SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
LecTec 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.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Items 22(a)(2) of Schedule A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------
The 1997 Annual Meeting of the Shareholders of LecTec Corporation, a
Minnesota corporation (the "Company"), will be held at The Minneapolis Marriott
Southwest Hotel, 5801 Opus Parkway, Minnetonka, Minnesota 55343, on Thursday,
November 20, 1997, at 3:00 p.m. (CST), for the following purposes:
1. To elect seven 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 at the close of business on Tuesday,
September 30, 1997, 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.
By Order of the Board of Directors
/s/ Deborah L. Moore
Deborah L. Moore
SECRETARY
Minnetonka, Minnesota
October 23, 1997
<PAGE>
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF SHAREHOLDERS -- NOVEMBER 20, 1997
------------------
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 Thursday, November 20, 1997, at 3:00 p.m. (CST), at The Minneapolis
Marriott Southwest Hotel, 5801 Opus Parkway, Minnetonka, Minnesota 55343, 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. ANY PROPERLY EXECUTED PROXY
IN WHICH THE SHAREHOLDER SPECIFIES NO DIRECTION WITH RESPECT TO ANY ITEM(S) OF
BUSINESS WILL BE VOTED IN FAVOR OF EACH OF THE ITEM(S) OF BUSINESS DESCRIBED IN
THIS PROXY STATEMENT. IF A SHAREHOLDER ABSTAINS (OR INDICATES A "WITHHOLD
AUTHORITY" AS TO DIRECTORS) FROM VOTING AS TO ANY MATTER, THEN THE SHARES HELD
BY SUCH SHAREHOLDER SHALL BE DEEMED PRESENT AT THE ANNUAL MEETING FOR PURPOSES
OF DETERMINING A QUORUM AND FOR PURPOSES OF CALCULATING THE VOTE WITH RESPECT TO
SUCH MATTER, BUT SHALL NOT BE DEEMED TO HAVE BEEN VOTED IN FAVOR OF SUCH MATTER.
IF A BROKER RETURNS A "NON-VOTE" PROXY, INDICATING A LACK OF AUTHORITY TO VOTE
ON SUCH MATTER, THEN THE SHARES COVERED BY SUCH NON-VOTE SHALL BE DEEMED PRESENT
AT THE ANNUAL MEETING FOR PURPOSES OF DETERMINING A QUORUM BUT SHALL NOT BE
DEEMED TO BE REPRESENTED AT THE ANNUAL MEETING FOR PURPOSES OF CALCULATING THE
VOTE WITH RESPECT TO SUCH MATTER. These Proxy solicitation materials and the
annual report for the fiscal year 1997 are first being sent to Shareholders on
or about October 23, 1997.
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 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 September 30, 1997, the record date fixed for the determination of
shareholders of the Company entitled to notice of and to vote at the Meeting,
there were 3,842,818 outstanding shares of
<PAGE>
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.
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. At their last meeting on November 18, 1996, the shareholders elected five
directors. The Board of Directors increased the number of directors to six in
February 1997 with the appointment of Donald C. Wegmiller.
Seven persons have been nominated for election as directors at the annual
meeting. Directors are elected for a one-year term and serve until their
successors are duly elected and qualified.
THE BOARD OF DIRECTORS RECOMMENDS THAT LEE M. BERLIN, ALAN C. HYMES, M.D.,
PAUL O. JOHNSON, BERT J. MCKASY, MARILYN K. SPEEDIE, 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. Lee M. Berlin,
Alan C. Hymes, M.D., Paul O. Johnson, Donald C. Wegmiller and Rodney A. Young
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
October 1997 Alan J. Wilensky resigned from the Company's Board of Directors in
order to devote more time to his career and other interests. The Company thanks
Mr. Wilensky for his years of dedicated service to the Company.
The Board of Directors held seven meetings during the fiscal year ended
June 30, 1997. Each incumbent director then serving as a member of the Board of
Directors participated in each meeting.
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
<PAGE>
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 of the Company may
recommend. The Company's Articles of Incorporation prohibit cumulative voting.
