1 SCHEDULE 14A
(RULE(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES
EXCHANGE ACT OFof the Securities Exchange Act of 1934 (AMENDMENT NO. )
Filed by the registrant [X]Registrant [ X ]
Filed by a partyParty other than the registrantRegistrant [ ]
Check the appropriate box:
[X][ ] Preliminary revised proxy statement.Proxy Statement
[ ] Confidential, for use of the Commission onlyOnly (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive Proxy Statement
[ ] Definitive proxy statement.
[ ] Definitive additional materials.Additional Materials
[ ] Soliciting material pursuant toMaterial Under Rule 14a-12
NEMATRON CORPORATION
- --------------------------------------------------------------------------------Nematron Corporation
(Name of Registrant as Specified in Itsits Charter)
- --------------------------------------------------------------------------------___________________________________________________________
(Name of Person(s) Filing Proxy Statement, ifIf Other Than the Registrant)
Payment of filing feeFiling Fee (check the appropriate box):
[X] No fee required.required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------________________________________________________________________
(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):
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- --------------------------------------------------------------------------------transaction
________________________________________________________________
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[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------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 formForm or scheduleSchedule and the date of its filing.
(1) Amount Previously Paid:
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2________________________________________________________________
NEMATRON CORPORATION
5840 INTERFACE DRIVE
ANN ARBOR, MICHIGANInterface Drive
Ann Arbor, Michigan 48103
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 2002
To Our Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Nematron
Corporation (the "Company") will be held on Tuesday, May 14, 2002 at the Company's main offices,10:00 a.m.,
local time, at 5840 Interface Drive, Ann Arbor, Michigan 48103 on Thursday, September 6, 2001
at 10:00 a.m. for the following
purposes:
1. To elect two directors of the Company;
2. To approve a proposal to amend the Articles of Incorporation to
provide for "blank check" preferred stock,
3. To approve a proposal to amend the Articles of Incorporation to
declassify the Board of Directors and reduce the terms of the
directors from three years to one year,
4. To approve the potential issuance of Common Stock upon conversion
of certain convertible notes recently issued pursuant to a
capital raising transaction, and
5. To vote upon such other matters 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 shareholdersThe Board of record atDirectors has fixed the close of business on August 1, 2001
areApril 8,
2002 as the record date for the determination of shareholders entitled to
notice of and to vote at the meetingAnnual Meeting and any adjournments or
postponements thereof. You are invitedA certified list of shareholders entitled to attend the Annual Meeting. Whether or not you expect
to attendvote at
the Annual Meeting please complete, datewill be available for examination by any shareholder
during the meeting at the corporate offices at 5840 Interface Drive, Ann
Arbor, Michigan 48103.
By Order of the Board of Directors,
David P. Gienapp, Corporate Secretary
5840 Interface Drive
Ann Arbor, Michigan
April 16, 2002
________________________________________________________________________________
The vote of every shareholder is important, and sign the enclosedyour cooperation in
promptly returning your marked, dated and signed proxy and return it promptly in the enclosed postage-paid envelope.will be appreciated.
The proxy is revocable and will not affect your right to vote in person if
you attend the Annual Meeting. By Order of the Board of Directors,
David P. Gienapp
Corporate Secretary
Ann Arbor, Michigan
August 3, 2001
3Your proxy will, however, help to assure a
quorum and to avoid added proxy solicitation costs.
________________________________________________________________________________
_____________________
PROXY STATEMENT
_________________
NEMATRON CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBERTo be held September 6, 2001
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of
Directors of Nematron Corporation, a Michigan corporation (the "Company"),
for use at the Annual Meeting of Shareholders of the Company to be held at
the Company's main offices, 5840 Interface Drive, Ann Arbor, Michigan 48103
on Thursday, September
6, 2001Tuesday, May 14, 2002 at 10:00 a.m. (the "Annual Meeting") or at any
adjournment thereof. This Proxy Statement and the accompanying form of
proxy will be first given or sent to shareholders on or about August 6, 2001.April 17,
2002.
Only holders of record of common stock of the Company (the "Common
Stock") at the close of business on August 1, 2001April 8, 2002 (the "Record Date") are
entitled to vote at the Annual Meeting or any adjournment thereof. On the
Record Date, 15,744,472 shares of Common Stock were issued and outstanding
and are entitled to vote at the Annual Meeting. Shareholders of record on
the Record Date are entitled to one vote for each share of Common Stock
held of record on any matter that may properly come before the Annual
Meeting. Shares cannot be voted at the Annual Meeting unless the holder is
present in person or represented by proxy. The presence, either in person
or by properly executed proxy, of the holders of a majority of the
outstanding shares of Common Stock on the Record Date is necessary to
constitute a quorum at the Annual Meeting.
Shares represented by a proxy in the accompanying form, unless
previously revoked, will be voted at the Annual Meeting in accordance with
the specifications made if the proxy, properly executed, is received by the
Company before the close of business on September 5, 2001.May 13, 2002. Shares represented by
a proxy received after that time will be voted if the proxy is received by
the Company in sufficient time to permit the necessary examination and
tabulation of the proxy before a vote is taken. IF NO SPECIFICATIONS ARE MADE, THE SHARES
REPRESENTED THEREBY WILL BE VOTEDIf no specifications are
made, the shares represented thereby will be voted FOR THE ELECTION OF THE NOMINEESthe election of the
nominees for director named in this Proxy Statement and FOR DIRECTOR
NAMED IN THIS PROXY STATEMENT AND FOR THE OTHER PROPOSALS LISTED IN THIS PROXY
STATEMENT.the other
proposals listed in this Proxy Statement. The Board of Directors does not
intend to present any other matters at the Annual Meeting. However, should
any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the accompanying form of proxy to vote
the proxy in accordance with their best judgment. Shareholders who execute
a proxy in the accompanying form may revoke the proxy at any time before it
is exercised by giving written notice to the Secretary of the Company
bearing a later date than the proxy, by submitting a later-dated proxy, or
by voting the shares represented by such proxy in person at the Annual
Meeting.
The cost of soliciting proxies will be borne by the Company. In
addition to the solicitation by mail, proxies may be solicited in person or
by telephone or facsimile by officers, directors and employees of the
Company. Such officers, directors and employees will not be additionally
compensated, but may be reimbursed for out-of-pocket expenses in connection
with such solicitation. The Company will reimburse brokerage houses,
custodians, nominees and fiduciaries for their expenses in mailing proxy
material to principals.
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MATTERS TO COME BEFORE THE ANNUAL MEETING
PROPOSAL 11- ELECTION OF DIRECTORS
The Company's Articles of Incorporation divide the directors into
three classes, the terms of which expire as set forth below. At each annual
meeting, the shareholders of the Company elect to three-year terms
directors to replace those directors whose terms expire at that annual
meeting. The term of office of each director elected at this year's Annual
Meeting will continue until the 20042005 annual meeting and until his successor
has been elected and qualified, or until his earlier resignation or
removal. The Board of Directors recommends a vote FOR each of the nominees
for election. Proxies will be voted FOR the election of the nominee unless
the specification is marked on the proxy indicating that authority to do so
is withheld. For purposes of determining the number of votes cast with
respect to the election of directors, only those votes cast "for" are
included. The election of directors requires a plurality of the votes cast.
The following sets forth information as to each nominee for election
at the Annual Meeting and each director continuing in office, including his
age, present principal occupation, other business experience during the
last five years, directorships in other publicly held companies and period
of service as a director of the Company. If, as a result of circumstances
not known or foreseen, any of the nominees shall be unavailable to serve as
a director, the proxies may be voted for any such substitute nominee as the
Board of Directors may select.
NOMINEES FOR ELECTION FOR A TERM EXPIRING INNominees for Directors With Terms Expiring in 2005
Hugo E. Braun, 44, became a director in March 1996. Since 1999, Mr.
Braun has been a partner with North Coast Technology Investors L.P., a $100
million venture capital fund. Before founding North Coast Technology
Investors L.P., Mr. Braun was a partner from 1989 to 1999 in Access Venture
Fund, L.P., a Michigan-based investment firm with over $30 million under
management. Prior to joining Access Venture Fund, L.P., Mr. Braun
co-managed California-based BankAmerica Venture Capital's $100 million
venture portfolio. Mr. Braun is currently a director of six private
companies.
James H. Wicker, 63, is a partner in the firm of Technology 2 Market,
a consulting firm concentrating on the factory automation marketplace.
Prior to forming the consulting firm, Mr. Wicker was employed from 1995 to
1999 as president of Ci Technologies, Inc. in North and South America. Mr.
Wicker continues to serve as a director of this company. Ci Technology
develops and markets factory automation software. From 1990 to 1994, Mr.
Wicker was employed by a manufacturer's representative and distribution
company for a line of factory automation and process control products. From
1984 to 1990, Mr. Wicker was Executive Vice President - Sales and Marketing
of Xycom, Inc., a manufacturer of VME cards and plant floor MMI and
industrial PC products. From 1962 to 1984, Mr. Wicker was employed by
Taylor Instruments (later ABB) in various technical support and sales
management positions, and finished his career at ABB as Vice President of
Sales.
Directors Whose Terms Expire in 2003
Ronald C. Causley, 59, was appointed to the Board of Directors in
February 2002 to fill a vacancy on the Board. Mr. Causley is the President
of A-OK Control Engineering, Inc., an industrial controls design and
application company and a wholly-owned subsidiary of Nematron. Mr. Causley
is the founder of A-OK Controls, which was incorporated in 1976, and he has
served as its President since inception.
Stephen E. Globus, 56, became a director in December 1998. He has been
Chairman of the Board of Globus Growth Group, Inc., a Manhattan - based
venture capital company specializing in providing startup and seed capital,
since 1984. He is also a director of Plasmaco, Inc., a flat computer screen
manufacturer owned by Matsushita (Panasonic). Mr. Globus is the founder of
several privately held biotechnology companies, including Kimeragen, Inc.,
NuGene Technologies, Inc., Thermaphore Sciences, Inc. and Genitope, Inc.
Directors Whose Terms Expire in 2004
Matthew S. Galvez, 45,46, became a director in August 1998 upon his
joining the Company as its Chief Operating Officer. On October 1, 1998, Mr.
Galvez was appointed President and Chief Executive Officer of the Company.
