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Filed Pursuant to Rule 424(b)(3)
Registration File No. 333-33660
PROSPECTUS
PHYSIOMETRIX, INC.
2,080,340 SHARES OF COMMON STOCK
624,102 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF WARRANTS
We have prepared this prospectus to allow the selling stockholders that we
have identified in this prospectus to sell up to 2,080,340 shares of our common
stock, $.001 par value per share, which the selling stockholders purchased from
us in a private placement in February 2000. This prospectus also enables these
selling stockholders to sell up to 624,102 shares of our common stock issuable
upon exercise of warrants issued to the selling stockholders in the private
placement. In this prospectus, we sometimes refer to the shares of common stock
issued in the private placement and the shares issuable upon exercise of the
warrants collectively as the securities.
We will not receive any of the proceeds from the sale of the securities by
the selling stockholders.
Our common stock is traded on the Over-the-Counter Bulletin Board under the
symbol "PHYX." On May 31, 2000, the last reported sale price of our common stock
on the OTC Bulletin Board was $15.00.
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THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 2, 2000.
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ABOUT PHYSIOMETRIX, INC.
We design, develop, manufacture and market noninvasive, advanced medical
products incorporating proprietary materials, electronics technology and
software for use in neurological monitoring applications during surgical and
diagnostic procedures. We sell our products to hospitals, clinics and
physicians' offices domestically and internationally. Our current principal
product focus is our Patient State Analyzer, or PSA, an innovative system for
monitoring brain activity during anesthesia. In March 2000, we submitted a
510(k) clearance application for the PSA to the Food and Drug Administration. On
May 31, 2000, we entered into a strategic marketing and exclusive distribution
agreement with Baxter HealthCare Corporation under which Baxter will distribute
the PSA in the United States once we have received FDA clearance of our 510(k)
application.
Our initial products, which were commercially introduced in 1994, are our
E-Net headpiece and disposable HydroDot biosensors, which are based upon our
proprietary HydroGel technology, and its custom electronics. These products are
packaged as the HydroDot NeuroMonitoring System, which was developed and is sold
for brain monitoring applications, such as clinical electroencephalograph, or
EEG, procedures. The system is marketed and sold as a safer, lower cost
alternative to current EEG data collection technology. The system connects and
interfaces to the standard input on all conventional EEG instruments currently
in use worldwide, yet offers reduced patient setup time, more reliable data
readings, and enhanced patient comfort and safety.
PATIENT STATE ANALYZER. The Patient State Analyzer is being developed by us
to provide a simplified, user friendly analysis of patient brain activity during
surgical procedures involving general anesthesia. Currently, such monitoring is
used only in a small percentage of all such procedures, primarily during high
risk interventions such as cardiology and neurology surgeries. Traditional EEG
devices also require a neurologist to interpret their data output. As a result,
anesthesiologists are reluctant to use EEG monitoring during other surgical
procedures, despite the potential benefits offered by brain monitoring, such as
improved patient safety, shorter patient recovery times, and lower overall costs
per procedure. In addition, we are developing the final component of the Patient
State Analyzer, a proprietary software module which will process EEG data and
provide an easy to read signal to anesthesiologists regarding patient's brain
activity.
We believe that monitoring patients' brain activity during surgery with the
Patient State Analyzer will improve patient safety and lower costs per surgical
procedure by better controlling the amount of anesthesia administered during
surgeries. This will reduce the amount of postoperative recovery time required,
and eliminate the requirement of a neurologist or specialized technologists to
interpret EEG results during surgery. We believe that these benefits create the
opportunity for the Patient State Analyzer to become the standard of care during
surgical interventions using general anesthesia.
In May 2000, we entered into a strategic marketing and exclusive
distribution agreement with Baxter Healthcare Corporation under which Baxter
will distribute the PSA in the United States once we have received FDA clearance
of our 510(k) application. Physiometrix will be responsible for manufacturing,
and Baxter will purchase products from us for resale. The agreement provides for
specified minimum quarterly purchase commitments by Baxter during the first six
calendar quarters of the agreement's term. If these commitments are not met,
Baxter would lose its exclusivity under the agreement. The agreement is for a
five year term; however, after December 31, 2001, either party may terminate the
agreement upon specified notice. The agreement also contemplates a joint
steering committee, comprised of three Physiometrix and three Baxter
representatives. This committee will be responsible for establishment of
marketing plans and strategies, sales forecasts and other matters arising under
the agreement. Finally, although the agreement does not grant Baxter rights to
territories outside the United States, if Physiometrix desires to engage
international distributors, we must offer Baxter the opportunity to negotiate
for such distribution rights before granting them to a third party.
We will not be able to market the Patient State Analyzer in the United
States unless and until we receive clearance of our 510(k) application from the
FDA. We cannot assure you that we will be able to obtain this clearance on a
timely basis, if at all.
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This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933. Actual events or results
may differ materially from those projected in the forward-looking statements as
a result of the factors described herein under "Risk Factors" and in the
documents incorporated herein by reference. Such forward-looking statements
include, but are not limited to, statements concerning (i) business strategy;
(ii) products under development; (iii) other products; (iv) marketing and
distribution; (v) research and development; (vi) manufacturing;
(vii) competition; (viii) government regulation; (ix) third-party reimbursement;
(x) operating and capital requirements and (xi) clinical trials. Accordingly,
you should carefully review the "Risk Factors" section of this prospectus.
