<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
NEMATRON CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
NEMATRON CORPORATION
5840 INTERFACE DRIVE
ANN ARBOR, MICHIGAN 48103
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of
Nematron Corporation (the "Company") will be held at the Company's main offices,
5840 Interface Drive, Ann Arbor, Michigan 48103 on Tuesday, May 23, 2000 at
10:00 a.m. for the following purposes:
1. To elect three directors for a term of three years and one director
for a term of two years;
2. 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 shareholders of record at the close of business on April 10, 2000
are entitled to notice of and to vote at the meeting and any adjournments or
postponements thereof.
You are invited to attend the Annual Meeting. Whether or not you expect
to attend the Annual Meeting, please complete, date and sign the enclosed proxy
and return it promptly in the enclosed postage-paid envelope. 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
Secretary
Ann Arbor, Michigan
April 20, 2000
<PAGE> 3
NEMATRON CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 2000
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 Tuesday, May 23,
2000 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 April 20, 2000.
Only holders of record of Common Stock of the Company at the close of
business on April 10, 2000 (the "Record Date") are entitled to vote at the
meeting or any adjournment thereof. On the Record Date, 12,605,430 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 May 22, 2000. 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 VOTED FOR THE ELECTION OF NOMINEES FOR DIRECTOR
NAMED 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.
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 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.
<PAGE> 4
MATTERS TO COME BEFORE THE MEETING
PROPOSAL 1
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 2003
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
nominees unless the specification is marked on the proxy indicating that
authority to do so is withheld.
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 nominees as the Board of Directors may select.
NOMINEES FOR ELECTION FOR A TERM EXPIRING IN 2003
Joseph J. Fitzsimmons, 65, became a director in March 1997. Mr.
Fitzsimmons is 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.
James A. Nichols, 54, became a director in December 1998 at the time of
his investment in the Company's convertible notes. 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 repair 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
Stephen E. Globus, 53, became a director in December 1998 at the time
of his companies' investment in the Company's convertible notes. 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.
NOMINEE FOR ELECTION FOR A TERM EXPIRING IN 2002
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 10 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
2
<PAGE> 5
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 2001
Garnel F. Graber, 68, became a director in February 1993 at the time of
the Company's spin-off from Interface Systems, Inc. and served as Chairman of
the Board of Nematron until March 1996. Mr. Graber is a retired executive of,
and is the current Chairman of the Board of Directors of, Applied Dynamics
International, a computer firm specializing in high speed simulation. Mr. Graber
served as Chief Executive Officer of Applied Dynamics for more than five years
prior to his retirement in 1994. Mr. Graber also serves as Chairman of the Board
of Interface Systems, Inc.
Michael L. Hershey, 61, became a director in March 1995 at the time the
Company merged with Imagination Systems, Inc. Mr. Hershey had served as a member
of the Board of Directors and Secretary of Imagination Systems, Inc. Mr. Hershey
has been the President and Chairman of the Board of Directors of Landis
Associates, Inc., an investment management company, since its formation in 1986.
Mr. Hershey is also a member of the Board of Trustees of The Henlopen Fund, an
open-end management company registered under the Investment Company Act of 1940.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
Hugo E. Braun, 42, became a director in March 1996. Mr. Braun is a
partner with Access Ventures, an investment fund manager, where he has been
employed since 1989.
Matthew S. Galvez, 44, 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.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board met ten times during the fifteen-month period ended December
31, 1999. 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 Audit Committee,
Nominating Committee and Organization and Compensation Committee.
The Audit Committee met once during the fifteen-month period ended
December 31, 1999. The Audit Committee meets with the Company's independent
accountants to review the adequacy of the Company's internal control systems and
financial reporting procedures; reviews the general scope of the Company's
annual audit and the fees charged by the independent accountants; and reviews
and monitors the performance of non-audit services by the Company's auditors.
The members of the Audit Committee are Messrs. Braun (Chairman), Fitzsimmons,
and Hershey.
The Nominating Committee met once during the fifteen-month period ended
December 31, 1999. 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. Hershey (Chairman) and
Mr. Globus. The procedures for nomination of directors by shareholders are
described in
3
<PAGE> 6
the Company's bylaws and are briefly described in this Proxy Statement under
"Shareholder Proposals for 2001 Annual Meeting."
The Organization and Compensation Committee met twice during the
fifteen-month period ended December 31, 1999. The Organization and Compensation
Committee administers the Company's Restricted Stock 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. Nichols (Chairman), Globus, and Graber.
