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:
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------
The 1998 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 19, 1998, 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 approve the LecTec Corporation 1998 Stock Option Plan.
4. To approve the LecTec Corporation 1998 Directors' Stock Option Plan.
5. To approve the LecTec Corporation Employee Stock Purchase Plan.
6. 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 Tuesday,
September 22, 1998, 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 16, 1998
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS -- NOVEMBER 19, 1998
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INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed Proxy is solicited by the Board of Directors of LecTec
Corporation (the "Company") for use at the Annual Meeting of Shareholders to be
held Thursday, November 19, 1998, 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 VOTE
FOR" 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 1998 are first being sent to Shareholders on
or about October 16, 1998.
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 22, 1998, the record date fixed for the determination of
shareholders of the Company entitled to notice of and to vote at the Meeting,
there were 3,945,129 outstanding shares of
1
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 20, 1997, the shareholders elected seven
directors.
Seven persons have been nominated for election as directors at the 1998
annual meeting. Directors are elected for a one-year term and serve until their
successors are duly elected and qualified.
THE BOARD OF DIRECTORS RECOMMEND THAT LEE M. BERLIN, ALAN C. HYMES, M.D.,
PAUL O. JOHNSON, BERT J. MCKASY, MARILYN K. SPEEDIE PH.D., DONALD C. WEGMILLER
AND RODNEY A. YOUNG BE ELECTED AS DIRECTORS, EACH TO HOLD OFFICE FOR A TERM OF
ONE YEAR AND UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED. All of the
nominees are currently members of the Board of Directors of the Company and
have served in that capacity since originally elected or designated as
indicated below.
The Board of Directors held five meetings during the fiscal year ended June
30, 1998. 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 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.
2
INFORMATION CONCERNING NOMINEES
DIRECTOR
NAME PRINCIPAL OCCUPATION AGE SINCE
- ------------------------- ------------------------------------------- --- --------
Lee M. Berlin Personal Business Interests 76 1981
Naples, FL
Alan C. Hymes, M.D. Private Medical Practice 66 1977
Mt. Vernon, WA
Paul O. Johnson Personal Business Interests 61 1988
St. Paul, MN
Bert J. McKasy Partner 56 1997
Lindquist & Vennum PLLP
Minneapolis, MN
Marilyn K. Speedie, Ph.D. Dean and Professor 50 1997
University of Minnesota College of Pharmacy
Minneapolis, MN
Donald C. Wegmiller President 60 1997
Management Compensation Group/HealthCare
Minneapolis, MN
Rodney A. Young Chairman, President and CEO 43 1996
LecTec Corporation
Minnetonka, MN
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.
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.
3
MARILYN K. SPEEDIE, 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 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 Management Compensation
Group/HealthCare, 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, 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, 1998.
Based upon information provided by officers and directors of the Company,
the Company is not aware of any delinquent, late or untimely filings of any
director, officer, beneficial owner of ten percent or more of the Company's
common stock or any other persons subject to Section 16(a) filing requirements.
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, 1998, the Company paid or accrued $4,900 for the benefit of
Mr. Berlin, $4,900 for Dr. Hymes, $4,950 for Mr. Johnson, $3,500 for Mr. McKasy,
$3,500 for Dr. Speedie and $4,650 for Mr. Wegmiller. In addition, during the
fiscal year ended June 30, 1998, each of the outside directors received a
ten-year option under the Company's 1991 Directors Stock Option Plan to purchase
3,000 shares of the Company's Common Stock at a price equal to the fair market
value at the date of grant.
4
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 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 held three meetings
during the last fiscal year and all members of the Committee attended each
meeting. The Compensation and Executive Committees each met one time during the
fiscal year and all respective members of each Committee attended the meetings.
The Business Development/Technology Committee met once during the last fiscal
year and was attended by all Committee members except Mr. McKasy. The following
table shows the names of the directors as they served on each committee during
the last fiscal year:
COMMITTEE MEMBERS
------------------------------- ----------------------------
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)
Lee M. Berlin
Alan C. Hymes, M.D.