The table below summarizes the products currently offered by us, the
products we are developing, the markets served by these products and their
present development and/or commercialization status:
<TABLE>
<CAPTION>
DEVELOPMENT/COMMERCIALIZATION
PRODUCT DESCRIPTION STATUS
------- ----------------------------- -----------------------------
<S> <C> <C>
PATIENT STATE ANALYZER Intraoperative EEG monitoring Under development; 510(k)
system clearance application
submitted to FDA
HYDRODOT NEUROMONITORING
SYSTEM
E-Net EEG headpiece Commercial sales
Small E-Net EEG headpiece for children Commercial sales
OR E-Net EEG headpiece for operating Commercial sales
room Applications
HydroDot biosensors Disposable biosensors for use Commercial sales
with E-Nets
HYDROSPOT BIOSENSORS Disposable biosensors Commercial sales
attached to lead wires
</TABLE>
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION AND OPERATING RESULTS COULD BE SERIOUSLY HARMED. AS A
RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE
ALL OR PART OF THE VALUE OF YOUR INVESTMENT.
WE ARE DEPENDENT UPON THE PATIENT STATE ANALYZER SYSTEM, AND IF WE ARE
UNABLE TO INTRODUCE AND SUCCESSFULLY COMMERCIALIZE THIS PRODUCT, OUR
BUSINESS WILL BE SERIOUSLY HARMED
Our business is completely dependent upon the Patient State Analyzer, or
PSA, system. Commercial introduction of the PSA system will require completion
of development activities and receipt of marketing clearance from the U.S. Food
and Drug Administration, or FDA. If we are unable to complete the necessary
development work or receive FDA marketing clearance, we will be unable to
introduce the system commercially in the U.S. If we are able to introduce the
PSA system, we will need to build market acceptance for the system. Because we
will depend upon our PSA system for substantially all of our future revenue and
we have no other significant products, if we are unable to commence commercial
sales of or achieve widespread market acceptance for the PSA system, we will not
be able to sustain or grow our business. In this event, our business and
operating results would be seriously harmed and our stock price would likely
decline.
WE HAVE NOT RECEIVED FDA MARKETING CLEARANCE FOR THE PSA SYSTEM, AND WE
CANNOT COMMENCE U.S. COMMERCIAL SALES OF THE PSA SYSTEM UNLESS AND UNTIL WE
RECEIVE FDA CLEARANCE
Before we can market the PSA system in the United States we must obtain
clearance from the FDA. Although we have filed a 510(k) clearance application
for the PSA, if the FDA were to conclude that the PSA system does not meet the
requirements to obtain clearance of a premarket notification under
Section 510(k) of the Food, Drug and Cosmetic Act, then we would be required to
file a premarket approval application. The approval process for a premarket
approval application is lengthy, expensive and typically requires extensive
preclinical and clinical trial data. We may not obtain clearance of a 510(k)
notification or approval of a premarket approval application with respect to the
PSA system on a timely basis, if at all. If we fail to obtain timely clearance
or approval for our products, we will not be able to market and sell our
products, which will limit our ability to generate revenue. In addition, if we
obtain FDA clearance for the PSA system and elect to enhance or modify it, we
may also be required to obtain additional clearances from the FDA before we can
market enhanced or modified versions of this product. Although we believe that
the clinical and other information that we filed with the FDA is sufficient to
support FDA clearance of our 510(k) notification, we cannot assure that we will
be able to obtain such clearance in a timely manner or at all. Timeliness of FDA
clearance is of particular concern to us because a competing system for brain
state monitoring during anesthesia was commercially introduced in 1998. If we
fail to obtain such clearance in a timely manner, our business and operating
results would be seriously harmed and our stock price would likely decline.
The FDA also requires us to adhere to current Good Manufacturing Practices
regulations, which include production design controls, testing, quality control,
storage and documentation procedures. The FDA may at any time inspect our
facilities to determine whether adequate compliance has been achieved.
Compliance with current Good Manufacturing Practices regulations for medical
devices is difficult and costly. In addition, we may not continue to be
compliant as a result of future changes in, or interpretations of, regulations
by the FDA or other regulatory agencies. If we do not achieve continued
compliance, the FDA may withdraw marketing clearance or require product recall.
When any change or modification is made to a device or its intended use, the
manufacturer may be required to reassess compliance with current Good
Manufacturing Practices regulations, which may cause interruptions or delays in
the marketing and sale of our products.
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Sales of our products outside the United States are subject to foreign
regulatory requirements that vary from country to country. The time required to
obtain approvals from foreign countries may be longer or shorter than that
required for FDA approval, and requirements for foreign licensing may differ
from FDA requirements. The Federal, state and foreign laws and regulations
regarding the manufacture and sale of our products are subject to future
changes, as are administrative interpretations of regulatory agencies. If we
fail to comply with applicable federal, state or foreign laws or regulations, we
could be subject to enforcement actions, including product seizures, recalls,
withdrawal of clearances or approvals and civil and criminal penalties.
