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
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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
[ ] 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 1999 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 11, 1999, 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 of the close of business on Wednesday,
September 15, 1999, 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 4, 1999
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF SHAREHOLDERS -- NOVEMBER 11, 1999
------------------
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 11, 1999, 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 FROM VOTING AS TO ANY MATTER (OR
INDICATES A "WITHHOLD VOTE FOR" AS TO DIRECTORS), 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 1999 are first being sent to Shareholders on
or about October 4, 1999.
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 15, 1999, the record date fixed for the determination of
shareholders of the Company entitled to notice of and to vote at the Meeting,
there were 3,876,476 outstanding shares of
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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 19, 1998, the shareholders elected seven
directors. The Board of Directors appointed Sheldon L. Zimbler to the Board of
Directors in July 1999 thereby increasing the number of directors to eight.
Seven persons have been nominated for election as directors at the 1999
annual 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, RODNEY A. YOUNG
AND SHELDON L. ZIMBLER 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. Paul O. Johnson,
currently a member of the Board of Directors, is retiring from the Board of
Directors in November 1999. The Company thanks Mr. Johnson for his years of
dedicated service to the Company.
The Board of Directors held five meetings during the fiscal year ended June
30, 1999. 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
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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 77 1981
Bonita Springs, FL
Alan C. Hymes, M.D. Private Medical Practice 67 1977
Sedro Woolley, WA
Bert J. McKasy Partner 57 1997
Lindquist & Vennum PLLP
Minneapolis, MN
Marilyn K. Speedie, Ph.D. Dean and Professor 51 1997
University Of Minnesota College of Pharmacy
Minneapolis, MN
Donald C. Wegmiller President and Chief Executive Officer 61 1997
HealthCare Compensation Strategies
Minneapolis, MN
Rodney A. Young Chairman, President and CEO 44 1996
LecTec Corporation
Minnetonka, MN
Sheldon L. Zimbler Consumer Products Advisor 55 1999
Boca, Raton, FL
</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.
BERT J. MCKASY, a Director since 1997, has been a partner with Lindquist &
Vennum PLLP since 1994. He has also owned McKasy Travel Service, Inc. since
1983 and served as the Chair of the St. Paul Chamber of Commerce in 1996. Mr.
McKasy served as Minnesota's Commerce Commissioner from 1991 to 1993.
MARILYN K. SPEEDIE, PH.D., a Director since 1997, 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
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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 has been a Director since 1997. Since April 1993, he
has served as President and Chief Executive Officer of Health Care Compensation
Strategies, 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, Inc., Medical Graphics Corporation, JLJ
Medical Devices International, LLC, 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. Mr. Young is also a Director
of Possis Medical, Inc, and Delta Dental Plan of Minnesota.
SHELDON L. ZIMBLER was appointed a Director of the Company on July 29,
1999. Mr. Zimbler has more than 30 years experience as a consumer products
senior executive, most recently as President, Worldwide Consumer Products for
Nice-Pak Products, Inc. during 1998 and 1999. From November 1995 until January
1998 he was President and COO for Redmond Products, Inc. and from September
1991 until June 1995 he served as Executive Vice President, and then as
President, U.S. Division for Neutrogena Corporation. Prior to September 1991,
Mr. Zimbler was a senior sales executive with Procter & Gamble Company.
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, 1999.
Based upon information provided by officers and directors of the Company,
Mr. Wegmiller failed to file on a timely basis one Form 4 disclosing his
purchase of 1,000 shares of LecTec Corporation Common Stock during the 1997
fiscal year. The transaction has since been reported.
DIRECTORS' COMPENSATION
In February 1999 the Board of Directors of the Company adopted a proposal
effective January 1, 1999 to continue to pay outside directors for their
services at the rate of $1,000 per quarter and to include reasonable meeting
expenses. The resolution discontinued additional payments to outside directors
for Board or Committee meeting attendance at the rate of $100 per meeting and an
additional $50 per meeting attended for serving as committee chairperson. During
the fiscal year ended June 30, 1999, the Company paid or accrued $5,050 for the
benefit of Mr. Berlin, $5,000 for Dr. Hymes, $4,750 for Mr. Johnson, $4,300 for
Mr. McKasy, $4,450 for Dr. Speedie and $4,600 for Mr. Wegmiller. In addition,
during the fiscal year ended June 30, 1999, each of the outside directors
received a five-year option
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under the Company's 1998 Director's Stock Option Plan to purchase 5,000 shares
of the Company's Common Stock at a price equal to the fair market value at the
date of grant.