Bert J. McKasy
- ----------------------
(1) Committee Chairperson
5
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 22, 1998, 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.
NUMBER OF SHARES PERCENT OF SHARES
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED
- ---- ------------------ ------------------
Lee M. Berlin ................................. 557,029(1) 14.1%
Alan C. Hymes, M.D. ........................... 410,942(2) 10.4%
Rodney A. Young ............................... 61,000(3) 1.5%
Paul O. Johnson ............................... 34,137(4) *
Deborah L. Moore .............................. 16,500(5) *
Daniel M. McWhorter ........................... 15,500(6) *
Jane M. Nichols ............................... 10,000(7) *
Bert J. McKasy ................................ 7,778(8) *
Donald C. Wegmiller ........................... 6,000(9) *
Marilyn K. Speedie, Ph.D. ..................... 3,000(10) *
All directors and executive officers as a group
(10 persons) ................................. 1,121,886(11) 27.3%
- --------------------
*Less than 1%
6
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 14,125 shares.
(2) The figure includes options granted to Dr. Hymes, available for exercise
within 60 days, to purchase 22,669 shares.
(3) The figure includes options, granted to Mr. Young, available for exercise
within 60 days, to purchase 52,500 shares.
(4) The figure includes options, granted to Mr. Johnson, available for exercise
within 60 days, to purchase 30,772 shares.
(5) The figure includes options, granted to Ms. Moore, available for exercise
within 60 days, to purchase 10,000 shares.
(6) The figure includes options, granted to Mr. McWhorter, available for
exercise within 60 days, to purchase 7,500 shares.
(7) The figure includes options, granted to Ms. Nichols, available for exercise
within 60 days, to purchase 10,000 shares.
(8) The figure includes options, granted to Mr. McKasy, available for exercise
within 60 days, to purchase 3,000 shares.
(9) The figure includes options, granted to Mr. Wegmiller, available for
exercise within 60 days, to purchase 6,000 shares.
(10) The figure includes options, granted to Dr. Speedie, available for exercise
within 60 days, to purchase 3,000 shares.
(11) The figure includes applicable shares and options described in the
preceding footnotes.
7
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 1998, 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, 1998 the current executive officers
of the Company received salary increases to more closely align them with the
average salaries for comparable positions at industry peer group companies of
comparable size.
8
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 1998, 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 interest 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.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary for Mr. Young was increased to $200,000 during fiscal 1998.
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 1998 due to the Company not achieving the minimum performance
goals established by the Committee.
In fiscal 1998, Mr. Young received options to purchase up to 55,000 shares
of the Company's Common Stock at a weighted average exercise price of $5.00 per
share.
CONCLUSION
The executive officer compensation program administered by the Committee
provides incentives to attain strong financial performance and aligns the
interests of executive officers with shareholder interests. The Committee
believes that the Company's compensation program focuses the efforts of the
Company's executive officers on the achievement of growth and profitability for
the benefit 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, 1998, 1997 and 1996, 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
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
FISCAL YEAR ------------------- ---------------------
ENDED SECURITIES UNDERLYING ALL OTHER
NAME AND POSITION JUNE 30, SALARY BONUS OPTIONS COMPENSATION(5)
- ----------------- ----------- ---------- ------- --------------------- ---------------
Rodney A. Young(1) 1998 $178,000 $ -- 55,000 $2,450
Chairman, President and 1997 135,439 -- 150,000 --
Chief Executive Officer 1996 -- -- -- --
Deborah L. Moore(2) 1998 108,885 -- 20,000 1,447
Chief Financial Officer and 1997 29,423 -- 40,000 --
Secretary 1996 -- -- -- --
Jane M. Nichols(3) 1998 108,885 -- 20,000 579
Vice President, Marketing and 1997 21,185 -- 40,000 --
New Business Development 1996 -- -- -- --
Daniel M. McWhorter(4) 1998 96,075 -- 20,000 1,277
Vice President, Research and 1997 40,115 -- 30,000 --
Development 1996 -- -- -- --
- ---------------------
(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.
