<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 Charter)
-----------------------------------------------------------------------------
(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 28, 1998
Dear Pacific Biometrics Stockholder,
The past fiscal year has been a year of accomplishments and challenges. We
completed the initial clinical trials for our lead product, the Osteopatch-TM-,
for the collection and analysis of bone resorption, an indicator of fracture
risk and filed a 510(K) premarket notification with the U.S. Food and Drug
Administration (FDA). While we were encouraged by the results of our clinical
trials, the FDA will require additional information before this product can be
approved as a collection and analytical device for bone resorption markers. We
are working with the FDA to determine which additional studies and information
will be required to support the approval process. Given the novelty of sweat as
a diagnostic fluid today, we believe this product application is establishing a
precedent for future applications of the SweatPatch-TM- technology and therefore
will require a more detailed review on the part of the FDA than originally
anticipated.
During this past fiscal year Segix, Italia, S.p.A. successfully completed a
market and technical evaluation of the Osteopatch-TM- product for the Italian
market. In September, we announced that Segix exercised its option to enter
into an exclusive ten year license and distribution agreement with the Company
for the distribution of the Osteopatch system in Italy. Segix is a
privately-held pharmaceutical company which was formed in connection with the
management buyout of the pharmaceutical manufacturing facilities and business
from Wellcome Italia. Segix is currently finalizing plans to launch the
Osteopatch system this fall as an integral part of its osteoporosis disease
management program. We believe Segix' approach to disease managment, its
complementary therapeutic product portfolio, and its extensive sales force make
it an ideal partner for our first efforts to distribute the Osteopatch
internationally. In anticipation of the Segix launch, the Company applied for,
and received, the "CE" mark which enables it to commercially distribute the
Osteopatch system throughout the European common market. The Company is seeking
additional partners for other European markets.
Also during this fiscal year we completed the acquisition of the rights to all
diagnostic applications of the SweatPatch technology (except alcohol and
drugs-of-abuse testing which had been previously licensed to another company).
This arrangement will allow us to develop product applications in other clinical
areas or license rights to the technology to other organizations. We have
already identified potential opportunities for this technology in support of
nutritional assessment, monitoring of compliance in pharmaceutical clinical
trials, and therapeutic drug monitoring. We are actively seeking partners to
collaborate with us on these efforts.
The Company entered into an agreement with Actimed Laboratories to use Actimed's
patented analyte detection technology in the field of saliva glucose testing.
The Company's initial feasibility studies for the measurement of saliva glucose,
using the proprietary SalivaSac-Registered Trademark- technology combined with
the Actimed technology, have produced very promising results for a disposable
glucose screening test and also produced encouraging results for a potential
glucose monitoring device. Further studies with the SalivaSac-Registered
Trademark- technology relating to drugs of abuse testing, hormones and
therapeutic drug monitoring have also been encouraging. We are seeking partners
to assist us in the development and marketing of these applications.
2
<PAGE>
The Company's laboratory revenues for fiscal 1998 grew 13%, from $2.1 million to
$2.4 million. The overall growth was higher in the first half of the year due to
two large contracts which were not replaced in the second half. Overall, total
revenues declined to $2.5 million from $2.8 million in fiscal 1997. This
decline was attributable to the reduction in SpinPro-Registered Trademark-
sales, and the decision by the Company to discontinue its efforts in clinical
trial management services.
The Company moved into a new laboratory facility in Seattle last November,
increasing its capacity and expanding its technical resources. The Company has
been upgrading its computer capabilities, an important component in successfully
winning proposals and implementing contracts. Mike Murphy, Ph.D. joined the
Company in May as Director of Laboratories, providing critical management and
leadership to the organization. With the expanded capacity, and the investments
in technical and human resources, we believe the laboratory will be well
positioned to compete for new business. We are aggressively pursuing new
opportunities and have greatly increased the number of proposals submitted for
new business.
The Company's research and product development costs increased to $2.4 million
in fiscal 1998 from $1 million in fiscal 1997. These increased costs were
primarily associated with the Company's clinical trials for the Osteopatch-TM-,
submission of its filing with the FDA, and additional research related to the
Sweatpatch-TM- and SalivaSac-Registered Trademark- technology platforms.
