OMB APPROVAL
--------------------------
OMB Number: 3235-0059
Expires: February 28, 2006
Estimated average burden
hours per response...12.75
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Lectec Corporation
- --------------------------------------------------------------------------------
(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 transaction 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:
- --------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of the Shareholders of LecTec Corporation, a Minnesota
corporation (the "Company"), will be held at The Hilton Garden Inn Eden Prairie
Hotel, 6330 Point Chase, Eden Prairie, Minnesota 55344, on Thursday, September
30, 2004, at 3:00 p.m. (CDT), for the following purposes:
1. To elect three 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 Lurie Besikof Lapidus & Company, LLP as
the Company's independent public accountant 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,
August 25, 2004, the record date, are entitled to notice of and to vote at the
meeting.
Whether or not you expect to attend the meeting in person, please
complete, sign and promptly return the enclosed form of proxy. If you later
desire to revoke your proxy, you may do so at any time before it is exercised.
By Order of the Board of Directors
/s/ John D. LeGray
----------------------------------
John D. LeGray
Secretary
Minnetonka, Minnesota
August 31, 2004
LECTEC CORPORATION
10701 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS - SEPTEMBER 30, 2004
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 on Thursday, September 30, 2004, at 3:00 p.m. (CDT), at The Hilton Garden
Inn Eden Prairie Hotel, 6330 Point Chase, Eden Prairie, Minnesota 55344, or any
adjournments thereof (the "Meeting"), for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Shareholders. Proxies will be voted
in accordance with the directions specified therein. These proxy solicitation
materials and the annual report on Form 10-KSB for the year ended December 31,
2003 are first being sent to shareholders on or about August 31, 2004.
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares will be voted FOR each of the items of
business described in this proxy statement. Votes cast by proxy or in person at
the Meeting will be tabulated by the election inspectors appointed for the
Meeting.
Shares voted as abstentions on any matter (or a "withhold vote for" as to
directors) will be counted for purposes of determining the presence of a quorum
at the Meeting and treated as unvoted, although present and entitled to vote,
for purposes of determining the approval of each matter as to which a
shareholder has abstained. As a result, abstentions have the same effect as
voting against a proposal. If a broker submits a proxy that indicates the broker
does not have discretionary authority as to certain shares to vote on one or
more matters, those shares will be counted for purposes of determining the
presence of a quorum at the meeting, but will not be considered as present and
entitled to vote with respect to such matters. As a result, a "broker non-vote"
with respect to the election of directors or ratification of appointment of the
independent public accountant will not have the effect of a vote "for" or a vote
"against" those proposals.
Under Minnesota law, the affirmative vote of a majority of the shares of
our common stock present in person or by proxy and entitled to vote at the
Meeting is required for the election of each director and for the approval of
the other proposal (provided that the total number of shares voted for the
election of the director or in favor of the proposal constitutes more than 25%
of our outstanding shares).
As of August 25, 2004, the record date fixed for the determination of
shareholders of the Company entitled to notice of and to vote at the Meeting,
there were 4,019,661 outstanding shares of common stock, which is the only class
of capital stock of the Company. Each shareholder of record on the record date
will be entitled to one vote per share on all matters acted upon at the Meeting.
There is no cumulative voting.
1
Votes cast by proxy or in person at the Meeting will be tabulated by the
election inspectors appointed for the Meeting.
Any proxy given pursuant to this solicitation may be revoked by the
shareholder 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.