WE HAVE RECENTLY ENTERED INTO AN EXCLUSIVE STRATEGIC MARKETING AND
DISTRIBUTION AGREEMENT WITH BAXTER HEALTHCARE CORPORATION FOR MARKETING AND
SALE OF THE PSA SYSTEM, AND WILL BE DEPENDENT UPON THE EFFORTS OF BAXTER
FOR COMMERCIAL INTRODUCTION OF THE SYSTEM AND ONGOING DISTRIBUTION AND
SALES EFFORTS
In May 2000, we entered into an exclusive strategic marketing and
distribution agreement with Baxter, under which we have granted Baxter exclusive
distribution rights in the United States for the PSA system. Accordingly, we
will be dependent upon Baxter for commercial sales of the PSA should we receive
FDA clearance of our 510(k) application. We cannot assure you that Baxter's
marketing, sales and distribution efforts will be successful or that Baxter will
retain sufficient interest in the PSA system to continue to devote the necessary
resources to the sales and distribution effort. Although either party can
terminate the agreement upon specified notice after December 31, 2001, if we
were to terminate the agreement due to dissatisfaction with Baxter's
performance, or if Baxter were to terminate the agreement, we would, in all
likelihood, not have the sales and marketing capabilities that we would need to
support commercialization of the PSA system. We would either need to develop
these capabilities ourselves or enter into arrangements with other parties.
Accordingly, if the Baxter distribution relationship is not successful, our
ability to support commercial sales of the PSA system would be seriously
compromised. In this event, our business and operating results would be
seriously harmed and our stock price would likely decline.
WE WILL NOT BE ABLE TO ACHIEVE REVENUE GROWTH OR PROFITABILITY IF HOSPITALS
AND ANESTHESIA SERVICE PROVIDERS DO NOT BUY AND USE THE PSA SYSTEM IN
SUFFICIENT QUANTITIES
If we are able to obtain regulatory clearance for, and commercially
introduce, the PSA system, our revenue growth and prospects will depend on
customer acceptance and usage of the PSA system. Customers may determine that
the cost of the PSA system exceeds cost savings in drugs, personnel and
post-anesthesia care recovery resulting from use of the PSA system. In addition,
hospitals and anesthesia providers may not accept the PSA system as an accurate
means of assessing a patient's level of consciousness during surgery if patients
regain consciousness during surgery while being monitored with the PSA system or
if they do not consider the PSA system to be a clincially reliable measuring
system for other reasons. If extensive or frequent malfunctions occur, these
providers may also conclude that the PSA system is unreliable. If hospitals and
anesthesia providers do not accept the PSA system as cost-effective, accurate or
reliable, they will not buy and use the PSA system in sufficient quantities to
enable us to be profitable. In this event, our business, operating results and
long-term prospects would be seriously harmed. Our stock price would also likely
decline.
WE EXPECT TO CONTINUE TO INCUR LOSSES IN THE FUTURE, AND WE CANNOT ASSURE
YOU THAT WE WILL EVER BECOME PROFITABLE
We have incurred net losses in each year since inception. We expect to
increase significantly our research and development, sales and marketing and
general and administrative expenses in future periods. We will spend these
amounts before we receive any incremental revenue from these efforts. Therefore,
our losses will be greater than the losses we would incur if we developed our
business more slowly. In addition, we may find that these efforts are more
expensive than we currently anticipate, which would further
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increase our losses. Failure to become and remain profitable may depress the
market price of our common stock and our ability to raise capital and continue
our operations.
WE HAVE A LIMITED OPERATING HISTORY THAT YOU MAY USE TO ASSESS OUR
PROSPECTS, AND WE HAVE NO OPERATING EXPERIENCE OR HISTORY RELATED TO THE
PSA SYSTEM, OUR CURRENT PRINCIPAL PRODUCT UNDER DEVELOPMENT
We have a limited history of operations. Since our inception in
January 1990, we have been primarily engaged in research and development of
neurophysiological monitoring products. To date, we have sold only a small
number of units of our HydroDot NeuroMonitoring System and these sales have
generated only limited revenues. Furthermore, these products are not central to
our core business, which relates to the development and commercialization of the
PSA system. We have had no revenues from commercial sales of the PSA system.
Accordingly, our historical results of operations may be of limited utility in
evaluating our future prospects. In addition, we do not have experience in
manufacturing, marketing or selling our products in quantities necessary for
achieving profitability. Whether we can successfully manage the transition to a
larger scale commercial enterprise will depend upon the successful development
of our manufacturing capability, the success of our strategic marketing and
distribution alliance with Baxter, the development of the remainder of our
marketing and distribution network, obtaining U.S. FDA and foreign regulatory
approvals for the PSA system and other potential products and strengthening our
its financial and management systems, procedures and controls. Accordingly, due
to the significant change in our business associated with the PSA, our
historical financial information is of limited utility in evaluating our future
prospects, and we cannot assure that we will be able to achieve or sustain
revenue growth or profitability.
