SCHEDULE 14A
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 Section 240.14a-12
LECTEC CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(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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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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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) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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The Annual Meeting of the shareholders of LecTec Corporation, a
Minnesota corporation (the "Company"), will be held at The Hilton Garden Inn
Eden Prairie Hotel, 6330 Point Chase, Eden Prairie, Minnesota 55344, on
Wednesday, June 26, 2002, at 3:00 p.m. (CDT), for the following purposes:
1. To elect six directors to serve on the Board of Directors for a
term of one year and until their successors are duly elected and
qualified.
2. To ratify the appointment of Grant Thornton LLP as the Company's
independent auditor for the Company's current fiscal year.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record as of the close of business on Wednesday,
May 15, 2002, the record date, are entitled to notice of and to vote at the
meeting.
Whether or not you expect to attend the meeting in person, please
complete, sign and promptly return the enclosed form of proxy. If you later
desire to revoke your proxy, you may do so at any time before it is exercised.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Douglas J. Nesbit
Douglas J. Nesbit
Secretary
Minnetonka, Minnesota
May 21, 2002
(This page has been left blank intentionally.)
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS--JUNE 26, 2002
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INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by the Board of Directors of LecTec
Corporation (the "Company") for use at the Annual Meeting of shareholders to be
held Wednesday, June 26, 2002, at 3:00 p.m. (CDT), at The Hilton Garden Inn Eden
Prairie Hotel, 6330 Point Chase, Eden Prairie, Minnesota 55344, or any
adjournments thereof (the "Meeting"), for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Shareholders. Proxies will be voted
in accordance with the directions specified therein. These proxy solicitation
materials and the transition report on Form 10-K for the transition period from
July 1, 2001 to December 31, 2001 are first being sent to shareholders on or
about May 21, 2002.
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares will be voted FOR each of the items of
business described in this proxy statement. Votes cast by proxy or in person at
the Meeting will be tabulated by the election inspectors appointed for the
Meeting.
Shares voted as abstentions on any matter (or a "withhold vote for" as
to directors) will be counted for purposes of determining the presence of a
quorum at the Meeting and treated as unvoted, although present and entitled to
vote, for purposes of determining the approval of each matter as to which a
shareholder has abstained. As a result, abstentions have the same effect as
voting against a proposal. If a broker submits a proxy that indicates the broker
does not have discretionary authority as to certain shares to vote on one or
more matters, those shares will be counted for purposes of determining the
presence of a quorum at the meeting, but will not be considered as present and
entitled to vote with respect to such matters. As a result, a "broker non-vote"
with respect to the election of directors or ratification of appointment of
auditors will not have the effect of a vote "for" nor a vote "against" those
proposals.
Under Minnesota law, the affirmative vote of a majority of the shares
of common stock present or represented and entitled to vote at the Meeting is
necessary to approve each item of business properly presented at the meeting of
shareholders. However, if the shares present and entitled to vote on that item
of business at the time that the item is presented for a vote would not
constitute a quorum for the transaction of business at the meeting, then the
item must be approved by a majority of the voting power of the minimum number of
shares that would constitute such a quorum.
As of May 15, 2002, the record date fixed for the determination of
shareholders of the Company entitled to notice of and to vote at the Meeting,
there were 3,953,576 outstanding shares of common stock, which is the only class
of capital stock of the Company. Each shareholder will be entitled to one vote
per share on all matters acted upon at the Meeting.
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Votes cast by proxy or in person at the Annual Meeting of Shareholders
will be tabulated by the election inspectors appointed for the Meeting.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time prior to its use by (i) delivering to the principal
office of the Company a written notice of revocation, (ii) filing with the
Company a duly executed proxy bearing a later date or (iii) attending the
Meeting and voting in person.
The costs of this solicitation will be borne by the Company. Proxies
may be solicited by the Company's directors, officers and regular employees,
without extra compensation, by mail, telegram, telephone and personal
solicitation. The Company will request brokerage houses and other nominees,
custodians and fiduciaries to forward soliciting material to beneficial owners
of the Company's common stock. The Company may reimburse brokerage firms and
other persons representing beneficial owners for their expenses in forwarding
solicitation materials to beneficial owners.