(3) Ms. Nichols joined the Company on April 1, 1997.
(4) Mr. McWhorter joined the Company on January 1, 1997.
(5) Reflects matching contributions under the Company's 401(k) and Profit
Sharing Plan.
10
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 to the Named Executives of
the Company identified on the preceding table during the fiscal year ended June
30, 1998:
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%
---- ---------- ---------- ------- ----------- -------- --------
Rodney A. Young 55,000(2) 25.1% $ 5.00 Jan-22-2008 $172,946 $438,279
Deborah L. Moore 20,000(2) 9.1% 5.00 Jan-22-2008 62,889 159,374
Jane M. Nichols 20,000(2) 9.1% 5.00 Jan-22-2008 62,889 159,374
Daniel M. McWhorter 20,000(2) 9.1% 5.00 Jan-22-2008 62,889 159,374
- -------------------
(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 3,945,129 shares of
Common Stock are outstanding, a beginning stock price of $5.00 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 $19,725,645 to $32,130,997, assuming 5% annual
appreciation, and to $51,163,243, assuming 10% annual appreciation.
(2) This option vests in four equal amounts annually over a four year period
beginning January 22, 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, 1998 and unexercised options held as of June 30, 1998.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JUNE 30, 1998 AS OF JUNE 30, 1998(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------- ----------- -------- ----------- ------------- ----------- -------------
Rodney A. Young 0 $0 32,500 172,500 $0 $0
Deborah L. Moore 0 0 10,000 50,000 0 0
Jane M. Nichols 0 0 10,000 50,000 0 0
Daniel M. McWhorter 0 0 7,500 42,500 0 0
- --------------------
(1) The value of in-the-money options on June 30, 1998 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.
11
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, 1998.
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 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 who 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.
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.
12
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, 1993 and that all dividends (cash and
stock) were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[PLOT POINTS CHART]
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
------- ------- ------- ------- ------- -------
LECTEC CORPORATION .......... 100 97 133 148 74 41
S & P 500 ................... 100 101 128 161 217 282
S & P Med. P&S .............. 100 96 148 194 257 344
13
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, 1998. 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 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.
14
ADOPTION OF LECTEC CORPORATION 1998 STOCK OPTION PLAN
On September 23, 1998, the Board of Directors of the Company adopted the
LecTec Corporation 1998 Stock Option Plan (the "1998 Plan"), subject to approval
by the shareholders at the Annual Meeting.
The purpose of the 1998 Plan is to aid in maintaining and developing
personnel capable of assuring the future success of the Company, to offer such
personnel additional incentives to put forth maximum efforts for the success of
the business and to afford such personnel an opportunity to acquire a
proprietary interest in the Company through stock options. All employees are
eligible to participate (including officers and directors who are also
employees) as well as consultants or independent contractors providing valuable
services to the Company or its subsidiaries. Options granted under the 1998 Plan
may be either incentive stock options or options which do not qualify as
incentive stock options.
The 1998 Plan is administered by a committee of directors designated by the
Board of Directors of the Company (the "SOP Committee"). The SOP Committee is
comprised of non-employee or outside directors. The SOP Committee has the
authority to designate participants and determine the award to be granted to
each participant as well as determine the number of shares to be awarded and the
terms and conditions of any award. The SOP Committee has the authority to
interpret and administer the 1998 Plan and to make any determination or take any
action necessary or desirable for the administration of the 1998 Plan.
The exercise price for all incentive stock options granted under the 1998
Plan shall be determined by the SOP Committee but shall not be less than 100% of
the fair market value of shares at the date of granting of such option. The
exercise price for options granted under the 1998 Plan which do not qualify as
incentive stock options shall also be determined by the SOP Committee. The SOP
Committee may set any term for the length of a stock option provided the term
does not exceed ten years from the grant date for an incentive stock option and
the term does not exceed fifteen years from the grant date for a stock option
which does not qualify as an incentive stock option. The SOP Committee is
authorized to grant Stock Appreciation Rights with awards which confer on the
holder a right to receive upon exercise the excess of the fair market value on
the date of exercise over the grant price of the Stock Appreciation Right.