WE FACE INTENSE COMPETITION AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY,
WHICH COULD HARM THE MARKET FOR OUR PRODUCTS AND OUR OPERATING RESULTS
We expect to face substantial competition from larger medical device
companies that have greater financial, technical, marketing and other resources
than we do. As our resources in these areas are extremely limited, any current
or potential competitor of ours is likely to have greater resources in these
areas. In particular, Aspect Medical markets an anesthesia monitoring system
that competes with the PSA. Aspect has received FDA clearance for this system
and is marketing it in the U.S. We may not be able to compete effectively with
Aspect or other potential competitors. Other companies may develop anesthesia-
monitoring systems that perform better than the PSA system and/or sell for less.
Competition in the sale of anesthesia-monitoring systems could result in the
inability of the PSA to achieve market acceptance, price reductions, fewer
orders, reduced gross margins and inability to establish or erosion of market
share. Any of these events would harm our business and operating results and
cause our stock price to decline.
WE MAY NOT BE ABLE TO KEEP UP WITH NEW PRODUCTS OR ALTERNATIVE TECHNIQUES
DEVELOPED BY COMPETITORS, WHICH COULD IMPAIR OUR FUTURE GROWTH AND OUR
ABILITY TO COMPETE
The medical industry in which we market our products is characterized by
rapid product development and technological advances. Our current or planned
products are at risk of obsolescence from:
- new monitoring products, based on new or improved technologies,
- new products or technologies used on patients or in the operating room
during surgery in lieu of monitoring devices,
- electrical or mechanical interference from new or existing products or
technologies,
- alternative techniques for evaluating the effects of anesthesia,
- significant changes in the methods of delivering anesthesia, and
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- the development of new anesthetic agents.
We may not be able to improve our products or develop new products or
technologies quickly enough to maintain a competitive position in our markets
and continue to grow our business.
IF WE DO NOT SUCCESSFULLY DEVELOP AND INTRODUCE NEW OR ENHANCED PRODUCTS,WE
COULD LOSE REVENUE OPPORTUNITIES AND CUSTOMERS
As the market for anesthesia monitoring equipment matures, we need to
develop and introduce new products for anesthesia monitoring or other
applications. We face at least the following risks:
- we may not successfully adapt the PSA system to function properly in the
intensive care unit, for procedural sedation, when used with anesthetics
we have not tested or with patient populations we have not studied, such
as infants and young children, and
- our technology is complex, and we may not be able to develop it further
for applications outside anesthesia monitoring.
If we do not successfully adapt the PSA system for new products and
applications both within and outside the field of anesthesia monitoring, then we
could lose revenue opportunities and customers.
WE HAVE EXPERIENCED SIGNIFICANT OPERATING LOSSES TO DATE, AND OUR FUTURE
OPERATING RESULTS COULD FLUCTUATE SIGNIFICANTLY
We have experienced significant operating losses since inception and, as of
December 31, 1999 had an accumulated deficit of approximately $29.4 million. The
development and commercialization of the PSA system and other new products, if
any, will require substantial development, clinical, regulatory and other
expenditures. We expect our operating losses to continue for at least the next
couple of years as we continue to expend substantial resources to expand
marketing and sales activities, scale up manufacturing capabilities, continue
research and development and support regulatory and reimbursement approvals.
Results of operations may fluctuate significantly from quarter to quarter and
will depend upon numerous factors, including actions relating to regulatory and
reimbursement matters, including particularly timing of FDA clearance of the PSA
system, and whether the PSA system, if commercialized, is able to garner market
acceptance. In addition, competition, availability of third party reimbursement
and other factors may affect our future results of operations.
WE MAY NEED ADDITIONAL FUNDS, AND SUCH FUNDS MAY NOT BE AVAILABLE ON
COMMERCIALLY REASONABLE TERMS WHEN WE NEED THEM
We plan to continue to expend substantial funds for obtaining regulatory
approvals, expansion of sales and marketing activities and research and
development. We may be required to expend greater than anticipated funds if
unforeseen difficulties arise in the course of obtaining necessary regulatory
approvals or in other aspects of our business. In particular, our funding needs
will increase significantly if we cannot obtain satisfactory third party
arrangements for marketing, sale and distribution of the PSA system. Although we
believe that our existing cash reserves, including the proceeds from the sale of
the securities being registered for resale, will be sufficient to meet our
operating and capital requirements during the next 12 months, we may require
additional financing within this time frame. Our future liquidity and capital
requirements will depend upon numerous factors, including actions relating to
regulatory matters, and the extent to which the PSA system gains market
acceptance. Any additional financing, if required, may not be available on
satisfactory terms or at all. Future equity financings may result in dilution to
the holders of our common stock. Future debt financings may require us to pledge
assets and to comply with financial and operational covenants.
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OUR RELIANCE ON SOLE AND LIMITED SOURCE SUPPLIERS COULD HARM OUR ABILITY TO
MEET CUSTOMER REQUIREMENTS IN A TIMELY MANNER OR WITHIN BUDGET
Some of the components that are necessary for the assembly of our PSA system
are currently provided to us by separate sole suppliers or a limited group of
suppliers. We purchase components through purchase orders rather than long-term
supply agreements and generally do not maintain large volumes of inventory. We
have experienced shortages and delays in obtaining some of the components of our
PSA systems in the past, and we may experience similar delays or shortages in
the future. The disruption or termination of the supply of components could
cause a significant increase in the costs of these components, which could
affect our profitability. A disruption or termination in the supply of
components could also result in our inability to meet demand for our products,
which could lead to customer dissatisfaction and damage our reputation.