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.
<TABLE>
<CAPTION>
Name Offices Age
- ---- ------- ---
<S> <C> <C>
Matthew S. Galvez President and Chief Operating Officer 44
David P. Gienapp Vice President - Finance and Administration,
Secretary and Treasurer 51
</TABLE>
See "Directors Whose Terms Expire in 2002" for information concerning
Mr. Galvez. Mr. Galvez serves the Company pursuant to an employment contract,
which is described under "Executive Compensation". David P. 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 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of March 31, 2000 with
respect to the beneficial ownership of Common Stock by each nominee, each
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.
<TABLE>
<CAPTION>
Name Number of Shares Percent of Class(11)
- ---- ---------------- --------------------
<S> <C> <C>
James A. Nichols 1,823,155 (1) 14.5%
Michael L. Hershey 1,536,460 (2) 12.2%
J. Eric May, Trustee Under
Declaration of Trust 1,493,425 (3) 11.9%
Stephen E. Globus 1,240,735 (4) 9.8%
Matthew S. Galvez 860,100 (5) 6.4%
Hugo E. Braun 648,449 (6) 5.1%
David P. Gienapp 96,793 (7) *
Garnel F. Graber 63,966 (8) *
Joseph J. Fitzsimmons 19,108 (9) *
All directors and executive
officers as group (9 persons) 6,288,766 (10) 45.7%
</TABLE>
- ----------------------
* Less than one percent.
4
<PAGE> 7
(1) The shares shown in the table for Mr. Nichols include (i) 1,618,704
shares owned outright, and (ii) 204,451 shares owned by an investment club of
which Mr. Nichols is a member. Mr. Nichols' address is 3707 West Maple Road,
Bloomfield Hills, MI 48301.
(2) The shares shown in the table for Mr. Hershey include (i) the 1,493,425
shares owned by J. Eric May, Trustee Under Declaration of Trust (over which Mr.
Hershey may exercise voting and investment power), (ii) 25,371 shares owned
outright by Mr. Hershey; and (v) options to purchase 17,664 shares of Common
Stock under the Directors Option Plan which are currently exercisable or are
exercisable within sixty days. Mr. Hershey's address is c/o Landis Associates,
Inc., 400 West Ninth Street, Suite 100, Wilmington, DE 19801.
(3) The shares shown in the table for Mr. May include (i) 1,493,425 shares
owned by J. Eric May, Trustee Under Declaration of Trust, over which Mr. Hershey
may exercise voting and investment power. Mr. May's address is c/o Wilmington
Trust Company, 1100 North Market Street, Wilmington, DE 19890.
(4) The shares shown in the table for Mr. Globus include (i) 265,062 shares
owned outright by Mr. Globus; (ii) 622,358 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. Mr. Globus' address is 44 West 24th Street, New
York, NY 10010.
(5) The shares shown in the table for Mr. Galvez include (i) 100 shares
owned outright; and (ii) non-qualified 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.
(6) The shares shown in the table for Mr. Braun include (i) 500,000 shares
owned by Access Ventures, of which Mr. Braun is a partner; (ii) options to
purchase 16,664 shares under the Directors Stock Option Plan which are currently
exercisable or are exercisable within sixty days; and (iii) currently
exercisable warrants to purchase 131,785 shares of Common Stock 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. If such
warrants were exercised, Mr. Braun would have sole voting rights and shared
investment power with respect to the underlying shares. Mr. Braun's address is
206 South Fifth Avenue, Suite 550, Ann Arbor, MI 48104.
(7) The shares shown in the table for Mr. Gienapp include (i) 43,460 shares
owned outright; and (ii) options to purchase 53,333 shares under the 1993 Stock
Option Plan which are currently exercisable or are exercisable within sixty
days.
(8) The shares shown in the table for Mr. Graber include (i) 14,302 shares
owned outright; and (ii) options to purchase 49,664 shares of Common Stock under
the Directors Stock Option Plan and non-qualified option awards which are
currently exercisable or are exercisable within sixty days.
(9) The shares shown in the table for Mr. Fitzsimmons include (i) 4,000
shares of Common Stock owned outright; and (ii) options to purchase 16,664
shares of Common Stock under the Directors Stock Option Plan which are currently
exercisable or are exercisable within sixty days.
(10) The shares shown in the table for all current directors and executive
officers as a group include the shares described in footnotes (1) through (9).