STANDING COMMITTEES
The Board of Directors of the Company has five standing committees. 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 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 Business
Development/Technology & Marketing Committee was established to serve as the
Company's technology advocate in the business, academic and professional
communities. The Committee supports and assists the efforts of the Board and
management to identify new products, technologies, alliances and markets that
leverage and enhance the Company's core competencies. The Audit Committee and
Compensation Committee each held four meetings during the last fiscal year and
all members of each committee attended each meeting. The Board Organization
Committee held three meetings during the last fiscal year and all members
attended each meeting. The Executive and Business Development/Technology &
Marketing Committees each met one time during the fiscal year and all respective
members of each Committee attended the meetings except for the absence of Dr.
Speedie from the Executive Committee meeting. The following table shows the
names of the directors as they served on each committee during the last fiscal
year:
<TABLE>
<CAPTION>
COMMITTEE MEMBERS
- - --------------------------------------------- -----------------------------
<S> <C>
Executive Rodney A. Young(1)
Paul O. Johnson
Bert J. McKasy
Marilyn K. Speedie, Ph.D.
Audit Paul O. Johnson(1)
Lee M. Berlin
Alan C. Hymes, M.D.
Compensation Donald C. Wegmiller(1)
Lee M. Berlin
Alan C. Hymes, M.D.
Board Organization Lee M. Berlin(1)
Alan C. Hymes, M.D.
Rodney A. Young
Business Development/Technology Marilyn K. Speedie, Ph.D.(1)
& Marketing Lee M. Berlin
Alan C. Hymes, M.D.
Bert J. McKasy
</TABLE>
- - ------------------
(1) Committee Chairperson
5
<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 15, 1999, 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 ...................... 562,029(1) 14.4%
Alan C. Hymes, M.D. ................ 416,742(2) 10.7%
Rodney A. Young .................... 111,250(3) 2.8%
Deborah L. Moore ................... 34,621(4) *
Paul O. Johnson .................... 31,034(5) *
Daniel M. McWhorter ................ 30,759(6) *
Jane M. Nichols .................... 26,283(7) *
Sheldon L. Zimbler ................. 18,000(8) *
Bert J. McKasy ..................... 12,778(9) *
Donald C. Wegmiller ................ 12,000(10) *
John D. LeGray ..................... 9,759(11) *
Marilyn K. Speedie, Ph.D. .......... 8,000(12) *
All directors and executive officers
as a group (12 persons) ........... 1,273,255(13) 30.6%
</TABLE>
- - ------------------
*Less than 1%
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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 19,125 shares.
(2) The figure includes options granted to Dr. Hymes, available for
exercise within 60 days, to purchase 27,669 shares.
(3) The figure includes options granted to Mr. Young, available for
exercise within 60 days, to purchase 98,750 shares.
(4) The figure includes options granted to Ms. Moore, available for
exercise within 60 days, to purchase 25,000 shares.
(5) The figure includes options granted to Mr. Johnson, available for
exercise within 60 days, to purchase 27,669 shares.
(6) The figure includes options granted to Mr. McWhorter, available for
exercise within 60 days, to purchase 20,000 shares.
(7) The figure includes options granted to Ms. Nichols, available for
exercise within 60 days, to purchase 25,000 shares.
(8) The figure includes options granted to Mr. Zimbler, available for
exercise within 60 days, to purchase 10,000 shares.
(9) The figure includes options granted to Mr. McKasy, available for
exercise within 60 days, to purchase 8,000 shares.
(10) The figure includes options granted to Mr. Wegmiller, available for
exercise within 60 days, to purchase 11,000 shares.
(11) The figure includes options granted to Mr. LeGray, available for
exercise within 60 days, to purchase 4,375 shares.
(12) The figure includes options granted to Dr. Speedie, available for
exercise within 60 days, to purchase 7,000 shares.
(13) The figure includes applicable shares and options described in the
preceding footnotes.
7
<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. 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 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 Company stock-based.
* 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 1999, 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 and salary levels for comparable positions at industry peer group
companies.
During the fiscal year ended June 30, 1999 the current executive officers
of the Company did not receive salary increases, with the exception of Daniel M.
McWhorter and John D. LeGray. Mr. LeGray received an increase in salary
effective with his appointment to Vice President, Quality Assurance and
Regulatory Affairs.
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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 is dependent upon the executive officer's
position and the achievement of targeted post-bonus, pre-tax earnings, as well
as the achievement of individual and team goals.
For the fiscal year 1999, the minimum earnings performance goals under the
annual incentive program were not achieved and no cash bonus payments were made.
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 a review of
competitive data from industry peer group companies. Individual awards are based
on the individual's responsibilities and performance, ability to impact
financial performance and future potential. 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.