Furthermore, if we are required to change the manufacturer of a key component of
the PSA system, we may be required to verify that the new manufacturer maintains
facilities and procedures that comply with quality standards and with all
applicable regulations and guidelines. The delays associated with the
verification of a new manufacturer could delay our ability to manufacture PSA
systems in a timely manner or within budget.
OUR BUSINESS DEPENDS ON OUR INTELLECTUAL PROPERTY RIGHTS, AND MEASURES WE
TAKE TO PROTECT THOSE RIGHTS MAY NOT BE SUFFICIENT
Our ability to compete effectively will depend in part on its ability to
develop and maintain proprietary aspects of its technology. We cannot assure you
that our issued patents or any patents that may be issued as a result of our
U.S. or international patent applications will offer any degree of protection.
We cannot assure you that any patents that may be issued to us or any of our
patent applications will not be challenged, invalidated or circumvented in the
future. In addition, we cannot assure you that competitors, many of which have
substantial resources and have made substantial investments in competing
technologies, will not seek to apply for and obtain patents that will prevent,
limit or interfere with the our ability to make, use or sell its products either
in the U.S. or in international markets.
In addition to patents, we rely on trade secrets and proprietary know how,
which we seek to protect, in part, through appropriate confidentiality and
proprietary information agreements. These agreements generally provide that all
confidential information developed or made known to the individual by us during
the course of the individual's relationship with us, is to be kept confidential
and not disclosed to third parties, except in specific circumstances. The
agreements generally provide that all inventions conceived by the individual in
the course of rendering services to us are our exclusive property. However, some
of our agreements with consultants, who typically are employed on a full time
basis by academic institutions or hospitals, do not contain assignment of
invention provisions. We cannot assure you that proprietary information or
confidentiality agreements with employees, consultants and others will not be
breached, that we would have adequate remedies for any breach, or that our trade
secrets will not otherwise become known to or independently developed by
competitors.
WE COULD BECOME INVOLVED IN LITIGATION RELATING INTELLECTUAL PROPERTY
RIGHTS, AND ANY SUCH LITIGATION, EVEN IF RESOLVED FAVORABLY TO US, WILL
RESULT IN SIGNIFICANT COST AND DIVERSION OF MANAGEMENT'S TIME AND EFFORT
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. We cannot assure you that we will not in the future
become subject to patent infringement claims and litigation or interference
proceedings declared by the U.S. Patent and Trademark Office to determine the
priority of inventions. The defense and prosecution of intellectual property
suits, USPTO interference proceedings and related legal and administrative
proceedings are both costly and time consuming. Litigation may be necessary to
enforce patents issued to us, to
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protect trade secrets or know how owned by us or to determine the
enforceability, scope and validity of the proprietary rights of others.
Any litigation or interference proceedings will result in substantial
expense to us and significant diversion of effort by our technical and
management personnel. An adverse determination in litigation or interference
proceedings to which we may become a party could subject us to significant
liabilities to third parties or require us to seek licenses from third parties.
Costs associated with licensing or similar arrangements that may be involved in
statement of intellectual property disputes, including patent disputes, may be
substantial and could include ongoing royalties. Furthermore, there can be no
assurance that necessary licenses would be available to us on satisfactory terms
if at all. Adverse determinations in a judicial or administrative proceeding or
failure to obtain necessary licenses could prevent us from manufacturing,
marketing and selling our products, which would seriously harm our business and
operating results and would likely cause our stock price to decline.
OUR BUSINESS ENTAILS THE RISK OF PRODUCT LIABILITY CLAIMS, AND THESE CLAIMS
COULD HARM OUR FINANCIAL CONDITION AND OUR ABILITY TO MAINTAIN INSURANCE
COVERAGES
The manufacture and sale of our products expose us to product liability
claims and product recalls, including those which may arise from misuse or
malfunction of, or design flaws in, our products or use of our products with
components or systems not manufactured or sold by us. Product liability claims
or product recalls, regardless of their ultimate outcome, could require us to
spend significant time and money in litigation or to pay significant damages. We
currently maintain insurance; however, it might not cover the costs of any
product liability claims made against us. Furthermore, we may not be able to
obtain insurance in the future at satisfactory rates or in adequate amounts.
IF WE DO NOT ATTRACT AND RETAIN SKILLED PERSONNEL, WE WILL NOT BE ABLE TO
EXPAND OUR BUSINESS.
Our products are based on complex technology. Accordingly, we require
skilled personnel to develop, manufacture, sell and support our products. In
addition, as we move toward commercialization of our products, we will require
additional personnel skilled in the sales and marketing of medical device
products. Our future success will depend largely on our ability to continue to
hire, train, retain and motivate additional skilled personnel, particularly
sales representatives and clinical specialists who are responsible for customer
education and training and post-installation customer support. We continue to
experience difficulty in recruiting and retaining skilled personnel because the
pool of experienced persons is small and we compete for personnel with other
companies, many of which have greater resources than we do. Consequently, if we
are not able to attract and retain skilled personnel, we will not be able to
expand our business.
