UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A-2
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2000.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________.
Commission File Number: 0-16159
LECTEC CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1301878
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10701 RED CIRCLE DRIVE, MINNETONKA, MINNESOTA 55343
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (952) 933-2291
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.01 per
share.
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein; and will not be contained,
to the best of the Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant as of September 20, 2000 was $6,513,235 based upon the last
reported sale price of the Common Stock at that date by the Nasdaq Stock Market.
The number of shares outstanding of the Registrant's Common Stock as of
October 19, 2000 was 3,904,465 shares.
----------------------------
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
On September 28, 2000, LecTec Corporation filed its Annual Report on
Form 10-K for the Fiscal Year Ended June 30, 2000 (the "Form 10-K"). On October
6, 2000, LecTec filed the first amendment to the Form 10-K for the sole purpose
of filing an additional exhibit. The purpose of this second amendment to the
Form 10-K is to provide the information required by the Items comprising Part
III, since LecTec's definitive proxy statement will be filed more than 120 days
after the end of the fiscal year covered by the Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item with respect to executive
officers has been previously included under the heading "Executive Officers of
the Registrant" in Item 1 of the Form 10-K.
INFORMATION CONCERNING DIRECTORS
Lee M. Berlin, 79 years old, has been a Director since 1981 and served
as Chairman of the Board from 1983 through May 1993. He served as LecTec's Chief
Executive Officer from 1983 through January 1989. Prior to joining LecTec, 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., 68 years old, is a founder of LecTec, has been a
Director since 1977 and acts as LecTec'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, 58 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 Comissioner 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 Asministration (now U.S. Bank Trust) and Executive Vice
President of Fritz Company.
Marilyn K. Speedie, Ph.D., 52 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, 62 years old, has served as a Director since 1997.
Since April 1993, Mr. Wegmiller has served as President and Chief Executive
Officer of HealthCare
<PAGE>
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,
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 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, 45 years old, was appointed a Director, Chief
Executive Officer and President of LecTec in August 1996. In November 1996 he
was appointed as Chairman of the Board. Prior to assuming the leadership role
with LecTec, 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., and Delta Dental Plan of Minnesota, as well as the
University of Minnesota Science Undergraduate Advisory Board.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires LecTec's
executive officers and directors and persons who beneficially own more than 10%
of LecTec'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 LecTec with copies of all Section 16(a)
reports they file.
Based solely on a review of the copies of such reports furnished to
LecTec and written representations from the executive officers and directors,
LecTec believes that all Section 16(a) filing requirements applicable to its
executive officers and directors and greater than 10% beneficial owners have
been met, except that a May 22, 2000 purchase of LecTec common stock by Alan
Hymes was not reported on a timely filed May 2000 Form 4 on which several other
purchases were recorded. An amended Form 4 for Mr. Hymes was filed on July 7,
2000 which correctly reported the transaction.
2
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the cash and non-cash compensation for the
fiscal years ended June 30, 2000, 1999 and 1998, awarded to or earned by Rodney
A. Young, the Chairman of the Board and LecTec's President and Chief Executive
Officer, and the other executive officers of LecTec.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Fiscal Year Securities
Ended Underlying All Other
Name and Position June 30, Salary Bonus Options Compensation (1)
----------------- -------- ------ ----- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Rodney A. Young 2000 $200,000 $ -- -- $ 4,039
Chairman, President and 1999 200,000 -- 95,000 2,358
Chief Executive Officer 1998 178,000 -- 55,000 2,450
Timothy R. J. Quinn (2) 2000 118,800 35,640(3) -- 2,009
Vice President and General 1999 99,000 -- 58,000 2,365
Manager, Consumer Products 1998 13,300 -- -- --
Deborah L. Moore (4) 2000 117,300 -- -- 1,779
Chief Financial Officer, 1999 117,300 -- 36,000 1,573
Secretary and Treasurer 1998 108,885 -- 20,000 1,447
Jane M. Nichols 2000 117,300 -- -- 1,218
Vice President, Marketing and 1999 117,300 -- 22,500 1,173
New Business Development 1998 108,885 -- 20,000 579
Daniel M. McWhorter 2000 117,300 -- -- 3,045
Vice President, Research and 1999 111,200 -- 27,700 2,577
Development 1998 96,075 -- 20,000 1,277
John D. LeGray 2000 104,420 -- -- 2,711
Vice President, Quality Assurance 1999 98,400 -- 22,500 2,460
and Regulatory Affairs 1998 68,100 -- 17,500 1,135
Timothy P. Fitzgerald (5) 2000 40,192 -- 25,000 --
Vice President, Operations 1999 -- -- -- --
1998 -- -- -- --
</TABLE>
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(1) Reflects matching contributions under LecTec's 401(k) and Profit
Sharing Plan.