With the delays in FDA approval, and the acquisition of the SweatPatch
technology we have strained our capital resources. Consequently we have focused
our efforts on identifying additional sources of capital. In February and May
the Company completed the sale of convertible preferred stock for an aggregate
of $3.1 million with institutional investors. In August, the Company retained
R&R Capital Group, a New York based investment banking firm, to assist the
Company in raising additional capital and identifying strategic partners. We
have also commenced a cost reduction program aimed at reducing operating costs
associated with product development, marketing and administration until we have
successfully raised additional capital. Strengthening the Company's capital
position is our highest priority. This is essential to enable the Company to
complete its U.S. clinical trials of Osteopatch for FDA approval, to support the
Italian launch of the Osteopatch and to continue to seek partnerships for
applications using our platform technologies.
As the Company achieves its goals we will increase our efforts to gain
visibility among analysts and institutional investors. Even before the recent
volatility in the stock market, performance in small cap stocks has lagged
behind its large cap counterparts. While these are uncertain times, we are
committed to doing everything we can to realize the full potential of Pacific
Biometrics.
Sincerely,
/s/ ELLEN A. RUDNICK /s/ PAUL G. KANAN
Ellen A. Rudnick Paul G. Kanan
Chairman President and CEO
3
<PAGE>
PACIFIC BIOMETRICS, INC.
-----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 11, 1998
----------------------------------------
The Annual Meeting of Stockholders of Pacific Biometrics, Inc. (the
"Company"), a Delaware corporation, will be held at the offices of the Company,
25651 Atlantic Ocean Drive, Suite A-1, Lake Forest, California on December 11,
1998, at 9:00 a.m., for the following purposes:
1. To elect five 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 ratify the appointment of Grant Thornton LLP as auditors of the
Company for the year ending June 30, 1999; and
3. 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 19, 1998
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
Lake Forest, California
October 28, 1998
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.
4
<PAGE>
PACIFIC BIOMETRICS, INC.
------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 11, 1998
---------------------------------------------------------
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, 25651
Atlantic Ocean Drive, Suite A-1, Lake Forest, California on December 11, 1998,
at 9:00 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 25651 Atlantic
Ocean Drive, Suite A-1, Lake Forest, California 92630. The approximate date on
which this Proxy Statement and the enclosed form of proxy will first be sent or
given to stockholders is October 28, 1998.
Stockholders of record of the Company's common stock, par value $.01 per
share (the "Common Stock"), at the close of business on October 19, 1998 (the
"Record Date") shall be entitled to one vote for each share then held. On
October 19, 1998, there were outstanding 3,709,671 shares of Common Stock. As
of October 19, 1998, members of management of the Company held an aggregate of
640,377 shares of Common Stock (exclusive of options and warrants) or 17.3% of
the total outstanding shares of Common Stock entitled to vote at the Meeting.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 19, 1998
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.
<TABLE>
<CAPTION>
NAME AND ADDRESS(1) AMOUNT AND PERCENT OF
------------------- NATURE COMMON STOCK
OF BENEFICIAL OUTSTANDING
OWNERSHIP(2)(3) -----------
---------------
<S> <C> <C>
Ellen A. Rudnick(4) 317,924 8.0%
Paul G. Kanan(5) 313,924 7.9%
Elizabeth Teng Leary, Ph.D.(6) 133,875 3.6%
Mary L. Campbell(7) 306,392 8.3%
Craig M. Goldstone(8) 235,570 6.2%
Terry M. Giles(9) 379,424 10.2%
Douglas S. Harrington, 41,447 1.1%
M.D.(10)
Peter B. Ludlum(11) 36,449 1.0%
All directors and officers as a 1,385,581 31.1%
group (7 persons)(12)
</TABLE>
- -------------------------
(1) The address of each of these persons is c/o the Company, 25651 Atlantic
Ocean Drive, Suite A-1, Lake Forest, California 92630.
(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 256,933 shares of Common Stock
subject to currently exercisable warrants and options. Does not include
40,000 shares of Common Stock subject to options granted in July 1996 and
18,750 shares of Common Stock subject to options granted in September 1997,
which have not yet vested.
(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 254,933
shares of Common Stock subject to currently exercisable warrants and
options. Does not include 40,000 shares of Common Stock subject to options
granted in July 1996 and 18,750 shares of Common Stock subject to options
granted in September 1997, which have not yet vested.