FAILURE OF USERS OF THE PSA SYSTEM TO OBTAIN ADEQUATE REIMBURSEMENT FROM
THIRD PARTY PAYORS COULD LIMIT MARKET OF THE SYSTEM, WHICH COULD PREVENT US
FROM GROWING OUR BUSINESS
Anesthesia providers are generally not reimbursed separately for patient
monitoring activities, including any such activities that would involve use of
the PSA system. Accordingly, potential users of the PSA system would have to
justify its use based on the clinical and cost benefits they believe use of the
system provides. For hospitals and outpatient surgical centers, when
reimbursement is based on charges or costs, patient monitoring with the PSA
system may reduce reimbursements for surgical procedures, because charges or
costs may decline as a result of monitoring with the PSA system. Failure by
hospitals and other users of the PSA system to obtain adequate reimbursement
from third-party payors, or any reduction in the reimbursement by third-party
payors to hospitals and other users as a result of using the PSA system could
limit market acceptance of the PSA system, which could prevent us from growing
our revenues and our business.
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OUR STOCK IS CURRENTLY TRADED ON THE OVER THE COUNTER BULLETIN BOARD, WHICH
MAY LIMIT THE AMOUNT OF LIQUIDITY AVAILABLE TO STOCKHOLDERS
Our common stock is currently traded on the Over the Counter Bulletin Board.
The Bulletin Board has limited liquidity when compared to more established stock
markets, such as the Nasdaq National Market and the Nasdaq Small-Cap Market. In
addition, Bulletin Board companies typically receive significantly less research
coverage and institutional investor attention that stocks that are traded on the
Nasdaq markets. Trading volumes of Bulletin Board stocks also tend to be lower.
Although we have applied for listing on the Nasdaq National Market, we cannot
assure that our application to relist our common stock on the Nasdaq National
Market will be approved. All of these factors may harm your ability to sell your
shares of our common stock, and may adversely affect the price you are able to
obtain for your shares.
OUR STOCK PRICE MAY FLUCTUATE, WHICH MAY CAUSE YOUR INVESTMENT IN OUR STOCK
TO SUFFER A DECLINE IN VALUE
The market price of our common stock has fluctuated significantly in the
past and may fluctuate significantly in the future in response to factors which
are beyond our control. In addition, the stock market in general has recently
experienced extreme price and volume fluctuations. In addition, the market
prices of securities of technology and medical device companies have been
extremely volatile, and have experienced fluctuations that often have been
unrelated or disproportionate to the operating performance of these companies.
These broad market fluctuations could result in extreme fluctuations in the
price of our common stock, which could cause a decline in the value of your
shares.
WE MAY INCUR SIGNIFICANT COSTS FROM SECURITIES CLASS LITIGATION DUE TO OUR
STOCK PRICE VOLATILITY
Our stock price may fluctuate for many reasons, including timing of
regulatory actions relating to the PSA system, variations in our quarterly
operating results and changes in market valuations of medical device companies.
Recently, when the market price of a stock has been volatile as our stock price
may be, holders of that stock have occasionally instituted securities class
action litigation against the company that issued the stock. If any of our
stockholders were to bring a lawsuit of this type against us, even if the
lawsuit is without merit, we could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and attention of our management.
ANTITAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW
COULD PREVENT OR DELAY TRANSACTIONS THAT STOCKHOLDERS MAY FAVOR
Provisions of our restated certificate of incorporation and amended and
restated by-laws may discourage, delay or prevent a merger or acquisition that
stockholders may consider favorable, including transactions in which you might
otherwise receive a premium for your shares. These provisions include:
- authorizing the issuance of "blank check" preferred stock without any need
for action by stockholders,
- requiring supermajority stockholder voting to effect certain amendments to
our restated certificate of incorporation and amended and restated
by-laws,
- eliminating the ability of stockholders to call special meetings of
stockholders,
- prohibiting stockholder action by written consent, and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
9
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the securities by the
selling stockholders.
SELLING STOCKHOLDERS
We are registering all 2,080,340 shares of our Common Stock issuable upon
exercise of Warrants covered by this prospectus on behalf of the selling
stockholders named in the table below. We have registered the shares to permit
the selling stockholders and their pledgees, donees, transferees or other
successors-in-interest that receive their shares from selling stockholders as a
gift, partnership distribution or another non-sale related transfer after the
date of this prospectus to resell the shares when they deem appropriate. We
refer to all of these possible sellers as selling stockholders in this
prospectus.
The table below sets forth the following information with respect to each
selling stockholder as of March 2, 2000: (i) name of the selling stockholder and
(ii) the number of shares of common stock the selling stockholder is offering.
