AxoGen, LecTec sign merger agreement

LecTec Corporation (OTCBB: LECT) announced today that on May 31, 2011 it entered into an Agreement and Plan of Merger ("Merger Agreement") with AxoGen Corporation, d/b/a AxoGen Inc., a privately held company focused on developing and commercializing medical products for the repair of peripheral nerve injuries. As provided in the Merger Agreement, a newly formed subsidiary of LecTec will merge with and into AxoGen. AxoGen will be the surviving corporation and will continue its business as a wholly-owned subsidiary of LecTec. AxoGen security holders will receive, or have reserved for issuance pursuant to stock options, 7,267,087 shares of LecTec common stock. In addition, current security holders of AxoGen have agreed to purchase, immediately following the merger, an additional 454,193 shares of LecTec common stock for $1 million, the effective price of the shares being received in the merger by the shareholders of AxoGen. Upon consummation of these transactions, the pre-merger shareholders of LecTec, on a fully diluted basis as of the closing date of the merger, will hold approximately 38% of LecTec common stock.

Greg Freitag, LecTec's CEO, stated, "I am delighted to complete the critical step of signing this Merger Agreement with AxoGen. AxoGen is an established, growing company selling proprietary products that are proven in the marketplace. We are not betting on whether a product can be developed, if it will work or whether there is a market; we are providing the capital necessary for AxoGen to leverage its current traction by expanding its sales and marketing activity. We believe AxoGen is at an inflection point where all of its work is coming together and we will obtain the advantage of this timing. This situation provides a unique opportunity for LecTec to enter into a transaction that fits our merger model and, at the same time, provides AxoGen the emerging growth capital it requires. The AxoGen team has built an exceptional company and I am confident they will continue their outstanding work for the benefit of all the shareholders upon completion of the merger."

Under the terms of the Merger Agreement, LecTec must have unencumbered cash, cash equivalents and outstanding loans to AxoGen in the aggregate amount of $10.5 million as a condition to closing the merger. LecTec and AxoGen have also agreed that LecTec and/or certain other parties may invest up to an additional $2 million at the effective price for the merger consideration. LecTec is evaluating its estimated cash remaining, after expenses, at closing, any additional AxoGen cash requirements and the value to LecTec shareholders of a further investment.

In addition, on May 31, 2011, LecTec purchased from AxoGen a $2,000,000 subordinated secured convertible promissory note and certain current investors of AxoGen purchased an aggregate of $500,000 of such notes. The notes bear interest at an annual rate of 8% and have a maturity date of June 30, 2013. The notes are secured by AxoGen's assets and are subordinated to the indebtedness owing to AxoGen's senior lenders. Immediately prior to the closing of the merger, the notes held by investors other than LecTec will automatically convert into AxoGen common stock which will then be exchanged for LecTec common stock under the terms of the Merger Agreement.

Karen Zaderej, AxoGen's CEO, stated: "AxoGen is excited about the merger with LecTec Corporation. With LecTec's financial support, we can continue to expand our efforts to help surgeons provide relief and recovery for patients who are in pain or who have lost sensory or motor function due to a peripheral nerve injury. We plan to intensify our marketing and sales efforts domestically and internationally and continue our clinical and developmental efforts to further expand our market and portfolio of products. The transition to a publicly traded company is a significant milestone for our organization and we are enthusiastic about the opportunities now afforded to us."

In the near future, LecTec will file documents with the Securities and Exchange Commission to register the shares to be issued in the merger and to solicit proxies for the approval of the merger by LecTec's shareholders. Assuming these filings are subjected to a full review by the Commission, LecTec currently expects to hold a LecTec shareholder meeting in September 2011 to take various actions in connection with the merger including getting shareholder approval of the transaction. Assuming closing conditions are met and shareholders of both AxoGen and LecTec approve the merger, the merger will be completed shortly after the LecTec shareholder meeting.