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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
February 20, 1998 0-21537
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Date of Report (Date of Commission File Number
earliest event reported)
PACIFIC BIOMETRICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-1211114
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
1370 Reynolds Avenue, Suite 119
Irvine, California 92614
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(Address of Principal Executive Offices) (Zip Code)
(714) 263-9933
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(Registrant's telephone number, including area code)
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Item 5. Other Events.
On February 20, 1998, Pacific Biometrics, Inc. (the "Company")
consummated the sale of 925,000 shares of Series A Convertible Preferred Stock
(the "Preferred Stock") with an institutional investor for an aggregate purchase
price of $1,850,000. In addition, the Company granted such institutional
investor an option (the "Option") to purchase an additional 625,000 shares of
Preferred Stock until May 20, 1998 for a purchase price of $1,250,000. The
Preferred Stock is convertible into shares of the Company's common stock, $.01
par value per share (the "Common Stock"), on a one-for-one basis, subject to
adjustment for stock splits, dividends and the like. The Preferred Stock
provides for a cash dividend payable quarterly in arrears at an annual rate of
8%. The Company has the right to force conversion of the Preferred Stock in the
event the price per share of the Common Stock is $8.00 or more for twenty
consecutive trading days. The Company has undertaken to effect the registration
of the Common Stock into which the Preferred Stock is convertible no later than
August 18, 1998. The holders of the Preferred Stock, as a class, have the right
to designate one director to the Board of Directors of the Company. The holder
of the Preferred Stock has designated Terry Giles, a current Board member, as
its nominee to the Board. Other than acting in his capacity as legal counsel,
Mr. Giles has no affiliation with the current holder of the Preferred Stock. The
Company will use the proceeds of the sale of the Preferred Stock and exercise of
the Option to ensure timely payment of the Company's obligations under the
License Agreement dated December 30, 1997 with Sudormed, Inc., relating to the
licensing of the Company's patch technology for all applications other than
drugs of abuse, and for general working capital purposes.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) not applicable
(b) not applicable
(c) Exhibit:
(4.4) Certificate of Designation for Series A Convertible Preferred
Stock.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 27, 1998 PACIFIC BIOMETRICS, INC.
By: /s/Paul G. Kanan
--------------------------------
Name: Paul G. Kanan
Title: President and Chief Executive Officer
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PACIFIC BIOMETRICS, INC.
CERTIFICATE OF DESIGNATION
FOR
SERIES A CONVERTIBLE PREFERRED STOCK
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Pursuant to Section 151 of the General Corporation Law of Delaware
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Pacific Biometrics, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of Delaware hereby certifies that
pursuant to the provisions of the Certificate of Incorporation of the
Corporation and of Section 151 of the General Corporation Law of Delaware, the
Board of Directors of the Corporation, by unanimous written consent dated
February 19, 1998, adopted the following resolutions, relating to the
designation and issuance of a series of preferred stock, par value $.01 per
share, of the Corporation, to be designated Series A Convertible Preferred Stock
(the "Preferred Stock") and to the authorization and issuance of common stock,
par value $.01 per share, of the Corporation (the "Common Stock"), which
resolutions remain in full force and effect as of the date hereof:
RESOLVED, that the Board hereby reserves from the authorized and unissued Common
Stock of the Corporation 1,550,000 shares of Common Stock for issuance upon the
conversion of the Preferred Stock described below, and that the officers of the
Corporation are hereby authorized to adjust from time to time the number of
shares of Common Stock reserved for issuance upon such conversion, in order to
maintain in reserve the number of shares of Common Stock into which the
Preferred Stock will be convertible. Furthermore, be it
RESOLVED, that the issuance and sale of the Preferred Stock is hereby authorized
and approved, and upon such issuance and sale, and payment in full therefor, the
Preferred Stock
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shall have been validly issued and the terms thereof binding on the Corporation
and enforceable by its terms. Furthermore, be it
RESOLVED, that the issuance of the Common Stock upon conversion of the Preferred
Stock, pursuant to the terms of the Preferred Stock as stated in the
Corporation's Certificate of Incorporation and the Designation of Preferred
Stock is hereby authorized and approved, and upon such issuance in accordance
with the terms of the Preferred Stock, the Common Stock shall have been issued
for fair value at least equal to the par value thereof and shall be fully paid
and non-assessable. Furthermore, be it
RESOLVED, that pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation, the Board of Directors does
hereby provide for the issuance of a series of Preferred Stock, par value $0.01
per share, of the Corporation, to be designated "Series A Convertible Preferred
Stock," which shall have the designation, rights, preferences, privileges and
restrictions and limitations as follows:
"(A) Designation and Amount. The shares of such series shall be
designated as "Series A Convertible Preferred Stock," par value $0.01
per share, and the number of shares constituting such series shall be
1,550,000.