INFORMATION CONCERNING NOMINEES
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION AGE SINCE
- -------------------- ------------------------------------------- ---- --------
<S> <C> <C> <C>
Lee M. Berlin Personal Business Interests 75 1981
Mendota Heights, MN
Alan C. Hymes, M.D. Private Medical Practice 65 1977
Mt. Vernon, WA
Paul O. Johnson Personal Business Interests 60 1988
St. Paul, MN
Bert J. McKasy Partner 55 --
Lindquist & Vennum PLLP
Minneapolis, MN
Marilyn K. Speedie Dean and Professor 49 --
University Of Minnesota College of Pharmacy
Minneapolis, MN
Donald C. Wegmiller President 59 1997
Management Compensation Group/Health Care
Minneapolis, MN
Rodney A. Young Chairman, President and CEO 42 1996
LecTec Corporation
Minnetonka, MN
</TABLE>
There is no family relationship among the nominees.
LEE M. BERLIN 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. 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.
PAUL O. JOHNSON has been a Director of the Company since 1988. He was
employed by H. B. Fuller Company from 1979 until December 31, 1988 when he
resigned his position as Senior Vice President Administration and Corporate
Secretary. Currently, Mr. Johnson manages personal business interests.
<PAGE>
BERT J. MCKASY, a nominee for Director, has been a partner with Lindquist &
Vennum PLLP since 1994. He has also owned McKasy Travel Service, Inc. since 1983
and serves as the Chair of the St. Paul Chamber of Commerce. Mr. McKasy served
as Minnesota's Commerce Commissioner from 1991 to 1993.
MARILYN K. SPEEDIE, a nominee for Director, 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, Ms. Speedie held several
professorship and departmental chairman 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 was appointed a Director of the Company on February 14,
1997 when the Board of Directors increased the number of directors from five to
six. Since April 1993, he has served as President and Chief Executive Officer of
Management Compensation Group/Health Care, 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. Mr. Wegmiller also is a Director of Minnesota Power & Light
Company, HBO & Company, Medical Graphics Corporation, LifeRate Systems, Inc.,
Possis Medical, Inc., and SelectCare.
RODNEY A. YOUNG was appointed a Director, Chief Executive Officer and
President of the Company on August 12, 1996. He replaced the retiring Thomas E.
Brunelle, Ph.D. as Chief Executive Officer and President. Prior to his
association with the Company, Mr. Young served Baxter International, Inc. for
five years in various capacities, most recently as Vice President and General
Manager of the Specialized Distribution Division.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under federal securities laws, the Company's directors and officers, and
any beneficial owner of more than 10% of a class of equity securities of the
Company, are required to report their ownership of the Company's equity
securities and any changes in such ownership to the Securities and Exchange
Commission (the "Commission"). Specific due dates for these reports have been
established by the Commission, and the Company is required to disclose in this
Proxy Statement any delinquent filing of such reports and any failure to file
such reports during the fiscal year ended June 30, 1997.
Based upon information provided by officers and directors of the Company,
Ms. Nichols failed to file on a timely basis one Form 3 disclosing her
appointment as an officer during the 1997 fiscal year. The transaction has since
been reported.
DIRECTORS' COMPENSATION
In December 1990 the Board of Directors of the Company adopted a proposal
effective January 1, 1991 to pay outside directors for their services at the
rate of $1,000 per quarter and $100 per each Board or Committee meeting
attended, with the chairperson of each committee receiving an additional $50 per
meeting attended and to include reasonable meeting expenses. During the fiscal
year ended June 30, 1997, the Company paid or accrued $4,800 for the benefit of
Dr. Hymes, $4,900 for Mr. Johnson, $4,700 for Mr. Berlin, $2,100 for Mr.
Wegmiller and $4,600 for Mr. Wilensky. In addition, during the fiscal year ended
June 30, 1997, each of the outside directors received a ten-year option under
the Company's 1991 Directors Stock Option Plan to purchase 3,000 shares at a
price equal to the fair market value at the date of grant.