Mr. Galvez served as Chief Executive Officer of ISDA & Co., a privately
held apparel company, from June 1994 until June 1998. From 1990 until June
1994, Mr. Galvez was a director and Chief Financial Officer of
Manufacturers Products Corporation, a supplier of plastic products to the
automotive industry. In 1994 he became Chief Executive Officer of that
company as well. Prior to 1990, Mr. Galvez was Executive Vice President -
Corporate Operations and General Counsel to an industrial graphics
translation software developer and served as an officer of two acquisition
funds. Mr. Galvez serves as Chairman and a Director of Waltec Plastics Co.
in Midland, Ontario, Canada, and IMC Plastics in Los Angeles, California.
Joseph J. Fitzsimmons, 66,67, became a director in March 1997. From 1998
to 2001, Mr. Fitzsimmons iswas the President and Chief Executive Officer of
Nonprofit Enterprise at Work, a management support organization dedicated
to assisting non-profit organizations. Mr. Fitzsimmons is a retired
executive of Bell & Howell Company and University Microfilms International
("UMI"), a leading provider of technology services to libraries and other
organizations regarding acquiring, preserving and distributing literature
and a subsidiary of Bell & Howell. Mr. Fitzsimmons served as Corporate Vice
President of Bell & Howell and as Chairman or President and Chief Executive
Officer of UMI from March 1987 until he retired in June 1995.
DIRECTORS WHOSE TERMS EXPIRE IN 2003
James A. Nichols, 55, became a director in December 1998. From 1991 to
the present, Mr. Nichols has been president and sole owner of Nichols &
Associates, P.C., attorneys practicing in the area of international commercial
law. From 1981 to 1991, Mr. Nichols was a Senior Attorney in the Corporate
Transactions Department of Ford's Office of the General Counsel. From 1991 to
April 1999, Mr. Nichols was the Chairman of the Board of Surgical Instrument
Repair Service, Inc., a partnership with Allegiance Healthcare Corporation, a
public company that engages in the repairDirectors Meetings and management of surgical instruments
and equipment at health care providers in North America. From 1993 to 1998, Mr.
Nichols served as corporate secretary and a director of Liberty BIDCO Investment
Corporation, a Michigan-based mezzanine finance company. Mr. Nichols was
president and sole owner of Sterilization Management Group, LLC, a provider of
reusable sterile products to hospitals, from 1997 to 1998 when the company was
sold to Teleflex Corporation, a public company.
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Stephen E. Globus, 54, became a director in December 1998. He has been
Chairman of the Board of Globus Growth Group, Inc., a Manhattan - based venture
capital company specializing in providing startup and seed capital, since 1984.
He is also a director of Plasmaco, Inc., a flat computer screen manufacturer
owned by Matsushita (Panasonic). Mr. Globus is the founder of several privately
held biotechnology companies, including Kimeragen, Inc., NuGene Technologies,
Inc., Thermaphore Sciences, Inc. and Genitope, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
Hugo E. Braun, 43, became a director in March 1996. Since 1999, Mr.
Braun has been a partner with North Coast Technology Investors L.P., a $100
million venture capital fund. Before founding North Coast Technology Investors
L.P., Mr. Braun was a partner from 1989 to 1999 in Access Venture Fund, L.P., a
Michigan-based investment firm with over $30 million under management. Prior to
joining Access Venture Fund, L.P., Mr. Braun co-managed California-based
BankAmerica Venture Capital's $100 million venture portfolio. Mr. Braun is
currently a director of six private companies.
James H. Wicker, 61, is a partner in the firm of Technology 2 Market, a
consulting firm concentrating on the factory automation marketplace. Prior to
forming the consulting firm, Mr. Wicker was employed from 1995 to 1999 as
president of Ci Technologies, Inc. in North and South America. Mr. Wicker
continues to serve as a director of this company. Ci Technology develops and
markets factory automation software. From 1990 to 1994, Mr. Wicker was employed
by a manufacturer's representative and distribution company for a line of
factory automation and process control products. From 1984 to 1990, Mr. Wicker
was executive vice president - sales and marketing of Xycom, Inc., a
manufacturer of VME cards and plant floor MMI and industrial PC products. From
1962 to 1984, Mr. Wicker was employed by Taylor Instruments (later ABB) in
various technical support and sales management positions, and finished his
career at ABB as vice president of sales.
BOARD OF DIRECTORS MEETINGS AND COMMITTEESCommittees
The Board of Directors met eightnine times during 2000.2001. Each current
director who served during that period attended at least 75% of the total
number of meetings of the Board and committees of the Board on which he
served during that period. The Board has a standing Organization and
Compensation Committee, a Nominating Committee and a Audit Committee.
The Organization and Compensation Committee met twicedid not meet during 2000.2001.
The Organization and Compensation Committee administers the Company's Long
Term Incentive Plan and the 1993 Stock Option Plan, determines compensation
issues for officers, and determines compensation issues for non-employee
directors that do not involve the Company's equity securities. The current
members of the Organization and Compensation Committee are Messrs. NicholsBraun
(Chairman) and Globus.
The Nominating Committee met once during 2000.2001. The Nominating
Committee identifies and reviews potential members of the Board and
nominates persons to the Board to serve as Board members. The members of
the Nominating Committee are Mr. Globus (Chairman) and Mr. Fitzsimmons. The
procedures for nomination of directors by shareholders are described in the
Company's bylaws and are briefly described in this Proxy Statement under
"Shareholder Proposals for 2002 Annual Meeting."
The Audit Committee met sixfour times during 2000.2001. The members of the
Audit Committee are Messrs. Braun (Chairman), NicholsGlobus and Fitzsimmons. The
Audit Committee is organized and conducts its business pursuant to a
written charter adopted by the Board of Directors. A complete copy of the
Committee's charter iswas included as Appendix A to thisthe 2001 Proxy Statement.Statement
and interested parties may request a copy of the charter from the Corporate
Secretary or access it from the SEC's EDGAR system. The Audit Committee's
primary function is to assist the Board of Directors in fulfilling its
oversight responsibilities with respect to (i) the annual financial
information to be provided to shareholders and the Securities and Exchange
Commission; (ii) the system of internal controls that management has
established; and (iii) the internal and external audit process. In
addition, the Audit Committee provides an avenue for communication between
internal audit, the independent accountants, financial management and the
Board.
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REPORT OF THE AUDIT COMMITTEEReport of the Audit Committee
In accordance with its charter, the Audit Committee provides
assistance to the Board in fulfilling its responsibility to the
shareholders, potential shareholders and investment community relating to
corporate accounting, reporting practices and the quality and integrity of
the financial reports of the Company. Each Audit Committee member is
"independent," as defined in Rule 121(A) of the American Stock Exchange.
The Audit Committee received from the independent auditors and
reviewed a formal written statement describing all relationships between
the auditors and the Company that might bear on the auditors' independence
consistent with Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees," discussed with the auditors any
relationships that may impact their objectivity and independence and
satisfied itself as to the auditors' independence.
The Audit Committee discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
as amended, "Communication with Audit Committees," and, with and without
management present, discussed and reviewed the results of the independent
auditors' examination of the financial statements.
The Audit Committee also discussed the results of the
internal audit examinations.
The Audit Committee reviewed and discussed with management and the
independent auditors the audited financial statements of the Company as of
and for the year ended December 31, 2000.2001.
Based on the above-mentioned reviews and discussions with management
and the independent auditors, the Audit Committee recommended to the Board
of Directors that the Company's audited financial statements be included in
its Annual Report on Form 10-KSB as of and for the year ended December 31,
20002001 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE: HUGOHugo E. BRAUN
JAMES A. NICHOLS
JOSEPHBraun, Committee Chairman
Stephen E. Globus
Joseph J. FITZSIMMONS
EXECUTIVE OFFICERSFitzsimmons
Executive Officers
The executive officers of the Company as of the date of this Proxy
Statement are listed and described below. Executive officers of the Company
serve at the pleasure of the Board of Directors.
Name Offices Age
- ---- ------- ---
Matthew S. Galvez President and Chief Operating Officer 45Name Offices Age
---- ------- ---
Matthew S. Galvez President and Chief Operating Officer 46
David P. Gienapp Vice President - Finance and Administration,
Secretary and Treasurer 52
See "Nominees for Election for a Term Expiring"Directors Whose Terms Expire in 2004" for information concerning
Mr. Galvez.
Mr. Gienapp has been the Vice President - Finance and Administration
and Treasurer of the Company since joining the Company in September 1994
and has served as its Secretary since March 1996. Mr. Gienapp served as a
director of the Company from March 1995 until August 1998. Prior to joining
the Company, Mr. Gienapp spent over 20 years with Deloitte & Touche LLP, a
certified public accounting firm.
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PROPOSAL 2
APPROVAL OF AMENDMENT TO THE ARTICLES OF INCORPORATION
TO AUTHORIZE THE FUTURE ISSUANCE OF "BLANK CHECK"
PREFERRED STOCK
The Board of Directors has approved, and is recommending that the
shareholders approve at the Annual Meeting, an amendment to the Articles of
Incorporation authorizing the future issuance by the Board, without further
shareholder approval, of 30,000,000 shares of preferred stock, without par value
(the "Preferred Stock"), as described below (the "Preferred Stock Amendment").
The Company's Articles of Incorporation presently does not authorize any class
of equity securities other than the Common Stock. The Board of Directors
recommends a vote FOR Proposal 2 for the reasons described below.
PRINCIPAL REASONS FOR AUTHORIZATION
If the Preferred Stock Amendment is approved, the Board of Directors
would be entitled to authorize the issuance of up to 30,000,000 shares of
Preferred Stock. The Preferred Stock is considered "blank check preferred stock"
because the Board will be permitted to issue it at any time or from time to time
in one or more series, each with such designations, preferences, conversion
prices and rights, dividend rates, cumulative, relative, participating,
optional, voting, redemption or other rights, qualifications, limitations or
restrictions as may be determined from time to time in the Board's sole
discretion, without further action by the Company's shareholders except as may
otherwise be required by applicable law or stock exchange rule.