(B) Rights, Preferences, Privileges and Restrictions of Series A
Convertible Preferred Stock. The rights, preferences, privileges and
restrictions granted to and imposed on the Series A Convertible
Preferred Stock are as follows:
(1) Dividend Provisions.
(a) The holders of shares of Series A Convertible Preferred
Stock shall be entitled to receive, out of any funds legally
available therefor, prior and in preference to the declaration
or payment of any dividend or distribution to the holders of
Common Stock or any other shares or securities of the
Corporation ranking junior to the Series A Convertible
Preferred Stock with respect to the payment of dividends or
the distribution of assets on liquidation ("Junior
Securities"), dividends which shall accrue cumulatively on
each share of Series A Convertible Preferred Stock at the rate
and in the manner prescribed in this subsection 1(a) from and
including the date of issuance of such shares of Series A
Convertible Preferred Stock, but excluding the date on which
any conversion or redemption of such shares of Series A
Convertible Preferred Stock shall have
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been effected, and payable quarterly in arrears. The date on
which the Corporation initially issues a share of Series A
Convertible Preferred Stock will be deemed to be its "date of
issuance" regardless of the number of times transfer of such
shares of Series A Convertible Preferred Stock is made, or of
the number of certificates which may be issued to evidence a
share of Series A Convertible Preferred Stock.
(b) Dividends shall accrue on each share of Series A
Convertible Preferred Stock (and on any accrued and unpaid
dividends thereon) at a rate per annum compounded quarterly,
of 8% of the Original Preferred Stock Issue Price (as defined
below) (as adjusted for stock splits, stock dividends,
combinations, recapitalizations and similar events). Such
dividends shall be payable quarterly in arrears. In the event
of any liquidation, dissolution or winding up of the
Corporation or the redemption of a share of Series A
Convertible Preferred Stock or the bankruptcy of the
Corporation, all accrued and unpaid dividends on a share of
Series A Convertible Preferred Stock shall be added to the
liquidation preference of such share on the payment date under
subsection 2(a) below, or on the date of redemption of such
share or upon the bankruptcy of the Corporation, as the case
may be, accrued cumulatively to but excluding such payment
date or redemption date or bankruptcy on a daily basis. If
there shall be any accrued but unpaid dividends immediately
prior to, and in the event of, a conversion of shares of
Series A Convertible Preferred Stock into shares of Common
Stock, all such accrued and unpaid dividends shall, at the
Corporation's option, be converted into that number of shares
of Common Stock determined by dividing the amount of such
dividends by the then effective Conversion Price (as defined
in subsection 3(a) below).