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 August 20, 2004, by each person,
or group of affiliated persons, who is known by us to beneficially own more than
5% of our common stock, each of our directors, each of our executive officers
named in the Summary Compensation Table above and all of our directors and
executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. 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 August 20, 2004 are considered
outstanding. The column entitled "Number of Shares Beneficially Owned" includes
the number of shares of common stock subject to options held by that person that
are currently exercisable or that will become exercisable within 60 days of
August 20, 2004. The number of shares subject to options that each beneficial
owner has the right to acquire within 60 days of August 20, 2004 are listed
separately under the column entitled "Number of Shares Underlying Options
Beneficially Owned." 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 4,019,661 shares of common stock outstanding on August
25, 2004. The address of each director and executive officer named below is the
same as that of the Company.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
NUMBER OF
SHARES
NUMBER OF UNDERLYING
SHARES OPTIONS PERCENT OF
BENEFICIALLY BENEFICIALLY SHARES
NAME OF BENEFICIAL OWNER OWNED OWNED OUTSTANDING
- ------------------------ ------------ ------------ -----------
Judd A. Berlin 137,145 - 3.41%
Timothy P. Fitzgerald 104,325 100,000 2.53%
Alan C. Hymes, M.D. 425,873 26,500 10.53%
John D. LeGray 86,160 77,500 2.10%
Timothy R. J. Quinn - - -
Rodney A. Young - - -
All directors and executive officers as
a group (4 persons) 753,503 204,000 17.84%
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who beneficially own more
than 10% of the Company's common stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Such executive officers, directors and greater than 10% beneficial owners are
required by the regulations of the Securities and Exchange Commission to furnish
the Company with copies of all Section 16(a) reports they file.
Based solely on a review of the copies of such reports furnished to the
Company with respect to 2003 and written representations from the executive
officers and directors, the Company believes that all Section 16(a) filing
requirements applicable to its executive officers and directors and greater than
10% beneficial owners during 2003 have been satisfied, except that Mr. Judd
Berlin filed one late Form 3 and Messrs. Fitzgerald, LeGray and Quinn each filed
one late Form 4 reporting option grants.
3
ELECTION OF DIRECTORS
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. Three persons have been nominated for election as directors at the
Meeting. Directors are elected to serve a one-year term and until their
successors are duly elected and qualified. Alan C. Hymes, M.D., Judd A. Berlin
and Timothy P. Fitzgerald are the current directors who have been nominated for
reelection to the Board to serve for a term of one year and until their
successors are duly elected and qualified. Lee M. Berlin retired from the Board
of Directors on July 1, 2004. 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.
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
with respect to the election of directors, the proxy agents named in the proxy
will vote the shares represented thereby for the election of all of the
nominees. Each of the nominees has agreed to serve the Company as a director if
elected; however, should any nominee become unwilling or unable to serve if
elected, the proxy agents named in the proxy will exercise their voting power in
favor of such other person as the Board of Directors may recommend.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE THREE
NOMINATED DIRECTORS. PROXIES WILL BE VOTED FOR THE ELECTION OF THE THREE
NOMINEES UNLESS OTHERWISE SPECIFIED.
The nominees for election as directors have provided the following information
about themselves:
Judd A. Berlin, 47 years old, has been a director since May 2003. Mr.
Berlin is a multinational entrepreneur and founder of Hello Corporation, an
Asian-based company operating call centers for Fortune 100 companies. Mr. Berlin
has also founded companies in Europe, the Middle East and Asia in food
distribution, broadcasting, and entertainment production. Mr. Berlin has an MBA
from St. Thomas University in St. Paul, Minnesota, and is the son of Lee M.
Berlin, a former director of the Company.
Alan C. Hymes, M.D., 72 years old, is a founder of the Company and has
been a director since 1977. He has served as Chairman of the Board since August
2003. Mr. Hymes was engaged in the private practice of surgery since 1968 but
has recently retired. He is a diplomat of the American Board of Surgery and the
American Board of Thoracic and Cardiovascular Surgery.
Timothy P. Fitzgerald, 64 years old, has served as Chief Executive
Officer, President and director since October 2003. Mr. Fitzgerald served as
Vice President, Operations of the Company from February 2000 through October
2003. Prior to joining the Company, he served as President of United Recycling,
Inc. from 1997 to 1999. Mr. Fitzgerald's career includes technical and senior
management positions at Bell & Howell Co., International Data Engineering, Inc.
and Varitronic Systems, Inc.
4
CORPORATE GOVERNANCE
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal year 2003, the Board of Directors held 11 meetings. Each
director holding office during the fiscal year attended at least 75% of the
total meetings of the Board of Directors (held during the period for which they
were a director) and committees of the Board on which they served. The Board of
Directors has an Audit Committee, Compensation Committee, Board Organization
Committee and an Executive Committee, which are described below.