ELECTION OF DIRECTORS
GENERALLY
The Company's Amended and Restated By-laws provide that the size of the
Board of Directors shall be one or more directors, with the number of directors
to be determined by the shareholders from time to time prior to the election of
directors. The Board of Directors may increase the number of directors at any
time. Six persons have been nominated for election as directors at the Meeting.
Directors are elected for a one-year term and to serve until their successors
are duly elected and qualified.
THE BOARD OF DIRECTORS RECOMMEND THAT LEE M. BERLIN, ALAN C. HYMES,
M.D., BERT J. MCKASY, MARILYN K. SPEEDIE, PH.D., DONALD C. WEGMILLER AND RODNEY
A. YOUNG BE ELECTED AS DIRECTORS, EACH TO HOLD OFFICE FOR A TERM OF ONE YEAR AND
UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED. All of the nominees are
currently members of the Board of Directors of the Company and have served in
that capacity since originally elected or designated as indicated below in the
information concerning nominees.
VOTING INFORMATION
A shareholder submitting a proxy may vote for all or any of the
nominees for election to the Board of Directors or may withhold his or her vote
from all or any of such nominees. If a submitted proxy is properly signed but
unmarked in respect of the election of directors, it is intended that the proxy
agents named in the proxy will vote the shares represented thereby for the
election of all of the nominees. Each of the nominees has agreed to serve the
Company as a director if elected; however, should any nominee become unwilling
or unable to serve if elected, the proxy agents named in the proxy will exercise
their voting power in favor of such other person as the Board of Directors may
recommend. The Company's Articles of Incorporation prohibit cumulative voting.
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INFORMATION CONCERNING NOMINEES
Lee M. Berlin, 80 years old, has been a Director since 1981 and served
as Chairman of the Board from 1983 through May 1993. He served as the Company's
Chief Executive Officer from 1983 through January 1989. Prior to joining the
Company, Mr. Berlin served in a variety of foreign and domestic marketing,
product development and general management positions with Minnesota Mining &
Manufacturing Company ("3M"). Currently, Mr. Berlin manages personal business
interests.
Alan C. Hymes, M.D., 70 years old, is a founder of the Company, has
been a Director since 1977 and acts as the Company's medical consultant. He has
been engaged in the private practice of surgery since 1968. He is a diplomat of
the American Board of Surgery and the American Board of Thoracic and
Cardiovascular Surgery.
Bert J. McKasy, 60 years old, has been a Director since 1997 and has
been a partner with the law firm Lindquist & Vennum PLLP since 1994. He is also
the current Commissioner of the Metropolitan Airports Commission and has owned
McKasy Travel Service, Inc. since 1983. Prior to joining Lindquist & Vennum, Mr.
McKasy was an attorney with Maun & Simon, Vice President of First Trust Company,
Trust and Investment Administration (now U.S. Bank Trust) and Executive Vice
President of Fritz Company.
Marilyn K. Speedie, Ph.D., 54 years old, has been a Director since 1997
and is the Dean of the College of Pharmacy and a professor at the University of
Minnesota. Prior to her association with the University of Minnesota in 1996,
Dr. Speedie held several professorship and departmental chairperson positions at
the University of Maryland (1989-1995), the most recent being in the Department
of Pharmaceutical Sciences. She has been the recipient of numerous honors, the
most recent in October of 1996 which was as an inductee as Fellow of the
American Association of Pharmaceutical Scientists, and has also co-authored a
book published in 1996 entitled Pharmacognosy and Pharmacobiotechnology.
Donald C. Wegmiller, 63 years old, has served as a Director since 1997.
Since April 1993, Mr. Wegmiller has served as President and Chief Executive
Officer of Clark/Bardes Consulting - Healthcare Group, a consulting firm
specializing in compensation and benefits for health care executives and
physicians. From May 1987 until April 1993, Mr. Wegmiller was President and CEO
of Health One Corporation, Minneapolis, Minnesota. He currently serves as a
Director of ALLETE (formerly known as Minnesota Power), Possis Medical, Inc. and
JLJ Medical Devices International, LLC. From 1986 to 1988, Mr. Wegmiller served
as Chairman of the Board of the American Hospital Association. From 1972 to 1976
and 1981 to 1988, Mr. Wegmiller served as a White House staff assistant to
Presidents Nixon, Ford and Reagan.