(11) 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.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY
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 $100,000 in the year ended December 31,
1999 (the "Named Executives").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------
ANNUAL LONG-TERM
COMPENSATION(A) COMPENSATION
--------------------------------------------
AWARDS
----------------- ALL OTHER
SECURITIES COMPEN-
NAME AND PRINCIPAL FISCAL UNDERLYING SATION
POSITION PERIOD SALARY ($) BONUS ($) OPTIONS (#) ($) (B)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Matthew S. Galvez, Y/E 12-31-99 $181,042 $63,092 200,000 $11,175
-------------------------------------------------------------------------------
President and Chief 3 Months
Executive Officer (c) 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 12-31-99 $111,642 $8,477 70,000 $1,664
-------------------------------------------------------------------------------
VP-Finance and 3 Months
Administration 12-31-98 $29,724 $-0- -0- $-0-
-------------------------------------------------------------------------------
Y/E 9-30-98 $110,552 $-0- -0- $3,268
-------------------------------------------------------------------------------
Y/E 9-30-97 $103,005 $50,000 36,000 $5,746
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) The amounts reflected in the table do not include other compensation or
personal benefits which did not exceed in the aggregate 10% of the total of
annual salary and bonus for the Named Executive.
(b) All Other Compensation shown for Mr. Galvez includes: (a) for the three
months ended December 31, 1998, $2,115 of housing allowance; (b) for the
year ended December 31, 1999, $8,460 of housing allowance and $2,715 of
401(k) Plan matching contributions by the Company. All Other Compensation
shown for Mr. Gienapp for all periods represents 401(k) Plan matching
contributions by the Company.
(c) Mr. Galvez was appointed Chief Operating Officer on August 15, 1998 and
became President and Chief Executive Officer on October 1, 1998.
6
<PAGE> 9
OPTIONS
The following table sets forth information concerning options granted
to the Named Executives in the 15-month period ended December 31, 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FIFTEEN MONTH PERIOD
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE OR
NAME OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION
GRANTED (#) YEAR (A) ($/SHARE) DATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Matthew S. Galvez 200,000 (b) 10.1% $2.63 12-13-09
200,000 (b) 10.1% $0.75 10-13-08
460,000 (b) 23.3% $0.75 12-03-08
David P. Gienapp 70,000 (c) 3.5% $2.75 07-23-09
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Also includes options granted in transition period from October 1, 1998 to
December 31, 1998 resulting from the change in the Company's fiscal year
end from September 30 to December 31.
(b) These options are non-qualified stock options granted separate from the
Company's stock option plans by the Organization and Compensation
Committee. The options expiring in October 2008 and December 2009 became
exercisable immediately upon Mr. Galvez's execution of the relevant option
agreement and the option expiring in December 2008 became exercisable upon
the later of shareholder approval of the issuance of shares of Common Stock
pursuant to the payment or conversion of the convertible promissory notes
of the Company issued in December 1998 or Mr. Galvez's execution of the
relevant option agreement.
(c) These options, which were granted pursuant to the Company's 1993 Stock
Option Plan, become exercisable annually in increments of 33 1/3% beginning
on the day after the first anniversary of the date of the grant. The
exercisability of these options may be accelerated in the event of a change
in control of the Company (as defined in the option plan).
The Named Executives did not exercise any options in the fifteen-month
period ended December 31, 1999. The following table provides information with
respect to unexercised options held by the Named Executives as of December 31,
1999.
AGGREGATED OPTION EXERCISES IN LAST FIFTEEN MONTHS AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE (A)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Matthew S. Galvez 860,000 / 0 $1,344,000 / $-0-
- ------------------------------------------------------------------------------------------------------------
David P. Gienapp 53,333 / 46,667 $7,500 / $-0-
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Value was 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 on December 31, 1999 and the option exercise
price.
7
<PAGE> 10
EMPLOYMENT AGREEMENT
Mr. Galvez is a party to an employment agreement with the Company that
provides 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 be awarded from time to time by the Board, Mr.
Galvez is 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 currently entitled under the agreement include 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 be terminated at any time by the
Company if (i) Mr. Galvez commits fraud, embezzles from the Company, willfully
disregards the business and affairs of the Company after notice and time to cure
or is 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 employment for
cause. The agreement may also be terminated by the Company without cause upon 60
days notice or if Mr. Galvez becomes disabled, may be terminated by Mr. Galvez
upon 90 days notice, and automatically terminates in the event of Mr. Galvez's
death. If employment is terminated without cause, Mr. Galvez is 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 is terminated without cause or a change in
control of the Company has occurred.