The Board of Directors believes that the authorization of the Preferred
Stock is in the best interests of the Company and its shareholders and believes
that it is advisable to have such shares available for use in connection with
possible future transactions, such as financings, strategic alliances,
acquisitions and other uses not presently determinable. The Board of Directors
believes that it is desirable that the Company have the flexibility to issue
shares of Preferred Stock without the delay and expense associated with further
shareholder action. Such delay and expense may make such a transaction
impracticable, may cause the Company to miss an opportunity or may require the
Company to structure a transaction in a less advantageous manner.
During the past four years, the Company has been unable to access the
public markets to raise cash. It has also had a difficult time attracting
institutional investors because of their reluctance to invest in Common Stock
that is unsupported in the capital markets. Approval of the proposal to create
the Preferred Stock would provide the Company with additional financing
alternatives that are necessary for the Company's long-term financial stability.
The Company intends to sell additional equity securities for cash
proceeds of at least $5 million during the third quarter of 2001. The cash
proceeds will be used to repay $1.2 million principal amount of its convertible
subordinated notes and accrued interest (unless the holders of the notes choose
to convert the principal and interest into equity securities as described
below), and to increase the Company's working capital. The Company intends to
attempt to issue shares of non-convertible, non-voting Preferred Stock in such
offering, rather than Common Stock, in an effort to minimize the additional
dilution of voting rights of existing common shareholders that would result from
an issuance of Common Stock. The number and terms of the shares to be issued
will be determined by negotiation with the potential purchasers in the proposed
offering. The Company has not yet begun those negotiations. Although the Company
does not expect the Preferred Stock to have dividend or conversion rights or the
right to vote except where a class vote is required by applicable law, there can
be no assurance that the final terms of the Preferred Stock to be sold in such
offering will be as currently intended by the Company, or that Preferred Stock
will be issued at all.
If the terms of the Preferred Stock as finally negotiated include the
right of holders to convert such shares into Common Stock, the financial
interests of the Common Stock holders would be diluted if the Preferred Stock is
subsequently converted into Common Stock at a time when the fair market value of
the
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Common Stock is higher than the conversion price. In addition, a conversion
of the Preferred Stock into Common Stock would also dilute the voting rights of
the Common Stock holders.
Whether Preferred Stock or Common Stock is issued in the proposed
private placement or otherwise, the Company does not intend to seek further
approval from shareholders of the terms and conditions of such equity
securities. The Company has no current plans or proposals to issue Preferred
Stock convertible into Common Stock, nor any other plans, proposals, or
arrangements to issue Preferred Stock.
The terms of the convertible subordinated notes discussed above provide
that if Preferred Stock is issued in the proposed offering, the unpaid principal
and interest due on the convertible subordinated notes may be converted by the
holders into the same series of Preferred Stock sold in the offering at the
price per share paid by the purchasers in such offering. These non-transferable
notes, which are secured by a second lien on the Company's assets and are
subordinated in right of payment to the Company's bank lender, bear interest at
10% and are due on August 31, 2001. The notes are prepayable in cash at any time
without penalty upon prior written notice as provided in the notes. The Company
has no legal right to force holders to accept an exchange of Preferred Stock,
Common Stock or any other securities to repay the notes.
If the Company does not complete an equity financing pursuant to which
it receives gross proceeds of at least $5 million on or before August 31, 2001,
then the principal and interest due on the notes become convertible by the
holders into Common Stock at an initial conversion price of $0.30 per share
beginning September 1, 2001. If at any time before the notes are repaid by the
Company or converted by their holders, the closing price for five consecutive
days on which the Common Stock is traded is less than $0.30, the price at which
the notes may be converted after August 31, 2001 into Common Stock will be
adjusted downward each such time to the lowest closing price during those five
days.
POSSIBLE DISADVANTAGES
It is not possible to determine the actual effect of the Preferred
Stock on the rights of the shareholders of the Company until the Board of
Directors determines the rights of the holders of a series of the Preferred
Stock. However, such effects might include (i) restrictions on the payments of
dividends to holders of the Common Stock; (ii) dilution of voting power to the
extent that the holders of shares of Preferred Stock are given voting rights;
(iii) dilution of the equity interests and voting power if the Preferred Stock
is convertible into Common Stock; and (iv) restrictions upon any distribution of
assets to the holders of the Common Stock upon liquidation or dissolution and
until the satisfaction of any liquidation preference granted to the holders of
Preferred Stock. An issuance of Preferred Stock could also have the effect of
diluting the earnings per share and book value per share of the Common Stock.
Shareholders will not have preemptive rights to subscribe for shares of
Preferred Stock.
The Board of Directors is required by Michigan law to make any
determination to issue shares of Preferred Stock based upon its judgment as
advisable and in the best interests of the shareholders and the Company. The
Board of Directors could issue shares of Preferred Stock (within the limits
imposed by applicable law) that make more difficult or discourage an attempt to
obtain control of the Company when, in the judgment of the Board of Directors,
such action would not be in the best interests of the shareholders and the
Company. For example, Preferred Stock could be sold to purchasers favorable to
the Board of Directors, or the Board of Directors could authorize holders of a
series of Preferred Stock to vote either separately as a class or with the
holders of the Common Stock on any merger or other extraordinary corporate
transaction involving the Company. The existence of the additional authorized
shares could have the effect of discouraging unsolicited takeover attempts.
THE AMENDMENT
The Preferred Stock Amendment would amend and restate Article III of
the Company's Articles of Incorporation in its entirety to read as follows:
1. The total authorized capital stock is:
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Common Stock: 30,000,000 shares
Preferred Stock: 30,000,000 shares
2. A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows:
A. Subject to the preferences accorded the holders of any other
class of stock pursuant to these Articles of Incorporation or
action of the Board of Directors taken with respect to such
preferences, holders of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors of the
corporation from time to time and, in the event of any
liquidation, dissolution or winding up of the corporation, the
holders of Common Stock will be entitled to receive pro rata all
of the remaining assets of the corporation available for
distribution. Each issued and outstanding share of Common Stock
is entitled to one vote.
B. The board of directors is empowered and authorized from time
to time, for such consideration as the board of directors may
determine, to issue Preferred Stock in one or more series, each
series to bear a distinctive designation and to have such
relative rights, powers, preferences, limitations, restrictions
and other terms as shall be stated in the resolution or
resolutions of the board of directors providing for the issuance
thereof. Such resolutions, when filed with the Michigan
Department of Commerce, shall constitute amendments to these
Articles of Incorporation. Except as may otherwise be provided in
these Articles of Incorporation or required by law, different
series of preferred stock shall not be construed to constitute
different classes of shares for the purpose of voting by classes.
C. No holder of any shares of any class of stock of this
corporation shall have any preemptive or preferential right to
subscribe for, or to purchase, any part of a new or additional
issue of stock or any other reacquired shares of stock of any
class whatsoever or of any securities convertible into stock of
any class whatsoever, whether now or hereafter authorized and
whether issued for cash or other consideration.
If Proposal 2 is approved, the Company intends to file an amendment to
its Articles of Incorporation with the Michigan Department of Commerce, upon
which filing the Preferred Stock Amendment will become effective.
VOTE REQUIRED
If a majority of the outstanding shares of Common Stock entitled to
vote at the Annual Meeting are voted for the amendment, the amendment will be
approved. Abstentions and broker nonvotes will not be counted and will have the
same effect as a vote against Proposal 2.
The Company's directors and executive officers (who currently hold
Common Stock representing approximately 27.7 % of the Common Stock) have
indicated that they intend to vote all shares of Common Stock over which they
exercise voting power as of the close of business on the Record Date in favor of
approval of Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 2.
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PROPOSAL 3
APPROVAL OF AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO DECLASSIFY THE BOARD OF DIRECTORS
The Board of Directors of the Company has approved, and is proposing
that shareholders approve, an amendment to the Company's Articles of
Incorporation to eliminate the classification of the Company's Board of
Directors and cause each director to stand for election annually (the
"Declassification Amendment"). The Board of Directors recommends a vote FOR
Proposal 3.
ISSUES FOR CONSIDERATION
Article VII of the Restated Articles of Incorporation currently
provides that the Board of Directors be divided into three classes as nearly
equal in number as possible. Directors of each class serve staggered three-year
terms, with the term of office of one class expiring each year, and can be
removed only for cause. Article VII may be amended only with the approval of
holders of 80% of the shares of Common Stock outstanding and entitled to vote on
the election of directors generally. If the Declassification Amendment is
approved, the classes and staggered three-year terms of directors would be
eliminated, the current term of office of each director will end at the 2002
annual meeting (which will be held after the end of the Company's fiscal year
ending December 31, 2001) and all directors will thereafter be elected for
one-year terms at each annual meeting of shareholders. The Declassification
Amendment will also eliminate the restriction on removal of directors and the
80% vote requirement, which are adjuncts to a classified board.
Proponents of classified boards of directors believe that a classified
board helps a board of directors maintain a greater continuity of experience
because the majority of directors at any given time will have at least one year
of experience with the business affairs and operations of a company. This
continuity may assist a company in long-term strategic planning. Additionally,
proponents argue that a classified board reduces the possibility of a sudden
change in majority control of a board of directors. In the event of a hostile
takeover attempt, a classified board may encourage a person seeking control of
the Company to initiate arm's length discussions with the Board, which is in a
position to negotiate a more favorable transaction for shareholders.
However, the Board of Directors believes that a classified board of
directors limits the ability of shareholders to elect directors and exercise
influence over the Company. The election of directors is the primary means for
shareholders to influence corporate governance policies and to hold management
accountable for its implementation of those policies. In keeping with its goal
of ensuring that the Company's corporate governance policies maximize management
accountability to shareholders, the Board of Directors has determined that
declassifying the Board, so that shareholders have the opportunity each year to
register their views on the performance of the Board and management, would
better serve the interests of the Company and its shareholders.
THE AMENDMENT
The Declassification Amendment would amend and restate Article VII of
the Company's Articles of Incorporation to read as follows:
A. The number of directors constituting the entire Board of
Directors shall not be less than three nor more than twelve, the exact
number of directors to be fixed from time to time only by a vote of a
majority of the Board of Directors.
B. During the intervals between annual meetings of
shareholders, any vacancy occurring in the Board of Directors caused by
resignation, removal, death or other incapacity, and any newly created
directorships resulting from an increase in the number of directorships
shall be filled by a majority vote of the directors then in office,
whether or not a quorum, or, if there are no directors in office, by
the shareholders. If the Board of Directors accepts the resignation of
any director or officer to take effect at a future time, it shall have
the power to elect a successor who shall take office when the
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resignation becomes effective. Each director chosen to fill a vacancy
or chosen to fill a newly created directorship shall take office until
the next election and until the election and qualification of his
successor, or until his earlier death, resignation or removal.