<PAGE>
STANDING COMMITTEES
The Board of Directors of the Company has five standing committees, each
established in 1984. The Executive Committee was established to act on behalf of
the Board for all matters except those designated. The Audit Committee was
established to review and investigate all matters pertaining to the accounting
activities of the Company and the relationship of the Company with its
independent auditor. The Compensation Committee was established to determine and
periodically evaluate various levels and methods of compensation for directors,
officers and employees of the Company. The Finance Committee was established to
provide guidance with respect to the Company's financing needs, to review
investment policies for the Company's funds and to review the Company's
insurance program. The Board Organization Committee was established to identify
potential candidates for Board membership, to review the composition and size of
the Board and to audit the Company's program for senior management succession.
The Board Organization Committee will also review potential candidates suggested
by shareholders for director membership. Shareholder recommendations of
potential nominees to the Board of Directors are welcomed at any time and should
be made in writing, accompanied by pertinent information regarding nominee
background and experience, to the Secretary of the Company. The Audit Committee
held two meetings during the last fiscal year and all members of the Committee
attended each meeting. The Compensation, Board Organization, Executive and
Finance Committees did not meet during the last fiscal year. The following table
shows the names of the directors as they served on each committee during the
last fiscal year:
COMMITTEE MEMBERS
------------------ ----------------------
Executive Paul O. Johnson
Alan J. Wilensky(2)
Rodney A. Young(1)
Audit Lee M. Berlin
Alan C. Hymes, M.D.
Paul O. Johnson(1)
Compensation Lee M. Berlin(1)
Alan C. Hymes, M.D.
Paul O. Johnson
Donald C. Wegmiller
Alan J. Wilensky(2)
Rodney A. Young
Finance Paul O. Johnson
Alan J. Wilensky(1)(2)
Board Organization Lee M. Berlin(1)
Alan C. Hymes, M.D.
Rodney A. Young
- ----------------------
(1) Committee Chairman
(2) Resigned from the Board in October 1997.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding ownership of
the Company's Common Stock as of September 30, 1997, by (i) each person known to
the Company to own beneficially more than 5% of the outstanding shares of the
Company's Common Stock; (ii) each director and nominee for election as director
of the Company; (iii) the officers named in the Summary Compensation Table of
this Proxy Statement; and (iv) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each person in the table has
sole voting and investment power as to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED
- ----------------------------------------------- ------------------ ------------------
<S> <C> <C>
Lee M. Berlin ................................. 554,029(1) 14.4%
C/O LecTec Corporation
10701 Red Circle Drive
Minnetonka, MN 55343
Alan C. Hymes, M.D............................. 395,542(2) 10.2%
C/O LecTec Corporation
10701 Red Circle Drive
Minnetonka, MN 55343
Perkins Capital Management, Inc................ 315,235(3) 8.2%
730 East Lake Street
Wayzata, MN 55391
Thomas E. Brunelle, Ph.D....................... 89,314(4) 2.3%
Rodney A. Young ............................... 34,600(5) *
Paul O. Johnson ............................... 31,137(6) *
Alan J. Wilensky .............................. 9,500(7) *
Donald C. Wegmiller ........................... 3,000(8) *
Bert J. McKasy ................................ 578 *
Marilyn K. Speedie ............................ 0 -
All directors and executive officers as a group
(10 persons) ................................. 1,030,308(9) 26.1%
</TABLE>
- ---------------------
*Less than 1%
<PAGE>
Notes to table of Security Ownership of Certain Beneficial Owners and
Management:
(1) The figure includes 75,605 shares owned by Mr. Berlin's wife, 137,145
shares owned by Mr. Berlin's son (Mr. Berlin has disclaimed beneficial
ownership of such shares), and options, granted to Mr. Berlin, available
for exercise within 60 days to purchase 11,125 shares.
(2) The figure includes options granted to Dr. Hymes, available for exercise
within 60 days, to purchase 19,669 shares.
(3) Based upon a Schedule 13G/A filed February 13, 1997.
(4) The figure includes options, granted to Dr. Brunelle, available for
exercise within 60 days, to purchase 78,927 shares.
(5) The figure includes options, granted to Mr. Young, available for exercise
within 60 days, to purchase 32,500 shares.
(6) The figure includes options, granted to Mr. Johnson, available for exercise
within 60 days, to purchase 27,772 shares.
(7) The figure includes options, granted to Mr. Wilensky, available for
exercise within 60 days, to purchase 8,500 shares.