Rodney A. Young, 47 years old, was appointed a Director, Chief
Executive Officer and President of the Company in August 1996. In November 1996
he was appointed as Chairman of the Board. Prior to assuming the leadership role
with the Company, Mr. Young served Baxter International, Inc. for five years in
various management roles, most recently as Vice President and General Manager of
the Specialized Distribution Division. Mr. Young also serves as a Director of
Possis Medical, Inc., Delta Dental Plan of Minnesota and Health Fitness
Corporation.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During calendar year 2001, the Board of Directors held six meetings.
Each Director holding office during the calendar year attended all of the
meetings of the Board of Directors (held during the period for which they were a
director) and committees of the Board on which they served. The Board of
Directors has an Audit Committee and a Compensation Committee, which are
described below. The Company does not have a Nominating Committee.
The Board of Directors has an Audit Committee comprised of Mr. McKasy,
Mr. Berlin and Dr. Hymes. Mr. McKasy currently serves as Chairman. All of the
members of the Audit Committee are "independent" as that concept is defined in
Rule 4200(a)(14) of the Nasdaq Marketplace Rules. The Audit Committee reviews
and investigates all matters pertaining to the accounting activities of the
Company and the relationship between the Company and its independent auditor.
The Audit Committee held three meetings during calendar year 2001.
The Board of Directors has a Compensation Committee comprised of Mr.
Wegmiller, who served as the Committee's Chairman, Mr. Berlin and Dr. Hymes. The
Compensation Committee determines and periodically evaluates the various levels
and methods of compensation for directors, officers and employees of the
Company. The Compensation Committee held two meetings during calendar year 2001.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid for their
services at the rate of $6,000 per fiscal year plus $1,000 per regular board
meeting plus reasonable meeting expenses. This compensation arrangement became
effective during 2001. Both types of payments were suspended beginning with the
meeting held in December 2001. During calendar year 2001 each of the outside
directors received a five-year option under the LecTec 1998 Director's Stock
Option Plan to purchase 10,000 shares of the Company's common stock at a price
of $2.00 which was the fair market value of the common stock at the date of
grant.
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Our Audit Committee reviews the Company's financial reporting process
on behalf of the Board of Directors. Our Board of Directors adopted an Audit
Committee charter in October 2000. In fulfilling its responsibilities, our
Committee has reviewed and discussed the audited financial statements contained
in our fiscal year ended June 30, 2001 Annual Report on Form 10-K, and our
Transition Report on Form 10-K for the transition period from July 1, 2001 to
December 31, 2001, with the Company's management and independent auditors.
Management is responsible for the financial statements and the reporting
process, including the system of internal controls. The independent auditors are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United
States.
The Committee discussed with the independent auditors, the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended. In addition, the Committee has
discussed with the independent auditors, the auditors' independence from the
Company and its management including the matters in the written disclosures
required by Independence Standard Board No. 1, Independence Discussions with
Audit Committees.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2001 and in the Company's
Transition Report on Form 10-K for the transition period from July 1, 2001 to
December 31, 2001, for filing with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
Bert J. McKasy, Chairman
Lee M. Berlin
Alan C. Hymes, M.D.
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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
establishing compensation policy and administering the compensation programs for
the Company's executive officers. The Committee is composed of independent
outside directors. The Committee meets as necessary to review executive
compensation policies, the design of compensation programs and individual
salaries and awards for the executive officers. The purpose of this report is to
inform shareholders of the Company's compensation policies for executive
officers and the rationale for the compensation paid to executive officers.
COMPENSATION PHILOSOPHY
The Company's compensation program is designed to motivate and reward
executives responsible for attaining the financial and strategic objectives
essential to the Company's long-term success and growth in shareholder value.