6
<PAGE>
(6) Includes 86,865 shares of Common Stock and 47,010 shares of Common Stock
subject to currently exercisable options and warrants. Does not include
40,000 shares of Common Stock subject to options granted in July 1996 and
11,250 shares of Common Stock subject to options granted in September 1997
which have not yet vested.
(7) Includes 303,910 shares of Common Stock 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
2,482 shares of Common Stock subject to currently exercisable options
granted in connection with attendance of meetings of the Board of
Directors.
(8) Includes 120,046 shares of Common Stock and 115,524 shares of Common Stock
subject to currently exercisable options and warrants. Does not include
40,000 shares of Common Stock subject to options granted in July 1996 and
18,750 shares of Common Stock subject to options granted in September 1997
which have not yet vested. Also includes 2,482 shares of Common Stock
subject to currently exercisable options granted in connection with
attendance of meetings of the Board of Directors.
(9) Includes 376,942 shares of Common Stock. Also includes 2,482 shares of
Common Stock subject to currently exercisable options granted in connection
with attendance of meetings of the Board of Directors, which options expire
on December 9, 1998 as a result of Mr. Giles' resignation from the Board of
Directors effective on September 10, 1998.
(10) Includes 41,447 shares of Common Stock subject to currently exercisable
options and warrants. Does not include 20,000 shares of Common Stock
subject to options granted in July 1996 which have not yet vested. Also
includes 2,482 shares of Common Stock subject to currently exercisable
options granted in connection with attendance of meetings of the Board of
Directors.
(11) Includes 9,574 shares of Common Stock and 26,875 shares of Common Stock
subject to currently exercisable options and warrants. Does not include
25,000 shares of Common Stock subject to options granted in October 1996
and 5,625 shares of Common Stock subject to options granted in September
1997 which have not yet vested.
(12) Includes 640,377 shares of Common Stock and 745,204 shares of Common Stock
subject to currently exercisable options and warrants. Does not include
278,125 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 1,663,706 shares or
35.2 percent based on a total of 4,733,000 shares outstanding subsequent to
such exercise.
7
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Five 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.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME, BUSINESS PRINCIPAL OCCUPATION DURING LAST DIRECTOR
ADDRESS AND AGE FIVE YEARS; OTHER ACTIVITIES SINCE
- --------------- ---------------------------- --------
<S> <C> <C>
Ellen A. Rudnick Ellen A. Rudnick has served as Chairman of 1996
Age 47 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
Age 52 Paul G. Kanan has served since July 1996 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, Mr. Kanan was employed by Baxter
Healthcare
8
<PAGE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME, BUSINESS PRINCIPAL OCCUPATION DURING LAST DIRECTOR
ADDRESS AND AGE FIVE YEARS; OTHER ACTIVITIES SINCE
- --------------- ---------------------------- --------
<S> <C> <C>
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, a director since July 1996
Age 53 1996, currently serves as Principal and
Vice President of EDM, Inc., the general
partner of the Enterprise Development Fund
II, L.P., a venture capital fund managing
$30 million. Ms. Campbell is also a
director of Aastrom Biosciences, Inc., a
publicly held cell therapy company; Think
& Do Software, Inc., a developer and
marketer of factory automation software;
and Chairman of the Board and Director of
Origen, Inc., an animal health company.
Ms. Campbell received her Masters of
Business Administration from the
University of Michigan; her Masters of
Special Education from Fairfield
University; and her Bachelor of Arts in
English from the University of Michigan.
Craig M. Goldstone Craig M. Goldstone, a director of the 1996
Age 41 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.
Douglas S. Harrington,
M.D.
Age 45 Douglas S. Harrington, M.D., a director of 1996
the Company and member 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. 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.
</TABLE>
9
<PAGE>
During the fiscal year ended June 30, 1998, the Company's Board of
Directors held six meetings, which were attended by 92% 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 (Douglas Harrington, M.D. and Mary Campbell)
and compensation (Mary Campbell and Craig Goldstone) 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 per year) 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
IN FAVOR OF THE RE-ELECTION OF THE FIVE NOMINEES
TO THE COMPANY'S BOARD OF DIRECTORS
10
<PAGE>
EXECUTIVE OFFICERS
The current 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.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ellen A. Rudnick 47 Chairman of the Board
Paul G. Kanan 52 President, Chief Executive Officer and Director
Elizabeth Teng Leary 50 Vice President of Laboratory Services
Peter B. Ludlum 43 Vice President of Finance and Chief Financial
Officer
Paul G. Kanan See "Proposal 1 - Election of Directors" for
biographical information.