(2) Mr. Quinn joined LecTec on May 11, 1998 and was appointed Vice
President and General Manager, Consumer Products on January 24, 2000.
(3) Mr. Quinn received a bonus made outside the annual incentive program
based on the achievement of certain sales goals.
(4) Ms. Moore resigned her position with LecTec effective August 4, 2000.
(5) Mr. Fitzgerald joined LecTec and was appointed Vice President,
Operations on February 21, 2000.
3
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under LecTec's 1998 Stock Option Plan during the fiscal year ended
June 30, 2000 to each of the executive officers named in the Summary
Compensation Table above:
<TABLE>
<CAPTION>
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 FISCAL PER EXPIRATION ---------------------
NAME GRANTED YEAR (2) SHARE DATE 5% 10%
------------------------ ------- -------- ----- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rodney A. Young 0 0.0% -- -- -- --
Timothy R. J. Quinn 0 0.0% -- -- -- --
Deborah L. Moore 0 0.0% -- -- -- --
Jane M. Nichols 0 0.0% -- -- -- --
Daniel M. McWhorter 0 0.0% -- -- -- --
John D. LeGray 0 0.0% -- -- -- --
Timothy P. Fitzgerald 25,000 21.7% $3.25 May 2, 2005 $23,453 $50,872
</TABLE>
-------------------------
(1) Each option represents the right to purchase one share of LecTec common
stock. The options shown in this column are all incentive stock options
granted pursuant to LecTec'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 LecTec's common stock at a fixed price per share.
The term of each option is five years.
(2) In the fiscal year ended June 30, 2000, LecTec granted employees
options to purchase an aggregate of 115,000 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 LecTec's estimate or projection of
LecTec'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.
4
<PAGE>
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 fiscal year ended June 30, 2000 and unexercised options held
as of June 30, 2000 by each of the executive officers named in the Summary
Compensation Table above.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JUNE 30, 2000 AS OF JUNE 30, 2000 (1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rodney A. Young 0 $ 0 148,750 151,250 $ 0 $ 0
Timothy R. J. Quinn 0 0 14,500 43,500 0 0
Deborah L. Moore 0 0 49,000 47,000 0 0
Jane M. Nichols 0 0 45,625 36,875 0 0
Daniel M. McWhorter 0 0 39,425 38,275 0 0
John D. LeGray 0 0 14,375 25,625 0 0
Timothy P. Fitzgerald 0 0 0 25,000 0 0
</TABLE>
-------------------------
(1) "Value" has been determined based on the difference between the last
sale price of LecTec's common stock as reported by the Nasdaq National
Market System on June 30, 2000 ($2.25) and the per share option
exercise price, multiplied by the number of shares subject to the
in-the-money options.
DIRECTOR COMPENSATION
Directors who are not employees of LecTec are paid for their services
at the rate of $1,000 per quarter plus reasonable meeting expenses. The
quarterly payments were suspended for the fourth quarter of the 2000 fiscal
year. During the 2000 fiscal year, each of the outside directors received a
five-year option under the LecTec 1998 Director's Stock Option Plan to purchase
5,000 shares of LecTec's common stock at a price of $2.875 which was the fair
market value of the common stock at the date of grant.
CHANGE IN CONTROL PLANS
LecTec'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, LecTec adopted the Improved Shareholder Value Cash Bonus
Plan which provides cash bonus payments to executive officers if LecTec is
acquired by or merged with another company, and the valuation of LecTec 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 LecTec 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.
5
<PAGE>
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 fiscal year ended June 30, 2000.
Mr. Berlin was formerly an officer of LecTec, having served as both
Chairman of the Board and Chief Executive Officer of LecTec. There were no other
Compensation Committee "interlocks" within the meaning of the SEC rules.