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, $500 for each committee meeting attended, and an additional $250 for
each committee meeting attended by the chairman of the committee. Director fees
were waived for meetings held from April 1998 until July 22, 1999. 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. During 1999, the Board also approved payments of
$5,000 each to Messrs. Fitzsimmons and Graber as compensation for their special
efforts and contributions as directors from March 1998 through the hiring of Mr.
Galvez in August 1998. Messrs. Graber and Fitzsimmons did not participate in the
discussions relating to or approval of these special payments.
In addition, the Company has a 1993 Directors Stock Option Plan (the
"Directors Plan"). No grants were made under the Directors Plan in the
fifteen-month period ended December 31, 1999.
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 Mr.
Globus and his affiliates, Mr. Nichols and his affiliates and Mr. Hershey (for
the account of J. Eric May, Trustee under Declaration of Trust) in the following
amounts:
<TABLE>
<CAPTION>
Globus Nichols Hershey/May
------ ------- -----------
<S> <C> <C> <C>
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 375,000
</TABLE>
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
8
<PAGE> 11
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
may exercise voting and investment power.
SECTION 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 the fifteen-month period ended December 31, 1999,
all filing requirements under Section 16(a) applicable to its executive
officers, directors and greater than ten percent beneficial owners were complied
with.
ACCOUNTANTS
Grant Thornton LLP, independent public accountants, has audited the
financial statements of the Company and its consolidated subsidiaries for the
years ended September 30, 1998 and December 31, 1999 and for the three-month
period ended December 31, 1998. 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. Grant
Thornton LLP was appointed in May 1998 and also audited the financial statements
of the Company and its consolidated subsidiaries as of September 30, 1997 and
for the two fiscal years ended September 30, 1997.
On April 28, 1998, KPMG Peat Marwick LLP ("KPMG") informed the Audit
Committee of the Company that it had resigned as the Company's independent
auditors. The Company then began the process of selecting new auditors. The
Company placed no limitations on KPMG responding fully to inquiries of the
successor accountant. The reports of KPMG on the Company's financial statements
for fiscal 1996 and 1997 were withdrawn as of April 28, 1998. Prior to such
withdrawal, such reports contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principle.
In connection with its audits for fiscal 1996 and 1997 and through
April 28, 1998, (i) there were no disagreements between the Company and KPMG on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not properly
resolved to the satisfaction of KPMG would have caused them to make reference
thereto in their report on the financial statements for such fiscal years; and
(ii) there were no reportable events as defined in Regulation S-K Item
304(a)(1)(v), except as follows: As announced on April 28, 1998, the Company
identified potential material adjustments to its financial statements for the
years ended September 30, 1996 and 1997 relating to one significant contract,
and, as a result of the potential adjustments, KPMG advised the Company that its
auditors' reports on the Company's consolidated financial statements as of
September 30, 1997 and 1996 and for each of the years in the two-year period
ended September 30, 1997 should no longer be relied upon. In KPMG's April 28,
1998 letter of resignation, it advised the Audit Committee of the Company that
it had concluded that it could no longer rely on management's representations,
and that it was unwilling to be associated with the financial statements
prepared by management.
9
<PAGE> 12
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2000 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 December 20,
2000 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 property 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 2001
Annual Meeting of Shareholders to use their discretionary voting authority 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.
By Order of the Board of Directors,
David P. Gienapp, Secretary
April 20, 2000
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.
10
<PAGE> 13
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 May 23, 2000 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 VOTED FOR ALL NOMINEES FOR
ELECTION AS DIRECTORS NAMED IN THE ACCOMPANYING PROXY STATEMENT DATED APRIL 20,
2000. In their discretion, the persons named herein as proxies are also hereby
authorized to vote 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 April 20, 2000 is unable to serve or,
for good cause, will not serve.
(TO BE SIGNED ON REVERSE SIDE)
<PAGE> 14
Election of Directors:
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
Joseph J. Fitzsimmons
Stephen E. Globus
James A. Nichols
James H. Wicker
(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.)
________________________________________________________________
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the Proxy Statement dated April 20, 2000 and the 1999 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 _________
SIGNATURE(S) ____________________________________________________ DATE _________