Ellen A Rudnick See "Proposal 1 - Election of Directors" for
biographical information.
Elizabeth Teng Leary, Elizabeth Teng Leary has served as the Company's Vice
Ph.D., DABCC President of Laboratory Services 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. 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
Diplomat 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
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 1996. From 1989 to 1996 Mr. Ludlum served as
Controller of Derlan Industries, Inc., a diversified
manufacturing company. From 1978 to 1989 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.
</TABLE>
11
<PAGE>
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 Chief Executive Officer and the Company's four most highly
compensated executive officers earning in excess of $100,000 (the "Named
Executive Officers"). No other executive officer of the Company earned in
excess of $100,000 in any of such fiscal periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------- ----------------------------------------------------------
Other
Annual Awards All Other
Name and Principal Salary Bonus Compen- Restricted Stock Options/ LTIP Payouts Compen-
Position Year ($) ($) sation($) Awards($) SARs (#) ($) sation($)
-------- ---- --- --- -------- --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ellen A. Rudnick 1998 150,667 - -- -- -- -- --
Chairman 1997 128,333 - -- -- -- -- --
1996 - - 117,500(1) -- -- -- --
Paul G. Kanan 1998 193,333 - -- -- -- -- --
President, Chief 1997 165,000 - -- -- -- -- --
Executive Officer and 1996 - - 117,500(1) -- -- -- --
Director
G. Russell Warnick (2) 1998 100,417 45,163 -- -- -- -- --
Chief Scientific Officer 1997 90,000 17,462 -- -- -- -- --
and Founder 1996 84,166 - -- -- -- -- --
Elizabeth Teng Leary 1998 94,375 27,316 -- -- -- -- --
Vice President of 1997 83,280 7,989 -- -- -- -- --
Laboratory Services 1996 80,780 - -- -- -- -- --
Peter B. Ludlum 1998 98,667 7,250 -- -- -- -- --
Vice President of 1997 60,000 0 -- -- -- -- --
Finance and Chief 1996 0 - -- -- -- -- --
Financial Officer
</TABLE>
- --------------------------
(1) Reflect payments to such persons through CEO Advisors, a firm owned by Paul
Kanan and Ellen Rudnick, for management services to BioQuant, Inc., a
subsidiary of the Company. 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 notes. In consideration of receipt of such notes
in lieu of cash, such persons also received in July 1996, stock options to
purchase 27,100 shares of Common Stock at $3.45 per share.
(2) Mr. Warnick resigned as an employee of the Company effective July 14, 1998.
12
<PAGE>
For fiscal 1998, the named executive officers received the following option
grants under the plan, no SAR's have been granted:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE OR BASE
NAME GRANTED (#) YEAR PRICE ($/SH) EXPIRATION DATE
- --------------------- ------------------ ------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Ellen A. Rudnick 25,000 8.0% $3.44 9/18/02
Paul G. Kanan 25,000 8.0% $3.44 9/18/02
G. Russell Warnick 15,000 4.8% $3.44 9/18/02(1)
Elizabeth Teng Leary 15,000 4.8% $3.44 9/18/02
Peter B. Ludlum 7,500 2.4% $3.44 9/18/02
</TABLE>
- ------------------------
(1) Such options will expire during the term of Mr. Warnick's severance period
which is expected to be between nine and eighteen months from the date of
termination.
The following table reflects options exercised during the fiscal year and the
year-end values for in-the-money options for each of the named executive
officers:
AGGREGRATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Value
of Unexercised
In-The-
Number of Securities Money Options/
Name Shares Value Underlying Unexercised June 30, 1998
Acquired on Realized Option/June 30, 1998 ($)Exercisable/
Exercise(#) ($) Exercisable/Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ellen A. Rudnick 0 0 230,683/85,000 $ 348,026/0
- --------------------------------------------------------------------------------------------------------
Paul G. Kanan 0 0 228,683/85,000 $ 348,026/0
- --------------------------------------------------------------------------------------------------------
G. Russell Warnick(1) 0 0 26,880/75,000 0/0
- --------------------------------------------------------------------------------------------------------
Elizabeth Teng Leary 0 0 23,260/75,000 0/0
- --------------------------------------------------------------------------------------------------------
Peter B. Ludlum 0 0 25,000/32,500 0/0
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Such options will expire during the term of Mr. Warnick's severance period
which is expected to be between nine and eighteen months from the date of
termination.
