<PAGE>
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 Section240.14a-11(c) or
Section240.14a-12
PHYSIOMETRIX, 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:
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(2) Aggregate number of securities to which transaction applies:
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(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 statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[PHYSIOMETRIX LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
PHYSIOMETRIX, INC. a Delaware corporation (the "Company") will be held on
Thursday, May 21, 1998, at 10:00 a.m., local time, at the Company's principal
executive offices, Five Billerica Park, 101 Billerica Avenue, North Billerica,
Massachusetts, 01862 for the following purposes (as more fully described in the
Proxy Statement accompanying this Notice):
1. To elect two Class II directors of the Company to serve for a term of
three years expiring upon the 2001 Annual Meeting of Stockholders or
until a successor is elected.
2. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1998.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 3, 1998 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting. However, to
ensure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. If you attend the meeting, you may vote in
person even if you return a proxy.
FOR THE BOARD OF DIRECTORS
Thomas Baruch
CHAIRMAN OF THE BOARD OF DIRECTORS
North Billerica, Massachusetts
April 23, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING,
YOU MAY VOTE IN PERSON, EVEN IF YOU RETURN A PROXY.
<PAGE>
[PHYSIOMETRIX LOGO]
------------------------
PROXY STATEMENT FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
------------------------
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Physiometrix, Inc. ("Physiometrix" or the "Company") for use at the Annual
Meeting of Stockholders to be held on Thursday, May 21, 1998 at 10:00 a.m.,
local time, or at any adjournment thereof. The Annual Meeting will be held at
the Company's principal executive offices, Five Billerica Park, 101 Billerica
Avenue, North Billerica, Massachusetts 01862. The telephone number at the
meeting location is (978) 670-2422.
These proxy solicitation materials and the Annual Report to stockholders for
the fiscal year ended December 31, 1997 (the "Last Fiscal Year"), including
financial statements, were first mailed on or about April 23, 1998 to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on April 3, 1998, (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 5,667,075 shares of the Company's Common Stock, $.001 par value
(the "Common Stock"), were issued and outstanding and held of record by
approximately 98 stockholders.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person. Attending the Annual
Meeting in and of itself may not constitute a revocation of a proxy.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share held as of the
Record Date. Stockholders will not be entitled to cumulate their votes in the
election of directors.
The cost of soliciting proxies will be borne by the Company. The Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expense in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of American
Stock Transfer & Trust Company, the Company's transfer agent. The Inspector will
also determine whether or not a quorum is present. Except in certain specific
circumstances, the affirmative vote of a majority of shares present in person or
represented by proxy at a duly held meeting at which a quorum is present is
required under Delaware law for approval of
<PAGE>
proposals presented to stockholders. In general, Delaware law also provides that
a quorum consists of a majority of shares entitled to vote and present or
represented by proxy at the meeting.
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as
being present and entitled to vote for purposes of determining the presence of a
quorum but will not be treated as votes in favor of approving any matter
submitted to the stockholders for a vote. Any proxy which is returned using the
form of proxy enclosed and which is not marked as to a particular item will be
voted for the election of the Class II directors, for the confirmation of the
appointment of the designated independent auditors and, as the proxy holders
deem advisable, on other matters that may come before the meeting, as the case
may be with respect to the items not marked.
If a broker indicates on the enclosed proxy or its substitute that it does
not have discretionary authority as to certain shares to vote on a particular
matter ("Broker Non-Votes"), those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS TO BE PRESENTED AT 1999 ANNUAL
MEETING
Proposals that are intended to be presented by stockholders of the Company
at the 1999 Annual Meeting must be received by the Company no later than
December 23, 1998 in order to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file an initial report of ownership on Form 3 and changes
in ownership on Form 4 or 5 with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater than ten percent stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that, with respect to fiscal year 1997, all filing requirements applicable to
its officers, directors and ten percent stockholders were complied with.
