8-K: Current report filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 8-K
CURRENT REPORT


Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934


Date of Report (Date of earliest event reported): July 19, 2004


LECTEC CORPORATION
(Exact name of registrant as specified in its charter)


Minnesota 0-16159 41-1301878
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of incorporation) Identification No.)


10701 Red Circle Drive, Minnetonka, Minnesota 55343
(Address of principal executive offices, including zip code)


Registrant's telephone number, including area code: (952) 933-2291



ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE.

On July 19, 2004, LecTec Corporation, a Minnesota corporation
("LecTec"), entered into a supply and licensing agreement, effective as of
January 1, 2004 (the "Agreement"), with Novartis Consumer Health, Inc., a
Delaware corporation ("Novartis"). The Agreement replaces LecTec's prior supply
and licensing agreement with Novartis dated May 8, 2002. The Agreement requires
LecTec to manufacture, sell and deliver to Novartis vapor patches for sale to
the pediatric market in the United States, Canada and Mexico. Under the
Agreement, Novartis has the option until March 31, 2005 to extend the use of
vapor patches to the adult cough/cold category in the United States, Canada and
Mexico at no additional cost and under the same terms and conditions as set
forth in the Agreement. In order to provide LecTec with working capital funds
necessary to enable it to manufacture and deliver vapor patches to Novartis in
accordance with the Agreement, Novartis has or will advance up to $2,000,000 at
any time to LecTec for use by LecTec to pay current accounts payable and
expenses incurred exclusively for the manufacture and delivery of vapor patches.
In consideration of the advanced funds, LecTec executed and delivered to
Novartis a promissory note in the principal amount of $2,000,000 and a security
agreement. Under the security agreement, LecTec has pledged substantially all of
its assets to secure the $2,000,000 advance payment note. The advance payment
note will be repaid by LecTec from time to time by the delivery to Novartis of
vapor patches under the Agreement.

Under the Agreement, LecTec has granted to Novartis an exclusive
license (the "License") to all of the intellectual property of LecTec to the
extent that it is used or useful in the production of the vapor patches being
supplied under the Agreement for a fee of $1,065,000, which is being paid to
LecTec by Novartis as follows: (1) release of $250,000 in debt on July 19, 2004,
(2) payment of $407,500 in cash by July 31, 2004, and (3) payment of $407,500 in
cash on October 1, 2004. The License began on July 19, 2004, and will continue
for the duration of any patents included in the licensed intellectual property
and, with respect to all other elements of the licensed intellectual property,
for the maximum duration permitted under applicable law. Upon the expiration of
the patents included in the licensed intellectual property, Novartis will have a
non-revocable, perpetual, fully paid-up license to the intellectual property
used or useful in the production of vapor patches for the pediatric market (and
the adult cough/cold market if Novartis has exercised its option in that
regard). Commencing on January 1, 2005, Novartis is required by the Agreement to
pay royalties, at an agreed upon percentage, to LecTec based on net semi-annual
sales of vapor patches by Novartis for each year the License is in effect.

The Agreement will continue in effect until February 5, 2005, except
that the provisions relating to the License will continue in effect until the
conclusion of the term of the License. LecTec may not assign or otherwise
transfer the Agreement (other than to an affiliate) without the prior written
consent of Novartis, except that LecTec may assign the Agreement in connection
with the transfer or sale of all or substantially all of its assets or business
or its merger or consolidation with another company, so long as (1) such
acquirer or successor in interest agrees in writing to be bound by the
Agreement, and (2) LecTec gives Novartis written notice of any such assignment
and 15 days to object thereto. Novartis may object to an assignment only if such
acquirer or successor in interest (a) is a direct competitor of Novartis, or (b)
prior to February 5, 2005, in Novartis' reasonable discretion, is not a
manufacturer which has a proven record of operational quality at least equal to
that of LecTec or does not have sufficient financial wherewithal.

A copy of the Agreement will be filed as an exhibit to LecTec's Form
10-QSB for its second fiscal quarter ending June 30, 2004, and the foregoing
description of the Agreement is qualified in its entirety by reference thereto.



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SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

Date: July 23, 2004


LECTEC CORPORATION


/s/ Timothy P. Fitzgerald
-------------------------------------
Timothy P. Fitzgerald
Chief Executive Officer and President


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