The Board of Directors has an Audit Committee comprised of Alan C. Hymes,
M.D. Lee M. Berlin served on the Audit Committee until his retirement on July 1,
2004. Because Dr. Hymes served as interim Chief Executive Officer during fiscal
2003, he is not "independent" as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' listing standards. The Audit Committee
reviews and investigates all matters pertaining to the accounting activities of
the Company and the relationship between the Company and its independent public
accountant. The Audit Committee held two meetings during fiscal year 2003.
The Board of Directors has a Compensation Committee comprised of Judd A.
Berlin, who serves as the Committee's Chairman, and Alan C. Hymes, M.D. Lee M.
Berlin served on the Compensation Committee until his retirement on July 1,
2004. The Compensation Committee determines and periodically evaluates the
various levels and methods of compensation for directors, officers and employees
of the Company. The Compensation Committee held one meeting during fiscal year
2003.
The Board of Directors has a Board Organization Committee comprised of
Timothy P. Fitzgerald, who serves as the Committee's Chairman, and Judd A.
Berlin. Unlike Mr. Fitzgerald, who serves as the Company's Chief Executive
Officer and President, Mr. Berlin is "independent" as defined in Rule
4200(a)(15) of the National Association of Securities Dealers' listing
standards. The Board Organization Committee identifies potential candidates for
Board membership, reviews the composition and size of the Board, and audits the
Company's program for senior management succession. The Board Organization
Committee did not hold any meetings during fiscal year 2003. Based on the
Company's financial condition and prospects and the resulting difficulty it
faces in attracting new directors, the Board of Directors has not (1) adopted a
Board Organization Committee charter, (2) adopted a policy with regard to the
consideration of any director candidates recommended by shareholders, (3)
adopted specific, minimum qualifications that must be met by director nominees,
or (4) established a process for identifying and evaluating nominees for
director.
The Board of Directors has an Executive Committee comprised of Timothy P.
Fitzgerald, who serves as the Committee's Chairman, Judd A. Berlin and Alan C.
Hymes, M.D. The Executive Committee was established to act on behalf of the
Board of Directors for certain matters. The Executive Committee did not hold any
meetings during fiscal year 2003.
5
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid for their services
at a rate of $6,000 per fiscal year plus $1,000 per regular board meeting plus
reasonable meeting expenses. This compensation arrangement became effective
during 2001. However, both types of payments were suspended beginning with the
meeting held in December 2001 and have not been reinstated.
POLICY REGARDING ATTENDANCE AT ANNUAL MEETINGS
The Company does not have a policy regarding director attendance at the
annual meeting of shareholders. Last year all but one of our directors attended
the annual meeting of shareholders.
SHAREHOLDER COMMUNICATION WITH THE BOARD
Due to the Company's financial condition and prospects, the Board of
Directors has not established a process for shareholders to send communications
to the Board.
EXECUTIVE OFFICERS
The Company has one executive officer in addition to Mr. Fitzgerald, John
D. LeGray. Mr. LeGray, 58 years old, joined the Company in September 1997 and
has served as Vice President, Quality Assurance and Regulatory Affairs since
November 1998. Mr. LeGray's career includes technical and management positions
at DiaSorin Inc., Bayer Corporation and Abbott Laboratories. Mr. LeGray also
serves as the Company's Corporate Secretary.
6
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the cash and non-cash compensation for the years
ended December 31, 2003, 2002, and 2001, paid to the Company's Chief Executive
Officer and other executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards Securities
Year -------------------------- Underlying All Other
Name and Principal Position Ended (1) Salary($) Bonus($) Options(#) Compensation ($) (2)
- --------------------------- --------- --------- -------- ---------- --------------------
Timothy P. Fitzgerald (3) 12/31/03 114,063 - - 578
Chief Executive Officer 12/31/02 112,826 - 55,000 1,853
and President 12/31/01 122,760 22,000 30,000 2,625
Alan C. Hymes, M.D. (4) 12/31/03 19,399 - - -
Interim Chief Executive 12/31/02 - - - -
Officer and President 12/31/01 - - 10,000 -
Rodney A. Young (5) 12/31/03 151,229 - - 798
Former Chairman, Chief 12/31/02 220,310 - 360,000 568
Executive Officer and President 12/31/01 238,191 80,000 60,000 2,221
John D. LeGray 12/31/03 107,422 - - -
Vice President, Quality 12/31/02 107,103 - 70,000 113
Assurance & Regulatory Affairs 12/31/01 116,533 31,326 30,000 2,913
Timothy R. J. Quinn (6) 12/31/03 109,771 - - 697
Former Vice President and General 12/31/02 121,852 - 88,000 258
Manager, Consumer Products 12/31/01 132,581 35,640 30,000 1,750
- -------------------------------
(1) On September 5, 2001, the Board of Directors approved a change in the
Company's fiscal year end from June 30 to December 31. Therefore, for the
year ended December 31, 2001, information for the six-month stub year
ended December 31, 2001 has been combined with information for the six
months ended June 30, 2001 in the table.