2
<PAGE>
SHARE OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Common Stock of the Company as of
March 31, 1998 by (i) each person who is known to the Company to beneficially
own more than five percent of the outstanding shares of its Common Stock, (ii)
each director and nominee for election, (iii) each officer named in the Summary
Compensation Table below and (iv) all directors, nominees for election and
executive officers as a group. Unless otherwise indicated, officers and
directors can be reached at the Company's principal executive offices. A total
of 5,667,075 shares of the Company's Common Stock were issued and outstanding as
of March 31, 1998.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED (1) OWNED(2)
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Chemical and Materials Enterprise Associates Limited (3)................. 646,494 11.4%
c/o Thomas Baruch
New Enterprise Associates
250 Montgomery Street, 11th Floor
San Francisco, CA 94104
Technology Funding Venture Partners (4).................................. 571,337 10.1%
c/o Thomas Toy
2000 Alameda de las Pulgas
San Mateo, CA 94003
John A. Williams (5)..................................................... 236,658 4.0%
E. Stuart Tuthill (6).................................................... 46,084 *
Dominic Marro (7)........................................................ 39,668 *
Thomas Baruch (8)........................................................ 647,296 11.4%
Thomas J. Toy (9)........................................................ 590,505 10.4%
James A. Saalfield (10).................................................. 19,168 *
James E. Nicholson (11).................................................. 17,501 *
All directors and executive officers as a group (9 persons).............. 1,596,880 26.2%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
defined on p. 2 and includes voting or investment power with respect to
securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Shares of Common Stock subject to options and warrants currently
exercisable within 60 days are deemed to be outstanding for computing the
percentage of the person holding such options or warrants but are not
deemed outstanding for computing the percentage of any other person.
(3) Consists of 631,190 shares and 15,304 shares issuable upon exercise of
warrants.
(4) Consists of 270,791 shares held by Technology Funding Venture Partners IV,
an Aggressive Growth Fund, L.P., a Delaware Limited Partnership; 287,021
shares and 13,525 shares issuable upon exercise of warrants held by
Technology Funding Venture Partners V, an Aggressive Growth Fund, L.P., a
Delaware Limited Partnership.
3
<PAGE>
(5) Includes 233,800 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.
(6) Consists 46,084 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.
(7) Consists of 39,666 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1998.
(8) Consists of 612,824 shares and 15,304 shares issuable upon exercise of
warrants held by Chemical and Materials Enterprise Associates Limited
("CMEA") and 19,168 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1998 held by Mr. Baruch. Mr. Baruch
is a general partner of CMEA, and disclaims beneficial ownership of the
shares held by such entity except to the extent of his proportionate
interest therein.
(9) Consists of 270,791 shares held by Technology Funding Venture Partners IV,
an Aggressive Growth Fund, L.P., a Delaware Limited Partnership ("TFVP
IV"); 287,021 shares and 13,525 shares issuable upon exercise of warrants
held by Technology Funding Venture Partners V, an Aggressive Growth Fund,
L.P., a Delaware Limited Partnership ("TFVP V"); and 19,168 shares issuable
upon exercise of stock options exercisable within 60 days of March 31, 1998
held by Mr. Toy. Mr. Toy is an officer of Technology Funding Inc. and a
partner of TFVP IV and TFVP V, and disclaims beneficial ownership of the
shares held by such entities except to the extent of his proportionate
interests therein.
(10) Consists of 19,168 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1998.
(11) Consists of 17,501 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1998.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
Pursuant to the Company's Certificate of Incorporation, the Company's Board
of Directors currently is divided into three classes serving staggered terms of
three years. One of the three classes is elected each year to succeeded the
directors whose terms are expiring. The Class I and Class III directors are
serving terms expiring at the Company's 2000 and 1999 Annual Meetings of
Stockholders, respectively.
The directors in Class II, whose terms expire at the Annual Meeting, are
Thomas J. Toy and James A. Saalfield. Messrs. Toy and Saalfield are standing for
re-election.
In the event that one or both persons become unavailable or decline to serve
as directors at the time of the Annual Meeting, the proxy holders will vote the
proxies in their discretion for any nominee or nominees who are designated by
the current Board of Directors to fill the vacancy or vacancies. The nominees
are expected to be available to serve.