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. 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.
13
<PAGE>
Mr. Warnick resigned as an employee of the Company effective July 14, 1998.
Mr. Kanan's and Ms. Rudnick's employment agreements provide for annual
salaries of $200,000 and $156,000 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.
Ms. Leary's employment agreement provides for annual base salary of
$100,000 and contains 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, Ms. Leary will be entitled to a
bonus payment, in the event certain product development and laboratory operation
milestones are achieved. Further, Ms. Leary will be 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, Ms. Leary will be entitled to receive her base salary and bonus up to
the date of termination. In the event termination is without cause, Ms. Leary
will be entitled to receive her base salary and benefits for a period of nine
months thereafter and the Company has agreed to indemnify her 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. Mr. Giles resigned as a director of the Company effective September
10, 1998.
During the period from July 1994 through June 1996, Craig Goldstone, a
director of the Company, 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
14
<PAGE>
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 Company's 1996 Stock Incentive Plan (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. Mr. Warnick's options will expire during the term of his
severance period which is expected to be between nine and eighteen months from
the date of termination.
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
assigned its rights and obligations pursuant to that certain letter agreement
dated June 13, 1995 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 October 1996, the Board of Directors of the Company granted, pursuant to
the Plan, options to purchase 50,000 shares of Common Stock at an exercise price
of $4.75 per share to Peter Ludlum in connection with his commencement of
employment.
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. Mr. Warnick's options will expire during the term of his
severance period which is expected to be between nine and eighteen months from
the date of termination.
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.
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 which amounted to $41,349 and
$28,172 in fiscal 1998 and fiscal 1997, respectively. 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, for
15
<PAGE>
which two promissory notes were issued 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, 1998, 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, 1998, except that Mary Campbell and Terry
Giles, directors of the Company, did not timely file applicable amendments to
their beneficial ownership statements with respect to a manual signature, in
the case of Mary Campbell, and with respect to a change from indirect to
direct ownership as a result of certain distributions to limited partners
from partnerships he is deemed beneficial owner of and acquisition of options
and shares of Common Stock, in the case of Terry Giles. Such applicable
filings have since been made.
16
<PAGE>
PROPOSAL 2
SELECTION OF AUDITORS
The Board of Directors has selected Grant Thornton LLP, independent
auditors, to serve as auditors of the Company for the fiscal year ending June
30, 1999. 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 Grant Thornton LLP will 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 GRANT THORNTON LLP.
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 August 11, 1999.
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.
17
<PAGE>
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED JUNE 30, 1998 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., 25651 ATLANTIC
OCEAN DRIVE, SUITE A-1, LAKE FOREST, CALIFORNIA 92630; ATTENTION: PETER B.
LUDLUM.
By order of the Board of Directors,
/s/ PAUL G. KANAN
Paul G. Kanan
President and Chief Executive Officer
Lake Forest, California
October 28, 1998
18
<PAGE>
- ------------------------------------------------------------------------------
PACIFIC BIOMETRICS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 11, 1998
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, 25651 Atlantic Ocean Drive, Suite
A-1, Lake Forest, CA, at 9:00 A.M., on December 11, 1998, 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 GRANT
THORNTON 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.
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
/X/ Please mark boxes
in blue or black ink.
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below) listed below
1. Election of / / / /
Directors
Nominees: Ellen Rudnick, Paul G. Kanan, Mary L. Campbell, Craig M.
Goldstone 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.
____________________________
FOR ABSTAIN AGAINST
2. Ratification of the selection of Grant Thornton
LLP as auditors of the Company for the year / / / / / /
ending June 30, 1999.
3. In their discretion, on any other matters that
may properly come before the Meeting and
any adjournments thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
___________________________ _________________________ Dated:__________, 1998
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.
- -------------------------------------------------------------------------------