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.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary for Mr. Young was $200,000 during fiscal 1999. 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 fiscal 1999 due to the Company not achieving the minimum performance
goals established by the Committee.
In fiscal 1999, Mr. Young received options to purchase up to 95,000 shares
of the Company's Common Stock at a weighted average exercise price of $2.75 per
share.
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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 fiscal
years ended June 30, 1999, 1998 and 1997, awarded to or earned by Rodney A.
Young, the Chairman of the Board and the Company's President and Chief Executive
Officer, and to each other executive officer of the Company (collectively, the
"Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- -----------------------
FISCAL YEAR
ENDED SECURITIES UNDERLYING ALL OTHER
NAME AND POSITION JUNE 30, SALARY BONUS OPTIONS COMPENSATION(6)
- - ------------------------------------ ------------ ----------- ------- ----------------------- ----------------
<S> <C> <C> <C> <C> <C>
Rodney A. Young(1) 1999 $200,000 $ -- 95,000 $2,358
Chairman, President and 1998 178,000 -- 55,000 2,450
Chief Executive Officer 1997 135,439 -- 150,000 --
Deborah L. Moore(2) 1999 117,300 -- 36,000 1,573
Chief Financial Officer, 1998 108,885 -- 20,000 1,447
Secretary and Treasurer 1997 29,423 -- 40,000 --
Jane M. Nichols(3) 1999 117,300 -- 22,500 1,173
Vice President, Marketing and 1998 108,885 -- 20,000 579
New Business Development 1997 21,185 -- 40,000 --
Daniel M. McWhorter(4) 1999 111,200 -- 27,700 2,577
Vice President, Research and 1998 96,075 -- 20,000 1,277
Development 1997 40,115 -- 30,000 --
John D. LeGray(5) 1999 98,400 -- 22,500 2,460
Vice President, Quality Assurance 1998 68,100 -- 17,500 1,135
and Regulatory Affairs
</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) Ms. Moore joined the Company on February 25, 1997 and was appointed
Secretary on July 31, 1997 and Treasurer on November 18, 1998.
(3) Ms. Nichols was appointed Vice President, Marketing and New Business
Development effective upon her joining the Company on April 1, 1997.
(4) Mr. McWhorter was appointed Vice President, Research and Development
effective upon his joining the Company on January 1, 1997.
(5) Mr. LeGray joined the Company on September 15, 1997 and was appointed Vice
President, Quality Assurance and Regulatory Affairs effective November 18,
1998.
(6) Reflects matching contributions under the Company's 401(k) and Profit
Sharing Plan.
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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 1989 Stock Option Plan and the 1998 Stock Option
Plan to the Named Executives of the Company identified on the preceding table
during the fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PER EXPIRATION ---------------------------
NAME GRANTED IN FISCAL YEAR SHARE DATE 5% 10%
- - --------------------- --------------- --------------- --------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rodney A. Young 95,000(2) 31.2% $2.75 Jun-10-2004 $79,756 $169,058
Deborah L. Moore 36,000(2) 11.8% 2.75 Jun-10-2004 30,224 64,064
Jane M. Nichols 22,500(2) 7.4% 2.75 Jun-10-2004 18,890 40,040
Daniel M. McWhorter 22,500(2) 7.4% 2.75 Jun-10-2004 18,890 40,040
5,200(3) 1.7% 3.19 Nov-18-2008 13,068 60,629
John D. LeGray 22,500(2) 7.4% 2.75 Jun-10-2004 18,890 40,040
</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. 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 3,876,476 shares of
Common Stock are outstanding, a beginning stock price of $2.75 per share
and 5% and 10% annual appreciation in the price of the Common Stock over 5
years, the aggregate market value of the Company's outstanding Common Stock
would increase from $10,660,309 to $13,605,556, assuming 5% annual
appreciation, and to $17,168,534, assuming 10% annual appreciation.
(2) This option vests in four equal amounts annually over a four-year period
beginning June 10, 2000.
(3) This option vests in four equal amounts annually over a four-year period
beginning November 18, 1999.
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, 1999 and unexercised options held as of June 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JUNE 30, 1999 AS OF JUNE 30, 1999(1)
ACQUIRED VALUE ------------------------------- ---------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - --------------------- ------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Rodney A. Young 0 $0 78,750 221,250 $0 $118,750
Deborah L. Moore 0 0 25,000 71,000 0 45,000
Jane M. Nichols 0 0 25,000 57,500 0 28,125
Daniel M. McWhorter 0 0 20,000 57,700 0 32,337
John D. LeGray 0 0 4,375 35,625 0 28,125
</TABLE>
- - ------------------
(1) The value of in-the-money options on June 30, 1999 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.