(2) Reflects matching contributions under the Company's 401(k) and Profit
Sharing Plan.
(3) Mr. Fitzgerald was named Chief Executive Officer and President of the
Company on October 31, 2003.
(4) Dr. Hymes served as interim Chief Executive Officer and President of the
Company from July 31, 2003 through October 30, 2003.
(5) Mr. Young resigned effective July 30, 2003.
(6) Mr. Quinn resigned effective October 24, 2003.
7
OPTION GRANTS IN LAST FISCAL YEAR
There were no grants of stock options under the Company's stock option
plans to any executive officers of the Company during the fiscal year ended
December 31, 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the exercise of
options during the 2003 fiscal year and unexercised options held as of December
31, 2003, by each of the executive officers named in the Summary Compensation
Table above.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DEC. 31, 2003(#) AT DEC. 31, 2003($) (1)
ACQUIRED ON VALUE --------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Timothy P. Fitzgerald 0 0 45,000 10,000 0 0
Alan C. Hymes, M.D. 0 0 34,125 - 0 0
Rodney A. Young (2) 0 0 - - 0 0
John D. LeGray 0 0 60,000 10,000 0 0
Timothy R. J. Quinn(3) 0 0 78,000 - 0 0
- -------------------------------
(1) "Value" has been determined based on the difference between the last sale
price of the Company's common stock as reported by the Nasdaq OTC Bulletin
Board on December 31, 2003 ($0.81) and the per share option exercise
price, multiplied by the number of shares subject to the in-the-money
options.
(2) Mr. Young resigned effective July 30, 2003.
(3) Mr. Quinn resigned effective October 24, 2003. All of Mr. Quinn's
outstanding stock options expired unexercised on January 24, 2004.
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 his monthly base salary and
termination payments for all other executive officers equal to twelve times the
executives 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 executive officers increase as
the total valuation of the Company for purposes of the sale or merger increases,
thus aligning the interests of the executive officers with the interests of the
shareholders and providing an incentive to the executive officers to maximize
shareholder value.
In August 2002, the Company adopted a Stay in Place Executive Retention
Program which provides cash bonus payments to executive officers if the Company
obtains a strategic capital investment of at least $2,500,000.
8
This program is meant to reward the executive team for staying with the Company
during difficult times and for efforts associated with obtaining a strategic
investment that does not constitute an entire sale of the business.
TERMINATION AND SEVERANCE PLAN
In connection with the winding down activities of the Company, the Company
has made severance arrangements with its executive officers and employees which
would provide a severance benefit equal to one week of base pay for each year or
partial year of service to the Company plus health plan benefits under COBRA for
two to three months following termination. Payments will be made only if
executive officers and employees remain employees of the Company through a
pre-determined end-of-service period.
AUDIT COMMITTEE REPORT AND PAYMENT OF FEES TO PUBLIC ACCOUNTANT
AUDIT COMMITTEE REPORT
Our Audit Committee reviews the Company's financial reporting process on
behalf of the Board of Directors. Our Board of Directors adopted an Audit
Committee charter in October 2000, which is included as Appendix A to this proxy
statement. In fulfilling its responsibilities, our Committee has reviewed and
discussed the audited financial statements contained in our Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2003 with the Company's
management and independent public accountant. Management is responsible for the
financial statements and the reporting process, including the system of internal
controls. The independent public accountant is responsible for expressing an
opinion on the conformity of those audited financial statements with accounting
principles generally accepted in the United States.
