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:

[X] Preliminary revised proxy statement. [ ] Confidential, for use of the
Commission only (as permitted
by Rule 14a-6(e)(2)).

[ ] Definitive proxy statement.

[ ] Definitive additional materials.

[ ] Soliciting material pursuant to 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:

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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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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials.
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[ ] 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:

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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 22,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 shareholders of record at the close of business on April 12,August 1, 2001
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
Corporate Secretary

Ann Arbor, Michigan
April 20,August 3, 2001

NEMATRON CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22,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 Tuesday, May 22,Thursday, September
6, 2001 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,August 6, 2001.

Only holders of record of common stock of the Company (the "Common
Stock") at the close of business on April 12,August 1, 2001 (the "Record Date") are
entitled to vote at the Annual Meeting or any adjournment thereof. On the Record
Date, 13,696,61615,744,472 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 May 21,September 5, 2001. 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 THE NOMINEES FOR DIRECTOR
NAMED IN THIS PROXY STATEMENT AND FOR 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.

4
MATTERS TO COME BEFORE THE ANNUAL 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 2004
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 IN 2004

Matthew S. Galvez, 45, 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.

Garnel F. Graber, 69, became a director in February 1993 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.

DIRECTORS WHOSE TERMS EXPIRE IN 2003

Joseph J. Fitzsimmons, 66, 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.

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 2
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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, 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 COMMITTEES

The Board of Directors met eight times during 2000. 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,
Nominating Committee and Audit Committee.

The Organization and Compensation Committee met twice during 2000. 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. Nichols (Chairman), Globus, and
Graber.Globus.

The Nominating Committee met once during 2000. 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 six times during 2000. The members of the Audit
Committee are Messrs. Braun (Chairman), Nichols 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 is
included as Appendix A to this Proxy Statement. The Audit Committee's primary
function is to assist the Board of Directors in fulfilling its oversight
responsibilities with respect to (i) the 3
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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.

REPORT 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.

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, 2000 for
filing with the Securities and Exchange Commission.

AUDIT COMMITTEE: HUGO E. BRAUN
JAMES A. NICHOLS
JOSEPH J. FITZSIMMONS

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 45

David P. Gienapp Vice President - Finance and Administration,
Secretary and Treasurer 52

See "Nominees for Election for a Term Expiring 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.

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 20012001. The cash
proceeds will be used to refinance certainrepay $1.2 million principal amount of its convertible
subordinated notes (which
bearand accrued interest at 10% per annum(unless the holders of the notes choose
to convert the principal and are due August 31, 2001)interest into equity securities as described
below), and to increase itsthe Company's working capital. While theThe Company has not begun that offering or determined the
terms and conditions of the equity securities to be sold, it intends to
attempt to issue an undetermined numbershares of shares ofnon-convertible, non-voting Preferred Stock in such
offering, rather than Common Stock, in an effort to minimize the additional
dilution of earnings per
share and voting rights of existing common shareholders that would result from
an issuance of Common Stock. See "Proposal 4 ApprovalThe number and terms of the Issuanceshares 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 Sharesthe 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." TheStock, 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

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

5
8 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:

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.

6
9

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 37.527.7 % 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.

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 7
10

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

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 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

8
11 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

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 MayAugust 31, 2001.2001 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,

9
12
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 27.0%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

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 March 29,July 18, 2001 was $0.75.$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 MayAugust 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.

10
13

The Company's directors and executive officers (who currently hold
Common Stock representing approximately 37.5%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

The following table sets forth information as of March 31,August 1, 2001 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 (13)(11)
- ---- ---------------- ---------------------

Directors and Management:
James A. Nichols 2,081,1552,047,822 (1) 13.4%13.0%
Hugo E. Braun 1,701,449 (2) 10.4%
Stephen E. Globus 1,283,735 (2) 8.3%
Hugo E. Braun 1,701,449 (3) 10.6%8.2%
Matthew S. Galvez 860,100 (4) 5.3%5.2%
David P. Gienapp 95,193126,859 (5) *
Garnel F. Graber 66,966 (6) *
Joseph J. Fitzsimmons 25,108 (7)(6) *
James H. Wicker 4,000 (8)(7) *
All directors and executive
officers as group (8(7 persons) 5,517,706 (9) 36.5%6,049,073 (8) 34.7%

5% Owners:
Michael L. Hershey 1,518,796 (10) 9.8%
J. Eric May, Trustee Under
Declaration of Trust 1,493,425 (11) 9.6%(9) 9.5%
Dennis A. Sierk 1,415,620 (12) 9.2%(10) 9.0%

- ----------------
* Less than one percent.