The stock available for grant of options under the 1998 Plan is 500,000
shares. Such amount is adjustable if there is any change in the common stock of
the Company due to a merger, consolidation, reorganization, recapitalization,
stock dividend (of whatever amount), stock split or other changes in the
Company's corporate structure. In the event of such changes, adjustments will be
made in the aggregate number of shares subject to the 1998 Plan, the number of
shares subject to outstanding options and the option exercise prices in order to
prevent dilution or enlargement of option rights.
The 1998 Plan shall terminate on November 19, 2008. No option shall be
granted after such termination, but such termination will not alter or impair
any rights or obligations under any options granted before termination.
The following is a summary of the principal federal income tax consequences
generally applicable to awards under the 1998 Plan. The grant of an option is
not expected to result in any taxable income for the recipient. Upon exercising
a non-qualified stock option, the optionee must recognize ordinary income equal
to the excess of the fair market value of the shares of common stock acquired on
the date of exercise over the exercise price. The Company will be entitled at
that time to a tax deduction for the
15
same amount. The holder of an incentive stock option generally will have no
taxable income upon exercising the incentive stock option (except that a
liability may arise pursuant to the alternative minimum tax), and the Company
will not be entitled to a tax deduction when an incentive stock option is
exercised. The tax consequences to an optionee upon a disposition of shares
acquired through the exercise of an option will depend upon how long the shares
have been held. Under the 1998 Plan, the SOP Committee may permit participants
exercising stock options, subject to the discretion of the SOP Committee and
upon such terms and conditions as it may impose, to surrender shares of common
stock previously owned by the optionee to the Company to satisfy federal and
state tax obligations. Generally, there will be no tax consequence to the
Company in connection with disposition of shares acquired under an option,
except that the Company may be entitled to a tax deduction in the case of a
disposition of shares acquired under an incentive stock option before the
applicable incentive stock option holding periods set forth in the Internal
Revenue Service Code have been satisfied.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE LECTEC
CORPORATION 1998 STOCK OPTION PLAN.
16
ADOPTION OF LECTEC CORPORATION 1998 DIRECTORS' STOCK OPTION PLAN
On September 23, 1998, the Board of Directors of the Company adopted the
LecTec Corporation 1998 Directors' Stock Option Plan (the "Directors' Plan"),
subject to approval by the shareholders at the Annual Meeting.
The purpose of the Directors' Plan is to aid in attracting and retaining
directors capable of assuring the future success of the Company, to offer
directors incentives to put forth maximum efforts for the success of the
Company's business and to afford the directors an opportunity to acquire a
proprietary interest in the Company. Any director who is not an employee of the
Company is eligible to participate. Options granted under the Directors' Plan do
not qualify as incentive stock options.
The Directors' Plan is administered by a committee of directors designated
by the Board of Directors of the Company (the "Directors' SOP Committee"). The
Directors' SOP Committee is comprised of non-employee or outside directors. The
Directors' SOP Committee has the authority to designate participants and
determine the award to be granted to each participant as well as determine the
number of shares to be awarded and the terms and conditions of any award. The
Directors' SOP Committee has the authority to interpret and administer the
Directors' Plan and to make any determination or take any action necessary or
desirable for the administration of the Directors' Plan.
The exercise price for options granted under the Directors' Plan shall be
determined by the Directors' SOP Committee but shall not be less than 100% of
the fair market value of shares at the date of granting of such option. The
Directors' SOP Committee may set any term for the length of a stock option. The
Directors' SOP Committee is authorized to grant Stock Appreciation Rights with
awards which confer on the holder a right to receive upon exercise the excess of
the fair market value on the date of exercise over the grant price of the Stock
Appreciation Right.
The stock available for grant of options under the Directors' Plan is
200,000 shares. Such amount is adjustable if there is any change in the common
stock of the Company due to a merger, consolidation, reorganization,
recapitalization, stock dividend (of whatever amount), stock split or other
changes in the Company's corporate structure. In the event of such changes,
adjustments will be made in the aggregate number of shares subject to the
Directors' Plan, the number of shares subject to outstanding options and the
option exercise prices in order to prevent dilution or enlargement of option
rights.
