Exhibit
10.20

     

    SETTLEMENT AGREEMENT AND
MUTUAL RELEASE

     

    This
Settlement Agreement and Mutual Release ("Agreement"), effective as of the date
of the last signature appearing below ("Effective Date"), is by and between
LecTec Corporation, a Minnesota corporation, having a principal place of
business at 1407 South Kings Highway, Texarkana Texas 75501 ("LecTec"), and
Johnson & Johnson Consumer Companies, Inc., a New Jersey corporation with
its principal place of business at 199 Grandview Road, Skillman, New Jersey
08558 ("JJCC").  LecTec and JJCC are sometimes referred to herein
individually as a "Party" and collectively as "Parties."

     

    RECITALS

     

    WHEREAS
LecTec filed suit against JJCC and four other defendants in the United States
District Court for the Eastern District of Texas ("the Court"), Civil Action
Number 5:08-CV-00130-DF (the "Litigation") alleging, among other things, that
the sale of certain Ben Gay®
brand patches constituted infringement of LecTec’s United States Patent Nos.
5,536,263 C-1 and 5,741,510 C-1 ("the '263 patent" and "the '510 patent,"
respectively; collectively, the "Patents-In-Suit");

     

    WHEREAS
LecTec is willing to settle the Litigation against JJCC for an amount that is
less than what LecTec would consider to be a reasonable royalty in exchange for
JJCC willingness to settle the Litigation at a relatively early stage of the
process;

     

    WHEREAS
JJCC is willing to settle the Litigation for more than it believes it would be
obligated to pay to LecTec in order to avoid the anticipated cost of continued
litigation;

    


    
      	
              **

            	
              The appearance of a double
      asterisk denotes confidential information that has been omitted from the exhibit
      and filed separately, accompanied by a confidential treatment request,
      with the Securities and Exchange Commission pursuant to Rule 24b–2 of the
      Securities Exchange Act of
  1934.

            


    

     

    
      
         

      

      
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    WHEREAS
LecTec and JJCC now desire to resolve the Litigation, under the terms and
conditions hereof, without acknowledgement of liability by any Party;
and

    **

    AGREEMENTS

     

    NOW
THEREFORE, in consideration of the mutual promises and covenants contained
herein, and for such other and further consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as
follows:

     

    1.           Payment
to LecTec.  JJCC shall pay LecTec the sum of $1,200,000 within
three (3) business days of the Effective Date.   The amount shall
be due and owing irrespective of any further developments in the Litigation,
including any possible determination that either of the Patents-In-Suit is
invalid or unenforceable.  JJCC shall make payment under this Section
1 by wire transfer to:

     

    
      
        	
                Receiving
      Bank Name:

              	
                **

              
	 
      	 
      
	
                Receiving
      Bank ABA#

              	
                **

              
	 
      	 
      
	
                Beneficiary
      Account Name:

              	
                **

              
	 
      	 
      
	
                Beneficiary
      Account Number:

              	
                **

              
	 
      	 
      
	
                Swift:

              	
                **

              


      

    

    


    2.           Termination
of the Litigation.  Promptly upon LecTec's receipt of an
original counterpart of this Agreement, LecTec and JJCC shall cause their
representatives to file with the Court an Order of Dismissal to terminate the
Litigation against JJCC with prejudice.  The Parties thereafter shall
cooperate fully to ensure entry by the Court.

     

    
      
         

      

      
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    3.           Mutual
General Release.