Section 506 of the Michigan Business Corporation Act, as amended,
requires that a corporation desiring to classify its board of directors must
expressly provide for such classification in either its articles of
incorporation or its bylaws. The deletion of the provisions of Article VII
relating to the classification of the Board is intended to remove any express
provision for the classification of the Board, thereby removing the
classification of the Board. The Company's bylaws do not expressly provide for
classification of the Board.
If Proposal 3 is approved, the Company intends to file an amendment to
its Articles of Incorporation with the Michigan Department of Commerce, upon
which filing the Declassification Amendment will become effective.
VOTE REQUIRED
The Articles of Incorporation provide that the affirmative vote of the
holders of at least 80% of the outstanding shares of Common Stock entitled to
vote at the Annual Meeting is required to approve Proposal 3. Consequently,
abstentions and broker non-votes will not be counted and will have the same
effect as a vote against Proposal 3.
The Company's directors and executive officers (who currently hold
Common Stock representing approximately 27.7 % of the Common Stock) have
indicated that they intend to vote all shares of Common Stock over which they
exercise voting power as of the close of business on the Record Date in favor of
approval of Proposal 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 3.
PROPOSAL 4
APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK
The Board of Directors has approved, and is proposing that shareholders
approve, the potential issuance of shares of Common Stock pursuant to a private
placement capital raising transaction (the "Capital Transaction"). The Company
entered into the Capital Transaction to alleviate a severe cash shortage and
permit the Company to continue operations.
Approval of Proposal 4 could result in the issuance of approximately
4,172,000 shares of Common Stock (subject to adjustment) upon the conversion of
convertible subordinated promissory notes issued in March 2001. The Board of
Directors recommends a vote FOR this Proposal 4.
BACKGROUND
The Company experienced a loss from operations in 2000 of $2.2 million
and incurred additional losses in the first quarter of 2001. Because of these
losses and the cash used to acquire A-OK Controls in June 2000, the Company's
financial position had deteriorated and it was in violation of several bank loan
covenants. Although the bank has indicated its willingness to forbear from
exercising its remedies and to continue to lend money to the Company up to the
limits of the borrowing base formula in the Company's loan agreement, management
projected that the limits imposed by the borrowing base formula would not be
sufficient to fund near-term operations unless the limits under the borrowing
base formula were relaxed. The bank was unwilling to adjust the formula, leaving
the Company unable to fund operations until it could return to profitability
and/or improve the dollar limits of its borrowing availability through increased
sales and resulting receivables. The Company's only alternative was to raise
additional debt or equity capital. In December 2000, the Company issued
additional shares of Common Stock in an offering to several of its directors and
their affiliates. After additional months of intensive effort and negotiation,
management identified several investors willing to invest in the Company and
issued $1.2 million principal amount of its
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convertible subordinated promissory notes (the "Notes") and warrants to purchase
a total of 800,000 shares of Common Stock to four accredited investors in a
private placement in March 2001.
Through frequent meetings and informal contacts with management during
the preceding months, the Board of Directors was kept fully informed of the
Company's declining financial position and management's strategic and capital
raising efforts. With this extensive background information in mind, the Board
met on March 20, 2001 to consider the issuance of the Notes and related
warrants. Following a detailed explanation of the current status of the
Company's financial position and lack of working capital, the negotiations with
potential investors and others who had been approached by management but who had
responded negatively to a proposed investment in the Company and the Company's
relationship with its bank lender and other creditors, the Board proceeded to
consider the terms of the proposed issuance of Notes and potential alternatives
available to the Company. The Board considered postponing the proposed
transaction to allow the Company more time to locate an investment transaction
with terms more favorable to the Company and its shareholders. However, in view
of, among other factors, (i) the Company's pending acquisition of Optimation,
which required $300,000 of cash at closing, (ii) the urgency with which the
Company needed to obtain capital in order to pay its employees and to pay its
vendors to induce them to continue shipments of components, (iii) the likely
loss of vendor support and customer base if the Company were to seek bankruptcy
protection and (iv) the likely depreciation in value of the Company's assets if
they were to be liquidated or if the Company were to cease operating for even a
short time, the Board determined that the proposed issuance of the Notes was the
best available alternative to maximize the Company's value to its shareholders.
The Board concluded, in light of these factors and others, that the issuance of
the Notes and related warrants was in the best interests of the Company and its
shareholders and unanimously approved (with Mr. Braun and Mr. Nichols
abstaining) such issuance, the terms of the Notes and warrants and related
matters.
$300,000 of the proceeds from the sale of the Notes was used to acquire
the stock of Optimation, Inc. on March 29, 2001 and the remaining $900,000 was
added to working capital and was used in part to pay down outstanding accounts
payable and for general operations. The Notes, which are secured by a second
lien on the Company's assets and are subordinated in right of payment to the
Company's bank lender, bear interest at 10% and are due on August 31, 2001. The
Notes will become immediately due and payable in full if this Proposal 4 is not
approved on or before August 31, 2001 or the date of the annual shareholders
meeting, whichever is later. The Notes are prepayable at any time without
penalty upon prior written notice as provided in the Notes. The holders of the
Notes are not permitted to transfer them without the Company's prior written
consent.
If the Company does not complete an equity financing pursuant to which
it receives gross proceeds of at least $5 million (the "Equity Financing
Transaction") on or before August 31, 2001 or until the date of the annual
shareholders meeting, whichever is later, the principal and interest due on the
Notes become convertible by the holders into Common Stock at an initial
conversion price of $0.30 per share. The conversion price will adjust downward
to the extent the closing price for five consecutive days on which the Common
Stock is traded is less than $0.30. Based upon the initial conversion price, the
Notes would be convertible into a total of 4,172,000 shares of Common Stock,
assuming the Company has not previously paid any of the principal or interest
due on the Notes. If the Equity Financing Transaction occurs on or before August
31, 2001, the unpaid principal and interest due on the Notes will be convertible
by the holders into the capital stock sold in the Equity Financing Transaction
at the price per share paid by the purchasers in such transaction.
AMERICAN STOCK EXCHANGE REQUIREMENTS
The Company's Common Stock is listed on the American Stock Exchange,
the rules of which (the "Amex Rules") require approval by the Company's
shareholders if the Company issues Common Stock (or securities convertible into
Common Stock) equal to 20% or more of the voting power outstanding prior to such
issuance. If the entire principal and interest under the Notes are converted
into Common Stock, the Company would issue a total of approximately 4,172,000
million shares of Common Stock, or approximately 26.5% of the shares of Common
Stock currently outstanding. Accordingly, a vote in favor of Proposal 4 will
allow the holders of the Notes to convert the Notes into Common Stock if the
Equity Financing Transaction involves Common Stock or if the Equity Financing
Transaction does not occur without violating Amex Rules. There can be no
assurance, however, that the Common Stock will continue
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to be listed on the American Stock Exchange and it is possible that the Company
may be delisted for failure to comply with other Amex Rules requiring, among
other things, a minimum market price, a minimum tangible net worth and a minimum
market capitalization.
The laws of the State of Michigan do not require approval of Proposal 4
by the Company's shareholders. In addition, under Michigan law, objecting
shareholders will have no appraisal, dissenters' or similar rights with respect
to any of the matters presented at the Annual Meeting, including Proposal 4, nor
will the Company voluntarily accord such rights to shareholders.
CERTAIN CONSIDERATIONS
The conversion price of the Notes is $0.30 per share (subject to
adjustment, as described above) and the closing price of the Common Stock
reported on the American Stock Exchange as of July 18, 2001 was $0.55. If the
Notes become convertible as a result of the Equity Financing Transaction not
occurring on or before August 31, 2001 and the Notes are thereafter converted
into Common Stock, such issuance is likely to have a dilutive effect on the
shareholders of the Company.
If Proposal 4 is not approved on or before August 31, 2001 or the date
of the annual shareholders meeting, whichever is later, the Notes will become
immediately due and payable in cash. The Company intends to repay the Notes with
the proceeds of the Equity Financing Transaction, which may not occur until
August 2001, if at all, and does not currently have available cash to repay the
Notes. The Company's bank lender, which is currently forbearing from exercising
its remedies against the Company, and the Note holders would be entitled to
exercise their remedies against the Company to collect the Notes, including
enforcing their security interest in the Company's assets. In addition, the
Company would not be able to acquire the working capital necessary to continue
its operations or to repay the bank lender the amount required to reduce its
line of credit borrowings. In such event, the Company is not likely to have
sufficient capital to continue operating on a long-term basis and could be
forced to curtail or completely cease operations. The Company could also
determine to sell the Company to a third party, liquidate its assets or seek
protection under federal bankruptcy laws.
James A. Nichols, a director of the Company, purchased $100,000
principal amount of the Notes and a partnership, in which Mr. Nichols is a
partner, purchased $50,000 principal amount of the Notes. North Coast Technology
Investors L.P., of which Hugo E. Braun, a director of the Company, is a partner,
purchased $750,000 principal amount of the Notes. If their Notes become
convertible at $0.30 per share due to the Company's failure to timely complete
the Equity Financing Transaction, the Notes held by Mr. Nichols, directly and
through such partnership, and by North Coast Technology Investors L. P. would be
convertible into approximately 521,000 shares and 2,607,000 shares,
respectively, at September 1, 2001, assuming none of the principal and interest
due on the Notes has been paid by the Company in cash.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the votes
cast at the Annual Meeting is required to approve Proposal 4. Consequently,
abstentions and broker non-votes will not be counted and will not affect the
vote on Proposal 4.
The Company's directors and executive officers (who currently hold
Common Stock representing approximately 27.7% of the Common Stock) have
indicated that they intend to vote all shares of Common Stock over which they
exercise voting power as of the close of business on the Record Date in favor of
approval of Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
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The following table sets forth information as of August 1, 2001April 10, 2002 with
respect to the beneficial ownership of Common Stock by each board nominee,
each other current director, each executive officer named in the Summary
Compensation Table under "Executive Compensation", all current directors
and executive officers as a group and all other persons known by the
Company to beneficially own more than 5% of its outstanding Common Stock
(each, a "5% Owner"). Except as noted below, each shareholder exercises
sole voting and investment power with respect to the shares beneficially
owned.