12
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee (the "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 fiscal
year ended June 30, 1999.
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.
CHANGE IN CONTROL PLANS
CHANGE IN CONTROL TERMINATION PAY PLAN. During fiscal 1998 the Company
adopted a Change In Control Termination Pay Plan for the benefit of executive
officers of the Company. The Plan provides for termination payments to executive
officers if they are terminated within twelve months of a change in control.
Termination payments for the Chief Executive Officer are twenty times the
highest monthly base compensation during the six months immediately before the
date of termination. Termination payments for all other executive officers are
twelve times the highest monthly base compensation during the six months
immediately before the date of termination.
IMPROVED SHAREHOLDER VALUE CASH BONUS PLAN. In July 1999, the Company
adopted the Improved Shareholder Value Cash Bonus Plan for the benefit of
executive officers of the Company. The Plan provides for 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 1.8 times the Company's sales for the most recently completed
four calendar quarters. The sale or merger of the Company at the minimum
valuation of 1.8 times sales would result in cash bonus payments to seven
executives totaling approximately $445,000 or 2% of the total valuation of the
Company. Cash bonus payments under the Plan increase as the total valuation of
the Company for purposes of the sale or merger increases. If the total valuation
of the Company were 6.2 times sales, cash bonuses totaling approximately 6.0% of
the Company's total valuation would be paid to executives.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company did not have any relationships or related transactions required
to be disclosed under Item 404 of Regulation S-K in fiscal 1999. 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.
13
<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 Russell 2000 Index, S & P 500 Index and the S & P Medical
Products & Supplies Index over the same period. The Company has added the
Russell 2000 Index this year as a comparison due to management's belief that the
companies included in the Russell 2000 Index have characteristics more similar
to LecTec Corporation than companies included in the S & P 500 Index. The
Company intends in future periods to provide comparisons only to the Russell
2000 Index for purposes of a broad-based equity market index comparison. The
graph and table assume the investment of $100 in each of the Company's Common
Stock, the Russell 2000 Index, the S & P 500 Index and the S & P Medical
Products & Supplies Index on June 30, 1994 and that all dividends (cash and
stock) were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[LINE CHART]
<TABLE>
<CAPTION>
6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
LECTEC CORPORATION .......... 100 138 153 76 42 48
RUSSELL 2000 ................ 100 120 149 173 206 206
S & P 500 ................... 100 126 159 214 279 342
S & P MED. P&S .............. 100 153 202 267 357 425
</TABLE>
14
<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, 1999. 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.
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 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 shareholder proposals to be considered for inclusion in the Company's
proxy material for the 2000 Annual Meeting of Shareholders must be received at
the Company's principal executive office at 10701 Red Circle Drive, Minnetonka,
Minnesota 55343, no later than June 6, 2000. In connection with any matter to be
proposed by a shareholder at the 2000 Annual Meeting, but not proposed for
inclusion in 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 August 20,
2000.
By Order of the Board of Directors
/s/Deborah L. Moore
Deborah L. Moore
SECRETARY
Dated: October 4, 1999
15
<PAGE>
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<PAGE>
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<PAGE>
[LOGO] PRINTED WITH [LOGO]
SOY INK RECYCLED PAPER
<PAGE>
[LOGO]
LECTEC (TM)
CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, NOVEMBER 11, 1999
3:00 P.M. (CENTRAL STANDARD TIME)
THE MINNEAPOLIS MARRIOTT SOUTHWEST HOTEL
5801 OPUS PARKWAY
MINNETONKA, MN 55343
- - --------------------------------------------------------------------------------
[LOGO]
LECTEC (TM) PROXY
CORPORATION 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I appoint Rodney A. Young and Deborah L. Moore, 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 November 11, 1999 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)
<PAGE>
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
<TABLE>
<CAPTION>
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1 AND 2.
<S> <C>
1. ELECTION OF 01 Lee M. Berlin 05 Donald C. Wegmiller [ ] FOR all listed [ ] WITHHOLD
DIRECTORS: 02 Alan C. Hymes, M.D. 06 Rodney A. Young nominees AUTHORITY
03 Bert J. McKasy 07 Sheldon L. Zimbler to vote for
04 Marilyn K. Speedie, Ph.D. all listed
nominees
(Instructions: To withhold authority to vote for any individual -------------------------------------
nominee, 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 _______________________ , 1999
-------------------------------------
| |
| |
-------------------------------------
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.
</TABLE>