4
<PAGE>
The names of the Class II nominees for election to the Board of Directors,
and the directors whose terms conclude, at the Annual Meeting, their ages as of
the Record Date and certain information about them is set forth below. The names
of the current Class I and Class III directors, their ages as of the Record Date
and certain information about them are also set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---------------------------------------- --- ---------------------------------------- --------
<S> <C> <C> <C>
NOMINEES FOR CLASS II DIRECTORS
Thomas J. Toy......................... 43 Partner and Vice President Corporate 1993
Finance, Technology Funding, Inc.
James A. Saalfield.................... 51 President, Still River Management 1996
Company, Inc.
CONTINUING CLASS I DIRECTOR
James E. Nicholson.................... 59 Chief Technical Officer, Innovasive 1997
Devices, Inc.
CONTINUING CLASS III DIRECTORS
John A. Williams...................... 50 President and Chief Executive Officer, 1993
Physiometrix, Inc.
Thomas Baruch......................... 59 General Partner, New Enterprise 1991
Development Corporation and General
Partner, Chemicals and Materials
Enterprise Associates Limited
</TABLE>
There are no family relationships among directors or executive officers of
the Company.
THOMAS J. TOY has served as a member of the Board of Directors since
November 1993. Mr. Toy is a partner and Managing Director of the Corporate
Finance Group at Technology Funding, a venture capital firm. Prior to joining
Technology Funding in 1987, Mr. Toy was a Vice President at Bank of America. Mr.
Toy also serves on the boards of Electronic Designs, Inc., a developer of
specialty materials, and several private companies.
JAMES A. SAALFIELD has served as a member of the Board of Directors since
September 1996. Mr. Saalfield served as a General Partner of Fleet Venture
Partners I, II, III and IV and Managing General Partner of Dean's Hill L.P. and
is President of the Still River Management Company and Managing General Partner
of the Still River Fund, L.P. Mr. Saalfield served as the Senior Vice President
of Fleet Venture Resources, Inc. and Senior Vice President of Fleet Growth
Resources, Inc. from 1985 to 1993. Mr. Saalfield is a director of Parexel, KVH
Industries and a number of privately held companies.
JAMES E. NICHOLSON was appointed as a member of the Board of Directors in
March 1997. In 1991, Mr. Nicholson co-founded Innovasive Devices, Inc., a
medical device company specializing in soft tissue repair. He is currently a
member of the Board of Directors of Innovasive Devices, Inc. Mr. Nicholson is
founder, President and CEO of Cortek Spine, Inc., a company specializing in
innovative products for the spinal market. Mr. Nicholson was co-founder of Mitek
Surgical Products, Inc., a bone anchor manufacturer, and served as its President
from 1985-1990. Mr. Nicholson received his Bachelor of Science degree and Master
of Science degree from Massachusetts Institute of Technology.
JOHN A. WILLIAMS joined the Company in December 1993 and has served as a
member of the Board of Directors and as the Company's President and Chief
Executive Officer. Prior to that time, Mr. Williams served as President of Bruel
and Kjaer Medical, a medical device company, from 1989 to 1993. Mr. Williams was
Vice President of Sales and Marketing at Medtronic/AMI, a medical device
company, from 1988 to 1990 and Vice President of Sales and Marketing, Worldwide
at Merrimack Laboratories from 1983 to 1987.
THOMAS BARUCH has served as a member of the Board of Directors since
December 1991 and has been Chairman since June 1993. Mr. Baruch has been a
General Partner in Chemicals and Materials Enterprise
5
<PAGE>
Associates ("CMEA"), a venture capital firm, since 1989. Mr. Baruch is also a
General Partner in New Enterprise Associates ("NEA"), a venture capital firm.
Prior to joining CMEA, Mr. Baruch was the President and Chief Executive Officer
of Microwave Technology, Inc., from 1983 to 1988. Mr. Baruch serves on the
boards of several private companies.
BOARD MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors of the Company held six meetings during the fiscal
year ended December 31, 1997.
The Board of Directors has an Audit Committee and a Compensation Committee.
It does not have a nominating committee or a committee performing the functions
of a nominating committee. From time to time, the Board has created various ad
hoc committees for special purposes. No such committee is currently functioning.
The Audit Committee previously consisted of directors Thomas Baruch, Mir A.
Imran, and Annette Campbell-White. As of January 1997, the Audit Committee
consists of directors Thomas Baruch and James A. Saalfield. The Audit Committee
is responsible for reviewing the results and scope of the audit and other
services provided by the Company's independent auditors. The Audit Committee
held one meeting in the last fiscal year.