(1) The shares shown in the table for Mr. Nichols include (i) 1,737,7041,733,704 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 100,00066,667
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. 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 3,000 shares which
are currently exercisable or are exercisable within sixty days. Mr. Globus'
address is 44 West 24th Street, New York, NY 10010.

(3) The shares shown in the table for Mr. Braun include (i) 1,050,000 shares
owned by North Coast Technology Investors L.P. and Access Venture Fund L.P., of
which Mr. Braun is a partner, (ii) options to

11
14 purchase 19,664 shares which are
currently exercisable or are exercisable within sixty days, (iii) currently
exercisable warrants to purchase 500,000 shares pursuant to the Notes described
in Proposal 4 above, and (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. If such warrants were exercised, Mr. Braun would have sole voting
rights and shared investment power with respect to the underlying shares. The
address for Mr. Braun and North Coast Technology Investors L.P. is 206 South
Fifth Avenue, Suite 550, Ann Arbor, MI 48104.

(3) 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 3,000 shares which
are currently exercisable or are exercisable within sixty days. Mr. Globus'
address is 44 West 24th Street, New York, NY 10010.

(4) 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.

(5) The shares shown in the table for Mr. Gienapp include (i) 41,860 shares
owned outright, (ii) options to purchase 53,333 shares which are currently
exercisable or are exercisable within sixty days. (6) The shares shown in the table for Mr. Graber include (i) 14,302 shares owned
outright, and (ii) options to purchase 52,664 shares which are currently
exercisable or are exercisable within sixty days.

(7)Gienapp's address is 5840
Interface Drive, Ann Arbor, MI 48103.

(6) The shares shown in the table for Mr. Fitzsimmons include (i) 10,000 shares
of Common Stock owned outright, and (ii) options to purchase 15,108 shares which
are currently exercisable or are exercisable within sixty days. (8)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 3,000 shares which are
currently exercisable or are exercisable within sixty days. (9)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).

(10)(9) 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), and (ii) 25,371 shares owned
outright by Mr. Hershey. Mr. Hershey's address is c/o Landis Associates, Inc.,
400 West Ninth Street, Suite 100, Wilmington, DE 19801.

(11) The shares shown in the table for Mr. May include 1,493,425 shares
owned by J. Eric May, Trustee Under Declaration of Trust, over which Mr. Hershey may
exercise voting and investment power.Trust. Mr. May's address is
c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, DE 19890.

(12)(10) The shares shown in the table for Mr. Sierk include 1,145,620 shares owned
by Mr. Sierk and his wife, such shares being acquired as a portion of the
purchase price of Optimation, Inc. by the Company on March 29, 2001. Mr. Sierk's
address is 2800 Bob Wallace Avenue, Suite L3, Huntsville, AL 35805.

(13)(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.

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,
2000 (the "Named Executives").

12
15
SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------COMPENSATION
--------------------------- AWARDS ALL
SECURITIES ALL 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- -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-$35,538 $-0- 660,000 $ 2,115$2,115
--------------- --------------- ----------- ---------------------- --------------
Y/E 9-30-98 $ 13,538 $$13,538 $-0- -0- -0- $ -0-$-0-
--------------- --------------- ----------- ---------------------- --------------
- -------------------------- --------------- --------------- ----------- ---------------------- --------------
David P. Gienapp, Y/E 12-31-00 $120,000 $ -0-$-0- 25,000 $ 3,461$3,461
VP-Finance and --------------- --------------- ----------- ---------------------- --------------
Administration Y/E 12-31-99 $111,642 $ 8,477$8,477 70,000 $ 1,664$1,664
--------------- --------------- ----------- ---------------------- --------------
3 Months
12-31-98 $ 29,724 $$29,724 $-0- -0- -0- $ -0-$-0-
--------------- --------------- ----------- ---------------------- --------------
Y/E 9-30-98 $110,552 $$-0- -0- -0- $ 3,268$3,268
- -------------------------- --------------- --------------- ----------- ---------------------- --------------

(a) All Other Compensation for the year ended December 31, 2000 includes,
for Mr. Galvez, $7,715 of housing allowance, $4,800 of automobile
allowance and $5,566 of 401(k) Plan matching contributions, and for Mr.
Gienapp, 401(k) Plan matching contributions.