Except as set forth in the table below, none of the selling stockholders has had
a material relationship with us within the last three years other than as a
result of the ownership of the shares or other securities of Physiometrix. We do
not know how long the selling stockholders will hold the shares before selling
them and we currently have no agreements, arrangements or understandings with
any of the selling stockholders regarding the sale of any of the shares. The
shares offered by this prospectus may be offered from time to time by the
selling stockholders named below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
ISSUABLE ON
NUMBER OF EXERCISE OF
NAME OF SELLING STOCKHOLDER SHARES OFFERED WARRANTS
--------------------------- -------------- ------------
<S> <C> <C>
Invesco Funds Group......................................... 370,370 111,111
Raptor Global Portfolio, Ltd................................ 368,890 110,667
Altar Rock Fund, L.P........................................ 1,480 444
Oracle Partners, L.P........................................ 174,900 52,470
Oracle Institutional Partners, L.P.......................... 48,400 14,520
Oracle Offshore, Ltd........................................ 8,900 2,670
Sam Oracle Fund, Inc........................................ 45,800 13,740
Oxford Bioscience Partners III, L.P......................... 243,320 72,996
Oxford Bioscience Partners (Bermuda) III, L.P............... 34,680 10,404
EGS Private Healthcare Partnership, L.P..................... 175,000 52,500
EGS Private Healthcare Counterpart, L.P..................... 25,000 7,500
Pequot Scout Fund, L.P...................................... 185,190 55,557
Narragansett I, L.P......................................... 40,150 12,045
Narragansett Offshore, Ltd.................................. 14,850 4,455
Kensington Partners, L.P.................................... 70,460 21,138
Kensington Partners, II..................................... 4,000 1,200
Bald Eagle Fund, Ltd........................................ 16,280 4,884
Peter B. Orthwein Family Trust.............................. 1,850 555
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
ISSUABLE ON
NUMBER OF EXERCISE OF
NAME OF SELLING STOCKHOLDER SHARES OFFERED WARRANTS
--------------------------- -------------- ------------
<S> <C> <C>
Essex Global Life Sciences Fund, LLP........................ 46,300 13,890
Knott Partners, L.P......................................... 23,800 7,140
Matterhorn Offshore Fund Ltd................................ 4,400 1,320
The Common Fund............................................. 10,500 3,150
Trinkaus & Burkhardt, Int'l................................. 1,300 390
Valor Capital Management.................................... 18,520 5,556
First Clearing Corporation, Custodian for Huntley G.
Davenport Special IRA..................................... 10,000 3,000
John Curran................................................. 10,000 3,000
Gregory G. Huston IRA....................................... 10,000 3,000
David B. Musket SEP IRA..................................... 10,000 3,000
Fechtor Detwiler & Co....................................... 10,000 3,000
Stuart Chase................................................ 5,000 1,500
Harry R. Lankenau........................................... 5,000 1,500
T.C. Tomkins................................................ 5,000 1,500
Dalal Salomon............................................... 2,500 750
Tom Horton.................................................. 2,500 750
Edward L. Horton............................................ 2,500 750
Kenneth Zaslav, M.D......................................... 2,500 750
David Musket................................................ 65,000 19,500
Barry Kurokawa.............................................. 6,000 1,800
</TABLE>
11
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may sell the common stock from time to time. The
selling stockholders will act independently of us in making decisions regarding
the timing, manner and size of each sale. The selling stockholders may make
these sales on one or more exchanges, in the over-the-counter market or
otherwise, at prices and terms that are then-prevailing or at prices related to
the then-current market price, or in privately negotiated transactions. The
selling stockholders may use one or more of the following methods to sell the
common stock:
- a block trade in which the selling stockholder's broker or dealer will
attempt to sell the shares as agent, but may position and resell all or a
portion of the block as a principal to facilitate the transaction;
- a broker or dealer may purchase the common stock as a principal and then
resell the common stock for its own account pursuant to this prospectus;
- an exchange distribution in accordance with the rules of the applicable
exchange; and
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
To the extent required, this prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution. If the plan of
distribution involves an arrangement with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, the supplement will disclose:
- the name of each selling stockholder and of the participating
broker-dealer(s);
- the number of shares involved;
- the price at which the shares were sold;
- the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
- that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and
- other facts material to the transaction.
In effecting sales, broker-dealers engaged by the selling stockholders may
arrange for other broker-dealers to participate in the resales.
The selling stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
these transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with selling stockholders. The
selling stockholders may also sell shares short and redeliver the shares to
close out such short positions. The selling stockholders may enter into options
or other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus. The selling stockholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon default, the broker-dealer may sell the pledged shares
pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling stockholders. Broker-dealers
or agents may also receive compensation from the purchasers of the shares for
whom they act as agents or to whom they sell as principal, or both. Compensation
as to a particular broker-dealer might be in excess of customary commissions and
will be in amounts to be negotiated in connection with the sale. Broker-dealers
or agents and any other participating broker-dealers or the selling stockholders
may be deemed to be "underwriters" within the meaning of
12
<PAGE>
section 2(11) of the Securities Act of 1933 in connection with sales of the
shares. Accordingly, any such commission, discount or concession received by
them and any profit on the resale of the shares purchased by them may be deemed
to be underwriting discounts or concessions under the Securities Act. Because
selling stockholders may be deemed "underwriters" within the meaning of
section 2(11) of the Securities Act, the selling stockholders will be subject to
the prospectus delivery requirements of the Securities Act.
Any shares covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus.