The Committee discussed with the independent public accountant the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended. In addition, the Audit
Committee has received the written disclosures and the letter from the
independent public accountant required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, and has discussed with
the independent public accountant the public accountant's independence.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2003, filed with the Securities
and Exchange Commission.
THE AUDIT COMMITTEE
Alan C. Hymes, M.D.
9
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth information concerning fees and services
billed by the Company's former independent public accountant, Grant Thornton
LLP:
FEES AND SERVICES BILLED
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002 NATURE OF SERVICES PROVIDED
---- ---- ---------------------------
Audit Fees $ 78,668 $ 61,748 Audits and quarterly reviews of financial statements of
the Company
Audit-Related Fees - -
Tax Fees 8,240 11,025 Tax return preparation and research
All Other Fees - -
---------- ------------
$ 86,908 $ 72,773
========== ============
Because of the Company's size and financial condition and prospects, the
Audit Committee is apprised of and approves all fees for audit and non-audit
services provided by the Company's independent public accountant. Audit fees
comprised approximately 91% and 85% of total fees billed by Grant Thornton LLP
for the years ended December 31, 2003 and 2002, respectively. Audit fees billed
for the year ended December 31, 2003 include approximately $20,000 of progress
billings for the 2003 audit. The base audit fee for the year-end audit
(excluding quarterly reviews and expenses) was $43,000 for both 2003 and 2002.
The Audit Committee has considered whether non-audit services provided by Grant
Thornton LLP during these years were compatible with maintaining Grant Thornton
LLP's independence.
RATIFICATION OF APPOINTMENT OF PUBLIC ACCOUNTANT
Effective April 19, 2004, the Board of Directors determined to dismiss the
Company's independent public accountant, Grant Thornton LLP ("Grant"), and
appointed Lurie Besikof Lapidus & Company, LLP ("LBLC") as the Company's new
independent public accountant. The decision to change accountants was approved
by the Company's Board of Directors upon the recommendation of its Audit
Committee. Grant served as the Company's public accountant from June 1987 until
April 2004. The Audit Committee of the Board of Directors has appointed LBLC as
the Company's independent public accountant for the fiscal year ending December
31, 2004. A proposal to ratify that appointment will be presented at the
Meeting.
During the two year period ended December 31, 2003, and for the subsequent
period through April 19, 2004, there were no disagreements between the Company
and Grant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to Grant's satisfaction would have caused them to make reference to
the subject matter of the disagreement in connection with their reports.
The audit reports of Grant on the financial statements of the Company as
of and for the two years in the period ended December 31, 2003 did not contain
any adverse opinion or disclaimer of opinion, but were qualified as to a going
concern uncertainty. This going concern qualified opinion was in no way related
to the Company's decision to dismiss Grant as independent accountant, and the
Company's management concurs with the qualified audit opinion issued on said
financial statements. The Company's decision is based on its desire to reduce
the
10
overall cost of its audit services through the engagement of a local versus a
national independent accounting firm. The Company believes that changes in the
complexity of its operations also support the engagement of a local accounting
firm.
During the Company's two year period ended December 31, 2003, and the
subsequent period through April 19, 2004, the Company did not consult with LBLC
regarding any of the matters or events set forth in Item 304(a)(2) of Regulation
S-B.
The Company reported the change in accountants on Form 8-K on April 23,
2004. The Form 8-K contained a letter from Grant, addressed to the Securities
and Exchange Commission, stating that it agreed with the statements concerning
Grant in such Form 8-K.
While it is not required to do so, the Board of Directors is submitting
the appointment of LBLC to serve as the Company's independent public accountant
for the fiscal year ending December 31, 2004 for ratification in order to
ascertain the views of the Company's shareholders on this appointment. If the
appointment is not ratified, the Audit Committee will reconsider its selection.
Even if the appointment is ratified, the Audit Committee, which is solely
responsible for appointing and terminating our independent public accountant,
may in its discretion, direct the appointment of a different independent public
accountant at any time during the year if it determines that such a change would
be in the best interests of the Company and the Company's shareholders.
Representatives of LBLC are expected to be present at the Meeting and will
have an opportunity to make a statement if they desire to do so. Representatives
also will be available to respond to appropriate questions from shareholders.