(8) The figure includes options, granted to Mr. Wegmiller, available for
exercise within 60 days, to purchase 3,000 shares.
(9) The figure includes applicable shares and options described in the
preceding footnotes and 2,500 shares owned by the Company's other officers,
and no options, available for exercise within 60 days, to purchase shares
granted to the Company's other officers.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee (the "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
comprised of independent outside directors and the Chief Executive Officer. The
Committee meets as may be 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 continued 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 compensation in
Company Common Stock.
* 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 fiscal year 1997, 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
individual performance, level of responsibility, scope and complexity of the
position, internal equity and salary levels for comparable positions at peer
industry companies.
During the fiscal year ended June 30, 1997 the current executive officer of
the Company remained at his initial base salary. During the fiscal years ended
June 30, 1997, 1996 and 1995, the previous executive officer of the Company
received nominal base salary increases. This reflects the Company's philosophy
of shifting more of executive compensation to the "at risk" performance and
stock-based incentives.
<PAGE>
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 target awards under an annual incentive
program ranging from 10% to 60% of base salary. The size of the target award is
determined by the executive officer's position and competitive data for similar
positions at peer industry companies. The Company will set earnings performance
goals and, in keeping with the strong performance-based philosophy, the
resulting awards will decrease or increase substantially if actual Company
performance fails to meet or exceed targeted levels.
For the fiscal year 1997, the minimum earnings performance goals under the
annual incentive program were not achieved. Consequently, no cash bonus payments
were made under the annual incentive program.
Awards received under the aforementioned program will be offset against
bonus awards granted under the Company's Profit Sharing Bonus Plan.
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. Guideline levels of options are prepared based on competitive data from
peer industry companies. Individual awards are based on the individual's
responsibilities and performance, ability to impact financial performance and
future potential. All individual stock options 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 Dr. Brunelle (the previous Chief Executive Officer) was
$110,000 during fiscal 1997. The base salary for Mr. Young (the current Chief
Executive Officer) was $160,000 during fiscal 1997. 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
granted during fiscal 1997 due to the Company not achieving the minimum
performance goals established by the Committee.
In fiscal 1997, Mr. Young received options to purchase up to 150,000 shares
of the Company's common stock at a weighted average exercise price of $10.00 per
share.
<PAGE>
CONCLUSION
The executive officer compensation program administered by the Committee
provides incentive to attain strong financial performance and an alignment with
shareholder interests. The Committee believes that the Company's compensation
program focuses the efforts of the Company's executive officers on the continued
achievement of growth and profitability for the benefit of the Company's
shareholders.
COMPENSATION COMMITTEE
Lee M. Berlin, Chairman
Alan C. Hymes, M.D.
Paul O. Johnson
Donald C. Wegmiller
Rodney A. Young
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the cash and non-cash compensation for the fiscal
years ended June 30, 1997, 1996 and 1995, awarded to or earned by each person
who served as the Chief Executive Officer of the Company (the "Named
Executives") during the fiscal year ended June 30, 1997. There were no other
executive officers of the Company whose total salary and bonus exceeded $100,000
during fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
FISCAL YEAR ---------------- ---------------------
ENDED SECURITIES UNDERLYING ALL OTHER
NAME AND POSITION JUNE 30, SALARY BONUS OPTIONS COMPENSATION(3)
----------------- ----------- -------- ----- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Rodney A. Young(1) 1997 $135,439 $ -- 150,000 $ --
Chairman, President and 1996 -- -- -- --
Chief Executive Officer 1995 -- -- -- --
Thomas E. Brunelle, Ph.D.(2) 1997 $ 87,157 $ -- -- $1,957
Chairman, President and 1996 110,000 108 15,000 2,748
Chief Executive Officer 1995 105,000 699 15,000 5,276
</TABLE>
- ---------------------
(1) Mr. Young was appointed President, Chief Executive Officer and a Director
of the Company on August 12, 1996. He was elected Chairman on November 18,
1996.