The compensation program has been designed to provide a competitive level of
total compensation and offers incentive and equity ownership opportunities
directly linked to the Company's performance and shareholder return. The
Committee believes it is in the best interests of the shareholders to reward
executives when the Company's performance objectives are achieved and to provide
significantly less compensation when these objectives are not met. Therefore, a
significant portion of executive compensation is comprised of "at risk"
performance and stock-based incentives.
Key objectives of the compensation program are to:
- Provide a strong, direct link between the Company's
financial and strategic goals and executive compensation;
- Motivate executives to achieve corporate operating goals
through an emphasis on performance-based compensation;
- Align the interests of executives with those of the
Company's shareholders by providing a significant portion of
total compensation that is LecTec stock-based; and
- Provide competitive total compensation in order to attract
and retain high caliber key executives critical to the
long-term success of the Company.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The key components of the Company's executive officer compensation
program are base salary, annual incentives and long-term incentives. These
elements are described below. During calendar year 2001, specific and objective
criteria were utilized to determine each element of an executive's compensation
package.
BASE SALARY. The Committee annually reviews the base salaries of
executive officers. In determining appropriate salary levels, the Committee
considers the following criteria:
- scope and complexity of the position including required
substantive knowledge and required training;
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- level of responsibility including number of employees
directly supervised;
- past performance including revenue generated from operations
under the management of the executive officer; and
- salary levels for comparable positions at industry peer
group companies and the market opportunities available to
the executive officer.
During calendar year 2001 the current executive officers of the Company
received salary increases effective February 1, 2001. In January 2002 the
current executive officers accepted a 10% salary decrease as a cost reduction
measure.
ANNUAL INCENTIVE AWARDS. The purpose of the Company's annual incentive
program is to provide a direct financial incentive in the form of an annual cash
bonus to executive officers and key managers who achieve corporate operating
goals established under the Company's annual operating plan.
Executive officers are eligible for cash bonuses ranging from 30% to
60% of base salary. The size of the bonus pool is dependent upon the following
criteria:
- the measure of annual sales actually achieved compared to
the level of annual sales contained in the Company's annual
budget as approved by the Board of Directors; and
- the measure of profits (or loss) actually achieved compared
to the level of profits (or loss) contained in the Company's
annual budget as approved by the Board of Directors.
An executive officer's individual bonus is dependent upon the following
criteria:
- annual sales directly attributable to operations managed by
the executive officer;
- achievement of significant corporate goals which do not
generate sales; and
- the results of the executive officer's annual performance
review.
In addition to the above criteria, the Compensation Committee retains
ultimate discretion to make final bonus determinations based on the best
interests of the Company. For the fiscal year ended June 30, 2001, the minimum
sales and profits performance goals under the annual incentive program were
achieved, but no cash bonus payments were made. Executive officers at February
1, 2001, other than Mr. Quinn, received a bonus outside the annual incentive
program based on the work performed to complete the sale of the assets of the
conductive products division. Mr. Quinn received a bonus made outside the annual
incentive program based on the achievement of certain sales goals.
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LONG-TERM INCENTIVE PLANS. Long-term incentives are provided to
executive officers through the Company's stock option program.
The Company's stock option program provides compensation that directly
links the interests of management and shareholders, and aids in retaining key
executive officers. Executive officers are eligible for annual grants of stock
options. The amount of stock options awarded to an executive officer are
dependent on the following criteria:
- the executive officer's past performance with the company
including sales directly attributable to operations managed
by the executive officers;
- the executive officer's ability to impact financial
performance; and
- the importance of the executive officer's responsibilities
at the Company in light of the Company's future strategic
plans.
All individual stock option grants are reviewed and approved by the
Committee. Executive officers receive gains from stock options only to the
extent that the fair market value of the stock has increased since the date of
option grant.
CHIEF EXECUTIVE OFFICER COMPENSATION. The base salary for Mr. Young was
increased from $200,000 to $240,000 effective February 1, 2001. Effective
January 21, 2002 the base salary for Mr. Young was decreased by 10% to $216,000
as part of cost reduction measures. The base salary of the Chief Executive
Officer is established by the Compensation Committee in generally the same way
as the base salary is determined for other executive officers.
