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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 1999
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 June
1, 1999, 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 III directors of the Company to serve for a term of
three years expiring upon the 2002 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, 1999.
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 14, 1999 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
May 3, 1999
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.
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PHYSIOMETRIX, INC.
------------------------
PROXY STATEMENT FOR 1999
ANNUAL MEETING OF STOCKHOLDERS
JUNE 1, 1999
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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 Monday June 1, 1999 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 May 3, 1999 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 14, 1999, (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 5,727,366 shares of the Company's Common Stock, $.001 par value
(the "Common Stock"), were issued and outstanding and held of record by
approximately 84 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 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.
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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 III 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 2000 ANNUAL
MEETING
Proposals that are intended to be presented by stockholders of the Company
at the 2000 Annual Meeting must be received by the Company no later than
December 31, 1999 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 1998, all filing requirements applicable to
its officers, directors and ten percent stockholders were complied with.
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, 1999 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 5,727,366 shares of the Company's Common Stock were issued and outstanding as
of March 31, 1999.
<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 11.33%
c/o Thomas Baruch
New Enterprise Associates
250 Montgomery Street, 11th Floor
San Francisco, CA 94104
</TABLE>
2
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<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED (1) OWNED (2)
- --------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Technology Funding Venture Partners (4)................................................ 571,337 10.01%
c/o Thomas Toy
2000 Alameda de las Pulgas
San Mateo, CA 94003
John A. Williams (5)................................................................... 498,358 8.37%
Daniel Muehl (6)....................................................................... 23,461 *
Thomas Baruch (7)...................................................................... 674,380 11.79%
Thomas J. Toy (8)...................................................................... 598,421 10.44%
James E. Nicholson (9)................................................................. 24,167 *
All directors and executive officers as a group (5 persons)............................ 1,818,787 29.90%
</TABLE>
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* 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.
(5) Includes 261,700 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999.
(6) Consists of 23,461 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999.
(7) Consists of 612,824 shares and 15,304 shares issuable upon exercise of
warrants held by Chemical and Materials Enterprise Associates Limited
("CMEA") and 27,084 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999 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.
(8) 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 27,084 shares issuable upon
exercise of stock options exercisable within 60 days of March 31, 1999 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.
(9) Consists of 24,167 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999.
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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 II directors are
serving terms expiring at the Company's 2000 and 2001 Annual Meetings of
Stockholders, respectively.
The directors in Class III, whose terms expire at the Annual Meeting, are
John A. Williams and Thomas Baruch. Messrs. Williams and Baruch 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.
The names of the Class III 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 II directors, their ages as of the Record Date
and certain information about them are also set forth below.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR PRINCIPAL OCCUPATION SINCE
- ------------------------------------------------ ----- ------------------------------------------------ ---------
<S> <C> <C> <C>
NOMINEES FOR CLASS III DIRECTORS
John A. Williams................................ 51 President, Physiometrix, Inc. 1993
Thomas Baruch................................... 60 General Partner, New Enterprise Development 1991
Corporation and General Partner, Chemicals and
Materials Enterprise Associates Limited
CONTINUING CLASS I DIRECTOR
James E. Nicholson.............................. 60 Chief Technical Officer, Innovasive Devices, 1997
Inc.
CONTINUING CLASS II DIRECTOR
Thomas J. Toy................................... 44 Partner and Vice President Corporate Finance, 1993
Technology Funding, Inc.
</TABLE>
There are no family relationships among directors or executive officers of
the Company.
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 1990 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 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.
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
4
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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 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, 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.
BOARD MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors of the Company held 7 meetings during the fiscal year
ended December 31, 1998. No director or nominee attended fewer than 75% of such
meetings.
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 consists of directors Thomas Baruch and Thomas Toy. 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 III
directors.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
5
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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, 1999 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, 1999.
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 other executive officer 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 -----------------
FISCAL ------------------------ AWARDS OF OPTION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (# OF SHARES)
- ---------------------------------------------------------------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
1998 179,647 20,000 60,000
John A. Williams................................................ 1997 172,750 30,000 --
President and Chief Executive Officer 1996 169,965 30,000 --
Daniel Muehl (1)................................................ 1998 107,308 24,000 75,000
Vice President of Finance & Administration 1997 -- -- --
and Chief Financial Officer 1996 -- -- --
</TABLE>
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(1) Mr. Muehl began his employment as an officer of the Company on February 9,
1998.
OPTION GRANTS IN LAST FISCAL YEAR. On January 2, 1998, Mr. Williams was
granted a stock option to purchase 60,000 shares of the Company's Common Stock .
The exercise price of such option was $2.00 per share. The expiration date of
such option is January 2, 2008. On February 12, 1998, Mr. Muehl was granted a
stock option to purchase 75,000 shares of the Company's Common Stock. The
exercise price of such option was $1.875 per share. The expiration date of such
option is February 12, 2008. The grant to Mr. Muehl was later cancelled and
subsequently re-granted on December 14, 1998 pursuant to a stock option
re-pricing. The exercise price of the repriced option was $0.75 per share. The
length of the term of the original option which was unexpired at the time of the
repricing was 9 years and two months. The expiration date of the regranted
option is December 14, 2008. No other options held by executive officers of the
Company were repriced during 1998.
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, 1998:
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FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John A. Williams.......................................... 251,117 55,783 $ 141,379 $ 31,406
Daniel Muehl.............................................. 15,625 59,375 $ 0 $ 0
</TABLE>
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(1) Based on a fair market value of $0.563, which was the last reported sale
price of the Company's Common Stock on December 31, 1998.
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 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.
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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.
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
8
<PAGE>
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.
9
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STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
the Company's Common Stock at December 31, 1998 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, 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, 1998 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>
NASDAQ H&Q HEALTHCARE-
<S> <C> <C> <C>
Stock Market Excluding
Physiometrix,
Inc. (U.S.) Biotechnology
4/96 $100 $100 $100
12/96 $29 $108 $106
12/97 $17 $133 $126
12/98 $5 $187 $153
</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.
10
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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.)
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 30, 1999
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