(2) Dr. Brunelle retired from the Company on August 12, 1996, relinquishing the
executive officer positions of President and Chief Executive Officer. He
also did not stand for reelection as a Director on November 18, 1996,
thereby relinquishing his position of Chairman. The salary amount for 1997
includes transition and retirement compensation of $69,000.
(3) Reflects a Profit Sharing Pension Plan and Trust contribution for Dr.
Brunelle of $2,638 in fiscal 1995 and matching contributions under the
Company's 401(k) and Profit Sharing Plan for Dr. Brunelle of $1,957, $2,748
and $2,638 in fiscal years 1997, 1996 and 1995, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's 1989 Stock Plan to the Named Executives of the
Company identified on the preceding table during the fiscal year ended June 30,
1997:
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
---------------------------------------------------- VALUE AT
PERCENT ASSUMED
OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTION TERM(1)
OPTIONS IN FISCAL PER EXPIRATION ----------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
---- ----------- ---------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rodney A. Young 100,000(2) 30.5% $11.25 Aug-11-2006 $707,500 $1,793,000
50,000(3) 15.2% $ 7.50 Nov-19-2006 $235,850 $ 597,500
Thomas E. Brunelle, Ph.D. -- -- -- -- -- --
</TABLE>
- ---------------------
(1) These amounts represent certain assumed annual rates of appreciation only.
Potential realizable value is calculated assuming 5% and 10% appreciation
in the price of the Common Stock from the date of grant.
<PAGE>
ACTUAL GAINS, IF ANY, ON STOCK OPTION EXERCISES ARE DEPENDENT ON THE FUTURE
PERFORMANCE OF THE COMMON STOCK, AND OVERALL STOCK MARKET CONDITIONS. THE
AMOUNT REFLECTED IN THIS TABLE MAY NOT NECESSARILY BE ACHIEVED. Assuming
3,842,818 shares of Common Stock are outstanding, a beginning stock price
of $7.50 per share and 5% and 10% annual appreciation in the price of the
Common Stock over 10 years, the aggregate market value of the Company's
outstanding Common Stock would increase from $28,821,135 to $46,946,000,
assuming 5% annual appreciation and to $74,755,000, assuming 10% annual
appreciation.
(2) This option vests in five equal amounts at the end of each year over a five
year period beginning August 12, 1996. Vesting may be accelerated under
certain terms as detailed in the section entitled "Termination of
Employment and Change-in-Control Arrangements" of this Proxy Statement.
(3) This option vests in four equal amounts at the end of each year over a four
year period beginning November 19, 1996.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the Named
Executives, concerning the exercise of options during the fiscal year ended June
30, 1997 and unexercised options held as of June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JUNE 30, 1997 AS OF JUNE 30, 1997(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rodney A. Young 0 $ 0 0 150,000 $0 $0
Thomas E. Brunelle, Ph.D. 11,576 36,499 78,927 0 0 0
</TABLE>
- ---------------------
(1) The value of in-the-money options on June 30, 1997 equals the market value
of underlying unexercised options less the option exercise price. Options
are in-the-money if the market value of the shares covered thereby is
greater than the option price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee (the "Committee") consisted of the five
non-employee directors and the one employee director (the Chief Executive
Officer). Directors Berlin, Hymes, Johnson and Wilensky each served on the
Committee for the entire fiscal year ended June 30, 1997 while Director Young
was appointed in August, 1996 and Director Wegmiller was appointed in February,
1997.
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.
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has entered into a termination of employment and
change-in-control arrangement with Mr. Young, which provides for varying
payments depending upon the circumstances of Mr. Young's employment termination.
If terminated during the first year of employment without cause, the Company
would have paid one year of base salary and 20,000 shares of the 100,000 shares
of the stock options granted upon employment would vest on the day of
termination with the right to exercise on that date. If terminated during the
second year of employment without cause, the Company would pay six months of
base salary but there would be no further vesting of the stock options granted
upon employment. If terminated after one year of employment as a result of a
change in control (defined as 50% plus one vote), Mr. Young would be fully
vested in the stock options granted upon employment.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All current transactions between the Company and its officers, directors,
principal shareholders or affiliates are and all future transactions between the
Company and such affiliated parties will be on terms no less favorable to the
Company than could have been obtained in arm's-length transactions with
unaffiliated third parties, as determined by a majority of the disinterested
members of the Company's Board of Directors. All future transactions with and
loans to affiliated parties will be approved by a majority of the disinterested
members of the Company's Board of Directors. In addition, the Company will make
or guarantee loans to officers, directors, principal shareholders or other
affiliates only for bona fide business purposes.