The Compensation Committee consists of directors Thomas Baruch and Thomas J.
Toy. The Compensation Committee reviews and makes recommendations to the Board
concerning salaries and incentive compensation for executive officers and
certain employees of the Company. The Compensation Committee held one meeting
during the last fiscal year. John A. Williams, President and Chief Executive
Officer of the Company, participates fully with all other committee members in
recommending salaries and incentive compensation to the Board of Directors,
except that he does not participate in committee proceedings relating to his
salary and compensation.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash for services they provide as
directors. From time to time, certain directors who are not employees of the
Company have received grants of options to purchase shares of the Company's
Common Stock. Under the 1996 Director Option Plan, each nonemployee director who
becomes a director of the Company after April 30, 1996 will be automatically
granted an option to purchase 15,000 shares of the Company's Common Stock on the
date on which such person first becomes a director. On the first business day of
each year starting with the year beginning January 1, 1997, each nonemployee
director will automatically be granted an option to purchase 5,000 shares of the
Company's Common Stock. The Company does not provide additional compensation for
committee participation or special assignments of the Board of Directors.
The Company has agreed to indemnify each director against certain claims and
expenses for which the director might be held liable in connection with past or
future service on the Board. In addition, the Company maintains an insurance
policy insuring its officers and directors against such liabilities.
VOTE REQUIRED
The two nominees receiving the highest number of affirmative votes of the
shares entitled to vote on this matter shall be elected as the Class II
directors.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
6
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent auditors,
to audit the financial statements of the Company for the fiscal year ending
December 31, 1998 and recommends that the stockholders vote FOR confirmation of
such selection. In the event of a negative vote on such ratification, the Board
of Directors will reconsider its selection. Representatives of Ernst & Young LLP
are expected to be present at the Annual Meeting with the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
7
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE. The following table sets forth certain
compensation paid by the Company to the Chief Executive Officer and the four
other most highly compensated executive officers of the Company for services
rendered during the Last Fiscal Year, as defined on p. 1 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ----------------
COMPENSATION AWARDS OF
FISCAL -------------------- OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (# OF SHARES)
- ---------------------------------------- ------ --------- -------- ----------------
<S> <C> <C> <C> <C>
John A. Williams ....................... 1997 172,750 30,000
President and Chief Executive Officer 1996 169,965 30,000
1995 155,000 30,000
E. Stuart Tuthill ...................... 1997 130,974 10,000
Vice President of Marketing and Sales 1996 106,643
1995 90,000
Dominic Marro .......................... 1997 102,457 15,000
Vice President of Research & 1996 99,619
Development 1995
Michael J. Tubridy ..................... 1997 112,962 10,400 8,000
Vice President of Finance & 1996 105,651 19,900
Administration and Chief Financial 1995 95,000 19,000
Officer
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR. There were no grants of stock options
made during the Last Fiscal Year to any of the Named Executive Officers.
FISCAL YEAR-END OPTION VALUES. The following table sets forth the number
and value of securities underlying unexercised options held by the Named
Executive Officers at December 31, 1997:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
1997 DECEMBER 31, 1997(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John A. Williams........................ 220,808 88,592 $441,616 $177,184
E. Stuart Tuthill....................... 34,417 21,583 $ 68,834 $ 43,166
Dominic Marro........................... 33,834 22,166 $ 67,668 $ 44,332
</TABLE>
- ------------------------
(1) Based on a fair market value of $2.00, which was the last reported sale
price of the Company's Common Stock on December 31, 1997.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1991 Incentive Stock Plan, has the authority to provide for accelerated
vesting of the shares of Common Stock subject to outstanding options held by the
Named Officers and any other officer in connection with certain changes
8
<PAGE>
in control of the Company or the subsequent termination of the officer's
employment following a change in control event.