(c) No dividend or other distribution (other than a dividend
or distribution payable solely in Common Stock) shall be paid
on or set apart for payment on the Common Stock or other
Junior Securities nor shall any payment be made on account of
the purchase, redemption or retirement of any Common Stock or
other Junior Securities, unless all accrued and unpaid
dividends on the Series A Convertible Preferred Stock have
been or contemporaneously are paid or set apart for payment in
accordance herewith; provided, however, that the
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Corporation may repurchase Common Stock owned by terminated
employees of, or consultants to, the Corporation or its
subsidiaries. A conversion of a convertible security which by
its terms is convertible into Common Stock by the holder
thereof shall not be deemed a purchase, redemption or
retirement of the security so converted for purposes of this
subsection 1(c). No dividend shall be declared on any series
of preferred stock ranking as to dividends on a parity with
any other series of preferred stock unless there shall have
been declared on all shares then outstanding of such series of
preferred stock like proportionate dividends ratably in
proportion to the respective dividends payable in respect of
each such series of preferred stock. In the event that the
Corporation fails to pay the full dividends accrued on all
outstanding shares of preferred stock, any partial amounts
which are paid as dividends by the Corporation with respect to
the preferred stock shall be paid to the holders of such
shares of preferred stock in proportion (as nearly as
practicable) to the amount such holders would be entitled to
receive if they were to be paid the full accrued and unpaid
dividends on the preferred stock.
(d) Any cash dividend which has been declared and is otherwise
due and payable shall be paid in cash.
(2) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the
holders of the Series A Convertible Preferred Stock shall be
entitled to receive, in cash, prior and in preference to any
distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock or any other
Junior Securities by reason of their ownership thereof, the
amount of $2.00 per share (the "Original Preferred Stock Issue
Price") for each share of Series A Convertible Preferred Stock
then held by them, and, in addition, an amount equal to all
accrued but unpaid dividends on such shares of Series A
Convertible Preferred Stock. If, upon occurrence of such event
the assets and funds thus distributed ratably among the
holders of the Series A Convertible Preferred Stock shall be
insufficient to permit the payment to such holders of the full
preferential
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amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among
the holders of the Series A Convertible Preferred Stock in
proportion to the number of shares of Series A Convertible
Preferred Stock held by each such holder. After payment has
been made to the holders of the Series A Convertible Preferred
Stock of the full amounts to which they shall be entitled as
aforesaid, all remaining assets of the Corporation shall be
distributed among all holders of Series A Convertible
Preferred Stock and all holders of Common Stock in proportion
to the number of shares of Common Stock which would be held by
each such holder if all shares of Series A Convertible
Preferred Stock were converted into Common Stock at the then
effective Conversion Price (as defined in paragraph 3 (a)
below).
(b) For purposes of this paragraph 2, a liquidation,
dissolution or winding up of the Corporation shall be deemed
to be occasioned by, and to include, the Corporation's sale of
all or substantially all of its assets or the acquisition of
this Corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding
shares of this Corporation for securities or consideration
issued, or caused to be issued, by the acquiring corporation
or its subsidiary.
(3) Conversion. The holders of the Series A Convertible Preferred
Stock, and the Corporation, shall each have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Convertible
Preferred Stock shall be convertible into such number of fully
paid and nonassessable shares of Common Stock as is determined
by dividing $2.00 (the "Original Preferred Stock Purchase
Price") by the Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. Each share of
Series A Convertible Preferred Stock shall be convertible at
the option of the holder thereof at any time. Each share of
Series A Convertible Preferred Stock shall be convertible at
the option of the Corporation on any date on which the Common
Stock of the Corporation has closed at or above $8.00 per
share for the twenty consecutive trading days immediately
preceding such date. The price at which shares of Common Stock
shall be deliverable upon conversion (the
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"Conversion Price") shall initially be $2.00 per share of
Common Stock. Such initial Conversion Price shall be subject
to adjustment as hereinafter provided.