Name Number of Shares Percent of Class (11)
- ---- ---------------- ---------------------
Directors and Management:
James A. Nichols 2,047,822 (1) 13.0%
Hugo E. Braun 1,701,449 (2) 10.4%
Stephen E. Globus 1,283,735 (3) 8.2%
Matthew S. Galvez 860,100 (4) 5.2%
David P. Gienapp 126,859 (5) *
Joseph J. Fitzsimmons 25,108 (6) *
James H. Wicker 4,000 (7) *
All directors and executive
officers as group (7 persons) 6,049,073 (8) 34.7%
5% Owners:
J. Eric May, Trustee Under
Declaration of Trust 1,493,425 (9) 9.5%
Dennis A. Sierk 1,415,620 (10) 9.0%
Name Number of Shares Percent of Class (12)
- ---- ---------------- ---------------------
Directors and Management:
Hugo E. Braun 6,408,504 (1) 30.37%
Stephen E. Globus 1,285,235 (2) 8.16%
Matthew S. Galvez 860,100 (3) 5.18%
Ronald C. Causley 842,950 (4) 5.28%
David P. Gienapp 126,859 (5) *
Joseph J. Fitzsimmons 155,482 (6) *
James H. Wicker 5,500 (7) *
All directors and executive
officers as group (7 persons) 5,517,964 (8) 43.20%
5% Owners:
James A. Nichols 2,600,378 (9) 15.89%
J. Eric May, Trustee Under
Declaration of Trust 1,493,425 (10) 9.49%
Dennis A. Sierk 1,448,953 (11) 9.18%
________________
* Less than one percent.
(1) The shares shown in the table for Mr. Nichols include (i) 1,733,704 shares
owned outright, and (ii) 244,451 shares owned by an investment club of which Mr.
Nichols is a member, (iii) currently exercisable warrants to purchase 66,667
shares pursuant to the Notes described in Proposal 4 above, and (iv) options to
purchase 3,000 shares which are currently exercisable or are exercisable within
sixty days. Mr. Nichols' address is 3707 West Maple Road, Bloomfield Hills, MI
48301.
(2) The shares shown in the table for Mr. Braun include (i) 1,050,000 shares
owned by North Coast Technology Investors L.P. ("North Coast") and Access
Venture Fund L.P., of which Mr. Braun is a partner, (ii) options to
purchase 19,66421,164 shares which are currently exercisable or are exercisable
within sixty days, (iii) currently exercisable warrants to purchase 500,000
shares pursuant to the Notes describeda warrant issued to North Coast in Proposal 4 above, andMarch 2001, (iv)
currently exercisable warrants to purchase 131,785 shares pursuant to a
Term Loan and Warrant Purchase Agreement dated November 7, 1995 between the
Company and Onset BIDCO, Inc., of which Mr. Braun is an officer.officer, (v)
currently exercisable warrants to purchase 538,888 shares pursuant to a
warrant issued to North Coast from October 2001 to April 2002 in connection
with issuances of subordinated debt and warrants under a borrowing
arrangement between the Company and North Coast; and (vi) rights to convert
the principal amount of a $750,000 subordinated convertible note to
4,166,666 shares of Common Stock at the lower of $0.30 per share of the
lowest closing price per share during the period that the note is
outstanding ($0.18 at December 29, 2001). If such warrants, rights and
options were exercised, Mr. Braun would have sole voting rights and shared
investment power with respect to the underlying shares. TheMr. Braun's address for Mr. Braun and North Coast Technology Investors L.P.
is 206 South Fifth Avenue, Suite 550, Ann Arbor, MI 48104.
(3)(2) The shares shown in the table for Mr. Globus include (i) 255,062 shares
owned outright by Mr. Globus, (ii) 672,358 shares owned by companies and
partnerships over which Mr. Globus exercises voting and investment power,
(iii) 343,315 shares owned by certain relatives of Mr. Globus over which
Mr. Globus exercises beneficial ownership, and (iv) options to purchase
3,0004,500 shares which are currently exercisable or are exercisable within
sixty days. Mr. Globus' address is 44 West 24th Street, New York, NY 10010.
(4)(3) The shares shown in the table for Mr. Galvez include (i) 100 shares owned
outright, and (ii) options to purchase 860,000 shares which are currently
exercisable or are exercisable within sixty days. Mr. Galvez's address is
5840 Interface Drive, Ann Arbor, MI 48103.
(4) The shares shown in the table for Mr. Causley include (i) 604,186 shares
owned outright, (ii) options to purchase 20,000 shares which are currently
exercisable or are exercisable within sixty days, and (iii) warrants to
purchase a maximum of 198,864 issued in March 2002 in connection with the
Company's issuance of subordinated notes and warrants. Mr. Causley's
address is 4375 Giddings Road, Auburn Hills, MI 48326.
(5) The shares shown in the table for Mr. Gienapp include (i) 41,860 shares
owned outright and (ii) options to purchase 53,33384,999 shares which are
currently exercisable or are exercisable within sixty days. Mr. Gienapp's
address is 5840 Interface Drive, Ann Arbor, MI 48103.
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(6) The shares shown in the table for Mr. Fitzsimmons include (i) 10,00015,000 shares
of Common Stock owned outright, and (ii) options to purchase 15,108 shares
which are currently exercisable or are exercisable within sixty days.days, and
(iii) warrants to purchase a maximum of 119,3184 issued in March 2002 in
connection with the Company's issuance of subordinated notes and warrants.
Mr. Fitzsimmons' address is 5840 Interface Drive, Ann Arbor, MI 48103.
(7) The shares shown in the table for Mr. Wicker include (i) 1,000 shares of
Common Stock owned outright, and (ii) options to purchase 3,0003,4,500 shares
which are currently exercisable or are exercisable within sixty days. Mr.
Wicker's address is 7249 Hertfordshire Way, Victor, NY 14564.
(8) The shares shown in the table for all current directors and executive
officers as a group include the shares described in footnotes (1) through
(8)(7).
(9) The shares shown in the table for Mr. Nichols include (i) 1,733,704 shares
owned outright, (ii) 244,451 shares owned by an investment club of which
Mr. Nichols is a member, (iii) currently exercisable warrants to purchase
66,667 shares, and (vi) rights to convert the principal amount of a
$100,000 subordinated convertible note to 555,556 shares of Common Stock at
the lower of $0.30 per share of the lowest closing price per share during
the period that the note is outstanding ($0.18 at December 29, 2001). Mr.
Nichols' address is 3707 West Maple Road, Bloomfield Hills, MI 48301.
(10) The shares shown in the table for Mr. May, Trustee include 1,493,425 shares
owned by J. Eric May, Trustee Under Declaration of Trust. Mr. May's address
is c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, DE
19890.
(10)(11) The shares shown in the table for Mr. Sierk include (i) 1,145,620 shares
owned by Mr. Sierk and his wife, suchand (ii) options to purchase 33,333 shares
being acquired as a portion of the
purchase price of Optimation, Inc. by the Company on March 29, 2001.which are currently exercisable or are exercisable within sixty days. Mr.
Sierk's address is 2800 Bob Wallace Avenue, Suite L3, Huntsville, AL 35805.
(11)(12) For purposes of calculating the percentage of Common Stock beneficially
owned by each person, the shares issuable upon exercise of options and
warrants held by such person are considered outstanding and added to the
shares of Common Stock actually outstanding.
EXECUTIVE COMPENSATION
SUMMARYSummary
The following table sets forth information for the periods indicated
concerning the aggregate compensation paid by the Company and its
subsidiaries to the Company's President and Chief Executive Officer and to
its Executive Vice President - Finance and Administration, the Company's
only other executive officer whose salary and bonus exceeded $100,000 in
the year ended December 31, 20002001 (the "Named Executives").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- AWARDS ALL
SECURITIES OTHER
NAME AND PRINCIPAL FISCAL BONUS UNDERLYING OPTIONS COMPENSATION
POSITION PERIOD SALARY ($) ($) (#) ($) (A)
- -------------------------- --------------- --------------- ----------- ---------------------- --------------
Matthew S. Galvez, Y/E 12-31-00 $200,000 $-0- -0- $18,071
President and Chief --------------- --------------- ----------- ---------------------- --------------
Executive Officer (b) Y/E 12-31-99 $181,042 $63,092 200,000 $11,175
--------------- --------------- ----------- ---------------------- --------------
3 Months
12-31-98 $35,538 $-0- 660,000 $2,115
--------------- --------------- ----------- ---------------------- --------------
Y/E 9-30-98 $13,538 $-0- -0- $-0-
--------------- --------------- ----------- ---------------------- --------------
- -------------------------- --------------- --------------- ----------- ---------------------- --------------
David P. Gienapp, Y/E 12-31-00 $120,000 $-0- 25,000 $3,461
VP-Finance and --------------- --------------- ----------- ---------------------- --------------
Administration Y/E 12-31-99 $111,642 $8,477 70,000 $1,664
--------------- --------------- ----------- ---------------------- --------------
3 Months
12-31-98 $29,724 $-0- -0- $-0-
--------------- --------------- ----------- ---------------------- --------------
Y/E 9-30-98 $110,552 $-0- -0- $3,268
- -------------------------- --------------- --------------- ----------- ---------------------- --------------
(a)Long Term
Compensation
Annual Compensation Awards All Other
Name and Principal ------------------- ---------- Compensation
Position Year Salary ($) Bonus ($) Options (#) ($) (1)
-------- ---- -------------------- ----------- -------
Matthew S. Galvez, 2001 $200,000 $-0- -0- $20,445
President and Chief 2000 $200,000 $-0- -0- $18,071
Executive Officer 1999 $181,042 $63,092 200,000 $11,175
David P. Gienapp, 2001 $120,000 $-0- -0- $3,669
VP-Finance and 2000 $120,000 $-0- 25,000 $3,461
Administration, 1999 $111,642 $8,477 70,000 $1,664
(1) All Other Compensation forin the year ended December 31, 2000table above includes forthe following:
Housing Auto 401(k) Plan
Allowance Allowance Match
Mr. Galvez $7,715 of housing allowance,2001 $9,576 $4,800 of automobile
allowance and $5,566 of 401(k) Plan matching contributions, and for$6,069
2000 7,715 4,800 5,566
1999 8,460 -- 2,715
Mr. Gienapp 401(k) Plan matching contributions.