     

    3.1           LecTec,
on behalf of itself and its officers, directors, employees, investors,
shareholders, administrators, predecessor and successor corporations, attorneys,
affiliates, agents, and assigns, hereby fully and forever releases, acquits and
discharges JJCC, its officers, directors, employees, investors, shareholders,
administrators, attorneys, predecessor and successor corporations, affiliates,
agents, and assigns, of and from any claim, duty, obligation or cause of action
relating to any matters of any kind, whether presently known or unknown,
suspected or unsuspected, arising from the beginning of time to the date of this
Agreement, including but not limited to all claims related to the matters
alleged in the Litigation, and any other matters connected in any way with the
making, using, importing, selling or offering to sell Patch Products, as defined
herein.  For the avoidance of doubt, "Patch Products," as used in this
Agreement shall mean any non-prescription, non-occlusive medicated hydrogel
patch product for application to the body to alleviate pain, sold by JJCC or any
of its subsidiaries or affiliates anywhere in the world.  LecTec
further releases and forever discharges the direct and indirect customers and
distributors of JJCC, and any subsidiaries or affiliates of either of them, of
and from any claim, duty, obligation or cause of action relating to any matters
of any kind, whether presently known or unknown, suspected or unsuspected,
arising from the beginning of time to the date of this Agreement, related to any
matters connected in any way with Patch Products sold by JJCC or any of its
subsidiaries or affiliates anywhere in the world.  The foregoing
release does not extend to any prospective obligations incurred under this
Agreement.  Further, the foregoing release does not extend to any acts
committed by future successor corporations, assigns, subsidiaries or affiliates
of JJCC that were in the business of making or selling Patch Products before
becoming a successor corporation, assignee, subsidiary or affiliate, including
without limitation any of the other defendants in the Litigation.

     

    3.2           JJCC,
on behalf of itself and its officers, directors, employees, investors,
administrators, predecessor and successor corporations, attorneys, agents, and
assigns, hereby fully and forever release, acquit and discharge LecTec, its
officers, directors, employees, investors, shareholders, administrators,
attorneys, predecessor and successor corporations, affiliates, agents, and
assigns, of and from any claim, duty, obligation or cause of action relating to
any matters of any kind, whether presently known or unknown, suspected or
unsuspected, arising from the beginning of time to the date of this Agreement,
including but not limited to all claims related to the matters alleged in the
Litigation and any other matters connected in any way with Patch Products sold
by JJCC.  JJCC further releases and forever discharges the direct and
indirect customers and distributors of LecTec, and any of its subsidiaries or
affiliates, of and from any claim, duty, obligation or cause of action relating
to any matters of any kind, whether presently known or unknown, suspected or
unsuspected, arising from the beginning of time to the date of this Agreement,
related to any matters connected in any way with Patch Products sold
by  LecTec or any of its subsidiaries or affiliates anywhere in the
world.  The foregoing release does not extend to any prospective
obligations incurred under this Agreement.  Further, the foregoing
release does not extend to any acts committed by future successor corporations,
assigns, subsidiaries or affiliates of LecTec that were in the business of
making or selling Patch Products before becoming a successor corporation,
assignee, subsidiary or affiliate of Lectec.

     

    4.           License
Grant by LecTec to JJCC.

     

    4.1           Limited
by the exceptions set forth in 4.1a, LecTec hereby grants to
JJCC, or any of its subsidiaries, affiliates, controlled entities,
subcontractors, manufacturers, importers, direct or indirect customers,
distributors or any third party that is involved in the development or
manufacture of any product on behalf of JJCC, a fully paid-up, world-wide,
non-exclusive and irrevocable license under the (a) the Patents-In-Suit, (b) any
patent that claims priority, directly or indirectly, from the Patents-In-Suit
(the "Family Patents"), including without limitation U.S. Patent Nos. 6,096,333;
6,096,334, and 6,361,790, or (c) any foreign counterparts of the Patents-In-Suit
or any of the Family Patents to make, have made, sell, offer for sale, use,
import, export, or otherwise dispose of any apparatus, method, product,
component, service, product by process or device associated with JJCC or its
subsidiaries, affiliates or other controlled entities, for the past, present and
future until the expiration of the last patent described
above.  Without limiting the foregoing license in any way, the Parties
agree that the foregoing license shall apply to any and all products and
processes now or hereafter sold or used by JJCC or its subsidiaries, affiliates
or other controlled entities.