The Directors' Plan shall terminate on November 19, 2008. No option shall
be granted after such termination, but such termination will not alter or impair
any rights or obligations under any options granted before termination.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE LECTEC
CORPORATION 1998 DIRECTORS' STOCK OPTION PLAN.
17
ADOPTION OF LECTEC CORPORATION EMPLOYEE STOCK PURCHASE PLAN
On September 23, 1998 the Board of Directors adopted the LecTec Corporation
Employee Stock Purchase Plan (the "Stock Purchase Plan"), subject to approval by
the shareholders at the Annual Meeting.
The purpose of the Stock Purchase Plan is to provide the employees of the
Company with an opportunity to share in the ownership of the Company by
providing them a convenient means for regular and systematic purchases of the
Company's Common Stock and to develop a stronger incentive to work for the
continued success of the Company.
The Stock Purchase Plan is administered by a committee (the "ESPP
Committee") established by the Board of Directors which has full authority to
administer the Stock Purchase Plan, including authority to interpret and
construe any provision of the Stock Purchase Plan, to establish deadlines by
which the various administrative forms must be received in order to be
effective, and to adopt such other rules and regulations for administering the
Stock Purchase Plan as it may deem appropriate. Decisions of the ESPP Committee
are final and binding on all parties who have an interest in the Stock Purchase
Plan.
All permanent, full-time employees are eligible to participate and
participation is voluntary and not a condition of employment. The Stock Purchase
Plan provides for the purchase of shares of the Company's Common Stock through
payroll deductions of 1% to 15% of an employee's current compensation. Payroll
deductions are credited to individual stock purchase accounts each pay period
and at the end of each six month Purchase Period stock is purchased at the
lesser of 85% of the fair market value of the stock on the first business day of
the Purchase Period or 85% of the fair market value of the stock on the last
business day of the Purchase Period. There are two Purchase Periods each year,
one beginning on the first business day in December and ending on the last
business day in May and the other beginning on the first business day in June
and ending on the last business day in November.
The aggregate shares of stock to be sold under the Stock Purchase Plan will
not exceed 200,000 shares. Each participant will have the right to purchase no
more than 5,000 shares of Common Stock on the last business day of any Purchase
Period and no more than $25,000 in fair market value of Common Stock in a
calendar year. If the outstanding shares of stock are increased, decreased,
changed into or exchanged for a different number or kind of securities of the
Company, or shares of a different par value or without par value, through
reorganization, recapitalization, reclassification, stock dividend, stock split,
amendment to the Company's Articles of Incorporation, reverse stock split or
otherwise, an appropriate adjustment shall be made in the maximum numbers and/or
kind of securities to be sold under the Stock Purchase Plan with a corresponding
adjustment in the purchase price to be paid therefor.
The Stock Purchase Plan will automatically terminate on November 19, 2003,
unless extended by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE LECTEC
CORPORATION EMPLOYEE STOCK PURCHASE PLAN.
18
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 1999 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 15,
1999.
By Order of the Board of Directors
/s/ Deborah L. Moore
Deborah L. Moore
SECRETARY
Dated: October 16, 1998
19
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MN 55343
ANNUAL MEETING OF SHAREHOLDERS -- NOVEMBER 19, 1998
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 22, 1998, at the Annual Meeting of Shareholders to be held at the
Minneapolis Marriott Southwest Hotel, 5801 Opus Parkway, Minnetonka, Minnesota
55343 on Thursday, November 19, 1998, 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 16, 1998.
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, PH.D. 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
3. PROPOSAL TO APPROVE THE LECTEC CORPORATION 1998 STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED ON OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
4. PROPOSAL TO APPROVE THE LECTEC CORPORATION 1998 DIRECTORS' STOCK OPTION
PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO APPROVE THE LECTEC CORPORATION EMPLOYEE STOCK PURCHASE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. 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, 2, 3, 4 AND 5.
Dated: ___________________________, 1998
________________________________________
(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.