A bonus payment under the annual incentive program described above was
not made during calendar year 2001. Mr Young received an $80,000 bonus payment
outside the annual incentive program in calendar year 2001 based on the work
performed to complete the sale of the assets of the conductive products
division. In calendar year 2001, Mr. Young received options to purchase up to
60,000 shares of the Company's common stock at a weighted average exercise price
of $2.219 per share.
CONCLUSION. The executive officer compensation program administered by
the Committee provides incentives to attain strong financial performance and
aligns the interests of executive officers with shareholder interests. The
Committee believes that the Company's compensation program focuses the efforts
of the Company's executive officers on the achievement of growth, profitability
and the enhancement of shareholder value for the benefit of all of the Company's
shareholders.
COMPENSATION COMMITTEE
Donald C. Wegmiller, Chairman
Lee M. Berlin
Alan C. Hymes, M.D.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the cash and non-cash compensation for the
calendar year ended December 31, 2001, and the fiscal years ended June 30,
2001 and 2000, paid to Rodney A. Young, the Chairman of the Board and the
Company's President and Chief Executive Officer, and the other executive
officers of the Company.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Awards Compensation
--------------------------- --------------------
Year Securities Underlying All Other
Name and Position Ended (1) Salary Bonus Options Compensation (2)
- ----------------- --------- ------ ------ -------------------- ----------------
Rodney A. Young 12/31/01 $238,191 $80,000 (3) 60,000 $2,221
Chairman, President and 06/30/01 216,834 80,000 (3) 60,000 3,471
Chief Executive Officer 06/30/00 200,000 - - 4,039
Timothy R. J. Quinn 12/31/01 132,581 35,640 (4) 30,000 1,750
Vice President and General 06/30/01 124,859 35,640 (4) 30,000 1,901
Manager, Consumer Products 06/30/00 118,800 35,640 (4) - 2,009
Douglas J. Nesbit 12/31/01 129,456 11,600 (3) 30,000 3,236
Chief Financial Officer, 06/30/01 104,870 11,600 (3) 55,000 2,267
Secretary and Treasurer 06/30/00 - - - -
Jane M. Nichols 12/31/01 130,907 35,190 (3) 30,000 1,309
Vice President, Marketing and 06/30/01 123,282 35,190 (3) 30,000 1,233
New Business Development 06/30/00 117,300 - - 1,218
John D. LeGray 12/31/01 116,533 31,326 (3) 30,000 2,913
Vice President, Quality 06/30/01 109,746 31,326 (3) 30,000 2,744
Assurance & Regulatory Affairs 06/30/00 104,420 - - 2,711
Timothy P. Fitzgerald 12/31/01 122,760 22,000 (3) 30,000 2,625
Vice President, Operations 06/30/01 115,610 22,000 (3) 30,000 2,890
06/30/00 40,192 - 25,000 -
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(1) On September 5, 2001, the Board of Directors approved a change in the
Company's fiscal year end from June 30 to December 31. Therefore, an
overlapping period from January 1, 2001 to June 30, 2001 is represented
in both the years ended June 30, 2001 and December 31, 2001 in the
table. To illustrate, the bonus paid in May 2001 and the stock options
granted in February 2001 are represented in both the years ended June
30, 2001 and December 31, 2001 in the table.
(2) Reflects matching contributions under the Company's 401(k) and Profit
Sharing Plan.
(3) Executive officers at February 1, 2001 received a bonus payment in May
outside the annual incentive program based on the work performed to
complete the sale of the assets of the conductive products division.