(b) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series A Convertible
Preferred Stock. In lieu of any fractional share to which a
holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the fair market
value of the Common Stock as determined by the Board of
Directors. Before any holder of Series A Convertible Preferred
Stock shall be entitled to convert the same into full shares
of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A
Convertible Preferred Stock, as designated by the Corporation,
and shall give written notice to the Corporation at such
office that he elects to convert the same. The Corporation
shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A Convertible Preferred
Stock, a certificate or certificates for the number of shares
of Common Stock to which he shall be entitled as aforesaid and
a check payable to the holder in the amount of any cash
amounts payable as the result of a conversion into a
fractional share of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series
A Convertible Preferred Stock to be converted, and the person
or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of
Common Stock on such date.
(c) Adjustments to Conversion Price for Diluting Issues.
(i) Stock Dividends. If the number of shares
of Common Stock outstanding at any time after the
effectiveness of these resolutions is increased by a
stock dividend payable in shares of Common Stock or
by a subdivision or split-up of shares of Common
Stock, then immediately effective at the close of
business upon the record date fixed for the
determination of holders of Common Stock entitled to
receive such stock dividend, subdivision or split-up,
the Conversion Price shall
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be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each
share of Series A Convertible Preferred Stock shall
be increased in proportion to such increase of
outstanding shares of Common Stock.
(ii) Adjustments for Subdivisions,
Combinations, or Consolidations of Common Stock. In
the event the outstanding shares of Common Stock
shall be subdivided or combined, by reclassification
or otherwise, into a greater or lesser number of
shares of Common Stock, the Conversion Price in
effect immediately prior to such subdivision or
combination shall, concurrently with the
effectiveness of such subdivision, combination or
consolidation, be proportionately adjusted.
(iii) Adjustments for Other Distributions.
In the event the Corporation at any time or from time
to time makes, or fixes a record date for the
determination of holders of Common Stock entitled to
receive, any distribution payable in securities of
the Corporation other than shares of Common Stock,
then and in each such event provision shall be made
so that the holders of the Series A Convertible
Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of
securities of the Corporation which they would have
received had their Series A Convertible Preferred
Stock been converted into Common Stock on the date of
such event to and including the date of conversion,
and retained such securities receivable by them as
aforesaid during such period, subject to all other
adjustments called for during such period under these
resolutions with respect to the rights of the holders
of the Series A Convertible Preferred Stock.
(iv) Adjustments for Reorganizations,
Reclassifications, etc. If the Common Stock issuable
upon conversion of the Series A Convertible Preferred
Stock shall be changed into the same or a different
number of shares of any other class or classes of
stock or other securities or property, whether by
reclassification, a merger or consolidation of
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this Corporation with or into any other corporation
or corporations in which the holders of the capital
stock of this Corporation then hold 50% or more of
the voting securities of the surviving corporation
(other than pursuant to a subdivision, combination,
stock dividend, or other distribution provided for in
3(c)(i), (ii) or (iii) above), the Conversion Price
then in effect shall, concurrently with the
effectiveness of such reorganization or
reclassification, be proportionately adjusted such
that the Series A Convertible Preferred Stock shall
be convertible into, in lieu of the number of shares
of Common Stock which the holders would otherwise
have been entitled to receive, a number of shares of
such other class or classes of stock or securities or
other property equivalent to the number of shares of
Common Stock that would have been subject to receipt
by the holders upon conversion of the Series A
Convertible Preferred Stock immediately before such
event; and, in any such case, appropriate adjustment
shall be made in the application of the provisions
herein set forth with respect to the rights and
interest thereafter of the holders of the Series A
Convertible Preferred Stock, to the end that the
provisions set forth herein (including provisions
with respect to changes in and other adjustments of
the Conversion Price) shall thereafter be applicable,
as nearly as may be reasonable, in relation to any
shares of stock or other property thereafter
deliverable upon the conversion of the Series A
Convertible Preferred Stock.
(d) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any
reorganization, transfer of assets, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation
but will at all times in good faith assist in the carrying out
of all the provisions of this paragraph 3 and in the taking of
all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series A
Convertible Preferred Stock against impairment.