None of the Named Executive Officers have employment agreements with the
Company, and their employment may be terminated at any time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
No member of the Compensation Committee has a relationship that would
constitute an interlocking relationship with executive officers or directors of
another entity.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
THE FOLLOWING IS PROVIDED TO STOCKHOLDERS BY THE MEMBERS OF THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS:
The Compensation Committee of the Board of Directors (the "Committee"),
comprising two outside directors, is responsible for the administration of the
Company's compensation programs. These programs include base salary for
executive officers and both annual and long-term incentive compensation
programs. The Company's compensation programs are designed to provide a
competitive level of total compensation and include incentive and equity
ownership opportunities linked to the Company's performance and stockholder
return.
COMPENSATION PHILOSOPHY
The design and implementation of the Company's executive compensation
programs are based on a series of guiding principles derived from the Company's
values, business strategy and management requirements. These principles may be
summarized as follows:
- Align the financial interests of the management team with the Company and
its stockholders;
- Attract, motivate and retain high-caliber individuals necessary to
increase total return to stockholders;
- Provide a total compensation program where a significant portion of pay is
linked to individual achievement and short- and long-term Company
performance; and
- Emphasize reward for performance at the individual, team and Company
levels.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code adopted under the Federal Revenue Reconciliation Act of
1993. Section 162(m) disallows a tax deduction for any publicly-held corporation
for individual compensation exceeding $1 million in any taxable year for any of
the named executive officers, unless compensation is performance based. Since
the targeted cash compensation of each of the named executive officers is well
below the $1 million threshold and the Committee believes that any options
granted under the Company's stock option plan will meet the requirement of being
performance based under the transition provisions provided in the regulations
under Section 162(m), the Committee believes that Section 162(m) will not reduce
the tax deduction available to the Company. The Company's policy is to qualify
to the extent reasonable its executive officers' compensation for deductibility
under applicable tax laws.
9
<PAGE>
COMPENSATION PROGRAM
The Company's executive compensation program has three major components, all
of which are intended to attract, retain and motivate executive officers
consistent with the principles set forth above. The Committee considers these
components of compensation individually as well as collectively in determining
total compensation for executive officers.
1. BASE SALARY. Each fiscal year the Committee reviews base salaries for
individual executive officers based upon (i) industry and peer group data, (ii)
responsibilities, scope and complexity of each position and (iii) performance
judgments as to each individual's past and expected future contributions. The
Committee reviews with the Chief Executive Officer and approves, with
appropriate modifications, an annual base salary for the Company's executive
officers other than the Chief Executive Officer. The Committee reviews and fixes
the base salary of the Chief Executive Officer based on similar competitive
compensation data and the Committee's assessment of his past performance and its
expectations as to his future contributions in leading the Company.
2. ANNUAL CASH (SHORT-TERM) INCENTIVES. Annual cash incentives are
established to provide a direct linkage between individual pay and annual
corporate performance. Target annual bonus awards are established for executive
officer and other key management positions based upon certain industry data.
Each officer's annual performance bonus is based on attainment of specific
corporate goals and objectives, which are determined at the beginning of the
Company's fiscal year. The Last Fiscal Year bonus plan was based on the
establishment of a variable bonus pool based upon achievement of specific
financial and corporate objectives. Each executive officer's allocation of the
bonus pool was based on the percentage of their salary to the aggregate salaries
of all participants.
3. EQUITY BASED INCENTIVE COMPENSATION. Long-term incentives for the
Company's employees are provided under the Company's stock option plans. Each
fiscal year, the Committee considers the desirability of granting to executive
officers long-term incentives in the form of stock options. These option grants
are intended to motivate the executive officers to manage the business to
improve long-term Company performance and align the financial interests of the
management team with the Company and its stockholders. The Committee established
the grants of stock options to executive officers (other than the Chief
Executive Officer) in the Last Fiscal Year, based upon a review with the Chief
Executive Officer of proposed individual awards, taking into account each
officer's scope of responsibility and specific assignments, strategic and
operational goals applicable to the officer, anticipated performance
requirements and contributions of the officer and competitive data for similar
positions. During the Last Fiscal Year, no option award of Common Stock was
granted to the Chief Executive Officer. All stock options granted to executive
officers in the Last Fiscal Year provide for vesting over a four-year period.