(4) Mr. Quinn received a bonus outside the annual incentive program based
on the achievement of certain sales goals.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's 1998 Stock Option Plan during calendar year 2001, to
each of the executive officers named in the Summary Compensation Table:
INDIVIDUAL GRANTS (1) POTENTIAL
----------------------------------------------------------- REALIZABLE
PERCENT VALUE AT
OF TOTAL ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED STOCK PRICE
SECURITIES TO EXERCISE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTION TERM(3)
OPTIONS IN CALENDAR PER EXPIRATION -------------------------
NAME GRANTED YEAR 2001 (2) SHARE DATE 5% 10%
- --------------------------------- ------- ------------- ----- ------------ ---------- ---------
Rodney A. Young 60,000 16.3% $2.22 Feb. 1, 2006 $37,971 $82,781
Timothy R. J. Quinn 30,000 8.1% 2.22 Feb. 1, 2006 18,986 41,391
Douglas J. Nesbit 30,000 8.1% 2.22 Feb. 1, 2006 18,986 41,391
Jane M. Nichols 30,000 8.1% 2.22 Feb. 1, 2006 18,986 41,391
John D. LeGray 30,000 8.1% 2.22 Feb. 1, 2006 18,986 41,391
Timothy P. Fitzgerald 30,000 8.1% 2.22 Feb. 1, 2006 18,986 41,391
- -------------------------
(1) Each option represents the right to purchase one share of the Company's
common stock. The options shown in this column are all incentive stock
options granted pursuant to the Company's 1998 Stock Option Plan. The
options vest in annual installments over a period of three years
beginning one year after the date of grant. Each option grant allows
the individual to acquire shares of the Company's common stock at a
fixed price per share. The term of each option is five years.
(2) In the calendar year ended December 31, 2001, the Company granted
employees options to purchase an aggregate of 369,000 shares of common
stock.
(3) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the Company's future common stock prices. These amounts represent
certain assumed rates of appreciation only. Actual gains, if any, on
stock option exercises are dependent on the future performance of the
common stock and overall stock market conditions. The amounts reflected
in the table may not necessarily be achieved.
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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the exercise of
options during the calendar year ended December 31, 2001 and unexercised options
held as of December 31, 2001, by each of the executive officers named in the
Summary Compensation Table above.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DEC. 31, 2001 AS OF DEC. 31, 2001 (1)
ACQUIRED VALUE --------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Rodney A. Young 0 $ 0 238,750 121,250 $ 0 $ 0
Timothy R. J. Quinn 0 0 34,500 53,500 0 0
Douglas J. Nesbit 0 0 8,334 46,666 0 0
Jane M. Nichols 0 0 66,250 46,250 0 0
John D. LeGray 0 0 28,750 41,250 0 0
Timothy P. Fitzgerald 0 0 8,334 46,666 0 0
- -------------------------
(1) "Value" has been determined based on the difference between the last
sale price of the Company's common stock as reported by the Nasdaq
National Market System on December 31, 2001 ($1.30) and the per share
option exercise price, multiplied by the number of shares subject to
the in-the-money options.
CHANGE IN CONTROL PLANS
The Company's Change in Control Termination Pay Plan provides for
termination payments to executive officers if they are terminated within twelve
months of a change in control. The plan provides for termination payments to the
Chief Executive Officer equal to twenty times the monthly base salary and
termination payments for all other executives equal to twelve times the monthly
base salary.
In July 1999, the Company adopted the Improved Shareholder Value Cash
Bonus Plan which provides cash bonus payments to executive officers if the
Company is acquired by or merged with another company, and the valuation of the
Company for purposes of the acquisition or merger equals or exceeds the minimum
level defined by the plan. Cash bonus payments to executives increase as the
total valuation of the Company for purposes of the sale or merger increases,
thus aligning the interests of the executives with the interests of the
shareholders and providing an incentive to the executives to maximize
shareholder value.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee consists of three non-employee directors,
Lee M. Berlin, Alan C. Hymes, M.D. and Donald C. Wegmiller. All three directors
served on the Committee for the entire calendar year ended December 31, 2001.
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Mr. Berlin was formerly an officer of the Company, having served as
both Chairman of the Board and Chief Executive Officer of the Company. There
were no other Compensation Committee "interlocks" within the meaning of the SEC
rules.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of April 19, 2002, by each person,
or group of affiliated persons, who is known by us to own beneficially more than
5% of our common stock, each of our directors, each of our executive officers
named in the Summary Compensation Table above and all of our directors and
executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock under options held
by that person that are currently exercisable or exercisable within 60 days of
April 19, 2002 are considered outstanding. The column entitled "Number of Shares
Beneficially Owned" includes the number of shares of common stock subject to
options held by that person that are currently exercisable or that will become
exercisable within 60 days of April 19, 2002. The number of shares subject to
options that each beneficial owner has the right to acquire within 60 days of
April 19, 2002 are listed separately under the column entitled "Number of Shares
Underlying Options Beneficially Owned."