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(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to
this paragraph 3, the Corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Series A
Convertible Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any
holder of Series A Convertible Preferred Stock, furnish or
cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments,(ii) the
Conversion Price at the time in effect, and (iii) the number
of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the
conversion of Series A Convertible Preferred Stock.
(f) Notices of Record Date. In the event that this Corporation
shall propose at any time:
(i) to declare any dividend or distribution
upon its Common Stock, whether in cash, property,
stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or
earned surplus;
(ii) to effect any reclassification or
recapitalization of its Common Stock outstanding
involving a change in the Common Stock; or
(iii) to merge with or into any other
corporation, or sell, lease or convey all or
substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation
shall send to the holders of the Series A Convertible
Preferred Stock shares:
(A) at least 20 days' prior written notice
of the date on which a record shall be taken for such
dividend, distribution or subscription
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rights (and specifying the date on which the holders
of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters
referred to in (iii) above; and
(B) in the case of the matters referred to
in (c) above, at least 20 days' prior written notice
of the date when the same shall take place (and
specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable
upon the occurrence of such event).
Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of Series A
Convertible Preferred Stock at the address for each such
holder as shown on the books of this Corporation.
(4) Voting.
(a) General. Except as otherwise required by law, the holders
of Series A Convertible Preferred Stock shall not be entitled
to vote upon any matter submitted to the stockholders for a
vote except as to matters affecting holders of Series A
Convertible Preferred Stock as a class, as set forth in
Paragraphs 4(b) and (5) below.
(b) Election of Directors. The holders of Series A Convertible
Preferred Stock, acting as a separate class, by written
consent or affirmative vote of the holders representing at
least a majority of the shares of Series A Convertible
Preferred Stock then outstanding, or upon conversion of such
Series A Convertible Preferred Stock into Common Stock as
provided for herein the holders thereof, shall be entitled to
elect or designate one (1) director of the Corporation;
provided however, that such right to elect or designate such
director shall terminate in the event that at any time the
holders of the Series A Convertible Preferred Stock in the
aggregate, on an as converted basis, hold less than 10% of the
outstanding Common Stock of the Corporation.
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(5) Protective Provisions. In addition to any other rights provided by
law, so long as any Series A Convertible Preferred Stock shall be
outstanding, this Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of more than 50
percent of such outstanding shares of Series A Convertible Preferred
Stock:
(a) amend or repeal any provision of, or add any provision to,
this Corporation's Certificate of Incorporation or Bylaws if
such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the
benefit of, the Series A Convertible Preferred Stock;
(b) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to
or on a parity with any such preference or priority of the
Series A Convertible Preferred Stock, or authorize or issue
shares of stock of any class or any bonds, debentures, notes
or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of this
Corporation having any preference or priority as to dividends
or assets superior to or on a parity with any such preference
or priority of the Series A Convertible Preferred Stock; or
(c) reclassify any Common Stock into shares having any
preference or priority as to dividends or assets superior to
or on a parity with any such preference or priority of the
Series A Convertible Preferred Stock.
(6) Status of Converted Stock. In the event any shares of Series A
Convertible Preferred Stock shall be converted pursuant to paragraph 3
hereof, the shares so converted shall be canceled and shall not be
issuable by the Corporation.
(7) Residual Rights. All rights accruing to the outstanding shares of
this Corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
(8) Consent for Certain Repurchases of Common Stock Deemed to be
Distributions. Each holder of Series A Convertible Preferred Stock
shall be deemed to have consented
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to distributions made by the Corporation in connection with the
repurchase of shares of Common Stock issued to or held by employees or
consultants upon termination of their employment or services pursuant
to agreements providing for such right of repurchase between the
Corporation and such persons."
IN WITNESS WHEREOF, Pacific Biometrics, Inc. has caused this
certificate to be made and signed by its President and Secretary, this 19th day
of February, 1998.
/s/ Paul G. Kanan
--------------------------------
Paul G. Kanan, President
/s/Peter Ludlum
--------------------------------
Peter Ludlum, Secretary
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