Respectfully submitted,
Thomas Baruch
Thomas J. Toy
THE FOREGOING COMPENSATION COMMITTEE REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL" OR TO BE "FILED" WITH THE SEC, NOR SHALL SUCH INFORMATION
BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE EXCHANGE ACT, EXCEPT TO THE
EXTENT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
the Company's Common Stock at December 31, 1997 since April 30, 1996 (the date
the Company first became subject to the reporting requirements of the Exchange
Act) to the cumulative total return over such period of (i) "Nasdaq Stock
Market--U.S." index, and (ii) the Hambrecht & Quist Healthcare-Excluding
Biotechnology index. The graph assumes the investment of $100 on April 30, 1,
1996 in the Company's Common Stock and each of such indices (from April 30,
1996) and reflects the change in the market price of the Company's Common Stock
relative to the noted indices at December 31, 1997 and not for any interim
period. The performance shown is not necessarily indicative of future price
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
4/96 12/96 12/97
<S> <C> <C> <C>
PHYSIOMETRIX, INC. 100 29 17
NASDAQ STOCK MARKET (U.S.) 100 109 133
H & Q HEALTHCARE-EXCLUDING BIOTECHNOLOGY 100 106 126
</TABLE>
THE INFORMATION CONTAINED IN THE STOCK PERFORMANCE GRAPH SHALL NOT BE DEEMED
TO BE "SOLICITING MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH
INFORMATION BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE
SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
11
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into an arrangement pursuant to which $84,000 was
loaned to John A. Williams as of December 31, 1996. The borrowings are due to be
repaid commencing in 1999. The loan accrues interest at the applicable federal
rate (6.4% at December 31, 1996.)
In December 1995, January 1996 and February 1996 the Company borrowed a
total of $689,400 from certain holders of its preferred stock. In addition to
the promissory notes evidencing the loans, the Company issued to the lenders on
a pro rata basis warrants to purchase an aggregate of 52,227 shares of Common
Stock. The following stockholders, who beneficially own more than 5% of the
Company's outstanding Common Stock, directors; or entities affiliated with
directors hold the warrants issued in this transaction: Chemicals and Materials
Enterprise Associates Limited, Technology Funding Venture Partners and
MedVenture Associates. The promissory notes had an interest rate of 10.25% per
annum which was paid in June 1996. The outstanding principal balance of these
notes was converted into 62,672 shares of Common Stock upon the completion of
the Company's initial public offering at a conversion price equal to $11.00 per
share. The exercise price of the warrants is $6.60.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares they
represent as the Board of Directors may recommend.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS, SCHEDULES AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO
INVESTOR RELATIONS, PHYSIOMETRIX, INC., FIVE BILLERICA PARK, 101 BILLERICA
AVENUE, NORTH BILLERICA, MASSACHUSETTS 01862.
THE BOARD OF DIRECTORS
Dated: April 23, 1998
12
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF PHYSIOMETRIX, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Physiometrix, Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders
and Proxy Statement and hereby appoints John A. Williams and Daniel W. Muehl,
or either of them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned to represent the
undersigned at the 1998 Annual Meeting of Stockholders of Physiometrix, Inc.
to be held on May 21, 1998 at 10:00 a.m., local time, at the Company's
principal executive offices located at Five Billerica Park, 101 Billerica
Avenue, North Billerica, Massachusetts 02881 and at any postponement or
adjournment thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present,
on the matters set forth on the reverse:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
SEE REVERSE
SIDE
<PAGE>
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
A /X/ Please mark your votes as in this example.
FOR WITHHELD
1. Election of / / / / Nominees: Thomas J. Toy
Class II James. A. Saalfield
directors
INSTRUCTION: To withhold authority to vote for an individual nominee, write
the nominee's name in the space provided below.
- ----------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to ratify the / / / / / /
selection of Ernst & Young
LLP as independent auditors
of the Company for the year
ending December 31, 1998.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF THE TWO NOMINATED CLASS II
DIRECTORS; (2) FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS, AND AS THE PROXY HOLDERS DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED
IN THE NAMES OF TWO OR MORE PERSONS, EACH STOCKHOLDER SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR
TITLES. IF SIGNER IS A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE
A DULY AUTHORIZED OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
SIGNATURE(S) DATE SIGNATURE(S) DATE
--------------- ------- ---------------- -------
Note: This Proxy should be marked, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both
stockholders should sign.