Except as indicated in the footnotes to this table, each shareholder named in
the table has sole voting and investment power for the shares shown as
beneficially owned by them. Percentage of ownership is based on 3,953,576 shares
of common stock outstanding on April 19, 2002.
12
Table of Security Ownership of Certain Beneficial Owners and Management:
NUMBER OF SHARES
UNDERLYING
OPTIONS PERCENT OF
NUMBER OF SHARES BENEFICIALLY SHARES
NAME BENEFICIALLY OWNED OWNED OUTSTANDING
- ---- ------------------ ---------------- -----------
Lee M. Berlin (1) (2) 577,029 34,125 14.5%
Alan C. Hymes, M.D. (2) 439,148 39,775 11.0
Rodney A. Young (2) 311,394 294,794 7.3
Jane M. Nichols 95,549 86,875 2.4
Timothy R. J. Quinn 57,300 53,500 1.4
John D. LeGray 53,035 44,375 1.3
Timothy P. Fitzgerald 30,992 26,667 *
Bert J. McKasy 27,778 23,000 *
Donald C. Wegmiller 27,000 26,000 *
Marilyn K. Speedie, Ph.D. 23,000 21,500 *
Douglas J. Nesbit 18,334 18,334 *
All directors and executive officers as
a group (11 persons) 1,660,559 668,945 35.9
- --------------------
*Less than 1%
(1) Includes 75,605 shares owned by Mr. Berlin's wife and 137,145 shares owned
by Mr. Berlin's son. Mr. Berlin disclaims beneficial ownership of these
shares.
(2) The address is: LecTec Corporation, 10701 Red Circle Drive, Minnetonka,
Minnesota 55343
13
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who beneficially own more
than 10% of the Company's common stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Such executive officers, directors and greater than 10% beneficial owners are
required by the regulations of the Commission to furnish the Company with copies
of all Section 16(a) reports they file.
Based solely on a review of the copies of such reports furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors and greater than 10% beneficial owners have
been met.
14
SHAREHOLDER RETURN PERFORMANCE
GRAPH
The graph and table below compare the cumulative total shareholder
return on the Company's common stock for the transition period from July 1, 2001
to December 31, 2001 and the last five fiscal years ended June 30, 2001, 2000,
1999, 1998 and 1997 with the cumulative total return on the Russell 2000 Index
and the S & P Medical Products & Supplies Index over the same period. The graph
and table assume the investment of $100 in each of the Company's common stock,
the Russell 2000 Index and the S & P Medical Products & Supplies Index on June
30, 1996 and that all dividends (cash and stock) were reinvested.
COMPARISON OF 66 MONTH CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH]
YEARS
6/30/96 6/30/97 6/30/98 6/30/99 6/30/00 6/30/01 12/31/01
------- ------- ------- ------- ------- ------- --------
LECTEC CORPORATION.... 100 50 27 31 18 18 10
Russell 2000.......... 100 116 136 138 157 158 152
S & P Med. P&S........ 100 133 177 211 229 224 256
15
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Grant Thornton LLP as the
Company's independent auditor for the transition from July 1, 2001 to December
31, 2001 (the "Transition Period") and for the fiscal year ended December 31,
2002. A proposal to ratify that appointment will be presented at the Meeting.
Grant Thornton LLP has served as the Company's auditor since June 1987.
Representatives of Grant Thornton LLP are expected to be present at the Meeting
and will have an opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions from shareholders.
AUDIT FEES
Audit fees billed or expected to be billed to the Company by Grant
Thornton LLP for the audits of the Company's financial statements for the
Transition Period and for the fiscal year ended June 30, 2001, and for reviews
of the Company's financial statements included in the Company's quarterly
reports on Form 10-Q for the Transition Period and for the fiscal year ended
June 30, 2001 totaled $43,500 and $52,500.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No fees were billed or are expected to be billed to the Company by
Grant Thornton LLP for services provided during the Transition Period or the
fiscal year ended June 30, 2001 for the design and implementation of financial
information systems.
