The affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock present and entitled to vote at the annual
meeting is required to approve the amendment to the 1996 Stock Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE THEIR SHARES
FOR THE PROPOSAL TO APPROVE THE AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN.
SUMMARY OF THE 1996 STOCK INCENTIVE PLAN
The Company adopted a Stock Incentive Plan (the "Plan") in July 1996 to
induce certain individuals to remain in the employ or service of the Company and
its subsidiaries and to attract new employees and non-employee directors. The
Plan is administered by the Committee, which will have the exclusive power to
select the officers, directors, consultants, advisors and employees of the
Company who are eligible for option grants or awards, and to determine the terms
and conditions of any options or awards granted, including but not limited to
the option price, method of exercise and the term during which the options may
be exercised. The total number of shares of Common Stock reserved for issuance
under the Plan is 1,000,000 (2,000,000 if the amendment to the Plan is approved
at the Annual Meeting). Options granted under the Plan may be non-qualified
options, options qualifying as incentive stock options within the meaning of
Section 422(b) of the Code, or stock appreciation rights. The Committee may
also award restricted stock, performance shares, loans or tax offset payments.
The option price of each incentive stock option ("ISO") granted under the Plan
shall be not less than the fair market value (110 percent of the fair market
value if the grant is to an employee owning more than 10 percent of the
outstanding Common Stock) of the Common Stock subject to the option, as
determined in good faith by the Committee. ISO's granted under the Plan will be
exercisable for a period, not to exceed ten years, as determined by the
Committee. The option exercise price and period within which non-qualified
options may be exercised will be determined at the discretion of the Committee.
The Plan will terminate not later than July 9, 2006. To date 1,430,947 options
to purchase Common Stock have been issued in connection with the Plan, of which
491,535 options were issued to replace options held by BioQuant stockholders
prior to the merger.
The initial per share exercise price for an ISO may not be less than the
fair market value thereof on the date of grant, or 110 percent of such fair
market value with respect to a participant who, at such time, owns stock
representing more than 10 percent of the total combined voting power of all
classes of stock of the Company. The initial per share exercise price for a
non-qualified stock option may not be less than 85 percent of the fair market
value thereof on the date of grant or 100 percent of such fair market value with
respect to a participant who is, or may reasonably be expected to become, a
"covered employee" within the meaning of section 162(m)(3) of the Code. The
initial per share exercise price for the options granted to non-employee
directors is the fair market value of the Common Stock on the date of grant.
No option granted pursuant to the Plan may be exercised more than ten years
after the date of grant, except that ISO's granted to participants who own more
than 10 percent of the total combined voting power of all classes of stock of
the Company at the time the ISO is granted may not be exercised after five years
after the date of grant. No participant may be granted ISOs that are
exercisable for the first time in any one calendar year with respect to Common
Stock having an aggregate fair market value in excess of $100,000 on the date of
grant. No
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<PAGE>
option granted under the Plan is transferable by the optionee other than by
death.
Generally, an option may be exercised only while the recipient is in the
active employ or service of the Company, or within thirty days after termination
of a participant's employment or service as a director other than by reason of
retirement or death, or within one year after termination of employment or
service by reason of death, or within ninety days after termination of a
participant's termination of employment or service by reason of retirement.
In the event of the death or retirement of an optionee, each option granted to
him shall become immediately exercisable in full.
PROPOSAL 3
SELECTION OF AUDITORS
The Board of Directors has selected Coopers and Lybrand, LLP, independent
auditors, to serve as auditors of the Company for the fiscal year ending June
30, 1998. Although stockholder ratification of the Board of Directors' action
in this respect is not required, the Board considers it desirable for
stockholders to pass upon the selection of auditors and, if the stockholders
disapprove of the selection, intends to consider the selection of other auditors
for the current fiscal year.
Representatives of Coopers and Lybrand, LLP will not be present at the
Meeting.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person and by proxy at the Meeting and entitled to vote thereon
is necessary for the ratification of the appointment of the auditors. PROXIES
RECEIVED IN RESPONSE TO THIS SOLICITATION WILL BE VOTED FOR THE RATIFICATION OF
THE APPOINTMENT OF THE AUDITORS, UNLESS OTHERWISE SPECIFIED IN THE PROXY.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF RATIFICATION OF THE
APPOINTMENT OF COOPERS AND LYBRAND, LLP.