     

    
      
         

      

      
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    4.1a.        The
License Grant set forth in paragraph 4.1 excludes (i) "Vapor Patches,"
over-the-counter patches which emit vapors which, when inhaled, provide relief
of cough and cold, and (ii) prescription, non-occlusive, medicated hydrogel
patch products for application to the body of a human or animal to alleviate
pain and which includes prescription pain medicine in any dosage
form.

     

      4.2         LecTec
further grants to JJCC or any of its subsidiaries, affiliates, controlled
entities, subcontractors, manufacturers, importers, direct or indirect
customers, distributors or any third party that is involved in the development
or manufacture of Patch Products on behalf of JJCC, a fully
paid-up, world-wide, non-exclusive and irrevocable license under any patents
with an effective filing date prior to the date of this Agreement that LecTec
currently owns or has an interest in or obtains ownership or an interest in in
the future to make, have made, sell, offer for sale, use, import, export, or
otherwise dispose of any Patch Product associated with JJCC or its subsidiaries,
affiliates or other controlled entities.

     

    4.3           The
foregoing licenses shall not apply to sales by JJCC customers of products sold
to them by parties other than JJCC, its subsidiaries, affiliates or other
controlled entities. The foregoing license shall not apply to future acquired
subsidiaries, affiliates or other entities controlled by JJCC that were in the
business of making or selling Patch Products  before becoming a
subsidiary, affiliate or other entity controlled by JJCC, including without
limitation any of the other defendants in the Litigation.  The
foregoing license also shall not apply to products sold to non-retail customers
by JJCC that are branded or re-branded for re-sale by the non-retail customer;
the foregoing license shall apply to "private label" products sold by JJCC, its
subsidiaries, affiliates or other controlled entities to direct
retailers.

     

    5.           Agreement
Regarding Transfer of Patents.  LecTec agrees that it will not
assign or otherwise transfer the patents referred to in the License Grant set
forth in Paragraph 4 unless and until the transferee agrees in writing to be
bound by said licenses and such writing is provided to JJCC.

     

    6.           Agreement
Not To Challenge Patents.  JJCC covenants not to challenge or
assist in any way in challenging the validity or enforceability of the
Patents-In-Suit, any Family Patents or any foreign counterparts of the
Patents-In-Suit or any of the Family Patents, so long as none of these patents
is asserted against JJCC or any of their subsidiaries, affiliates, or direct or
indirect customers or distributors.

     

    7.           Costs.  Each
Party shall bear its own costs, expert fees, attorneys' fees and other fees
incurred in connection with the Litigation and this Agreement.

     

    8.           Representations
and Warranties.   Each Party represents and warrants that
(a) it has the full right and power to enter into this Agreement and to grant
the covenants and releases referred to herein, (b) there are no outstanding
agreements, assignments, options, liens or encumbrances inconsistent with the
provisions of this Agreement; and (c) the undersigned has the authority to act
on its behalf and on behalf of all who may claim through it to the terms and
conditions of this Agreement.

     

    
      
         

      

      
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    9.           Severability.  In
the event that any provision hereof becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision.

     

    10.           Entire
Understanding.  This Agreement represents the entire agreement
and understanding between the Parties and supersedes and replaces any and all
prior agreements and understandings relating to these matters.

     

    11.           Amendments.  This
Agreement may only be amended by a written agreement signed by both
Parties.

     