ALL OTHER FEES
Fees billed or expected to be billed to the Company by Grant Thornton
LLP for all other non-audit services, including tax-related services, provided
during the Transition Period and the fiscal year ended June 30, 2001 totaled
$8,000 for each period.
The Audit Committee considered whether non-audit services provided by
Grant Thornton LLP during the Transition Period and the fiscal year ended June
30, 2001 were compatible with maintaining Grant Thornton LLP's independence.
The Board of Directors recommends a vote FOR the proposal to ratify the
appointment of Grant Thornton LLP as the Company's independent auditors. If the
appointment is not ratified by the shareholders, the Board of Directors is not
obligated to appoint another auditor, but the Board of Directors will give
consideration to an unfavorable vote.
OTHER MATTERS
As of this date, the Board of Directors does not know of any business
to be brought before the meeting other than as specified above. However, if any
matters properly come before the meeting, it is the intention of the person
named in the enclosed proxy to vote such proxy in accordance with their judgment
on such matters.
16
PROPOSALS FOR THE NEXT REGULAR MEETING
Any shareholder proposals to be considered for inclusion in the
Company's proxy material for the annual meeting of shareholders to be held in
2003 must be received at the Company's principal executive office at 10701 Red
Circle Drive, Minnetonka, Minnesota 55343, no later than January 21, 2003. In
connection with any matter to be proposed by a shareholder at the annual meeting
to be held in 2003, but not proposed for inclusion in the Company's proxy
material, the proxy holders designated by the Company for that meeting may
exercise their discretionary voting authority with respect to that shareholder
proposal if appropriate notice of that proposal is not received by the Company
at its principal executive office by April 6, 2003.
By Order of the Board of Directors
/s/ Douglas J. Nesbit
Douglas J. Nesbit
Secretary
Dated: May 21, 2002
17
[LECTEC (TM) LOGO]
CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JUNE 26, 2002
3:00 P.M. (CENTRAL DAYLIGHT TIME)
THE HILTON GARDEN INN EDEN PRAIRIE HOTEL
6330 POINT CHASE
EDEN PRAIRIE, MN 55344
[LECTEC (TM) LOGO] PROXY
CORPORATION
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I appoint Rodney A.Young and Douglas J. Nesbit, together and separately, as
proxies to vote all shares of common stock which I have power to vote at the
annual meeting of shareholders to be held on June 26, 2002 at Minnetonka,
Minnesota, and at any adjournment thereof, in accordance with the instructions
on the reverse side of this card and with the same effect as though I were
present in person and voting such shares. The proxies are authorized in their
discretion to vote upon such other business as may properly come before the
meeting and they may name others to take their place.
(continued, and to be signed and dated on reverse side)
TO VOTE YOUR PROXY
Mark, sign and date your proxy card and return it in the
postage-paid envelope we have provided.
- Please detach here -
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1 AND 2.
1. Election of directors:
01 Lee M. Berlin 04 Marilyn K. Speedie, Ph.D.
02 Alan C. Hymes, M.D. 05 Donald C. Wegmiller
03 Bert J. McKasy 06 Rodney A.Young
FOR all listed WITHHOLD ALL
nominees
(except as marked)
[ ] [ ]
(Instructions:To withhold authority to vote for any individual nominee, mark
"FOR all except" and write the number(s) in the box provided to the right.)
-----------------------------------------
2. Approval of appointment of Grant Thornton LLP as independent auditors
For Against Abstain
[ ] [ ] [ ]
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED
"FOR" ITEMS 1 AND 2.
Address Change? Mark Box [ ] Indicate changes below: Dated ___________, 2002
-----------------------------------------
Signature(s) of Shareholder(s) in Box
PLEASE DATE AND SIGN exactly as name(s) appears hereon and return
promptly in the accompanying postage paid envelope. If shares are held
by joint tenants or as community property, both shareholders should
sign. If signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign
in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.