16
(b) Mr. Galvez was appointed Chief Operating Officer on August 15, 1998 and
became President and Chief Executive Officer on October 1, 1998.

OPTIONS

The following table sets forth information concerning options granted
to the Named Executives in the year ended December 31, 2000.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING OPTIONS GRANTED TO EXERCISE OR
NAME OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME
GRANTED (#) FISCAL YEAR (A) ($/SHARE) DATE
- ------------------------ ---------------- ------------------- ------------------- ------------------------

Matthew S. Galvez -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. The following table provides information with respect to
unexercised options held by the Named Executives as of December 31, 2000.

13
16

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
---------------------------- ------------------- -------------------- ---------------- ------------------

Matthew S. Galvez 860,000 -0- $-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 2000 and the option exercise price.

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 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 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 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, 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, the 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 14
17

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 31,500 were
granted under the Directors Plan to the Company's then seven non-employee
directors on May 23, 2000.

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:amounts.

Stephen E. James A. Michael L. Hershey/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 may
exercisehad,
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

L.P., a limited partnership of which Hugo E. Braun, a director of the Company,
is a partner, (ii) James A. Nichols, a director of the Company, and an
investment club of which Mr. Nichols is a member, and (iii) a partnership in
which Stephen E. Globus, a director of the Company, is a partner. The $1.25
price per share exceeded the $0.65 fair market value of the Common Stock at the
time 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
----- ------- ------

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 notes and warrants 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 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 Proposal 4 discussed above is not
approved on or before MayAugust 31, 2001.2001 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. The amount of convertible subordinated promissory notes and warrants
purchased to related parties are as follows:

Hugo E. James A.
Braun Nichols
----- -------

Convertible Subordinated Promissory Notes purchased $750,000 $150,000
Warrants purchased 500,000 100,000

15
18

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 2000, 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, a director, did
not timely file one Form 4 report disclosing one transaction.

INDEPENDENT PUBLIC ACCOUNTANTS

GENERAL

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 2000 audit process. As a result, the selection of the
independent accountants to audit the financial statements of the Company for
2001 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 FEES

Audit fees billed to the Company by Grant Thornton LLP for the 2000
audit and reviews of three quarterly reports on Form 10-QSB were $53,000.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

These fees for 2000 were nil.

ALL OTHER FEES

All other fees for 2000 totaled $32,000, including $28,000 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.

SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING

Shareholder proposals intended to be presented at the 2002 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 21,
2001February 28,
2002 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

16
19 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, 2000 is incorporated in this proxy statement by
reference:

- - Item 6 Management's Discussion and Analysis or Plan of Operation
- - Item 7 Financial Statements

By Order of the Board of Directors,

David P. Gienapp, Secretary
April 20,August 3, 2001

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.

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.

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.

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.

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 22,September 6, 2001 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,AUGUST 3, 2001 AND FOR EACH OF THE PROPOSALS SET FORTH
IN SUCH PROXY STATEMENT. 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 April 20,August 3,
2001 is unable to serve or, for good cause, will not serve.

(TO BE SIGNED ON REVERSE SIDE)

PROPOSAL 1. ELECTION OF DIRECTORS:

Matthew S. Galvez
Garnel F. GraberJoseph J. Fitzsimmons

(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:

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:

PROPOSAL 4. APPROVE THE POTENTIAL ISSUANCE OF SHARES OF COMMON STOCK
UPON CONVERSION OF CONVERTIBLE NOTES:

The undersigned acknowledges receipt of the Notice of Annual
Meeting of Shareholders and the Proxy Statement dated April 20,August 3, 2001
and the 2000 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 _____________

23 26

Exhibit Index
-------------

Exhibit No. Description
- ----------- -----------

23.1 Consent of Independent Auditors