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(b) Mr. Galvez was appointed Chief Operating Officer on August 15, 1998 and
became President and Chief Executive Officer on October 1, 1998.
OPTIONS2001 -- -- 3,669
2000 -- -- 3,461
1999 -- -- 1,664
Options
The following table sets forth information concerning options granted
to the Named Executives in the year ended December 31, 2000.2001.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
NAME OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
GRANTED (#) FISCAL YEAR (A) ($/SHARE) DATE
- ------------------------ ---------------- ------------------- ------------------- ------------------------
Individual Grants
------------------------------
Number of Percent of Total
Securities Options Granted Exercise or
Underlying To Employees In Base Price Expiration
Name Options Granted In Fiscal Year ($/Share) Date
Matthew S. Galvez -0- -0-% --- ---
David P. Gienapp -0- -0-% --- ---
David P. Gienapp 25,000 (a) 5.53% $1.50 08-30-10
- ------------------------ ---------------- ------------------- ------------------- ------------------------
(a) These options, which were granted pursuant to the Company's Long-Term
Incentive Plan, become exercisable annually in increments of 33 1/3%
beginning on the day after the first anniversary of the date of the grant.
The ability to exercise these options may be accelerated in the event of a
change in control of the Company (as defined in the option plan).
The Named Executives did not exercise any options in the year ended
December 31, 2000.2001. The following table provides information with respect to
unexercised options held by the Named Executives as of December 31, 2000.2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION VALUES
---------------------------- ---------------------------------------- -----------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT YEAR-END (#) OPTIONS AT FY-END ($) (A)
---------------------------- ---------------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------- ------------------- -------------------- ---------------- ------------------
Number of securities Value of Unexercised
underlying unexercised In-the-Money Options
options at year-end (#) at Year End ($) (a)
-------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Matthew S. Galvez 860,000 -0- $-0- $-0-
David P. Gienapp 84,999 40,001 $-0- $-0-
---------------------------- ------------------- -------------------- ---------------- ------------------
David P. Gienapp 53,333 71,667 $-0- $-0-
---------------------------- ------------------- -------------------- ---------------- ------------------
(a) Value of unexercised in-the-money options is determined by
multiplying the number of shares subject to the option by the
difference between the closing price of the Common Stock on the
American Stock Exchange at the end of 20002001 and the option
exercise price.
EMPLOYMENT AGREEMENTEmployment Agreement
Mr. Galvez iswas a party to an employment agreement with the Company
that providesprovided for Mr. Galvez to serve as the President and Chief Executive
Officer of the Company for an annual base salary from October 1, 1998
through April 15, 1999 of $135,000, and from April 16, 1999 through
December 31, 2001 of $200,000. In addition to bonuses that may behave been
awarded from time to time by the Board, Mr. Galvez was also entitled to a
one-time performance bonus of $50,000 under the agreement at such time as
the Company shall have first achieved any three consecutive months of
positive net income before taxes. Other benefits to which he is currentlywas entitled
under the agreement includeincluded a term life insurance policy, an automobile
allowance and the right to participate in the Company's employee benefit
plans and stock compensation plans along with the Company's other officers
or employees. The agreement may behave been terminated at any time by the
Company if (i) Mr. Galvez commitscommitted fraud, embezzlesembezzled from the Company,
willfully disregardsdisregarded the business and affairs of the Company after notice
and time to cure or iswas convicted of any felony or any crime involving
moral turpitude or fraud and (ii) the holders of 80% of the outstanding
shares of Common Stock other than shares owned by Mr. Galvez are voted in favor
of terminating his
14
17 employment for cause. The agreement may also behave been
terminated by the Company without cause upon 60 days notice or if Mr.
Galvez becomesbecame disabled, may behave been terminated by Mr. Galvez upon 90 days
notice, and automatically terminatesterminated in the event of Mr. Galvez's death. If
employment iswas terminated without cause, Mr. Galvez iswas entitled to
continue receiving his base salary and coverage under Company benefit plans
for the longer of one year or the remaining term of the agreement and to
receive a bonus equal to the average of the last two quarterly performance
bonuses paid to him. Mr. Galvez has agreed not to compete with the Company for
two years after termination unless his employment iswas terminated without
cause or a change in control of the Company hashad occurred. COMPENSATION OF DIRECTORSThe Compensation
and Organization Committee is in the process of negotiating a new
employment agreement with Mr. Galvez.
Compensation of Directors
Each director who is not an officer or employee of the Company is
eligible to receive for his services as such a fee of $1,000 per meeting
attended and $500 for each committee meeting attended. Committee chairmen
receive an additional $250 for each committee meeting. The directors waived
the director fees for meetings held during quarterly periods during which
the Company reported a loss from operations, which, for 2000 and 2001, were
all quarters. Directors who are officers or employees of the Company
receive no additional compensation for their service as a director,
although they are reimbursed for their reasonable travel expenses when
meetings are held in a location other than the metropolitan area in which
they reside.
In addition, theThe Company has a 1993 Directors Stock Option Plan (the "Directors
Plan"). Pursuant to the provisions of the Directors Plan, each director is
automatically and without discretion awarded options to purchase 4,500
shares of Common Stock, with an exercise price equal to 110% of the fair
market value per share on the grant date, beginning on the date of the
Company's 2000 annual meeting of shareholders and every three years
thereafter. The options are exercisable annually in increments of 33 1/3%
beginning on the grant date, the first anniversary of the date of the grant
and the second anniversary of the grant. All options granted under the
Directors Plan expire on the fifth anniversary of the date the option was
granted. The ability to exercise these options may be accelerated in the
event of a change in control of the Company (as defined in the Directors
Plan). Options to purchase a total of 31,500No options were granted under the Directors Plan to the Company's then seven non-employee
directors on May 23, 2000.during 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As approved by shareholders at the 1999 annual meeting, in connection
with the Company's private placement of Common Stock, the Company sold
promissory notes convertible into Common Stock at $.25 per share as of December
1, 1998 and shares of Common Stock at $1.00 per share on April 7, 1999 to Steven
Globus and his affiliates, James Nichols and his affiliates and Michael Hershey
(for the account of J. Eric May, Trustee under Declaration of Trust) in the
following amounts.
Stephen E. James A. Michael L. Hershey /
Globus Nichols J. Eric May, Trustee
------ ------- --------------------
Principal amount of Notes $250,000 $350,000 $250,000
Accrued interest on Notes $6,089 $7,789 $5,563
Shares received upon conversion 1,024,356 1,431,155 1,022,253
Shares purchased -0- 375,000 -0-
Both the principal amount of the notes and accrued interest were
converted into Common Stock. Amounts reflected in the table for Mr. Globus
include transactions with Mr. Globus, his brother and a partnership controlled
by Mr. Globus and his brother. Amounts reflected in the table for Mr. Nichols
include the transactions with Mr. Nichols and with an investment club in which
he is a member. Amounts reflected in the table for Mr. Hershey are all for the
account of a trust controlled by J. Eric May, over which trust Mr. Hershey had,
at the date of sale of the convertible promissory notes, voting and investment
power. Messrs. Globus and Nichols are directors of the Company and Mr. Hershey
is a former director.
In December 2000, the Company completed a private placement of 760,000
shares of Common Stock at $1.25 per share to certain accredited investors,
including (i) North Coast Technology Investors 15
18
L.P., a limited partnership
of which Hugo E. Braun, a current director of the Company, is a partner,
(ii) James A. Nichols, a director of the Company until his resignation in
November 2001, and an investment club of which Mr. Nichols is a member, and
(iii) Globus Growth Group, a partnership in which Stephen E. Globus, a
current director of the Company, is a partner. The $1.25 price per share
exceeded the $0.65 fair market valueclosing price of the Company's Common Stock at the timedate
of the sale. The amount of Common Stock purchased and the total purchase
price are as follows:
Hugo E. James A. Stephen E.
Braun Nichols Globus
----- ------- ------
Hugo E Braun - James A. Stephen E. Globus
North Coast Nichols Globus Growth Group
----------- ------- -------------------
Shares purchased 550,000 140,000 50,000
Total purchase price $687,500 $175,000 $62,500
In March 2001, the Company completed a sale of $1.2 million principal
amount of convertible subordinated promissory notesConvertible Subordinated Promissory Notes and warrantsWarrants to
purchase a total of 800,000 shares of Common Stock to certain accredited
investors, including (i) North Coast Technology Investors L.P., a limited partnership of
which Hugo E. Braun, a director of the Company, is a partner, and (ii) James A. Nichols a director of the Company, and a partnership of
which Mr. Nichols is a partner. The Convertible Subordinated Promissory
Notes, which are secured by a second lien on the Company's assets and are
subordinated in right of payment to the Company's bank lender, bear
interest at 10% and are due on August 31, 2001. The Convertible
Subordinated Promissory Notes will become
immediatelyare currently due and payable, in full if Proposal 4 discussed above is not
approved on or before August 31, 2001 orbut are
subordinated to the date of the annual shareholders
meeting, whichever is later.Company's bank lender. The Convertible Subordinated
Promissory Notes are prepayable at any time without penalty upon prior
written notice as provided in the Notes. The holders of the Convertible
Subordinated Promissory Notes are not permitted to transfer them without
the Company's prior written consent. The holders of the Convertible
Subordinated Promissory Notes could have converted the principal and
accrued interest thereon into shares of a planned equity offering, if such
offering was completed by August 31, 2001. After that, the principal and
accrued interest thereon may be converted into shares of Common Stock. The
number of shares of Common Stock issuable upon exercise of the Conversion
Option is equal to (x) the sum of the principal and interest then due and
payable, divided by (y) the Common Stock Conversion Price. The Common Stock
Conversion Price was initially set at $0.30 and can be adjusted to the
lowest closing price of the Common Stock as quoted on the AMEX if the
closing price fell below $0.30 for five consecutive trading days. The
lowest closing price of the Common Stock s traded on the AMEX during the
period the Convertible Promissory Notes have been outstanding has been
$0.18. The amount of convertible subordinated promissory notesConvertible Subordinated Promissory Notes and warrants
purchasedWarrants
sold to related parties are as follows:
Hugo E. James A.