The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our common stock for a period of two
business days prior to the commencement of such distribution. In addition, each
selling stockholder will be subject to applicable provisions of the Exchange Act
and the associated rules and regulations under the Exchange Act, including
Regulation M, which provisions may limit the timing of purchases and sales of
shares of our common stock by the selling stockholders. We will make copies of
this prospectus available to the selling stockholders and have informed them of
the need to deliver copies of this prospectus to purchasers at or prior to the
time of any sale of the shares.
We will bear all costs, expense and fees in connection with the registration
of the shares. The selling stockholders will bear all commissions and discounts,
if any, attributable to the sale of the shares. The selling stockholders may
agree to indemnify any broker-dealer or agent that participates in transactions
involving sales of the shares against certain liabilities, including liabilities
arising under the Securities Act. We have agreed to indemnify the selling
stockholders against certain liabilities in connection with their offering of
the shares, including liabilities arising under the Securities Act.
13
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our amended and restated certificate of incorporation authorizes the
issuance of 50,000,000 shares of common stock, $0.001 par value, and authorizes
the issuance of 10,000,000 shares of undesignated preferred stock, $0.001 par
value. From time to time, our board of directors may establish the rights and
preferences of the preferred stock.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably the
dividends, if any, that are declared from time to time by the board of directors
out of funds legally available for that purpose. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of Physiometrix, the holders
of common stock are entitled to share in our assets remaining after the payment
of liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of preferred stock that we may designate in the future.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of this preferred stock. However, the effects
might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of Physiometrix without further
action by the stockholders.
At December 31, 1999, no shares of preferred stock were outstanding, and we
have no present plans to issue any shares of preferred stock.
WARRANTS
In February 2000, we issued warrants to purchase an aggregate of 624,102
shares of our common stock. The shares issuable upon exercise of these warrants
may be offered for resale with this prospectus. These warrants have an exercise
price of $14.04 per share and expire, if not previously exercised, on
February 29, 2001. The warrants may be exercised by paying the exercise price in
cash or, alternatively, on a cashless, net exercise basis. In addition,
Physiometrix may call the warrants for redemption, at a redemption price of
$0.001 per share subject to each warrant, if the closing price of Physiometrix
common stock equals or exceeds $28.08 per share for a period of five consecutive
trading days ending on the trading day that Physiometrix gives notice of
redemption.
14
<PAGE>
ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CHARTER AND BYLAWS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
- the acquisition of Physiometrix by means of a tender offer;
- the acquisition of Physiometrix by means of a proxy contest or otherwise;
or
- the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of
Physiometrix to negotiate first with our board. We believe that the benefits of
increased protection of its potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure Physiometrix
outweigh the disadvantages of discouraging these proposals because negotiation
of any proposals of this type could result in an improvement of their terms.
STOCKHOLDER MEETINGS. Under our bylaws, only the board of directors, the
chairman of the board or the president may call special meetings of
stockholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. Our bylaws establish advance notice procedures for stockholder
proposals and for the nomination of candidates for election as directors, other
than nominations made by or at the direction of the board of directors or a
committee of the board.
DELAWARE ANTITAKEOVER LAW. Physiometrix is subject to Section 203 of the
Delaware General Corporation Law, an antitakeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the date the person became an interested stockholder, unless the business
combination or the transaction in which the person became an interested
stockholder is approved in the manner specified in Section 203. Generally, a
business combination includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an interested stockholder is a person who, together with affiliates
and associates, owns or within three years prior to the determination of
interested stockholder status did own 15% or more of a corporation's voting
stock. The existence of this provision may have an antitakeover effect by
discouraging takeover attempts not approved in advance by the board of
directors, that might result in a premium over the market price for the shares
of common stock held by stockholders.
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
NO CUMULATIVE VOTING. Our certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors.
UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of Physiometrix. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of Physiometrix.
AMENDMENT OF CHARTER PROVISIONS. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust. The telephone number for our transfer agent and registrar is
( ) - .
15
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon for us
by Wilson Sonsini Goodrich & Rosati, Palo Alto, California.
EXPERTS
Our consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1997, 1998, and 1999 have been so incorporated in reliance on the report of
Ernst & Young LLP, Independent Auditors, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-732-0330
for further information on the public reference rooms.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to these documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below (and any amendments thereto) and any future
filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the selling stockholders sell all of their
common stock:
- Annual report on Form 10-K for the fiscal year ended December 31, 1999;
and
- Report on Form 10-Q for the fiscal quarter ended March 31, 2000.
To obtain a copy of these filings at no cost, you may write or telephone us
at the following address:
Corporate Secretary
Physiometrix, Inc.
5 Billerica Park
North Billerica, MA 01862
(978) 670-2422
16
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE
HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED HERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF
THIS DOCUMENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF
THIS DOCUMENT.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
RISK FACTORS........................... 3
USE OF PROCEEDS........................ 10
SELLING STOCKHOLDERS................... 10
PLAN OF DISTRIBUTION................... 12
LEGAL MATTERS.......................... 16
EXPERTS................................ 16
WHERE YOU CAN FIND MORE INFORMATION.... 16
</TABLE>
2,080,340 SHARES OF
COMMON STOCK
624,102 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE
OF WARRANTS
PHYSIOMETRIX, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JUNE 2, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