Representatives of Grant are not expected to be present at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF LURIE BESIKOF LAPIDUS & COMPANY, LLP AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2004. PROXIES WILL BE
VOTED FOR RATIFYING THIS APPOINTMENT UNLESS OTHERWISE SPECIFIED.
SHAREHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING
Any shareholder proposals to be considered for inclusion in the Company's
proxy material for the annual meeting of shareholders to be held in 2005 must be
received at the Company's principal executive office at 10701 Red Circle Drive,
Minnetonka, Minnesota 55343, no later than December 31, 2004. In connection with
any matter to be proposed by a shareholder at the annual meeting to be held in
2005, but not proposed for inclusion in the Company's proxy material, the proxy
holders designated by the Company for that meeting may exercise their
discretionary voting authority with respect to that shareholder proposal if
appropriate notice of that proposal is not received by the Company at its
principal executive office by March 15, 2005. The deadlines set forth above are
based on the Company's estimate of a reasonable time for delivery of such
shareholder proposals before the anticipated mailing date of the Company's proxy
statement for the 2005 annual meeting.
11
ANNUAL REPORT TO SHAREHOLDERS
The Company's 2003 Annual Report on Form 10-KSB filed with the Securities
and Exchange Commission, including financial statements for the fiscal year
ended December 31, 2003, accompanies this proxy statement. Shareholders who wish
to obtain additional copies of the Company's 2003 Annual Report on Form 10-KSB
may do so without charge by writing to Corporate Secretary, LecTec Corporation,
10701 Red Circle Drive, Minnetonka, Minnesota 55343.
OTHER MATTERS
The Board of Directors does not know of any business to be brought before
the meeting other than as specified above. However, if any matters properly come
before the meeting, it is the intention of the person named in the enclosed
proxy to vote such proxy in accordance with their judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John D. LeGray
----------------------------------
John D. LeGray
Secretary
Dated: August 31, 2004
12
APPENDIX A
LECTEC CORPORATION
AUDIT COMMITTEE CHARTER
OCTOBER 2000
The Audit Committee (the "Committee") is a committee of the Board of
Directors (the "Board") of LecTec Corporation (the "Company") designed to assist
the Board in monitoring (1) the integrity of the financial statements of the
Company, (2) the adequacy of the Company's internal controls, (3) the
independence and performance of the Company's outside auditors, and (4) conflict
of interest transactions.
I. ROLES AND RESPONSIBILITIES
A. MAINTENANCE OF CHARTER. The Committee shall review and reassess the
adequacy of this formal written charter on at least an annual basis.
B. FINANCIAL REPORTING. The Committee shall review and make
recommendations to the Board regarding the adequacy of the Company's financial
statements and compliance of such statements with financial standards. In
particular, and without limiting such responsibilities, the Committee shall:
WITH RESPECT TO THE ANNUAL FINANCIAL STATEMENTS:
- Review and discuss the Company's audited financial statements with
management and with the Company's outside auditors.
- Review an analysis prepared by management and the independent
auditor of significant financial reporting issues and judgments made
in connection with the preparation of the Company's audited
financial statements.
- Discuss with the outside auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 (as modified or
supplemented) relating to the conduct of the audit.
- Based on the foregoing, indicate to the Board whether the Committee
recommends that the audited financial statements be included in the
Company's Annual Report on Form 10-K.
- Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy
statement.
WITH RESPECT TO QUARTERLY FINANCIAL STATEMENTS:
- Review with management and the outside auditors the Company's
quarterly financial statements prior to the filing of its Form 10-Q.
The review may be conducted through a designated representative
member of the Committee
A-1
C. INTERNAL CONTROLS. The Committee shall evaluate and report to the
Board regarding the adequacy of the Company's financial controls. In particular,
the Committee shall:
- Ensure that the outside auditors are aware that the Committee is to
be informed of all control problems identified.
- Review with the Company's counsel legal matters that may have a
material impact on the financial statements.
- Review the effectiveness of systems for monitoring compliance with
laws and regulations relating to financial reporting, including any
issues that might implicate Section 10A of the Securities Exchange
Act of 1934.
- Receive periodic updates from management, legal counsel, and
independent auditors concerning financial compliance.