Braun Nichols
-----James A.
North Coast Nichols
----------- -------
Convertible Subordinated Promissory
Notes purchased $750,000 $150,000
Warrants purchased, at an initial exercise
price of $0.30, adjusted to the lowest
price of the underlying Common Stock after
issuance - $0.18 per share on December 29, 2001 500,000 100,000
Shares which may be obtained through exercise of
the Conversion Option - $0.18 per share 4,166,666 555,556
Interest accrued on Notes in 2001 $57,123 $7,260
In March 2002, the Company executed a Subordinated Promissory Note
with North Coast that documented the terms of an agreement that was
informally in place beginning in October 2001. The agreement provides for a
maximum of $1,000,000 to be available to the Company as funds are needed
and not available from the Company's senior bank lender or other sources.
North Coast is under no obligation to fund the Company's advance request.
The Subordinated Promissory Note, which is secured by a second lien on the
Company's assets and is subordinated in right of payment to the Company's
bank lender, bear interest at 10% and are due demand. Advances made under
the Subordinated Promissory Note are prepayable at any time without penalty
upon prior written notice as provided in the Subordinated Promissory Note.
North Coast is not permitted to transfer the Subordinated Promissory Note
without the Company's prior written consent. The amount of Subordinated
Promissory Note and warrants purchased are as follows:
North Coast
-----------
Subordinated Promissory Notes purchased through December 31, 2001 $300,000
Warrants purchased, at an exercise price of $0.18 per share 333,333
Interest accrued on Subordinated Promissory Notes in 2001 $5,370
Between January and April 2002, the Company received an additional
$185,000 advance under the Subordinated Promissory Note with North Coast.
In connection therewith, the Company issued 205,555 Warrants to purchase
Common Stock at $0.18 per share.
In March 2002, the Company completed a sale of $200,000 principal
amount of Subordinated Promissory Notes and Warrants to purchase a total of
318,812 shares of Common Stock at $0.22 per share (the "exercise price") to
Ronald C. Causley and Joseph J. Fitzsimmons, directors of the Company. The
Subordinated Promissory Notes, which are secured by a second lien on the
Company's assets and are subordinated in right of payment to the Company's
bank lender, bear interest at 8% and are due on October 31, 2002. The
Subordinated Promissory Notes may be prepaid at any time without penalty
upon prior written notice as provided in the Subordinated Promissory Notes.
The holders of the Subordinated Promissory Notes are not permitted to
transfer them without the Company's prior written consent. The Warrants
sold accrue in amount based upon the amount of time that the Subordinated
Promissory Notes are outstanding, beginning with 5% of the face amount of
the Subordinated Promissory Notes divided by the exercise price, and
increasing by 5% per month up to a maximum of 35% of the face amount of the
Subordinated Promissory Notes divided by the exercise price. The amount of
convertible Subordinated Promissory Notes and Warrants sold to related
parties are as follows:
Ronald C. Joseph J.
Causley Fitzsimmons
------- -----------
Subordinated Promissory Notes purchased $125,000 $75,000
Warrants purchased, at an exercise price
of $0.22 per share 198,863 119,318
The Company leases under ten-year operating leases its Auburn Hills
and Saginaw, Michigan system integration offices from Mr. Ronald C.
Causley, the president of A-OK Controls Engineering and a member of the
Board of Directors. Management believes that these leases, which were
executed prior to the Company's acquisition of A-OK Controls, represent
fair market lease rates. Lease expense on these related party leases
totaled approximately $400,000 in 2001 and approximately $200,000 in 2000
(the Company acquired A-OK Controls on June 30, 2000). The lease on the
Saginaw facility requires monthly lease payments of $3,150 through January
2009, and the lease on the Auburn Hills facility requires monthly lease
payments of $30,000 through May 2008. Minimum lease payments through the
expiration dates of the leases total $3,006,000.
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Act of 1934 requires all Company
executive officers and directors and persons who own more than ten percent
of a registered class of the Company's equity securities to file reports of
their ownership with the Securities and Exchange Commission. Executive
officers, directors and greater than ten percent shareholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a)
reports they file. Specific due dates for these reports have been
established and the Company is required to report any delinquent filings
and failures to file such reports.
Based solely on its review of the copies of such reports received by
it and written representations of its executive officers and incumbent
directors, the Company believes that during 2000,2001, its executive officers,
directors and greater than ten percent beneficial owners complied with all
applicable filing requirements under Section 16(a), except that Mr. Fitzsimmons,Braun,
a director, did not timely file onea Form 45 report disclosing one transaction.two
transactions.
INDEPENDENT PUBLIC ACCOUNTANTS
GENERALGeneral
Grant Thornton LLP, independent public accountants, has audited the
consolidated financial statements of the Company and its subsidiaries since
the year ended September 30, 1998. The Audit Committee has not yet
completed its evaluation of the 20002001 audit process. As a result, the
selection of the independent accountants to audit the financial statements
of the Company for 20012002 will be made at a later date. Representatives from
Grant Thornton LLP will be present at the Annual Meeting, will have an
opportunity to make a statement if they wish and will be available to
respond to appropriate questions.
AUDIT FEESAudit Fees
Audit fees billed to the Company by Grant Thornton LLP for the 20002001
audit and reviews of three quarterly reports on Form 10-QSB were $53,000.
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19
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
These fees$58,000.
Financial Information Systems Design and Implementation Fees
The Company did not engage Grant Thornton LLP in 2001 for 2000 were nil.
ALL OTHER FEESfinancial
information and design services.
All other feesOther Fees
The Company did not engage Grant Thornton LLP in 2001 for 2000 totaled $32,000, including $28,000any
non-audit related to
Grant Thornton's audit of the financial statements of A-OK Controls Engineering,
Inc. as of and for the year ended November 30, 1999, which were included in the
Company's Form 8-K field with the SEC, and $4,000 for sundry consulting services
during 2000.
SHAREHOLDERservices.
PROPOSALS BY SHAREHOLDERS FOR 20022003 ANNUAL MEETING
Shareholder proposals intended to be presented at the 20022003 annual
meeting of shareholders which are eligible for inclusion in the Company's
Proxy Statement for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company not
later than February 28, 20022003 if they are to be included in the Company's
Proxy Statement relating to that meeting. Such proposals should be
addressed to the Secretary at the Company's principal executive offices and
should satisfy the requirements applicable to shareholder proposals
contained in the Company's bylaws.
In addition to applicable Securities and Exchange Commission rules for
inclusion of shareholder proposals in the Company's Proxy Statement, the
Company's bylaws provide that, in order for a shareholder proposal or
nomination to be properly brought before the Annual Meeting, written notice
of such proposal or nomination must be received by the Company not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting. If the meeting date has been advanced by
more than 30 days or delayed by more than 60 days from such anniversary
date, then such proposal must be received by the Company not less than 60
days nor more than 90 days before the upcoming annual meeting or not later
than 10 days after the day of the public announcement of the date of such
meeting, in accordance with the procedures set forth in the Company's
Bylaws, in order to be brought properly before the Annual Meeting. The
Company also expects the persons named as proxies for the 2002 annual
meeting of shareholders to use their discretionary voting authority, to the
extent permitted by applicable law, with respect to any proposal presented
at that meeting by a shareholder who does not provide the Company with
written notice of such proposal during the period provided for in the
Company's Bylaws.
INFORMATION INCORPORATED BY REFERENCE
The information under the following items of the enclosed Form 10-KSB
for the year ended December 31, 20002001 is incorporated in this proxy
statement by reference:
- - Item 6 - Management's Discussion and Analysis or Plan of Operation
-Operations
- Item 7 - Financial Statements
By Orderorder of the Board of Directors,
/s/ David P. Gienapp
--------------------
David P. Gienapp, Secretary
August 3, 2001April 16, 2002
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THANK YOU FOR YOUR PROMPT ATTENTION TO THIS MATTER.
17
20
APPENDIX A
NEMATRON CORPORATION
AUDIT COMMITTEE CHARTER
THE AUDIT COMMITTEE ("THE COMMITTEE"), OF THE BOARD OF DIRECTORS ("THE BOARD")
OF NEMATRON CORPORATION ("THE COMPANY") WILL HAVE THE OVERSIGHT RESPONSIBILITY,
AUTHORITY AND SPECIFIC DUTIES AS DESCRIBED BELOW.
COMPOSITION
The Committee will be comprised of three or more directors as
determined by the Board. The members of the Committee will meet the
independence and experience requirements of the American Stock Exchange
(AMEX) or such other stock exchange on which the Company's equity
securities are traded from time to time. The members of the Committee
will be appointed annually at the organizational meeting of the full
Board held immediately following the annual shareholders' meeting and
will be listed in the next annual report to shareholders. One of the
members of the Committee will be appointed the Committee Chair by the
Board.
RESPONSIBILITY
THE COMMITTEE IS A PART OF THE BOARD. IT'S PRIMARY FUNCTION IS TO
ASSIST THE BOARD IN FULFILLING ITS OVERSIGHT RESPONSIBILITIES WITH
RESPECT TO (I) THE ANNUAL FINANCIAL INFORMATION TO BE PROVIDED TO
SHAREHOLDERS AND THE SECURITIES AND EXCHANGE COMMISSION (SEC); (II) THE
SYSTEM OF INTERNAL CONTROLS THAT MANAGEMENT HAS ESTABLISHED; AND (III)
THE INTERNAL AND EXTERNAL AUDIT PROCESS. IN ADDITION, THE COMMITTEE
PROVIDES AN AVENUE FOR COMMUNICATION BETWEEN INTERNAL AUDIT, THE
INDEPENDENT ACCOUNTANTS, FINANCIAL MANAGEMENT AND THE BOARD. THE
COMMITTEE SHOULD HAVE A CLEAR UNDERSTANDING WITH THE INDEPENDENT
ACCOUNTANTS THAT THEY MUST MAINTAIN AN OPEN AND TRANSPARENT
RELATIONSHIP WITH THE COMMITTEE, AND THAT THE ULTIMATE ACCOUNTABILITY
OF THE INDEPENDENT ACCOUNTANTS IS TO THE BOARD AND THE COMMITTEE. THE
COMMITTEE WILL MAKE REGULAR REPORTS TO THE BOARD CONCERNING ITS
ACTIVITIES.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits or to determine that the Company's financial statements
are complete and accurate and are in accordance with generally accepted
accounting principles. This is the responsibility of management and the
independent auditor. Nor is it the duty of the Audit Committee to
conduct investigations, to resolve disagreements, if any, between
management and the independent auditor or to assure compliance with
laws and regulations and the Company's business conduct guidelines.