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
LecTec's executive officers. The Committee is comprised 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 LecTec's compensation policies for executive officers and the rationale for
the compensation paid to executive officers.
COMPENSATION PHILOSOPHY
LecTec's compensation program is designed to motivate and reward
executives responsible for attaining the financial and strategic objectives
essential to LecTec'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 LecTec's performance and shareholder return. The Committee believes it
is in the best interests of the shareholders to reward executives when LecTec'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 LecTec'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 LecTec'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 LecTec.
6
<PAGE>
EXECUTIVE OFFICER COMPENSATION PROGRAM
The key components of LecTec's executive officer compensation program
are base salary, annual incentives and long-term incentives. These elements are
described below. During fiscal year 2000, 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, 2000 the current executive
officers of LecTec did not receive salary increases, with the exception of
Timothy R.J. Quinn.
ANNUAL INCENTIVE AWARDS. The purpose of LecTec'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 LecTec'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 2000, the minimum earnings performance goals under
the annual incentive program were not achieved and no cash bonus payments were
made under the annual incentive program. One executive officer, Mr. Quinn,
received a bonus made outside the annual incentive program based on the
achievement of certain sales goals.
LONG-TERM INCENTIVE PLANS. Long-term incentives are provided to
executive officers through LecTec's stock option program.
LecTec'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.
7
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION. The base salary for Mr. Young was
$200,000 during fiscal 2000, the same base salary as 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 2000 due to LecTec not achieving the minimum performance
goals established by the Committee. In fiscal 2000, Mr. Young did not receive
any stock options to purchase LecTec's Common Stock.
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 LecTec's compensation program focuses the efforts of
LecTec's executive officers on the achievement of growth, profitability and the
enhancement of shareholder value for the benefit of all of LecTec's
shareholders.
COMPENSATION COMMITTEE
Donald C. Wegmiller, Chairman
Lee M. Berlin
Alan C. Hymes, M.D.
8
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
The graph and table below compare the cumulative total shareholder
return on LecTec's common stock for the last five fiscal years 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 LecTec's Common Stock, the Russell 2000 Index and the S & P
Medical Products & Supplies Index on June 30, 1995 and that all dividends (cash
and stock) were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[PLOT POINTS CHART]
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99 6/30/00
------- ------- ------- ------- ------- -------
LECTEC CORPORATION ....... 100 107 54 29 34 19
Russell 2000 ............. 100 121 155 186 176 171
S & P Med. P&S ........... 100 131 174 233 277 301
ITEM 12. 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 October 25, 2000, 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.
9
<PAGE>
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
October 25, 2000 are considered outstanding. These shares, however, are not
considered outstanding when computing the percentage ownership of each other
person. 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 October
25, 2000. The number of shares subject to options that each beneficial owner has
the right to acquire within 60 days of October 25, 2000 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 3,904,465 shares
of common stock outstanding on October 25, 2000.
NUMBER OF
SHARES
NUMBER OF UNDERLYING
SHARES OPTIONS PERCENT OF
BENEFICIALLY BENEFICIALLY SHARES
NAME OWNED OWNED OUTSTANDING
---- ----- ----- -----------
Lee M. Berlin (1) 567,029 24,125 14.4%
Alan C. Hymes, M.D. 427,742 32,669 10.9
Rodney A. Young 195,750 181,250 4.8
Deborah L. Moore 59,541 49,000 1.5
Daniel M. McWhorter 56,550 40,725 1.4
Jane M. Nichols 49,538 45,625 1.3
John D. LeGray 23,035 14,375 *
Timothy R. J. Quinn 23,000 20,000 *
Bert J. McKasy 17,778 13,000 *
Donald C. Wegmiller 17,000 16,000 *
Marilyn K. Speedie, Ph.D. 13,000 11,500 *
Timothy P. Fitzgerald 0 0 *
All directors and executive
officers as a group (12 persons) 1,449,963 448,269 33.3
-----------------------------
*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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to its
annual report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 26th day of October, 2000.
LECTEC CORPORATION
/s/ Rodney A. Young
-----------------------------------------
Rodney A. Young
Chairman, Chief Executive Officer and
President
(Principal Executive Officer)