During fiscal 1994 Alan J. Wilensky, while a partner in the Washington
office of Akin, Gump, Strauss, Hauer & Feld, served as the outside corporate
counsel to the Company. During fiscal 1995, 1996 and 1997, as a partner in the
Washington office of Bryan Cave LLP, Mr. Wilensky was retained as an outside
counsel to the Company.
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
The graph and table below compare the cumulative total shareholder return
on the Company's Common Stock for the last five fiscal years with the cumulative
total return on the S & P 500 Index and the S & P Medical Products and Supplies
Index over the same period. The graph and table assume the investment of $100 in
each of the Company's Common Stock, the S & P 500 Index and the S & P Medical
Products and Supplies Index on June 30, 1992 and that all dividends (cash and
stock) were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
LECTEC CORPORATION ........ 100 121 117 161 179 89
S & P 500 ................. 100 114 115 145 183 247
S & P Med. P&S ............ 100 82 79 121 159 211
</TABLE>
<PAGE>
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Grant Thornton LLP as the Company's
independent auditor for the fiscal year which began July 1, 1997. 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, 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT AUDITOR. 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 BUSINESS
The Company knows of no other matters to be acted upon at the Meeting. If
any other matters properly come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote the shares they represent as the
Board of Directors may recommend.
PROPOSALS FOR THE NEXT REGULAR MEETING
Any proposal by a shareholder to be presented at the 1998 Regular Meeting
of Shareholders must be received at the Company's principal executive offices at
10701 Red Circle Drive, Minnetonka, Minnesota 55343, not later than June 16,
1998.
By Order of the Board of Directors
/s/ Deborah L. Moore
Deborah L. Moore
SECRETARY
Dated: October 23, 1997
<PAGE>
[LOGO] PRINTED WITH SOY INK
[LOGO] RECYCLED PAPER
<PAGE>
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MN 55343
ANNUAL MEETING OF SHAREHOLDERS -- NOVEMBER 20, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned hereby appoint(s) Rodney A. Young and Deborah L. Moore, each
with the power to act alone and with the powers of substitution and revocation,
as proxies and agents ("Proxy Agents"), in the name of the undersigned, to
represent and to vote as designated below all of the shares of Common Stock of
LecTec Corporation (the "Company") held of record by the undersigned on
September 30, 1997, at the Annual Meeting of Shareholders to be held at the
Minneapolis Marriott Southwest Hotel, 5801 Opus Parkway, Minnetonka, Minnesota
55343 on Thursday, November 20, 1997, at 3:00 p.m.(CST), and any adjournment(s)
thereof, the undersigned herewith ratifying all that the said Proxy Agents may
so do. The undersigned further acknowledges receipt of the Notice of Annual
Meeting and the Proxy Statement in support of the Board of Directors'
solicitation of proxies dated October 23, 1997.
1. ELECTION OF DIRECTORS TO SERVE FOR A TERM OF ONE YEAR AND UNTIL THEIR
SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
[ ] FOR all nominees listed below [ ] WITHHOLD authority
(EXCEPT AS MARKED TO THE CONTRARY) TO VOTE FOR ALL NOMINEES LISTED
BELOW
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
LEE M. BERLIN ALAN C. HYMES, M.D. PAUL O. JOHNSON BERT J. MCKASY
MARILYN K. SPEEDIE DONALD C. WEGMILLER RODNEY A. YOUNG
2. PROPOSAL TO RATIFY THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S
INDEPENDENT AUDITOR FOR THE COMPANY'S CURRENT FISCAL YEAR.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED ON OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
3. IN THEIR DISCRETION, THE PROXY AGENTS ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
THIS PROXY WHEN PROPERLY EXECUTED AND RETURNED TO THE COMPANY WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
Dated: ___________________________, 1997
________________________________________
(Signature)
________________________________________
(Signature)
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.