AUTHORITY
Subject to the prior approval of the Board, the Committee is granted
the authority to investigate any matter or activity involving financial
accounting and financial reporting, as well as the internal controls of
the Company. In that regard, the Committee will have the authority to
approve the retention of external professionals to render advice and
counsel in such matters. All employees will be directed to cooperate
with respect thereto as requested by members of the Committee.
18
21
MEETINGS
The Committee is to meet at least four times annually and as many
additional times as the Committee deems necessary. Content of the
agenda for each meeting should be cleared by the Committee Chair. The
Committee is to meet in separate executive sessions with the chief
financial officer, independent accountants and internal audit at least
once each year and at other times when considered appropriate.
ATTENDANCE
Committee members will strive to be present at all meetings. As
necessary or desirable, the Committee Chair may request that members of
management and representatives of the independent accountants and
internal audit be present at Committee meetings.
SPECIFIC DUTIES
In carrying out its oversight responsibilities, the Committee will:
1. Review and reassess the adequacy of this charter annually and
recommend any proposed changes to the Board for approval. This
should be done in compliance with applicable AMEX Audit
Committee Requirements.
2. Review with the Company's management, the chief financial
officer and independent accountants the Company's accounting
and financial reporting controls. Obtain annually in writing
from the independent accountants their letter as to the
adequacy of such controls.
3. Review with the Company's management, the chief financial
officer and independent accountants significant accounting and
reporting principles, practices and procedures applied by the
Company in preparing its financial statements. Discuss with
the independent accountants their judgments about the quality,
not just the acceptability, of the Company's accounting
principles used in financial reporting.
4. Review the scope and general extent of the independent
accountants' annual audit. The Committee's review should
include an explanation from the independent accountants of the
factors considered by the accountants in determining the audit
scope, including the major risk factors. The independent
accountants should confirm to the Committee that no
limitations have been placed on the scope or nature of their
audit procedures. The Committee will review annually with
management the fee arrangement with the independent
accountants.
5. Inquire as to the independence of the independent accountants
and obtain from the independent accountants, at least
annually, a formal written statement delineating all
relationships between the independent accountants and the
Company as contemplated by Independence Standards Board
Standard No. 1, Independence Discussions with Audit
Committees.
6. Have a predetermined arrangement with the independent
accountants that they will advise the Committee through its
Chair and management of the Company of any matters identified
through procedures followed for interim quarterly financial
statements, and that such notification as required under
standards for communication with Audit Committees is to be
made prior to the related press release or, if not
practicable, prior to filing Forms
19
22
10-Q. Also receive a written confirmation provided by the
independent accountants at the end of each of the first three
quarters of the year that they have nothing to report to the
Committee, if that is the case, or the written enumeration of
required reporting issues.
7. At the completion of the annual audit, review with management,
the chief financial officer and the independent accountants
the following:
a) The annual financial statements and related footnotes
and financial information to be included in the
Company's annual report to shareholders and on Form
10-K.
b) Results of the audit of the financial statements and
the related report thereon and, if applicable, a
report on changes during the year in accounting
principles and their application.
c) Significant changes to the audit plan, if any, and
any serious disputes or difficulties with management
encountered during the audit. Inquire about the
cooperation received by the independent accountants
during their audit, including access to all requested
records, data and information. Inquire of the
independent accountants whether there have been any
disagreements with management which, if not
satisfactorily resolved, would have caused them to
issue a nonstandard report on the Company's financial
statements.
d) Other communications as required to be communicated
by the independent accountants by Statement of
Auditing Standards (SAS) 61 as amended by SAS 90
relating to the conduct of the audit. Further,
receive a written communication provided by the
independent accountants concerning their judgment
about the quality of the Company's accounting
principles, as outlined in SAS 61 as amended by SAS
90, and that they concur with management's
representation concerning audit adjustments.
If deemed appropriate after such review and discussion,
recommend to the Board that the financial statements be
included in the company's Annual Report on Form 10-K.
8. After preparation by management and review by the chief
financial officer and independent accountants, approve the
report required under SEC rules to be included in the
Company's annual proxy statement. The charter is to be
published as an appendix to the proxy statement every three
years.
9. Discuss with the independent accountants the quality of the
Company's financial and accounting personnel. Also, elicit the
comments of management regarding the responsiveness of the
independent accountants to the Company's needs.
10. Meet with management, the chief financial officer and the
independent accountants to discuss any relevant significant
recommendations that the independent accountants may have,
particularly those characterized as `material' or `serious'.
Typically, such recommendations will be presented by the
independent accountants in the form of a Letter of Comments
and Recommendations to the Committee. The Committee should
review responses of management to the Letter of Comments and
Recommendations from the independent accountants and receive
follow-up reports on action taken concerning the
aforementioned recommendations.
11. Recommend to the Board the selection, retention or termination
of the Company's independent accountants.
20
23
12. Review the appointment and replacement of the senior internal
audit executive.
13. Review with management, the chief financial officer and the
independent accountants the methods used to establish and
monitor the Company's policies with respect to unethical or
illegal activities by Company employees that my have a
material impact on the financial statements.
14. Generally as part of the review of the annual financial
statements, receive an oral report(s), at least annually, from
the Company's general counsel concerning legal and regulatory
matters that may have a material impact on the financial
statements.
15. As the Committee may deem appropriate, obtain, weigh and
consider expert advice as the Audit Committee related rules of
the AMEX, Statements on Auditing Standards and other
accounting, legal and regulatory provisions.
16. Provide periodic reports of the Committee's activities,
findings and recommendations to the Board.
17. Monitor SEC and AMEX regulations concerning Audit Committees
and update its charter, activities, composition or its
structure to comply with such regulations.
This concludes the charter.
21
24
PROXY
NEMATRON CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF NEMATRON CORPORATION
The undersigned hereby constitutes and appoints Matthew S. Galvez and
David P. Gienapp, and each of them, attorneys, agents and proxies with
power of substitution to vote as designated below all of the shares of
Common Stock of Nematron Corporation (the "Company") that the undersigned
is entitled to vote at the Annual Meeting of Shareholders of the Company,
to be held at Nematron Corporation, 5840 Interface Drive, Ann Arbor,
Michigan on September 6, 2001Tuesday, May 14, 2002 at 10:00 a.m., local time, and at any
adjournments thereof, upon the matters set forth below, all of which are
proposed by the Company.
This Proxy, when properly executed, will be voted in the manner
directed; IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTEDif no direction is made, this proxy will be voted FOR ALL NOMINEES FOR ELECTION AS DIRECTORS NAMED IN THE ACCOMPANYING PROXY
STATEMENT DATED AUGUST 3, 2001 AND FOR EACH OF THE PROPOSALS SET FORTH
IN SUCH PROXY STATEMENT.all
nominees for election as directors named in the accompanying Proxy
Statement dated April 16, 2002. In their discretion, the persons named
herein as proxies are also hereby authorized to vote, to the extent
permitted by applicable law, upon such other matters as may properly come
before the meeting, including the election of any person to the Board of
Directors where a nominee named in the Proxy Statement dated August 3,
2001April 16, 2002
is unable to serve or, for good cause, will not serve.
(TO BE SIGNED ON REVERSE SIDE)
22
25
PROPOSAL(To be signed on reverse side)
Proposal 1. ELECTION OF DIRECTORS:
Matthew S. Galvez
Joseph J. Fitzsimmons
| |Election of directors:
Hugo E. Braun
James H. Wicker
|_| FOR | ||_| WITHHOLD | ||_| FOR ALL EXCEPT
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE OF THE
INDIVIDUAL NOMINEES, MARK "FOR ALL EXCEPT" AND WRITE THE NAME OF EACH SUCH
NOMINEE ON THE LINE BELOW.)
----------------------------------------------------------------------
PROPOSAL 2. APPROVE AMENDMENT TO THE ARTICLES OF INCORPORATION TO
AUTHORIZE THE FUTURE ISSUANCE OF "BLANK CHECK" PREFERRED STOCK:
| | FOR | | AGAINST | | ABSTAIN
PROPOSAL 3. APPROVE AMENDMENT TO THE ARTICLES OF INCORPORATION TO
DECLASSIFY THE BOARD OF DIRECTORS AND REDUCE THE TERMS OF THE DIRECTORS
FROM THREE YEARS TO ONE YEAR:
| | FOR | | AGAINST | | ABSTAIN
PROPOSAL 4. APPROVE THE POTENTIAL ISSUANCE OF SHARES OF COMMON STOCK
UPON CONVERSION OF CONVERTIBLE NOTES:
| | FOR | | AGAINST | | ABSTAIN_____________________________________________________________________
The undersigned acknowledges receipt of the Notice of Annual Meeting
of Shareholders and the Proxy Statement dated August 3, 2001April 16, 2002 and the 20002001
Annual Report to Shareholders and ratifies all that the proxies or either
of them or their substitutes may lawfully do or cause to be done by virtue
hereof and revokes all former proxies.
Please sign this Proxy exactly as your name(s) appear(s) on this
Proxy. If the stock is registered in the names of two or more persons, each
must sign. Executors, administrators, trustees, guardians, attorneys and
corporate officers should add their titles.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY IN THE SPACE BELOW.
SIGNATURE(S) ____________________________________________________________________________ DATE _________________________
Title: _______________________________________
SIGNATURE(S) ____________________________________________________________________________ DATE _________________________
Title: _______________________________________
Exhibit 23
26
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
23.1 Consent of Independent Auditors
23CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 25, 2002, relating to the
consolidated balance sheet of Nematron Corporation as of December 31, 2001
and the consolidated statements of operations, stockholders' equity
and cash flows for the years ended December 31, 2000 and 2001 included in
the Annual Report on Form 10-KSB of Nematron Corporation. We hereby
consent to the incorporation by reference of said report in the Definitive
Proxy Statement of Nematron Corporation dated April 16, 2002 on
Schedule 14A.
/s/Grant Thornton LLP
----------------------
Southfield, Michigan
April 16, 2002