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<PAGE>
MISCELLANEOUS
Any proposal of an eligible stockholder intended to be presented at the
next annual meeting of stockholders must be received by the Company for
inclusion in its proxy material and form of proxy relating to that annual
meeting no later than July 15, 1998.
The Board of Directors of the Company does not intend to present, and does
not have any reason to believe that others intend to present, any matter of
business at the Meeting other than those set forth in the accompanying Notice of
Annual Meeting of Stockholders. However, if other matters properly come before
the Meeting, it is the intention of the persons named in the enclosed form of
proxy to vote any proxies in accordance with their judgment.
The Company will bear the cost of preparing, assembling and mailing the
enclosed form of proxy, this Proxy Statement and other material which may be
sent to stockholders in connection with this solicitation. Solicitation may be
made by mail, telephone, telegraph and personal interview. The Company will
reimburse persons holding shares in their names or in the names of nominees for
their reasonable expenses in sending proxies and proxy material to their
principals.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED JUNE 30, 1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
INCLUDED AS AN EXHIBIT HERETO. ADDITIONAL COPIES ARE AVAILABLE WITHOUT CHARGE
UPON WRITTEN REQUEST DIRECTED TO: PACIFIC BIOMETRICS, INC., 1370 REYNOLDS
AVENUE, SUITE 119, IRVINE, CALIFORNIA 92614; ATTENTION: PETER B. LUDLUM.
By order of the Board of Directors,
/s/ Paul G. Kanan
-------------------------------------
Paul G. Kanan
President and Chief Executive Officer
Irvine, California
October 9, 1997
14
<PAGE>
PACIFIC BIOMETRICS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 13, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned stockholder of Pacific Biometrics, Inc. (the "Company")
hereby appoints each of Ellen Rudnick and Paul Kanan, attorneys and proxies,
each with full power of substitution, to represent the undersigned and vote all
shares of the Common Stock of the Company which the undersigned is entitled to
vote, with all powers the undersigned would possess if personally present, at
the Annual Meeting of Stockholders (the "Meeting") of the Company to be held at
the offices of the Company, 220 W. Harrison, Seattle, Washington, at 10:00 A.M.,
on November 13, 1997, and at any adjournments thereof, with respect to the
proposals hereinafter set forth and upon such other matters as may properly come
before the Meeting and any adjournments thereof.
This proxy when properly executed, will be voted in the manner directed
herein by the undersigned stockholder.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF
ALL NOMINEES AS DIRECTORS OF THE COMPANY, "FOR" THE RATIFICATION OF THE
AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN, "FOR" THE RATIFICATION OF COOPERS
AND LYBRAND, LLP AS AUDITORS OF THE COMPANY AND IN THE DISCRETION OF THE PROXIES
WITH RESPECT TO ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENTS THEREOF. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE
ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT.
<TABLE>
<S> <C> <C> <C>
1. Election of FOR all nominees listed below WITHHOLD AUTHORITY
Directors (EXCEPT AS MARKED TO THE CONTRARY BELOW) TO VOTE FOR ALL NOMINEES LISTED
/ / BELOW / /
</TABLE>
Nominees: Ellen Rudnick, Paul G. Kanan, Mary L. Campbell, Craig M. Goldstone,
Terry M. Giles and Douglas Harrington, M.D.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
________________________________________
<TABLE>
<S> <C> <C> <C>
2. Ratification of the amendments to the 1996 Stock Incentive Plan.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED ON REVERSE SIDE)
<PAGE>
<TABLE>
<S> <C> <C> <C>
3. Ratification of the selection of Coopers and Lybrand, LLP as auditors of the Company for the year
ending June 30, 1998.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
4. In their discretion, on any other matters that may properly come before the Meeting and any
adjournments thereof.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
Dated _________________________, 1997
_____________________________________
Signature of Stockholder(s)
_____________________________________
Name of Stockholder(s)
NOTE: When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee, custodian,
guardian or corporate officer, please
give your full title as such. If a
corporation, please sign full
corporate name by authorized officer.
If a partnership, please sign in
partnership name by authorized
person.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