    12.           Confidentiality.   The Parties agree
that the terms of this Agreement (**) will be described in a Form 8-K to be
filed by LecTec with the Securities and Exchange Commission (SEC) within four
business days after the Effective Date.  The Parties also agree that
this Agreement (**) will be filed with the SEC in March 2010 as an exhibit to
LecTec’s Form 10-K for the year ended December 31, 2009, and that LecTec will
submit to the SEC at that time a request for confidential treatment of ** which
may or may not ultimately be granted by the SEC.   In connection with that request,
LecTec will submit a redacted version of the Agreement from which reference to
** has been redacted from the Agreement.  If the SEC does not grant
LecTec's request for confidential treatment, LecTec will promptly inform JJCC of
that decision and the Parties will cooperate to petition the SEC for
reconsideration.      This Agreement shall be confidential
between the Parties.  The Parties hereto agree that, except as
provided for in this Section, each will not make, issue or release any public
announcement, press release, statement or acknowledgment of the existence of, or
reveal publicly the terms, conditions and status of, the transactions
contemplated herein, **, without the prior written consent of
the other Party (which shall not be unreasonably withheld) as to the content and
time of release and the media in which such statement or announcement is to be
made; provided, however, that in the case of announcements,
statements, acknowledgments or revelations which either Party is required to
make, issue or release by law or by regulatory requirements or by the
regulations of national stock exchanges, or by bona fide
contractual requirements,
the making, issuing or releasing of any such announcement, statement,
acknowledgment or revelation by the party so required shall not constitute a
breach of this Agreement if (i) the disclosure is no broader than necessary to
achieve compliance; and (ii) the disclosing Party shall have given sufficient
prior notice (but not less than five (5) business days) to the other Party, to
enable the other party to review and comment on the scope and content of the
disclosure, and to intervene to protect the confidentiality of the disclosure in
such other party’s discretion. LecTec shall not use the name of JJCC, its parent
or any of its affiliates, subsidiaries or other controlled entities for
advertising or promotional purposes without the prior written consent of
JJCC.

     

    
      
         

      

      
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    13.           Governing
Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas,
without giving effect to any choice of law provisions thereof.  In the
event of any dispute arising under this Agreement, LecTec and JJCC agree to
submit themselves to the exclusive jurisdiction of the state or federal courts
located in the Eastern District of Texas, and waive any objection on the grounds
of lack of personal jurisdiction or venue (forum non conveniens or otherwise) to
the exercise of such jurisdiction over either of them by these
courts.  Each party waives the right to a trial by jury.

     

    14.           Binding
Effect. This
Agreement shall be binding upon any party to whom any of the patents subject to
the covenant not to sue set forth in Section 4 may be assigned, licensed, or
otherwise transferred.

     

    15.           No
Assignment or Sublicense by JJCC.  JJCC may not assign or
transfer this Agreement, including the rights and obligations thereunder, to any
third-party, except in connection with a sale to a third-party of substantially
all of  JJCC's assets or the sale of JJCC's Patch Products business,
in which case this Agreement may be assigned to the third-party purchaser, but
the provisions of Paragraph 4 (license grant) shall only apply to Patch Products
offered for sale by JJCC at the time of the said sale of substantially all of
their assets or JJCC's Patch Products business, and not to any other products
sold by the purchaser of JJCC's Patch Product business.  Except as set
forth in Paragraph 4, JJCC may not sublicense the license rights granted under
Paragraph 4 of this Agreement to any third-party.

     

    16.           Counterparts.  This
Agreement shall be executed in two (2) counterparts, whereby LecTec and JJCC
shall each execute a duplicate original thereof, and each counterpart shall have
the same force and effect as an original and shall constitute an effective,
binding agreement on the part of each of the undersigned.

     

    
      
         

      

      
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    IN
WITNESS WHEREOF, LecTec and JJCC have caused this Agreement to be executed by
their duly authorized representatives, whose signatures appear
below.

     

    Johnson & Johnson
Consumer Companies, Inc.

    
      
        	 	 	 	 	 	 
	By: 	
                /s/
      Hugh G. Dineen

              	 	 	
                Date:  December
      18, 2009

              	 
	 	
                Hugh
      G. Dineen

              	 	 	
                 

              	 
	 	
                 

              	 	 	
                 

              	 
	LecTec
      Corporation	 	 	 	 
	 	 	 	 	 	 
	By: 	/s/
      Judd Berlin	 	 	Date:  December
      18, 2009	 
	 	Judd
      Berlin, Chief Executive Officer	 	 	 	 


      



    **

    


    
      
         

      

      
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