D. RELATIONSHIP WITH OUTSIDE AUDITORS. The Committee shall:
- Interview, evaluate, and make recommendations to the Board with
respect to the retention of, or replacement of, outside auditors.
- Ensure receipt from outside auditors of a formal written statement
delineating all relationships between the outside auditor and the
Company, consistent with Independence Standards Board Standard 1.
- Actively engage in a dialog with the outside auditors with respect
to any disclosed relationships or services that may impact the
objectivity and independence of the outside auditors.
- Take, or recommend that the Board take, appropriate action to
oversee the independence of the outside auditors.
- Review and approve the fees to be paid to the outside auditor.
Notwithstanding the foregoing, the outside auditors shall be ultimately
accountable to the Board and the Committee, as representatives of shareholders.
The Board, upon recommendation from the Committee, shall have ultimate authority
and responsibility to select, evaluate, and, where appropriate, replace the
outside auditor (or to nominate the outside auditor to be proposed for
shareholder approval in any proxy statement).
E. CONFLICT OF INTEREST TRANSACTIONS. The Committee shall:
- Review potential conflict of interest situations, including
transactions between the Company and its officers, directors and
significant shareholders.
- Make recommendations to the Board regarding the disposition of
conflict of interest transactions in accordance with applicable law,
including Minnesota Statutes Section 302A.255 if applicable.
A-2
II. MEMBERSHIP REQUIREMENTS
- The Committee shall consist of at least three directors chosen by
the Board.
- Each member of the Committee shall be able to read and understand
fundamental financial statements, including the Company's balance
sheet, income statement, and cash flow statement or will become able
to do so within a reasonable period of time after his or her
appointment to the Committee.
- At least one member of the Committee shall have past employment
experience in finance or accounting, requisite professional
certification in accounting, or comparable experience or background
(such as a position as a chief executive officer, chief financial
officer or other senior officer with financial oversight
responsibilities) which results in financial sophistication,
recognized financial or accounting expertise.
- All Committee members shall be independent directors as defined in
Rule 4200(a)(14) of the Nasdaq Marketplace Rules.
III. STRUCTURE
- The Committee shall appoint one of its members to act as a
Chairperson, either generally or with respect to each meeting.
- The Committee Chairperson shall review and approve an agenda in
advance of each meeting.
- The Committee shall meet at least twice annually, or more frequently
as circumstances dictate.
- The Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee.
- The Committee may request any officer or employee of the Company or
the Company's outside counsel or independent auditor to attend a
meeting of the Committee or to meet with any members of, or
consultants to, the Committee.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is
the responsibility of management and the independent auditor. Nor is it the
duty of the Committee to conduct investigations, to resolve disagreements, if
any, between management and the independent auditor or to assure compliance
with laws and regulations and the Company's corporate policies.
A-3
[LECTEC CORPORATION LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, SEPTEMBER 30, 2004
3:00 P.M. (CENTRAL DAYLIGHT TIME)
THE HILTON GARDEN INN EDEN PRAIRIE HOTEL
6330 POINT CHASE
EDEN PRAIRIE, MN 55344
[LECTEC CORPORATION LOGO] PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I appoint Timothy P. Fitzgerald and John D. LeGray, 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 September 30, 2004 at Eden Prairie,
Minnesota, and at any adjournment thereof, in accordance with the instructions
on the reverse side of this card and with the same effect as though I were
present in person and voting such shares. The proxies are authorized in their
discretion to vote upon such other business as may properly come before the
meeting and they may name others to take their place.
(continued, and to be signed and dated on reverse side)
TO VOTE YOUR PROXY
Mark, sign and date your proxy card and return it in the postage-paid envelope
we have provided.
- Please detach here -
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1 AND 2.
1. Election of directors: 01 Alan C. Hymes, M.D.
02 Judd A. Berlin
03 Timothy P. Fitzgerald
[ ] FOR all listed [ ] WITHHOLD ALL
nominees
(except as marked)
(Instructions: To withhold authority to vote for any individual nominee, mark
"FOR all listed nominees except as marked" and write the number(s) in the box
provided to the right.)
2. Approval of appointment of Lurie Besikof Lapidus & Company, LLP as
independent public accountant.
[ ] 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_________________________________, 2004
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.